Item 1. Business
Protective Life Corporation is a 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 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.
Copies of the Company's Proxy Statement and 1998 Annual Report to Share Owners will be furnished to anyone who requests such documents from the Company. Requests for copies should be directed to: Share-Owner Relations, Protective Life Corporation, P. O. Box 2606, Birmingham, Alabama 35202, Telephone (205) 868-3573, FAX (205) 868-3541. Copies may also be requested through the Internet from the Company's Worldwide Web Site (http://www.protective.com). 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).
The Company operates seven divisions whose principal strategic focuses can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products.
The following table shows the percentages of pretax operating income represented by each of the strategic focuses and the Corporate and Other segment.
Retirement Specialty Savings and Corporate Year Ended Life Insurance Investment and December 31 Insurance Products Products Other - ----------------- ------------ ------------- ------------ ---------
1994 53.2% 20.1% 27.3% (0.6)% 1995 53.4 15.9 32.7 (2.0) 1996 50.1 11.0 37.3 1.6 1997 49.8 18.0 23.3 8.9 1998 50.9 20.1 21.7 7.3
Additional information concerning the Company's divisions may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations" and Note I to Consolidated Financial Statements in the Company's 1998 Annual Report to Share Owners, which are incorporated herein by reference.
In the following paragraphs, the Company reports its divisional sales, new capital invested, members, and annualized premium. These statistics are used by the Company to measure the relative progress of its marketing and acquisition efforts. These statistics were derived from the Company's various sales tracking and administrative systems and were not derived from the Company's financial reporting systems or financial statements. These statistics attempt to measure only one of many factors that may affect future divisional profitability, and therefore are not intended to be predictive of future profitability.
LIFE INSURANCE
A strategic focus of the Company is to expand its life insurance operations through internal growth and acquisitions. The Individual Life, West Coast and Acquisitions Divisions support this strategy.
Individual Life Division
The Individual Life Division markets level premium term and term-like insurance, universal life and variable universal life products on a national basis primarily through networks of independent insurance agents. The Division is also developing other distribution channels. These include marketing life insurance products through regional stockbrokers and banks, and through worksite and direct response arrangements. The Division also offers its products on a "private label" basis to other insurance companies and their distribution systems. The Division has experienced increased sales even though the life insurance industry is a mature industry.
The Division has two principal agent networks. The first is based on experienced independent personal producing general agents who are recruited by regional sales managers. At December 31, 1998, there were over 55 regional sales managers located throughout the United States. This distribution system generally appeals to agents who prefer to represent one or a few insurers, and who may depend on the regional sales managers or the Company to furnish various support services to the agent. Approximately 47% of the Division's 1998 sales came from this distribution system.
The Division also distributes specialty insurance products in the life insurance brokerage market through a wholly-owned subsidiary, Empire General Life Assurance Corporation ("Empire General"), representing approximately 42% of sales. This distribution system generally appeals to agents who prefer to represent many insurers, or who look to Empire General's product offerings to fill a special need. For the entire Division, sales through stockbrokers and banks represented 9% of sales.
The following table shows the Individual Life Division's sales measured by new premium.
Year Ended December 31 Sales ------------------ -------------------- (dollars in millions)
1994 $30.8 1995 36.3 1996 45.4 1997 48.7 1998 71.2
The Division also includes ProEquities, Inc. ("PES"), an affiliated, full-service, securities broker-dealer. PES recruits members of the Division's field force, financial planners, and others who are licensed to sell securities to affiliate with it. PES makes available variable insurance products, mutual funds, and other investment products to its licensed representatives to offer to their clients and customers.
West Coast Division
On June 3, 1997, the Company acquired West Coast Life Insurance Company ("West Coast"). Headquartered in San Francisco, West Coast sells universal life and level premium term-like insurance products in the life insurance brokerage market and in the "bank owned life insurance" ("BOLI") market.
The West Coast Division primarily utilizes a distribution system comprised of brokerage general agencies ("BGAs") who recruit a network of independent life agents. The BGAs provide varying levels of service to the independent agents based on the size, structure and capabilities of the individual BGA organizations. At December 31, 1998, the Division worked with 80 BGAs located throughout the United States. This distribution system represented approximately 55% of the Division's 1998 sales.
