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, 1996 Commission File Number 1-12332
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
Guarantee Issued for the Benefit of Holders of
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
(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 7, 1997: $1,080,660,330
Number of shares of Common Stock, $0.50 Par Value, outstanding as of
March 7, 1997: 30,807,526
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1996 Annual Report To Stockholders (the "1996
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 27, 1997, 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, 1996
TABLE OF CONTENTS
PART I
Page
Item 1. Business............................................
Item 2. Properties..........................................
Item 3. Legal Proceedings...................................
Item 4. Submission of Matters to a Vote of Security Holders.
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.............................
Item 6. Selected Financial Data...................................
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................
Item 8. Financial Statements and Supplementary Data...............
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.....................
PART III
Item 10. Directors and Executive Officers of the Registrant...
Item 11. Executive Compensation...............................
Item 12. Security Ownership of Certain Beneficial Owners and
Management..............................................
Item 13. Certain Relationships and Related Transactions.......
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.............................................
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. The Company also
participates in a joint venture which owns a life insurance company in Hong
Kong. 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 RESULTSs OF
OPERATIONS - RESULTS OF OPERATIONS" and Note J to Consolidated Financial
Statements in the Company's 1996 Annual Report to Stockholders, which are
incorporated herein by reference.
Copies of the Company's Proxy Statement and 1996 Annual Report to
Stockholders will be furnished to anyone who requests such documents from the
Company. Requests for copies should be directed to: Stockholder Relations,
Protective Life Corporation, P. O. Box 2606, Birmingham, Alabama 35202,
Telephone (205) 868-3573, FAX (205) 868-3541. The information incorporated
herein by reference is also electronically accessible through the Internet from
the "EDGAR Database of Corporate Information" on the Securities and Exchange
Commission's World Wide Web site (http://www.sec.gov).
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 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 Division focuses solely on acquiring, converting, and servicing
business acquired from other companies. Thirty-eight transactions have been
entered into since 1970, including 11 since 1989. Generally, the Division
focuses on transactions in the $10 million to $50 million range, although the
Division does consider larger transactions. Management believes a favorable
environment for acquisitions will likely continue into the immediate future.
Insurance companies may seek to raise capital by selling blocks of policies or
may sell 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. However, it appears that other companies are
entering this market; therefore, the Company may face increased competition for
future acquisitions.
3
<PAGE>
Several states have enacted statutes that decreased the attractiveness
of assumption reinsurance transactions and increased the attractiveness of
coinsurance transactions. In coinsurance transactions, the seller remains liable
with respect to the coinsured policies should the buyer fail to fulfill its
obligations under the coinsurance agreement. This has caused sellers to place
more emphasis on the financial condition and acquisition experience of the
purchaser. Management believes this favorably impacts the Company's competitive
position.
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 1994, the Division coinsured a small block of payroll deduction
policies in the second quarter and coinsured a block of 130,000 policies in the
fourth quarter. In the second quarter of 1995, the Division coinsured a block of
28,000 policies. In January 1996, the Division coinsured a block of 38,000
policies. In December 1996, the Division acquired Community National Assurance
Company with 16,000 policies and coinsured a related block of 22,000 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, which cover
consumer and mortgage loans made by financial institutions. 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. In 1992, the Company acquired the credit
insurance business of Durham Life Insurance Company which more than doubled the
size of the Division. In 1996, the Division coinsured a closed block of credit
insurance policies. The demand for credit life and credit health insurance is
related to the general level of loan demand.
In 1995, the Division entered into a reinsurance arrangement whereby
most of the Division's new credit insurance sales are being ceded to a
reinsurer. In the second quarter of 1995, the Division also ceded a block of
older policies. Though these reinsurance transactions will reduce the Division's
earnings, the Division's return on investment is expected to improve.
Group Division
The Group Division manufactures, distributes, and services group,
dental, cancer, and payroll deduction insurance products. The Division is
placing marketing emphasis on dental products which are distributed through the
Division's existing distribution system, as well as through joint marketing
arrangements with independent marketing organizations and reinsurance contracts
with other insurers. In addition, the Division has established a special
marketing unit to sell dental and other products through mail and telephone
solicitations.
In 1995, the Company acquired National Health Care Systems of Florida, Inc.
("NHCS" also known as "DentiCare"), based in Jacksonville, Florida. DentiCare
operated prepaid dental plans (also referred to as dental health maintenance
organizations or dental capitation plans)
4
<PAGE>
primarily in Florida, Tennessee, Georgia, and Alabama. In 1996, NHCS acquired an
additional prepaid dental plan and a dental health maintenance organization,
both of which also operated under the trade name "Denticare," in Oklahoma,
Arkansas, and Missouri. DentiCare had approximately 385,000 members at December
31, 1996. In early 1997, NHCS agreed to acquire a dental health maintenance
organization with approximately 18,000 members in Wisconsin, and another with
approximately 14,000 members in Texas. The Division distributes its dental
managed care and insurance products through the same distribution channels.
Approximately 83% of the Division's sales and 35% of premiums and
policy fees (including premium equivalents) in 1996 came from dental products.
It is anticipated that most of the growth in the Division's premiums and policy
fee income will be from dental 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. 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 an insurer, and reinsures the business
produced by the marketing organization. The Division receives a ceding
commission from these arrangements. The Division also offers an individual
cancer insurance policy marketed through a nationwide network of agents.
Guaranteed Investment Contracts Division
Guaranteed investment contracts ("GICs") are contracts, 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
related products through this Division, including fixed rate contracts offered
to the trustees of municipal bond proceeds, floating rate contracts issued to
bank trust departments, and long-term annuity contracts used to fund certain
state obligations.
Life insurer credit concerns and a demand shift to non-traditional GIC
alternatives and equity based products have generally caused the GIC market to
contract somewhat, although broadening the Division's product offerings has
allowed it to maintain strong sales.
Most GIC contracts written by the Company have maturities of three to
five years. Prior to 1993, few GIC contracts were maturing because the contracts
were newly written. Therefore, GIC account balances grew at a significant rate.
Beginning in 1993, GIC contracts began to mature as contemplated when the
contracts were sold. Hence, the rate of growth in GIC deposits has decreased as
the amount of maturing contracts has increased.
Individual Life Division
The Individual Life Division primarily utilizes a distribution system based
on experienced independent personal producing general agents who are recruited
by regional sales managers. At
5
<PAGE>
December 31, 1996, there were 24 regional sales managers located throughout the
United States. Approximately 62% of the Division's 1996 sales came from this
distribution system. In addition, the Division distributes insurance products in
the life insurance brokerage market, representing approximately 32% of sales.
The Division also distributes insurance products through the payroll
deduction market and through stockbrokers and banks, and the Division offers its
products to other insurance companies and their distribution systems under
private label arrangements.
Marketing emphasis is placed on the Division's various universal life
products and products designed to compete in the term marketplace. The Division
emphasizes back-end loaded universal life policies, both variable and fixed,
which reward the continuing policyholder and which should help 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 has experienced increased sales even though the life
insurance industry is a mature industry.
The Division also includes ProEquities, Inc. ("PES"), an affiliated
securities broker-dealer. Through PES, members of the Division'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.
Investment Products Division
The Investment Products Division manufactures, sells, and supports
annuity products. These products are primarily sold through stockbrokers, but
are also sold through financial institutions and the Individual Life Division.
Some of the Division's annuity products are also sold through PES.
Since 1990, the Division has offered modified guaranteed annuity
products which guarantee an interest rate for a fixed period. Because contract
values are "market-value adjusted" upon surrender prior to maturity, these
products afford the Company a measure of protection from changes in interest
rates. In 1992, the Division ceased most new sales of single premium deferred
annuities. In 1994, the Division introduced a variable annuity product which
offers the policyholder the opportunity to invest in mutual funds managed by
Goldman Sachs Asset Management and its affiliates. Variable annuity products
represented approximately 46% of the Division's 1996 sales. The demand for
annuity products is related to the general level of interest rates and
performance of the equity markets.
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 net investment income on capital
and interest on substantially all debt), and the operations of several small
subsidiaries. The earnings of this segment may fluctuate from year to year.
6
<PAGE>
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.
Management believes that this joint venture will position the Company to market
life insurance in mainland China when that opportunity unfolds. The Company
continues to investigate other possible opportunities in Asia.
Insurance in Force
The Company's total consolidated life insurance in force at December 31,
1996 was $69.3 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
1996 1995 1994 1993 1992
------------- --------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
New Business Written
Financial Institutions.............. $ 3,956,581 $ 3,563,177 $ 2,524,212 $ 2,776,276 $ 1,149,265
Group............................... 115,748 119,357 184,429 252,345 328,258
Individual Life..................... 9,245,002 7,564,983 6,329,630 4,440,510 4,877,038
------------ ------------ ------------- ------------ ------------
Total.......................... $13,317,331 $11,247,517 $ 9,038,271 $ 7,469,131 $ 6,354,561
=========== =========== ============ ============ ============
Business Acquired
Acquisitions........................ $ 1,286,673 $ 6,129,159 $ 4,756,371 $ 4,378,812 $ 1,302,330
Financial Institutions.............. 1,607,463 1,432,338
------------ ------------ ------------ ----------- ------------
Total.......................... $ 2,894,136 $6,129,159 $ 4,756,371 $ 4,378,812 $ 2,734,668
============ ============ ============ =========== ============
Insurance in Force at End of Year(1)
Acquisitions........................ $20,037,857 $16,778,359 $ 11,728,569 $ 8,452,114 $ 3,836,066
Financial Institutions.............. 7,468,761 6,233,256 4,841,318 4,306,179 3,690,610
Group............................... 6,054,947 6,371,313 7,464,501 6,716,724 6,315,410
Individual Life..................... 35,765,841 32,500,935 25,843,232 22,975,577 20,634,927
----------- ----------- ------------ ----------- -----------
Total.......................... $69,327,406 $61,883,863 $49,877,620 $42,450,594 $34,477,013
=========== =========== =========== =========== ===========
</TABLE>
(1) Reinsurance assumed has been included; reinsurance ceded (1996 -
$18,840,221; 1995-$17,524,366; 1994- $8,639,272; 1993-$7,484,566;
1992-$6,982,127) has not been deducted.
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 lapses during the year by the mean of the
insurance in force at the beginning and end of the year, adjusted for the timing
of major acquisitions and assumptions was:
Ratio of
Year Ended Voluntary
December 31 Terminations
1992........................................ 9.0%
1993........................................ 8.7
1994........................................ 7.0
1995........................................ 6.9
1996........................................ 6.4
7
<PAGE>
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> <C>
1992 $1,694,530 $299,608 $374,451
1993 2,015,075 468,689 537,053
1994 2,281,673 661,359 542,766 $170,454
1995 2,451,693 741,849 472,656 392,237
1996 2,474,728 862,747 390,461 624,714
</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 individual 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 individual insurance applications for coverage at age 16 and above except
in the payroll deduction market where the face amount must be $100,000 or more
before blood testing is required. Blood samples are tested for a wide range of
chemical values and are screened for antibodies 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.
8
<PAGE>
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, yield, and quality considerations in selecting new
investments.
The following table shows the Company's investments at December 31,
1996 valued on the basis of generally accepted accounting principles.
<TABLE>
<CAPTION>
Percent of Total
Asset Value Investments
(dollars in thousands)
<S> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities $2,202,093 33.6%
United States Government
and government agencies
and authorities 347,602 5.3
States, municipalities, and
political subdivisions 5,553 0.1
Public utilities 366,560 5.6
Convertibles and bonds
with warrants attached 521
All other corporate bonds 1,706,842 26.1
Bank loan participations 49,829 0.8
Redeemable preferred stocks 7,072 0.1
------------ ------
Total fixed maturities 4,686,072 71.6
---------- -----
Equity securities:
Common stocks - industrial,
miscellaneous, and all other 23,053 0.4
Nonredeemable preferred stocks 12,197 0.2
----------- -----
Total equity securities 35,250 0.6
Mortgage loans on real estate 1,503,080 22.9
Investment real estate 14,305 0.2
Policy loans 166,704 2.5
Other long-term investments 32,506 0.5
Short-term investments 114,258 1.7
----------- ------
Total investments $6,552,175 100.0%
========== =====
</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 its mortgage-backed securities portfolio, the
Company has focused on sequential and planned amortization class securities,
which tend to be less volatile than other classes of mortgage-backed securities.
9
<PAGE>
The Company obtains ratings of its fixed maturities from Moody's
Investors 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, 1996, approximately
99% 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, utilizing S&P rating categories, at
December 31, 1996:
Percentage of
Type Fixed Maturities
Bonds
AAA 48.3%
AA 4.4
A 22.6
BBB 21.1
BB or Less 2.5
Bank Loan Participations
Investment Grade 0.1
Non-Investment Grade 0.9
Redeemable Preferred Stock 0.1
------
Total 100.0%
At December 31, 1996, approximately $4,511.7 million of the Company's
$4,629.2 million bond portfolio was invested in U.S. Government or agency-backed
securities or investment grade corporate bonds and only approximately $117.5
million of its bond portfolio was rated less than investment grade.
Approximately $521.5 million of bonds are not publicly traded.
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 $49.8 million of bank loan participations owned by the Company
at December 31, 1996, $43.6 million were classified by the Company as less than
investment grade.
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.
On December 17, 1996, the Company sold approximately $315 million of
its bank loan participations in a securitization transaction involving the
Company and other unrelated parties. An affiliate of the Company will serve as
portfolio manager for the securitization's underlying portfolio of bank loan
participations and other assets which total approximately $667 million.
10
<PAGE>
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. The average size of loans made during 1996 was $2.9 million.
The average size mortgage loan in the Company's portfolio is approximately $1.7
million. The largest single loan amount is $13.6 million.
The following table shows a breakdown of the Company's mortgage loan
portfolio by property type:
Percentage of
Mortgage Loans
Property Type on Real Estate
Retail 78%
Office Building 8
Warehouses 7
Apartments 6
Other 1
----
Total 100%
===
Retail 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, 1996:
Percentage of
Mortgage Loans
Anchor Tenants on Real Estate
Food Lion 4%
Wal-Mart 4
K-Mart 4
Winn Dixie 3
Revco 2
Ahold USA 2
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. 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.
For several years the Company has offered a commercial loan product
under which the Company will permit a loan-to-value ratio of up to 85% in
exchange for a participating interest in the cash flows from the underlying real
estate. Approximately $498 million of the Company's mortgage loans have this
participation feature.
11
<PAGE>
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, 1996, $23.7 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 delinquent, it is
the Company's general policy to initiate foreclosure proceedings unless a
workout arrangement to bring the loan current is in place.
On March 22, 1996, the Company sold approximately $554 million of its
commercial mortgage loans in a securitization transaction. Proceeds from the
sale consisted of cash of approximately $400 million, net of expenses, and
securities issued in the securitization transaction of approximately $161
million. The Company continues to service the securitized mortgage loans.
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.
In the Company's experience, the appraised value of foreclosed properties often
approximates 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 $31.6 million at December 31, 1996.
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, mortgage-backed securities, and
liabilities arising from interest sensitive products such as GICs and 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 convert certain investments from a variable rate of interest
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.
12
<PAGE>
The following table shows the investment results of the Company for the
years 1992 through 1996:
<TABLE>
<CAPTION>
Cash, Accrued Percentage
Investment Income, Earned on Realized
Year Ended and Investments Net Average of Cash Investment
December 31 at December 31 Investment Income and Investments Gains (Losses)
- ----------- ----------------- ----------------- --------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C>
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
1995 6,097,455 475,924 8.2 1,612
1996 6,743,770 517,483 8.1 5,510
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" in the Company's 1996
Annual Report to Stockholders for certain information relating to the Company's
investments and liquidity.
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 liable with respect to ceded insurance should any reinsurer fail
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. For group insurance, the maximum amount retained on any one life is
$100,000. At December 31, 1996, the Company had insurance in force of $69.3
billion of which approximately $18.8 billion was ceded to reinsurers.
Policy Liabilities and Accruals
The applicable insurance laws under which the Company's insurance
subsidiaries operate require that each insurance company report policy
liabilities to meet future obligations on the outstanding policies. These
liabilities 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 liabilities shall not be less than liabilities calculated using certain
named mortality tables and interest rates.
The policy liabilities and accruals 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 liabilities 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 calculation; and from the use of the
net level premium method on all business. Policy liabilities 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.
13
<PAGE>
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 consolidate all of 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 may be
added to these accounts. As of December 31, 1996, 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
Life and health insurance is a mature industry. In recent years, the
industry has experienced virtually no growth in life insurance sales, though the
aging population has increased the demand for retirement savings products. Life
and health insurance is a highly competitive industry and the Company's
divisions encounter significant competition in all their respective lines of
business from other insurance companies, many of which have greater financial
resources than the Company, as well as competition from other providers of
financial services.
Management believes that the Company's ability to compete is dependent
upon, among other things, its ability to attract and retain distribution
channels to market its insurance and investment products, its ability to develop
competitive and profitable products, its ability to maintain low unit costs, and
its maintenance of strong claims-paying and financial strength ratings from
rating agencies.
The Company competes against other insurance companies and financial
institutions in the origination of commercial mortgage loans.
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 premium rates, marketing practices,
advertising, policy forms, and capital adequacy, and is concerned primarily with
the protection of policyholders rather than stockholders. The Company cannot
predict the form of any future proposals or regulation.
14
<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, for
example, requiring immediate expensing of policy acquisition costs and more
conservative computations of policy liabilities. 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 the December 31, 1996 statutory
financial reports, the Company's insurance subsidiaries are adequately
capitalized under the formula.
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 company subsidiary of the
Company.
Under insurance guaranty fund laws in most states, insurance companies
doing business in such a 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, most
insurance guaranty fund laws currently provide that an assessment may be excused
or deferred if it would threaten an insurer's financial strength. The Company's
insurance subsidiaries were assessed immaterial amounts in 1996, which will be
partially offset by credits against future state premium taxes.
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 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 without prior
approval. Dividends in larger
15
<PAGE>
amounts are subject to approval by the insurance commissioner of the state of
domicile. The maximum amount that would qualify as ordinary dividends to the
Company by Protective Life in 1997 is estimated to be $98 million. 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, 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 requested that the DOL issue exemptions from the prohibited
transaction provisions of ERISA in view of Harris Trust. In July of 1995, the
DOL published, in final form, a prohibited transaction class exemption (PTE
95-60) which exempts from the prohibited transaction rules, prospectively and
retroactively to January 1, 1975, certain transactions engaged in by insurance
company general accounts in which employee benefit plans have an interest. The
exemption does not cover all such transactions, and the insurance industry is
seeking further relief. Pursuant to the Small Business Job Protection Act signed
into law on August 20, 1996, the DOL is required to publish final regulations
clarifying the Harris Trust decision. 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 the
Company's products. Income tax payable by policyholders on investment earnings
is deferred during the accumulation period of certain life insurance and annuity
products. Congress has from time to time considered proposals that, if enacted,
would have had an adverse impact on the federal income tax treatment of such
products, or would increase the tax-deferred status of competing products. If
these proposals were to be adopted, they could adversely affect the ability of
all life insurance companies, including the Company's 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.
16
<PAGE>
The Federal Government has from time to time advocated changes to the
current health care delivery system which will address both affordability and
availability issues. 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 enacted health
care reform legislation. 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 Federal Government has advocated repeal of the Glass-Steagall Act
and certain other legislative changes, which would allow banks to diversify
into securities and other businesses, including possibly 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. It is anticipated
that these proposals may increase competition and, therefore, may adversely
affect the Company.
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 1996 Annual Report to Stockholders.
Recent Developments
The Company expects that its various administrative systems will have
the capability to process transactions dated beyond 1999 by the second quarter
of 1998. The costs to complete its efforts to modify or replace such systems are
not expected to be material.
Employees
The Company had approximately 1,300 full-time employees, including
approximately 1,000 in the Home Office in Birmingham, Alabama at December 31,
1996. These employees are covered by contributory major medical, dental, group
life, and long-term disability insurance plans. The cost of these benefits in
1996 amounted to approximately $3.1 million to 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.
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 six cities, substantially
all under leases for periods of three to five years. The aggregate monthly rent
is approximately $81 thousand.
Marketing offices are leased in 20 cities, substantially all under
leases for periods of three to five years with five leases running longer than
five years. The aggregate monthly rent is approximately $48 thousand.
17
<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 1996 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 1996 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). 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 during the periods indicated,
along with the dividends paid per share of Common Stock during the same periods.
Prices and dividends prior to June 1, 1995 have been adjusted for the June 1,
1995 two-for-one stock split.
Range Dividends
High Low
1995
First Quarter........................... $24.25 $21.44 $.14
Second Quarter.......................... 27.50 21.63 .16
Third Quarter........................... 29.63 27.38 .16
Fourth Quarter.......................... 31.25 26.88 .16
1996
First Quarter........................... $36.50 $30.50 $.16
Second Quarter.......................... 38.38 33.13 .18
Third Quarter........................... 37.75 31.38 .18
Fourth Quarter.......................... 41.63 34.50 .18
On March 7, 1997, there were approximately 2,050 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 1996 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".
