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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-12332
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PROTECTIVE LIFE CORPORATION
(Exact name of Registrant as specified in its charter)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(Address of principal executive offices, including zip code)
DELAWARE 95-2492236
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Registrant's telephone number, including area code (205) 879-9230
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Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $0.50 PAR VALUE
JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK, $1.00 PAR VALUE
PLC CAPITAL L.L.C. 9% CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES, SERIES A
GUARANTY ISSUED FOR THE BENEFIT OF HOLDERS OF
PLC CAPITAL L.L.C. 9% CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES, SERIES A
(Title of class)
Name of each exchange on which registered
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
PREFERRED STOCK, $1.00 PAR VALUE
(Title of class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in the definitive proxy statement or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
Aggregate market value of voting stock held by nonaffiliates of the Registrant
as of March 8, 1996: $776,470,819
Number of shares of Common Stock, $0.50 Par Value, outstanding as of March 8,
1996: 28,797,189
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1995 Annual Report To Stockholders (the "1995
Annual Report To Stockholders") are incorporated by reference into Parts I,
II, and IV of this Report.
Portions of the Registrant's Proxy Statement dated March 29, 1996, are
incorporated by reference into Part III of this Report.
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PROTECTIVE LIFE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business....................................................................................... 3
Item 2. Properties..................................................................................... 19
Item 3. Legal Proceedings.............................................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............................................ 19
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters...................... 19
Item 6. Selected Financial Data........................................................................ 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 22
Item 8. Financial Statements and Supplementary Data.................................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 24
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 24
Item 11. Executive Compensation......................................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 27
Item 13. Certain Relationships and Related Transactions................................................. 27
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 27
2
PART I
ITEM 1. BUSINESS
Protective Life Corporation is an insurance holding company, whose
subsidiaries provide financial services through the production, distribution,
and administration of insurance and investment products. Founded in 1907,
Protective Life Insurance Company ("Protective Life") is the Company's principal
operating subsidiary. Unless the context otherwise requires, the "Company"
refers to the consolidated group of Protective Life Corporation and its
subsidiaries. The Company has six operating divisions: Acquisitions, Financial
Institutions, Group, Guaranteed Investment Contracts, Individual Life, and
Investment Products. The Company also has an additional business segment which
is described herein as Corporate and Other.
Additional information concerning the Company's divisions may be found in
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- RESULTS OF OPERATIONS" and Note J to Consolidated Financial
Statements in the Company's 1995 Annual Report to Stockholders, which are
incorporated herein by reference.
Copies of the Company's Proxy Statement and 1995 Annual Report to
Stockholders will be furnished to anyone who requests such documents in writing
from the Secretary of the Company, Protective Life Corporation, P. O. Box 2606,
Birmingham, Alabama 35202. The information incorporated herein by reference is
also electronically accessible through the Internet from the "EDGAR Database of
Corporate Information" on the Securities and Exchange Commission's World Wide
Web site (http://www.sec.gov).
Management believes that maintenance of strong claims-paying and financial
strength ratings is necessary for success in many of its markets.
ACQUISITIONS DIVISION
The Company actively seeks to acquire blocks of insurance policies. These
acquisitions may be accomplished through acquisitions of companies or through
the assumption or reinsurance of policies. Most acquisitions do not include the
Company's acquisition of an active sales force, but some do. Blocks of policies
acquired through the Acquisitions Division are usually administered as "closed"
blocks; i.e., no new policies are sold. Therefore, the amount of insurance in
force for a particular acquisition is expected to decline with time due to
lapses and deaths of the insureds.
Thirty-five separate transactions have been entered into since 1970.
Management believes a favorable environment for acquisitions will likely
continue into the immediate future. Insurance companies are facing heightened
regulatory and market pressure to increase statutory capital and thus may seek
to increase capital by selling blocks of policies. Insurance companies also
appear to be selling blocks of policies in conjunction with programs to narrow
strategic focus. In addition, smaller companies may face difficulties in
marketing and thus may seek to be acquired. However, it appears that other
companies are entering this market; therefore, the Company may face increased
competition for future acquisitions.
3
Several states have enacted statutes that decreased the attractiveness of
assumption reinsurance transactions and increased the attractiveness of
coinsurance transactions. In coinsurance transactions, the seller remains
contingently liable with respect to the coinsured policies should the Company
become unable to fulfill its obligations to the seller under the coinsurance
agreement. This has caused sellers to place more emphasis on the financial
condition and acquisition experience of the purchaser. Management believes this
favorably impacts the Company's competitive position.
Total revenues and income before income tax from the Acquisitions Division
are expected to decline with time unless new acquisitions are made. Therefore,
the Division's revenues and earnings may fluctuate from year to year depending
upon the level of acquisition activity.
In the third quarter of 1993, the Company acquired Wisconsin National Life
Insurance Company and coinsured a small block of universal life policies. In
1994, the Company coinsured a small block of payroll deduction policies in the
second quarter and coinsured a block of 130,000 policies in the fourth quarter.
In the second quarter of 1995, the Company coinsured a block of 28,000 policies.
In March 1996, the Company coinsured a block of 38,000 policies.
FINANCIAL INSTITUTIONS DIVISION
The Financial Institutions Division specializes in marketing insurance
products through commercial banks, savings and loan associations, and mortgage
bankers. The Division markets an array of life and health products, which cover
consumer and mortgage loans made by financial institutions located primarily in
the southeastern United States. The Division also markets life and health
products nationally through the consumer finance industry and through automobile
dealerships. The Division markets through employee field representatives,
independent brokers, and a wholly-owned subsidiary. The Division also offers
certain products through direct mail solicitation to customers of financial
institutions. The demand for credit life and credit health insurance is related
to the general level of loan demand.
In 1992, the Company acquired the credit insurance business of Durham Life
Insurance Company. The acquisition more than doubled the size of the Division
and provided significant market share in the southeastern states not previously
covered by the Company.