The Division also offers corporate owned life insurance products to the BOLI market through an independent marketing organization which specializes in this market. The products are sold to smaller and regional banks, and represent approximately 45% of the Division's sales.
The following table shows the West Coast Division's sales measured by new premium including sales prior to the Company's acquisition of West Coast for comparison purposes.
Year Ended December 31 Sales --------------------- ------------------- (dollars in millions)
1996 $14.9 1997 29.8 1998 40.6
Acquisitions Division
The Company is an active participant in the consolidation of the life insurance industry. The Acquisitions Division focuses on acquiring, converting, and servicing policies acquired from other companies. The Division's primary focus is on life insurance policies sold to individuals. These acquisitions may be accomplished through acquisitions of companies or through the reinsurance of blocks of policies from other insurers. Forty transactions have been closed by the Division since 1970, including 13 since 1989. Blocks of policies acquired through the Division are usually administered as "closed" blocks; i.e., no new policies are being marketed. 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.
Most acquisitions closed by the Division do not include the acquisition of an active sales force. In transactions where some marketing capacity was included, the Division generally either ceased future marketing efforts or redirected those efforts to another Division of the Company. However, in the case of the acquisition of West Coast which was closed by the Acquisitions Division, the Company elected to continue the marketing of new policies and to operate and report West Coast as a separate division of the Company.
The Division believes that its highly focused and disciplined approach to the acquisition process and its extensive experience in the assimilation, conservation, and servicing of purchased policies give it a significant competitive advantage over many other companies that attempt to make similar acquisitions. The Division expects acquisition opportunities to continue to be available as the life insurance industry continues to consolidate; however, management believes that the Company may face increased competition for future acquisitions.
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.
The following table shows the number of transactions closed by the Acquisitions Division and the approximate amount of new (statutory) capital invested.
Number New Year Ended of Capital December 31 Transactions Invested - ------------------- -------------- ------------------- (dollars in millions)
1994 2 $ 45.6 1995 1 16.6 1996 3 47.1 1997 1 (1) 116.8 (1) 1998 1 77.8 - ----------- (1) West Coast
From time to time other of the Company's Divisions have acquired companies and blocks of policies which are included in their respective results.
SPECIALTY INSURANCE PRODUCTS
A second strategic focus of the Company is to participate in specialized segments of the insurance industry that offer attractive growth opportunities. The Dental and Consumer Benefits and Financial Institutions Divisions support this strategy.
Dental and Consumer Benefits Division
In 1997, the Division (formerly known as the Group Division) exited from the traditional group major medical business, fulfilling the Division's strategy to focus primarily on dental and related products. Accordingly, the Division was renamed.
The Division's primary strategic emphasis is on indemnity and prepaid dental products. The Division was a pioneer in developing indemnity dental products for the voluntary payroll deduction market. In 1995, the Division entered the prepaid dental market when it acquired a company which transacts business under the trade name "DentiCare". The Division's strategy is to promote a "dual choice" option by offering prepaid dental products through the Division's indemnity dental distribution channels.
The Division has significantly grown its prepaid dental business through acquisitions. The Division acquired two small prepaid dental plans in 1996, and three small plans in 1997. In September 1998, the Division acquired United Dental Care, Inc. ("United Dental Care"), a leading provider of prepaid dental coverages. With the United Dental Care acquisition, the Division has become the third largest provider of prepaid dental coverages.
The Division offers discounted fee-for-service dental programs to individual consumers and groups through its Dental Network Plans where enrolled consumers have access to a contracted network of dental providers who have agreed to a discounted fee schedule.
The following table shows the approximate number of Dental and Consumer Benefits Division's members in all of its dental programs and annualized dental premium in-force at December 31.
Annualized Dental Members Premium ------------- ------------------- (in millions) (dollars in millions)
1994 0.2 $ 34.2 1995 0.6 74.8 1996 0.8 101.2 1997 1.2 146.1 1998 3.0 339.7
The Division also offers group life and disability coverages, and administers an essentially closed block of individual cancer insurance policies, with a minimal amount of new cancer insurance coverage issued.
Financial Institutions Division
The Financial Institutions Division specializes in marketing credit life and disability insurance products through banks, consumer finance companies and automobile dealers. The Division is one of the largest independent writers of credit insurance in the United States. The majority of these policies cover consumer loans made by financial institutions located primarily in the southeastern United States and automobile dealers throughout the United States. The demand for credit life and credit health insurance is related to the general level for consumer loans.
