For the fiscal year ended December 31, 1999 Commission File Number
33-31940
33-39345
33-57052
333-02249
TENNESSEE 63-0169720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in the definitive proxy statement or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of voting stock held by nonaffiliates of the Registrant: None
Number of shares of Common Stock, $1.00 Par Value, outstanding as of March 10, 2000: 5,000,000
Protective Life Insurance Company (“Protective”), a stock life insurance company, was founded in 1907. Protective is a wholly-owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company whose common stock is traded on the New York Stock Exchange (symbol: PL). Protective provides financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires “Protective” refers to the consolidated group of Protective Life Insurance Company and its subsidiaries.
Protective offers a competitive selection of individual life insurance, dental insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, and fixed and variable annuities. Protective distributes these products through many channels, primarily independent agents, insurance brokers, stockbrokers, financial institutions, company sales representatives, and automobile dealerships. Protective also seeks to acquire insurance policies from other insurers.
Protective 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 life insurance category includes the Acquisitions, Individual Life, and West Coast Divisions. The specialty insurance products category includes the Dental and Consumer Benefits (“Dental”) and Financial Institutions Divisions. The retirement savings and investment products category includes the Stable Value Products and Investment Products Divisions. Protective also has an additional business segment which is described herein as Corporate and Other.
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
- ---------------- --------------- ------------- ------------- -----------
1995 56.7 14.3 34.5 (5.5)
1996 55.3 7.9 38.8 (1.9)
1997 58.9 16.7 24.6 (0.2)
1998 58.1 15.6 23.1 3.2
1999 61.6 20.5 20.6 (2.7)
Additional information concerning Protective’s divisions may be found in “Management’s Narrative Analysis of the Results of Operations” and Note K to Consolidated Financial Statements included herein.
Protective’s administrative office building is located at 2801 Highway 280 South, Birmingham, Alabama 35223. 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 1,200 vehicles. During 2000, Protective will begin construction of a third contiguous building which will have approximately 315,000 square feet and parking for approximately 1,560 vehicles.
Protective leases administrative and marketing office space in 45 cities, including approximately 137,355 square feet in Birmingham, with most leases being for periods of three to five years. The aggregate annualized rent is approximately $5.7 million.
There are no material pending legal proceedings, other than routine litigation incidental to the business of Protective, to which Protective or any of its subsidiaries is a party or of which any of Protective’s properties is subject. For additional information regarding legal proceedings see Note G to the consolidated financial statements included herein.
Not required in accordance with General Instruction I(2)(c).
Protective is a wholly-owned subsidiary of PLC which also owns all of the preferred stock issued by Protective’s subsidiary, Protective Life and Annuity Insurance Company (“PL&A”). Therefore, neither Protective’s common stock nor PL&A’s preferred stock is publicly traded.
At December 31, 1999, $736.0 million of consolidated share-owner’s equity excluding net unrealized gains and losses represented net assets of Protective that cannot be transferred to PLC in the form of dividends, loans, or advances. Also, distributions, including cash dividends to PLC in excess of approximately $840.3 million, would be subject to federal income tax at rates then effective.
Insurers are subject to various state statutory and regulatory restrictions on the insurers’ ability to pay dividends. In general, dividends up to specific levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as ordinary dividends to PLC by Protective in 2000 is estimated to be $175.5 million. Protective paid no dividends to PLC in 1999.
PL&A did not pay any preferred dividends in 1999 and paid preferred dividends of $0.1 million in 1998. Also in 1998, PL&A declared and paid a common stock dividend of 50,000 shares to Protective. Protective and PL&A expect to pay cash dividends from time to time, subject to their earnings and financial condition and other relevant factors.
Not required in accordance with General Instruction I(2)(a).
In accordance with General Instruction I(2)(a), Protective includes the following analysis with the reduced disclosure format.
Year Ended Percentage
December 31 Increase
---------------------------- -------------
1999 1998
----- -------
(in thousands)
Premiums and policy fees.......................... $ 599,223 $ 568,125 5.5%
Net investment income............................. 623,231 603,795 3.2%
Realized investment gains......................... 4,760 2,136 122.8%
Other income...................................... 27,102 20,201 34.2%
---------- -----------
$1,254,316 $1,194,257
In 1999, premiums and policy fees, net of reinsurance (“premiums and policy fees”) increased $31.1 million or 5.5% over 1998. The Individual Life Division’s premiums and policy fees decreased $33.7 million due to an increased use of reinsurance by the Division. Premiums and policy fees from the West Coast Division increased $0.8 million. The West Coast Division has also increased its use of reinsurance. In the Acquisitions Division, decreases in older acquired blocks resulted in a $10.9 million decrease in premiums and policy fees. The coinsurance of a block of policies from Lincoln National Corporation (Lincoln National) in October 1998 resulted in a $29.0 million increase in premiums and policy fees in 1999. Premiums and policy fees in the Dental Division increased $44.5 million due to a general growth in business. Premiums and policy fees from the Financial Institutions Division decreased $4.3 million, including an $11.0 million decrease related to the normal decrease in premiums on closed blocks of policies acquired in prior years. The increase in premiums and policy fees from the Investment Products Division was $5.4 million.
Net investment income for 1999 was $19.4 million or 3.2% higher than for the preceding year primarily due to increases in the average amount of invested assets. Invested assets have increased primarily due to acquisitions, receiving stable value and annuity deposits and the asset growth that results from the sale of various insurance products. The coinsurance of a block of policies from Lincoln National in October 1998 and the September 1999 recapture of a block of credit policies increased 1999 net investment income $18.8 million. The percentage earned on average cash and investments was 7.1% in 1999 and 7.3% in 1998.
Protective generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, Protective may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, Protective has classified its fixed maturities and certain other securities as “available for sale.” The sales of investments that have occurred generally result from portfolio management decisions to maintain proper matching of assets and liabilities.
Protective maintains an allowance for uncollectible amounts on investments. The allowance totaled $20.4 million at December 31, 1999 and $24.1 million at December 31, 1998. Realized investment gains in 1999 of $55.2 million were largely offset by realized investment losses of $50.4 million. Realized investment losses do not include $3.7 million of credit losses charged against the allowance for uncollectible amounts on investments.
Other income consists primarily of revenues of Protective’s non-insurance subsidiaries and rental of space in its administrative building to PLC. Other income increased $6.9 million in 1999 as compared to 1998.
The following table sets forth operating income or loss and income or loss before income tax by business segment for the periods shown:
Operating Income (Loss) and Income (Loss) Before
Income Tax Year Ended December 31
(in thousands)
1999 1998
----------- ------------
Operating Income (Loss)(1)
Life Insurance
Individual Life $ 31,433 $ 30,183
West Coast 26,063 20,983
Acquisitions 64,460 52,940
Specialty Insurance Products
Dental 18,045 10,206
Financial Institutions 22,570 17,650
Retirement Savings and
Investment Products
Stable Value Products 29,465 30,780
Investment Products 11,360 10,639
Corporate and Other (5,273) 5,718
--------------------------------------------------------------------------------------
Total operating income 198,123 179,099
--------------------------------------------------------------------------------------
Realized Investment Gains (Losses)
Stable Value Products (549) 1,609
Investment Products 1,446 1,318
Unallocated Realized
Investment Gains (Losses) 3,863 (791)
Related Amortization of Deferred
Policy Acquisition Costs
Investment Products (1,446) (890)
---------------------------------------------------------------------------------------
Total net 3,314 1,246
---------------------------------------------------------------------------------------
Income (Loss) Before Income Tax
Life Insurance
Individual Life 31,433 30,183
West Coast 26,063 20,983
Acquisitions 64,460 52,940
Specialty Insurance Products
Dental 18,045 10,206
Financial Institutions 22,570 17,650
Retirement Savings and
Investment Products
Stable Value Products 28,916 32,389
Investment Products 11,360 11,067
Corporate and Other (5,273) 5,718
Unallocated Realized
Investment Gains (Losses) 3,863 (791)
--------------------------------------------------------------------------------------
Total income before
income tax $201,437 $180,345
--------------------------------------------------------------------------------------
(1)Income before income tax excluding realized investment gains and losses and related amortization of deferred policy
acquisition costs.
The Individual Life Division’s 1999 pretax income was $31.4 million, $1.2 million above 1998. The Division’s mortality experience was $1.3 million more favorable in 1999 than 1998. The Division’s 1999 results also include expenses to develop new distribution channels.
Headquartered in San Francisco, West Coast was acquired by Protective in June 1997. In 1999, the Division had pretax operating income of $26.1 million, $5.1 million above 1998. This increase reflects the Division’s growth through sales.
In the ordinary course of business, the Acquisitions Division regularly considers acquisitions of smaller insurance companies or blocks of policies. Blocks of policies acquired through the Division are usually administered as “closed” blocks; i.e., no new policies are being marketed. Therefore, earnings from the Acquisitions Division are normally expected to decline over time (due to the lapsing of policies resulting from deaths of insureds of terminations of coverage) unless new acquisitions are made.
The Acquisitions Division’s 1999 pretax operating income was $64.5 million, $11.5 million above 1998. The full year effect of the October 1998 coinsurance of a block of policies from Lincoln National increased earnings $7.7 million in 1999. The Division’s mortality experience was approximately $8.9 million more favorable in 1999 than in 1998.
The Dental Division’s 1999 pretax income was $18.0 million compared to $10.2 million in 1998. This increase reflects the Division’s growth through sales.
The Financial Institutions Division’s 1999 pretax income increased $4.9 million to $22.6 million. In September 1999, Protective recaptured a block of credit life and disability policies that it had previously ceded resulting in $2.7 million of earnings in 1999. The Division’s other lines of business improved $2.2 million in 1999.
The Stable Value Products Division’s 1999 pretax operating income decreased $1.3 million to $29.5 million. This decrease was primarily due to lower interest rate spreads. Realized investment losses associated with this Division in 1999 were $0.5 million as compared to realized investment gains of $1.6 million in 1998. As a result, total pretax income was $28.9 million in 1999 and $32.4 million in 1998.
The Investment Products Division’s 1999 pretax operating income was $11.4 million, an increase of $0.7 million. Realized investment gains, net of related amortization of deferred policy acquisition costs, were $0.4 million in 1998. The Division had no realized investment gains or losses (net of related amortization of deferred policy acquisition costs) in 1999. As a result, total pretax income was $11.4 million in 1999 and $11.1 million in 1998.
The Corporate and Other segment consists of several small insurance lines of business, net investment income and other operating expenses not identified with the preceding business segments (including interest on substantially all debt). Pretax operating losses for this segment were $5.3 million in 1999 as compared to pretax operating earnings of $5.7 million in 1998, primarily due to decreased net investment income on capital.
Year Ended Effective Income
December 31 Tax Rates
------------ -----------------
1999........................................... 36.3%
1998........................................... 35.0%
1997........................................... 34.9%
Management’s current estimate of the effective income tax rate for 2000 is between 36.0% and 36.5%.
Net Income
-------------------------
Year Ended Percentage
December 31 Amount Increase
------------- ---------- ----------
(in thousands)
1999.................................. $128,258 9.5%
1998.................................. $117,183 20.3%
1997.................................. $ 97,448 18.1%
Compared to 1998, net income in 1999 increased 9.5%, reflecting improved operating earnings in the Individual Life, West Coast, Acquisitions, Dental, Financial Institutions, and Investment Products Divisions, and higher realized investment gains, offset by lower operating earnings in the Stable Value Products Division and the Corporate and Other segment.