18
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994 1993 1992
(dollars in thousands, except per share amounts)
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Premiums and policy fees.............. $ 494,153 $432,576 $402,772 $370,758 $323,136
Net investment income................. 517,483 475,924 417,825 362,130 284,069
Realized investment gains(losses)..... 5,510 1,612 6,298 5,054 (14)
Other income.......................... 20,857 11,768 21,553 21,695 18,835
--------------------- --------- --------- ---------
Total revenues.............. $ 1,038,003 $921,880 $848,448 $759,637 $626,026
========= ======== ======== ======== ========
Benefits and expenses................. $ 898,262 $800,846 $742,275 $674,593 $566,079
Income tax expense.................... $ 47,512 $ 41,152 $ 33,976 $ 28,475 $ 17,384
Minority interest .................... $ 3,217 $ 3,217 $ 1,796 $ 19 $ 90
Net income............................ $ 89,012 $ 76,665 $ 70,401 $ 56,550(1) $ 41,420(2)
PER SHARE DATA(3)
Net income(4)......................... $2.94 $2.68 $2.57 $2.07(1) $1.52(2)
Cash dividends........................ $ .70 $ .62 $ .55 $ .505 $ .45
Weighted average number of
outstanding...................... 30,285,911(5) 28,627,345(5) 27,392,936(5) 27,381,578(5) 27,315,986
Stockholders' equity.................. $19.98 $18.30 $9.86 $13.17 $10.28
Stockholders' equity excluding net
unrealized gains and losses
on investments................... $19.76 $16.29 $13.78 $11.74 $10.16
December 31
1996 1995 1994 1993 1992
------------ ------------- ------------- ------------ ---------
(dollars in thousands)
BALANCE SHEET DATA
Total assets.......................... $ 8,263,205 $ 7,231,257 $6,130,284 $5,316,005 $4,006,667
Long-term debt........................ $ 168,200 $ 115,500 $ 98,000 $ 137,598 $ 31,014
Total debt............................ $ 181,000 $ 115,500 $ 98,000 $ 147,118 $ 88,248
Monthly Income
Preferred Securities(6).......... $ 55,000 $ 55,000 $ 55,000
Stockholders' equity.................. $ 615,316 $ 526,557 $ 270,373 $ 360,733 $ 281,400
Stockholders' equity excluding
unrealized gains and losses
on investments................... $ 608,628 $ 468,694 $ 377,905 $ 321,449 $ 278,244
</TABLE>
(1) Reduced by $1,261 or $.05 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 $.04 per share representing the cumulative effect of
a change in accounting principle for the adoption of SFAS No. 106.
(3) Prior periods have been restated to reflect a two-for-one stock split on
June 1, 1995.
(4) Net income per share is computed using the weighted average number of
shares outstanding during each period.
(5) Excludes contingently issuable shares of 208,233, 225,061, 262,730, and
257,272 at December 31, 1996, 1995, 1994, and 1993, respectively. The
dilutive effect of such shares on earnings per share is less than three
percent.
(6) Reported as "minority interest in consolidated subsidiaries" in the
Company's financial statements.
19
<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 1996 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 1996 Annual Report to Stockholders, are
incorporated herein by reference.
20
<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 49 of the 1996 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.
Coopers & Lybrand L.L.P.
Birmingham, Alabama
February 11, 1997
21
<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 5, 1997, to be filed with the Securities and
Exchange Commission by the Company pursuant to Regulation 14A within 120 days
after the end of its 1996 fiscal year.
The executive officers of the Company are as follows:
Name Age Position
Drayton Nabers, Jr. 56 Chairman of the Board and
Chief Executive Officer and a
Director
John D. Johns 45 President and
Chief Operating Officer
Ormond L. Bentley 61 Executive Vice President,
Group
R. Stephen Briggs 47 Executive Vice President
Jim E. Massengale 54 Executive Vice President,
Acquisitions
A. S. Williams III 60 Executive Vice President,
Investments and Treasurer
Danny L. Bentley 39 Senior Vice President, Group
Richard J. Bielen 36 Senior Vice President,
Investments
Carolyn King 46 Senior Vice President,
Investment Products Division
Deborah J. Long 43 Senior Vice President,
Secretary and General Counsel
22
<PAGE>
Name Age Position
Steven A. Schultz 43 Senior Vice President,
Financial Institutions
Wayne E. Stuenkel 43 Senior Vice President
and Chief Actuary
Judy Wilson 38 Senior Vice President,
Guaranteed Investment
Contracts
Jerry W. DeFoor 44 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 except for Danny L. Bentley, who is the son of Ormond L.
Bentley.
Mr. Nabers has been Chairman of the Board and Chief Executive Officer of
the Company and a Director since August 1996. Mr. Nabers has been Chairman of
the Board and a Director of Protective Life since August 1996. From May 1994 to
August 1996, Mr. Nabers was Chairman of the Board, President and Chief Executive
Officer and a Director of the Company. From May 1992 to May 1994, he was
President and Chief Executive Officer and a Director of the Company. Mr. Nabers
was President and Chief Operating Officer and a Director of the Company from
August 1982 until May 1992. From July 1981 to August 1982, he was Senior Vice
President of the Company. From August 1982 to August 1996, he was 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, National Bank of Commerce of Birmingham, and Alabama
National Bancorporation.
Mr. Johns has been President and Chief Operating Officer of the Company
since August 1996 and President of Protective Life since August 1996. He was
Executive Vice President and Chief Financial Officer of the Company and of
Protective Life from October 1993 to August 1996. 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 Alabama National
Bancorporation.
Mr. Ormond L. Bentley has been Executive Vice President, Group of the
Company and of Protective Life since August 1996. Mr. Bentley was Senior Vice
President, Group of the Company from August 1988 to August 1996 and of
Protective Life from December 1978 to August 1996. Mr. Bentley has been employed
by Protective Life since October 1965.
23
<PAGE>
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. Massengale has been Executive Vice President, Acquisitions of the
Company and of Protective Life since August 1996. He was Senior Vice President
of the Company and of Protective Life from May 1992 to August 1996. From May
1989 to May 1992, he was Senior Vice President, Operations and Systems of the
Company and of Protective Life. From January 1983 to May 1989, he served as
Senior Vice President, Corporate Systems of the Company and of Protective Life.
Mr. Williams has been Executive Vice President, Investments and Treasurer
of the Company and of Protective Life since August 1996. He was Senior Vice
President, Investments and Treasurer of the Company and of Protective Life from
July 1981 to August 1996. Mr. Williams has been employed by Protective Life
since November 1964.
Mr. Danny L. Bentley has been Senior Vice President, Group of the Company
and of Protective Life since August 1996. From May 1989 to August 1996, he
served as Vice President, Group Marketing of Protective Life.
Mr. Bielen has been Senior Vice President, Investments of the Company and
of Protective Life since August 1996. From August 1991 to August 1996, he served
as Vice President, Investments of Protective Life.
Ms. King has been Senior Vice President, Investment Products Division of
the Company and of Protective Life since April 1995. From August 1994 to March
1995, she served as Senior Vice President and Chief Investment Officer of
Provident Life and Accident Insurance Company and of its parent company,
Provident Life and Accident Insurance Company of America. She served as
President of Provident National Assurance Company from November 1987 to March
1995. From November 1986 to August 1994, she served as Vice President of
Provident Life and Accident Insurance Company and of its parent company,
Provident Life and Accident Insurance Company of America.
Ms. Long has been Senior Vice President, Secretary and General Counsel of
the Company since November 1996 and of Protective Life since September 1996. She
was Senior Vice President and General Counsel of the Company from February 1994
to November 1996 and of Protective Life from February 1994 to September 1996.
From August 1993 to January 1994, Ms. Long served as General Counsel of the
Company and from February 1984 to January 1994 she practiced law with the law
firm of Maynard, Cooper & Gale, P.C.
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
24
<PAGE>
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.
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.
Mr. DeFoor has been Vice President and Controller, and Chief Accounting
Officer of the Company and of 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Directors and executive officers of the Company are required to report
changes in their beneficial ownership of the Company's Common Stock to the
Securities and Exchange Commission. In 1996, all such reports were filed on a
timely basis.
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 5, 1997, to be filed with the Securities and
Exchange Commission by the Company pursuant to Regulation 14A within 120 days
after the end of its 1996 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:
The following financial statements set forth in the Company's
1996 Annual Report to Stockholders as indicated in the
following table are incorporated by reference (see Exhibit
13).
25
<PAGE>
Page
Report of Independent Accountants.......................
Consolidated Statements of Income for the years
ended December 31, 1996, 1995, and 1994...............
Consolidated Balance Sheets as of December 31,
1996 and 1995 ........................................
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1995, and 1994.
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995, and 1994.
Notes to Consolidated Financial Statements..............
2. Financial Statement Schedules:
The Report of Independent Accountants which covers the
financial statement schedules appears on page 21 of this
report. The following schedules are located in this report on
the pages indicated.
Page
Schedule II - Condensed Financial Information
of Registrant.........................................
Schedule III - Supplementary Insurance Information......
Schedule IV - Reinsurance...............................
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.
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 with the Secretary of
State of Delaware on June 1, 1987 and
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
26
<PAGE>
*3(a)(2) 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(a)(3) Certificate of Designation of Junior
Participating Cumulative Preferred Stock
of the Company filed with the Secretary
of State of Delaware on August 9, 1995
and filed as Exhibit A to Exhibit 1 to
the Company's Form 8-A Report filed
August 7, 1995 and filed as Exhibit A to
Exhibit 2 to the Company's Form 8-K
Report filed August 7, 1995
*3(a)(4) Certificate of Decrease of Shares
Designated as Junior Participating
Cumulative Preferred Stock of the
Company filed with the Secretary of
State of Delaware on August 8, 1995 and
filed as Exhibit 3(a)(4) to the
Company's Form 10-K Annual Report for
the year ended December 31, 1995
3(b) 1995 Amended and Restated By-laws of the
Company, as amended effective March 1997
*4(a) Reference is made to Exhibits 3(a)
through 3(a)(4) above
*4(b) Reference is made to Exhibit 3(b) above
*4(c) Certificate of Formation of PLC Capital
L.L.C. ("PLC Capital") filed as Exhibit
4(c) to the Company's 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's
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) to the Company's and
PLC Capital's Registration Statement No.
33-52831)
*4(f) Specimen Preferred Security Certificate
(included as Annex B to Exhibit 4(d) to
the Company's and PLC Capital's
Registration Statement No. 33-52831)
*incorporated by reference
27
<PAGE>
*4(g) Rights Agreement, dated as of August 7,
1995, between the Company and AmSouth
Bank of Alabama (formerly, AmSouth Bank
N.A.), as Rights Agent filed as Exhibit
2 to the Company's Form 8-K filed August
7, 1995 and filed as Exhibit 1 to the
Company's Form 8-A filed August 7, 1995
*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
*10(b) 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(b)(1) First Amendment to the Company's 1992
Performance Share Plan and filed as
Exhibit 10(b)(1) to the Company's Form
10-K Annual Report for the year ended
December 31, 1995
*10(c) 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) Form of Indemnity Agreement for
Directors filed as Exhibit 19.1 to the
Company's Form 10-Q Report filed August
14, 1986
10(d)(1) Form of Indemnity Agreement for Officers
*10(e) Reference is made to Exhibit 4(g) above
*10(f) 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(f)(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
*10(g) 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
*incorporated by reference
28
<PAGE>
*10(h) The Company's Deferred Compensation Plan
for Officers filed as Exhibit 4 to the
Company's Form S-8 filed January 13,1994
*10(i) The Company's 1996 Stock Incentive Plan
filed as Exhibit 10(1) to the Company's
Form 10-Q Report filed November 13,
1996.
*10(i)(1) The Company's specimen letter confirming
grants under the Company's 1996 Stock
Incentive Plan, filed as Exhibit 10(2)
to the Company's Form 10-Q Report filed
November 13, 1996.
13 1996 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
99 Safe Harbor for Forward-Looking
Statements
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(c),
10(d), 10(d)(1), 10(f), 10(f)(1), 10(g), 10(h), 10(i) and
10(i)(1).
(b) Reports on Form 8-K:
(1) Form 8-K, dated October 7, 1996
- Item 5
- Item 7
(2) Form 8-K, dated October 24, 1996
- Item 5
- Item 7
(3) Form 8-K, dated November 22, 1996
- Item 7
(4) Form 8-K, dated December 6, 1996
- Item 7
*incorporated by reference
29
<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 and
Chief Executive Officer
March 27, 1997
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 and March 27, 1997
Chief Executive Officer
- ---------------------- (Principal Executive Officer)
DRAYTON NABERS, JR. and Director
/s/John D. Johns President and Chief Operating March 27, 1997
- ---------------------- Officer
JOHN D. JOHNS (Principal Financial Officer)
/s/Jerry W. DeFoor Vice President and Controller, March 27, 1997
- ---------------------- and Chief Accounting Officer
(Principal Accounting Officer)
JERRY W. DEFOOR
* Chairman Emeritus and March 27, 1997
- ----------------------
WILLIAM J. RUSHTON III Director
* Director March 27, 1997
- ----------------------
JOHN W. WOODS
30
<PAGE>
* Director March 27, 1997
- ----------------------
WILLIAM J. CABANISS, JR.
* Director March 27, 1997
- ----------------------
H. G. PATTILLO
* Director March 27, 1997
- ----------------------
JOHN J. MCMAHON, JR.
* Director March 27, 1997
- ----------------------
A. W. DAHLBERG
* Director March 27, 1997
- ----------------------
JOHN W. ROUSE, JR.
* Director March 27, 1997
- ----------------------
ROBERT T. DAVID
* Director March 27, 1997
- ----------------------
RONALD L. KUEHN, JR.
* Director March 27, 1997
- ----------------------
HERBERT A. SKLENAR
* Director March 27, 1997
- ----------------------
JAMES S. M. FRENCH
* Director March 27, 1997
- ----------------------
ROBERT A. YELLOWLEES
*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
31
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
STATEMENTS OF INCOME
PROTECTIVE LIFE CORPORATION (Parent Company)
Years Ended December 31, 1996, 1995, and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- ------
<S> <C> <C> <C>
REVENUES
Dividends from subsidiaries* $ 3,391 $ 13,691 $ 1,885
Service fees from subsidiaries* 40,850 37,410 28,949
Investment income 2,489 3,671 5,339
Other income (loss) (384) (1,879) 1,582
--------- -------- -------
46,346 52,893 37,755
-------- -------- --------
EXPENSES
Operating and administrative 26,901 28,941 28,499
Interest - subsidiaries* 5,904 4,993 2,491
Interest - others 7,859 8,206 6,793
--------- -------- --------
40,664 42,140 37,783
-------- -------- --------
INCOME BEFORE FEDERAL INCOME
TAX AND OTHER ITEMS BELOW 5,682 10,753 (28)
INCOME TAX EXPENSE 1,630 3 128
-------- ---------- ---------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 4,052 10,750 (156)
EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES* 84,960 65,915 70,557
-------- -------- --------
NET INCOME $ 89,012 $ 76,665 $ 70,401
= ====== = ====== = ======
</TABLE>
*Eliminated in consolidation.
See notes to condensed financial statements.
32
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
BALANCE SHEETS
PROTECTIVE LIFE CORPORATION (Parent Company)
(in thousands)
<TABLE>
<CAPTION>
December 31
1996 1995
------------ ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities $ 23,000
Long-term investments 54 $ 72
Investment real estate 133 133
Investments in subsidiaries (equity method)* 849,204 710,212
--------- --------
872,391 710,417
Cash 1,024 71
Receivables from subsidiaries* 26,757 35,134
Accrued income taxes 7,636 4,603
Other 7,870 5,138
---------- ----------
Total Assets $ 915,678 $ 755,363
= ======= = =======
LIABILITIES
Accrued expenses and other liabilities $ 43,659 $ 37,381
Deferred income taxes 6,083 6,305
Debt:
Subsidiaries* 69,620 69,620
Banks 61,000 40,500
Senior Notes 75,000 75,000
Medium-Term Notes 45,000
--------- ---------
Total Liabilities 300,362 228,806
--------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock
Junior Participating Cumulative
Preferred Stock
Common Stock 16,668 15,668
Additional paid-in capital 166,713 96,371
Net unrealized gains (losses) on
investments (all from subsidiaries, net
of income tax: 1996 - $3,601; 1995 - $31,157 6,688 57,863
Retained earnings (including undistributed
income of subsidiaries: 1996 - $529,265; 1995 - $444,305) 442,046 373,922
Treasury stock (11,874) (12,008)
Unallocated stock in Employee Stock Ownership Plan ( 4,925) (5,259)
--------- ----------
Total Stockholders' Equity 615,316 526,557
--------- ---------
$ 915,678 $ 755,363
= ======= = =======
</TABLE>
*Eliminated in consolidation.
See notes to condensed financial statements.
33
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
STATEMENTS OF CASH FLOWS PROTECTIVE LIFE CORPORATION
(Parent Company) Years Ended December 31, 1996, 1995, and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 89,012 $ 76,665 $ 70,401
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net income
of subsidiaries* (85,034) (65,915) (70,558)
Deferred income taxes (222) 3,261 1,227
Other (net) (1,531) 7,043 6,911
--------- --------- --------
Net cash provided by operating activities 2,225 21,054 7,981
---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of and/or additional investments
in subsidiaries* (103,538) (27,731) (23,071)
Principal payments received on loan
to subsidiary* 10,000 4,750 9,500
Change in fixed maturities and long-term
investments (22,892) 5 (77)
Change in short-term investments 1,900 97
------------ --------- -----------
Net cash used in investing activities (116,430) (21,076) (13,551)
-------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock 70,546
Borrowings under line of
credit arrangements and long-term debt 165,934 52,300 87,200
Principal payments on line of credit
arrangements and debt (100,434) (34,800) (136,200)
Borrowings under
long-term debt to subsidiary* 69,620
Purchase of Treasury Stock (3) (191)
Dividends to stockholders (20,888) (17,600) (15,071)
-------- -------- ---------
Net cash provided by (used in) financing
activities 115,158 (103) 5,358
-------- ---------- ----------
INCREASE (DECREASE) IN CASH 953 (125) (212)
CASH AT BEGINNING OF YEAR 71 196 408
----------- ----------- -----------
CASH AT END OF YEAR $ 1,024 $ 71 $ 196
= ===== = == = ===
</TABLE>
*Eliminated in consolidation.
See notes to condensed financial statements.
34
<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, 1996, the Company had borrowed $48.2 million of its $70.0
million revolving line of credit and $12.8 million under a short-term note
payable to a bank. Borrowings under the revolving line of credit become due in
1999. In addition, $75.0 million of Senior Notes due 2004, $45.0 million of
Medium-Term Notes due 2011, and $55.0 million of subordinated debentures due
2024 were outstanding at December 31, 1996. 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
1996 1995 1994
-------- -------- -----
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest Paid to Non-Affiliates $6,809 $ 6,634 $2,783
Interest Paid to Subsidiary* 6,266 6,266 3,498
-------- -------- -------
$13,075 $ 12,900 $6,281
======= ======= ======
Income Taxes (reduced by amounts
received from affiliates under
a tax sharing agreement) $ 2,148 $ (538) $ (431)
======= ======== =======
NONCASH INVESTING AND FINANCING ACTIVITIES
Reissuance of Treasury Stock to ESOP $ 669 $ 350 $ 3
======== ======== ========
Unallocated Stock in ESOP $ 334 $ 333 $ 264
======== ======== =======
Reissuance of Treasury Stock $ 261 $31,044 $1,050
======== ======= ======
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, 1996, the balance of the surplus debentures was $24.7 million. The
surplus debentures are included in receivables from subsidiaries. Protective
Life must obtain the approval of the Tennessee Commissioner of Insurance before
it may pay interest or repay principal on the surplus debenture.
*Eliminated in consolidation.
35
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
(in thousands)
COL. A COL. B COL. C COL. D COL. E COL. F COL. G
------ ------ ------ ------ ------ ------ ------
GIC and
Future Annuity
Deferred Policy Deposits and Premiums
Policy Benefits Other and Net
Acquisition and Unearned Policyholders' Policy Investment
Segment Costs Claims Premiums Funds Fees Income(1)
------- ----------- -------- -------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1996:
Acquisitions $156,172 $1,117,159 $ 1,087 $ 251,450 $ 106,543 $106,015
Financial Institutions 32,040 119,242 253,153 1,880 73,422 13,941
Group 27,944 119,010 5,957 83,632 188,633 16,540
Guaranteed Investment
Contracts 1,164 149,756 0 2,474,728 0 214,369
Individual Life 220,232 793,370 685 15,577 116,710 48,478
Investment Products 50,657 149,742 0 1,120,557 8,189 98,767
Corporate and Other 175 170 55 192 656 19,373
Unallocated Realized
Investment Gains (Losses) 0 0 0 0 0 0
-------------------------------------- ------------------------------------------
TOTAL $488,384 $2,448,449 $260,937 $3,948,016 $494,153 $517,483
======== ========== ======== ========== ======== ========
Year Ended
December 31, 1995:
Acquisitions $123,889 $ 851,994 $ 590 $ 250,550 $ 98,501 $ 95,018
Financial Institutions 36,283 84,162 189,973 1,495 65,668 9,377
Group 24,974 123,279 5,371 85,925 163,378 14,432
Guaranteed Investment
Contracts 993 68,704 0 2,451,693 0 203,376
Individual Life 186,496 672,569 336 14,709 99,018 40,277
Investment Products 37,747 127,104 0 1,061,507 4,566 95,706
Corporate and Other 14 342 62 263 1,445 17,738
Unallocated Realized
Investment Gains (Losses) 0 0 0 0 0 0
----------- ------------- ---------- -------------- ------------ -----------
TOTAL $410,396 $1,928,154 $196,332 $3,866,142 $432,576 $475,924
======== ========== ======== ========== ======== ========
Year Ended
December 31, 1994:
Acquisitions $110,202 $ 856,889 $ 381 $ 266,828 $ 86,376 $ 84,350
Financial Institutions 68,060 43,198 99,798 2,758 98,027 9,511
Group 22,685 116,324 2,905 84,689 131,096 14,903
Guaranteed Investment
Contracts 996 0 0 2,281,674 0 181,203
Individual Life 162,186 571,070 320 13,713 84,925 38,036
Investment Products 70,298 102,705 0 1,027,527 1,635 81,042
Corporate and Other 17 4,109 75 263 713 8,780
Unallocated Realized
Investment Gains (Losses) 0 0 0 0 0 0
------------------------------------------------------ ------------ ------------
TOTAL $434,444 $1,694,295 $103,479 $3,677,452 $402,772 $417,825
======== ========== ======== ========== ======== ========
(1) Allocations of Net Investment Income and Other Operating Expenses are
based on a number of assumptions and estimates and results would change
if different methods were applied.
