PROTECTIVE LIFE INSURANCE CO - 10-Q Quarterly Report

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

	ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
	o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Numbers 33-31940; 33-39345; 33-57052; 333-02249

Protective Life Insurance Company
(Exact name of registrant as specified in its charter)

Tennessee
(State or other jurisdiction of
incorporation or organization)

63-0169720
(IRS Employer Identification Number)

2801 Highway 280 South
Birmingham, Alabama 35223
(Address of principal executive offices and zip code)

(205) 268-1000
(Registrant's telephone number, including area code)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Number of shares of Common Stock, $1.00 par value, outstanding as of August 8, 2003: 5,000,000 shares.

PROTECTIVE LIFE INSURANCE COMPANY

INDEX

			Page Number
Part I. Financial Information:
	Item 1. Financial Statements:
		Report of Independent Auditors	2
		Consolidated Condensed Statements of Income for the Three and Six Months ended June 30, 2003 and 2002 (unaudited)	3
		Consolidated Condensed Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002	4
		Consolidated Condensed Statements of Cash Flows for the Six Months ended June 30, 2003 and 2002 (unaudited)	5
		Notes to Consolidated Condensed Financial Statements (unaudited)	6
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		16
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		35
	Item 4. Controls and Procedures		35
Part II. Other Information:
	Item 6. Exhibits and Reports on Form 8-K		35
Signature			36

REPORT OF INDEPENDENT AUDITORS

To the Directors and Share Owner
Protective Life Insurance Company

We have reviewed the accompanying consolidated condensed balance sheet of Protective Life Insurance Company and subsidiaries as of June 30, 2003, and the related consolidated condensed statements of income for each of the three-month and six-month periods ended June 30, 2003 and 2002, and the consolidated condensed statements of cash flows for the six-month periods ended June 30, 2003 and 2002. These financial statements are the responsibility of Protective Life's management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2002, and the related consolidated statements of income, share-owner's equity, and cash flows for the year then ended (not presented herein), and in our report dated March 19, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2002 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Birmingham, Alabama
August 6, 2003

PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands)
(Unaudited)

			Three Months Ended June 30						Six Months Ended June 30
			2003			2002			2003			2002
REVENUES
	Premiums and policy fees		$	392,952		$	376,854		$	777,186		$	754,074
	Reinsurance ceded			(201,100	)		(200,312	)		(387,106	)		(376,995	)

	Premiums and policy fees, net of reinsurance ceded			191,852			176,542			390,080			377,079
	Net investment income			253,354			241,315			501,764			473,787
	Realized investment gains (losses)
		Derivative financial instruments		(5,717	)		1,467			(15,597	)		149
		All other investments		29,523			7,205			35,246			8,060
	Other income			22,189			12,087			31,123			20,701

				491,201			438,616			942,616			879,776

BENEFITS AND EXPENSES
	Benefits and settlement expenses (net of reinsurance ceded: three months: 2003—$217,445; 2002—$180,959 six months: 2003—$435,216; 2002—$330,144)			282,575			283,836			577,541			567,020
	Amortization of deferred policy acquisition costs			69,967			47,227			127,913			102,145
	Other operating expenses (net of reinsurance ceded: three months: 2003—$35,444; 2002—$42,655 six months: 2003—$64,477; 2002—$76,229)			35,007			30,904			76,895			77,988

				387,549			361,967			782,349			747,153

INCOME BEFORE INCOME TAX				103,652			76,649			160,267			132,623
Income tax expense				34,816			26,357			53,369			43,078

NET INCOME			$	68,836		$	50,292		$	106,898		$	89,545

See notes to consolidated condensed financial statements

PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)

				June 30 2003			December 31 2002
				(Unaudited)
ASSETS
	Investments:
		Fixed maturities, at market (amortized cost: 2003—$11,676,396; 2002—$11,212,765)		$	12,503,064		$	11,655,465
		Equity securities, at market (amortized cost: 2003—$38,864; 2002—$51,095)			40,038			48,799
		Mortgage loans on real estate			2,543,013			2,518,151
		Investment in real estate, net			11,792			15,499
		Policy loans			532,981			543,161
		Other long-term investments			248,967			210,381
		Short-term investments			802,712			447,155

			Total investments		16,682,567			15,438,611
	Cash				70,178			85,850
	Accrued investment income				184,296			180,950
	Accounts and premiums receivable, net				50,397			50,544
	Reinsurance receivables				2,300,365			2,330,678
	Deferred policy acquisition costs				1,729,617			1,709,254
	Goodwill				35,143			35,143
	Property and equipment, net				43,493			38,878
	Other assets				241,171			262,127
	Assets related to separate accounts
		Variable annuity			1,718,478			1,513,824
		Variable universal life			137,027			114,364
		Other			4,400			4,330

				$	23,197,132		$	21,764,553

LIABILITIES
	Policy liabilities and accruals			$	9,385,894		$	9,087,340
	Stable value investment contract deposits				4,214,470			4,018,552
	Annuity account balances				3,681,814			3,697,495
	Other policyholders' funds				177,537			174,665
	Other liabilities				901,756			620,731
	Accrued income taxes				33,079			36,859
	Deferred income taxes				324,022			206,845
	Debt
		Notes payable			2,249			2,264
		Indebtedness to related parties						2,000
	Liabilities related to separate accounts
		Variable annuity			1,718,478			1,513,824
		Variable universal life			137,027			114,364
		Other			4,400			4,330

					20,580,726			19,479,269

COMMITMENTS AND CONTINGENT LIABILITIES—NOTE B
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, shares authorized and issued: 5,000,000				5,000			5,000
	Additional paid-in capital				846,619			846,619
	Note receivable from PLC Employee Stock Ownership Plan				(3,426	)		(3,838	)
	Retained earnings				1,306,676			1,201,587
	Accumulated other comprehensive income:
		Net unrealized gains on investments (net of income tax: 2003—$247,887; 2002—$128,145)			460,362			237,983
		Accumulated gain (loss)—hedging (net of income tax: 2003—$632; 2002—$(1,114))			1,173			(2,069	)

					2,616,406			2,285,284

				$	23,197,132		$	21,764,553

See notes to consolidated condensed financial statements

PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

			Six Months Ended June 30
			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income		$	106,898		$	89,545
	Adjustments to reconcile net income to net cash provided by operating activities:
		Realized investment (gains) losses		(19,649	)		(8,209	)
		Amortization of deferred policy acquisition costs		127,913			88,336
		Capitalization of deferred policy acquisition costs		(195,112	)		(189,860	)
		Depreciation expense		5,907			5,560
		Deferred income tax		(8,663	)		81,015
		Accrued income tax		(3,780	)		(107,815	)
		Interest credited to universal life and investment products		275,733			560,416
		Policy fees assessed on universal life and investment products		(151,732	)		(122,447	)
		Change in accrued investment income and other receivables		27,114			(50,447	)
		Change in policy liabilities and other policyholders' funds of traditional life and health products		114,252			47,199
		Change in other liabilities		(122,698	)		24,885
		Other (net)		25,338			(5,130	)

	Net cash provided by operating activities			181,521			413,048

CASH FLOWS FROM INVESTING ACTIVITIES
	Maturities and principal reductions of investments
		Investments available for sale		6,907,171			4,436,562
		Other		230,633			148,496
	Sale of investments
		Investments available for sale		9,624,813			4,326,372
		Other		2,840			4,218
	Cost of investments acquired
		Investments available for sale		(16,963,491	)		(9,661,370	)
		Other		(246,781	)		(216,729	)
	Acquisitions and bulk reinsurance assumptions			0			130,515
	Sale of charter			16,869			0
	Purchase of property and equipment			(10,834	)		(3,504	)
	Sale of property and equipment			0			48

	Net cash used in investing activities			(438,780	)		(835,392	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from borrowings under line of credit arrangements and debt			219,000			1,987,272
	Principal payments on line of credit arrangements and debt			(219,015	)		(2,104,285	)
	Dividend to share owner			(1,808	)		0
	Principal payment on surplus notes to PLC			0			(2,000	)
	Investment product deposits and change in universal life deposits			875,749			1,040,707
	Investment product withdrawals			(632,339	)		(587,062	)

	Net cash provided by financing activities			241,587			334,632

DECREASE IN CASH				(15,672	)		(87,712	)
CASH AT BEGINNING OF PERIOD				85,850			107,166

CASH AT END OF PERIOD			$	70,178		$	19,454

See notes to consolidated condensed financial statements

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
(Amounts in tables are in thousands)

NOTE A—BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements of Protective Life Insurance Company and subsidiaries ("Protective Life") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair statement have been included. Operating results for the six month period ended June 30, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the consolidated financial statements and notes thereto included in Protective Life's annual report on Form 10-K for the year ended December 31, 2002.

Protective Life is a wholly-owned subsidiary of Protective Life Corporation ("PLC").