For additional information regarding recently issued accounting standards see Note A to the consolidated financial statements included herein.
Protective shares computer hardware and software with its parent, PLC, and other affiliates of PLC. PLC began work on the Year 2000 problem in 1995. PLC cannot specifically identify all of the costs to develop and implement its Year 2000 plan. The costs of new systems to replace non-compliant systems have been capitalized in the ordinary course of business. Other costs have been expensed as incurred. Those costs that have been specifically identified as relating to the Year 2000 problem total $5.2 million. PLC’s Year 2000 efforts have not adversely affected its normal procurement and development of information technology.
As of February 29, 2000, PLC and Protective have had no Year 2000 issues which have impaired their operations. Although PLC believes it has made all of the modifications necessary for its systems to process transactions dated beyond 1999, it is possible that Year 2000 issues involving PLC or Protective or their service providers may emerge during 2000. Therefore, there can be no assurances that the Year 2000 issue will not otherwise adversely affect PLC or Protective.
Should some of PLC's or Protective's systems become unavailable due to Year 2000 problems, in a reasonably likely worst case scenerio, PLC and Protective could experience delays in their ability to perform certain functions, but do not expect to be unable to perform critical functions or otherwise conduct business.
In March 2000, a small insurer, to whom Protective has ceded certain accident and health policies, was placed into receivership by its state of domicile. Based upon the information currently available, Protective does not believe this development will have a material adverse effect on Protective.
Protective's investments in debt and equity securities are reported at market value, and investments in mortgage loans are reported at amortized cost. At December 31, 1999, Protective's fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $6,275.6 million, which is 3.7% below amortized cost (less allowances for uncollectible amounts on investments) of $6,517.9 million. Protective had $1,946.7 million in mortgage loans at December 31, 1999. While Protective's mortgage loans do not have quoted market values, at December 31, 1999, Protective estimates the market value of its mortgage loans to be $1,909.0 million (using discounted cash flows from the next call date), which is 1.9% below amortized cost.
At December 31, 1998, Protective's fixed maturity investments had a market value of $6,400.3 million, which was 1.5% above amortized cost of $6,307.3 million. Protective estimated the market value of its mortgage loans to be $1,774.4 million at December 31, 1998, which was 9.3% above amortized cost of $1,623.6 million.
The following table sets forth the estimated market values of Protective's fixed maturity investments and mortgage loans resulting from a hypothetical immediate 1 percentage point increase in interest rates from levels prevailing at December 31, and the percent change in market value the following estimated market values would represent.
Estimated Market Values Resulting From An
Immediate 1 Percentage Point Increase
In Interest Rates
Amount Percent
At December 31, 1998 (in millions) Change
- -------------------------------------------------------------------------------------------------
Fixed maturities $6,182.7 (3.4)%
Mortgage loans 1,703.8 (4.0)
=================================================================================================
At December 31, 1999
- --------------------------------------------------------------------------------------------------
Fixed maturities $6,018.3 (4.1)%
Mortgage loans 1,825.0 (4.4)
==================================================================================================
Estimated market values were derived from the durations of Protective's fixed maturities and mortgage loans. Duration measures the relationship between changes in market value to changes in interest rates. While these estimated market values generally provide an indication of how sensitive the market values of Protective's fixed maturities and mortgage loans are to changes in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.
In the ordinary course of its commercial mortgage lending operations, Protective will commit to provide a mortgage loan before the property to be mortgaged has been built or acquired. The mortgage loan commitment is a contractual obligation to fund a mortgage loan when called upon by the borrower. The commitment is not recognized in Protective's financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest.
At December 31, 1999, Protective had outstanding mortgage loan commitments of $552.6 million, with an estimated fair value of $531.0 million (using discounted cash flows from the first call date). At December 31, 1998, Protective had outstanding commitments of $715.9 million with an estimated fair value of $752.6 million. The following table sets forth the estimated fair value of Protective's mortgage loan commitments resulting from a hypothetical immediate 1 percentage point increase in interest rate levels prevailing at December 31, and the percent change in fair value the following estimated fair values would represent.
Estimated Fair Values Resulting From An
Immediate 1 Percentage Point Increase
In Interest Rates
Amount Percent
At December 31 (in millions) Change
- --------------------------------------------------------------------------------------------
1998 $713.9 (5.1)%
1999 503.4 (5.2)
============================================================================================
The estimated fair values were derived from the durations of Protective's outstanding mortgage loan commitments. While these estimated fair values generally provide an indication of how sensitive the fair value of Protective's outstanding commitments are to changes in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.
Many of the Company's products contain surrender charges and other features that reward persistency and penalize the early withdrawal of funds. Surrender charges for these products generally are sufficient to cover the Company's unamortized deferred policy acquisition costs with respect to the policy being surrendered. Certain stable value and annuity contracts have market-value adjustments that protect the Company against investment losses if interest rates are higher at the time of surrender than at the time of issue.
At December 31, 1999, the Company had policy liabilities and accruals of $5,074.1 million. The Company's life insurance products have a weighted average minimum credited interest rate of approximately 4.4%.
At December 31, 1999, the Company had $2,680.0 million of stable value account balances with an estimated fair value of $2,649.6 million (using discounted cash flows), and $1,639.2 million of annuity account balances with an estimated fair value of $1,599.0 million (using surrender value).
At December 31, 1998, the Company had $2,691.7 million of stable value account balances with an estimated fair value of $2,751.0 million, and $1,519.8 million of annuity account balances with an estimated fair value of $1,513.1 million.
The following table sets forth the estimated fair values of the Company's stable value and annuity account balances resulting from a hypothetical immediate 1 percentage point decrease in interest rates from levels prevailing at December 31, and the percent change in fair value the following estimated fair values would represent.
Estimated Fair Values Resulting From An
Immediate 1 Percentage Point Decrease
In Interest Rates
Amount Percent
At December 31, 1998 (in millions) Change
- ------------------------------------------------------------------------------------------
Stable value account balances $2,791.7 1.5 %
Annuity account balances 1,565.5 3.5
==========================================================================================
At December 31, 1999
- ------------------------------------------------------------------------------------------
Stable value account balances $2,692.0 1.6 %
Annuity account balances 1,658.2 3.7
==========================================================================================
Estimated fair values were derived from the durations of Protective's stable value and annuity account balances. While these estimated fair values generally provide an indication of how sensitive the fair values of Protective's stable value and annuity account balances are to changes in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.
Approximately one-fourth of Protective's liabilities relate to products (primary whole life insurance), the profitability of which could be affected by changes in interest rates. The effect of such changes in any one year is not expected to be material.
Protective has not used derivative financial instruments for trading purposes. Combinations of interest rate swap contracts, options, and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments, mortgage loans, and mortgage-backed securities, and liabilities arising from interest-sensitive products.
Protective uses interest rate swap contracts, caps, and floors to convert certain investments and liabilities from a variable rate of interest to a fixed rate of interest, and from a fixed rate to a variable rate of interest. Swap contracts are also used to alter the effective durations of assets and liabilities.
At December 31, 1999, contracts with a notional amount of $1,328.9 million were in a $2.1 million net unrealized gain position. At December 31, 1998, contracts with a notional amount of $1,623.1 million were in an $5.4 million net unrealized gain position.
The following table sets forth the notional amount and net unrealized gains and losses of Protective's derivative financial instruments at December 31, and the estimated net unrealized gains and losses resulting from a hypothetical immediate plus and minus 1 percentage point change in interest rates from levels prevailing at December 31.
Derivative Financial Instruments
Net Unrealized Gain(Loss)
-------------------------
Resulting From An
Immediate +/-1 Percentage
At Point Change
Notional December 31, in Interest Rates
Amount 1998 +1% -1%
(in millions)
- -------------------------------------------------------------------------------------------------------------
Options
Puts $ 975.0 $(0.5) $ 1.2 $ 0.0
Fixed to floating
Swaps 240.3 (10.2) (9.1) (20.5)
Floors 15.0 (0.4) (0.1) (0.9)
Floating to fixed
Swaps 392.8 16.5 2.9 30.9
- --------------------------------------------------------------------------------------------------------------
$1,623.1 $ 5.4 $(5.1) $ 9.5
==============================================================================================================
Net Unrealized Gain(Loss)
-------------------------
Resulting From An
Immediate +/-1 Percentage
At Point Change
Notional December 31, in Interest Rates
Amount 1999 +1% -1%
(in millions)
- -------------------------------------------------------------------------------------------------------------
Options
Calls $ 450.0 $(1.4) $ (1.5) $(1.2)
Fixed to floating
Swaps 280.0 4.0 9.4 (1.6)
Floors 15.0 (0.1) 0.0 (0.1)
Floating to fixed
Swaps 583.9 (0.3) (28.7) 30.5
- -------------------------------------------------------------------------------------------------------------
$1,328.9 $ 2.2 $(20.8) $27.6
=============================================================================================================
Estimated unrealized gains and losses were derived using pricing models specific to derivative financial instruments. While these estimated unrealized gains and losses generally provide an indication of how sensitive Protective’s derivative financial instruments are to changes in interest rates, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.
Report of Independent Accountants.............................................................................
Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997.......................
Consolidated Balance Sheets as of December 31, 1999 and 1998..................................................
Consolidated Statements of Share-Owner's Equity for the years ended
December 31, 1999, 1998, and 1997..........................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997....................
Notes to Consolidated Financial Statements....................................................................
Financial Statement Schedules:
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.
To the Directors and Share Owner
Protective Life
Insurance Company
Birmingham, Alabama
In our opinion, the consolidated financial statements listed in the index on page 13 of this Form 10-K present fairly, in all material respects, the consolidated financial position of Protective Life Insurance Company and Subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedules listed in the index on page 13 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
February 23, 2000
Birmingham, Alabama
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
Year Ended December 31
-------------------------------------
1999 1998 1997
-------------------------------------
REVENUES
Premiums and policy fees............................................... $1,137,256 $1,027,340 $ 814,420
Reinsurance ceded ..................................................... (538,033) (459,215) (334,214)
------------------------------------
Net of reinsurance ceded............................................. 599,223 568,125 480,206
Net investment income.................................................. 623,231 603,795 557,488
Realized investment gains.............................................. 4,760 2,136 1,824
Other income........................................................... 27,102 20,201 6,149
------------------------------------
1,254,316 1,194,257 1,045,667
------------------------------------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: 1999-$344,474;
1998-$330,494; 1997-$180,605)........................................ 771,527 730,496 658,872
Amortization of deferred policy acquisition costs ..................... 104,913 111,188 107,175
Other operating expenses (net of reinsurance ceded: 1999-$150,570;
1998-$166,375; 1997-$90,045)......................................... 176,439 172,228 129,870
-----------------------------------
1,052,879 1,013,912 895,917
-----------------------------------
INCOME BEFORE INCOME TAX.................................................. 201,437 180,345 149,750
INCOME TAX EXPENSE (BENEFIT)
Current.............................................................. 47,504 48,237 66,283
Deferred............................................................. 25,675 14,925 (13,981)
------------------------------------
73,179 63,162 52,302
------------------------------------
NET INCOME................................................................ $ 128,258 $ 117,183 $ 97,448
====================================
See notes to consolidated financial statements.