The Division markets through employee field representatives, independent brokers and wholly-owned subsidiaries. The Company believes it has been a beneficiary of a "flight to quality," as financial institutions and automobile dealers increasingly prefer to do business with insurers having quality products, strong balance sheets and high-quality training and service capabilities.
In September 1997, the Division acquired the Western Diversified Group. The Western Diversified Group markets credit insurance and related products through automobile dealers primarily in the midwestern United States. The Western Diversified Group includes a small property and casualty insurer that sells automobile extended service contracts, which the Division has begun to market nationally through its other distribution channels. The Division acquired a closed block of credit policies in 1996 and another in 1997.
The following table shows the Financial Institutions Division's sales measured by new premium including sales of Western Diversified since the date of acquisition.
Year Ended December 31 Sales --------------------- ------------------- (dollars in millions)
1994 $117.3 1995 136.3 1996 147.2 1997 189.3 1998 273.5
A significant portion of the Division's sales are reinsured with producer-owned reinsurers.
RETIREMENT SAVINGS AND INVESTMENT PRODUCTS
A third strategic focus of the Company is to offer products that respond to the shift in consumer preference to savings products brought about by demographic trends as "baby-boomers" move into the saving stage of their life cycle. The two Divisions that support this strategy are the Guaranteed Investment Contracts and Investment Products Divisions.
Guaranteed Investment Contracts Division
The Guaranteed Investment Contracts ("GIC") Division markets GICs to 401(k) and other qualified retirement savings plans. GICs are generally contracts which specify a return on deposits for a specified period and often provide flexibility for withdrawals, in keeping with the benefits provided by the plan. The demand for GICs is related to the relative attractiveness of the "fixed rate" investment option in a 401(k) plan compared to the equity-based investment options available to plan participants. The Division also markets related products, including fixed and floating rate funding agreements offered to the trustees of municipal bond proceeds, bank trust departments and money market funds, and long-term annuity contracts offered to fund certain state obligations. The Division has benefited from the growing acceptance of funding agreements among money managers. The Division's emphasis is on a consistent and disciplined approach to product pricing and asset/liability management, careful underwriting of early withdrawal risks and maintaining low distribution and administration costs.
Most GIC contracts and funding agreements written by the Division have maturities of three to five years. The rate of growth in GIC account balances has slowed as the amount of maturing contracts has increased relative to the amount of sales of GIC and related deposits.
The following table shows the Guaranteed Investment Contract Division's sales and account balances.
Year Ended Account December 31 Sales Balances --------------------- ---------- --------- (dollars in millions)
1994 $806 $2,282 1995 751 2,524 1996 686 2,627 1997 696 2,869 1998 827 2,879
Investment Products Division
The Investment Products Division manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and the Individual Life Division's sales force. The demand for annuity products is related to the general level of interest rates and performance of the equity markets.
The Division offers modified guaranteed annuities 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. Since 1994, the Division has offered variable annuities which offer the policyholder the opportunity to invest in various investment accounts.
The following table shows the Investment Products Division's sales.
Year Ended Fixed Variable Total December 31 Annuities Annuities Annuities - -------------------- --------- ------------ ---------- (dollars in millions)
1994 $280 $171 $451 1995 118 189 307 1996 199 169 368 1997 180 324 504 1998 97 472 569
The following table shows the Investment Products account balances.
Year Ended Fixed Variable Total December 31 Annuities Annuities Annuities - ---------------- --------- ---------- ---------- (dollars in millions)
1994 $983 $170 $1,153 1995 996 388 1,384 1996 1,042 625 1,667 1997 1,229 1,057 2,286 1998 1,105 1,555 2,660
Corporate and Other
The Company has an additional business segment referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the Divisions described above (including net investment income on capital and interest on substantially all debt). This segment also includes earnings from various investment-related transactions, the Company's 50%-owned joint venture in Hong Kong and the operations of several small subsidiaries. The earnings of this segment may fluctuate from year to year.
Investments
The types of assets in which the Company may invest are influenced by various 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 overall composition of the investment portfolio by asset type and credit exposure.