NOTE B—COMMITMENTS AND CONTINGENT LIABILITIES

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 Life 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 and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very little appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. Protective Life, like other financial services companies, in the ordinary course of business is involved in such litigation or, alternatively, in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, Protective Life 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 Life. Protective Life had previously disclosed that it was in arbitration with one reinsurer with respect to the overpayment of reinsurance premiums. However, Protective Life has reached agreement with respect to the terms of a settlement and expects this arbitration to be dismissed in due course.

NOTE C—OPERATING SEGMENTS

Protective Life operates several business segments. An operating segment is generally distinguished by products and/or channels of distribution. A brief description of each segment follows:

Life Marketing. The Life Marketing segment markets level premium term and term-like insurance, universal life, and variable universal life products on a national basis primarily through networks of independent insurance agents and brokers, and in the "bank owned life insurance" market.

Acquisitions. The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment's primary focus is on life insurance policies sold to individuals.

Annuities. The Annuities segment 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 Life Marketing segment's sales force.

Stable Value Contracts. The Stable Value Contracts segment markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans, and sells funding agreements to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. The segment also markets fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds.

Asset Protection. The Asset Protection segment primarily markets credit life and disability insurance products through banks, consumer finance companies and automobile dealers, and markets vehicle and recreational marine extended service contracts.

Corporate and Other. Protective Life 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 segments above (including net investment income on unallocated capital). This segment also includes earnings from several lines of business which Protective Life is not actively marketing (mostly cancer insurance and group annuities), various investment-related transactions, and the operations of several small subsidiaries.

Protective Life 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, adjusted to exclude any pretax minority interest in income of consolidated subsidiaries. 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 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.

The following table sets forth total operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses) and the

recognition of income tax expense. Asset adjustments represent the inclusion of assets related to discontinued operations.

			Operating Segment Income for the Six Months Ended June 30, 2003
			Life Marketing			Acquisitions			Annuities		Stable Value Contracts
Premiums and policy fees			$	388,360		$	144,389		$	12,270
Reinsurance ceded				(265,939	)		(37,157	)

	Net of reinsurance ceded			122,421			107,232			12,270
Net investment income				113,769			124,816			116,221	$	117,622
Realized investment gains (losses)										11,232		(2,442	)
Other income				1,181			2,447			1,597

		Total revenues		237,371			234,495			141,320		115,180

Benefits and settlement expenses				132,430			145,570			104,325		94,722
Amortization of deferred policy acquisition costs				47,269			18,555			18,353		1,118
Other operating expenses				(20,211	)		22,630			11,124		2,546

		Total benefits and expenses		159,488			186,755			133,802		98,386

Income before income tax				77,883			47,740			7,518		16,794
Less: realized investment gains (losses)										11,232		(2,442	)
Add back: related amortization of deferred policy acquisition costs										10,098

Operating income				77,883			47,740			6,384		19,236

			Asset Protection			Corporate and Other			Adjustments		Total Consolidated
Premiums and policy fees			$	211,625		$	20,542				$	777,186
Reinsurance ceded				(80,832	)		(3,178	)				(387,106	)

	Net of reinsurance ceded			130,793			17,364					390,080
Net investment income				19,453			9,883					501,764
Realized investment gains (losses)									$	10,859		19,649
Other income				24,512			1,386					31,123

		Total revenues		174,758			28,633			10,859		942,616

Benefits and settlement expenses				84,697			15,797					577,541
Amortization of deferred policy acquisition costs				41,970			648					127,913
Other operating expenses				44,351			16,455					76,895

		Total benefits and expenses		171,018			32,900					782,349

Income before income tax				3,740			(4,267	)				160,267
Less: realized investment gains (losses)
Add back: related amortization of deferred policy acquisition costs

Operating income				3,740			(4,267	)
Income tax expense										53,369		53,369

Net income											$	106,898

	Operating Segment Income for the Three Months Ended June 30, 2003
	Life Marketing			Acquisitions			Annuities		Stable Value Contracts
Premiums and policy fees	$	201,813		$	71,326		$	6,387
Reinsurance ceded		(141,901	)		(18,531	)

Net of reinsurance ceded		59,912			52,795			6,387
Net investment income		57,367			62,520			57,780	$	59,090
Realized investment gains (losses)								11,205		4,259
Other income		953			1,542			834

Total revenues		118,232			116,857			76,206		63,349

Benefits and settlement expenses		59,640			72,951			51,339		46,957
Amortization of deferred policy acquisition costs		24,198			8,474			13,967		519
Other operating expenses		(12,795	)		10,871			6,212		1,515

Total benefits and expenses		71,043			92,296			71,518		48,991

Income before income tax		47,189			24,561			4,688		14,358
Less: realized investment gains (losses)								11,205		4,259
Add back: related amortization of deferred policy acquisition costs								9,367

Operating income		47,189			24,561			2,850		10,099

			Asset Protection			Corporate and Other			Adjustments		Total Consolidated
Premiums and policy fees			$	104,076		$	9,350				$	392,952
Reinsurance ceded				(39,967	)		(701	)				(201,100	)

	Net of reinsurance ceded			64,109			8,649					191,852
Net investment income				9,626			6,971					253,354
Realized investment gains (losses)									$	8,342		23,806
Other income				17,813			1,047					22,189

		Total revenues		91,548			16,667			8,342		491,201

Benefits and settlement expenses				44,173			7,515					282,575
Amortization of deferred policy acquisition costs				22,491			318					69,967
Other operating expenses				21,942			7,262					35,007

		Total benefits and expenses		88,606			15,095					387,549

Income before income tax				2,942			1,572					103,652
Less: realized investment gains (losses)
Add back: related amortization of deferred policy acquisition costs

Operating income				2,942			1,572
Income tax expense										34,816		34,816

Net income											$	68,836

			Operating Segment Income for the Six Months Ended June 30, 2002
			Life Marketing			Acquisition			Annuities		Stable Value Contracts
Premiums and policy fees			$	309,291		$	144,259		$	13,450
Reinsurance ceded				(223,143	)		(35,892	)

	Net of reinsurance ceded			86,148			108,367			13,450
Net investment income				101,509			117,512			105,454	$	121,533
Realized investment gains (losses)										3,237		256
Other income				380			1,073			1,795

		Total revenues		188,037			226,952			123,936		121,789

Benefits and settlement expenses				123,890			144,265			87,448		98,911
Amortization of deferred policy acquisition costs				28,297			16,706			13,677		1,160
Other operating expenses				(12,714	)		21,909			11,577		1,947

		Total benefits and expenses		139,473			182,880			112,702		102,018

Income before income tax				48,564			44,072			11,234		19,771
Less: realized investment gains (losses)										3,237		256
Add back: related amortization of deferred policy acquisition costs										1,319

Operating income				48,564			44,072			9,316		19,515

	Asset Protection			Corporate and Other			Adjustments		Total Consolidated
Premiums and policy fees	$	258,458		$	28,616				$	754,074
Reinsurance ceded		(107,577	)		(10,383	)				(376,995	)

Net of reinsurance ceded		150,881			18,233					377,079
Net investment income		21,983			5,796					473,787
Realized investment gains (losses)							$	4,716		8,209
Other income		16,950			503					20,701

Total revenues		189,814			24,532			4,716		879,776

Benefits and settlement expenses		95,412			17,094					567,020
Amortization of deferred policy acquisition costs		41,496			809					102,145
Other operating expenses		40,372			14,897					77,988

Total benefits and expenses		177,280			32,800					747,153

Income before income tax		12,534			(8,268	)				132,623
Less: realized investment gains (losses)
Add back: related amortization of deferred policy acquisition costs

Operating income		12,534			(8,268	)
Income tax expense								43,078		43,078

Net income									$	89,545

			Operating Segment Income for the Three Months Ended June 30, 2002
			Life Marketing			Acquisitions			Annuities		Stable Value Contracts
Premiums and policy fees			$	159,869		$	66,432		$	6,841
Reinsurance ceded				(123,128	)		(17,889	)

	Net of reinsurance ceded			36,741			48,543			6,841
Net investment income				51,241			58,802			53,510	$	62,026
Realized investment gains (losses)										2,855		(265	)
Other income				162			524			903

		Total revenues		88,144			107,869			64,109		61,761

Benefits and settlement expenses				60,759			68,558			45,061		50,082
Amortization of deferred policy acquisition costs				12,106			7,797			6,683		595
Other operating expenses				(11,496	)		11,031			5,809		1,062

		Total benefits and expenses		61,369			87,386			57,553		51,739

Income before income tax				26,775			20,483			6,556		10,022
Less: realized investment gains (losses)										2,855		(265	)
Add back: related amortization of deferred policy acquisition costs										952

Operating income				26,775			20,483			4,653		10,287

			Asset Protection			Corporate and Other			Adjustments		Total Consolidated
Premiums and policy fees			$	127,950		$	15,762				$	376,854
Reinsurance ceded				(52,529	)		(6,766	)				(200,312	)