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31
------------------------------
1999 1998
------------------------------
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1999-$6,517,851; 1998-$6,307,274)... $6,275,607 $ 6,400,262
Equity securities, at market (cost: 1999-$32,092; 1998-$15,151).................. 30,696 12,258
Mortgage loans on real estate.................................................... 1,946,690 1,623,603
Investment real estate, net of accumulated depreciation (1999-$1,014; 1998-$782). 15,582 14,868
Policy loans..................................................................... 232,126 232,670
Other long-term investments...................................................... 68,890 70,078
Short-term investments........................................................... 81,171 159,655
------------------------------
Total investments 8,650,762 8,513,394
Accrued investment income............................................................ 101,120 100,395
Accounts and premiums receivable, net of allowance for uncollectible
amounts (1999-$2,540; 1998-$4,304)............................................... 45,852 31,265
Reinsurance receivables.............................................................. 859,684 756,370
Deferred policy acquisition costs.................................................... 1,011,524 841,425
Property and equipment, net.......................................................... 49,002 42,374
Other assets......................................................................... 27,712 34,632
Receivable from related parties...................................................... 13,059
Assets related to separate accounts..................................................
Variable Annuity................................................................. 1,778,618 1,285,952
Variable Universal Life.......................................................... 40,293 13,606
Other............................................................................ 3,517 3,482
-------------------------------
$12,581,143 $11,622,895
===============================
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims............................................... $ 4,566,426 $ 4,140,003
Unearned premiums............................................................... 507,659 389,294
-------------------------------
5,074,085 4,529,297
Stable value investment contract deposits............................................ 2,680,009 2,691,697
Annuity deposits..................................................................... 1,639,231 1,519,820
Other policyholders' funds........................................................... 116,815 219,356
Other liabilities.................................................................... 293,862 226,310
Accrued income taxes................................................................. (25,833) (10,992)
Deferred income taxes................................................................ (32,335) 51,735
Note payable......................................................................... 2,338 2,363
Indebtedness to related parties...................................................... 14,000 20,898
Liabilities related to separate accounts.............................................
Variable Annuity................................................................ 1,778,618 1,285,952
Variable Universal Life......................................................... 40,293 13,606
Other........................................................................... 3,517 3,482
---------------------------------
Total liabilities............................................................. 11,584,600 10,553,524
================================
COMMITMENTS AND CONTINGENT LIABILITIES-- NOTE G
SHARE-OWNER'S EQUITY
Preferred Stock, $1.00 par value, shares
authorized and issued: 2,000, liquidation preference $2,000....................... 2 2
Common Stock, $1.00 par value........................................................ 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital........................................................... 327,992 327,992
Note receivable from PLC Employee Stock Ownership Plan............................... (5,148) (5,199)
Retained earnings.................................................................... 814,777 686,519
Accumulated other comprehensive income
Net unrealized gains on investments (net of income tax: 1999-$(78,658); 1998-$29,646) (146,080) 55,057
------------------------------
Total share-owner's equity.................................................... 996,543 1,069,371
------------------------------
$12,581,143 $11,622,895
==============================
See notes to consolidated financial statements.
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF SHARE-OWNER'S EQUITY
(Dollars in thousands, except per share amounts)
Note
Receivable Net
Additional From Unrealized Total
Preferred Common Paid-In PLC Retained Gains (Losses) Share-Owner's
Stock Stock Capital ESOP Earningson Investments Equity
---------------------------------------------------------------------------------
Balance, December 31, 1996.............................. $ 2 $5,000 $237,992 $(5,579) $532,088 $ 6,688 $ 776,191
------------
Net income for 1997................................ 97,448 97,448
Increase in net unrealized
gains on investments (net of income tax-$30,275) 56,225 56,225
56,225
Reclassification adjustment for amounts included
in net income (net of income tax: $(638))....... (1,186) (1,186)
------------
Comprehensive income for 1997...................... 152,487
------------
Preferred dividends ($50 per share)................ (100) (100)
Capital contribution from PLC...................... 90,000 90,000
Decrease in note receivable from PLC ESOP.......... 201 201
---------------------------------------------------------------------------------
Balance, December 31, 1997.............................. 2 5,000 327,992 (5,378) 629,436 61,727 1,018,779
--------------
Net income for 1998................................ 117,183 117,183
Decrease in net unrealized
gains on investments (net of income tax-$(2,844)) (5,281) (5,281)
Reclassification adjustment for amounts included
in net income (net of income tax: $(747))....... (1,389) (1,389)
------------
Comprehensive income for 1998...................... 110,513
------------
Common dividends ($12 per share)................... (60,000) (60,000)
Preferred dividends ($50 per share)................ (100) (100)
Decrease in note receivable from PLC ESOP.......... 179 179
---------------------------------------------------------------------------------
Balance, December 31, 1998.............................. 2 5,000 327,992 (5,199) 686,519 55,057 1,069,371
--------------
Net income for 1999................................ 128,258 128,258
Decrease in net unrealized
gains on investments (net of income tax-$(106,638)) (198,043) (198,043)
Reclassification adjustment for amounts included
In net income (net of income tax - ($1,666)).... (3,094) (3,094)
-------------
Comprehensive loss for 1999........................ (72,879)
-------------
Decrease in note receivable from PLC ESOP.......... 51 51
---------------------------------------------------------------------------------
Balance, December 31, 1999.............................. $ 2 $5,000 $327,992 $(5,148) $814,777 $(146,080) $ 996,543
=================================================================================
See notes to consolidated financial statements.
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
December 31
---------------------------------------
1999 1998 1997
---------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..............................................................................$ 128,258 $ 117,183 $ 97,448
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment gains........................................................... (4,760) (2,136) (1,824)
Amortization of deferred policy acquisition costs................................... 104,913 111,188 107,175
Capitalization of deferred policy acquisition costs................................. (239,483) (192,838) (135,211)
Depreciation expense................................................................ 10,513 7,110 5,124
Deferred income taxes............................................................... 24,234 14,925 (17,918)
Accrued income taxes................................................................ (14,841) (11,933) (5,558)
Interest credited to universal life and investment products......................... 331,746 352,721 299,004
Policy fees assessed on universal life and investment products...................... (165,818) (139,689) (131,582)
Change in accrued investment income and other receivables........................... (119,183) (159,362) (158,798)
Change in policy liabilities and other policyholder funds of traditional life and
health products 215,201 322,464 279,522
Change in other liabilities......................................................... 67,552 (19,771) 65,393
Other (net)......................................................................... (5,526) (22,634) (1,133)
-------------------------------------
Net cash provided by operating activities.................................................... 332,806 377,228 401,642
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale...................................................... 9,973,742 10,445,407 6,462,663
Other............................................................................... 243,280 198,559 324,242
Sale of investments:
Investment available for sale....................................................... 537,343 1,080,265 1,108,058
Other............................................................................... 267,892 155,906 695,270
Cost of investments acquired:
Investments available for sale...................................................... (10,625,354) (11,505,098) (8,426,980)
Other............................................................................... (864,100) (662,350) (718,335)
Acquisitions and bulk reinsurance assumptions........................................... 46,508 (169,124)
Purchase of property and equipment...................................................... (18,075) (13,077) (6,087)
Sale of property and equipment.......................................................... 151 2,681
-------------------------------------
Net cash used in investing activities........................................................ (438,613) (300,388) (727,612)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt......................... 4,351,177 1,975,800 1,159,538
Capital contribution from PLC........................................................... 90,000
Principal payments on line of credit arrangements and long-term debt.................... (4,351,203) (1,973,437) (1,159,538)
Principal payment on surplus note to PLC................................................ (4,000) (2,000) (4,693)
Dividends to share owner................................................................ (60,100) (100)
Investment product deposits and change in universal life deposits....................... 1,300,736 981,124 910,659
Investment product withdrawals.......................................................... (1,190,903) (1,037,424) (745,083)
--------------------------------------
Net cash provided by (used in) financing activities.......................................... 105,807 (116,037) 250,783
--------------------------------------
INCREASE(DECREASE) IN CASH................................................................... 0 (39,197) (75,187)
CASH AT BEGINNING OF YEAR.................................................................... 0 39,197 114,384
--------------------------------------
CASH AT END OF YEAR..........................................................................$ 0 $ 0 $ 39,197
======================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt....................................................................$ 5,611 $ 8,338 $ 4,343
Income taxes........................................................................$ 56,192 $ 57,429 $ 70,133
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reduction of principal on note from ESOP................................................$ 51 $ 179 $ 201
Acquisitions and bulk reinsurance assumptions
Assets acquired.....................................................................$ 12,502 $ 247,894 $1,114,832
Liabilities assumed................................................................. (12,502) (380,405) (902,267)
--------------------------------------
Net.................................................................................$ 0 $ (132,511)$ 212,565
======================================
See notes to consolidated financial statements.
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life Insurance Company and subsidiaries ("Protective") are prepared on the basis of accounting principles generally accepted in the United States. Such accounting principles differ from statutory reporting practices used by insurance companies in reporting to state regulatory authorities. (See also Note B.)
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make various estimates that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, as well as the reported amounts of revenues and expenses.
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after intercompany eliminations, of Protective Life Insurance Company and its wholly-owned subsidiaries. Protective is a wholly-owned subsidiary of Protective Life Corporation ("PLC"), an insurance holding company.
NATURE OF OPERATIONS
Protective provides financial services through the production, distribution, and administration of insurance and investment products. Protective markets individual life insurance, dental insurance and managed care services, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, and fixed and variable annuities throughout the United States. Protective also maintains a separate division devoted exclusively to the acquisition of insurance policies from other companies.
The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to competition, economic conditions, interest rates, investment performance, maintenance of insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997 Protective adopted Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities;" SFAS No. 130, "Reporting Comprehensive Income;" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information."
In 1998 PLC adopted SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits."
In 1999, Protective adopted SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,” and Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” and Statement of Position 97-3, “Accounting by Insurance and Other Enterprises for Insurance Related Assessments” issued by the American Institute of Certified Public Accountants.
The adoption of these accounting standards did not have a material effect on PLC's or Protective's financial statements.
The Financial Accounting Standards Board has issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Effective January 1, 2001, SFAS No. 133 will require Protective to report derivative financial instruments on the balance sheet and to carry such derivatives at fair value. The fair values of derivatives increase or decrease as interest rates change. Under SFAS No. 133, changes in fair value are reported as a component of net income or as a change to share-owner’s equity, depending upon the nature of the derivative. Although the adoption of SFAS No. 133 will not affect Protective’s operations, adoption will introduce volatility into Protective’s reported net income and share-owners’ equity as interest rates change. Protective has not estimated the potential effect SFAS No. 133 will have on its net income and share-owner’s equity.
INVESTMENTS
Protective has classified all of its investments in fixed maturities, equity securities, and short-term investments as "available for sale."
Investments are reported on the following bases less allowances for uncollectible amounts on investments, if applicable:
· Fixed maturities (bonds, and redeemable preferred stocks)-- at current market value. Where market values are unavailable, Protective obtains estimates from independent pricing services or estimates market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics.
· Equity securities (common and nonredeemable preferred stocks) — at current market value.