The Division has entered into a reinsurance arrangement whereby all of the
Division's new credit insurance sales are being ceded to a reinsurer. In the
second quarter of 1995, the Division also ceded a block of older policies.
Though these reinsurance transactions will reduce the Division's earnings, the
Division's return on investment is expected to improve.
GROUP DIVISION
The Group Division manufactures, distributes, and services group, dental,
cancer, and payroll deduction insurance products. Group accident and health
insurance is generally considered to be cyclical. Profits rise or fall as
competitive forces allow or prevent rate increases to keep pace with changes in
group health medical costs. The Company is placing marketing emphasis on other
health insurance products which have not been as subject to medical cost
inflation as traditional group health products. These products include dental
insurance policies and weekly income (short-term disability) policies which are
distributed nationally through the Division's
4
existing distribution system, as well as through joint marketing arrangements
with independent marketing organizations, and through reinsurance contracts
with other insurers. These products also include an individual cancer insurance
policy marketed through a nationwide network of agents. It is anticipated that a
significant part of the growth in the Company's health insurance premium income
in the next several years will be from dental products.
In 1993, the Division established a special marketing unit to sell dental
and other products through mail and telephone solicitations. The unit has sales
offices in Arizona, Colorado, Florida, Georgia, Illinois, Kentucky, Michigan,
North Carolina, Ohio, Tennessee, Texas and Wisconsin. On March 20, 1995, the
Company completed its acquisition of National Health Care Systems of Florida,
Inc. ("NHCS"), based in Jacksonville, Florida. NHCS operates prepaid dental
plans (also referred to as dental health maintenance organizations or dental
capitation plans). NHCS, known as "DentiCare", has approximately 308,000 members
as of December 31, 1995, located primarily in Florida, Tennessee, Georgia, and
Alabama. On October 30, 1995, the Company announced it had agreed to acquire an
additional prepaid dental plan and a dental HMO, both of which also operate
under the trade name "Denticare". These plans have approximately 40,000 members
in Oklahoma, Arkansas, and Missouri. This transaction is subject to regulatory
approval and other conditions, and is expected to close in the second quarter of
1996.
The Division offers substantially all forms of group insurance customary in
the industry, making available complete packages of life and accident and health
insurance to employers. The life and accident and health insurance packages
offered by this Division include hospital and medical coverages as well as
dental and disability coverages. To address rising health care costs, the
Division provides cost containment services such as utilization review and
catastrophic case management.
The Division markets its group insurance products primarily in the
southeastern and southwestern United States using the services of brokers who
specialize in group products. Sales offices in Alabama, Florida, Georgia,
Illinois, Missouri, North Carolina, Ohio, Oklahoma, Tennessee, and Texas are
maintained to serve these brokers. Group policies are directed primarily at
employers and associations with between 25 and 1,000 employees. The Division
also markets group insurance to small employers through a marketing organization
affiliated with an insurer, and reinsures the business produced by the marketing
organization. The Division receives a ceding commission from these arrangements.
GUARANTEED INVESTMENT CONTRACTS DIVISION
In 1989, the Company began selling guaranteed investment contracts ("GICs").
The Company's GICs are contracts, issued to a 401(k) or other retirement savings
plan, which guarantee a fixed return on deposits for a specified period and
often provide flexibility for withdrawals, in keeping with the benefits provided
by the plan. The Company also offers related products through this Division,
including fixed rate contracts offered to the trustees of municipal bond
proceeds, floating rate contracts issued to bank trust departments, and
long-term annuity contracts used to fund certain state obligations.
Since 1989, life insurer credit concerns and a demand shift to
non-traditional GIC alternatives have generally caused the GIC market to
contract somewhat, although broadening the Division's product offerings has
allowed it to maintain strong sales.
5
Most GIC contracts written by the Company have maturities of 3 to 5 years.
Prior to 1993, few GIC contracts were maturing because the contracts were newly
written. Therefore, GIC account balances grew at a significant rate. Beginning
in 1993, GIC contracts began to mature as contemplated when the contracts were
sold. Hence, the rate of growth in GIC deposits has decreased as the amount of
maturing contracts has increased.
INDIVIDUAL LIFE DIVISION
The Individual Life Division primarily utilizes a distribution system based
on experienced independent personal producing general agents who are recruited
by regional sales managers. At December 31, 1995, there were 22 regional sales
managers located throughout the United States. Honors Club members, agents who
produce at least $30 thousand of new premium per year, totalled 258 at December
31, 1995. Honors Club members represent approximately 39% of the Division's new
premium.
In 1993, the Division began distributing insurance products through stock
brokers. The Division also distributes insurance products through the payroll
deduction market and in the life insurance brokerage market. The Division also
offers its products to other insurance companies and their distribution systems
under private label arrangements.
Marketing efforts in the Individual Life Division are directed toward the
Company's various universal life products and products designed to compete in
the term marketplace. Universal life products combine traditional life insurance
protection with the ability to tailor a more flexible payment schedule to the
individual's needs, provide an accumulation of cash values on which income taxes
are deferred, and permit the Company to change interest rates credited on policy
cash values to reflect current market rates. The Company currently emphasizes
back-end loaded universal life policies which reward the continuing policyholder
and which should help maintain the persistency of its universal life business.
The products designed to compete in the term marketplace are term-like policies
with guaranteed level premiums for the first 10, 15, or 20 years which provide a
competitive net cost to the insured.
The Division also includes ProEquities, Inc. ("PES"), an affiliated
securities broker-dealer. Through PES, members of the Company's field force who
are licensed to sell securities can sell stocks, bonds, mutual funds, and
investment products that may be manufactured or issued by companies other than
the Company. Prior to 1995, management responsibility for PES was with the
Investment Products Division, and therefore PES's financial results were
included in the Investment Products Division.
INVESTMENT PRODUCTS DIVISION
The Investment Products Division manufactures, sells, and supports annuity
products. These products are sold through broker-dealers, financial
institutions, and the Individual Life Division. Some of the Division's annuity
products are also sold through PES.