	Net of reinsurance ceded			75,421			8,996					176,542
Net investment income				10,888			4,848					241,315
Realized investment gains (losses)									$	6,082		8,672
Other income				10,033			465					12,087

		Total revenues		96,342			14,309			6,082		438,616

Benefits and settlement expenses				50,287			9,089					283,836
Amortization of deferred policy acquisition costs				19,678			368					47,227
Other operating expenses				22,509			1,989					30,904

		Total benefits and expenses		92,474			11,446					361,967

Income before income tax				3,868			2,863					76,649
Less: realized investment gains (losses)
Add back: related amortization of deferred policy acquisition costs

Operating income				3,868			2,863
Income tax expense										26,357		26,357

Net income											$	50,292

		Operating Segment Assets June 30, 2003
		Life Marketing		Acquisitions		Annuities		Stable Value Contracts
Investments and other assets		$	4,638,266	$	4,510,613	$	4,864,930	$	4,071,786
Deferred policy acquisition costs			1,059,372		390,857		72,450		4,621
Goodwill

	Total assets	$	5,697,638	$	4,901,470	$	4,937,380	$	4,076,407

		Asset Protection		Corporate and Other		Adjustments		Total Consolidated
Investments and other assets		$	1,119,193	$	2,112,729	$	114,855	$	21,432,372
Deferred policy acquisition costs			194,632		7,685				1,729,617
Goodwill			35,143						35,143

	Total assets	$	1,348,968	$	2,120,414	$	114,855	$	23,197,132

		Operating Segment Assets December 31, 2002
		Life Marketing		Acquisitions		Annuities		Stable Value Contracts
Investments and other assets		$	4,193,732	$	4,553,955	$	4,821,398	$	3,930,669
Deferred policy acquisition costs			973,631		435,592		93,140		4,908
Goodwill

	Total assets	$	5,167,363	$	4,989,547	$	4,914,538	$	3,935,577

	Asset Protection		Corporate and Other		Adjustments		Total Consolidated
Investments and other assets	$	1,040,811	$	1,355,762	$	123,829	$	20,020,156
Deferred policy acquisition costs		194,281		7,702				1,709,254
Goodwill		35,143						35,143

Total assets	$	1,270,235	$	1,363,464	$	123,829	$	21,764,553

NOTE D—STATUTORY REPORTING PRACTICES

Financial statements prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. In accordance with statutory accounting reporting practices, at June 30, 2003, and for the three months then ended, Protective Life and its life insurance subsidiaries had combined share-owner's equity of $883.1 million and net income of $24.2 million.

NOTE E—REINSURANCE RECEIVABLE

In 2002, Protective Life discovered that it had overpaid reinsurance premiums to several reinsurance companies of approximately $94.5 million. At December 31, 2002, Protective Life had recorded cash and receivables totaling $69.7 million, which reflected the amounts received and Protective Life's then current estimate of amounts to be recovered in the future, based upon the information then available. The corresponding increase in premiums and policy fees resulted in $62.5 million of additional amortization of deferred policy acquisition costs in 2002. The amortization of deferred policy acquisition costs takes into account the amortization relating to the increase in premiums and policy fees as well as the additional amortization required should the remainder of the overpayment not be collected.

As of the date of this report, Protective Life has received payment from, or reached definitive agreement with, substantially all of the affected reinsurance companies. As a result, Protective Life has increased related receivables by $18.4 million during the first six months of 2003, with $15.6 million of the increase occurring in the second quarter of 2003. The corresponding increase in premium and policy fees resulted in $6.1 million of additional amortization of deferred policy acquisition costs in the first six months of 2003 ($5.1 million of the increase was in the second quarter of 2003). As a result, Protective Life's pretax income for the first six months of 2003 increased by $12.3 million, and by $10.5 million in the second quarter of 2003.

NOTE F—RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2003, the Derivatives Implementation Group of the Financial Accounting Standards Board (FASB) cleared Issue No. B36, "Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments" (DIG B36). DIG B36 requires the bifurcation of embedded derivatives within modified coinsurance and funds withheld coinsurance arrangements that expose the creditor to credit risk of a company other than the debtor, even if the debtor owns as investment assets the third-party securities to which the creditor is exposed. The effective date of the implementation guidance in DIG B36 is for the first fiscal quarter beginning after September 15, 2003, and should be applied on a prospective basis. Protective Life is currently evaluating the impact of this pronouncement on its financial statements, but does not anticipate a material impact on its financial condition or results of operations.

In April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. This Statement is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively. Protective Life is currently evaluating the impact of this pronouncement on its financial statements, but does not anticipate a material impact on its financial condition or results of operations.

In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Protective Life does not expect the adoption of SFAS No. 150 to have a material effect on Protective Life's financial position or results of operations.

NOTE G—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Fair-Value Hedges

As of June 30, 2003, and during the six months then ended, Protective Life had no hedging relationships designated as a fair-value hedge.

Cash-Flow Hedges

Protective Life has entered into a foreign currency swap to hedge the risk of changes in the value of interest and principal payments to be made on certain of its foreign-currency-based stable value contracts. Under the terms of the swap, Protective Life pays a fixed U.S.-dollar-denominated rate and receives a fixed foreign-currency-denominated rate. Effective July 1, 2002, Protective Life designated this swap as a cash flow hedge and therefore recorded the change in the fair value of the swap during the period in accumulated other comprehensive income. In the second quarter of 2003, the income recognized by Protective Life related to the ineffective portion of the hedging instrument was immaterial. For the six months ended June 30, 2003, Protective Life recognized income of $0.3 million related to the ineffective portion of the hedging instrument. There were no components of the hedging instrument excluded from the assessment of hedge ineffectiveness. During the three and six month periods ended June 30, 2003, a pretax loss of $18.7 million and $30.3 million, respectively, representing the change in fair value of the hedged contracts during the period, and a gain of like amount representing the application of hedge accounting to this transaction, were recorded in Realized Investment Gains (Losses)—Derivative Financial Instruments in Protective Life's consolidated condensed statements of income. Additionally, at June 30, 2003, Protective Life reported an increase in accumulated other comprehensive income of $1.2 million (net of income tax of $0.6 million) related to its derivatives designated as cash flow hedges. During the next twelve months, Protective Life expects to reclassify out of accumulated other comprehensive income and into earnings, as a reduction of interest expense, approximately $0.7 million.

Other Derivatives

Protective Life uses certain interest rate swaps, caps, floors, options and futures contracts as economic hedges against the changes in value or cash flows of outstanding mortgage loan commitments and certain owned investments of Protective Life. For the three and six months ended June 30, 2003, Protective Life recognized total pretax losses of $7.4 million and $16.3 million, respectively, representing the change in fair value of these derivative instruments as well as the realized gain or loss on contracts closed during the period.

On its foreign currency swaps, Protective Life recognized a $24.5 million pretax gain for the first six months of fiscal 2003 and a $17.9 million pretax gain for the current quarter while recognizing a $24.5 million foreign exchange pretax loss on the related foreign-currency-denominated stable value contracts for the six month period and a $16.9 million pretax loss for the current quarter. The net change primarily results from the difference in the forward and spot exchange rates used to revalue the currency swaps and the stable value contracts, respectively. This net change is reflected in Realized Investment Gains (Losses)—Derivative Financial Instruments in Protective Life's consolidated condensed statements of income.

Protective Life has entered into asset swap arrangements to, in effect, sell the equity options embedded in owned convertible bonds in exchange for an interest rate swap that converts the remaining host bond to a variable rate instrument. For the six months ended June 30, 2003, Protective Life recognized a $1.0 million pretax gain for the change in the asset swaps' fair value and recognized a $0.6 million pretax loss to separately record the embedded equity options at fair value. For the three months ended June 30, 2003, Protective Life recognized a $0.9 million pretax gain for the change in the asset swaps' fair value and recognized a $0.2 million pretax loss to separately record the embedded equity options at fair value.

NOTE H—COMPREHENSIVE INCOME

The following table sets forth Protective Life's comprehensive income for the periods shown:

	Three Months Ended June 30						Six Months Ended June 30
	2003			2002			2003			2002
Net income	$	68,836		$	50,292		$	106,898		$	89,545
Change in net unrealized gains/losses on investments (net of income tax: three months: 2003—$98,309; 2002—$74,692 six months: 2003—$132,079; 2002—$31,431)		182,574			138,714			245,289			58,372
Change in accumulated gain-hedging (net of income tax: three months: 2003—$666 six months: 2003—$1,746)		1,237						3,242
Reclassification adjustment for amounts included in net income (net of income tax: three months: 2003—$(10,333); 2002—$(2,522) six months: 2003—$(12,336); 2002—$(2,821))		(19,190	)		(4,683	)		(22,910	)		(5,239	)

Comprehensive income	$	233,457		$	184,323		$	332,519		$	142,678

NOTE I—SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for the periods presented below:

		Six Months Ended June 30
		2003		2002
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
	Reduction of principal on note from ESOP	$	412	$	661

NOTE J—RECLASSIFICATIONS

Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets, or share-owner's equity.