·Mortgage loans-- at unpaid balances, adjusted for loan origination costs, net of fees, and amortization of premium or discount.
·Investment real estate-- at cost, less allowances for depreciation computed on the straight-line method. With respect to real estate acquired through foreclosure, cost is the lesser of the loan balance plus foreclosure costs or appraised value.
·Policy loans-- at unpaid balances.
·Other long-term investments-- at a variety of methods similar to those listed above, as deemed appropriate for the specific investment.
· Short-term investments — at cost, which approximates current market value.
Substantially all short-term investments have maturities of three months or less at the time of acquisition and include approximately $0.8 million in bank deposits voluntarily restricted as to withdrawal.
As prescribed by SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” certain investments are recorded at their market values with the resulting unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax reported as a component of share-owner’s equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the adoption of SFAS No. 115 does not affect Protective’s operations, its reported share-owner’s equity will fluctuate significantly as interest rates change.
Protective's balance sheets at December 31, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows:
1999 1998
-----------------------------
Total investments.........................................$ 8,894,426 $ 8,412,167
Deferred policy acquisition costs......................... 992,518 857,949
All other assets.......................................... 2,918,857 2,268,076
-----------------------------
$12,805,801 $11,538,192
=============================
Deferred income taxes.....................................$ 46,243 $ 22,089
All other liabilities..................................... 11,616,935 10,501,789
-----------------------------
11,663,178 10,523,878
Share-owner's equity...................................... 1,142,623 1,014,314
-----------------------------
$12,805,801 $11,538,192
=============================
Realized gains and losses on sales of investments are recognized in net income using the specific identification basis.
Protective has not used derivative financial instruments for trading purposes. Combinations of interest rate swap contracts, options, and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments, mortgage loans, and mortgage-backed securities, and liabilities arising from interest-sensitive products. Realized gains and losses on certain contracts are deferred and amortized over the life of the hedged asset or liability, and such amortization is recorded in investment income or interest expense. Any unamortized gain or loss is recorded as a realized investment gain or loss upon the early termination of a hedged asset or liability, or when the anticipated transaction is no longer likely to occur. No realized gains or losses were deferred in 1999 and 1998.
Protective uses interest rate swap contracts to convert certain investments from a variable to a fixed rate of interest and from a fixed rate to a variable rate of interest. Swap contracts are also used to alter the effective durations of assets and liabilities. Amounts paid or received related to the initiation of certain interest rate swap contracts are deferred and amortized over the life of the related financial instrument, and subsequent periodic settlements are recorded in investment income or interest expense. Gains or losses on contracts terminated upon the early termination of the related financial instrument are recorded as realized investment gains or losses. Amounts paid related to the initiation of interest rate swap contracts were $1.4 million and $1.0 million in 1999 and 1998 respectively. No amounts were received in 1999 and 1998.
At December 31, 1999, contracts with a notional amount of $1,328.9 million were in a $2.1 million net unrealized gain position. At December 31, 1998, contracts with a notional amount of $1,623.1 million were in a $5.4 million net unrealized gain position. Protective recognized $3.8 million in realized investment gains related to derivative financial instruments in 1999.
Protective’s derivative financial instruments are with highly rated counterparties.
CASHCash includes all demand deposits reduced by the amount of outstanding checks and drafts. Protective has deposits with certain financial institutions which exceed federally insured limits. Protective has reviewed the credit worthiness of these financial institutions and believes there is minimal risk of a material loss.
PROPERTY AND EQUIPMENTProperty and equipment are reported at cost. Protective primarily uses the straight-line method of depreciation based upon the estimated useful lives of the assets. Major repairs or improvements are capitalized and depreciated over the estimated useful lives of the assets. Other repairs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or retired are removed from the accounts, and resulting gains or losses are included in income.
Property and equipment consisted of the following at December 31:
1999 1998
-------------------------
Home office building.................................. $40,524 $37,959
Other, principally furniture and equipment............ 54,412 58,958
-------------------------
94,936 96,917
Accumulated depreciation.............................. 45,934 54,543
-------------------------
$49,002 $42,374
=========================
SEPARATE ACCOUNTS
The assets and liabilities related to separate accounts in which Protective does not bear the investment risk are valued at market and reported separately as assets and liabilities related to separate accounts in the accompanying consolidated financial statements.
| o Traditional Life, Health, and Credit Insurance Products-- Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits and include whole life insurance policies, term and term-like life insurance policies, limited-payment life insurance policies, and certain annuities with life contingencies. Life insurance and immediate annuity premiums are recognized as revenue when due. Health and credit insurance premiums are recognized as revenue over the terms of the policies. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contracts. This is accomplished by means of the provision for liabilities for future policy benefits and the amortization of deferred policy acquisition costs. |
| Liabilities for future policy benefits on traditional life insurance products have been computed using a net level method including assumptions as to investment yields, mortality, persistency, and other assumptions based on Protective’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Reserve investment yield assumptions are graded and range from 2.5% to 7.0%. The liability for future policy benefits and claims on traditional life, health, and credit insurance products includes estimated unpaid claims that have been reported to Protective and claims incurred but not yet reported. Policy claims are charged to expense in the period that the claims are incurred. |
1999 1998 1997
----------------------------------------
Balance beginning of year................................ $90,332 $106,121 $108,159
Less reinsurance..................................... 20,019 18,673 6,423
----------------------------------------
Net balance beginning of year............................ 70,313 87,448 101,736
----------------------------------------
Incurred related to:
Current year............................................. 311,002 288,015 258,322
Prior year............................................... (5,574) (10,198) (14,540)
-----------------------------------------
Total incurred....................................... 305,428 277,817 243,782
-----------------------------------------
Paid related to:
Current year............................................. 264,298 236,001 203,381
Prior year............................................... 40,197 58,951 58,104
-----------------------------------------
Total paid........................................... 304,495 294,952 261,485
-----------------------------------------
Other changes:
Acquisitions and
reserve transfers................................. 1,668 0 3,415
-----------------------------------------
Net balance end of year.................................. 72,914 70,313 87,448
Plus reinsurance..................................... 47,661 20,019 18,673
-----------------------------------------
Balance end of year...................................... $120,575 $ 90,332 $106,121
=========================================
| · | Universal Life and Investment Products — Universal life and investment products include universal life insurance, guaranteed investment contracts, deferred annuities, and annuities without life contingencies. Revenues for universal life and investment products consist of policy fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest credit rates for universal life and investment products ranged from 3.4% to 9.4% in 1999. |
| Protective’s accounting policies with respect to variable universal life and variable annuities are identical except that policy account balances (excluding account balances that earn a fixed rate) are valued at market and reported as components of assets and liabilities related to separate accounts. |
Commissions and other costs of acquiring traditional life and health insurance, credit insurance, universal life insurance, and investment products that vary with and are primarily related to the production of new business have been deferred. Traditional life and health insurance acquisition costs are amortized over the premium-payment period of the related policies in proportion to the ratio of annual premium income to total anticipated premium income. Credit insurance acquisition costs are being amortized in proportion to earned premium. Acquisition costs for universal life and investment products are amortized over the lives of the policies in relation to the present value of estimated gross profits before amortization. Under SFAS No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments,” Protective makes certain assumptions regarding the mortality, persistency, expenses, and interest rates it expects to experience in future periods. These assumptions are to be best estimates and are to be periodically updated whenever actual experience and/or expectations for the future change from that assumed. Additionally, relating to SFAS No. 115, these costs have been adjusted by an amount equal to the amortization that would have been recorded if unrealized gains or losses on investments associated with Protective’s universal life and investment products had been realized.
The cost to acquire blocks of insurance representing the present value of future profits from such blocks of insurance is also included in deferred policy acquisition costs. Protective amortizes the present value of future profits over the premium payment period, including accrued interest of up to approximately 8%. The unamortized present value of future profits for all acquisitions was approximately $340.6 million and $370.3 million at December 31, 1999 and 1998, respectively. During 1999 $13.3 million of present value of future profits was capitalized (relating to acquisitions made during the year) and $43.0 million was amortized. During 1998 $132.5 million of present value of future profits was capitalized, and $37.1 million was amortized.
INCOME TAXESProtective uses the asset and liability method of accounting for income taxes. Income tax provisions are generally based on income reported for financial statement purposes. Deferred federal income taxes arise from the recognition of temporary differences between the bases of assets and liabilities determined for financial reporting purposes and the bases determined for income tax purposes. Such temporary differences are principally related to the deferral of policy acquisition costs and the provision for future policy benefits and expenses.
RECLASSIFICATIONSCertain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets, or share-owner’s equity.
Financial statements prepared in conformity with accounting principals generally accepted in the United States (“GAAP”) differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. The most significant differences are as follows: (a) acquisition costs of obtaining new business are deferred and amortized over the approximate life of the policies rather than charged to operations as incurred, (b) benefit liabilities are computed using a net level method and are based on realistic estimates of expected mortality, interest, and withdrawals as adjusted to provide for possible unfavorable deviation from such assumptions, (c) deferred income taxes are provided for temporary differences between financial and taxable earnings, (d) the Asset Valuation Reserve and Interest Maintenance Reserve are restored to stock-owner’s equity, (e) furniture and equipment, agents’ debit balances, and prepaid expenses are reported as assets rather than being charged directly to surplus (referred to as nonadmitted items), (f) certain items of interest income, principally accrual of mortgage and bond discounts are amortized differently, and (g) bonds are stated at market instead of amortized cost.
The reconciliations of net income and share-owner’s equity prepared in conformity with statutory reporting practices to that reported in the accompanying consolidated financial statements are as follows:
Net Income Share-Owner's Equity
--------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
--------------------------------------------------------------------------
In conformity with statutory reporting
practices:(1)................................... $75,114 $147,077 $134,417 $ 567,634 $ 531,956 $ 579,111
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net of
amortization.............................. 120,644 68,155 10,310 1,011,524 841,425 632,605
Deferred income tax......................... (25,675) (14,925) 13,981 32,335 (51,735) (49,417)
Asset Valuation Reserve..................... 41,104 66,922 67,369
Interest Maintenance Reserve................ (226) (1,355) (1,434) 19,328 15,507 9,809
Nonadmitted items........................... 51,350 42,835 30,500
Other timing and valuation adjustments...... 72,527 (76,214) (54,494) (467,130) (282,480) (215,448)
Noninsurance affiliates..................... 20,698 18,171 17,530 (4)
Consolidation elimination................... (134,824) (23,726) (22,862) (259,602) (95,059) (35,746)
--------------------------------------------------------------------------
In conformity with generally accepted
accounting principles........................... $128,258 $117,183 $ 97,448 $ 996,543 $1,069,371 $1,018,779
==========================================================================
(1) Consolidated
As of December 31, 1999, Protective and its insurance subsidiaries had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $53.6 million.
The National Association of Insurance Commissioners has adopted the Codification of Statutory Accounting Principles (Codification). The Codification changes current statutory accounting rules in several areas. Protective has not estimated the potential effect the Codification may have on the statutory capital of Protective and its insurance subsidiaries. The Codification will become effective January 1, 2001.