In April 1990, the Company began sales of modified guaranteed annuity
products which guarantee an interest rate for a fixed period. Because contract
values are "market-value adjusted" upon surrender prior to maturity, these
products afford the Company a measure of protection from changes in interest
rates.
6
In 1992, the Division ceased most new sales of single premium deferred
annuities. In 1994, the Division introduced a variable annuity product to
broaden the Division's product line.
The demand for annuity products is related to the general level of interest
rates and performance of the equity markets.
CORPORATE AND OTHER
The Corporate and Other segment consists of several small insurance lines of
business, net investment income and expenses not attributable to the business
segments described above (including interest on substantially all debt), and the
operations of several small noninsurance subsidiaries. The earnings of this
segment may fluctuate from year to year.
In August 1993, the Company completed the sale of its ownership interest in
Southeast Health Plan, Inc., a Birmingham-based health maintenance organization,
in which the Company had an investment since 1988.
In 1994, the Company entered into a joint venture arrangement with the Lippo
Group to enter the Hong Kong insurance market. The Company and the Lippo Group
jointly own a Hong Kong insurer which commenced business in early 1995.
Management believes that this joint venture will position the Company to market
life insurance in mainland China when that opportunity unfolds. The Company
continues to investigate other possible opportunities in Asia.
INSURANCE IN FORCE
The Company's total consolidated life insurance in force at December 31,
1995 was $61.9 billion. The following table shows sales by face amount and
insurance in force for the Company's business segments.
7
YEAR ENDED DECEMBER 31
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1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
New Business Written
Financial Institutions....... $ 3,563,177 $ 2,524,212 $ 2,776,276 $ 1,149,265 $ 1,057,886
Group........................ 119,357 184,429 252,345 328,258 390,141
Individual Life.............. 7,564,983 6,329,630 4,440,510 4,877,038 4,244,903
-------------- -------------- -------------- -------------- --------------
Total...................... $ 11,247,517 $ 9,038,271 $ 7,469,131 $ 6,354,561 $ 5,692,930
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Business Acquired
Acquisitions................. $ 6,129,159 $ 4,756,371 $ 4,378,812 $ 1,302,330
Financial Institutions....... 1,432,338
-------------- -------------- -------------- -------------- --------------
Total...................... $ 6,129,159 $ 4,756,371 $ 4,378,812 $ 2,734,668 $ 0
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Insurance in Force at End of
Year (1)
Acquisitions................. $ 16,778,359 $ 11,728,569 $ 8,452,114 $ 3,836,066 $ 4,385,948
Financial Institutions....... 6,233,256 4,841,318 4,306,179 3,690,610 2,446,815
Group........................ 6,371,313 7,464,501 6,716,724 6,315,410 7,088,931
Individual Life.............. 32,500,935 25,843,232 22,975,577 20,634,927 16,655,923
-------------- -------------- -------------- -------------- --------------
Total...................... $ 61,883,863 $ 49,877,620 $ 42,450,594 $ 34,477,013 $ 30,577,617
-------------- -------------- -------------- -------------- --------------
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(1) Reinsurance assumed has been included; reinsurance ceded (1995-$17,524,366;
1994-$8,639,272; 1993-$7,484,566; 1992-$6,982,127; 1991-$5,292,080) has not
been deducted.
The ratio of voluntary terminations of individual life insurance to mean
individual life insurance in force, which is determined by dividing the amount
of insurance terminated due to surrenders and lapses during the year by the mean
of the insurance in force at the beginning and end of the year, adjusted for the
timing of major acquisitions and assumptions was:
RATIO OF
YEAR ENDED VOLUNTARY
DECEMBER 31 TERMINATIONS
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1991.............................................. 8.9%
1992.............................................. 9.0
1993.............................................. 8.7
1994.............................................. 7.0
1995.............................................. 6.9
Net terminations reflect voluntary lapses and cash surrenders, some of which
may be due to the replacement of the Company's products with competitors'
products. Also, a higher percentage of voluntary lapses typically occurs in the
first 15 months of a policy, and accordingly, lapses will tend to increase or
decrease in proportion to the change in new insurance written during the
immediately preceding periods.
8
The amount of investment products in force is measured by account balances.
The following table shows guaranteed investment contract and annuity account
balances.
GUARANTEED MODIFIED
YEAR ENDED INVESTMENT GUARANTEED FIXED VARIABLE
DECEMBER 31 CONTRACTS ANNUITIES ANNUITIES ANNUITIES
- ------------------------------ ------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
1991.......................... $ 1,264,603 $ 115,477 $ 324,662
1992.......................... 1,694,530 299,608 374,451
1993.......................... 2,015,075 468,689 537,053
1994.......................... 2,281,673 661,359 542,766 $ 170,454
1995.......................... 2,451,693 741,849 472,656 392,237
UNDERWRITING
The underwriting policies of the Company's insurance subsidiaries are
established by management. With respect to individual insurance, the
subsidiaries use information from the application and, in some cases, inspection
reports, attending physician statements, or medical examinations to determine
whether a policy should be issued as applied for, rated, or rejected. Medical
examinations of applicants are required for individual life insurance in excess
of certain prescribed amounts (which vary based on the type of insurance) and
for most individual insurance applied for by applicants over age 50. In the case
of "simplified issue" policies, which are issued primarily through the Financial
Institutions Division and the payroll deduction market, coverage is rejected if
the responses to certain health questions contained in the application indicate
adverse health of the applicant. For other than "simplified issue" policies,
medical examinations are requested of any applicant, regardless of age and
amount of requested coverage, if an examination is deemed necessary to
underwrite the risk. Substandard risks may be referred to reinsurers for full or
partial reinsurance of the substandard risk.
The Company's insurance subsidiaries require blood samples to be drawn with
individual insurance applications for coverage over $100,000 (ages 16-50) or
$150,000 (age 51 and above). Blood samples are tested for a wide range of
chemical values and are screened for antibodies to the HIV virus. Applications
also contain questions permitted by law regarding the HIV virus which must be
answered by the proposed insureds.