</TABLE>
36
<PAGE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
COL. A COL. H COL. I COL. J
------ ------ ------ ------ ------
Amortization
Benefits of Deferred
Realized and Policy Other
Investment Settlement Acquisition Operating
Segment Gains(Losses) Expenses Costs Expenses (1)
------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1996:
Acquisitions $ 0 $ 118,181 $ 17,162 $ 25,186
Financial Institutions 0 42,781 24,900 11,660
Group 0 143,944 5,326 52,956
Guaranteed Investment
Contracts (7,963) 169,927 509 3,851
Individual Life 3,098 96,404 28,393 40,969
Investment Products 3,858 73,093 14,710 15,323
Corporate and Other 0 710 30 12,247
Unallocated Realized
Investment Gains (Losses) 6,517 0 0 0
-------------------------------------- -----------
TOTAL $5,510 $645,040 $91,030 $162,192
======== ========== ======== ==========
Year Ended
December 31, 1995:
Acquisitions 0 $100,016 $20,601 $ 24,437
Financial Institutions 0 24,019 26,809 17,123
Group 0 121,375 3,052 45,775
Guaranteed Investment
Contracts (3,908) 165,963 386 5,470
Individual Life 0 80,067 20,403 33,620
Investment Products 4,937 72,111 11,479 13,663
Corporate and Other 0 1,476 3 12,998
Unallocated Realized
Investment Gains (Losses) 583 0 0 0
--------- --------- -------- ---------
TOTAL $ 1,612 $ 565,027 $82,733 $153,086
======== ========== ======== ==========
Year Ended
December 31, 1994:
Acquisitions $ 532 $ 97,649 $14,460 $ 21,823
Financial Institutions 0 46,360 36,592 16,717
Group 0 98,930 2,724 37,042
Guaranteed Investment
Contracts 3,000 147,383 893 6,931
Individual Life 0 67,451 18,771 31,770
Investment Products (2,500) 58,424 14,679 6,801
Corporate and Other 0 913 3 15,959
Unallocated Realized
Investment Gains (Losses) 5,266 0 0 0
------- -------- ------- --------
TOTAL $ 6,298 $517,110 $88,122 $137,043
======= ======== ======== ========
(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>
<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, 1996:
Life insurance
in force $53,052,020 $18,840,221 $16,275,386 $50,487,185 32.2%
=========== =========== =========== =========== ====
Premiums and
policy fees:
Life insurance $ 272,331 $ 113,487 $ 129,717 $ 288,561 45.0%
Accident/health
insurance 370,812 194,687 29,467 205,592 14.3%
------------- ------------- -------------- -------------
TOTAL $ 643,143 $ 308,174 $ 159,184 $ 494,153
============ ============ ============== =============
Year Ended
December 31, 1995:
Life insurance
in force $50,346,719 $17,524,366 $11,537,144 $44,359,497 26.0%
=========== =========== =========== =========== =====
Premiums and
policy fees:
Life insurance $ 308,422 $ 116,091 $ 66,565 $ 258,896 25.7%
Accident/health
insurance 377,179 217,082 13,583 173,680 7.8%
-------------- ------------- -------------- -------------
TOTAL $ 685,601 $ 333,173 $ 80,148 $ 432,576
============== ============= ============== =============
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 283,884 126,546 3,591 160,929 2.2%
-------------- ------------- -------------- -------------
TOTAL $ 540,724 $ 172,575 $ 34,623 $ 402,772
============== ============= ============== ============
</TABLE>
37
<PAGE>
EXHIBITS TO FORM 10-K
OF
PROTECTIVE LIFE CORPORATION
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1996
INDEX TO EXHIBITS
3(b)............................................................................
10(d)(1)........................................................................
13..............................................................................
21..............................................................................
23..............................................................................
24..............................................................................
27..............................................................................
99..............................................................................
<PAGE>
Exhibit 3(b)
1995 AMENDED AND RESTATED BY-LAWS
OF
PROTECTIVE LIFE CORPORATION
(herein called "the Corporation")
ARTICLE I.
OFFICES
The registered office of the Corporation in the State of Delaware shall be
located in the City of Wilmington, County of New Castle. The principal office of
the Corporation shall be located in Jefferson County, Alabama. The Corporation
may have such other offices, either within or without the State of Delaware, as
the Board of Directors or the Executive Committee may designate or as the
business of the Corporation may require from time to time.
ARTICLE II.
STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the stockholders for the
purpose of electing directors, and for the transaction of such other business as
may come before the meeting, shall be held at such date and time during the
first five months of the calendar year as shall be specified by resolution of
the Board of Directors.
Section 2. Special Meetings. Special Meetings of the stockholders may be
called in accordance with the provisions of the Certificate of Incorporation of
the Corporation.
Section 3. Place of Meetings. The place of all meetings shall be the principal
office of the Corporation in the State of Alabama unless some other place,
either within or without the State of Alabama, is designated by a resolution of
the Board of Directors or other person or persons entitled to call such meeting
in accordance with the provisions of the Certificate of Incorporation of the
Corporation.
Section 4. Notice of Meetings. Written or printed notice stating the place, date
and hour of the meeting shall be given not less than ten or more than sixty days
before the date of the meeting, either personally or by mail, by or at the
direction of the Board of Directors, the Chief Executive Officer or the
Secretary to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail, addressed to the stockholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid. Nothing hereinabove in
this Section shall affect the notice requirements of the Certificate of
Incorporation.
-1-
<PAGE>
Section 5. Postponement of Meetings. Any previously scheduled annual or special
meeting of the stockholders may be postponed by resolution of the Board of
Directors upon public announcement made on or prior to the date previously
scheduled for such annual or special meeting.
Section 6. Business at Annual Meetings. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, the
Chief Executive Officer or the Secretary pursuant to Section 4 of this Article,
(b) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section, who is entitled to vote on
such matter at the meeting and who complies with the notice procedures set forth
in this Section. For business to be properly brought before an annual meeting by
a stockholder, if such business is related to the election of directors of the
Corporation, the procedures in Section 7 of this Article must be complied with.
If such business relates to any other matter, the stockholder must have given
timely notice thereof in writing to the Secretary. To be timely, a stockholder's
notice must be delivered or mailed to, and received by, the Secretary at the
principal executive offices of the Corporation not less than sixty days nor more
than ninety days prior to the first anniversary of the preceding year's annual
stockholder meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than thirty days or delayed by more than
sixty days from such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the 90th day prior to such annual meeting
and not later than the close of business on the later of the 60th day prior to
such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth in writing (i) as to each matter the stockholder proposes
to bring before the annual meeting, (A) a brief description of the business
desired to be brought before the annual meeting, (B) the reasons for conducting
such business at the annual meeting, and (C) any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (ii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the proposal is made, (A) the name and
address of such stockholder and such beneficial owner as they appear on the
Corporation's books, and (B) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner. Notwithstanding anything in these By-laws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this Section. The presiding officer of the meeting
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting in accordance with the provisions of
this Section, and if he should so determine, such presiding officer shall
declare to the meeting that any such business not properly brought before the
meeting shall not be transacted.
For the purposes of this Section and Section 7 of this Article, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). In addition to the provisions of this
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Section, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in these By-laws shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 7. Nomination of Directors. Only persons who are nominated in accordance
with the procedures set forth in this Section shall be eligible for election as
directors of the Corporation. Nominations of persons for election to the Board
of Directors of the Corporation may be made at any annual meeting of
stockholders (a) by or at the direction of the Board of Directors or (b) by a
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section, who is entitled to vote for
the election of directors at the meeting and who complies with the notice
procedures set forth in this Section. Any such nomination by a stockholder shall
be made pursuant to timely notice thereof given in writing to the Secretary. To
be timely, a stockholder's notice must be delivered or mailed to, and received
by, the Secretary at the principal executive offices of the Corporation not less
than sixty days nor more than ninety days prior to the first anniversary of the
preceding year's annual stockholder meeting; provided, however, that in the
event that the date of the annual meeting is advanced by more than thirty days
or delayed by more than sixty days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made.
Notwithstanding anything in foregoing sentence to the contrary, in the event
that the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board of Directors
made by the Corporation at least seventy days prior to the first anniversary of
the preceding year's annual stockholder meeting, a stockholder's notice required
by this Section shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered or mailed to, and received by, the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
10th day following the day on which such public announcement is first made by
the Corporation. Such stockholder's notice shall set forth in writing (i) as to
each person whom the stockholder and the beneficial owner, if any, on whose
behalf the nomination is made, proposes to nominate for election or re-election
as a director (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the
number of shares of stock of the Corporation which are beneficially owned by
such person, and (D) any other information relating to such person that is
required to be disclosed in connection with the solicitation of proxies for
election of directors, or as otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including, without limitation, such
person's written consent to being named in a proxy statement as a nominee and to
serving as a director if elected); and (ii) as to such stockholder and such
beneficial owner, if any, (A) the name and address of such stockholder and such
beneficial owner as they appear on the Corporation's books, and (B) the class
and number of shares of the Corporation which are owned beneficially and of
record by such stockholder and such beneficial owner.
Nominations of persons for election to the Board of Directors of the Corporation
may be made
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at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (i) by or at the direction of
the Board of Directors, the Chief Executive Officer or the Secretary or (ii)
provided that the Board of Directors has determined that directors shall be
elected at such special meeting, by a stockholder of the Corporation who was a
stockholder of record at the time of giving of the notice provided for in this
Section, who is entitled to vote for the election of directors at the meeting
and who complies with the notice procedures set forth in this Section. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be) for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice shall be delivered or mailed to, and received by, the
Secretary at the principal executive offices of the Corporation not earlier than
the 90th day prior to such special meeting and not later than the close of
business on the later of the 60th day prior to such special meeting or the 10th
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
At the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. Notwithstanding anything in these By-laws to the
contrary, no person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. The presiding officer of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not properly made in
accordance with the provisions of this Section, and if he should so determine,
such presiding officer shall declare to the meeting that any such nomination not
properly made shall be disregarded. In addition to the provisions of this
Section, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein.
Section 8. Fixing of Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders, or any adjournment thereof or entitled to receive payment of any
dividend or other distribution or in order to make a determination of
stockholders for any other proper purpose, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days prior to any other action. If no record date is fixed the following shall
apply:
(a) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given.
(b) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of
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stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 9. Voting Lists. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote in person or proxy at any
meeting of stockholders.
Section 10. Quorum. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time. The stockholders present
at a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 11. Proxies. At all meetings of stockholders, a stockholder may vote by
proxy executed in writing by the stockholder or by his duly authorized attorney
in fact. Such proxy shall be filed with the Secretary of the Corporation before
or at the time of the meeting, together with such authorization of the attorney
in fact, if any.
Section 12. Voting of Shares. Each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
stockholders. Unless otherwise prescribed by statute, the Certificate of
Incorporation or these By-laws, all elections shall be had, and all questions
decided, by majority vote. Notwithstanding the foregoing, matters which require
a higher affirmative vote are specified in the Certificate of Incorporation of
the Corporation.
Section 13. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as the
by-laws of such corporation may
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prescribe, or, in the absence of such provision, as the board of directors of
such corporation may determine.
Persons holding stock in a fiduciary capacity shall be entitled to vote the
shares so held. A stockholder whose shares are pledged shall be entitled to vote
such shares unless in the transfer by the pledgor on the books of the
Corporation the pledgor has expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent such shares and vote
thereon.
Treasury shares and shares belonging to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held by this Corporation, shall not be voted, directly or
indirectly, at any meeting and shall not be counted in determining the presence
of a quorum.
Section 14. Voting on Certain Transactions. A merger, consolidation or
dissolution of the Corporation or the sale, lease or exchange of all or
substantially all of the Corporation's assets shall be subject to the approval
of stockholders of the Corporation by the affirmative vote of the holders of a
majority of the outstanding shares of the Corporation entitled to vote except as
otherwise required by the Certificate of Incorporation of the Corporation.
Section 15. Inspectors of Elections. Preceding any meeting of the stockholders,
the Chief Executive Officer shall appoint one or more persons to act as
Inspectors, and may designate one or more alternate Inspectors to replace any
Inspector who fails to act. In the event no Inspector or alternate is able to
act, the presiding officer of the meeting shall appoint one or more Inspectors
to act at the meeting. Each Inspector, before entering upon the discharge of the
duties of the Inspector, shall take and sign an oath faithfully to execute the
duties of Inspector with strict impartiality and according to the best of his or
her ability. The Inspectors shall:
(a) ascertain the number of shares outstanding and the voting power of each
(b) determine the shares represented at a meeting and the validity of
proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain with the minutes of the meeting a record of the
disposition of any challenges made to any determination by the
Inspectors; and
(e) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots.
The Inspectors may request other persons or entities to assist in the
performance of the duties of the Inspectors.
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In determining the validity and counting of proxies and ballots, the Inspectors
shall be limited to an examination of the proxies, any envelopes submitted with
those proxies, ballots and the regular books and records of the Corporation. The
Inspectors may consider other reliable information for the limited purpose of
reconciling proxies and ballots submitted by or on behalf of banks, brokers,
their nominees or similar persons which represent more votes than the holder of
a proxy is authorized by the record owner to cast or more votes than the
stockholder holds of record. If the Inspectors consider other reliable
information for the limited purpose permitted in this Section, the Inspectors,
at the time they make their certification pursuant to clause (e) of this
Section, shall specify the precise information considered by them, the person or
persons from whom they obtained the information, when the information was
obtained, the means by which the information was obtained, and the basis for the
Inspectors' belief that such information is accurate and reliable.
Section 16. Opening and Closing of Polls. The date and time for the opening and
the closing of the polls for each matter upon which stockholders will vote at a
meeting of stockholders shall be announced at the meeting by the presiding
officer of the meeting. The Inspectors shall be prohibited from accepting any
ballots, proxies or votes, nor any revocations thereof or changes thereto, after
the closing of the polls, unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
ARTICLE III.
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation shall
be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. So long as the stock of the
Corporation is owned by one stockholder, the number of directors shall be three.
Effective immediately when there is more than one stockholder, the following
provisions shall be effective: The number of directors shall be fixed from time
to time by a resolution of a majority of the existing directors of the
Corporation. Subject to the provisions of the next paragraph, the number of
directors so fixed shall be elected at the annual meeting of stockholders of the
Corporation and each director so elected shall serve until the next annual
meeting and until his successor shall be elected and shall qualify. No one shall
be eligible to serve as a director unless he is the owner of Common Stock of the
Corporation standing in his name on the books of the Corporation. Vacancies
occurring in the Board of Directors by reason of the death, resignation or
removal of any director may be filled by the affirmative vote of a majority of
the remaining directors though less than a quorum of the Board of Directors. A
director elected to fill a vacancy shall be elected to serve until the next
annual meeting of the stockholders.
In the event of any increase in the number of directors, the additional offices
so created may be filled by the affirmative vote of a majority of the directors
in office at the time such vote is taken. Directors elected to fill such
additional offices shall serve until the next annual meeting of stockholders and
until their successors shall have been elected and shall qualify.
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An inside director is one who is or has been in the full-time employment of the
Corporation or any of its subsidiaries, and an outside director is any other
director. Any outside director, and any inside director who is or has been the
Chief Executive Officer of the Corporation, shall be eligible for reelection
until he has reached his 70th birthday but not thereafter. No other inside
director shall be eligible for reelection after his retirement from full-time
employment with the Corporation or any of its subsidiaries.
Section 3. Regular Meetings. A regular meeting of the Board of Directors shall
be held without other notice than this By-law immediately after, and at the same
place as, the annual meeting of stockholders, for election of officers and the
transaction of such other business as may come before the meeting. Other regular
meetings of the Board of Directors, of which there shall be at least three each
calendar year, shall be held on dates to be fixed by the Board of Directors, and
at least two days written notice of the date, time and place of each such
meeting shall be given to each director. At all regular and special Board
meetings the Chairman of the Board and Chief Executive Officer shall preside and
in his absence, the President shall preside or, in absence of the President, the
Executive Vice President shall preside.
Section 4. Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board, the Chief Executive Officer, the Executive
Committee or any four members of the Board of Directors, and at least two days
written notice of the date, time and place of any such special meeting, and of
the business to be transacted at, or the purpose of the meeting shall be given
to each director.
Section 5. Notice. Notice of any regular or special meeting shall be given by
written notice delivered personally or mailed to each director at his business
or home address, or by facsimile transmission or telegram. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any one or more directors may
participate in a meeting of the Board or a Committee thereof by means of
conference telephone or similar communications equipment by means of which all
persons participating can hear each other and such participation shall
constitute presence and attendance at the meeting for all purposes of this
Article.
Section 6. Quorum. A majority of the whole number of directors constituting the
Board shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors (but if less than such majority is present at a
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice) and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by the
Certificate of Incorporation or by these By-laws. Notwithstanding the foregoing
provisions of this section to the contrary, in the event of an emergency caused
by an enemy attack, at each meeting of the Board during such emergency
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the presence of one-third of the total number of directors, but in any event not
less than two directors, shall constitute a quorum and be sufficient for the
transaction of business.
Section 7. Compensation. Directors, by resolution of the Board of Directors, may
be compensated as directors. Such compensation may include: a fixed salary or
retainer; a fixed sum for attendance at each meeting of the Board of Directors;
expenses for attendance at such meetings; or any combination of the foregoing.
Members of special and standing committees of the Board, by resolution of the
Board, may be compensated in like manner. No compensation to a director, as a
director, shall preclude such director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 8. Committees. The Board of Directors, by resolution adopted by a
majority of the entire Board, may designate one or more committees, including an
Executive Committee, each such committee to consist of three or more directors
of the Corporation. Any such committee, to the extent provided in a resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-laws of the Corporation. Any such committee, to the extent provided in a
resolution of the Board of Directors, shall have the power and authority to
declare a dividend and to authorize the issuance of stock of the Corporation.
The Board of Directors may designate one or more directors of the Corporation as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Vacancies in such committees shall be
filled by the Board of Directors; provided, however, that in the absence or
disqualification of a member of a committee, the members thereof present at any
meeting and not disqualified from voting, whether or not he, she or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Except as otherwise provided in a resolution adopted by the Board of
Directors, a majority of all members of a committee shall constitute a quorum
for the transaction of business.
Section 9. Reliance upon Books, Reports and Records. Each director, each member
of a committee designated by the Board of Directors, and each officer of the
Corporation shall, in the performance of his or her duties, be fully protected
in relying in good faith upon the records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation by any
of the Corporation's officers or employees, or committees of the Board of
Directors, or by any other person as to matters the director, committee member
or officer believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Corporation.
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ARTICLE IV.
OFFICERS
Section 1. Officers Chosen by Board. Officers of the Corporation shall be
elected by the Board of Directors at its first meeting after the annual meeting
of stockholders, and shall consist of a Chairman of the Board, a President, one
or more Vice Presidents (one or more of whom may be designated by the Board of
Directors as Executive Vice President or Senior Vice President), a Treasurer, a
Secretary, and may include a Vice Chairman of the Board of Directors and such
other officer as the Board of Directors may prescribe. All such officers shall
be elected for a term of one year and until their successors are elected and
qualified, but they shall, however, be subject to removal by the Board of
Directors at its pleasure. Such officers shall perform such duties and exercise
such powers as are conferred by the Board of Directors or as are conferred
herein. The Board of Directors may designate one of such elected officers the
Chief Executive Officer of the Corporation, and in the absence of such
designation, the Chairman of the Board shall be the Chief Executive Officer. The
Board of Directors or the Chief Executive Officer, by and with the consent and
approval of the Board of Directors or of the Executive Committee, may appoint
such other officers and agents as, in its or his discretion, are required for
the proper transaction of the Corporation's business. Any two or more offices
may be held by the same person.
The Board of Directors shall be and is hereby authorized to adopt and amend from
time to time By-laws to be effective in the event of an emergency caused by an
enemy attack, dealing with or making provisions during such emergency for
continuity of management, succession to the authority and duties of officers,
vacancies in office, alternative offices or other matters deemed necessary or
desirable to enable the Corporation to carry on its business and affairs.
Section 2. Removal. The Chief Executive Officer, Chairman of the Board, Vice
Chairman of the Board or President may be removed, with or without cause, at any
time by action of the Board of Directors. Any other officer elected by the Board
of Directors may be removed, with or without cause, at any time, by action of
the Board of Directors or the Executive Committee. Any other officer, agent or
employee, including any officer, agent or employee appointed by the Board of
Directors, may be removed, with or without cause, at any time by the Board of
Directors, the Chief Executive Officer, the Executive Committee, or the superior
executive officer to whom authority to so remove has been delegated by these
By-laws or by the Chief Executive Officer.