Major categories of net investment income for the years ended December 31 are summarized as follows:
1999 1998 1997
------------------------------------------
Fixed maturities............................. $466,957 $463,416 $396,255
Equity securities............................ 775 905 1,186
Mortgage loans on real estate................ 172,027 158,461 161,604
Investment real estate....................... 1,949 1,224 2,004
Policy loans................................. 15,994 12,346 11,370
Other, principally short-term investments.... 20,244 16,536 21,876
------------------------------------------
677,946 652,888 594,295
Investment expenses.......................... 54,715 49,093 36,807
------------------------------------------
$623,231 $603,795 $557,488
==========================================
Realized investment gains (losses) for the years ended December 31 are summarized as follows:
1999 1998 1997
------------------------------------------
Fixed maturities............................. $13,049 $4,374 $ (8,355)
Equity securities............................ (3,371) (4,465) 5,975
Mortgage loans and other investments......... (4,918) 2,227 4,204
------------------------------------------
$4,760 $2,136 $ 1,824
==========================================
Protective recognizes permanent impairments through changes to an allowance for uncollectible amounts on investments. The allowance totaled $20.4 million at December 31, 1999 and $24.1 million at December 31, 1998. Additions and reductions to the allowance are included in realized investment gains (losses). Without such additions/reductions, Protective had net realized investment gains of $1.0 million in 1999, net realized investment gains of $3.2 million in 1998, and net realized investment losses of $6.1 million in 1997.
In 1999, gross gains on the sale of investments available for sale (fixed maturities, equity securities and short-term investments) were $48.8 million and gross losses were $33.6 million. In 1998, gross gains were $32.3 million and gross losses were $32.5 million. In 1997, gross gains were $21.3 million and gross losses were $23.5 million.
The amortized cost and estimated market values of Protective's investments classified as available for sale
at December 31 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
1999 Cost Gains Losses Values
- --------------------------------------------------------------------------------------------------------------------
Fixed maturities:
Bonds:
Mortgage-backed........................... $2,619,918 $ 18,491 $101,150 $2,537,259
United States Government and
authorities............................... 154,954 138 1,257 153,835
States, municipalities, and
political subdivisions.................... 27,254 7 295 26,966
Public utilities............................ 537,834 301 14,690 523,445
Convertibles and bonds with
warrants.................................. 693 0 155 538
All other corporate bonds................... 3,176,016 5,938 149,591 3,032,363
Redeemable preferred stocks............... 1,182 19 0 1,201
--------------------------------------------------------
6,517,851 24,894 267,138 6,275,607
Equity securities............................ 32,092 644 2,040 30,696
Short-term investments....................... 81,171 0 0 81,171
--------------------------------------------------------
$6,631,114 $ 25,538 $269,178 $6,387,474
========================================================
Gross Gross Estimated
Amortized Unrealized Unrealized Market
1998 Cost Gains Losses Values
- --------------------------------------------------------------------------------------------------------------------
Fixed maturities:
Bonds:
Mortgage-backed........................... $2,581,561 $ 41,626 $33,939 $2,589,248
United States Government and
authorities............................... 72,697 2,812 0 75,509
States, municipalities, and
political subdivisions.................... 29,521 1,131 0 30,652
Public utilities............................ 533,082 15,066 0 548,148
Convertibles and bonds with
warrants.................................. 694 179 515
All other corporate bonds................... 3,083,782 98,992 32,629 3,150,145
Redeemable preferred stocks............... 5,937 108 0 6,045
--------------------------------------------------------
6,307,274 159,735 66,747 6,400,262
Equity securities............................ 15,151 456 3,349 12,258
Short-term investments....................... 159,655 0 0 159,655
--------------------------------------------------------
$6,482,080 $160,191 $70,096 $6,572,175
=========================================================
Estimated
Amortized Market
Cost Values
-------------------------
1999
------
Due in one year or less........................... $ 321,155 $ 320,601
Due after one year through five years............. 2,913,620 2,863,873
Due after five years through ten years............ 2,152,116 2,049,482
Due after ten years............................... 1,130,960 1,041,651
-------------------------
$6,517,851 $6,275,607
=========================
Estimated
Amortized Market
Cost Values
-------------------------
1998
------
Due in one year or less........................... $ 705,859 $ 709,686
Due after one year through five years............. 3,255,973 3,325,078
Due after five years through ten years............ 1,655,055 1,690,581
Due after ten years............................... 690,387 674,917
-------------------------
$6,307,274 $6,400,262
=========================
The approximate percentage distribution of Protective's fixed maturity investments by quality rating at
December 31 is as follows:
Rating 1999 1998
- ---------------- --------------------------
AAA................................................. 37.5% 34.3%
AA.................................................. 6.3 6.2
A................................................... 26.6 29.4
BBB................................................. 25.7 26.5
BB or less.......................................... 3.8 3.5
Redeemable preferred stocks......................... 0.1 0.1
--------------------------
100.0% 100.0%
==========================
At December 31, 1999 and 1998, Protective had bonds which were rated less than investment grade of $243.6 million and $222.9 million, respectively, having an amortized cost of $293.1 million and $252.0 million, respectively. At December 31, 1999, approximately $81.5 million of the bonds rated less than investment grade were securities issued in company-sponsored commercial mortgage loan securitizations. Approximately $910.4 million of bonds are not publicly traded.
The change in unrealized gains (losses), net of income tax on fixed maturity and equity securities for the years ended December 31 is summarized as follows:
1999 1998 1997
----------------------------------------
Fixed maturities...................................... $(217,901) $(21,705) $72,741
Equity securities..................................... $ 973 $ 4,605 $(8,813)
At December 31, 1999, all of Protective's mortgage loans were commercial loans of which 79% were retail, 8% were apartments, 6% were office buildings, and 6% were warehouses. Protective specializes in making mortgage loans on either credit-oriented or credit-anchored commercial properties, most of which are strip shopping centers in smaller towns and cities. No single tenant's leased space represents more than 5% of mortgage loans. Approximately 74% of the mortgage loans are on properties located in the following states listed in decreasing order of significance: Florida, Texas, Georgia, Tennessee, North Carolina, Virginia, Alabama, South Carolina, Washington, Kentucky, Ohio, and Mississippi.
Many of the mortgage loans have call provisions after 3 to 10 years. Assuming the loans are called at their next call dates, approximately $109.6 million would become due in 2001, $408.8 million in 2002 to 2005, and $333.6 million in 2006 to 2010.
At December 31, 1999, the average mortgage loan was approximately $2.0 million, and the weighted average interest rate was 7.8%. The largest single mortgage loan was $17.0 million.
At December 31, 1999 and 1998, Protective's problem mortgage loans (over ninety days past due) and foreclosed properties totaled $22.9 million and $11.7 million, respectively. Since Protective's mortgage loans are collateralized by real estate, any assessment of impairment is based upon the estimated fair value of the real estate. Based on Protective's evaluation of its mortgage loan portfolio, Protective does not expect any material losses on its mortgage loans.
Certain investments, principally real estate, with a carrying value of $36.3 million were non-income producing for the twelve months ended December 31, 1999.
Policy loan interest rates generally range from 4.5% to 8.0%.
Protective's effective income tax rate varied from the maximum federal income tax rate as follows:
1999 1998 1997
-------------------------------
Statutory federal income tax rate applied to pretax income................. 35.0% 35.0% 35.0%
Dividends received deduction and tax-exempt interest....................... (0.1) (0.1) (0.2)
Low-income housing credit.................................................. (0.5) (0.5) (0.6)
Tax benefits arising from prior acquisitions and other
adjustments............................................................... 0.3 0.1 0.7
State income taxes......................................................... 1.6 0.5
-------------------------------
Effective income tax rate.................................................. 36.3% 35.0% 34.9%
===============================
The provision for federal income tax differs from amounts currently payable due to certain items reported for financial statement purposes in periods which differ from those in which they are reported for income tax purposes.
Details of the deferred income tax provision for the years ended December 31 are as follows:
1999 1998 1997
------------------------------------
Deferred policy acquisition costs.................................... $46,175 $60,746 $ 7,054
Benefit and other policy liability changes........................... (27,158) (41,268) (23,564)
Temporary differences of investment income........................... 6,655 (3,491) 2,516
Other items.......................................................... 3 (1,062) 13
-----------------------------------
$25,675 $14,925 $(13,981)
===================================
The components of Protective's net deferred income tax liability as of December 31 were as follows:
1999 1998
--------------------------
Deferred income tax assets:
Policy and policyholder liability reserves.................. $217,642 $190,328
Unrealized loss on investments.............................. 70,421
Other....................................................... 2,088 2,091
--------------------------
290,151 192,419
--------------------------
Deferred income tax liabilities:
Deferred policy acquisition costs........................... 257,816 211,641
Unrealized gain on investments.............................. 32,513
--------------------------
257,816 244,154
--------------------------
Net deferred income tax liability............................ $(32,335) $ 51,735
==========================
Under pre-1984 life insurance company income tax laws, a portion of Protective's gain from operations which was not subject to current income taxation was accumulated for income tax purposes in a memorandum account designated as Policyholders' Surplus. The aggregate accumulation in this account at December 31, 1999 was approximately $70.5 million. Should the accumulation in the Policyholders' Surplus account exceed certain stated maximums, or should distributions including cash dividends be made to PLC in excess of approximately $840.3 million, such excess would be subject to federal income taxes at rates then effective. Deferred income taxes have not been provided on amounts designated as Policyholders' Surplus. Under current income tax laws, Protective does not anticipate paying income tax on amounts in the Policyholders' Surplus accounts.
Protective's income tax returns are included in the consolidated income tax returns of PLC. The allocation of income tax liabilities among affiliates is based upon separate income tax return calculations.
At December 31, 1999, PLC had borrowed $55.0 million at a rate of 6.7%. PLC had also borrowed $59.0 million at a rate of 6.6% under a term note that contains, among other provisions, requirements for maintaining certain financial ratios, and restrictions on indebtedness incurred by PLC's subsidiaries including Protective. Additionally, PLC, on a consolidated basis, cannot incur debt in excess of 50% of its total capital.
Protective has arranged sources of credit to temporarily fund scheduled investment commitments. Protective expects that the rate received on its investments will equal or exceed its borrowing rate. Protective had no such temporary borrowings outstanding at December 31, 1999 and 1998. Also, Protective has a mortgage note on investment real estate amounting to approximately $2.3 million that matures in 2003.
Included in indebtedness to related parties is a surplus debenture issued by Protective to PLC. At December 31, 1999, the balance of the surplus debenture was $14.0 million. The debenture matures in 2003.
Protective routinely receives from or pays to affiliates under the control of PLC reimbursements for expenses incurred on one another's behalf. Receivables and payables among affiliates are generally settled monthly.
Interest expense on borrowed money totaled $5.1 million, $8.3 million, and $4.3 million, in 1999, 1998, and 1997, respectively.
In June 1997, Protective acquired West Coast Life Insurance Company ("West Coast"). In September 1997, Protective acquired the Western Diversified Group. In October 1997, Protective coinsured a block of credit policies.
In October 1998 Protective coinsured a block of life insurance policies from Lincoln National Corporation. The policies represent the payroll deduction business originally marketed and underwritten by Aetna.
In September 1999, Protective recaptured a block of credit life and disability policies which it had previously ceded.
These transactions have been accounted for as purchases, and the results of the transactions have been included in the accompanying financial statements since their respective effective dates.
Under insurance guaranty fund laws, in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Protective does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength.