Group insurance underwriting policies are administered by experienced group
underwriters. The underwriting policies are designed for single employer groups.
Initial premium rates are based on prior claim experience and manual premium
rates with relative weights depending on the size of the group and the nature of
the benefits.
INVESTMENTS
The types of assets in which the Company may invest are influenced by state
laws which prescribe qualified investment assets. Within the parameters of these
laws, the Company invests its assets giving consideration to such factors as
liquidity needs, investment quality, investment return, matching of assets and
liabilities, and the composition of the investment portfolio by asset type and
credit exposure. Because liquidity is important, the Company continually
balances maturity against yield and quality considerations in selecting new
investments.
9
The Company's asset/liability matching practices involve monitoring of asset
and liability durations for various product lines, cash flow testing under
various interest rate scenarios, and rebalancing of assets and liabilities with
respect to yield, risk, and cash-flow characteristics.
The following table shows the Company's investments at December 31, 1995,
valued on the basis of generally accepted accounting principles.
PERCENT OF TOTAL
ASSET VALUE INVESTMENTS
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(DOLLARS IN THOUSANDS)
Fixed maturities:
Bonds:
Mortgage-backed securities............... $2,049,775 34.0%
United States Government and government
agencies and authorities................ 107,577 1.8
States, municipalities, and political
subdivisions............................ 11,590 0.2
Public utilities......................... 327,244 5.4
Convertibles and bonds with warrants
attached................................ 493 --
All other corporate bonds................ 1,168,924 19.4
Bank loan participations................... 220,811 3.7
Redeemable preferred stocks................ 5,594 0.1
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Total fixed maturities................. 3,892,008 64.6
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Equity securities:
Common stocks -- industrial, miscellaneous,
and all other............................. 28,746 0.5
Nonredeemable preferred stocks............. 9,965 0.2
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Total equity securities................ 38,711 0.7
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Mortgage loans on real estate................ 1,834,357 30.4
Investment real estate....................... 20,921 0.3
Policy loans................................. 143,372 2.4
Other long-term investments.................. 42,096 0.7
Short-term investments....................... 53,591 0.9
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Total investments...................... $6,025,056 100.0%
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A significant portion of the Company's bond portfolio is invested in
mortgage-backed securities. Mortgage-backed securities are constructed from
pools of residential mortgages, and may have cash flow volatility as a result of
changes in the rate at which prepayments of principal occur with respect to the
underlying loans. Prepayments of principal on the underlying residential loans
can be expected to accelerate with decreases in interest rates and diminish with
increases in interest rates.
In management's view, the overall quality of the Company's investment
portfolio continues to be strong. The Company obtains ratings of its fixed
maturities from Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Corporation ("S&P"). If a bond is not rated by Moody's or S&P, the
Company uses ratings from the Securities Valuation Office of the National
Association of Insurance Commissioners ("NAIC"), or the Company rates the bond
based upon a comparison of the unrated issue to rated issues of the same issuer
or rated issues of
10
other issuers with similar risk characteristics. At December 31, 1995,
approximately 95% of bonds were rated by Moody's, S&P, or the NAIC.
The following table shows the approximate percentage distribution of the
Company's fixed maturities by rating, utilizing S&P rating categories, at
December 31, 1995:
PERCENTAGE OF
FIXED
TYPE MATURITIES
-------------------------------------------------- -------------
Bonds
AAA............................................. 56.1%
AA.............................................. 4.5
A............................................... 12.6
BBB............................................. 19.0
BB or Less...................................... 2.0
Bank Loan Participations
Investment Grade................................ 0.4
Non-Investment Grade............................ 5.3
Redeemable Preferred Stock........................ 0.1
-----
Total............................................. 100.0%
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At December 31, 1995, approximately $3,589.9 million of the Company's
$3,665.6 million bond portfolio was invested in U.S. Government or Agency-backed
securities or investment grade corporate bonds and only approximately $75.7
million of its bond portfolio was rated less than investment grade.
Approximately $292.6 million of bonds are not publicly traded.
Risks associated with investments in less than investment grade debt
obligations may be significantly higher than risks associated with investments
in debt securities rated investment grade. Risk of loss upon default by the
borrower is significantly greater with respect to such debt obligations than
with other debt securities because these obligations may be unsecured or
subordinated to other creditors. Additionally, there is often a thinly traded
market for such securities and current market quotations are frequently not
available for some of these securities. Issuers of less than investment grade
debt obligations usually have higher levels of indebtedness and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than investment-grade issuers.
The Company also invests in bank loan participations. Generally, such
investments constitute the most senior debt incurred by the borrower in highly
leveraged transactions. They are generally unrated by the credit rating
agencies. Of the $220.8 million of bank loan participations owned by the Company
at December 31, 1995, $206.0 million were classified by the Company as less than
investment grade.
The Company also invests a significant portion of its portfolio in mortgage
loans. Results for these investments have been excellent due to careful
management and a focus on a specialized segment of the market. The Company
generally does not lend on speculative properties and has specialized in making
loans on either credit-oriented commercial properties or credit-anchored strip
shopping centers.
