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.
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)
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
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.
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.
(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
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.
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.
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.
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.
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.
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.
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.
The following table shows the investment results of the Company for the years 1992 through 1996:
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.
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.
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
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.
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.
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.
Item 3.
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.
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.
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 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 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".
Item 6.
Item 6. Selected Financial Data
(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.
Item 7.
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.
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.
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
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
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
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.
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
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.
Item 11. Executive Compensation
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13.
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.
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).
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
*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
*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
*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
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
* 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
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)
*Eliminated in consolidation.
See notes to condensed financial statements.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS PROTECTIVE LIFE CORPORATION (Parent Company) (in thousands)
*Eliminated in consolidation.
See notes to condensed financial statements.
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)
*Eliminated in consolidation.
See notes to condensed financial statements.
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.
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES (in thousands)
SCHEDULE IV - REINSURANCE PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES (dollars in thousands)
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..............................................................................