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. Due to the potential cash flow volatility of mortgage-backed securities, the Company has focused on sequential, planned amortization class ("PAC") and targeted amortization class ("TAC") securities. These types have less cash flow volatility than other types of mortgage-backed securities. The Company does not invest in the riskiest tranches of mortgage-backed securities. In addition, the Company has entered into hedging transactions to reduce the volatility in market value of its mortgage-backed securities.
The table below shows a breakdown of the Company's mortgage-backed securities portfolio by type at December 31, 1998. PACs pay down according to a schedule. TACs pay down in amounts approximating targeted schedule. Sequentials, like PACs and TACs, receive scheduled payments with any "excess" cash flow going to repay the earliest maturing tranches first. All three of these types of structured mortgage-backed securities give the Company some measure of protection against both prepayment and extension risk.
Accretion directed securities have a stated maturity but may repay more quickly. Pass through securities receive principal as principal of the underlying mortgages is received. Support tranches are designed to receive cash after the more stable tranches (i.e., PACs, TACs, and sequentials) are satisfied. The CMBS are commercial mortgage-backed securities issued in securitization transactions sponsored by the Company, in which the Company securitized portions of its mortgage loan portfolio.
Percentage of Mortgage-Backed Type Securities --------- ---------------
PAC 22.6% TAC 10.6 Sequential 36.7 Accretion Directed 8.4 Pass Through 7.9 Support 2.2 CMBS 11.6 ------- 100.0% =======
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, 1998, approximately 99.6% of bonds were rated by Moody's, S&P, or the NAIC.
At December 31, 1998, approximately $6,182.8 million of the Company's $6,431.7 million bond portfolio was invested in U.S. Government or agency-backed securities or investment grade bonds and only approximately $248.9 million of its bond portfolio was rated less than investment grade, of which $83.5 million were securities issued in Company-sponsored commercial mortgage loan securitizations.
Risks associated with investments in less than investment grade debt obligations may be significantly higher than risks associated with investments in debt securities rated investment grade. Risk of loss upon default by the borrower is significantly greater with respect to such debt obligations than with other debt securities because these obligations may be unsecured or subordinated to other creditors. Additionally, there is often a thinly traded market for such securities and current market quotations are frequently not available for some of these securities. Issuers of less than investment grade debt obligations usually have higher levels of indebtedness and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment-grade issuers.
The Company also invests 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 1998 was $1.6 million. The average size mortgage loan in the Company's portfolio is approximately $2.0 million. The largest single loan amount is $12.8 million.
The following table shows a breakdown of the Company's mortgage loan portfolio by property type at December 31, 1998:
Percentage of Mortgage Loans Property Type on Real Estate ---------------- ----------------
Retail 75% Apartments 10 Warehouses 8 Office Building 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, 1998:
Percentage of Mortgage Loans Anchor Tenants on Real Estate ----------------- ----------------
Food Lion, Inc. 5% KMart Corporation 3 Winn Dixie Stores, Inc. 3 Wal-Mart Stores, Inc. 2 CVS Corporation 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 $464.4 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 between 3 and 10 years. However, if interest rates were to significantly increase, the Company may be unable to call the loans or increase the interest rates on its existing mortgage loans commensurate with the significantly increased market rates.
At December 31, 1998, $11.7 million or 0.7% 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.
In 1996, the Company sold approximately $554 million of its mortgage loans in a securitization transaction. In 1997, the Company sold approximately $445 million of its loans in a second securitization transaction, and in 1998 the Company securitized an additional $146 million of its mortgage loans. The securitizations' senior tranches were sold, and the Company retained the junior tranches. 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 a foreclosed property 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 an allowance for uncollectible amounts on investments. This allowance was $24.8 million at December 31, 1998.
The following table shows the investment results of the Company for the years 1994 through 1998:
For further information regarding the Company's investments, the maturity of and the concentration of risk among the Company's invested assets, derivative financial instruments, and liquidity, see Notes A and B to the Consolidated Financial Statements, and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" in the Company's 1998 Annual Report to Share Owners.
Insurance in Force
The Company's total consolidated life insurance in force at December 31, 1998 was $110.0 billion. The following table shows sales by face amount and insurance in force for the Company's divisions.