NOTE K—ACQUISITIONS

In June 2002, Protective Life coinsured a block of traditional life and interest-sensitive life insurance policies from Conseco Variable Insurance Company. The transaction has been accounted for as a purchase, and the results of the transaction have been included in the accompanying financial statements since the transaction's effective date.

Summarized below are the consolidated results of operations for the period presented below on an unaudited pro forma basis, as if the acquisition had occurred as of January 1, 2002. The pro forma financial information does not purport to be indicative of results of operations that would have occurred had the transaction occurred on the basis assumed above nor are they indicative of results of the future operations of the combined enterprises.

	Three Months Ended June 30, 2002		Six Months Ended June 30, 2002
	(UNAUDITED)		(UNAUDITED)
Total revenues	$	454,748	$	912,048
Net income		52,248		93,294

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Protective Life Insurance Company ("Protective Life") 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 under the symbol "PL". Founded in 1907, Protective Life provides financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires, "Protective Life" refers to the consolidated group of Protective Life Insurance Company and its subsidiaries.

For a more complete understanding of Protective Life's business and its current period results, please read the following Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with Protective Life's latest annual report on Form 10-K and other filings with the SEC.

Protective Life operates several business segments each having a strategic focus. An operating segment is generally distinguished by products and/or channels of distribution. Protective Life's operating segments are Life Marketing, Acquisitions, Annuities, Stable Value Contracts, and Asset Protection. Protective Life also has an additional business segment referred to as Corporate and Other.

This report reviews Protective Life's financial condition and results of operations including its liquidity and capital resources. Historical information is presented and discussed. Where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate or imply future results, performance or achievements instead of historical facts and may contain words like "believe," "expect," "estimate," "project," "budget," "forecast," "anticipate," "plan," "will," "shall," and other words, phrases, or expressions with similar meanings. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the results contained in the forward-looking statements, and Protective Life cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Please refer to Exhibit 99, incorporated by reference herein, for more information about factors which could affect future results.

The following discussion and analysis primarily relates to the six months ended June 30, 2003, as it compares to the same period last year. Unless otherwise noted, the general factors discussed also apply to the quarter ended June 30, 2003, as it compares to the same quarter last year. Where needed for a more complete understanding of Protective Life's operating results, information related to the quarters ended June 30, 2003, and June 30, 2002, has been provided.

Protective Life's results may fluctuate from period to period due to fluctuations in mortality, persistency, claims, expenses, interest rates, and other factors. Therefore, it is management's opinion that quarterly operating results for an insurance company are not necessarily indicative of results to be achieved in future periods, and that a review of operating results over a longer period is necessary to assess an insurance company's performance.

RESULTS OF CONTINUING OPERATIONS

Premiums and Policy Fees

The following table sets forth for the periods shown the amount of premiums and policy fees, net of reinsurance ceded ("premiums and policy fees"):

	Three Months Ended June 30				Six Months Ended June 30
	2003		2002		2003		2002
	(In thousands)
Premiums and Policy Fees	$	191,852	$	176,542	$	390,080	$	377,079

Premiums and policy fees increased $13.0 million or 3.4% in the first six months of 2003 as compared to the first six months of 2002. Premiums and policy fees in the Life Marketing segment increased $36.3 million in the first six months of 2003 as compared to the same period in 2002. In the first six months of 2003, Protective Life recorded $18.4 million of additional premiums related to recoveries of overpaid reinsurance. (See Note E in the Notes to Consolidated Condensed Financial Statements.) The growth of the face value of in-force policies resulted in an increase of $17.9 million in net premiums and policy fees. Premiums and policy fees in the Acquisitions segment decreased $1.1 million in the first six months of 2003, as compared to the first six months of 2002. Premiums and policy fees in the Acquisitions segment are expected to decline with time (due to the lapsing of policies resulting from death of insureds or terminations of coverage) unless new acquisitions are made. In June 2002, Protective Life coinsured a block of insurance policies from Conseco Variable Insurance Company ("Conseco") which resulted in an increase in premium and policy fees of $15.5 million in the first six months of 2003. This increase was offset by the declines in premiums and policy fees from older acquired blocks of business. The decrease in premiums and policy fees from the Annuities segment was $1.2 million in the first six months of 2003 as compared to the first six months of 2002. Premiums and policy fees related to the Asset Protection segment fell $20.1 million for the first six months of 2003 compared to the first six months of 2002. The planned termination of a service contract program at the end of 2002 represented $7.9 million of the decrease, while decreases in credit sales reduced 2003 premiums and policy fees by an additional $11.6 million. Credit sales have been affected by lower auto sales lending activity and lower placement rates. Premiums and policy fees relating to various health insurance lines in the Corporate and Other segment decreased $0.9 million in the first six months of 2003 as compared to the first six months of 2002. Premiums and policy fees on the various health insurance lines are expected to decline as these lines run off.

Net Investment Income

The following table sets forth for the periods shown the amount of net investment income:

	Three Months Ended June 30				Six Months Ended June 30
	2003		2002		2003		2002
	(In thousands)
Net Investment Income	$	253,354	$	241,315	$	501,764	$	473,787

Net investment income in the first six months of 2003 was $501.8 million, which was $28.0 million or 5.9% higher than the corresponding period of the preceding year. Participating mortgage income increased $5.8 million in the first six months of 2003 as compared to the first six months of 2002. The Conseco coinsurance transaction, which occurred in June 2002, resulted in a $16.8 million increase in investment income in the first six months of 2003 as compared to the first six months of 2002. The percentage earned on average cash and investments was 6.2% in the first six months of 2003, compared to 6.8% in the first six months of 2002. Investment returns have been negatively affected in 2003 by higher prepayments on mortgage-backed securities and mortgage loans and by lower interest rates.

Realized Investment Gains

Protective Life generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash-flow needs.

The following table sets forth realized investment gains (losses) for the periods shown:

	Three Months Ended June 30					Six Months Ended June 30
Realized Investment Gains/(Losses)	Three Months Ended June 30					Six Months Ended June 30
Realized Investment Gains/(Losses)	2003			2002		2003			2002
	(In thousands)
Derivative Financial Instruments	$	(5,717	)	$	1,467	$	(15,597	)	$	149
All Other Investments		29,523			7,205		35,246			8,060

The sales of investments that have occurred generally have resulted from portfolio management decisions to maintain proper matching of assets and liabilities. Realized investment gains related to all other investments in the first six months of 2003 of $47.4 million were partially offset by realized investment losses of $12.2 million. Realized investment gains related to all other investments in the first six months of 2002 of $19.2 million were partially offset by realized investment losses of $11.1 million. During the first six months of 2003 and 2002, Protective Life recorded other-than-temporary impairments in its investments of $9.0 million and $8.0 million, respectively, that were included in realized investment losses related to all other investments.

Each quarter Protective Life reviews investments with material unrealized losses and tests for other-than-temporary impairments. Management analyzes various factors to determine if any other-than-temporary asset impairments exist. Once a determination has been made that an other-than-temporary impairment exists, a realized loss is recognized and the cost basis of the impaired asset is adjusted to its fair value. An other-than-temporary impairment loss is recognized based upon all relevant facts and circumstances for each investment. With respect to unrealized losses due to issuer-specific events, Protective Life considers the creditworthiness and financial performance of the issuer and other available information. With respect to unrealized losses that are not due to issuer-specific events, such as losses due to interest rate fluctuations, general market conditions or industry-related events, Protective Life considers its intent and ability to hold the investment to allow for a market recovery or to maturity together with an assessment of the likelihood of full recovery.

Realized investment gains and losses related to derivative financial instruments primarily represent changes in the fair values of certain derivative financial instruments. Realized investment losses related to derivative financial instruments were $9.0 million in the six months ended June 30, 2003, compared to gains of $9.6 million in the six months ended June 30, 2002. For the six months ended June 30, 2003 and 2002 the changes in fair value were primarily due to derivative instruments entered into as economic hedges to reduce Protective Life's exposure to interest rate risk. (See also Note H to Protective Life's Consolidated Condensed Financial Statements included herein.)

Other Income

The following table sets forth other income for the periods shown:

	Three Months Ended June 30				Six Months Ended June 30
	2003		2002		2003		2002
	(In thousands)
Other Income	$	22,189	$	12,087	$	31,123	$	20,701

Other income consists primarily of revenues from Protective Life's direct response business, service contract business, non-insurance subsidiaries and rental of space in its administrative building to PLC. Other income increased to $31.1 million in the first six months of 2003 from $20.7 million in the first six months of 2002. The increase is primarily attributable to the sale of an inactive charter in the second quarter of 2003 which resulted in a $6.9 million gain. Other income from all other sources increased $3.5 million in the first six months of 2003 as compared to the first six months of 2002.