11
The following table shows a breakdown of the Company's mortgage loan
portfolio by property type:
PERCENTAGE OF
MORTGAGE LOANS
PROPERTY TYPE ON REAL ESTATE
------------------------------------- --------------
Retail............................... 80.6%
Warehouses........................... 7.3
Office Building...................... 6.2
Apartments........................... 4.0
Mixed-use............................ 1.1
Other................................ 0.8
-----
Total................................ 100.0%
-----
-----
Credit-anchored strip shopping center loans are generally on strip shopping
centers located in smaller towns and anchored by one or more strong regional or
national retail stores. The anchor tenants enter into long-term leases with the
Company's borrowers. These centers provide the basic necessities of life, such
as food, pharmaceuticals, and clothing, and have been relatively insensitive to
changes in economic conditions. The following are some of the largest anchor
tenants (measured by the Company's exposure) in the strip shopping centers at
December 31, 1995:
PERCENTAGE OF
MORTGAGE LOANS
ANCHOR TENANTS ON REAL ESTATE
---------------------------------- ---------------
K-Mart............................ 4%
Food Lion......................... 4
Winn Dixie........................ 4
Wal-Mart.......................... 3
Bi-Lo............................. 3
Revco............................. 2
The Company's mortgage lending criteria generally require that the
loan-to-value ratio on each mortgage be at or under 75% at the time of
origination, although in certain circumstances the Company will lend on the
basis of an 85% loan-to-value ratio. Projected rental payments from credit
anchors (i.e., excluding rental payments from smaller local tenants) generally
exceed 70% of the property's projected operating expenses and debt service.
For several years the Company has offered a commercial loan product under
which the Company will permit a slightly higher loan-to-value ratio in exchange
for a participating interest in the cash flows from the underlying real estate.
Approximately $361.2 million of the Company's mortgage loans have this
participation feature.
The average size mortgage loan in the Company's portfolio is approximately
$1.6 million. The largest single loan amount is $13.1 million.
Many of the Company's mortgage loans have call or interest rate reset
provisions after five to seven years. However, if interest rates were to
significantly increase, the Company may be unable to increase the interest rates
on its existing mortgage loans commensurate with the significantly increased
market rates, or call the loans.
12
In order to provide additional liquidity, the Company plans a commercial
mortgage securitization during the first quarter of 1996. Proceeds from the
securitization will be reinvested in publicly-traded investment grade bonds.
At December 31, 1995, $26.1 million or 1.4% of the mortgage loan portfolio
was nonperforming. It is the Company's policy to cease to carry accrued interest
on loans that are over 90 days delinquent. For loans less than 90 days
delinquent, interest is accrued unless it is determined that the accrued
interest is not collectible. If a loan becomes over 90 days delinquent, it is
the Company's general policy to initiate foreclosure proceedings unless a
workout arrangement to bring the loan current is in place.
As a general rule, the Company does not invest directly in real estate. The
investment real estate held by the Company consists largely of properties
obtained through foreclosures or the acquisition of other insurance companies.
In the Company's experience, the appraised value of foreclosed properties often
approximates the mortgage loan balance on the property plus costs of
foreclosure. Also, foreclosed properties often generate a positive cash flow
enabling the Company to hold and manage the property until the property can be
profitably sold.
The Company has established an allowance for uncollectible amounts on
investments. This allowance was $33.4 million at December 31, 1995.
Combinations of futures contracts and options on treasury notes are
sometimes used as hedges for asset/liability management of certain investments,
primarily mortgage loans on real estate, and liabilities arising from interest
sensitive products such as GICs and annuities. Realized investment gains and
losses on such contracts are deferred and amortized over the life of the hedged
asset. The Company also uses interest rate swap contracts to convert certain
investments from a variable rate of interest to a fixed rate of interest.
For further discussion regarding the Company's investments and the maturity
of and the concentration of risk among the Company's invested assets, see Note C
to the Consolidated Financial Statements.
13
The following table shows the investment results of the Company for the
years 1991 through 1995:
CASH, ACCRUED PERCENTAGE
INVESTMENT INCOME, NET EARNED ON REALIZED
YEAR ENDED AND INVESTMENTS INVESTMENT AVERAGE OF CASH INVESTMENT
DECEMBER 31 AT DECEMBER 31 INCOME AND INVESTMENTS GAINS (LOSSES)
- -------------------------------- ------------------ ----------- --------------- --------------
(DOLLARS IN THOUSANDS)
1991............................ $ 2,837,278 $ 233,502 9.4% $ (3,085)
1992............................ 3,653,074 284,069 8.9 (14)
1993............................ 4,845,167 362,130 8.7 5,054
1994............................ 5,362,016 417,825 8.3 6,298
1995............................ 6,097,455 475,924 8.2 1,612
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" in the Company's 1995 Annual
Report to Stockholders for certain information relating to the Company's
investments and liquidity.
INDEMNITY REINSURANCE
As is customary in the insurance industry, the Company's insurance
subsidiaries cede insurance to other insurance companies. The ceding insurance
company remains contingently liable with respect to ceded insurance should any
reinsurer be unable to meet the obligations assumed by it. The Company sets a
limit on the amount of insurance retained on the life of any one person. In the
individual lines it will not retain more than $500,000, including accidental
death benefits, on any one life. Certain of the term-like plans of the Company
have a retention of $50,000 per life. For group insurance, the maximum amount
retained on any one life is $100,000. At December 31, 1995, the Company had
insurance in force of $61.9 billion of which approximately $17.5 billion was
ceded to reinsurers.
RESERVES
The applicable insurance laws under which the Company's insurance
subsidiaries operate require that each insurance company report policy reserves
as liabilities to meet future obligations on the outstanding policies. These
reserves are the amounts which, with the additional premiums to be
received and interest thereon compounded annually at certain assumed rates, are
calculated in accordance with applicable law to be sufficient to meet the
various policy and contract obligations as they mature. These laws specify that
the reserves shall not be less than reserves calculated using certain named
mortality tables and interest rates.
The reserves carried in the Company's financial reports (presented on the
basis of generally accepted accounting principles) differ from those specified
by the laws of the various states and carried in the insurance subsidiaries'
statutory financial statements (presented on the basis of statutory accounting
principles mandated by state insurance regulation). For policy reserves other
than those for universal life policies, annuity contracts, and GICs, these
differences arise from the use of mortality and morbidity tables and interest
rate assumptions which are deemed under generally accepted accounting principles
to be more appropriate for financial reporting purposes than those required for
statutory accounting purposes; from the introduction of lapse assumptions into
the reserve calculation; and from the use of the net level premium
14
reserve method on all business. Policy reserves for universal life policies,
annuity contracts, and GICs are carried in the Company's financial reports
at the account value of the policy or contract.