A number of civil jury verdicts have been returned against insurers in the jurisdictions in which Protective does business involving the insurers' sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments against the insurer that are disproportionate to the actual damages, including material amounts of punitive damages. In some states including Alabama, (where Protective maintains its headquarters) juries have substantial discretion in awarding punitive and non-economic compensatory damages which creates the potential for unpredictable material adverse judgments in any given lawsuit. In addition, in some class action and other lawsuits involving insurers' sales practices, insurers have made material settlement payments. Protective and its subsidiaries, like other financial service companies, in the ordinary course of business, are involved in such litigation or alternatively in arbitration. Although the outcome of any litigation or arbitration cannot be predicted, Protective believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of Protective.
At December 31, 1999, approximately $736.0 million of consolidated share-owner's equity excluding net unrealized gains on investments, represented net assets of Protective and its subsidiaries that cannot be transferred to PLC. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as ordinary dividends to PLC by Protective in 2000 is estimated to be $175.5 million.
PLC owns all of the 2,000 shares of preferred stock issued by Protective's subsidiary, Protective Life and Annuity Insurance Company ("PLA"). Prior to November 1998, the stock paid, when and if declared, annual minimum cumulative dividends of $50 per share, and noncumulative participating dividends to the extent PLA's statutory earnings for the immediately preceding fiscal year exceeded $1 million. PLA paid no preferred dividends during 1999. Dividends of $0.1 million were paid to PLC in 1998, and 1997. Effective November 3, 1998, PLA's articles of incorporation were amended such that the provision for an annual minimum cumulative dividend was removed.
On August 6, 1990, PLC announced that its Board of Directors approved the formation of an Employee Stock Ownership Plan ("ESOP"). On December 1, 1990, Protective transferred to the ESOP 520,000 shares of PLC's common stock held by it in exchange for a note. The outstanding balance of the note, $5.1 million at December 31, 1999, is accounted for as a reduction to share-owner's equity. The stock will be used to match employee contributions to PLC's existing 401(k) Plan. The ESOP shares are dividend paying. Dividends on the shares are used to pay the ESOP's note to Protective.
Protective leases furnished office space and computers to affiliates. Lease revenues were $3.7 million in 1999, $3.0 million in 1998, and $3.1 million in 1997. Protective purchases data processing, legal, investment and management services from affiliates. The costs of such services were $69.2 million, $56.2 million, and $51.6 million in 1999, 1998, and 1997, respectively. Commissions paid to affiliated marketing organizations of $11.4 million, $8.4 million, and $5.2 million in 1999, 1998, and 1997, respectively, were included in deferred policy acquisition costs.
Certain corporations with which PLC's directors were affiliated paid Protective premiums, policy fees, or deposits for various types of insurance and investment products. Such premiums, policy fees, and deposits amounted to $56.4 million, $28.6 million and $21.4 million in 1999, 1998, and 1997, respectively. Protective and/or PLC paid commissions, interest on debt and investment products, and fees to these same corporations totaling $16.9 million, $7.3 million and $5.4 million in 1999, 1998, and 1997, respectively.
For a discussion of indebtedness to related parties, see Note E.
Protective 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. Each division has a senior officer of Protective responsible for its operations. A division is generally distinguished by products and/or channels of distribution. A brief description of each division follows.
Individual Life Division. The Individual Life Division markets level premium term and term-like insurance products, universal life, and variable universal life on a national basis primarily through networks of independent insurance agents.
West Coast Division. The West Coast Division sells universal life and level premium term-like insurance products in the life insurance brokerage market and in the “bank owned life insurance” market.
Acquisitions Division. 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.
Dental and Consumer Benefits Division. The Division’s primary focus is on indemnity and prepaid dental products. In 1997, the Division exited from the traditional group major medical business, fulfilling the Division’s strategy to focus primarily on dental and related products.
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 also includes a small property casualty insurer that sells automobile service contracts.
Stable Value Products Division. The Stable Value Products Division markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans. The Division also offers 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.
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.
Protective has an additional business segment herein referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the Divisions above (including net investment income on capital and interest on substantially all debt).
Protective uses the same accounting policies and procedures to measure operating segment income and assets as it uses to measure its consolidated net income and assets. Operating segment income is generally income before income tax. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of deferred policy acquisition costs are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner which most appropriately reflects the operations of that segment. Unallocated realized investment gains (losses) are deemed not to be associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
Operating segment income and assets for the years ended December 31 are as follows:
Life Insurance
Individual
Operating Segment Income Life West Coast Acquisitions
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
1999
Premiums and policy fees $ 274,598 $87,226 $ 148,620
Reinsurance ceded (182,092) (64,019) (33,754)
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Net of reinsurance ceded 92,506 23,207 114,866
Net investment income 59,916 78,128 129,806
Realized investment gains (losses)
Other income (2,250) 1,302 (9)
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Total revenues 150,172 102,637 244,663
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Benefits and settlement expenses 74,455 73,176 129,581
Amortization of deferred policy acquisition costs 23,434 6,047 19,444
Other operating expenses 20,850 (2,649) 31,178
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Total benefits and expenses 118,739 76,574 180,203
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Income before income tax 31,433 26,063 64,460
Income tax expense
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Net income
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
1998
Premiums and policy fees $ 228,701 $ 75,757 $ 125,329
Reinsurance ceded (102,533) (53,377) (28,594)
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Net of reinsurance ceded 126,168 22,380 96,735
Net investment income 55,779 63,492 112,154
Realized investment gains (losses)
Other income 70 6 1,713
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Total revenues 182,017 85,878 210,602
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Benefits and settlement expenses 106,308 54,617 112,051
Amortization of deferred policy acquisition costs 30,543 4,924 18,894
Other operating expenses 14,983 5,354 26,717
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Total benefits and expenses 151,834 64,895 157,662
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Income before income tax 30,183 20,983 52,940
Income tax expense
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Net income
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
1997
Premiums and policy fees $ 182,746 $ 41,290 $ 120,504
Reinsurance ceded (55,266) (27,168) (17,869)
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Net of reinsurance ceded 127,480 14,122 102,635
Net investment income 54,593 30,194 110,155
Realized investment gains (losses)
Other income 617 10
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Total revenues 182,690 44,316 212,800
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Benefits and settlement expenses 114,678 28,304 116,506
Amortization of deferred policy acquisition costs 27,354 961 16,606
Other operating expenses 18,178 6,849 23,016
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Total benefits and expenses 160,210 36,114 156,128
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Income before income tax 22,480 8,202 56,672
Income tax expense
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Net income
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Operating Segment Assets
1999
Investments and other assets $1,205,968 $1,343,517 $1,553,954
Deferred policy acquisition costs 379,117 200,605 235,903
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Total assets $1,585,085 $1,544,122 $1,789,857
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Operating Segment Assets
1998
Investments and other assets $1,076,202 $1,149,642 $1,600,123
Deferred policy acquisition costs 301,941 144,455 255,347
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Total assets $1,378,143 $1,294,097 $1,855,470
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Investments and other assets $ 960,316 $ 910,030 $1,401,294
Deferred policy acquisition costs 252,321 108,126 138,052
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
Total assets $1,212,637 $1,018,156 $1,539,346
- ------------------------------------------------------------------------- ----------------- --------------- ---------------
(1) Adjustments represent the inclusion of unallocated realized investment gains (losses) and the recognition of
income tax expense. There are no asset adjustments.
Retirement Savings and
Specialty Insurance Products Investment Products
Dental and Stable Corporate
Consumer Financial Value Investment and Total
Benefits Institutions Products Products Other Adjustments (1) Consolidated
-------------------------------------------------------------------------------------------------------------------------
$ 317,360 $ 284,891 $ 24,248 $ 313 $ 1,137,256
(81,240) (176,928) (538,033)
-------------------------------------------------------------------------------------------------------------------------
236,120 107,963 24,248 313 599,223
14,915 24,121 $ 210,208 106,599 (462) 623,231
(549) 1,446 $ 3,863 4,760
6,277 15,831 2,146 3,805 27,102
-------------------------------------------------------------------------------------------------------------------------
257,312 147,915 209,659 134,439 3,656 1,254,316
-------------------------------------------------------------------------------------------------------------------------
172,166 55,899 175,290 88,642 2,318 771,527
10,705 24,718 744 19,820 1 104,913
56,396 44,728 4,709 14,617 6,610 176,439
-------------------------------------------------------------------------------------------------------------------------
239,267 125,345 180,743 123,079 8,929 1,052,879
-------------------------------------------------------------------------------------------------------------------------
18,045 22,570 28,916 11,360 (5,273) 201,437
73,179 73,179
-------------------------------------------------------------------------------------------------------------------------
$ 128,258
-------------------------------------------------------------------------------------------------------------------------
$ 277,316 $ 301,230 $ 18,809 $ 198 $1,027,340
(85,753) (188,958) (459,215)
-------------------------------------------------------------------------------------------------------------------------
191,563 112,272 18,809 198 568,125
15,245 25,068 $ 213,136 105,827 13,094 603,795
1,609 1,318 $ (791) 2,136
4,295 10,302 1,799 2,016 20,201
-------------------------------------------------------------------------------------------------------------------------
211,103 147,642 214,745 127,753 15,308 1,194,257
-------------------------------------------------------------------------------------------------------------------------
140,632 52,629 178,745 85,045 469 730,496
10,352 28,526 735 17,213 1 111,188
49,913 48,837 2,876 14,428 9,120 172,228
-------------------------------------------------------------------------------------------------------------------------
200,897 129,992 182,356 116,686 9,590 1,013,912
-------------------------------------------------------------------------------------------------------------------------
10,206 17,650 32,389 11,067 5,718 180,345
63,162 63,162
-------------------------------------------------------------------------------------------------------------------------
$ 117,183
-------------------------------------------------------------------------------------------------------------------------
$ 260,590 $ 196,694 $ 12,367 $ 229 $ 814,420
(109,480) (124,431) (334,214)
-------------------------------------------------------------------------------------------------------------------------
151,110 72,263 12,367 229 480,206
23,810 16,341 $ 211,915 105,196 5,284 557,488
(3,180) 589 $4,415 1,824
1,278 3,033 (192) 1,403 6,149
-------------------------------------------------------------------------------------------------------------------------
176,198 91,637 208,735 117,960 6,916 1,045,667
-------------------------------------------------------------------------------------------------------------------------
110,148 27,643 179,235 82,019 339 658,872
15,711 30,812 618 15,110 3 107,175
38,572 20,165 3,945 12,312 6,833 129,870
-------------------------------------------------------------------------------------------------------------------------
164,431 78,620 183,798 109,441 7,175 895,917
-------------------------------------------------------------------------------------------------------------------------
11,767 13,017 24,937 8,519 (259) 149,750
52,302 52,302
-------------------------------------------------------------------------------------------------------------------------
$ 97,448
-------------------------------------------------------------------------------------------------------------------------
$197,673 $727,857 $2,766,178 $3,355,863 $418,609 $11,569,619
25,819 51,339 1,156 117,577 8 1,011,524
-------------------------------------------------------------------------------------------------------------------------
$223,492 $779,196 $2,767,334 $3,473,440 $418,617 $12,581,143
-------------------------------------------------------------------------------------------------------------------------
$197,337 $645,909 $2,869,304 $2,542,536 $700,417 $10,781,470
23,836 39,212 1,448 75,177 9 841,425
-------------------------------------------------------------------------------------------------------------------------
$221,173 $685,121 $2,870,752 $2,617,713 $700,426 $11,622,895
-------------------------------------------------------------------------------------------------------------------------
$208,071 $536,058 $2,887,732 $2,313,279 $525,896 $9,742,676
22,459 52,836 1,785 56,074 952 632,605
-------------------------------------------------------------------------------------------------------------------------
$230,530 $588,894 $2,889,517 $2,369,353 $526,848 $10,375,281
-------------------------------------------------------------------------------------------------------------------------
PLC has a defined benefit pension plan covering substantially all of its employees. The plan is not separable by affiliates participating in the plan. However, approximately 81% of the participants in the plan are employees of Protective. The benefits are based on years of service and the employee’s highest thirty-six consecutive months of compensation. PLC’s funding policy is to contribute amounts to the plan sufficient to meet the minimum finding requirements of ERISA plus such additional amounts as PLC may determine to be appropriate from time to time. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.