(1)Reinsurance assumed has been included; reinsurance ceded (1998-$64,846,246; 1997-$34,139,554; 1996- $18,840,221; 1995-$17,524,366; 1994-$8,639,272) 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
1994........................................ 7.0% 1995........................................ 6.9 1996........................................ 6.4 1997........................................ 6.9 1998........................................ 6.4
Net terminations reflect voluntary lapses, 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 the amount of 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. Most of the variable annuity account balances are reported in the Company's financial statements as liabilities related to separate accounts.
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 Individual Life Division in 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.
Indemnity Reinsurance
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. In many cases the retention is less. At December 31, 1998, the Company had insurance in force of $110.0 billion of which approximately $64.8 billion was ceded to reinsurers.
Over the past several years, the Company's reinsurers have reduced the net cost of reinsurance to the Company. Consequently, the Company has increased the amount of reinsurance which it cedes on newly-written individual life insurance policies, and has also ceded a portion of the mortality risk of existing business of the Individual Life, West Coast, and Acquisitions Divisions. Although the Company does not anticipate increases to occur, the reinsurance premium rates in many of the Company's reinsurance agreements are not guaranteed, and could be increased by the reinsurer.
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 a memorandum account designated as "Policyholders' Surplus" to be taxed only when such income was distributed to share owners or when certain limits on accumulated amounts were exceeded. Consistent with current tax law, amounts accumulated in Policyholders' Surplus have been carried forward, although no accumulated income may be added to these accounts. As of December 31, 1998, the aggregate accumulation in the Policyholders' Surplus account was $70.5 million. Under current income tax laws, the Company does not anticipate paying income tax on amounts in the Policyholders' Surplus accounts.
Competition
Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Insurance is a highly competitive industry, and the Company encounters significant competition in all 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.
The life and health insurance industry is consolidating, with larger, more efficient organizations emerging from consolidation. Also, mutual insurance companies are converting to stock ownership which will give them greater access to capital markets.
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 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 share owners. 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 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, 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, 1998 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 1998, 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 Insurance Company ("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 an entity 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 1999 is estimated to be $138.9 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.
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.
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 1998 Annual Report to Share Owners.
Recent Developments
The NAIC has adopted the Codification of Statutory Accounting Principles ("Codification"). The Codification changes current statutory accounting rules in several areas. The Company has not estimated the potential effect the Codification will have on the statutory capital of the Company's insurance subsidiaries. The Codification has been proposed to become effective January 1, 2001.
The NAIC is considering a new reserving standard, commonly referred to as "Triple X" (i.e., roman numeral XXX), for universal life and level premium term and term-like insurance products. The Company is currently assessing the impact of Triple X on its products and what changes to the products might be necessary in response to Triple X.
The President's Fiscal Year 2000 Budget contains proposals that, if enacted, would adversely affect the life insurance industry. The first proposal would require insurers to include in taxable income over 10 years the balances accumulated in a tax memorandum account designated as Policyholders' Surplus. The Company's accumulation in this account at December 31, 1998 was approximately $70.5 million. A second proposal would require insurers to capitalize higher percentages of acquisition expenses for tax purposes, resulting in the earlier
payment of tax. A third proposal would reduce the attractiveness of corporate- owned life insurance (or COLI) products.
Life insurance products are often used to fund estate tax obligations. Recently a report issued by the Congressional Joint Economic Committee recommended the elimination of the estate tax. If the estate tax were eliminated, the demand for certain life insurance products would be adversely affected.
Some insurers have recently lowered the premium rates for their level premium term and term-like products. The Company's Individual Life and West Coast Divisions are currently developing a response. Those Divisions' results, in part, depend upon their ability to maintain competitive level premium term and term-like products.
Employees
At December 31, 1998 the Company had approximately 2,500 employees, including approximately 1,350 in Birmingham, Alabama. Most employees are covered by contributory major medical, dental, group life, and long-term disability insurance plans. The cost of these benefits in 1998 amounted to approximately $5.2 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 and makes discretionary profit sharing contributions for employees not otherwise covered by a bonus plan. See Note K to Consolidated Financial Statements.
Item 2.
Item 2. Properties
The Company's Home Office is located at 2801 Highway 280 South, Birmingham, Alabama. This campus 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 approximately 16 cities including approximately 114,000 square feet in Birmingham, with most leases being for periods of three to five years. The aggregate monthly rent is approximately $428 thousand.