Section 3. Chairman and Vice Chairman of the Board. The Chairman and Vice
Chairman of the Board of Directors, respectively, shall have and may exercise
authority to act for the Corporation in all matters to the extent that such
authority is delegated to such officer by the Board of Directors or the
Executive Committee, and in all other matters to the extent provided by these
By-laws. So long as the Chairman of the Board is the Chief Executive Officer, he
shall, subject to the control of the Board of Directors, have general management
and control of the affairs and business of the Corporation and shall keep the
Board of Directors fully informed concerning the affairs and business of the
Corporation. The Chief Executive Officer shall perform all other duties commonly
incident to his office. The Board of Directors may by resolution
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designate the officer of the Corporation who, in the event of the death,
unavailability or incapacity of the Chief Executive Officer, shall perform the
duties of the Chief Executive Officer until the Board of Directors shall
designate another person to perform such duties and absent such designation, the
chief operating officer shall in such event perform the duties of Chief
Executive Officer.
Section 4. President. Subject to the control of the Board of Directors and the
Chief Executive Officer, the President shall have general management and control
of the affairs and business of the Corporation, shall be its chief operating
officer, and shall perform all other duties and exercise all other powers
commonly incident to his office, or which are or may at any time be authorized
or required by law.
Section 5. Vice Presidents. Each Vice President shall have powers and perform
such duties as shall from time to time be assigned to him by these By-laws or by
the Board of Directors and shall have and may exercise such powers as may from
time to time be assigned to him by the Chief Executive Officer.
Section 6. Other Authority of Officers. The Chairman of the Board of Directors,
Vice Chairman of the Board of Directors and the President may sign and execute
all authorized bonds, contracts or other obligations in the name of the
Corporation, and with the Secretary or an Assistant Secretary, may sign all
certificates of shares of the capital stock of the Corporation, and do and
perform such other acts and things as may from time to time be assigned to each
of them by the Board of Directors. The Chief Executive Officer, the President,
the Treasurer or such other officers as are authorized by the Board of Directors
may enter into contracts in the name of the corporation or sell and convey any
real estate or securities now or hereafter belonging to the Corporation and
execute any deeds or written instruments of transfer necessary to convey good
title thereto and each of the foregoing officers, or the Secretary or the
Treasurer of the Corporation, is authorized and empowered to satisfy and
discharge of record any mortgage or deed of trust now or hereafter of record in
which the Corporation is a grantee or of which it is the owner, and any such
satisfaction and discharge heretofore or hereafter so entered by any such
officer shall be valid and in all respects binding on the Corporation.
Section 7. Secretary. The Secretary shall attend all meetings of the
stockholders, and record all votes and the minutes of all proceedings in a book
to be kept for the purpose, and shall perform like duties for the Board and its
committees as required. He shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors. He shall record all
transfers of stock, and cancel and preserve all certificates of stock
transferred, and shall keep a record, alphabetically arranged, of all persons
who are stockholders of the Corporation, showing their places of residence and
the number of shares of stock held by them respectively. The Secretary shall
also be the transfer agent of the Corporation for the transfer of all
certificates of stock ordered by the Board of Directors, and shall affix the
seal of the Corporation to all certificates of stock or other instruments
requiring the seal. He shall keep such other books and perform such other duties
as may be assigned to him from time to time. The Board of Directors may
designate a bank or trust company as transfer agent for the Corporation stock,
in which case such transfer agent shall perform all duties above set forth
relative to transfer of such stock.
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Section 8. Treasurer. The Treasurer shall have custody of all the funds
and securities of the Corporation, and shall perform such duties as may from
time to time be assigned to him by the Board of Directors or the Chief Executive
Officer.
ARTICLE V.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. The Certificates for shares of the capital
stock of the Corporation shall be in such form as is prescribed by law and
approved by the Board of Directors.
Section 2. Lost, Stolen, or Destroyed Certificates. Any person claiming a stock
certificate in lieu of one alleged to have been lost, stolen or destroyed shall
give the Corporation or its agents an affidavit as to his ownership of the
certificate and of the facts which go to prove that it has been lost, stolen or
destroyed. If required by the Secretary, he also shall give the Corporation a
bond, in such form as may be approved by the Secretary, sufficient to indemnify
the Corporation against any claim that may be made against it or on account of
the alleged loss, theft or destruction of the certificate or the issuance of a
new certificate.
Section 3. Transfer of Shares. Shares of the capital stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares to be transferred, except
as provided in the preceding section. Books for the transfer of shares of the
capital stock shall be kept by the Corporation or by one or more transfer agents
appointed by it.
Section 4. Regulations. The Board of Directors shall have power and authority to
make such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of the capital stock of the
Corporation.
ARTICLE VI.
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January and
end on the 31st day of December in each year.
ARTICLE VII.
DIVIDENDS
The Board of Directors at any regular or special meeting may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate of
Incorporation.
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ARTICLE VIII.
SEAL
The Board of Directors shall provide a corporate seal which shall have inscribed
thereon the name of the Corporation and the state of incorporation and the
words, "Corporate Seal".
ARTICLE IX.
MISCELLANEOUS PROVISIONS
Section 1. Informal Action. Nothing contained in these By-laws or in the
Certificate of Incorporation of the Corporation shall be deemed to restrict the
power of the Board of Directors or members of any of its Committees to take any
action required or permitted to be taken by them, without a meeting, in
accordance with applicable provisions of law.
Section 2. Waivers of Notice. Whenever notice is required to be given under any
provision of law or of the Certificate of Incorporation or of these By-laws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
ARTICLE X.
AMENDMENTS
The By-laws and any amendments thereof may be altered, amended, changed or
repealed, or new By-laws may be adopted, by the Board of Directors (a) at any
regular or special meeting by the affirmative vote of all the members of the
Board, or (b) at any regular or special meeting of the Board, the notice of
which shall have stated the amendment of the By-laws as one of the purposes of
the meeting and set forth a summary of the proposed amendment or amendments, by
the affirmative vote of a majority of all the members of said Board; but these
By-laws and any amendments thereof, including By-laws adopted by the Board of
Directors, may be altered, amended, changed or repealed and other By-laws may be
enacted by the stockholders at any annual meeting or at any special meeting
provided that notice of such proposed alteration, amendment, change, repeal or
enactment shall have been given in the notice of the meeting. Provided, however,
that nothing herein contained may be construed to conflict with restrictions set
forth in the Certificate of Incorporation of the Corporation.
* * * * *
<PAGE>
Exhibit 3(b)
AMENDMENT TO THE
1995 AMENDED AND RESTATED BY-LAWS OF
PROTECTIVE LIFE CORPORATION
(herein called "the Corporation")
The By-laws of the Corporation are hereby amended by adding the following after
the third paragraph of Article III, Section 2:
Any outside director who ceases to hold the same or higher position
with the business or professional organization with which such person
was associated when first elected a director shall automatically be
deemed to have offered his or her resignation as a director of the
Corporation, and the Board Structure and Nominating Committee shall
make a recommendation to the Board of Directors with respect to such
resignation; and, if the deemed offer to resign is accepted by the
Board of Directors, such resignation shall be effective as of the next
annual meeting of shareholders; provided, however, that with respect to
directors who are directors as of March 3, 1997, no such resignation
shall be deemed to be tendered until January 1, 1998.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to the By-laws to
be signed by Drayton Nabers, Jr., as its Chairman of the Board and Chief
Executive Officer, and attested by Deborah J. Long, as its Secretary, and has
caused its corporate seal to be hereunto affixed, hereby declaring and
certifying that this Amendment to the By-laws of the Corporation was duly
adopted by the Board of Directors at a regular meeting held on the 3rd day of
March, 1997.
/s/ Drayton Nabers, Jr.
Drayton Nabers, Jr.
Chairman of the Board and
Chief Executive Officer
ATTEST:
/s/ Deborah J. Long
Deborah J. Long
Secretary
(CORPORATE SEAL)
<PAGE>
Exhibit 10(d)(1)
INDEMNITY AGREEMENT FOR OFFICERS
This Agreement, effective as of the Effective Date hereinafter defined,
is made by and between Protective Life Corporation, a Delaware corporation
(hereinafter the "Company") and [INDEMNITEE'S NAME HERE], an officer of Company
(hereinafter, together with such person's heirs, personal representatives and
estate, the "Indemnitee").
WITNESSETH: THAT
WHEREAS, Section 145 of the General Corporation Law of the State of
Delaware (hereinafter "Section 145") empowers corporations to indemnify persons
serving as a director, officer, employee or agent of the corporation or a person
who serves at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, and further specifies that the indemnification set forth in said
Section 145 "shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise";
and said Section 145 further empowers a corporation to "purchase and maintain
insurance" on behalf of any of such persons "against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under" Section 145; and
WHEREAS, Company has initiated a thorough investigation to determine
the type of insurance available, the nature and extent of the coverage provided
and the cost thereof to Company to insure each of the directors and officers of
Company and of corporations affiliated with Company against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with any action, suit or
proceeding with which such person is threatened or made a party by reason of
such status and/or such person's decisions, actions or omissions; however, upon
receiving such information, the Board of Directors of Company concluded that at
present, due to the high cost and other negative features of the coverage
available at the date hereof, it would not be in the best interests of its
shareholders for Company to purchase and maintain an adequate amount of such
insurance and that, on the contrary, its shareholders' interests would be better
served by Company's contracting to indemnify such persons and thereby to
effectively self-insure against such potential liabilities in excess of, and in
certain instances against liabilities excluded from, the $10,000,000 insurance
policy obtained by Company effective May 8, 1989 and any additional acceptable
coverage which from time to time hereafter may be placed in force (hereinafter
collectively the "Policy") provided that the aggregate liability of Company
hereunder (stated as $10,000,000 in Section 9(g) below) shall be reduced by the
amounts insured under the Policy as in effect at any given time; and
WHEREAS, the Board of Directors on recommendation of Company counsel
has concluded that certain Officers (as defined in Section 1 below) of Company,
both in their capacities as either executive officers, attorney-officers, or
certain other officers of Company as may be designated from
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time to time by Company's Chief Executive Officer and/or the Board of Directors,
and also in their respective capacities as directors, officers, employees or
agents of Company's affiliates or of any other corporation, subsidiary,
partnership, joint venture, or trust or other enterprise at the request or for
the convenience of Company or to represent the interests of Company, as the case
may be, should be provided with maximum protection in order to insure that the
most capable persons otherwise available will remain in, and in the future be
attracted to, such positions and, furthermore, that it is not only fair,
reasonable and prudent but necessary for Company to contractually obligate
itself to indemnify such past, present and future Officers and their respective
estates in a reasonable and adequate manner and that Company assume for itself
the responsibility and liability for expenses and damages in connection with
claims brought, whether on account of any prior, present or future alleged act,
omission, injury, damage, or event; and
WHEREAS, Company desires to have Indemnitee serve or continue to serve
as an Officer free from undue concern for costs, expenses and damages by reason
of Indemnitee's serving in such office or in such capacity or by reason of
Indemnitee's decisions or actions or omissions while so serving on behalf of
Company or its affiliates, or, at Company's direction or request, on behalf of
any other corporation, subsidiary, partnership, joint venture, or trust or other
enterprise; and Indemnitee desires to serve or continue to serve in one or more
of such capacities, provided Indemnitee is furnished the indemnity provided for
hereinafter;
NOW, THEREFORE, for and in consideration of the premises and the
covenants contained herein, Company and Indemnitee do hereby covenant and agree
as follows:
1. Agreement to Serve; Definitions.
(a) Indemnitee agrees that Indemnitee will, at the pleasure of the
Chief Executive Officer or the Board of Directors of Company, as the case may
be, serve or continue to serve as an Officer (as defined herein); provided,
however, that nothing herein, express or implied, shall be deemed to be an
employment contract nor to grant any rights to Indemnitee for any specific
period of continued employment by one or more of Company and its Affiliates.
(b) Unless the context otherwise clearly indicates to the contrary, the
following terms as used herein shall have the respective meanings set forth
below:
(i) "Officer" shall refer to: (A) each member of Company's
Operations Committee and the principal accounting officer of Company; (B) every
officer employed by Company as an attorney in Company's Legal Department; and
(C) certain other officers as may be designated from time to time by the Chief
Executive Officer and/or the Board of Directors, whether any of said individuals
described in (A), (B) or (C) above is serving in the capacity of executive
officer of Company, and/or director and/or officer of one or more of Company's
Affiliates, and/or serving, at the written request of Company, as a director,
officer, employee or agent of any other corporation, subsidiary, partnership,
joint venture, or trust or other enterprise for the convenience of Company or to
represent the interests of Company, as the case may be.
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<PAGE>
(ii) Except as used in Section 10, "Affiliate" shall mean any
corporation which is at least 51% owned by Company or by any corporation at
least 51% of which is owned by Company; the term "Company" shall specifically
mean and refer to Protective Life Insurance Company prior to its organization
with Company in 1981 whereby Company became the parent of Protective Life
Insurance Company.
(iii) "Person" means any one (or more) individual or natural
person or any one (or more) corporation, firm, joint venture, partnership,
proprietorship, business venture, government, governmental body, agency or
instrumentality, estate, trust, association or other legal entity whatsoever or
group of same.
(iv) "Non-governmental" shall refer to any Person which is not
(A) the government of the United States of America or of any state, district,
territory or possession thereof or of any county, parish, city, town, township
or municipality within any such state, district, territory or possession, or (B)
any agency, tribunal, council, instrumentality or public body established by any
Person described in (A).
(v) "Effective Date" shall refer to the date that Indemnitee
first assumed the duties of an Officer, whether as an executive officer for the
Company and/or as director and/or officer of one or more of Company's
Affiliates, and/or, at the written request of Company, as a director, officer,
employee or agent of any other corporation, subsidiary, partnership, joint
venture, or trust or other enterprise for the convenience of Company or to
represent the interests of Company, as the case may be.
2. Indemnification. Subject to the provisions of Sections 5, 8
and 9, Company shall indemnify Indemnitee as follows:
(a) Company will pay on behalf of Indemnitee, and Indemnitee's
executors, administrators and heirs, any amount which Indemnitee is or becomes
legally obligated to pay because of any claim or claims from time to time
threatened or made against Indemnitee by any Person because of any act or
omission or neglect or breach of duty, including any actual or alleged error or
misstatement or misleading statement, which Indemnitee commits or suffers while
acting in Indemnitee's capacity as, and solely because of Indemnitee's acting as
an Officer, provided, however, that prior disclosure by Indemnitee of a
relationship with another corporation or organization shall not be deemed to be
service at the request of Company. The payments which Company will be obligated
to make hereunder shall include, inter alia, damages, charges, judgments, fines,
penalties, settlements and costs, cost of investigation and costs of defense of
legal or equitable or criminal actions, claims or proceedings and appeals
therefrom, and costs of attachment, supersedeas, bail or other bonds.
(b) If a claim under this Agreement is not paid by Company, or on its
behalf, within sixty (60) days after the later of (i) receipt of written claim
by Company or (ii) the date of approval of Indemnitee's coverage hereunder in a
specific instance under Section 5, the claimant may at any time
3
<PAGE>
thereafter bring suit against Company to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be
paid also the expense (including reasonable attorney's fees) of prosecuting such
claim.
(c) In the event of payment under this Agreement, Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all documents and take all actions reasonably
requested by Company to implement such right of subrogation.
(d) Indemnitee shall give to Company notice in writing as soon as
practicable of any claim made against Indemnitee for which indemnification will
or could be sought under this Agreement. Indemnitee will further notify and
cooperate with Company in the selection of counsel and in the incurrence of
costs and expenses in defending or investigating any claim for which
indemnification may be sought hereunder. Indemnitee shall give Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
3. Assumption of Liability by Company. If Indemnitee is deceased and is
entitled to indemnification under any provision of this Agreement, Company shall
indemnify lndemnitee's estate and Indemnitee's spouse, heirs, administrators and
executors against, and Company shall and does hereby agree to assume, any and
all costs, charges and expenses (including attorneys' fees), penalties and fines
actually and reasonably incurred by or for Indemnitee or Indemnitee's estate, in
connection with the investigation, defense, settlement or appeal of any such
action, suit or proceeding. Further, when requested in writing by the spouse of
Indemnitee, and/or the heirs, executors or administrators of Indemnitee's
estate, Company shall provide appropriate evidence of Company's agreement set
out herein to indemnify Indemnitee against and to assume itself such costs,
charges, liabilities and expenses.
4. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by Company for some or a portion
of the cost, charges and expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by Indemnitee in
the investigation, defense, appeal or settlement of such suit, action or
proceeding but not, however, of the total amount thereof, Company shall
nevertheless indemnify Indemnitee as to the portion thereof to which Indemnitee
is entitled.
5. Determination of Right to Indemnification. Anything contained
elsewhere herein to the contrary notwithstanding, any indemnification under
Sections 2 through 4 hereinabove, inclusive, shall (unless ordered by a court)
not be paid by Company unless a determination is made, as hereinafter provided,
that indemnification is proper in the circumstances and not excluded because of
the provisions of Section 8 or 9.
The determination as to whether or not Indemnitee has met the standard
of conduct required to qualify and entitle Indemnitee, partially or fully, to
indemnification under the provisions of any provision of Section 2 hereof may be
made either by a majority vote of the directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or if there are no
such
4
<PAGE>
directors, or if such directors so direct, by independent legal counsel (who may
be the outside counsel regularly employed by Company) in a written opinion, or
by the stockholders of Company. The fees and expenses of counsel in connection
with making said determination contemplated hereunder shall be paid by Company,
and, if requested by such counsel, Company shall give such counsel an
appropriate written agreement with respect to the payment of their fees and
expenses and such other matters as may be reasonably requested by counsel.
If the Person (including the Board of Directors, independent legal
counsel, the stockholders or a court) making the determination hereunder shall
determine that Indemnitee is entitled to indemnification as to some claims,
issues or matters involved in the action, suit or proceeding but not as to
others, such Person shall reasonably prorate the expenses (including attorneys'
fees), judgments, penalties, fines and amounts paid in settlement with respect
to which indemnification is sought by Indemnitee among such claims, issues or
matters.
If, and to the extent that, it is finally determined hereunder that
Indemnitee is not entitled to indemnification, then Indemnitee agrees to
reimburse Company for all expenses advanced or prepaid hereunder, or the proper
proportion thereof.
6. Advance of Costs, Charges and Expenses. If so ordered by the Board
of Directors, the costs, charges and expenses incurred by Indemnitee in
investigating, defending, or appealing any threatened, pending or completed
civil or criminal action, suit or proceeding (administrative or investigative)
covered hereunder, shall be paid by Company in advance in order to properly
investigate, defend or appeal any such action, suit, or proceeding, and, if so
ordered by the Board of Directors of Company, any judgments, fines or amounts
paid in settlement shall be paid by Company in advance, all with the
understanding and agreement hereby made and entered into by Indemnitee and
Company, that in the event it shall ultimately be determined as provided
hereunder that Indemnitee was not entitled to be indemnified, or was not
entitled to be fully indemnified, that Indemnitee shall repay to Company such
amount, or the appropriate portion thereof, so paid or advanced.
7. Other Rights and Remedies. The indemnification and advance payment
of expenses as provided by any provision of this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under any
provision of law, the Policy (as an Insured thereunder), Company's Certificate
of Incorporation, any By-Law, this or other agreement, vote of stockholders or
disinterested directors or otherwise, as to action taken while occupying any of
the various positions or relationships inherent in Indemnitee's capacity as an
Officer, as defined in Section 1 of this Agreement, and shall continue after
Indemnitee has ceased to occupy such position or have such relationship and
shall inure to the benefit of the heirs, executors and administrators of
Indemnitee.
8. Construction. (a) This Agreement shall not be construed so
as to give rise to a "contractual liability" which is excluded by the Policy.
Each and every term hereof is enforceable by Indemnitee solely as to amounts (i)
in excess of the limits of the Policy with respect to costs, charges and
expenses (including attorneys' fees), judgments, fines, penalties and amounts
paid in settlement
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<PAGE>
for which coverage is in effect under the Policy, and (ii) used under the Policy
as a "deductible" amount, and (iii) which none of the Policy and the other
liability insurance policies of Company clearly covers for Indemnitee as Insured
thereunder; however, in any case in which Company believes the Policy or its
other insurance should cover a loss, cost or expense, Company may make a
contingent advance of monies pursuant to the terms hereof without admission,
waiver or prejudice to its position that the Policy or Company's other insurance
covers the loss, cost or expense. In amplification and clarification but not in
limitation hereof, it is the intent of Company that this Agreement operate as
"excess coverage" above the Policy and other applicable insurance limits up to
the limit set forth in Section 9(g) and that it operate as "first dollar"
coverage in all matters which are outside the scope of the Policy or within its
deductibles and all other insurance maintained by Company from time to time,
except as to the exclusions set forth hereinbelow in Section 9.
In amplification but not in limitation of the foregoing, there is
hereby expressly included "first dollar" coverage with respect to the following
matters if considered by the Policy to be exclusions:
(1) any act or omission in connection with the acquisition or
assumption by Affiliates or Company of the stock, assets and/or business of
other corporations by merger, purchase of assets, bulk reinsurance and
otherwise;
(2) liabilities and expenses based on or arising out of
any action, suit or proceeding by a non-governmental Person involving the
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. ss.1-61 et seq.;
(3) liabilities and expenses based on or arising out of or
directly or indirectly involving Indemnitee's position with any other entity if
requested in writing by Company to so serve with such other entity; and
(4) any act or omission the sole applicable exclusion for
which by the Policy is on account of either (i) lack of appropriate notice, (ii)
the existence of prior insurance, (iii) the timing of the occurrence and the
claim, or (iv) other procedural defenses to coverage by the Policy, except as
otherwise provided in Section 9(f) below.
(b) If any provision or provisions of this Agreement shall be held to
be invalid, illegal or unenforceable for any reason whatsoever, (i) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, all portions of any paragraphs or
sections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraph or section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held invalid, illegal
or unenforceable.