Income Before Income Tax and Operating Income

Consistent with Protective Life's segment reporting in the Notes to Consolidated Condensed Financial Statements, management evaluates the results of Protective Life's segments on a before-income-tax basis as adjusted for certain items which management believes are not indicative of Protective Life's core operations. Segment operating income (loss) excludes net realized investment gains and losses and the related amortization of deferred policy acquisition costs and gains (losses) on derivative instruments because fluctuations in these items are due to changes in interest rates and other financial market factors instead of mortality and morbidity. Also, segment operating income (loss) excludes any net gains or losses on disposals of businesses, discontinued operations, extraordinary items, the cumulative effect of changes in accounting principles, and any other items, that, in each case, are neither normal nor recurring. Although the items excluded from segment operating income (loss) may be significant components in understanding and assessing Protective Life's overall financial performance, management believes that segment operating income (loss) enhances an investor's understanding of Protective Life's results of operations by highlighting the income (loss) attributable to the normal, recurring operations of the insurance business (i.e., mortality and morbidity), consistent with industry practice. However, Protective Life's segment operating income (loss) measures may not be comparable to similarly titled measures reported by other companies. Segment operating income (loss) should not be construed as a substitute for net income (loss) determined in accordance with accounting principles generally accepted in the United States of America (GAAP). "Total income before income tax" is a GAAP measure to which the non-GAAP measure "total operating income" may be compared. Unlike total operating income, total income before income tax includes net realized investment gains and losses, the related amortization of deferred policy acquisition costs and gains (losses) on derivative instruments. In the Life Marketing, Acquisitions, Asset Protection, and Corporate and Other segments, operating income equals segment income before income tax for all periods. In the Annuities and Stable Value Contracts segments, operating income excludes realized investment gains and losses and related amortization.

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
(In Thousands)

		Three Months Ended June 30						Six Months Ended June 30
		2003			2002			2003			2002
Operating income (loss)¹
	Life marketing	$	47,189		$	26,775		$	77,883		$	48,564
	Acquisitions		24,561			20,483			47,740			44,072
	Annuities		2,850			4,653			6,384			9,316
	Stable value contracts		10,099			10,287			19,236			19,515
	Asset protection		2,942			3,868			3,740			12,534
	Corporate and other		1,572			2,863			(4,267	)		(8,268	)

Realized investment gains (losses)
	Annuities		11,205			2,855			11,232			3,237
	Stable value contracts		4,259			(265	)		(2,442	)		256
	Unallocated realized investment gains (losses)		8,342			6,082			10,859			4,716
Related amortization of deferred policy acquisition costs
	Annuities		(9,367	)		(952	)		(10,098	)		(1,319	)

Income (loss) before income tax
	Life marketing		47,189			26,775			77,883			48,564
	Acquisitions		24,561			20,483			47,740			44,072
	Annuities		4,688			6,556			7,518			11,234
	Stable value contracts		14,358			10,022			16,794			19,771
	Asset protection		2,942			3,868			3,740			12,534
	Corporate and other		1,572			2,863			(4,267	)		(8,268	)
	Unallocated realized investment gains (losses)		8,342			6,082			10,859			4,716

	Total income before income tax	$	103,652		$	76,649		$	160,267		$	132,623

(1): Income before income tax excluding realized investment gains and losses and related amortization of deferred policy acquisition costs.

The Life Marketing segment's pretax operating income was $77.9 million in the first six months of 2003 compared to $48.6 million in the same period of 2002. 2003 earnings include $12.3 million related to recoveries of overpaid reinsurance premiums (See Note E in the Notes to Consolidated Condensed Financial Statements). The remaining increase is primarily attributable to growth in business-in-force due to strong sales in prior periods. Mortality experience during the first six months of 2003 was approximately $1.5 million worse than pricing, $1.1 million less favorable than in the same period of 2002.

In the ordinary course of business, the Acquisitions segment regularly considers acquisitions of blocks of policies or smaller insurance companies. Policies acquired through the segment are usually administered as "closed" blocks; i.e., no new policies are being marketed. Therefore, earnings from the Acquisitions segment are normally expected to decline over time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made.

The Acquisitions segment's pretax operating income was $47.7 million in the first six months of 2003, an increase of $3.7 million from the first six months of 2002. The increase is attributable to $5.8 million in earnings related to the coinsurance of a block of policies from Conseco, and favorable mortality experience of $2.6 million in the first six months of 2003, approximately $2.3 million more favorable than in the first six months of 2002. The increase from the Conseco coinsurance transaction and favorable mortality experience was partially offset by expected declines in the operating results of older blocks of policies and a correction to the investment income allocation process, which had the effect of transferring $2.1 million of investment income in the first quarter of 2003 from this segment to the Corporate and Other segment.

The Annuities segment's pretax operating income was $6.4 million in the first six months of 2003, a decrease from the $9.3 million of operating income for the first six months of 2002. The decrease is primarily attributable to spread compression and lower sales of fixed annuities caused by lower interest rates in 2003, and an increase of $0.6 million to the liability for guaranteed minimum death benefits in the first quarter of 2003.

Protective Life offers a guaranteed minimum death benefit feature (GMDB) on its variable annuity products. Protective Life's accounting policy has been to calculate its total exposure to GMDB, and then apply a mortality factor to determine the amount of claims that could be expected to occur in the coming twelve months. Protective Life then accrues to that amount over four quarters. At June 30, 2003, the total GMDB reserve was $6.2 million. The total guaranteed amount payable under the GMDB feature based on variable annuity account balances at June 30, 2003, was $417.0 million, a decrease of $147.0 million from March 31, 2003.

In accordance with statutory accounting practices prescribed or permitted by regulatory authorities (which require the assumption that equity markets will significantly worsen), Protective Life's insurance subsidiaries reported GMDB related policy liabilities and accruals of $19.6 million at June 30, 2003, a decrease of $9.2 million from March 31, 2003.

Although positive performance in the equity markets in the second quarter of 2003 allowed Protective Life to decrease its GMDB related policy liabilities, the Annuities segment's future results may be negatively affected by a slow economy. Volatile equity markets could negatively affect sales of variable annuities and the fees the segment assesses on variable annuity contracts. Lower interest rates could negatively affect sales of fixed annuities. In this segment, equity market volatility may create uncertainty regarding the level of future profitability in the variable annuity business and the related rate of amortization of deferred policy acquisition costs.

The Stable Value Contracts segment's pretax operating income was $19.2 million in the first six months of 2003, a decrease of $0.3 million from the first six months of 2002. The decrease is primarily attributable to a narrowing of average spreads from 100 basis points in the first six months of 2002, to 97 basis points in the first six months of 2003.

The Asset Protection segment had $3.7 million of pretax operating income in the first six months of 2003, compared to $12.5 million of pretax operating income in the first six months of 2002. The segment had several lines of business that are not considered core to the operations of Protective Life and therefore the segment is exiting those lines. Core operations contributed $5.3 million to income in the first six months of 2003, compared to $13.6 million in the first six months of 2002. Non-core and ancillary lines had a loss of $8.5 million in the first six months of 2003, compared to a loss of $3.7 million in the first six months of 2002. The 2003 operating results include a $6.9 million gain on the sale of an inactive charter held in the segment representing a $4.2 million increase from the sale of another charter in 2002. Protective Life has begun a process to determine strategic alternatives for certain under-performing product lines in the Asset Protection segment.

The Corporate and Other segment consists primarily of net investment income on capital and various other items not associated with the other segments. The segment had a pretax operating loss of $4.3 million in the first six months of 2003, compared to a loss of $8.3 million in the first six months of 2002. The decrease in loss is primarily attributable to an increase in net investment income for the segment of $4.1 million in the first six months of 2003 compared to the first six months of 2002.

Income Taxes

The following table sets forth the effective tax rates for the periods shown:

	Three Months Ended June 30				Six Months Ended June 30
	2003		2002		2003		2002
Effective Income Tax Rates	33.6	%	34.4	%	33.3	%	32.5	%

The effective income tax rate for the full year of 2002 was approximately 34.9%. Management's estimate of the effective income tax rate for the full year 2003 is approximately 33.3%.

Net Income

The following table sets forth net income for the periods shown:

	Three Months Ended June 30				Six Months Ended June 30
Net Income	Three Months Ended June 30				Six Months Ended June 30
Net Income	2003		2002		2003		2002
Total (in thousands)	$	68,836	$	50,292	$	106,898	$	89,545

Compared to the same period in 2002, net income in the first six months of 2003 increased $17.4 million, reflecting higher realized investment gains and higher operating earnings in the Life Marketing, Acquisition, and Corporate and Other segments offset by decreases in operating results in the Annuities, Asset Protection, and Stable Value Contract segments.