Marketing offices are leased in approximately 35 cities, with most leases being for periods of three to five years. The aggregate monthly rent is approximately $141 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 1998 Annual Report to Share Owners 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 1998 to a vote of security holders of the Company.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Share-Owner 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. Closing prices and dividends have been adjusted for the Company's two-for-one stock split effective April 1, 1998.
On March 5, 1999, there were approximately 2,100 owners 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 1998 Annual Report to Share Owners. 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) Prior periods have been restated to reflect a two-for-one stock split on June 1, 1995 and April 1, 1998.
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 1998 Annual Report to Share Owners 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 1998 Annual Report to Share Owners, are incorporated herein by reference.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Share Owners of Protective Life Corporation
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 52 of the 1998 Annual Report to Share Owners 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 32 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/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP
Birmingham, Alabama February 11, 1999
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 Share Owners, April 26, 1999, to be filed with the Securities and Exchange Commission by the Company pursuant to Regulation 14A within 120 days after the end of its 1998 fiscal year.
The executive officers of the Company are as follows:
All executive officers are elected annually and serve at the pleasure of the Board of Directors. None of the executive officers is related to any director of the Company or to any other executive officer.
Mr. Nabers has been Chairman of the Board and Chief Executive Officer and a Director of the Company 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 has served in various capacities with the Company and its subsidiaries since 1979 and has served as a member of the Board since August 1982. 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 a Director of the Company since May 1997. He was Executive Vice President and Chief Financial Officer of the Company 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 also a director of National Bank of Commerce of Birmingham and Alabama National Bancorporation.
Mr. Briggs has been Executive Vice President of the Company since October 1993 and has responsibility for the Individual Life Division. From January 1993 to October 1993, he was Senior Vice President, Life Insurance and Investment Products of the Company. Mr. Briggs had been Senior Vice President, Ordinary Marketing of the Company since August 1988. Mr. Briggs has been associated with the Company and its subsidiaries since 1971.
Mr. Massengale has been Executive Vice President, Acquisitions of the Company since August 1996 and also has responsibility for the West Coast Division. He was Senior Vice President of the Company from May 1992 to August 1996. Mr. Massengale has been employed by the Company and its subsidiaries since 1983.
Mr. Williams has been Executive Vice President, Investments and Treasurer of the Company since August 1996. He was Senior Vice President, Investments and Treasurer of the Company from July 1981 to August 1996. Mr. Williams has been employed by the Company and its subsidiaries since 1964.
Mr. Bentley has been Senior Vice President, Dental and Consumer Benefits of the Company since August 1996. From May 1989 to August 1996, he served as Vice President, Group Marketing of Protective Life. Mr. Bentley has been employed by the Company and its subsidiaries since 1980.
Mr. Bielen has been Senior Vice President, Investments of the Company 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 of the Company 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. She was Senior Vice President and General Counsel of the Company from February 1994 to November 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 since March 1993. Mr. Schultz served as Vice President, Financial Institutions of the Company from February 1993 to March 1993. Mr. Schultz has been employed by the Company and its subsidiaries since 1989.
Mr. Stuenkel has been Senior Vice President and Chief Actuary of the Company since March 1987. Mr. Stuenkel is a Fellow of the Society of Actuaries and has been employed by the Company and its subsidiaries since 1978.
Ms. Wilson has been Senior Vice President, Guaranteed Investment Contracts of the Company since January 1, 1995. From July 1991 to December 31, 1994, she served as Vice President, Guaranteed Investment Contracts of Protective Life.
Mr. DeFoor has been Vice President and Controller, and Chief Accounting Officer of the Company since April 1989. Mr. DeFoor is a certified public accountant and has been employed by the Company and its subsidiaries since 1982 . 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 file reports with the Securities and Exchange Commission showing changes in their beneficial ownership of the Company's Common Stock. The Company has reviewed copies of these reports and written representations from the individuals required to file reports. Based on this review, we believe that each of the Company's directors and executive officers has complied with the reporting requirements in 1998, except for Mr. Williams who inadvertently filed a late Form 4 reporting two transactions.
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 Share Owners, April 26, 1999, to be filed with the Securities and Exchange Commission by the Company pursuant to Regulation 14A within 120 days after the end of its 1998 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 1998 Annual Report to Share Owners as indicated in the following table are incorporated by reference (see Exhibit 13).