FEDERAL INCOME TAX CONSEQUENCES
The Company's insurance subsidiaries are taxed by the federal government in
a manner similar to companies in other industries. However, certain restrictions
on consolidating life insurance company income with noninsurance income are
applicable to the Company; thus, the Company is not able to consolidate all of
the operating results of its subsidiaries for federal income tax purposes.
Under pre-1984 tax law, certain income of the Company was not taxed
currently, but was accumulated in the "Policyholders' Surplus Account" for each
insurance company subsidiary to be taxed only when such income was distributed
to the stockholders or when certain limits on accumulated amounts were exceeded.
Consistent with current tax law, amounts accumulated in the Policyholders'
Surplus Account have been carried forward, although no accumulated income may be
added to these accounts. As of December 31, 1995, the combined Policyholders'
Surplus Accounts for the life insurance subsidiaries of the Company and the
estimated tax which would become payable on these amounts if distributed to
stockholders were $50.7 million and $17.7 million, respectively. The Company
does not anticipate any of its life insurance subsidiaries exceeding applicable
limits on amounts accumulated in these accounts and, therefore, does not expect
to involuntarily pay tax on the amounts held therein.
COMPETITION
The Company operates in a highly competitive industry. In connection with
the development and sale of its products, the Company encounters significant
competition from other insurance companies, many of which have financial
resources or ratings greater than those of the Company. Certain of the Company's
products compete against other investment alternatives, including bonds, stocks,
and mutual funds.
The insurance industry is a mature industry. In recent years, the industry
has experienced virtually no growth in life insurance sales, though the aging
population has increased the demand for retirement savings products. Management
believes that the Company's ability to compete is dependent upon, among other
things, its ability to attract and retain agents to market its insurance
products, its ability to develop competitive and profitable products, and its
maintenance of a high rating from rating agencies.
Bank products provide competitive alternatives to the Company's GICs and
annuities. Banks may also compete by selling annuity products provided by other
insurance companies. Also, in the future banks and other financial institutions
may be granted approval to underwrite and sell annuities or other insurance
products that compete directly with the Company. Likewise, nontraditional
sources of health care coverages, such as health maintenance organizations and
preferred provider organizations, are developing rapidly in the Company's
operating territory and provide competitive alternatives to the Company's group
health products.
15
REGULATION
The Company's insurance subsidiaries are subject to government regulation in
each of the states in which they conduct business. Such regulation is vested in
state agencies having broad administrative power dealing with all aspects of the
insurance business, including premium rates, policy forms, and capital adequacy,
and is concerned primarily with the protection of policyholders rather than
stockholders. The Company cannot predict the form of any future proposals or
regulation.
The design and administration of the Company's insurance products, the
conduct of the Company's agents, and the content of advertising and other sales
materials are also regulated by these state agencies. Recently, some regulatory
agencies have enhanced their enforcement efforts resulting in disciplinary
actions being taken against insurers, including the assessment of fines.
A life insurance company's statutory capital is computed according to rules
prescribed by the NAIC as modified by the insurance company's state of domicile.
Statutory accounting rules are different from generally accepted accounting
principles and are intended to reflect a more conservative view. The NAIC's
risk-based capital requirements require insurance companies to calculate and
report information under a risk-based capital formula. These risk-based capital
requirements are intended to allow insurance regulators to identify inadequately
capitalized insurance companies based upon the types and mixtures of risks
inherent in the insurer's operations. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. Based upon the
December 31, 1995 statutory financial reports, the Company's insurance
subsidiaries are adequately capitalized under the formula.
The Company's insurance subsidiaries are required to file detailed annual
reports with the supervisory agencies in each of the jurisdictions in which they
do business and their business and accounts are subject to examination by such
agencies at any time. Under the rules of the NAIC, insurance companies are
examined periodically (generally every three to five years) by one or more of
the supervisory agencies on behalf of the states in which they do business. To
date, no such insurance department examinations have produced any significant
adverse findings regarding any insurance company subsidiary of the Company.
Under insurance guaranty fund laws in most states, insurance companies doing
business in such a state can be assessed up to prescribed limits for
policyholder losses incurred by insolvent or failed insurance companies. The
Company's insurance subsidiaries were assessed immaterial amounts in 1995, which
will be partially offset by credits against future state premium taxes. Although
the Company cannot predict the amount of any future assessments, most insurance
guaranty fund laws currently provide that an assessment may be excused or
deferred if it would threaten an insurer's financial strength.
In addition, many states, including the states in which the Company's
insurance subsidiaries are domiciled, have enacted legislation or adopted
regulations regarding insurance holding company systems. These laws require
registration of and periodic reporting by insurance companies domiciled within
the jurisdiction which control or are controlled by other corporations or
persons so as to constitute an insurance holding company system. These laws also
affect the acquisition of control of insurance companies as well as transactions
between insurance companies and companies controlling them. Most states,
including Tennessee, where Protective Life is
16
domiciled, require administrative approval of the acquisition of control of an
insurance company domiciled in the state or the acquisition of control of an
insurance holding company whose insurance subsidiary is incorporated in the
state. In Tennessee, the acquisition of 10% of the voting securities of a person
is generally deemed to be the acquisition of control for the purpose of the
insurance holding company statute and requires not only the filing of
detailed information concerning the acquiring parties and the plan of
acquisition, but also administrative approval prior to the acquisition.
The Company's insurance subsidiaries are subject to various state statutory
and regulatory restrictions on the insurance subsidiaries' ability to pay
dividends to Protective Life Corporation. In general, dividends up to specified
levels are considered ordinary and may be paid thirty days after written notice
to the insurance commissioner of the state of domicile unless such commissioner
objects to the dividend prior to the expiration of such period. Dividends in
larger amounts are considered extraordinary and are subject to affirmative
prior approval by such commissioner. The maximum amount that would qualify as
ordinary dividends to the Company by its insurance subsidiaries in 1996 is
estimated to be $129 million. No assurance can be given that more stringent
restrictions will not be adopted from time to time by states in which the
Company's insurance subsidiaries are domiciled, which restrictions could have
the effect, under certain circumstances, of significantly reducing dividends
or other amounts payable to the Company by such subsidiaries without affirmative
prior approval by state regulatory authorities.