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9. Exclusions and Limitations. Notwithstanding anything herein
to the contrary:
(a) Company shall not be liable to Indemnitee for, nor obligated to
furnish advances in connection with, any loss, cost or expense of Indemnitee
resulting from Indemnitee's willful, negligent or inadvertent violation of
Section 16(b) of the Securities Exchange Act of 1934 or of the Foreign Corrupt
Practices Act of 1977.
(b) Company shall not be liable to Indemnitee for, and shall not be
obligated to furnish any advances except for repayable costs, charges and
expenses as hereinabove stated, in connection with, any loss, cost or expense of
Indemnitee as the direct result of a final judgment for money damages payable to
Company or any Affiliate for or on account of loss, cost or expense directly or
indirectly resulting from Indemnitee's negligence or misconduct within the
meaning of Section 145(b).
(c) Unless otherwise allowed by a court of competent jurisdiction or in
a separate action in the Chancery Court of Delaware, Company shall not be liable
to Indemnitee for, and Indemnitee undertakes to repay Company for all advances
which may have been made of, expenses of investigation, defense or appeal of any
matter the judgment of which is excluded under subsection 9(b) next above.
(d) Unless otherwise determined by a court of competent jurisdiction or
in a separate action in the Chancery Court of Delaware, a settlement of any
suit, action or proceeding shall be presumed to be an "expense" in mitigation of
the expenses of continued litigation and not the compromise of a judgment on the
merits of the action, suit or proceeding.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to Officers of Company
pursuant to the foregoing provisions, or otherwise, the Board of Directors has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Company of expenses incurred or paid
by an Officer of Company in the wholly or partially successful defense of any
action, suit or proceeding) is asserted by Indemnitee in connection with Company
securities which have been registered, Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it hereunder is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue. In effect, therefore, absent a
court decision in the individual case or controlling precedent, the provisions
of the Agreement will not apply to liabilities of Indemnitee arising under the
Securities Act of 1933 (primarily relating to public distributions of
securities) unless and only to the extent that Indemnitee is successful in the
defense of the action, suit or proceeding in question.
(f) Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Indemnitee:
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<PAGE>
(i) based upon or attributable to Indemnitee or any member of
Indemnitee's immediate family gaining in fact any personal profit or advantage
to which Indemnitee was not legally entitled;
(ii) based upon or attributable to the dishonesty of
Indemnitee seeking payment hereunder;
(iii) for bodily injury, sickness, disease or
death of any person, or damage to or destruction of any tangible property;
including loss of use thereof;
(iv) for which indemnification under this Agreement is
determined by a final adjudication of a court of competent jurisdiction to be
unlawful and violative of public policy; or
(v) for any act or omission attributable to Indemnitee in
Indemnitee's capacity as a director, officer, agent or employee of any Person
which heretofore became or hereafter becomes an Affiliate, if the occurrence of
such act or omission was prior to the date such Person actually became or
becomes an Affiliate.
(g) From and after the date hereof the cumulative total of all amounts
paid pursuant to the terms of this Agreement and all similar agreements entered
into by Company with officers, reduced by (1) all sums repaid to Company under
the repayment provisions of this Agreement and such similar agreements with
officers and (2) all sums insured under the Policy for risks covered by this
Agreement and such similar agreements with officers, shall never exceed the sum
of Ten Million Dollars ($10,000,000).
10. Change of Control. (a) In the event that a Triggering Event,
as hereafter defined, should take place, any determination to be made by the
Board of Directors, as hereinabove referred to, shall be deemed to refer to
action and determinations solely by a Majority of the Continuing Directors.
(b) "Triggering Events" are:
(i) The coming into being of a Related Person (as defined
below);
(ii) The approval by the Board of Directors of Company of any
agreement, contract, pIan or other arrangement that would, if consummated,
result in a Business Combination (as defined below); and
(iii) The commencement of a Tender Offer
(as defined below).
Provided, however, that any event that would otherwise be a Triggering Event
shall not be deemed a Triggering Event if a Majority of the Continuing Directors
of Company (1) has expressly approved in advance the acquisition of outstanding
shares of capital stock of Company entitled to vote generally
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(the "Voting Stock") that caused the Related Person to become a Related Person,
or (2) has approved the Business Combination or recommended acceptance by the
shareholders of Company of the Tender Offer.
(c) For purposes of this Section 10:
(i) The term "Business Combination" shall mean (A) any
Reorganization of Company or a Subsidiary (as hereinafter defined) with or into
a Related Person, (B) any sale, lease, exchange, transfer or other disposition,
including without limitation a pledge, mortgage or any other security device, of
all or any Substantial Part (as hereinafter defined) of the assets either of
Company or of a Subsidiary, or both, to a Related Person, (C) any Reorganization
of a Related Person with or into Company or a Subsidiary, (D) any sale, lease,
exchange, transfer or other disposition of all or any Substantial Part of the
assets of a Related Person to Company or a Subsidiary, (E) the issuance of any
securities of Company or a Subsidiary to a Related Person except if such
issuance were a stock split, stock dividend or other distribution pro rata to
all holders of the same class of Voting Stock, (F) any reclassification of
securities (including a reverse stock split) or any other recapitalization that
would have the effect of increasing the voting power of a Related Person, and
(G) any agreement, contract, plan or other arrangement providing for any of the
transactions described in this definition of Business Combination.
(ii) The term "Related Person" shall mean and include (A) any
individual, corporation, partnership or other person or entity which, together
with its "Affiliates" and "Associates" (as defined on March 21, 1983 in Rule
12b-2 under the Securities Exchange Act of 1934), "beneficially owns" (as
defined on March 21, 1983 in Rule 13d-3 under the Securities Exchange Act of
1934) in the aggregate 15 percent or more of the outstanding Voting Stock of
Company, (B) any Affiliate or Associate of any such individual, corporation,
partnership or other person or entity, and (C) any assignee, transferee or
successor of any of the foregoing. Notwithstanding the foregoing, the term
"Related Person" shall not include (1) Company, (2) any Subsidiary (unless the
stock thereof not owned by Company is owned by a Related Person as hereinabove
defined), (3) any employee benefit plan of Company or any such Subsidiary, (4)
any trustee of or fiduciary with respect to any such plan when acting in such
capacity, or (5) except as hereinbelow provided, the individuals comprising the
Board of Directors of Company, their estates, immediate families, trusts
established by them, or trusts in which they have a beneficial interest. Any
person or other entity described in (5) above may, nevertheless, be a Related
Person involved in a Business Combination, and shall not be counted in
determining a Majority of the Continuing Directors, if an Associate or Affiliate
of such person or entity which is not excluded by any of (1) through (4),
inclusive, is a party to such Business Combination and such person or entity has
a 1 percent or greater interest in the equity or profits of such Associate or
Affiliate. Any person or entity who at any time is a Related Person continues at
all times thereafter to be a Related Person.
(iii) Notwithstanding the definition of "beneficially owned"
in subsection (ii) above, any Voting Stock of Company that any Related Person
has the right to acquire pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise, shall be deemed
beneficially owned by the Related Person.
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(iv) The term "Substantial Part" shall mean more than 20
percent of the fair market value of the total assets of the corporation in
question, as determined in good faith by a Majority of the Continuing Directors,
as of the end of its most recent fiscal year ending prior to the time the
determination is being made.
(v) The term "Subsidiary" means any corporation of which a
majority of any class of equity security is owned directly or indirectly by
Company.
(vi) The term "Continuing Director" shall mean a director of
Company at the relevant time who was a member of the Board of Directors of
Company immediately prior to the earliest time that (A) any Related Person
involved in a Business Combination, or (B) any Related Person who is (1) a
Predecessor to such Related Person or (2) an assignor of beneficial ownership in
Company to such a Related Person or to its Predecessors, became a Related
Person.
(vii) The term "Majority" shall mean that number which
constitutes a majority of the members of the Board of Directors of Company
immediately prior to the earliest time that (A) any Related Person involved in
the Business Combination, or (B) any Related Person who is (1) a predecessor to
such Related Person or (2) an assignor of beneficial ownership in Company to
such a Related Person or to its Predecessors, became a Related person.
(viii) The term "Predecessor" shall mean each person or other
entity (A) to which the subject Related Person is a successor by merger,
consolidation, sale and purchase of substantially all of the assets, or other
reorganization or (B) which assigned or transferred beneficial ownership of
Voting Stock of Company to the subject Related Person, directly or through
successive transactions.
(ix) The term "Reorganization" includes a merger,
consolidation, plan of exchange, sale of all or substantially all of the assets
(including, as pertains to a subsidiary, bulk reinsurance or cession of
substantially all of its policies and contracts) or other form of corporate
reorganization pursuant to which shares of Voting Stock, or other securities of
the subject corporation, are to be converted or exchanged into cash or other
property, securities or other consolidation.
(x) The term "Tender Offer" shall mean any offer by any
individual, corporation, partnership, association, trust, or other organization
or entity directed to the shareholders of Company the results of which, if
consummated, could by its terms result in the coming into being of a Related
Person.
(xi) No Associate or Affiliate of any director of Company
shall be a Related Person by attribution to such Associate or Affiliate of the
Common Stock ownership of such director as of the date such director was elected
a member of Company's Board of Directors.
11. Identical Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument, but only one of
which need be produced.
10
<PAGE>
12. Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
13. Use of Certain Terms. As used in this Agreement, the words
"herein", "hereof", and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular paragraph, subparagraph or
other subdivision.
14. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
15. Notice to Company. Indemnitee agrees to promptly notify
Company in writing upon being served with any citation, complaint, indictment or
other document covered hereunder, either civil or criminal.
16. Notices. All notices, requests, demand and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand by Federal Express, Purolator or other commercial courier and
receipted for by or on behalf of the party to whom said notice or other
communication shall have been directed or if (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
[INDEMNITEE'S NAME HERE]
Protective Life Corporation
P. O. Box 2606
Birmingham, Alabama 35202
or to such other address as may have been furnished to Company by Indemnitee;
(b) If to Company, to:
Protective Life Corporation
P. O. Box 2606
Birmingham, Alabama 35202
Attn: Drayton Nabers, Jr.
Chairman of the Board and
Chief Executive Officer
or to such other address as may have been furnished to Indemnitee by Company.
17. Governing Law. The parties agree that this Agreement shall be
construed and enforced in accordance with, and governed by, the laws of the
State of Delaware.
11
<PAGE>
18. Successors and Assigns. This Agreement shall be binding upon
Company and its successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's spouse, heirs, executors, administrators and estate.
IN WITNESS WHEREOF, Company has executed this Agreement by its duly
authorized officers, and Indemnitee has executed this Agreement, on this ______
day of _________________, 1996.
PROTECTIVE LIFE CORPORATION
By:
Drayton Nabers, Jr.
Its Chairman of the Board and
Chief Executive Officer
ATTEST:
Natalie R. Reid
Assistant Secretary
(CORPORATE SEAL)
Indemnitee: [INDEMNITEE'S NAME HERE]
12
<PAGE>
Exhibit 13
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:
Premiums and Policy Fees
Year Ended Amount Percentage
December 31 (in thousands) Increase
1994 $402,772 8.6%
1995 432,576 7.4
1996 494,153 14.2
===================================================
Premiums and policy fees increased $29.8 million or 7.4% in 1995 over 1994. The
1994 assumptions of two blocks of policies by the Acquisitions Division resulted
in an $11.1 million increase in premiums and policy fees in 1995. On June 15,
1995, the Division coinsured a block of policies which resulted in an $8.3
million increase in premiums and policy fees. Decreases in older acquired blocks
of policies represented a $7.2 million decrease in premiums and policy fees.
Premiums and policy fees from the Financial Institutions Division decreased
$32.4 million. This resulted from a reinsurance arrangement begun in the 1995
first quarter whereby most of the Division's new credit insurance sales are
being ceded to a reinsurer. Increases in premiums and policy fees from the Group
and Individual Life Divisions represent increases of $32.3 million and $14.1
million, respectively. On March 20, 1995, the Company completed its acquisition
of National Health Care Systems of Florida, Inc. (NHCS, also known as
DentiCare), based in Jacksonville, Florida. DentiCare operates prepaid dental
plans (also referred to as dental health maintenance organizations or dental
capitation plans). The acquisition represented $20.9 million of the increase in
Group Division premiums and policy fees. Policy fees from the Investment
Products Division increased $2.9 million.
Premiums and policy fees increased $61.6 million or 14.2% in 1996 over 1995.
The coinsurance by the Acquisitions Division of three blocks of policies in the
first and fourth quarters of 1996 resulted in a $19.2 million increase in
premiums and policy fees. Decreases in older acquired blocks resulted in an
$11.1 million decrease in premiums and policy fees. Premiums and policy fees
from the Financial Institutions Division increased $7.8 million. This resulted
from the coinsurance of a block of policies in the second quarter of 1996
representing a $32.6 million increase in premiums and policy fees. This increase
was largely offset by decreases resulting from the reinsurance arrangement
begun in 1995. Premiums and policy fees from the Group Division increased
$25.3 million. Premiums and policy fees related to the Group Division's
dental business increased $33.7 million. This increase was partially offset
by a reduction to premiums related to a refund of premiums to certain
cancer insurance policyholders and to decreases in traditional group health
premiums. Increases in premiums and policy fees from the Individual Life and
Investment Product Divisions were $17.7 million and $3.6 million, respectively.
On October 7, 1996, the Company announced that it would make voluntary
refunds to certain of its cancer insurance policyholders and would reduce
premium rates charged to such policyholders until certain conditions are met.
The estimated refunds reduced the Group Division's premiums and policy fees, as
noted above.
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:
Net Investment Income
Percentage
Earned
Year Ended Amount Percentage on Average Cash
December 31 (in thousands) Increase and Investments
1994 $417,825 15.4% 8.3%
1995 475,924 13.9 8.2
1996 517,483 8.7 8.1
=======================================================
<PAGE>
Net investment income in 1995 was $58.1 million or 13.9% higher, and in 1996
was $41.6 million or 8.7% higher than 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. The assumption of two blocks of policies in
1994 and one block of policies in the second quarter of 1995 resulted in an
increase in net investment income of $8.9 million in 1995. The assumption of
four blocks of policies during 1996 resulted in an increase in net investment
income of $18.4 million.
The percentage earned on average cash and investments in 1995 was 8.2%, and
in 1996 was 8.1%, each slightly below that of the preceding year due to a
general decline in interest rates.
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 may sell any of its investments to maintain proper matching of
assets and liabilities. Accordingly, the Company has classified its fixed
maturities and certain other securities as "available for sale." The sales of
investments that have occurred generally result from portfolio management
decisions to maintain proper matching of assets and liabilities. The following
table sets forth realized investment gains for the periods shown:
Realized Investment Gains (Losses)
Year Ended Amount
December 31 (in thousands)
1994 $6,298
1995 1,612
1996 5,510
===============================
The Company maintains an allowance for uncollectible amounts on investments.
The allowance totaled $33.4 million at December 31, 1995 and $31.6 million at
December 31, 1996.
Realized investment gains in 1995 of $21.6 million were largely offset by
realized investment losses of $20.0 million. Realized investment losses in 1995
were reduced by a $2.5 million reduction to the allowance for uncollectible
amounts on investments. Realized investment gains in 1996 of $19.3 million were
largely offset by realized investment losses of $13.8 million. In the 1996 first
quarter, the Company sold $554 million of its commercial mortgage loans in a
securitization transaction, resulting in a $6.1 million realized investment
gain. Realized investment losses in 1996 were reduced by a $1.8 million
reduction to the allowance for uncollectible amounts on investments.
Other Income
The following table sets forth other income for the periods shown:
Other Income
Year Ended Amount
December 31 (in thousands)
1994 $21,553
1995 11,768
1996 20,857
===============================
Other income consists primarily of revenues of the Company's broker-dealer
subsidiary, fees from variable insurance products and
administrative-services-only types of group accident and health insurance
contracts, revenues of the Company's insurance marketing organizations and small
noninsurance subsidiaries, and the results of the Company's 50%-owned joint
venture in Hong Kong. In 1994 the Company received $8.2 million in settlement of
litigation. Other income from all other sources decreased $1.6 million in 1995.
In 1996, revenues from the Company's broker-dealer subsidiary increased $4.2
million. Other income from all other sources increased $4.9 million.
<PAGE>
Income Before Income Tax
The following table sets forth income or loss before income tax by business
segment for the periods shown:
Income (Loss) Before Income Tax
Year Ended December 31
(in thousands)
Business Segment 1994 1995 1996
- --------------------------------------------------------
Acquisitions $ 37,328 $ 48,490 $ 52,670
Financial Institutions 9,024 8,375 9,531
Group 10,139 10,060 5,138
Guaranteed Investment
Contracts 29,005 27,649 32,119
Individual Life 13,933 13,490 15,151
Investment Products (705) 9,724 11,595
Corporate and Other* 2,183 2,663 7,020
Unallocated Realized
Investment Gains
(Losses) 5,266 583 6,517
- --------------------------------------------------------
$106,173 $121,034 $139,741
========================================================
*Income before income tax for the Corporate and Other segment has not been
reduced by pretax minority interest of $2,764 in 1994 and $4,950 in 1995 and
1996.
In the 1996 first quarter the Company changed the way it allocates certain
expenses to its operating divisions. Accordingly, prior period division results
have been restated to reflect the change.
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. 1995 pretax earnings from
the Acquisitions Division increased $11.2 million to $48.5 million. The two
blocks of policies coinsured during 1994 and the block of policies coinsured
during the second quarter of 1995 represent $10.4 million of the increase. The
Division's 1996 pretax earnings increased $4.2 million to $52.7 million. The
Division's most recent acquisitions resulted in a $4.7 million increase in
pretax earnings.
The Financial Institutions Division's 1995 pretax earnings of $8.4 million
were $0.6 million lower than 1994. In 1995 the Division entered into a
reinsurance arrangement whereby all of the Division's new credit insurance sales
are being ceded to a reinsurer. The Division also ceded a block of older
policies. Though the Division's reported earnings were reduced by approximately
$2.0 million, these reinsurance transactions are expected to improve the
Division's return on investment. The Division's pretax earnings increased $1.1
million to $9.5 million in 1996. Included in the Division's 1996 results are
earnings from the coinsurance of a block of policies in the second quarter of
1996. The reinsurance arrangement begun in the first quarter of 1995 reduced the
Division's reported earnings by approximately $3.3 million, which was
contemplated when the arrangement was entered into.
The Group Division's 1995 pretax earnings of $10.1 million were even with
1994. Total dental earnings were $4.6 million, up $4.5 million. DentiCare
represented $1.9 million of the increase. Lower traditional group life and
health earnings offset higher dental earnings. The Division's 1996 pretax
earnings of $5.1 million were lower than 1995. The previously discussed refund
of cancer premiums and related expenses resulted in a $6.8 million decrease in
the Division's pretax earnings. Dental earnings improved $4.9 million and
traditional group health earnings declined by $1.9 million.
The Guaranteed Investment Contracts (GIC) Division had pretax operating
earnings of $31.6 million in 1995 and $40.1 million in 1996. Operating earnings
in 1995 were benefited by lower expenses and a favorable interest rate
environment. This increase was also partially due to the growth in GIC deposits.
The 1996 increase was due to improved operating spreads and to the growth in GIC
deposits. Realized investment losses associated with this Division in 1995 were
$4.0 million as compared to $8.0 million in 1996. As a result, total pretax
earnings were $27.6 million in 1995 and $32.1 million in 1996. The rate of
growth in GIC deposits has decreased as the amount of maturing contracts has
increased.
The Individual Life Division had 1995 pretax earnings of $13.5 million, $0.4
million lower than 1994. The Division had 1996 pretax operating earnings of
$14.0 million, $0.5 million above 1995. Realized investment gains, net of
related amortization of deferred policy acquisition costs, associated with this
Division were $1.2 million in 1996. As a result, total pretax earnings were
$15.2 million in 1996 which was $1.7 million higher than 1995 in which there
were no realized investment gains.
The Investment Products Division's 1995 pretax operating earnings of $6.4
million were $6.2 million higher than 1994. During 1994 the Division completed
the amortization of the deferred policy acquisition costs related to its book
value annuities. Accordingly, 1995 operating earnings were $7.2 million higher
due to lower amortization. The Division also benefited from a favorable interest
rate environment. The Division's 1996 pretax operating earnings were $9.6
million which was $3.2 million higher than 1995. Earnings increased primarily
due to growth in variable annuity deposits. Realized investment gains, net of
related amortization of deferred policy acquisition costs, were $3.3 million in
1995 as compared with $2.0 million in 1996. As a result, total pretax earnings
were $9.7 million in 1995 and $11.6 million in 1996.
The Corporate and Other segment consists primarily of net investment income
on capital, interest expense on substantially all debt, the Company's 50%-owned
joint venture in Hong Kong, several small insurance lines of business, and the
operations of several small noninsurance subsidiaries. 1995 pretax income for
this segment was $2.7 million. The segment's 1995 and 1996 results reflect $2.4
million and $2.2 million, respectively, of additional MIPS dividends reported as
"minority interest in net income of consolidated subsidiaries" rather than
expenses of the Corporate and Other segment. 1996 pretax earnings for this
segment increased $4.3 million to $7.0 million due to improved operating results
from the Company's joint venture in Hong Kong and increased net investment
income on capital.
<PAGE>
Income Tax Expense
The following table sets forth the effective income tax rates for the periods
shown:
Income Tax Expense
Year Ended December 31 Effective Income Tax Rates
1994 32%
1995 34
1996 34
Management's current estimate of the effective tax rate for 1997 is also 34%.