Report of Independent Accountants
Consolidated Statements of Income for the years ended December 31, 1998, 1997, and 1996
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Share-Owners' Equity for the years ended December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
The Report of Independent Accountants which covers the financial statement schedules appears on page 27 of this report. The following schedules are located in this report on the pages indicated.
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) 1998 Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on November 12, 1998.
3(b) 1998 Amended and Restated By-laws of the Company effective November 2, 1998.
4(a) Reference is made to Exhibit 3(a) above.
4(b) Reference is made to Exhibit 3(b) above.
*4(c) Certificate of Formation of PLC Capital L.L.C. filed as Exhibit 4(c) to the Company's Registration Statement on Form S-3 filed March 25, 1994 (No. 33-52831).
*4(d) Amended and Restated Limited Liability Company Agreement of PLC Capital L.L.C. filed as Exhibit 4(d) to Amendment No. 2, filed April 15, 1994, to the Company's Registration Statement on Form S-3 (No. 33-52831).
*incorporated by reference
*4(e) Form of Action establishing series of Preferred Securities (included as Annex A to Exhibit 4(d) to the Company's Registration Statement on Form S-3 (No. 33-52831)).
*4(f) Specimen Preferred Security Certificate (included as Annex B to Exhibit 4(d) to the Company's Registration Statement on Form S-3 (No. 33-52831)).
*4(g) Form of Guarantee Agreement between the Company and PLC Capital L.L.C. with respect to the Preferred Securities to be issued by PLC Capital L.L.C. filed as Exhibit 4(i) to Amendment No. 2, filed April 15, 1994, to the Company's Registration Statement on Form S-3 (No. 33-52831).
*4(h) Rights Agreement, dated as of August 7, 1995, between the Company and The Bank of New York as successor to AmSouth Bank (formerly, AmSouth Bank N.A.), as Rights Agent filed as Exhibit 2 to the Company's Form 8-K Current Report filed August 7, 1995 and filed as Exhibit 1 to the Company's Form 8-A Registration Statement filed August 7, 1995.
*4(i) Rights Certificate filed as Exhibit 1 to the Company's Form 8-A filed August 7, 1995.
*4(j) Certificate of Trust of PLC Capital Trust I filed as Exhibit 4(a) to the Company's Registration Statement on Form S-3 filed April 11, 1997 (No. 333-25027)
*4(k) Declaration of Trust of PLC Capital Trust I filed as Exhibit 4(b) to the Company's Registration Statement on Form S-3 filed April 11, 1997 (No. 333-25027)
*4(l) Form of Amended and Restated Declaration of Trust for PLC Capital Trust I filed as Exhibit 4(c) to Amendment No. 1, filed April 21, 1997, to the Company's Registration Statement on Form S-3 (No. 33-25027).
*4(m) Form of Preferred Security Certificate for PLC Capital Trust I (included as Exhibit A-1 of Exhibit 4(k)).
*4(n) Form of Guarantee with respect to Preferred Securities of PLC Capital Trust I filed as Exhibit 4(i) to the Company's Registration Statement on Form S-3 filed April 11, 1997 (No. 333-25027).
*incorporated by reference
*4(o) Certificate of Trust of PLC Capital Trust II filed as Exhibit 4(aa) to the Company's Registration Statement on Form S-3 filed July 8, 1997 (No. 333-30905).
*4(p) Declaration of Trust of PLC Capital Trust II filed as Exhibit 4(dd) to the Company's Registration Statement on Form S-3 filed July 8, 1997 (No. 333-30905).
*4(q) Form of Amended and Restated Declaration of Trust of PLC Capital II filed as Exhibit 4(gg) to the Company's Registration Statement on Form S-3 filed July 8, 1997 (No. 333-30905).
*4(r) Form of Preferred Security Certificate for PLC Capital Trust II (included in Exhibit 4(q)).
*4(s) Form of Guarantee Agreement with respect to Preferred Securities to be issued by PLC Capital Trust II filed as Exhibit 4(v) to the Company's Registration Statement on Form S-3 filed July 8, 1997 (No. 333-30905).
*4(t) Form of Purchase Contract Agreement between the Company and The Bank of New York, as Purchase Contract Agent, filed as Exhibit 4(y) to the Company's Current Report on Form 8-K filed November 20, 1997.