The Company's insurance subsidiaries act as fiduciaries and are subject to
regulation by the Department of Labor ("DOL") when providing a variety of
products and services to employee benefit plans governed by the Employee
Retirement Income Security Act of 1974 ("ERISA"). Severe penalties are imposed
by ERISA on fiduciaries which violate ERISA's prohibited transaction provisions
by breaching their duties to ERISA-covered plans. In a case decided by the
United States Supreme Court in December 1993 (JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY V. HARRIS TRUST AND SAVINGS BANK), the Court concluded that an insurance
company general account contract that had been issued to a pension plan should
be divided into its guaranteed and nonguaranteed components and that certain
ERISA fiduciary obligations applied with respect to the assets underlying the
nonguaranteed components. Although the Company's insurance subsidiaries have not
issued contracts identical to the one involved in HARRIS TRUST, some of its
policies relating to ERISA-covered plans may be deemed to have nonguaranteed
components subject to the principles announced by the Court.
The full extent to which HARRIS TRUST makes the fiduciary standards and
prohibited transaction provisions of ERISA applicable to all or part of
insurance company general account assets, however, cannot be determined at this
time. The Supreme Court's opinion did not resolve whether the assets at issue in
the case may be subject to ERISA for some purposes and not others. The life
insurance industry requested that the DOL issue exemptions from the prohibited
transaction provisions of ERISA in view of HARRIS TRUST. In July of 1995, the
DOL published, in final form, a prohibited transaction class exemption (PTE
95-60) which exempts from the prohibited transaction rules, prospectively and
retroactively to January 1, 1975, certain transactions engaged in by insurance
company general accounts in which employer benefit plans have an interest. The
exemption does not cover all such transactions, and the insurance industry is
seeking further relief. Until these and other matters are clarified, the Company
is unable to determine whether the decision will result in any liability and, if
so, its nature and scope.
17
Existing federal laws and regulations affect the taxation of the Company's
products. Income tax payable by policyholders on investment earnings is deferred
during the accumulation period of certain life insurance and annuity products.
Congress has from time to time considered proposals that, if enacted, would have
had an adverse impact on the federal income tax treatment of such products. If
these proposals were to be adopted, they could adversely affect the ability of
the Company's life insurance subsidiaries to sell such products and could result
in the surrender of existing contracts and policies. Although it cannot be
predicted whether future legislation will contain provisions that alter the
treatment of these products, such provisions are not part of any tax legislation
currently under active consideration in Congress.
The Federal Government has from time to time advocated changes to the
current health care delivery system which will address both affordability and
availability issues. The ultimate scope and effective date of any health care
reform proposals are unknown at this time and are likely to be modified as they
are considered for enactment by Congress. It is anticipated that these proposals
may adversely affect certain products in the Company's group health insurance
business. In addition to the federal initiatives, a number of states are
considering legislative programs that are intended to affect the accessibility
and affordability of health care. Some states have recently enacted health care
reform legislation. These various state programs (which could be preempted by
any federal program) may also adversely affect the Company's group health
insurance business. However, in light of the small relative proportion of the
Company's earnings attributable to group health insurance, management does not
expect that either the federal or state proposals will have a material adverse
effect on the Company's earnings.
The Federal Government has advocated repeal of the Glass-Steagall Act, which
would allow banks to diversify into securities and other businesses, including
possibly insurance. The ultimate scope and effective date of any proposals are
unknown at this time and are likely to be modified as they are considered for
enactment. It is anticipated that these proposals may increase competition and,
therefore, may adversely affect the Company.
Additional issues related to regulation of the Company and its insurance
subsidiaries are discussed in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" in the
Company's 1995 Annual Report to Stockholders.
EMPLOYEES
The Company had 1,169 full-time employees, including 983 in the Home Office
in Birmingham, Alabama at December 31, 1995. These employees are covered by
contributory major medical insurance, group life, and long-term disability
insurance plans. The cost of these benefits in 1995 amounted to approximately
$3.4 million for the Company. In addition, substantially all of the employees
are covered by a pension plan. The Company also matches employee contributions
to its 401(k) Plan. See Note K to Consolidated Financial Statements.
18
ITEM 2. PROPERTIES
The Company's Home Office building is located at 2801 Highway 280 South,
Birmingham, Alabama. This building includes the original 142,000 square-foot
building which was completed in 1976 and a second contiguous 220,000 square-foot
building which was completed in 1985. In addition, parking is provided for
approximately 1,000 vehicles.
The Company leases administrative space in six cities, substantially all
under leases for periods of three to five years. The aggregate monthly rent is
approximately $74 thousand.
Marketing offices are leased in 13 cities, substantially all under leases
for periods of three to five years with only two leases running longer than five
years. The aggregate monthly rent is approximately $30 thousand.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business of the Company, to which the Company or
any of its subsidiaries is a party or of which any of the Company's properties
is the subject. See also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" in the
Company's 1995 Annual Report to Stockholders for certain information relating to
litigation involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1995 to a vote of
security holders of the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed and principally traded on the New York
Stock Exchange (NYSE symbol: PL). The following table sets forth the highest and
lowest closing prices of the Company's Common Stock, $0.50 par value, as
reported by the New York Stock Exchange during the periods indicated, along with
the dividends paid per share of Common Stock during the same periods. Prices and
dividends prior to June 1, 1995 have been adjusted for the June 1, 1995
two-for-one stock split.