The actuarial present value of benefit obligations and the funded status of the plan taken as a whole at December 31 are as follows:
1999 1998
---------------------
Projected benefit obligation, beginning of the year.................................... $ 36,547 $ 30,612
Service cost - benefits earned during the year......................................... 3,270 2,585
Interest cost - on projected benefit obligation........................................ 2,779 2,203
Actuarial gain (loss).................................................................. (5,729) 2,115
Plan amendment......................................................................... 32 160
Benefits paid.......................................................................... (369) (1,128)
---------------------
Projected benefit obligation, end of the year.......................................... 36,530 36,547
---------------------
Fair value of plan assets beginning of the year........................................ $ 25,147 $ 21,763
Actual return on plan assets........................................................... 2,594 1,689
Employer contribution.................................................................. 7,048 2,823
Benefits paid.......................................................................... (369) (1,128)
---------------------
Fair value of plan assets end of the year.............................................. $ 34,420 25,147
---------------------
Plan assets less than the projected benefit obligation................................. $ (2,110) $(11,400)
Unrecognized net actuarial loss from past experience different from that assumed....... 2,601 9,069
Unrecognized prior service cost........................................................ 569 652
Unrecognized net transition asset...................................................... (17) (34)
---------------------
Net pension liability recognized in balance sheet...................................... $ 1,043 $ (1,713)
=====================
Net pension cost of the defined benefit pension plan includes the following components for the years ended
December 31:
1999 1998 1997
--------------------------------------
Service cost.............................................................. $3,270 $ 2,585 $ 2,112
Interest cost............................................................. 2,779 2,203 2,036
Expected return on plan assets............................................ (2,348) (1,950) (1,793)
Amortization of prior service cost........................................ 115 112 100
Amortization of transition asset.......................................... (17) (17) (17)
Recognized net actuarial loss............................................. 494 305 152
--------------------------------------
Net pension cost.......................................................... $4,293 $ 3,238 $ 2,590
======================================
Protective's share of the net pension cost was $3.6 million, $2.6 million, and $1.8 million, in 1999, 1998,
and 1997, respectively.
Assumptions used to determine the benefit obligations as of December 31 were as follows:
1999 1998 1997
-----------------------------------
Weighted average discount rate................................. 8.00% 6.75% 7.25%
Rates of increase in compensation level........................ 5.75% 4.75% 5.25%
Expected long-term rate of return on assets.................... 8.50% 8.50% 8.50%
Assets of the pension plan are included in the general assets of Protective. Until recently, upon retirement, the amount of pension plan assets vested in the retiree were used to purchase a single premium annuity from Protective in the retiree’s name. Therefore, amounts presented above as plan assets exclude assets relating to retirees. Beginning July 1, 1999, retiree obligations are being fulfilled from pension plan assets.
PLC also sponsors an unfunded excess benefits plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed by federal income tax law. At December 31, 1999 and 1998, the projected benefit obligation of this plan totaled $13.1 million and $11.7 million, respectively, of which $8.3 million and $7.8 million, respectively, have been recognized in PLC’s financial statements.
Net pension cost of the excess benefits plan includes the following components for the years ended December 31:
1999 1998 1997
------------------------------------
Service cost.................................................................. $ 695 $ 611 $ 544
Interest cost................................................................. 887 722 651
Plan amendment................................................................ 351
Amortization of prior service cost............................................ 113 112 112
Amortization of transition asset.............................................. 37 37 37
Recognized net actuarial loss................................................. 265 173 180
------------------------------------
Net pension cost.............................................................. $1,997 $1,655 $1,875
====================================
In addition to pension benefits, PLC provides limited healthcare benefits to eligible retired employees until age 65. The postretirement benefit is provided by an unfunded plan. At December 31, 1999 and 1998, the liability for such benefits totaled $1.2 million. The expense recorded by PLC was $0.1 million in 1999, 1998 and 1997. PLC’s obligation is not materially affected by a 1% change in the healthcare cost trend assumptions used in the calculation of the obligation.
Life insurance benefits for retirees are provided through the purchase of life insurance policies upon retirement equal to the employees’ annual compensation up to a maximum of $75,000. This plan is partially funded at a maximum of $50,000 face amount of insurance.
PLC sponsors a defined contribution plan which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code. PLC established an Employee Stock Ownership Plan (“ESOP”) to match voluntary employee contributions to PLC’s 401(k) Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees who are not otherwise under a bonus plan. Expense related to the ESOP consists of the cost of the shares allocated to participating employees plus the interest expense on the ESOP’s note payable to Protective less dividends on shares held by the ESOP. At December 31, 1999, PLC had committed up to 120,812 shares to be released to fund employee benefits. The expense recorded by PLC for these employee benefits was less than $0.1 million in 1999, 1998, and 1997.
PLC sponsors a deferred compensation plan for certain directors, officers, agents, and others. Compensation deferred is credited to the participants in cash, PLC Common Stock, or a combination thereof.
Certain Protective employees participate in PLC’s Long-Term Incentive Plan (previously known as the Performance Share Plan) and receive stock appreciation rights (SARs) from PLC.
Since 1973 PLC has had a Long-Term Incentive Plan (previously known as the Performance Share Plan) to motivate senior management to focus on PLC’s long-range earnings performance through the awarding of performance shares. The criterion for payment of performance share awards is based upon a comparison of PLC’s average return on average equity and total rate of return over a four year award period (earlier upon the death, disability or retirement of the executive, or in certain circumstances, of a change in control of PLC) to that of a comparison group of publicly held life and multiline insurance companies. If PLC’s results are below the median of the comparison group, no portion of the award is earned. If PLC’s results are at or above the 90th percentile, the award maximum is earned. Under the plan approved by share owners in 1992 and 1997, up to 6,400,000 shares may be issued in payment of awards. The number of shares granted in 1999, 1998, and 1997 were 99,380, 71,340 and 98,780, respectively, having an approximate market value on the grant date of $3.4 million, $2.3 million, and $2.0 million, respectively. At December 31, 1999, outstanding awards measured at target and maximum payouts were 424,960 and 571,396 shares, respectively. The expense recorded by PLC for the Long-Term Incentive Plan was $3.4 million, $2.7 million, and $2.7 million in 1999, 1998, and 1997, respectively.
During 1996, stock appreciation rights (SARs) were granted to certain executives of PLC to provide long-term incentive compensation based on the performance of PLC’s Common Stock. Under this arrangement PLC will pay (in shares of PLC Common Stock) an amount equal to the difference between the specified base price of PLC’s Common Stock and the market value at the exercise date. The SARs are exercisable after five years (earlier upon the death, disability or retirement of the executive, or in certain circumstances, of a change in control of PLC) and expire in 2006 or upon termination of employment. The number of SARs granted during 1996 and outstanding at December 31, 1999 was 675,000. The SARs have a base price of $17.4375 per share of PLC Common Stock (the market price on the grant date was $17.50 per share). The estimated fair value of the SARs on the grant date was $3.0 million. This estimate was derived using the Roll-Geske variation of the Black-Sholes option pricing model. Assumptions used in the pricing model are as follows: expected volatility rate of 15% (approximately equal to that of the S & P Life Insurance Index), a risk free interest rate of 6.35%, a dividend yield rate of 1.97%, and an expected exercise date of August 15, 2002. The expense recorded by PLC for the SARs was $0.6 million in 1999, 1998 and 1997.
Protective assumes risks from, and reinsures certain of its risks with other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Yearly renewable term and coinsurance agreements are accounted for by passing a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate part of the premiums less commissions and is liable for a corresponding part of all benefit payments. Modified coinsurance is accounted for similarly to coinsurance except that the liability for future policy benefits is held by the original company, and settlements are made on a net basis between the companies. A substantial portion of Protective’s new life insurance and credit insurance sales are being reinsured. Protective reviews the financial condition of its reinsurers and monitors the amount of reinsurance it has with its reinsurers.
Protective has reinsured approximately $93.5 billion, $64.8 billion, and $34.1 billion in face amount of life insurance risks with other insurers representing $364.7 million, $294.4 million, and $147.2 million of premium income for 1999, 1998, and 1997, respectively. Protective has also reinsured accident and health risks representing $172.8 million, $164.8 million, and $187.7 million of premium income for 1999, 1998, and 1997, respectively. In 1999 and 1998, policy and claim reserves relating to insurance ceded of $739.3 million and $658.7 million respectively are included in reinsurance receivables. Should any of the reinsurers be unable to meet its obligation at the time of the claim, obligation to pay such claim would remain with Protective. At December 31, 1999 and 1998, Protective had paid $46.8 million and $22.8 million, respectively, of ceded benefits which are recoverable from reinsurers. In addition, at December 31, 1999, Protective had receivables of $74.0 million related to insurance assumed.
The carrying amount and estimated fair values of Protective’s financial instruments at December 31 are as follows:
1999 1998
-----------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Values Amount Values
-----------------------------------------------------------------
Assets (see Notes A and C):
Investments:
Fixed maturities...................... $6,275,607 $6,275,607 $6,400,262 $6,400,262
Equity securities..................... 30,696 30,696 12,258 12,258
Mortgage loans on real estate......... 1,946,690 1,909,026 1,623,603 1,774,379
Short-term investments................ 81,171 81,171 159,655 159,655
Liabilities (see Notes A and E):
Guaranteed investment contract deposits 2,680,009 2,649,616 2,691,697 2,751,007
Annuity deposits...................... 1,639,231 1,598,993 1,519,820 1,513,148
Notes payable......................... 2,338 2,338 2,363 2,363
Other (see Note A):
Derivative Financial Instruments...... 5,273 3,564 986 6,426
Except as noted below, fair values were estimated using quoted market prices. Protective estimates the fair value of its mortgage loans using discounted cash flows from the next call date. Protective believes the fair value of its short-term investments and notes payable to banks approximates book value due to either being short-term or having a variable rate of interest. Protective estimates the fair value of its guaranteed investment contracts and annuities using discounted cash flows and surrender values, respectively. Protective believes it is not practicable to determine the fair value of its policy loans since there is no stated maturity, and policy loans are often repaid by reductions to policy benefits.
Protective estimates the fair value of its derivative financial instruments using market quotes or derivative pricing models. The fair value represents the net amount of cash Protective would have received (or paid) had the contracts been terminated on December 31.