Net Income
The following table sets forth net income and net income per share for the
periods shown (all references to prior period per share amounts have been
restated to reflect a two-for-one stock split on June 1, 1995):
Net Income
Year Ended Amount Per Percentage
December 31 (In thousands) Share Increase
1994 $70,401 $2.57 24.4%
1995 76,665 2.68 4.3
1996 89,012 2.94 9.7
==================================================
Net income per share in 1995 increased 4.3%, reflecting improved operating
earnings in the Acquisitions, GIC, and Investment Products Divisions and the
Corporate and Other segment, which were partially offset by lower realized
investment gains and lower earnings in the Financial Institutions, Group, and
Individual Life Divisions. Net income per share in 1996 was 9.7% higher than
1995, reflecting improved operating earnings in the Acquisitions, Financial
Institutions, GIC, Individual Life, and Investment Products Divisions and
Corporate and Other segment, and higher realized investment gains partially
offset by lower earnings in the Group Division.
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 results of the Company are discussed more fully below.
COMPETITION. Life and health insurance is a mature industry. In recent years,
the industry has experienced virtually no growth in life insurance sales, though
the aging population has increased the demand for retirement savings products.
Life and health insurance is a highly competitive industry and the Company's
Divisions encounter significant competition in all their respective lines of
business from other insurance companies, many of which have greater financial
resources than the Company, as well as competition from other providers of
financial services.
Management believes that the Company's ability to compete is dependent upon,
among other things, its ability to attract and retain distribution channels to
market its insurance and investment products, its ability to develop competitive
and profitable products, its ability to maintain low unit costs, and its
maintenance of strong claims-paying and financial strength ratings from rating
agencies.
The Company competes against other insurance companies and financial
institutions in the origination of commercial mortgage loans.
RATINGS. Ratings are an important factor in the competitive position of
life insurance companies. Rating organizations periodically review the financial
performance and condition of insurers, including the Company's insurance
subsidiaries. A downgrade in the ratings of the Company's life insurance
subsidiaries could adversely affect its ability to sell its products 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 circumstances outside the rated
company's control.
POLICY CLAIMS FLUCTUATIONS. The Company's results may fluctuate from year
to year on account of fluctuations in policy claims received by the Company.
LIQUIDITY AND INVESTMENT PORTFOLIO. Many of the products offered by the
Company's life insurance subsidiaries allow policyholders and contractholders to
withdraw their funds under defined circumstances. The Company's life insurance
subsidiaries design products and configure investment portfolios so as to
provide and maintain sufficient liquidity to support anticipated withdrawal
demands and contract benefits and maturities. Asset/liability management
programs and procedures are used to monitor the relative duration of the
Company's assets and liabilities. While the Company's life insurance
subsidiaries own a significant amount of liquid assets, many of their assets are
relatively illiquid. Significant unanticipated withdrawal or surrender activity
could, under some circumstances, compel the Company's life insurance
subsidiaries to dispose of illiquid assets on unfavorable terms, which could
have a material adverse effect on the Company.
INTEREST RATE FLUCTIUATIONS. Significant changes in interest rates expose
life insurance companies to the risk of not earning anticipated spreads
between the interest rate earned on investments and the interest rate credited
to its life insurance and investment products. Both rising and declining
interest rates
<PAGE>
can negatively affect the Company's spread income. For example, certain of the
Company's insurance and investment products guarantee a minimum credited
interest rate. While the Company develops and maintains asset/liability
management programs and procedures designed to preserve spread income in rising
or falling interest rate environments, no assurance can be given that
significant changes in interest rates will not materially affect such spreads.
Lower interest rates may result in lower sales of the Company's life
insurance and investment products.
INVESTMENT RISKS. The Company's invested assets are subject to inherent risks of
defaults and changes in market values. The value of the Company's commercial
mortgage portfolio depends in part on the financial condition of the tenants
occupying the properties on which the Company has made loans. Factors that may
affect the overall default rate on, and market value of, the Company's invested
assets include the level of interest rates, performance of the financial
markets, and general economic conditions, as well as particular circumstances
affecting the businesses of individual borrowers and tenants.
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 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 premium rates, benefits,
marketing practices, advertising, policy forms, underwriting standards, and
capital adequacy, and is concerned primarily with the protection of
policyholders rather than stockholders. The Company cannot predict the form of
any future regulatory initiatives.
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 non-insurance products. 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, all life
insurance companies, including the Company's subsidiaries, would be adversely
affected.
The Company cannot predict what future initiatives the President or Congress
may propose which may affect the life and health insurance industry and the
Company.
LITIGATION. 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. Increasingly these lawsuits have
resulted in the award of substantial judgments against the insurer that are
disproportionate to the actual damages, including material amounts of punitive
damages. In some states (including Alabama), juries have substantial discretion
in awarding punitive damages which creates the potential for unpredictable
material adverse judgments in any given punitive damages suit. The Company and
its subsidiaries, like other life and health insurers, in the ordinary course of
business, are involved in such litigation. The outcome of any such litigation
cannot be predicted with certainty. In addition, in some lawsuits involving
insurers' sales practices, insurers have made material settlement payments to
end litigation.
RELIANCE UPON THE PERFORMANCE OF OTHERS. The Company has entered into various
ventures involving other parties. Examples include, but are not limited to: many
of the Company's products are sold through independent distribution channels;
the Investment Products Division's variable annuity deposits are invested in
funds managed by Goldman Sachs Asset Management and its affiliates; a portion of
the sales in the Financial Institutions, Group, and Individual Life 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.
REINSURANCE. As is customary in the insurance industry, the Company's insurance
subsidiaries cede insurance to other insurance companies. However, the ceding
insurance company remains liable with respect to ceded insurance should any
reinsurer fail to meet the obligations assumed by it. Additionally, the Company
assumes policies of other insurers. Any regulatory or other adverse development
affecting the ceding insurer could also have an adverse effect on the Company.
<PAGE>
Recently Issued Accounting Standards
In June 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This statement is
effective for transactions entered into after January 1, 1997.
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. Since
future benefit payments largely represent medium- and 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.
Many of the Company's products contain surrender charges and other features
which reward persistency and penalize the early withdrawal of funds. Surrender
charges for these products 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
that protect the Company against investment losses if interest rates are higher
at the time of surrender than at the time of issue.
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, 1996, the fixed maturity investments (bonds, bank loan
participations, and redeemable preferred stocks) had a market value of $4,686.1
million, which is less than 1% below amortized cost (less allowances for
uncollectible amounts on investments) of $4,671.6 million. The Company had
$1,503.1 million in mortgage loans at December 31, 1996. While the Company's
mortgage loans do not have quoted market values, at December 31, 1996, the
Company estimates the market value of its mortgage loans to be $1,581.7 million
(using discounted cash flows from the next call date) which is 5.2% above
amortized cost. 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.
For several years the Company has offered a type of commercial loan under
which the Company will permit a slightly higher loan-to-value ratio in exchange
for a participating interest in the cash flows from the underlying real estate.
Approximately $498 million of the Company's mortgage loans has this
participation feature.
At December 31, 1996, delinquent mortgage loans and foreclosed properties
were 0.3% of assets. Bonds rated less than investment grade were 1.4% of assets.
Additionally, the Company had bank loan participations that were less than
investment grade, representing 0.5% of assets. The Company does not expect these
investments to adversely affect its liquidity or ability to maintain proper
matching of assets and liabilities. The Company's allowance for uncollectible
amounts on investments was $31.6 million at December 31, 1996.
Policy loans at December 31, 1996, were $166.7 million, a decrease of $0.8
million from December 31, 1995, (after excluding the $24.1 million of policy
loans obtained through acquisitions). 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 management programs and procedures
and certain product features provide significant protection for the Company
against the effects of changes in interest rates. However, approximately
one-fourth of the Company's liabilities relates 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 management
programs and procedures 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 management programs and procedures 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 general policy to maintain asset and
liability durations within 10% of one another, although from time to time a
broader interval may be allowed.
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, mortgage-backed securities, 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 losses, incurred due
to a decline in interest rates, of $0.2 million were deferred in 1996. At
December 31, 1996, open futures contracts with a notional amount of $805.0
million were in a $1.9 million net unrealized loss position.
The Company may also sometimes use interest rate swap contracts and options
to enter into interest rate swap contracts (swaptions) to convert certain
investments from a variable rate of interest to a fixed rate of interest and
from a fixed rate to a variable rate of interest, and to convert its Senior
Notes, Medium Term Notes, and Monthly Income Preferred Securities from a fixed
rate to a variable rate of interest. The proceeds from the sale of swaptions are
deferred and amortized over the life of the related debt. Proceeds from the sale
of swaptions totaling $1.6 million were deferred in 1996. At December 31, 1996
related open interest rate swap contracts and swaptions with a notional amount
of $280.3 million were in a $0.2 million net unrealized loss position.
<PAGE>
Withdrawals related to GIC contracts were approximately $600 million during
1996. Withdrawals related to GIC contracts are estimated to be approximately
$600 million in 1997. 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.
On March 22, 1996, the Company sold approximately $554 million of its
commercial mortgage loans in a securitization transaction. Proceeds from the
sale consisted of cash of approximately $400 million, net of expenses, and
securities issued in the securitization transaction of approximately $161
million. The sale resulted in a realized gain of approximately $6.1 million. The
cash proceeds were reinvested in fixed maturity and short-term investments. On
December 17, 1996, the Company sold approximately $315 million of its bank loan
participations in a larger securitization transaction. The sale resulted in a
realized gain of approximately $0.5 million. The proceeds were reinvested in
fixed maturity and short-term investments. In a related transaction, the Company
purchased $23 million of the securities issued in the securitization
transaction. The Company is investigating other securitization opportunities.
In anticipation of receiving GIC and annuity deposits, the life insurance
subsidiaries were committed at December 31, 1996, to fund mortgage loans and to
purchase fixed maturity and other long-term investments in the amount of $331.5
million. The Company's subsidiaries held $234.3 million in cash and short-term
investments at December 31, 1996. Protective Life Corporation had an additional
$1.0 million in cash and short-term investments available for general corporate
purposes.
While the Company generally anticipates that the cash flow 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 use when needed. 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.
During 1996, the Company issued $45 million (in four separate offerings) of
Medium-Term Notes. Net proceeds of $42.7 million were used to repay bank
borrowings. The notes bear interest rates ranging from 7.00% to 7.45% and mature
in 2011.
At December 31, 1996, Protective Life Corporation had borrowed $48.2 million
of its $70.0 million revolving line of credit bearing interest rates averaging
5.9%. The Company's bank borrowings have increased $20.5 million since December
31, 1995. Proceeds have been primarily used to contribute additional statutory
capital to the Company's insurance subsidiaries, and for general corporate
purposes including the acquisition of a small dental managed care organization,
an additional investment in the Hong Kong joint venture, and an investment in an
Internet-based life insurance quotation service.
Protective Life Corporation's cash flow is dependent on cash dividends and
payments on surplus notes from its subsidiaries, revenues from investment, data
processing, legal, and investment income. At December 31, 1996, approximately
$173 million of consolidated stockholders' equity, excluding net
<PAGE>
unrealized investment gains and losses, represented net assets of the Company's
insurance subsidiaries that cannot be transferred to the Company in loans, or
advances to the parent company. In addition, the states in which the Company's
insurance subsidiaries are domiciled impose certain restrictions on the
insurance subsidiaries' ability to pay dividends to Protective Life Corporation.
Also, distributions, including cash dividends to Protective Life Corporation
from its life insurance subsidiaries, in excess of approximately $439 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.
Due to the expected growth of the Company's insurance sales, the Company
plans to retain substantial portions of the earnings of its life insurance
subsidiaries in those companies primarily to support their future growth.
Protective Life Corporation's cash disbursements have from time to time exceeded
its cash receipts, and these shortfalls have been funded through various
external financings. Therefore, Protective Life Corporation may from time to
time require additional external financing.
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 of the Company's
insurance subsidiaries. The subsidiaries may secure additional statutory capital
through various sources, such as retained statutory earnings or equity
contributions by the Company.
On March 20, 1995, in connection with the acquisition of DentiCare, the
Company reissued 1,316,458 (adjusted for the two-for-one stock split on June 1,
1995) shares of its Common Stock previously held as Treasury Stock.
On May 30, 1996, the Company completed a public offering of 2 million shares
of its Common Stock. Net proceeds of approximately $70.5 million were primarily
invested in the Company's insurance subsidiaries to support future growth.
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 companies. The Company does not
believe that any such assessments will be materially different from amounts
already reflected in the financial statements.
The Company and its subsidiaries, like other life and health insurers, in the
course of business are involved in litigation. Pending litigation includes a
class action filed in Jefferson County (Birmingham), Alabama with respect to the
previously discussed cancer premium refunds. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that at the
present time there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse effect on the financial position, results of
operations, or liquidity of the Company.
Rating downgrades have exceeded upgrades for the past several years, and
public pronouncements by the rating agencies indicate that this trend is
expected to continue for the near future.
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 life insurance. Many policyholders who once had
adequate insurance programs may increase their life insurance coverage to
provide the same relative financial benefits and protection. Inflation increases
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 higher interest rates that have traditionally accompanied inflation may
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 life insurance and investment products may also be adversely
affected by rising interest rates.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
___________________________________________________________________________________________________________________________________
Revenues
<S> <C> <C> <C>
Premiums and policy fees (net of reinsurance ceded: 1996 - $308,174;
1995 - $333,173; 1994 - $172,575) $ 494,153 $432,576 $402,772
Net investment income 517,483 475,924 417,825
Realized investment gains (losses) 5,510 1,612 6,298
Other income 20,857 11,768 21,553
____________________________________________________________________________________________________________________________________
Total revenues 1,038,003 921,880 848,448
____________________________________________________________________________________________________________________________________
Benefits and expenses
Benefits and settlement expenses (net of reinsurance ceded:
1996 - $215,424; 1995 - $247,229; 1994 - $112,922) 645,040 565,027 517,110
Amortization of deferred policy acquisition costs 91,030 82,733 88,122
Other operating expenses (net of reinsurance ceded:
1996 - $81,839; 1995 - $84,855; 1994 - $14,326) 162,192 153,086 137,043
____________________________________________________________________________________________________________________________________
Total benefits and expenses 898,262 800,846 742,275
____________________________________________________________________________________________________________________________________
Income before income tax 139,741 121,034 106,173
____________________________________________________________________________________________________________________________________
Income tax expense
Current 47,522 44,862 37,318
Deferred (10) (3,710) (3,342)
____________________________________________________________________________________________________________________________________
Total income tax expense 47,512 41,152 33,976
____________________________________________________________________________________________________________________________________
Income before minority interest 92,229 79,882 72,197
Minority interest in income of consolidated subsidiaries 3,217 3,217 1,796
____________________________________________________________________________________________________________________________________
Net income $ 89,012 $76,665 $70,401
====================================================================================================================================
Net income per share $ 2.94 $ 2.68 $ 2.57
====================================================================================================================================
Cash dividends paid per share $ .70 $ .62 $ .55
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Consolidated Balance Sheets
December 31
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
____________________________________________________________________________________________________________________________________
Assets
Investments:
<S> <C> <C>
Fixed maturities, at market (amortized cost: 1996 - $4,671,600; 1995 - $3,790,002) $4,686,072 $3,892,008
Equity securities, at market (cost: 1996 - $31,669; 1995 - $35,448) 35,250 38,711
Mortgage loans on real estate 1,503,080 1,834,357
Investment real estate, net of accumulated depreciation (1996 - $2,268; 1995 - $2,388) 14,305 20,921
Policy loans 166,704 143,372
Other long-term investments 32,506 42,096
Short-term investments 114,258 53,591
____________________________________________________________________________________________________________________________________
Total investments 6,552,175 6,025,056
Cash 121,051 11,392
Accrued investment income 70,544 61,007
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1996 - $2,525; 1995 - $2,342) 47,371 38,722
Reinsurance receivables 332,614 271,018
Deferred policy acquisition costs 488,384 410,396
Property and equipment, net 36,091 36,578
Other assets 64,278 52,184
Assets related to separate accounts 550,697 324,904
____________________________________________________________________________________________________________________________________
Total assets $8,263,205 $7,231,257
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31
(Dollars in thousands) 1996 1995
Liabilities
<S> <C> <C>
Policy liabilities and accruals
Future policy benefits and claims $2,448,449 $1,928,154
Unearned premiums 260,937 196,332
____________________________________________________________________________________________________________________________________
Total policy liabilities and accruals 2,709,386 2,124,486
Guaranteed investment contract deposits 2,474,728 2,451,693
Annuity deposits 1,331,067 1,280,069
Other policyholders' funds 142,221 134,380
Other liabilities 170,442 152,042
Accrued income taxes (4,521) (2,894)
Deferred income taxes 37,869 69,520
Short-term debt 12,800
Long-term debt 168,200 115,500
Liabilities related to separate accounts 550,697 324,904
Minority interest in consolidated subsidiaries 55,000 55,000
____________________________________________________________________________________________________________________________________
Total liabilities 7,647,889 6,704,700
____________________________________________________________________________________________________________________________________
Commitments and contingent liabilities
- - Note G
____________________________________________________________________________________________________________________________________
Stockholders' equity
Preferred Stock, $1 par value
Shares authorized: 3,600,000
Issued: none
Junior Participating Cumulative
Preferred Stock, $1 par value
Shares authorized: 400,000
Issued: none
Common Stock, $.50 par value 16,668 15,668
Shares authorized: 80,000,000
Issued: 1996 - 33,336,462; 1995 - 31,336,462
Additional paid-in capital 166,713 96,371
Net unrealized gains (losses) on investment (net of income tax: 1996 - $3,601; 1995 - $31,157) 6,688 57,863
Retained earnings 442,046 373,922
Treasury stock, at cost (1996 - 2,532,856 shares; 1995 - 2,561,344 shares) (11,874) (12,008)
Unallocated stock in Employee Stock Ownership Plan (1996 - 743,464 shares;
1995 - 793,804 shares) (4,925) (5,259)
____________________________________________________________________________________________________________________________________
Total stockholders' equity 615,316 526,557
____________________________________________________________________________________________________________________________________
Total liabilities and stockholders' equity $8,263,205 $7,231,257
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements Of Stockholders' Equity
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, 1993 $15,668 $70,469 $ 39,284 $259,527 $(18,359) $(5,856) $360,733
Net income for 1994 70,401 70,401
Cash dividends
($0.55 per share) (15,071) (15,071)
Decrease in net unrealized
gains on investments (146,816) (146,816)
Purchase of treasury stock
(8,412 shares) (191) (191)
Reissuance of treasury stock
to ESOP (136 shares) 3 (3) 0
Allocation of stock to employee
accounts (39,990 shares) 267 267
Reissuance of treasury stock
(48,306 shares) 823 227 1,050
____________________________________________________________________________________________________________________________________
Balance, December 31, 1994 15,668 71,295 (107,532) 314,857 (18,323) (5,592) 270,373
Net income for 1995 76,665 76,665
Cash dividends
($0.62 per share) (17,600) (17,600)
Increase in net unrealized
gains on investments 165,395 165,395
Purchase of treasury stock
(124 shares) (3) (3)
Reissuance of treasury stock
to ESOP (16,158 shares) 275 75 (350) 0
Allocation of stock to employee
accounts (66,500 shares) 683 683
Reissuance of treasury stock
(1,332,566 shares) 24,801 6,243 31,044
____________________________________________________________________________________________________________________________________
Balance, December 31, 1995 15,668 96,371 57,863 373,922 (12,008) (5,259) 526,557
Net income for 1996 89,012 89,012
Issuance of common stock
(2,000,000 shares) 1,000 69,546 70,546
Cash dividends
($0.70 per share) (20,888) (20,888)
Decrease in net unrealized
gains on investments (51,175) (51,175)
Reissuance of treasury stock
to ESOP (19,847 shares) 576 93 (669) 0
Allocation of stock to employee
accounts (70,189 shares) 1,003 1,003
Reissuance of treasury stock
(8,641 shares) 220 41 261
____________________________________________________________________________________________________________________________________
Balance, December 31, 1996 - Note H $16,668 $166,713 $ 6,688 $442,046 $(11,874) $(4,925) $615,316
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements Of Cash Flows
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
____________________________________________________________________________________________________________________________________
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 89,012 $ 76,665 $ 70,401
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred policy acquisition costs 91,030 84,533 88,122
Capitalization of deferred policy acquisition costs (77,078) (89,267) (127,566)
Depreciation expense 7,484 5,524 5,601
Deferred income taxes 8,458 (5,443) (4,310)
Accrued income taxes (14,603) 3,344 (12,619)
Interest credited to universal life and investment products 280,377 286,710 260,081
Policy fees assessed on universal life and investment products (116,401) (100,840) (85,532)
Change in accrued investment income and other receivables (74,116) (160,523) (28,073)
Change in policy liabilities and other policyholders' funds of traditional
life and health products 134,441 201,364 61,322
Change in other liabilities 17,301 4,245 29,949
Other, net (15,699) (4,888) (14,461)
____________________________________________________________________________________________________________________________________
Net cash provided by operating activities 330,206 301,424 242,915
____________________________________________________________________________________________________________________________________
Cash flows from investing activities
Maturities and principal reductions of investments:
Investments available for sale 1,377,723 2,051,061 386,498
Other 168,898 78,568 153,945
Sale of investments:
Investments available for sale 1,591,669 1,533,604 630,660
Other 568,218 141,184 59,550
Cost of investments acquired:
Investments available for sale (3,903,403) (3,667,448) (1,807,756)
Other (400,322) (540,648) (220,839)
Acquisitions and bulk reinsurance assumptions 264,126 (7,550) 106,435
Purchase of property and equipment (7,848) (5,919) (6,743)
Sale of property and equipment 856 309 484
____________________________________________________________________________________________________________________________________
Net cash used in investing activities (340,083) (416,839) (697,766)
____________________________________________________________________________________________________________________________________
Cash flows from financing activities
Borrowings under line of credit arrangements and long-term debt 1,107,372 1,215,000 663,587
Principal payments on line of credit arrangements and long-term debt (1,042,372) (1,197,500) (712,704)
Issuance of Monthly Income Preferred Securities 55,000
Purchase of treasury stock (3) (191)
Dividends to stockholders (20,888) (17,600) (15,071)
Issuance of common stock 70,546
Investment product deposits and change in universal life deposits 949,122 908,064 1,417,980
Investment product withdrawals (944,244) (785,622) (976,401)
____________________________________________________________________________________________________________________________________
Net cash provided by financing activities 119,536 122,339 432,200
____________________________________________________________________________________________________________________________________
Increase (decrease) in cash 109,659 6,924 (22,651)
Cash at beginning of year 11,392 4,468 27,119
____________________________________________________________________________________________________________________________________
Cash at end of year $ 121,051 $ 11,392 $ 4,468
____________________________________________________________________________________________________________________________________
Supplemental disclosures of cash flow information
Cash paid during the year:
Interest on debt $ 11,024 $ 9,320 $ 7,745
Income taxes $ 47,741 $ 41,532 $ 49,935
____________________________________________________________________________________________________________________________________
Supplemental schedule of noncash investing and financing activities
Reissuance of treasury stock to ESOP $ 669 $ 350 $ 3
Unallocated stock in ESOP $ 334 $ 333 $ 264
Reissuance of treasury stock $ 261 $ 363 $ 1,050
Acquisitions and bulk reinsurance assumptions:
Assets acquired $ 296,935 $ 10,394 $ 117,349
Liabilities assumed (364,862) (25,651) (166,595)
Reissuance of treasury stock (30,681)
____________________________________________________________________________________________________________________________________
Net $(67,927) $ (45,938) $(49,246)
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Notes To Consolidated Financial Statements
(All dollar amounts in tables in thousands, except per share amounts)
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.)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make various estimates that affect
the reported amounts of assets and liabilities, disclosures of contingent assets
and liabilities, as well as the reported amounts of revenues and expenses.