Known Trends and Uncertainties

The factors which could affect Protective Life's future results include, but are not limited to, general economic conditions and the following known trends and uncertainties: we are exposed to the risks of natural disasters, malicious and terrorist acts that could adversely affect our operations; we operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry; a ratings downgrade could adversely affect our ability to compete; our policy claims fluctuate from period to period, and actual results could differ from our expectations; our results may be negatively affected should actual experience differ from management's assumptions and estimates; the use of reinsurance introduces variability in our statement of income; we could be forced to sell investments at a loss to cover policyholder withdrawals; interest rate fluctuations could negatively affect our spread income or otherwise impact our business; equity market volatility could negatively impact our business; a deficiency in our systems could result in over-or underpayments of amounts owed to or by Protective Life and/or errors in our critical assumptions or reported financial results; insurance companies are highly regulated; changes to tax law or interpretations of existing tax law could adversely affect Protective Life and its ability to compete with non-insurance products or reduce the demand for certain insurance products; financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments; our ability to maintain low unit costs is dependent upon the level of new sales and persistency of existing business; our investments are subject to market and credit risks; we may not realize our anticipated financial results from our acquisitions strategy; we are dependent on the performance of others; our reinsurers could fail to meet assumed obligations, increase rates or be subject to adverse developments that could affect us; and computer viruses could affect our data processing systems or those of our business partners. Please refer to Exhibit 99, incorporated by reference herein, about these factors that could affect future results.

Recently Issued Accounting Standards

Review by Independent Auditors

With respect to the unaudited consolidated condensed financial information of Protective Life Insurance Company for the three-month and six-month periods ended June 30, 2003 and 2002, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated August 6, 2003, appearing herein, stated that they did not audit and they do not express an opinion on that unaudited consolidated condensed financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited consolidated condensed financial information because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers into which this Form 10-Q may be incorporated by reference within the meaning of Sections 7 and 11 of the Act.

LIQUIDITY AND CAPITAL RESOURCES

Protective Life's operations usually produce a positive cash flow. This cash flow is used to fund an investment portfolio to finance future benefit payments. Since future benefit payments largely represent medium- and long-term obligations reserved using certain assumed interest rates, Protective Life's investments are predominantly in medium- and long-term, fixed-rate investments such as bonds and mortgage loans.

INVESTMENTS

Portfolio Description

Protective Life's investment portfolio consists primarily of fixed maturity securities (bonds and redeemable preferred stocks) and commercial mortgage loans. Protective Life generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, Protective Life may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, Protective Life has classified its fixed maturities and certain other securities as "available for sale."

Protective Life's investments in debt and equity securities are reported at market value, and investments in mortgage loans are reported at amortized cost. At June 30, 2003, Protective Life's fixed maturity investments had a market value of $12.5 billion, which is 7.1% above amortized cost of $11.7 billion. Protective Life had $2.5 billion in mortgage loans at June 30, 2003. While Protective Life's mortgage loans do not have quoted market values, at June 30, 2003, Protective Life estimates the market value of its mortgage loans to be $2.8 billion (using discounted cash flows from the next call date), which is 11.9% above amortized cost. Most of Protective Life's mortgage loans have significant prepayment fees. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market fluctuations are not expected to adversely affect liquidity.

The following table shows the carrying values of Protective Life's invested assets.

		June 30, 2003				December 31, 2002
Publicly-issued bonds		$	10,263,328	61.5	%	$	9,694,132	62.8	%
Privately issued bonds			2,237,639	13.4			1,959,506	12.7
Redeemable preferred stock			2,097	0.0			1,827	0.0

	Fixed maturities		12,503,064	74.9			11,655,465	75.5
Equity securities			40,038	0.2			48,799	0.3
Mortgage loans			2,543,013	15.2			2,518,151	16.3
Investment real estate			11,792	0.1			15,499	0.1
Policy loans			532,981	3.2			543,161	3.5
Other long-term investments			248,967	1.5			210,381	1.4
Short-term investments			802,712	4.9			447,155	2.9

	Total investments	$	16,682,567	100.0	%	$	15,438,611	100.0	%

Risk Management and Impairment Review

Protective Life monitors the overall credit quality of its portfolio within general guidelines. The following table shows Protective Life's fixed maturities by credit rating at June 30, 2003.

S&P or Equivalent Designation		Market Value		Percent of Market Value
AAA		$	4,287,710	34.3	%
AA			642,462	5.1
A			2,778,764	22.2
BBB			3,615,562	28.9

	Investment Grade		11,324,498	90.5
BB			761,030	6.1
B			334,956	2.7
CCC or lower			71,562	0.6
In or near default			8,921	0.1

	Below Investment Grade		1,176,469	9.5
Redeemable preferred stock			2,097	0.0

Total		$	12,503,064	100.0	%

Limiting bond exposure to any creditor group is another way Protective Life manages credit risk. The following table summarizes Protective Life's ten largest fixed maturity exposures to an individual creditor as of June 30, 2003.

Creditor	Market Value
	(in millions)
Berkshire Hathaway	$	81.2
American Electric Power		70.2
Constellation Energy Group		64.7
Wachovia		61.4
BellSouth		59.1
Progress Energy		57.2
Cox		56.7
Weyerhaeuser		55.7
International Paper		54.9
Burlington Northern Santa Fe		54.4

Protective Life's management considers a number of factors when determining the impairment status of individual securities. These include the economic condition of various industry segments and geographic locations and other areas of identified risks. Although it is possible for the impairment of one investment to affect other investments, Protective Life engages in ongoing risk management to safeguard against and limit any further risk to its investment portfolio. Special attention is given to correlated risks within specific industries, related parties and business markets.

Once management has determined that a particular investment has suffered an other-than-temporary impairment, the asset is written down to its estimated fair value. Protective Life generally considers a number of factors in determining whether the impairment is other than temporary. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) the intent and ability of Protective Life to hold the investment until recovery, 5) the time period during which the decline has occurred, 6) an economic analysis of the issuer's industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security by security review each quarter in evaluating the need for any

other-than-temporary impairments. Although no set formula is used in this process, the investment performance, collateral position and continued viability of the issuer are significant measures considered.

Protective Life generally considers a number of factors relating to the issuer in determining the financial strength, liquidity, and recoverability of an issuer. These include but are not limited to: available collateral, tangible and intangible assets that might be available to repay debt, operating cash flows, financial ratios, access to capital markets, quality of management, market position, exposure to litigation or product warranties, and the effect of general economic conditions on the issuer.

There are certain risks and uncertainties associated with determining whether declines in market values are other than temporary. These include significant changes in general economic conditions and business markets, trends in certain industry segments, interest rate fluctuations, rating agency actions, changes in significant accounting estimates and assumptions, commission of fraud and legislative actions. Protective Life continuously monitors these factors as they relate to the investment portfolio in determining the status of each investment. Provided below are additional facts concerning the potential effect upon Protective Life's earnings should circumstances lead management to conclude that some of the current declines in market value are other than temporary.

Market values for private, non-traded securities are determined as follows: 1) Protective Life obtains estimates from independent pricing services or 2) Protective Life 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. The market value of private, non-traded securities was $2,237.6 million at June 30, 2003, representing 13.4% of Protective Life's total invested assets.

Unrealized Gains and Losses

The majority of unrealized losses can be attributed to interest rate fluctuations and are, therefore, deemed temporary. As indicated above, when Protective Life's investment management deems an investment's market value decline as other than temporary, it is written down to estimated market value. In all cases, management will continue to carefully review and monitor each security.

The information presented below relates to investments at a certain point in time and is not necessarily indicative of the status of the portfolio at any time after June 30, 2003, the balance sheet date. Furthermore, since the timing of recognizing realized gains and losses is largely based on management's decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain (loss) position of the portfolio. At June 30, 2003, Protective Life had an overall net unrealized gain of $827.8 million.

The following table summarizes by category the unrealized gains and losses of Protective Life's investments classified as available for sale as of June 30, 2003.

			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
Fixed maturities:
	Bonds:
		Mortgage-backed securities	$	4,105,613	$	165,105	$	21,787	$	4,248,931
		United States Government and authorities		87,109		8,056		15		95,150
		States, municipalities, and political subdivisions		21,379		2,195		0		23,574
		Public utilities		1,293,506		134,036		7,268		1,420,274
		Convertibles and bonds with warrants		94,351		2,121		2,331		94,141
		All other corporate bonds		6,072,526		582,671		36,300		6,618,897
	Redeemable preferred stocks			1,912		185		0		2,097

				11,676,396		894,369		67,701		12,503,064
Equity securities				38,863		2,593		1,418		40,038
Short-term investments				802,712		0		0		802,712

Total			$	12,517,971	$	896,962	$	69,119	$	13,345,814

These unrealized gains and losses do not necessarily represent future gains or losses that Protective Life will realize. Numerous factors, including overall interest rates, new or updated information relating to specific issuers as well as management's decisions on the timing of sales will affect the gains or losses ultimately realized. Gross unrealized gains and losses at December 31, 2002 were $623.2 million and $(182.8) million, respectively.