On January 20, 2000, Protective acquired the Lyndon Insurance Group (Lyndon). Lyndon manufactures and markets a variety of specialty insurance products including credit insurance, and vehicle and marine service agreements.
SCHEDULE III-- SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H COL. I COL. J
- -------------------------------------------------------------------------------------------------------------------------------
Stable Value and
Future Annuity Amortization
Deferred Policy Deposits Premiums Benefits of Deferred
Policy Benefits and Other and Net and Policy Other
Acquisition and Unearned Policyholders' Policy Investment Settlement Acquisition Operating
Segment Costs Claims Premiums Funds Fees Income(1) Expenses Costs Expenses (1)
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended
December 31,1999:
Life Insurance
Individual Life $379,117 $1,210,188 $ 338 $ 17,159 $ 92,506 $ 59,916 $ 74,455 $ 23,434 $ 20,851
West Coast 200,605 1,279,554 0 74,831 23,208 78,126 73,176 6,047 (2,649)
Acquisitions 235,903 1,374,445 558 260,267 114,866 129,806 129,581 19,444 31,178
Specialty Insurance
Products
Dental and Consumer
Benefits 25,819 126,592 2,994 74,204 236,120 14,915 172,165 10,705 56,396
Financial Institutions 51,339 150,888 503,735 9,044 107,962 24,122 55,899 24,718 44,728
Retirement Savings and
Investment Products
Stable Value Products 1,156 167,415 0 2,680,009 0 210,209 175,291 744 4,708
Investment Products 117,577 254,492 0 1,320,453 24,248 106,599 88,642 19,820 14,617
Corporate and Other 8 2,852 34 88 313 (462) 2,318 1 6,610
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL $1,011,524 $4,566,426 $507,659 $4,436,055 $ 599,223 $623,231 $ 771,527 $ 104,913 $176,439
===============================================================================================================================
Year Ended
December 31,1998:
Life Insurance
Individual Life... $301,941 $1,054,253 $ 355 $ 10,802 $ 126,168 $ 55,779 $ 106,308 $ 30,543 $14,983
West Coast........ 144,455 1,006,280 0 77,254 22,380 63,492 54,617 4,924 5,354
Acquisitions...... 255,347 1,383,759 553 233,846 96,735 112,154 112,051 18,894 26,717
Specialty Insurance Products
Dental and Consumer
Benefits....... 23,836 111,916 3,341 78,224 191,563 15,245 140,632 10,352 49,913
Financial Institution 39,212 215,451 385,006 105,434 112,272 25,068 52,629 28,526 48,837
Retirement Savings and
Investment Products
Stable Value Contracts 1,448 172,674 0 2,691,697 0 213,136 178,745 735 2,876
Investment Products 75,177 194,726 0 1,233,528 18,809 105,827 85,045 17,213 14,428
Corporate and Other.. 9 944 39 88 198 13,094 469 1 9,120
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL........ $841,425 $4,140,003 $ 389,294 $4,430,873 $ 568,125 $ 603,795 $ 730,496 $ 111,188 $172,228
===============================================================================================================================
Year Ended
December 31,1997:
Life Insurance
Individual Life... $252,321 $ 920,924 $ 356 $ 16,334 $ 127,480 $ 54,593 $ 114,678 $ 27,354 $ 18,178
West Coast........ 108,126 739,463 0 95,495 14,122 30,194 28,304 961 6,849
Acquisitions...... 138,052 1,025,340 1,437 311,150 102,635 110,155 116,506 16,606 23,016
Specialty Insurance Products
Dental and Consumer
Benefits....... 22,459 120,925 2,536 80,654 151,110 23,810 110,148 15,711 38,572
Financial Institutions 52,836 159,422 391,085 6,791 72,263 16,341 27,643 30,812 20,165
Retirement Savings and
Investment Products
Stable Value Products 1,785 180,690 0 2,684,676 0 211,915 179,235 618 3,945
Investment Products 56,074 177,150 0 1,184,268 12,367 105,196 82,019 15,110 12,312
Corporate and Other.. 952 380 1,282 185 229 5,284 339 3 6,833
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL........ $632,605 $3,324,294 $396,696 $4,379,553 $ 480,206 $ 557,488 $ 658,872 $ 107,175 $129,870
===============================================================================================================================
(1) Allocations of Net Investment Income and Other Operating Expenses are based on a number of assumptions and
estimates and results would change if different methods were applied.
SCHEDULE IV-- REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage
Ceded to Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount to Net
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,1999:
Life insurance in force........................... $ 120,577,512 $ 92,566,755 $ 9,239,074 $ 37,249,831 24.8%
===========================================================================
Premiums and policy fees:
Life insurance.................................... $ 540,430 $ 364,680 $ 131,855 $ 307,605 42.9%
Accident and health insurance..................... 403,491 172,852 27,266 257,905 10.6%
Property and liability insurance.................. 34,104 501 110 33,713 0.3%
---------------------------------------------------------------
TOTAL......................................... $ 978,025 $ 538,033 $ 159,231 $ 599,223
===============================================================
Year Ended December 31,1998:
Life insurance in force........................... $ 91,980,657 $ 64,846,246 $ 18,010,434 $ 45,144,845 39.9%
===========================================================================
Premiums and policy fees:
Life insurance.................................... $ 537,002 $ 294,363 $ 87,965 $ 330,604 26.6%
Accident and health insurance..................... 361,705 164,852 14,279 211,132 6.8%
Property and liability insurance.................. 26,389 26,389 0.0%
---------------------------------------------------------------
TOTAL......................................... $ 925,096 $ 459,215 $ 102,244 $ 568,125
===============================================================
Year Ended December 31,1997:
Life insurance in force........................... $ 78,240,282 $ 34,139,554 $ 11,013,202 $ 55,113,930 20.0
============================================================================
Premiums and policy fees:
Life insurance.................................... $ 387,108 $ 147,184 $ 74,738 $ 314,662 23.8%
Accident and health insurance..................... 336,575 187,539 10,510 159,546 6.7%
Property and liability insurance.................. 6,139 176 35 5,998 0.6%
---------------------------------------------------------------
TOTAL......................................... $ 729,822 $ 334,899 $ 85,283 $ 480,206
===============================================================
(a) The following documents are filed as part of this report:
1. Financial Statements (Item 8)
2. Financial Statement Schedules (see index annexed)
3. Exhibits:
| The exhibits listed in the Exhibit Index on page 39 of this Form 10-K are filed herewith or are incorporated herein by reference. No management contract or compensatory plan or arrangement is required to be filed as an exhibit to this form. The Registrant will furnish a copy of any of the exhibits listed upon the payment of $5.00 per exhibit to cover the cost of the Registrant in furnishing the exhibit. |
None
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Birmingham, State of Alabama on March 28, 1999.
PROTECTIVE LIFE INSURANCE COMPANY
By: /s/ DRAYTON NABERS, JR.
March 28, 2000 Chairman of the Board
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
(i) Principal Executive Officer
/s/DRAYTON NABERS, JR. Chairman of the Board and March 28, 2000
Drayton Nabers, Jr. Chief Executive Officer
(Principal Executive Officer
and Director)
(ii) Principal Financial Officer
/s/JOHN D. JOHNS President and Chief March 28, 2000
John D. Johns Operating Officer
(Principal Financial Officer
and Director)
(iii)Principal Accounting Officer
/s/JERRY W. DEFOOR Vice President and Controller, March 28, 2000
Jerry W. DeFoor and Chief Accounting Officer
(Principal Accounting Officer)
(iv) Board of Directors:
/s/DRAYTON NABERS, JR. Director March 28, 2000
Drayton Nabers, Jr.
/s/JOHN D. JOHNS Director March 28, 2000
John D. Johns
* Director March 28, 2000
Danny L. Bentley
* Director March 28, 2000
Richard J. Bielen
* Director March 28, 2000
R. Stephen Briggs
* Director March 28, 2000
T. Davis Keyes
* Director March 28, 2000
Carolyn King
* Director March 28, 2000
Deborah J. Long
* Director March 28, 2000
Jim E. Massengale
* Director March 28, 2000
Steven A. Schultz
* Director March 28, 2000
Wayne E. Stuenkel
* Director March 28, 2000
A. S. Williams III
*By: /s/ JERRY W. DEFOOR
Jerry W. DeFoor
Attorney-in-fact
EXHIBIT INDEX
Item
Number Document
**** 2 -- Stock Purchase Agreement
* 3(a) -- Articles of Incorporation
* 3(b) -- By-laws
** 4(a) -- Group Modified Guaranteed Annuity Contract
*** 4(b) -- Individual Certificate
** 4(h) -- Tax-Sheltered Annuity Endorsement
** 4(i) -- Qualified Retirement Plan Endorsement
** 4(j) -- Individual Retirement Annuity Endorsement
** 4(l) -- Section 457 Deferred Compensation Plan Endorsement
* 4(m) -- Qualified Plan Endorsement
** 4(n) -- Application for Individual Certificate
** 4(o) -- Adoption Agreement for Participation in Group Modified Guaranteed Annuity
*** 4(p) -- Individual Modified Guaranteed Annuity Contract
** 4(q) -- Application for Individual Modified Guaranteed Annuity Contract
** 4(r) -- Tax-Sheltered Annuity Endorsement
** 4(s) -- Individual Retirement Annuity Endorsement
** 4(t) -- Section 457 Deferred Compensation Plan Endorsement
** 4(v) -- Qualified Retirement Plan Endorsement
**** 4(w) -- Endorsement-- Group Policy
**** 4(x) -- Endorsement-- Certificate
**** 4(y) -- Endorsement-- Individual Contract
**** 4(z) -- Endorsement (Annuity Deposits)-- Group Policy
**** 4(aa) -- Endorsement (Annuity Deposits)-- Certificate
**** 4(bb) -- Endorsement (Annuity Deposits)-- Individual Contracts
***** 4(cc) -- Endorsement-- Individual
***** 4(dd) -- Endorsement-- Group Contract/Certificate
****** 4(ee) -- Endorsement (96)-- Individual
****** 4(ff) -- Endorsement (96)-- Group Contract
****** 4(gg) -- Endorsement (96)-- Group Certificate
****** 4(hh) -- Individual Modified Guaranteed Annuity Contract (96)
******* 4(ii) -- Settlement Endorsement
* 10(a) -- Bond Purchase Agreement
* 10(b) -- Escrow Agreement
24 -- Power of Attorney
27 -- Financial Data Schedule
99 -- Safe Harbor for Forward-Looking Statements
* Previously filed or incorporated by reference in Form S-1 Registration Statement,
Registration
No. 33-31940.
** Previously filed or incorporated by reference in Amendment No. 1 to Form S-1 Registration
Statement, Registration No. 33-31940.
*** Previously filed or incorporated by reference from Amendment No. 2 to Form S-1 Registration
Statement, Registration No. 33-31940.
**** Previously filed or incorporated by reference from Amendment No. 2 to Form S-1 Registration
Statement, Registration No. 33-57052.
***** Previously filed or incorporated by reference from Amendment No. 3 to Form S-1 Registration
Statement, Registration No. 33-57052.
****** Previously filed or incorporated by reference from S-1 Registration Statement, Registration
No. 333-02249.
******* Previously filed or incorporated by reference from Amendment No. 1 to
Form S-1 Registration Statement, Registration No. 333-02249.