All references to prior period number of shares and per share amounts have been
restated to reflect a two-for-one stock split on June 1, 1995.
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.
Nature of Operations
The Company markets individual life insurance; group life, health, dental, and
cancer insurance; annuities and investment products; credit life and disability
insurance; and guaranteed investment contracts. Its products are distributed
nationally through independent agents and brokers; through stockbrokers and
financial institutions to their customers; through Company sales
representatives; and through other insurance companies. The Company also seeks
to acquire blocks of insurance policies from other insurers.
The operating results of companies in the insurance industry have historically
been subject to significant fluctuations due to competition, economic
conditions, interest rates, investment performance, maintenance of insurance
ratings, and other factors.
Recently Issued Accounting Standards
In 1995 the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures." Under these new standards, a loan is considered impaired, based on
current information and events, if it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The measurement of
impaired loans is generally based on the present value of expected future cash
flows discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. The adoption of this accounting standard did not have a
material effect on the Company's financial statements.
<PAGE>
In 1995 the Company also adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which changes the way stock-based compensation expense is
measured and requires additional disclosures relating to the Company's
stock-based compensation plans. The adoption of this accounting standard did not
have a material effect on the Company's financial statements.
In 1996 the Company adopted SFAS No. 120, "Accounting and Reporting by Mutual
Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Contracts;" SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of;" and SFAS No.
122, "Accounting for Mortgage Servicing Rights." The adoption of these
accounting standards did not have a material effect on the Company's financial
statements.
Investments
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 $3.4 million in bank
deposits voluntarily restricted as to withdrawal. As prescribed by SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," certain
investments are recorded at their market values with the resulting unrealized
gains and losses reduced by a related adjustment to deferred policy acquisition
costs, net of income tax, reported as a component of stockholders' equity. The
market values of fixed maturities increase or decrease as interest rates fall or
rise. Therefore, although the adoption of SFAS No. 115 does not affect the
Company's operations, its reported stockholders' equity will fluctuate
significantly as interest rates change.
<PAGE>
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:
1996 1995
---- ----
Total investments $6,534,122 $5,919,787
Deferred policy acquisition costs 496,148 426,645
All other assets 1,222,646 795,805
--------- -------
$8,252,916 $7,142,237
========== ==========
Deferred income taxes $ 34,268 $ 38,364
All other liabilities 7,610,020 6,635,179
--------- ---------
7,644,288 6,673,543
--------- ---------
Stockholders' equity 608,628 468,694
------- -------
$8,252,916 $7,142,237
========== ==========
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, mortgage-backed securities, and
liabilities arising from interest-sensitive products such as guaranteed
investment contracts and annuities. Realized investment gains and losses on such
contracts are deferred and amortized over the life of the hedged asset. Net
realized losses of $0.2 million and $15.2 million were deferred in 1996 and
1995, respectively. At December 31, 1996 and 1995, options and open futures
contracts with notional amounts of $805.0 million and $25.0 million,
respectively, had net unrealized losses of $1.9 million and $0.6 million,
respectively.
The Company uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1996, related open
interest rate swap contracts with a notional amount of $150.3 million were in a
$0.7 million net unrealized loss position. At December 31, 1995, related open
interest rate swap contracts with a notional amount of $170.3 million were in a
$1.3 million net unrealized gain position. The Company also uses interest rate
swap contracts and options to enter into interest rate swaps (swaptions) to
convert its Senior Notes, Medium-Term Notes and Monthly Income Preferred
Securities from a fixed rate to a variable rate of interest. The proceeds from
the sale of swaptions are deferred and amortized over the life of the related
debt. Proceeds from the sale of swaptions totaling $1.6 million were deferred in
1996. At December 31, 1996, related open interest rate swap contracts and
swaptions with a notional amount of $130.0 million were in a $0.5 million net
unrealized gain position. At December 31, 1995, related open interest rate swap
contracts with a notional amount of $55.0 million were in a $4.4 million net
unrealized gain position.
Cash
Cash includes all demand deposits reduced by the amount of outstanding checks
and drafts.
<PAGE>
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:
1996 1995
==== ====
Home Office building $36,586 $35,284
Data processing equipment 23,649 20,462
Other, principally furniture
and equipment 21,188 19,111
------ ------
81,423 74,857
Accumulated depreciation 45,332 38,279
------ ------
$36,091 $36,578
======= =======
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
o Traditional Life and Health Insurance Products. Traditional life insurance
products consist principally of those products with fixed and guaranteed
premiums and benefits and include whole life insurance policies, term life
insurance policies, limited payment life insurance policies, and certain
annuities with life contingencies. Life insurance and immediate annuity premiums
are recognized as revenue when due. Health insurance premiums are recognized as
revenue over the terms of the policies. Benefits and expenses are associated
with earned premiums so that profits are recognized over the life of the
contracts. This is accomplished by means of the provision for liabilities for
future policy benefits and the amortization of deferred policy acquisition
costs.
Liabilities for future policy benefits on traditional life insurance products
have been computed using a net level method including assumptions as to
investment yields, mortality, persistency, and other assumptions based on 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 in which the claims are incurred.
<PAGE>
Activity in the liability for unpaid claims is summarized as follows:
1996 1995 1994
==== ==== ====
Balance beginning of year $ 73,642 $ 79,462 $ 77,191
Less reinsurance 3,330 5,024 3,973
----- ----- -----
Net balance beginning of year 70,312 74,438 73,218
------ ------ ------
Incurred related to:
Current year 288,816 217,366 203,453
Prior year (2,417) (8,337) (6,683)
------- ------- -------
Total incurred 286,399 209,029 196,770
------- ------- -------
Paid related to:
Current year 197,163 164,321 148,548
Prior year 57,812 48,834 47,002
------- ------ ------
Total paid 254,975 213,155 195,550
------- ------- -------
Net balance end of year 101,736 70,312 74,438
Plus reinsurance 6,423 3,330 5,024
----- ----- -----
Balance end of year $108,159 $ 73,642 $ 79,462
======== ========= =========
o 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. 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 1996.
At December 31, 1996, the Company estimates the market value of its guaranteed
investment contracts to be $2,462.0 million using discounted cash flows. The
surrender value of the Company's annuities which approximates market value was
$1,322.3 million.
o 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.
Under SFAS No. 97, "Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments," the Company makes certain assumptions regarding the mortality,
persistency, expenses, and interest rates it expects to experience in future
periods. These assumptions are to be best estimates and are to be periodically
updated whenever actual experience and/or expectations for the future change
from initial assumptions. Additionally, relating to SFAS No. 115, these costs
have been adjusted by an amount
<PAGE>
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.
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. For acquisitions occurring after 1988, the Company amortizes
the present value of future profits over the premium payment period, including
accrued interest at approximately 8%. The unamortized present value of future
profits for such acquisitions was approximately $138.2 million and $102.5
million at December 31, 1996 and 1995, respectively. During 1996 $57.6 million
of present value of future profits on acquisitions made during the year was
capitalized, and $10.8 million was amortized. The unamortized present value of
future profits for all acquisitions was $155.9 million at December 31, 1996, and
$123.9 million at December 31, 1995.
Participating Policies
Participating business comprises approximately 1% of the individual life
insurance in force and 2% of the individual life insurance premium income.
Policyholder dividends totaled $4.1 million in 1996 and $2.6 million in 1995 and
1994.
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 the bases of assets and liabilities determined for
financial reporting purposes and the bases determined for income tax purposes.
Such temporary differences are principally related to the deferral of policy
acquisition costs and the provision for future policy benefits and expenses.
Income Per Share Of Common Stock
Per share data are based on the weighted average number of shares of Common
Stock, including Common Stock equivalents, outstanding which was 30,285,911,
28,627,345, and 27,392,936, in 1996, 1995, and 1994, 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 as follows: (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.
<PAGE>
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:
<TABLE>
<CAPTION>
Net Income Stockholders' Equity
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory reporting practices:
Protective Life
Insurance Company $ 97,779 $105,744 $ 54,812 $ 454,320 $ 322,416 $ 304,858
American Foundation
Life Insurance Company 2,558 3,330 3,072 18,031 18,781 20,327
Capital Investors Life
Insurance Company 81 182 170 1,458 1,315 1,125
Empire General Life
Assurance Corporation 905 1,003 690 20,509 20,685 21,270
Protective Life Insurance
Corporation of Alabama 484 546 69 2,660 2,675 2,133
Wisconsin National Life
Insurance Company 15,011 10,954 10,132 66,577 62,529 57,268
Protective Life Insurance Company
of Kentucky 19 3,030
Community National Assurance
Company 5,100
Consolidation elimination (14,500) (6,500) (115,365) (103,985) (100,123)
-------- -------- ------- --------- --------- ---------
102,337 115,259 68,945 456,320 324,416 306,858
Additions (deductions)
by adjustment:
Deferred policy acquisition
costs, net of amortization (2,830) (765) 41,686 488,384 410,396 434,444
Policy liabilities and accruals (6,895) (53,272) (34,632) (192,351) (189,319) (140,298)
Deferred income tax 10 3,711 3,342 (37,869) (69,520) 14,095
Asset Valuation Reserve 64,233 105,769 24,925
Interest Maintenance Reserve (2,142) (1,235) (1,716) 17,682 14,412 3,583
Nonadmitted items 21,610 20,603 21,445
Timing and valuation
differences on mortgage
loans on real estate and
fixed maturity investments 5,913 (618) (961) (1,708) 27,158 6,258
Net unrealized gains and
losses on investments 4,361 55,765 (106,913)
Realized investment gains (losses) (468) 6,781 (6,664)
Noninsurance affiliates 1,328 12,882 5,877 434,237 213,789 149,750
Minority interest in
consolidated subsidiaries (3,217) (3,217) (1,796)
Consolidation elimination (632,601) (381,988) (436,053)
Other adjustments, net (5,024) (2,861) (3,680) (6,982) (4,924) (7,721)
------- ------- ------- ------- ------- -------
In conformity with generally
accepted accounting principles $ 89,012 $ 76,665 $ 70,401 $ 615,316 $ 526,557 $ 270,373
========= ========= ======== ========= ========= =========
</TABLE>
<PAGE>
NOTE C. INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $313,096 $276,847 $242,510
Equity securities 2,124 1,338 2,435
Mortgage loans on
real estate 153,463 162,135 141,751
Investment real estate 1,954 1,908 2,000
Policy loans 10,377 8,958 8,397
Other, principally
short-term
investments 50,679 39,223 34,088
------ ------ ------
531,693 490,409 431,181
Investment expenses 14,210 14,485 13,356
------ ------ ------
$517,483 $475,924 $417,825
========= ======== =========
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
1996 1995 1994
---- ---- ----
Fixed maturities $(7,101) $ 6,075 $(8,646)
Equity securities 1,733 44 7,735
Mortgage loans and
other investments 10,878 (4,507) 7,209
------- -------- -----
$ 5,510 $ 1,612 $ 6,298
======= ======= =======
</TABLE>
<PAGE>
The Company has established an allowance for uncollectible amounts on
investments. The allowance totaled $31.6 million and $33.4 million at December
31, 1996 and 1995, respectively. Additions and reductions to the allowance are
included in realized investment gains (losses). Without such
additions/reductions, the Company had net realized investment gains of $3.7
million in 1996, net realized investment losses of $0.9 million in 1995, and net
realized investment gains of $6.3 million in 1994.
In 1996 gross gains on the sale of investments available for sale (fixed
maturities, equity securities, and short-term investments) were $6.9 million,
and gross losses were $11.8 million. In 1995 gross gains were $18.0 million, and
gross losses were $11.8 million. In 1994 gross gains were $15.2 million, and
gross losses were $16.4 million.
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
Cost Gains Losses Values
<S> <C> <C> <C> <C>
1996
Fixed maturities:
Bonds:
Mortgage-backed securities $2,192,978 $29,925 $20,810 $2,202,093
United States Government and authorities 348,318 661 1,377 347,602
States, municipalities, and political subdivisions 5,515 47 9 5,553
Public utilities 364,692 2,205 337 366,560
Convertibles and bonds with warrants 679 0 158 521
All other corporate bonds 1,702,351 33,879 29,388 1,706,842
Bank loan participations 49,829 0 0 49,829
Redeemable preferred stocks 7,238 60 226 7,072
---------- ------- ------- ----------
4,671,600 66,777 52,305 4,686,072
Equity securities 31,669 9,570 5,989 35,250
Short-term investments 114,258 0 0 114,258
---------- ------- ------- ----------
$4,817,527 $76,347 $58,294 $4,835,580
========== ======= ======= ==========
Gross Gross Estimated
Amortized Unrealized Unrealized Market
1995 Cost Gains Losses Values
Fixed maturities:
Bonds:
Mortgage-backed securities $2,006,858 $ 46,934 $ 4,017 $2,049,775
United States Government and authorities 105,388 2,290 101 107,577
States, municipalities, and political subdivisions 10,888 702 0 11,590
Public utilities 322,110 5,904 770 327,244
Convertibles and bonds with warrants 638 0 145 493
All other corporate bonds 1,117,452 59,045 7,573 1,168,924
Bank loan participations 220,811 0 0 220,811
Redeemable preferred stocks 5,857 61 324 5,594
---------- -------- --------- ----------
3,790,002 114,936 12,930 3,892,008
Equity securities 35,448 6,438 3,175 38,711
Short-term investments 53,591 0 0 53,591
---------- -------- --------- ----------
$3,879,041 $121,374 $ 16,105 $3,984,310
========== ======== ========= ==========
</TABLE>
<PAGE>
The amortized cost and estimated market values of fixed maturities at December
31, by expected maturity, are shown as follows. Expected maturities are derived
from rates of prepayment that may differ from actual rates of prepayment.
Estimated
Amortized Market
1996 Cost Values
Due in one year or less $ 417,472 $ 420,779
Due after one year
through five years 1,547,842 1,546,297
Due after five years
through ten years 2,113,163 2,118,825
Due after ten years 593,123 600,171
---------- ----------
$4,671,600 $4,686,072
========== ==========
Estimated
Amortized Market
1995 Cost Values
Due in one year or less $ 409,523 $ 411,839
Due after one year
through five years 1,087,757 1,101,226
Due after five years
through ten years 1,477,837 1,524,631
Due after ten years 814,885 854,312
---------- ----------
$3,790,002 $3,892,008
========== ==========
<PAGE>
The approximate percentage distribution of the Company's fixed maturity
investments by quality rating at December 31 is as follows:
Rating 1996 1995
------ ---- ----
AAA 48.3% 56.1%
AA 4.4 4.5
A 22.6 12.6
BBB
Bonds 21.1 19.0
Bank loan participations 0.1 0.4
BB or less
Bonds 2.5 2.0
Bank loan participations 0.9 5.3
Redeemable preferred stocks 0.1 0.1
--- ---
100.0% 100.0%
At December 31, 1996 and 1995, the Company had bonds which were rated less than
investment grade of $117.5 million and $75.7 million, respectively, having an
amortized cost of $137.0 million and $82.2 million, respectively. Additionally,
the Company had bank loan participations which were rated less than investment
grade of $43.6 million and $206.0 million, respectively, having an amortized
cost of $43.6 million and $206.0 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:
1996 1995 1994
---- ---- ----
Fixed maturities $(56,897) $199,395 $(175,725)
Equity securities 207 2,740 (5,342)
===== ===== =======
At December 31, 1996, all of the Company's mortgage loans were commercial loans
of which 78% were retail, 8% were office buildings, and 7% were warehouses. 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 4% of mortgage loans. Approximately 84% of the mortgage loans are on
properties located in the following states listed in decreasing order of
significance: South Carolina, Florida, Georgia, Tennessee, Texas, North
Carolina, Alabama, Virginia, Mississippi, Kentucky, Ohio, California, Indiana,
Arizona, and Washington.
Many of the mortgage loans have call provisions after 5 to 7 years. Assuming the
loans are called at their next call dates, approximately $126.7 million would
become due in 1997, $761.8 million in 1998 to 2001, and $250.8 million in 2002
to 2006.
At December 31, 1996, the average mortgage loan was $1.7 million, and the
weighted average interest rate was 9.3%. The largest single mortgage loan was
$13.6 million. While the Company's mortgage loans do not have quoted market
values, at December 31, 1996 and 1995, the Company estimates the market value of
its mortgage loans to be $1,581.7 million and $2,001.1 million, respectively,
using discounted cash flows from the next call date.
<PAGE>
At December 31, 1996 and 1995, the Company's problem mortgage loans and
foreclosed properties totaled $23.7 million and $26.1 million, respectively.
Since the Company's mortgage loans are collateralized by real estate, any
assessment of impairment is based upon the estimated fair value of the real
estate. Based on the Company's evaluation of its mortgage loan portfolio, the
Company does not expect any material losses on its mortgage loans.
Certain investments, principally real estate, with a carrying value of $18.8
million, were nonincome producing for the twelve months ended December 31, 1996.
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>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax income 35.0% 35.0% 35.0%
Amortization of nondeductible goodwill 0.3 0.2
Dividends received deduction and tax-exempt interest (0.4) (0.6) (0.4)
Low-income housing credit (0.6) (0.7) (0.7)
Tax differences arising from prior acquisitions
and other adjustments (0.3) 0.1 (1.9)
----- --- -----
34.0% 34.0% 32.0%
===== ===== =====
</TABLE>
The provision for federal income tax differs from amounts currently payable due
to certain items reported for financial statement purposes in periods which
differ from those in which they are reported for income tax purposes.
Details of the deferred income tax provision for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred policy acquisition costs $15,542 $(11,606) $34,561
Benefit and other policy liability changes (16,321) 52,496 (52,288)
Temporary differences of investment income 2,922 (34,174) 15,524
Other items (2,153) (10,426) (1,139)
----------- ---------- --------
$ (10) $ (3,710) $(3,342)
=========== ========== ========
</TABLE>
<PAGE>
The components of the Company's net deferred income tax liability as of December
31 were as follows:
1996 1995
---- ----
Deferred income tax assets:
Policy and policyholder
liability reserves $ 80,151 $ 63,830
Other 2,356 203
-------- --------
82,507 64,033
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 117,696 102,154
Unrealized gain on investments 2,680 31,399
-------- --------
120,376 133,553
-------- --------
Net deferred income tax liability $ 37,869 $ 69,520
======== =========
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, 1996, 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 $439 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.
<PAGE>
NOTE E. DEBT AND PREFERRED SECURITIES
Short-term and long-term debt at December 31 is summarized as follows:
1996 1995
---- ----
Short-term debt:
Note payable to bank $ 12,800 $ 12,800
======= =======
Long-term debt:
Notes payable to banks $ 48,200 $ 40,500
Senior Notes 75,000 75,000
Medium-Term Notes 45,000
------- -------
$168,200 $115,500
======= =======
Under a three-year revolving line of credit arrangement with several banks, the
Company can borrow up to $70 million on an unsecured basis. No compensating
balances are required to maintain the line of credit. At December 31, 1996, the
Company had borrowed $48.2 million under this credit arrangement at an interest
rate of 5.9%. Additionally, the Company had a $12.8 million short-term note
payable to a bank at an interest rate of 5.8%.
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.
In 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. During 1996, the
Company issued $45 million of Medium-Term Notes with interest rates ranging from
7.00% to 7.45%. These notes are due in 2011 and $35 million of the notes are
redeemable by the Company after five years.