For traded and private fixed maturity and equity securities held by Protective Life that are in an unrealized loss position at June 30, 2003, the estimated market value, amortized cost, unrealized loss and total time period that the security has been in an unrealized loss position are presented in the table below.

	Estimated Market Value		% Market Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
<= 90 days	$	732,824	49.5	%	$	742,065	47.9	%	$	(9,241	)	13.4	%
>90 days but <= 180 days		180,304	12.2			184,179	11.9			(3,875	)	5.6
>180 days but <= 270 days		190,209	12.9			198,720	12.8			(8,511	)	12.3
>270 days but <= 1 year		121,932	8.2			129,239	8.3			(7,307	)	10.6
>1 year but <= 2 years		95,028	6.5			109,492	7.1			(14,464	)	20.9
>2 – but <= 3 years		26,764	1.8			30,123	1.9			(3,359	)	4.9
>3 – but <= 4 years		32,969	2.2			36,789	2.4			(3,820	)	5.5
>4 – but <= 5 years		61,045	4.1			71,023	4.6			(9,978	)	14.4
>5 years		38,687	2.6			47,251	3.1			(8,564	)	12.4

Total	$	1,479,762	100.0	%	$	1,548,881	100.0	%	$	(69,119	)	100.0	%

Protective Life has no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held by Protective Life at June 30, 2003, is presented in the following table.

	Estimated Market Value		% Market Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
Agency mortgages	$	45,828	3.1	%	$	46,263	3.0	%	$	(435	)	0.6	%
Banks		53,089	3.6			56,114	3.6			(3,025	)	4.4
Basic industrial		69,600	4.7			75,827	4.9			(6,227	)	9.0
Capital goods		31,501	2.1			31,917	2.1			(416	)	0.6
Communications		79,885	5.4			83,063	5.4			(3,178	)	4.6
Consumer-cyclical		28,800	1.9			31,764	2.1			(2,964	)	4.3
Consumer-noncyclical		55,937	3.8			58,444	3.8			(2,507	)	3.6
Electric		186,607	12.6			200,141	12.9			(13,534	)	19.6
Energy		44,614	3.0			45,953	3.0			(1,339	)	1.9
Finance companies		165,687	11.2			166,319	10.7			(632	)	0.9
Insurance		20,093	1.4			20,835	1.3			(742	)	1.1
Natural gas		116,675	7.9			118,751	7.7			(2,076	)	3.0
Non-agency mortgages		370,600	25.0			381,495	24.5			(10,895	)	15.9
Other finance		123,680	8.4			134,668	8.7			(10,988	)	15.9
Other industrial		19,053	1.3			19,530	1.3			(477	)	0.7
Other utility		21	0.0			44	0.0			(23	)	0.0
Technology		119	0.0			143	0.0			(24	)	0.0
Transportation		66,368	4.5			75,989	4.9			(9,621	)	13.9
U.S. Government		1,605	0.1			1,621	0.1			(16	)	0.0

Total	$	1,479,762	100.0	%	$	1,548,881	100.0	%	$	(69,119	)	100.0	%

The range of maturity dates for securities in an unrealized loss position at June 30, 2003 varies, with 16.0% maturing in less than 5 years, 21.0% maturing between 5 and 10 years, and 63.0% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position at June 30, 2003.

S&P or Equivalent Designation			Estimated Market Value		% Market Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
	AAA/AA/A		$	761,458	51.5	%	$	776,506	50.2	%	$	(15,048	)	21.8	%
	BBB			253,125	17.1			271,486	17.5			(18,361	)	26.5

		Investment Grade		1,014,583	68.6			1,047,992	67.7			(33,409	)	48.3
	BB			204,183	13.8			213,593	13.8			(9,410	)	13.6
	B			192,046	13.0			204,277	13.2			(12,231	)	17.7
	CCC or lower			64,883	4.4			78,154	5.0			(13,271	)	19.2
	In or near default			4,067	0.2			4,865	0.3			(798	)	1.2

Below Investment Grade				465,179	31.4			500,889	32.3			(35,710	)	51.7

Total			$	1,479,762	100.0	%	$	1,548,881	100.0	%	$	(69,119	)	100.0	%

At June 30, 2003, 68.6% of total securities in an unrealized loss position were rated as investment grade. Protective Life generally purchases its investments with the intent to hold to maturity, therefore, Protective Life does not consider these unrealized losses as other-than-temporary impairments.

At June 30, 2003, securities in an unrealized loss position that were rated as below investment grade represented 31.4% of the total market value and 51.7% of the total unrealized loss. Unrealized losses related to below investment grade securities that had been in an unrealized loss position for more than twelve months were $23.9 million. Bonds rated less than investment grade were 7.2% of invested assets. Protective Life does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities.

The following table shows the estimated market value, amortized cost, unrealized loss and total time period that the security has been in an unrealized loss position for all below investment grade securities.

	Estimated Market Value		% Market Value		Amortized Cost		% Amortized Cost		Unrealized Loss			% Unrealized Loss
<= 90 days	$	156,955	33.7	%	$	160,436	32.0	%	$	(3,481	)	9.8	%
>90 days but <= 180 days		34,243	7.4			35,703	7.1			(1,460	)	4.1
>180 days but <= 270 days		59,502	12.8			64,799	12.9			(5,297	)	14.8
>270 days but <= 1 year		56,953	12.2			58,491	11.7			(1,538	)	4.3
>1 year but <= 2 years		48,204	10.4			52,534	10.5			(4,330	)	12.1
>2 – but <= 3 years		16,511	3.5			18,469	3.7			(1,958	)	5.5
>3 – but <= 4 years		6,987	1.5			8,284	1.7			(1,297	)	3.6
>4 – but <= 5 years		48,184	10.4			57,143	11.4			(8,959	)	25.1
>5 years		37,640	8.1			45,030	9.0			(7,390	)	20.7

Total	$	465,179	100.0	%	$	500,889	100.0	%	$	(35,710	)	100.0	%

Realized Losses

Realized losses are comprised of both write-downs on other than temporary impairments and actual sales of investments.

During the six months ended June 30, 2003, Protective Life recorded pretax other than temporary impairments in its investments of $9.0 million, as compared to $8.0 million in the six months ended June 30, 2002.

As discussed earlier, Protective Life's management considers several factors when determining other than temporary impairments. Although Protective Life generally intends to hold securities until maturity, Protective Life may change its position as a result of a change in circumstances. Any such decision is consistent with Protective Life's classification of its investment portfolio as available for sale. During the six months ended June 30, 2003, Protective Life sold securities in an unrealized loss position with a market value of $347.2 million resulting in a realized loss of $1.5 million. For such securities, the proceeds, realized loss and total time period that the security had been in an unrealized loss position are presented in the table below.

	Proceeds		% Proceeds		Realized Loss		% Realized Loss
<= 90 days	$	343,491	98.9	%	$	280	18.1	%
> 1 year		3,730	1.1			1,269	81.9

Total	$	347,221	100.0	%	$	1,549	100.0	%

Mortgage Loans

Protective Life records mortgage loans net of an allowance for credit losses. This allowance is calculated through analysis of specific loans that are believed to be at a higher risk of becoming impaired in the near future. At June 30, 2003 and December 31, 2002, Protective Life's allowance for mortgage loan credit losses was $4.7 million.

For several years Protective Life has offered a type of commercial mortgage loan under which Protective Life will permit a slightly higher loan-to-value ratio in exchange for a participating interest in the cash flows from the underlying real estate. As of June 30, 2003, approximately $322.6 million of Protective Life's mortgage loans have this participation feature.

In the ordinary course of its commercial mortgage lending operations, Protective Life 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 Life's financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest which may become less than prevailing interest rates. At June 30, 2003, Protective Life had outstanding mortgage loan commitments of $630.9 million.

At June 30, 2003, delinquent mortgage loans and foreclosed properties were 0.1% of invested assets.

Liabilities

Many of Protective Life's products contain surrender charges and other features that reward persistency and penalize the early withdrawal of funds. Certain stable value and annuity contracts have market-value adjustments that protect Protective Life against investment losses if interest rates are higher at the time of surrender than at the time of issue.

At June 30, 2003, Protective Life had policy liabilities and accruals of $9.4 billion. Protective Life's interest-sensitive life insurance policies have a weighted average minimum credited interest rate of approximately 4.5%.

At June 30, 2003, Protective Life had $4.2 billion of stable value contract account balances and $3.7 billion of annuity account balances.

Derivative Financial Instruments

Protective Life utilizes a risk management strategy that incorporates the use of derivative financial instruments, primarily to reduce its exposure to interest rate risk as well as currency exchange risk.

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 and mortgage-backed securities. Interest rate swap contracts generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date. Interest rate futures generally involve exchange traded contracts to buy or sell treasury bonds and notes in the future at specified prices. Interest rate options represent contracts that allow the holder of the option to receive cash or purchase, sell or enter into a financial instrument at a specified price within a specified period of time. Protective Life used interest rate swap contracts, swaptions (options to enter into interest rate swap contracts), caps, and floors to modify the interest characteristics of certain investments. Swap contracts are also used to alter the effective durations of assets and liabilities. Protective Life uses foreign currency swaps to reduce its exposure to currency exchange risk on certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.