*4(u) Form of Pledge Agreement, among the Company, The Bank of New York, as Purchase Contract Agent, and the Chase Manhattan Bank, as Collateral Agent, filed as Exhibit 4(z) to the Company's Current Report on Form 8-K filed November 20, 1997.
*10(a)+ The Company's Annual Incentive Plan (effective as of January 1, 1997) filed as Exhibit 10(b) to the Company's Form 10-Q Quarterly Report filed May 14, 1997.
*10(b)+ The Company's 1992 Performance Share Plan filed as Exhibit 10(b)(3) to the Company's Form 10-Q Quarterly Report 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.
*incorporated by reference +Management contract or compensatory plan or arrangement
*10(b)(2)+ The Company's 1997 Long-Term Incentive Plan (formerly, the "1997 Performance Share Plan"), filed as Exhibit 10(a) to the Company's Form 10-Q Quarterly Report filed May 15, 1998.
*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 Quarterly Report filed August 14, 1986.
*10(d)(1)+ Form of Indemnity Agreement for Officers filed as Exhibit 10(d)(1) to the Company's Form 10-K Annual Report for the year ended December 31, 1996.
*10(e) Reference is made to Exhibit 4(g) above.
*10(f)+ Form of the Company's Employment Continuation Agreement filed as Exhibit 10(a) to the Company's Form 10-Q Quarterly Report filed September 30, 1997.
*10(g)+ The Company's Deferred Compensation Plan for Directors Who Are Not Employees of the Company as amended through March 3, 1997, filed as Exhibit 10(e) to the Company's Form 10-Q Quarterly Report filed May 14, 1997.
*10(h)+ The Company's Deferred Compensation Plan for Officers as amended through March 3, 1997, filed as Exhibit 10(d) to the Company's Form 10-Q Quarterly Report filed May 14, 1997.
*10(i)+ The Company's 1996 Stock Incentive Plan as amended through March 3, 1997, filed as Exhibit 10(c) to the Company's Form 10-Q Quarterly Report filed May 14, 1997.
*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 Quarterly Report filed November 13, 1996.
13 Selected portions of the 1998 Annual Report To Share Owners which are incorporated herein by reference.
21 Organization Chart of the Company and Affiliates.
*incorporated by reference +Management contract or compensatory plan or arrangement
23 Consent of PricewaterhouseCoopers LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Safe Harbor for Forward-Looking Statements.
*incorporated by reference
(b) Current Reports on Form 8-K:
(1) Form 8-K, dated February 11, 1998 - Item 5 - Item 7
(2) Form 8-K, dated March 11, 1998 - Item 5 - Item 7
(3) Form 8-K, dated April 23, 1998 - Item 5 - Item 7
(4) Form 8-K, dated July 28, 1998 - Item 5 - Item 7
(5) Form 8-K, dated October 27, 1998 - Item 5 - Item 7
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 25, 1999
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.
*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, 1998, 1997, and 1996 (in thousands)
*Eliminated in consolidation.
See notes to condensed financial statements.
*Eliminated in consolidation. See notes to condensed financial statements.
*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, 1998, the Company had borrowed $30.0 million under its $70 million revolving line of credit and an additional $18.5 million of bank borrowings. $75.0 million of Senior Notes due 2004, $44.9 million of Medium-Term Notes due 2011, $69.6 million of subordinated debentures due 2024, $77.3 million of subordinated debentures due 2027 and $118.6 million of subordinated debentures due 2003 were outstanding at December 31, 1998. The subordinated debentures were issued to affiliates in connection with the issuance by such affiliates of 9% Cumulative Monthly Income Preferred Securities, Series A; 8.25% Trust Originated Preferred Securities (TOPrS); and 6.5% Trust Originated Preferred Securities (TOPrS) issued as part of the Company's FELINE PRIDES, respectively.
NOTE 2 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
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, 1998, the balance of the surplus debentures was $18 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.
EXHIBITS TO FORM 10-K OF PROTECTIVE LIFE CORPORATION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
INDEX TO EXHIBITS
3(a)........................................................... 3(b)........................................................... 13............................................................. 21............................................................. 23............................................................. 24............................................................. 27............................................................. 99.............................................................