As discussed in Note A, the Company uses interest rate swaps and swaptions to
convert its Senior Notes and Medium-Term Notes from a fixed interest rate to a
floating interest rate. The effective interest rate for the Senior Notes was
7.3% and 7.4% in 1996 and 1995, respectively. The effective interest rate for
the Medium-Term Notes was 7.3% in 1996.
Future maturities of the long-term debt are $48.2 million in 1999, $75 million
in 2004, and $45 million in 2011.
Interest expense on debt totaled $10.1 million, $9.6 million, and $7.8 million
in 1996, 1995, and 1994, respectively.
In 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. PLCCapital was formed
solely to issue MIPS and other securities and lend the proceeds thereof to the
Company in exchange for
<PAGE>
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 which effectively converted the MIPS from a fixed dividend rate
to the floating, 30-day LIBOR plus 60.5 basis points, approximately 6.2% and
6.3% at December 31, 1996 and 1995, respectively.
Dividends, net of tax, on the MIPS were $3.2 million in 1996 and 1995 and $1.8
million in 1994 before consideration of the interest rate swap agreements. On a
swap-adjusted basis, dividends were $2.2 million, $2.4 million, and $1.1 million
in 1996, 1995, and 1994, respectively.
NOTE F. ACQUISITIONS
On March 20, 1995, the Company acquired National Health Care Systems of Florida,
Inc. (also known as "DentiCare"). The purchase price was $38.3 million and was
paid with a combination of the Company's Common Stock ($30.7 million) and cash
($7.6 million). In connection with the acquisition, the Company reissued
1,316,458 shares of its Common Stock previously held as Treasury Stock. The
Company recorded $32.4 million of goodwill in connection with this acquisition,
which is being amortized using the straight line method over forty years.
In June 1995 the Company acquired through coinsurance a block of term life
insurance policies. In January 1996 the Company acquired through coinsurance a
block of life insurance policies. In March 1996 the Company acquired a small
dental managed care company. In June 1996 the Company acquired through
coinsurance a block of credit life insurance policies. In December 1996 the
Company acquired a small life insurance company and acquired through coinsurance
a block of life insurance policies.
These transactions have been accounted for as purchases, and the results of the
transactions have been included in the accompanying financial statements since
the effective dates of the agreements.
NOTE G. COMMITMENTS AND CONTINGENT LIABILITIES
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 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.
<PAGE>
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. Increasingly these lawsuits have resulted
in the award of substantial judgments against the insurer that are
disproportionate to the actual damages, including material amounts of punitive
damages. In some states, juries have substantial discretion in awarding punitive
damages which creates the potential for unpredictable material adverse judgments
in any given punitive damage suit. The Company and its subsidiaries, like other
life and health insurers, from time to time are involved in such litigation.
Pending litigation includes a class action filed in Jefferson County
(Birmingham), Alabama with respect to cancer premium refunds. Although the
outcome of any litigation cannot be predicted with certainty, the Company
believes that at the present time there are no pending or threatened lawsuits
that are reasonably likely to have a material adverse effect on the financial
position, results of operations, or liquidity of the Company.
NOTE H. STOCKHOLDERS' EQUITY AND RESTRICTIONS
On May 1, 1995, the Company's Board of Directors approved a two-for-one split of
the Company's Common Stock in the form of a 100% stock dividend on June 1, 1995.
Stockholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying from retained earnings to
common stock the par value of the additional shares arising from the stock
split. In addition, all references to number of shares and per share amounts
included herein have been restated to reflect the stock split.
The Company has a Rights Agreement that provides rights to holders of the
Company's Common Stock to purchase Series A Junior Participating Cumulative
Preferred Stock, or in certain circumstances, either Common Stock or common
stock of an acquiring company at one half the market price of such Common Stock
or common stock, as the case may be. The rights will become exercisable if
certain events occur with respect to the Company, including the acquisition by a
person or group of 15% or more of the Company's Common Stock. The Company can
redeem the rights at $.01 per right in certain circumstances including until ten
business days following a public announcement that 15% or more of the Company's
Common Stock has been acquired by a person or group.
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 Rights Agreement,
400,000 of these shares have been designated as Series A Junior Participating
Cumulative Preferred Stock, $1.00 par value, and were unissued at December 31,
1996. The remaining 3,600,000 shares of Preferred Stock, $1.00 par value, were
also unissued at December 31, 1996.
The Company has an Employee Stock Ownership Plan (ESOP). In 1990 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 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 1995, the Company transferred 16,158 shares of Common Stock to
the ESOP and transferred another 19,847 shares during 1996.
<PAGE>
Since 1973 the Company has had a Performance Share Plan to motivate senior
management to focus on the Company's long-range earnings performance. The
criterion for payment of performance share awards is based upon a comparison of
the Company's average return on average equity over a four year award period
(earlier upon the death, disability or retirement of the executive, or in
certain circumstances, of a change in control of the Company) to that of a
comparison group of publicly held life insurance companies, multiline insurers,
and insurance holding companies. If the Company's results are below the median
of the comparison group, no portion of the award is earned. If the Company's
results are at or above the 90th percentile, the award maximum is earned. Under
the plan approved by stockholders in 1992, up to 1,200,000 shares may be issued
in payment of awards. The number of shares granted in 1996, 1995, and 1994 were
52,290, 72,610, and 62,140 shares, respectively, having an approximate market
value on the grant date of $1.8 million, $1.6 million, and $1.4 million,
respectively. At December 31, 1996, outstanding awards measured at target and
maximum payouts were 279,648 and 375,470 shares, respectively. The expense
recorded by the Company for the Performance Share Plan was $3.0 million, $2.9
million, and $3.6 million in 1996, 1995, and 1994, respectively.
During 1996, stock appreciation rights (SARs) were granted to certain executives
of the Company to provide long-term incentive compensation based on the
performance of the Company's Common Stock. Under this arrangement the Company
will pay (in shares of Company Common Stock) an amount equal to the difference
between the specified base price of the Company's Common Stock and the market
value at the exercise date. The SARs are exercisable after five years (earlier
upon the death, disability or retirement of the executive, or in certain
circumstances, of a change in control of the Company) and expire in 2006 or upon
termination of employment. The number of SARs granted during 1996 and
outstanding at December 31, 1996 was 337,500. The SARs have a base price of
$34.875 per share of Company Common Stock (the market price on the grant date
was $35.00 per share). The estimated fair value of the SARs on the grant date
was $3.0 million. This estimate was derived using the Roll-Geske variation of
the Black-Sholes option pricing model. Assumptions used in the pricing model are
as follows: expected volatility rate of 15% (approximately equal to that of the
S & P Life Insurance Index), a risk free interest rate of 6.35%, a dividend
yield rate of 1.97%, and an expected exercise date of August 15, 2002. The
expense recorded by the Company for the SARs was $0.2 million in 1996.
The Company has established deferred compensation plans for directors and
officers, and others. Compensation deferred is credited to the participants in
cash or Common 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, 1996, the plans had 347,358
shares of Common Stock equivalents credited to participants.
At December 31, 1996, approximately $173 million of consolidated stockholders'
equity, excluding net unrealized gains 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. 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 1997 is estimated to
be $117 million.
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 $31.2 million, $21.2 million, and $21.1
million in 1996, 1995, and 1994, respectively. The Company paid commissions,
interest, and service fees to these same corporations totaling $5.0 million,
$5.3 million, and $4.9 million, in 1996, 1995, and 1994, respectively.
<PAGE>
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 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. In the 1996
first quarter the Company changed the way it allocates certain expenses to its
business segments. Accordingly, prior period segment results have been restated
to reflect the change.
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) 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Total Revenues
Acquisitions $ 213,199 $ 193,544 $ 171,259
Financial Institutions 88,872 76,326 108,693
Group 207,364 180,262 148,835
Guaranteed Investment Contracts 206,406 199,468 184,212
Individual Life 180,917 147,580 131,925
Investment Products 114,721 106,977 79,199
Corporate and Other 20,007 17,140 19,059
Unallocated Realized Investment Gains (Losses) 6,517 583 5,266
----- --- -----
$1,038,003 $ 921,880 $ 848,448
========== =========== ===========
Acquisitions 20.5% 21.0% 20.2%
Financial Institutions 8.6 8.3 12.8
Group 20.0 19.5 17.5
Guaranteed Investment Contracts 20.0 21.6 21.7
Individual Life 17.4 16.0 15.6
Investment Products 11.0 11.6 9.3
Corporate and Other 1.9 1.9 2.3
Unallocated Realized Investment Gains (Losses) 0.6 0.1 0.6
--- --- ---
100.0% 100.0% 100.0%
====== ====== ======
Income Before Income Tax
Acquisitions $ 52,670 $ 48,490 $ 37,328
Financial Institutions 9,531 8,375 9,024
Group 5,138 10,060 10,139
Guaranteed Investment Contracts 32,119 27,649 29,005
Individual Life 15,151 13,490 13,933
Investment Products 11,595 9,724 (705)
Corporate and Other* 7,020 2,663 2,183
Unallocated Realized Investment Gains (Losses) 6,517 583 5,266
----- --- -----
$ 139,741 $ 121,034 $ 106,173
=========== =========== ===========
Acquisitions 37.7% 40.1% 35.2%
Financial Institutions 6.8 6.9 8.5
Group 3.7 8.3 9.5
Guaranteed Investment Contracts 23.0 22.8 27.3
Individual Life 10.8 11.2 13.1
Investment Products 8.3 8.0 (0.7)
Corporate and Other 5.0 2.2 2.1
Unallocated Realized Investment Gains (Losses) 4.7 0.5 5.0
--- --- ---
100.0% 100.0% 100.0%
====== ====== ======
<PAGE>
Identifiable Assets
Acquisitions $1,579,253 $1,255,542 $1,204,883
Financial Institutions 352,021 268,782 215,878
Group 278,926 278,094 215,997
Guaranteed Investment Contracts 2,608,149 2,537,045 2,211,181
Individual Life 1,037,386 890,198 731,026
Investment Products 1,873,119 1,580,519 1,286,744
Corporate and Other 534,351 421,077 264,575
------- ------- -------
$8,263,205 $7,231,257 $6,130,284
========== ========== ==========
Acquisitions 19.1% 17.4% 19.7%
Financial Institutions 4.3 3.7 3.5
Group 3.4 3.8 3.5
Guaranteed Investment Contracts 31.5 35.1 36.1
Individual Life 12.5 12.3 11.9
Investment Products 22.7 21.9 21.0
Corporate and Other 6.5 5.8 4.3
--- --- ---
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
* Income before income tax for the Corporate and Other segment has not been
reduced by pretax minority interest of $4,950 in 1996 and 1995, and $2,764 in
1994.
<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:
1996 1995
---- ----
Accumulated benefit obligation,
including vested benefits of
$14,720 in 1996 and $16,676
in 1995 $15,475 $17,415
======= =======
Projected benefit obligation
for service rendered to date $25,196 $24,877
Plan assets at fair value
(group annuity contract
with Protective Life) 19,779 18,254
------ ------
Plan assets less than the
projected benefit obligation (5,417) (6,623)
Unrecognized net loss from
past experience different
from that assumed 3,559 4,882
Unrecognized prior service cost 705 805
Unrecognized net transition asset (67) (84)
---- ----
Net pension liability recognized
in balance sheet $ (1,220) $ (1,020)
========= =========
<PAGE>
Net pension cost includes the following components for the years ended December
31:
1996 1995 1994
---- ---- ----
Service cost -
benefits earned
during the year $1,908 $1,540 $1,433
Interest cost on
projected benefit
obligation 1,793 1,636 1,520
Actual return on
plan assets (1,674) (1,358) (1,333)
Net amortization
and deferral 374 114 210
--- --- ---
Net pension cost $2,401 $1,932 $1,830
====== ====== ======
Assumptions used to determine the benefit obligations as of December 31 were as
follows:
1996 1995 1994
---- ---- ----
Weighted average
discount rate 7.75% 7.25% 8.00%
Rates of increase
in compensation
level 5.75% 5.25% 6.00%
Expected long-term
rate of return on
assets 8.50% 8.50% 8.50%
===== ===== =====
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, 1996 and 1995, the projected benefit
obligation of this plan totaled $7.2 million and $5.7 million, respectively.
In addition to pension benefits, the Company provides limited healthcare
benefits to eligible retired employees until age 65. The postretirement benefit
is provided by an unfunded plan. At December 31, 1996 and 1995, the liability
for such benefits totaled $1.4 million and $1.5 million, respectively. The
expense recorded by the Company was $0.1 million
<PAGE>
in 1996 and $0.2 million in 1995 and 1994. 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.
The Company sponsors a defined contribution retirement plan which covers
substantially all employees. Employee contributions are made on a before-tax
basis as provided by Section 401(k) of the Internal Revenue Code. The Company
has established an Employee Stock Ownership Plan (ESOP)to match voluntary
employee contributions to the Company's 401(k) Plan. In 1994 a stock bonus was
added to the 401(k) Plan for employees who are not otherwise under a bonus 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, 1996, the Company had committed 52,388 shares to be
released to fund employee benefits. The expense recorded by the Company for
these employee benefits was $1.0 million, $0.7 million, and $0.6 million in
1996, 1995, and 1994, 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
generally will not carry more than $500,000 individual life insurance on a
single risk.
The Company has reinsured approximately $18.8 billion, $17.5 billion, and $8.6
billion in face amount of life insurance risks with other insurers representing
$113.5 million, $116.1 million, and $46.0 million of premium income for 1996,
1995, and 1994, respectively. The Company has also reinsured accident and health
risks representing $194.7 million, $217.1 million, and $126.5 million of premium
income for 1996, 1995, and 1994, respectively. In 1996 and 1995, policy and
claim reserves relating to insurance ceded of $325.9 million and $266.9 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, 1996 and 1995,
the Company had paid $6.7 million and $4.1 million, respectively, of ceded
benefits which are recoverable from reinsurers.
During 1995 the Company entered into a reinsurance agreement whereby all of the
Company's new credit insurance sales are being ceded to a reinsurer. Included in
the preceding paragraph are credit life and credit accident and health insurance
premiums of $47.7 million and $55.3 million, respectively, and reserves of
$135.8 million which were ceded during 1996. Also included are credit life and
credit accident and health insurance premiums of $68.2 million and $57.6
million, respectively, and reserves totaling $100.8 million which were ceded
during 1995.
<PAGE>
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>
1996 1995
Estimated Estimated
Carrying Market Carrying Market
Amounts Values Amounts Values
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities $4,686,072 $4,686,072 $3,892,008 $3,892,008
Equity securities 35,250 35,250 38,711 38,711
Mortgage loans on real estate 1,503,080 1,581,694 1,834,357 2,001,081
Short-term investments 114,258 114,258 53,591 53,591
Cash 121,051 121,051 11,392 11,392
Liabilities (see Notes A and E):
Debt:
Notes payable to banks 61,000 61,000 40,500 40,500
Senior Notes 75,000 75,000 75,000 75,000
Medium-Term Notes 45,000 45,000
Monthly Income Preferred Securities 55,000 57,200 55,000 58,300
Other (see Note A):
Futures contracts (1,708) (633)
Interest rate swaps (333) 5,658
Options (54)
</TABLE>
<PAGE>
NOTE N. CONSOLIDATED QUARTERLY RESULTS - UNAUDITED
Protective Life Corporation's unaudited consolidated quarterly operating data
for the years ended December 31, 1996 and 1995, 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
quarters.
<TABLE>
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Premiums and policy fees $115,586 $132,251 $118,696 $127,620
Net investment income 124,280 130,560 129,309 133,334
Realized investment gains (losses) 4,421 600 861 (372)
Other income 5,458 4,972 5,079 5,348
----- ----- ----- -----
Total revenues 249,745 268,383 253,945 265,930
Benefits and expenses 216,605 231,860 222,389 227,408
------- ------- ------- -------
Income before income tax 33,140 36,523 31,556 38,522
Income tax expense 11,268 12,417 10,730 13,097
Minority interest 804 805 804 804
--- --- --- ---
Net income $21,068 $23,301 $20,022 $24,621
======= ======= ======= =======
Net income per share $.73 $.78 $.64 $.79
==== ==== ==== ====
Average shares outstanding 29,020,360 29,805,228 31,147,723 31,151,755
========== ========== ========== ==========
<PAGE>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
- ---- ------- ------- ------- -------
Premiums and policy fees $104,022 $113,610 $107,300 $107,644
Net investment income 112,663 118,046 123,894 121,321
Realized investment gains (losses) 2,619 (555) 1,337 (1,789)
Other income 2,525 2,780 2,660 3,803
----- ----- ----- -----
Total revenues 221,829 233,881 235,191 230,979
Benefits and expenses 192,257 206,011 201,487 201,091
------- ------- ------- -------
Income before income tax 29,572 27,870 33,704 29,888
Income tax expense 9,759 9,197 12,034 10,162
Minority interest 804 804 804 805
--- --- --- ---
Net income $19,009 $17,869 $20,866 $18,921
======= ======= ======= =======
Net income per share $.69 $.62 $.72 $.65
==== ==== ==== ====
Average shares outstanding 27,599,922 28,766,664 28,775,118 28,934,174
========== ========== ========== ==========
</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, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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 stock-based employee compensation plans in
1995.
/s/ Coopers & Lybrand, L.L.P.
Coopers & Lybrand, L.L.P.
Birmingham, Alabama
February 11, 1997
<PAGE>
<PAGE>
Exhibit 21
to
Form 10-K
of
Protective Life Corporation
for
Fiscal Year
Ended December 31, 1996
The following wholly-owned subsidiary of Protective Life Corporation is
organized 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
38
<PAGE>
Exhibit 23
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
Protective Life Corporation on Form S-3 (File Nos. 333-03435 and 33-55063) and
Form S-8 (File Nos. 33-51887 and 33-68036) of our report, which includes an
explanatory paragraph with respect to changes in the Company's method of
accounting for stock-based employee compensation plans in 1995, dated February
11, 1997, on our audits of the consolidated financial statements and financial
statement schedules of Protective Life Corporation as of December 31, 1996 and
1995 and for the years ended December 31, 1996, 1995, and 1994, which report is
included or incorporated by reference in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
March 27, 1997
<PAGE>
Exhibit 24
DIRECTORS' POWER OF ATTORNEY
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 1996
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 3rd day of March, 1997.
WITNESS TO ALL SIGNATURES: /s/ William J. Rushton III
William J. Rushton III
/s/ Deborah J. Long /s/ John W. Woods
Deborah J. Long John W. Woods
/s/ William J. Cabaniss, Jr.
William J. Cabaniss, Jr.
/s/ H. G. Pattillo
H. G. Pattillo
/s/ Drayton Nabers, Jr.
Drayton Nabers, Jr.
/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
/s/ James S. M. French
James S. M. French
/s/ Robert A. Yellowlees
Robert A. Yellowlees
<TABLE> <S> <C>
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 4,686,072
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 35,250
<MORTGAGE> 1,503,080
<REAL-ESTATE> 14,305
<TOTAL-INVEST> 6,552,175
<CASH> 121,051
<RECOVER-REINSURE> 332,614
<DEFERRED-ACQUISITION> 488,384
<TOTAL-ASSETS> 8,263,205
<POLICY-LOSSES> 2,448,449
<UNEARNED-PREMIUMS> 260,937
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 142,221
<NOTES-PAYABLE> 181,000
0
0
<COMMON> 16,668
<OTHER-SE> 598,648
<TOTAL-LIABILITY-AND-EQUITY> 8,263,205
494,153
<INVESTMENT-INCOME> 517,483
<INVESTMENT-GAINS> 5,510
<OTHER-INCOME> 20,857
<BENEFITS> 645,040
<UNDERWRITING-AMORTIZATION> 91,030
<UNDERWRITING-OTHER> 162,192
<INCOME-PRETAX> 139,741
<INCOME-TAX> 47,512
<INCOME-CONTINUING> 89,012<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,012
<EPS-PRIMARY> 2.94
<EPS-DILUTED> 2.94
<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 $3,217
</FN>
</TABLE>
<PAGE>
Exhibit 99
to
Form 10-K
of
Protective Life Corporation
for
Fiscal Year
Ended December 31, 1996
Safe Harbor for Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act")
encourages companies to make "forward-looking statements" by creating a safe
harbor to protect companies from securities law liability in connection with
forward-looking statements. Forward-looking statements can be identified by use
of words such as "expect," "estimate," "project," "budget," "forecast,"
"anticipate," "plan," and similar expressions. Protective Life Corporation (the
"Company") intends to qualify both its written and oral forward-looking
statements for protection under the Act.
To qualify oral forward-looking statements for protection under the
Act, a readily available written document must identify important factors that
could cause actual results to differ materially from those in the
forward-looking statements. The Company provides the following information to
qualify forward-looking statements for the safe harbor protection of the Act.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations. Important factors which
could affect future results of the Company are discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Known Trends and Uncertainties" in the Company's 1996 Annual Report to
Stockholders, which is incorporated herein by reference. The trends and
uncertainties discussed are: competition, ratings, policy claims fluctuations,
liquidity and investment portfolio, interest rate fluctuations, investment
risks, continuing success of acquisition strategy, regulation and taxation,
litigation, reliance upon the performance of others, and reinsurance.
Forward-looking statements express expectations of future events and/or
results. All forward-looking statements are inherently uncertain as they are
based on various expectations and assumptions concerning future events and they
are subject to numerous known and unknown risks and uncertainties which could
cause actual events or results to differ materially from those projected. Due to
these inherent uncertainties, investors are urged not to place undue reliance on
forward-looking statements. In addition, the Company undertakes no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events, or changes to projections over time.
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