Derivative instruments expose Protective Life to credit and market risk. Protective Life minimizes its credit risk by entering into transactions with highly rated counterparties. Protective Life manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken.

Protective Life monitors its use of derivatives in connection with its overall asset/liability management programs and procedures. Protective Life's asset/liability committee is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into Protective Life's overall interest rate and currency exchange risk management strategies.

Asset/Liability Management

Protective Life's asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to yield, risk, and cash flow characteristics. It is Protective Life's policy to generally maintain asset and liability durations within one-half year of one another, although, from time to time, a broader interval may be allowed.

Protective Life believes its asset/liability management programs and procedures and certain product features provide protection for Protective Life against the effects of changes in interest rates under various scenarios. Additionally, Protective Life believes its asset/liability management programs and procedures provide sufficient liquidity to enable it to fulfill its obligation to pay benefits under its various insurance and deposit contracts. However, Protective Life's asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity and other factors, and the effectiveness of Protective Life's asset/liability

management programs and procedures may be negatively affected whenever actual results differ from those assumptions.

Approximately 20% of Protective Life's liabilities relate to products (primarily whole life insurance) the profitability of which may be affected by changes in interest rates. The effect of such changes in any one year is not expected to be material.

Cash outflows related to stable value contracts (primarily maturing contracts, scheduled interest payments and expected withdrawals) were approximately $1,047.0 million during 2002. Cash outflows related to stable value contracts are estimated to be approximately $1,098.7 million in 2003. Protective Life's asset/liability management programs and procedures take into account maturing contracts and expected withdrawals. Accordingly, Protective Life does not expect stable value contract related cash outflows to have an unusual effect on the future operations and liquidity of Protective Life.

Protective Life was committed at June 30, 2003, to fund mortgage loans in the amount of $630.9 million. Protective Life held $872.9 million in cash and short-term investments at June 30, 2003.

While Protective Life generally anticipates that the cash flows of its subsidiaries will be sufficient to meet their investment commitments and operating cash needs, Protective Life recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, Protective Life has arranged sources of credit for its insurance subsidiaries to use when needed. Protective Life expects that the rate received on its investments will equal or exceed its borrowing rate. Additionally, Protective Life may, from time to time, sell short-duration stable value products to complement its cash management practices.

Protective Life has also used securitization transactions involving its commercial mortgage loans to increase its liquidity.

Capital

At June 30, 2003, PLC had no borrowings under its $200.0 million revolving line of credit due October 1, 2005.

At December 31, 2002, approximately $1,384.0 million of consolidated share-owner's equity, excluding net unrealized investment gains and losses, represented net assets of Protective Life that cannot be transferred to PLC. In addition, the states in which Protective Life's insurance subsidiaries are domiciled impose certain restrictions on the insurance subsidiaries' ability to pay dividends to Protective Life. Protective Life plans to retain substantial portions of its earnings to support future growth.

A life insurance company's statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners ("NAIC"), as modified by the insurance company's state of domicile. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view by, for example, requiring immediate expensing of policy acquisition costs. The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of Protective Life and its insurance subsidiaries. Protective Life may secure additional statutory capital through various sources, such as retained statutory earnings or equity contributions by PLC.

Contractual Obligations

The table below sets forth future maturities of stable value contracts, notes payable, operating lease obligation, and mortgage loan commitments.

(in thousands)	2003		2004-2005		2006-2007		After 2007
Stable value contracts	$	632,526	$	1,711,256	$	1,783,618	$	87,070
Notes payable				2,249
Operating lease obligation		810		3,239		68,552
Mortgage loan commitments		630,889

Other Developments

Under insurance guaranty fund laws in most states, insurance companies doing business in a participating state can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Protective Life does not currently believe that any such assessments will be materially different from amounts already reflected in the financial statements.

A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very little appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. Protective Life, like other financial services companies, in the ordinary course of business is involved in such litigation and in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, Protective Life 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 Life. Protective Life had previously disclosed that it was in arbitration with one reinsurer with respect to the overpayment of reinsurance premiums, however Protective Life has reached agreement with respect to the terms of a settlement and expects this arbitration to be dismissed in due course.

Protective Life from time to time is subject to examination, review, and investigation by regulatory authorities, including insurance and securities regulators, and tax authorities. Among other actions, a state insurance department is currently investigating Protective Life's management of a small block of the health insurance business in a discontinued line of business, apparently as part of a larger inquiry related to the overall health insurance industry. Although Protective Life cannot predict what actions may be taken by any regulatory authority, Protective Life does not believe that this or any other matter currently under examination, review, or investigation or any other pending or threatened regulatory or tax-related action with respect to Protective Life or any of its subsidiaries is reasonably likely to have a material effect on Protective Life.

Legislation has been enacted that permits commercial banks, insurance companies and investment banks to combine, provided certain requirements are satisfied. While Protective Life cannot predict the impact of this legislation, it could cause Protective Life to experience increased competition as larger, potentially more efficient organizations emerge from such combinations.

Under the Internal Revenue Code of 1986, as amended (the "Code"), income tax payable by policy holders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of Protective Life's

products a competitive advantage over other non-insurance products. To the extent that the Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies, including Protective Life and its subsidiaries, would be adversely affected with respect to their ability to sell such products, and, depending upon grandfathering provisions, would be affected by the surrenders of existing annuity contracts and life insurance policies. For example, changes in laws or regulations could restrict the ability of some companies to purchase certain corporate or bank-owned life insurance products. Recent changes in tax law, which have reduced the federal income tax rates on corporate dividends in certain circumstances, could make the tax advantages of investing in certain life insurance or annuity products less attractive. Additionally, changes in tax law based on recent proposals to establish new tax advantaged retirement and life savings plans, if enacted, could reduce the tax advantage of investing in certain life insurance or annuity products. In addition, life insurance products are often used to fund estate tax obligations. Legislation has recently been enacted that would, over time, reduce and eventually eliminate the estate tax. If the estate tax is significantly reduced or eliminated, the demand for certain life insurance products could be adversely affected. Additionally, Protective Life is subject to the federal corporation income tax. Protective Life cannot predict what changes to tax law or interpretations of existing tax law could adversely affect Protective Life.

Protective Life's Life Marketing segment is currently developing and implementing a more sophisticated administrative system capable of facilitating the calculation of more precise estimates of the segment's deferred policy acquisition costs, policy liabilities and accruals, and various other components of the segment's balance sheet. The segment's future results may be affected, positively or negatively, by changes in such estimates arising from the implementation of this system.

Protective Life's ability to grow depends in large part upon the continued availability of capital. Protective Life has recently deployed significant amounts of capital to support its sales and acquisitions efforts. Capital has also been consumed as Protective Life has incurred realized and unrealized losses on its invested assets and increased its reserves on the residual value product. Although positive performance in the equity markets has recently allowed Protective Life to slightly decrease its GMDB related policy liabilities and accruals, deterioration in these markets could lead to further capital consumption. In recent years, most financial services companies, including PLC, experienced a decrease in the market price of their common stock. A lower stock price for PLC may limit Protective Life's ability to raise capital to fund other growth opportunities and acquisitions. Although Protective Life believes it has sufficient capital to fund its immediate growth and capital needs, the amount of capital available can vary significantly from period to period due to a variety of circumstances, some of which are neither predictable or foreseeable, nor within Protective Life's control. A lack of sufficient capital could impair Protective Life's ability to grow.

Protective Life cedes material amounts of insurance to other companies through reinsurance. The cost of reinsurance is, generally, reflected in the premium rate charged by Protective Life. Under certain reinsurance agreements, the reinsurer may increase the rate it charges Protective Life for the reinsurance, though Protective Life does not anticipate increases to occur. Therefore, if the cost of reinsurance were to increase or if reinsurance were to become unavailable, or if a reinsurer should fail to meet its obligations, Protective Life could be adversely affected.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change from the disclosures in Protective Life's Annual Report on Form 10-K for the year ended December 31, 2002.

Item 4. Controls and Procedures

Protective Life's Chief Executive Officer and Chief Financial Officer have evaluated Protective Life's disclosure controls and procedures and believe them to be operating effectively to make known to them on a timely basis any material information required to be included in Protective Life's periodic filings with the Securities and Exchange Commission. There have been no changes in Protective Life's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect Protective Life's internal control over financial reporting.

PART II

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibit 31(a)—Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31(b)—Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(a)—Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(b)—Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 99—Safe Harbor for Forward-Looking Statements.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		PROTECTIVE LIFE INSURANCE COMPANY
Date: August 14, 2003		/s/ Jerry W. DeFoor Jerry W. DeFoor Vice President and Controller and Chief Accounting Officer (Duly authorized officer)