19
RANGE
---------------
HIGH LOW DIVIDENDS
------ ------ ---------
1994
First Quarter......................... $22.88 $20.44 $.13
Second Quarter........................ 23.13 19.13 .14
Third Quarter......................... 22.06 20.00 .14
Fourth Quarter........................ 24.31 19.94 .14
1995
First Quarter......................... $24.25 $21.44 $.14
Second Quarter........................ 27.50 21.63 .16
Third Quarter......................... 29.63 27.38 .16
Fourth Quarter........................ 31.25 26.88 .16
On February 12, 1996, there were approximately 2,100 holders of record of
Company Common Stock.
The Company (or its predecessor) has paid cash dividends each year since
1926 and each quarter since 1934. The Company expects to continue to pay cash
dividends, subject to the earnings and financial condition of the Company and
other relevant factors. The ability of the Company to pay cash dividends is
dependent in part on cash dividends received by the Company from its life
insurance subsidiaries. See Item 7 -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL
RESOURCES" in the Company's 1995 Annual Report to Stockholders. Such subsidiary
dividends are restricted by the various insurance laws of the states in which
the subsidiaries are incorporated. See Item 1 -- "BUSINESS -- REGULATION".
20
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Premiums and policy fees.............. $369,888 $402,772 $370,758 $323,136 $273,975
Net investment income................. 475,924 417,825 362,130 284,069 233,502
Realized investment gains(losses)..... 1,612 6,298 5,054 (14) (3,085)
Other income.......................... 32,663 21,553 21,695 18,835 11,556
------------- ------------- ------------- ------------- -------------
Total revenues.................. $880,087 $848,448 $759,637 $626,026 $515,948
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Benefits and expenses................. $759,053 $742,275 $674,593 $566,079 $464,245
Income tax expense.................... $ 41,152 $ 33,976 $ 28,475 $ 17,384 $ 14,477
Minority interest..................... $ 3,217 $ 1,796 $ 19 $ 90 $ 1,437
Net income............................ $ 76,665 $ 70,401 $ 56,550(1) $ 41,420(2) $ 35,789
PER SHARE DATA (3)
Net income (4)........................ $ 2.68 $ 2.57 $ 2.07(1) $ 1.52(2) $ 1.31
Cash dividends........................ $ 0.62 $ .55 $ .505 $ .45 $ .41
Weighted average number of shares
outstanding.......................... 28,627,345(5) 27,392,936(5) 27,381,578(5) 27,315,986 27,298,062
Stockholders' equity.................. $ 18.30 $ 9.86 $ 13.17 $ 10.28 $ 9.22
Stockholders' equity excluding net
unrealized gains and losses on
investments.......................... $ 16.29 $ 13.78 $ 11.74 $ 10.16 $ 9.08
DECEMBER 31
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA
Total assets...................................... $7,231,257 $6,130,284 $5,316,005 $4,006,667 $3,120,290
Long-term debt.................................... $ 115,500 $ 98,000 $ 137,598 $ 31,014 $ 23,548
Total debt........................................ $ 115,500 $ 98,000 $ 147,118 $ 88,248 $ 57,579
Monthly Income
Preferred Securities (6)........................ $ 55,000 $ 55,000
Stockholders' equity.............................. $ 526,557 $ 270,373 $ 360,733 $ 281,400 $ 251,745
Stockholders' equity excluding unrealized gains
and losses on investments........................ $ 468,694 $ 377,905 $ 321,449 $ 278,244 $ 247,764
- ------------------------------
(1) Reduced by $1,261 or $.05 per share representing a one-time adjustment to
income tax expense due to the change in the corporate income tax rate from
34% to 35%.
(2) Reduced by $1,053 or $.04 per share representing the cumulative effect of a
change in accounting principle for the adoption of SFAS No. 106.
(3) Prior periods have been restated to reflect a two-for-one stock split on
June 1, 1995.
(4) Net income per share is computed using the weighted average number of
shares outstanding during each period.
(5) Excludes contingently issuable shares of 225,061, 262,730, and 257,272 at
December 31, 1995, 1994, and 1993, respectively. The dilutive effect of
such shares on earnings per share is less than three percent.
(6) Reported as "minority interest in consolidated subsidiaries" in the
Company's financial statements.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information regarding the Company's financial condition and results of
operations is included under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the Company's 1995 Annual
Report to Stockholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data for the Company and its
subsidiaries, which are included under the caption "CONSOLIDATED FINANCIAL
STATEMENTS" in the Company's 1995 Annual Report to Stockholders, are
incorporated herein by reference.
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders
Protective Life Corporation
Birmingham, Alabama
Our report on the consolidated financial statements of Protective Life
Corporation and subsidiaries has been incorporated by reference in this Form
10-K from page 63 of the 1995 Annual Report to Stockholders of Protective Life
Corporation. In connection with our audits of such financial statements, we have
also audited the related financial statement schedules listed in the index on
page 27 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Birmingham, Alabama
February 12, 1996
23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for the information concerning executive officers of the Company set
forth below, the information called for by this Item 10 is incorporated herein
by reference to the section entitled "ELECTION OF DIRECTORS AND INFORMATION
ABOUT NOMINEES" in the Company's definitive proxy statement for the Annual
Meeting of Stockholders, May 6, 1996, to be filed with the Securities and
Exchange Commission by the Company pursuant to Regulation 14A within 120 days
after the end of its 1995 fiscal year.
The executive officers of the Company are as follows:
NAME AGE POSITION
- -------------------- --- ------------------------------------------------
Drayton Nabers, Jr. 55 Chairman of the Board, President and
Chief Executive Officer and a Director
R. Stephen Briggs 46 Executive Vice President
John D. Johns 43 Executive Vice President and Chief Financial
Officer
Ormond L. Bentley 60 Senior Vice President, Group
Carolyn King 45 Senior Vice President, Investment Products
Division
Deborah J. Long 42 Senior Vice President and General Counsel
Jim E. Massengale 53 Senior Vice President
Steven A. Schultz 42 Senior Vice President, Financial Institutions
Wayne E. Stuenkel 42 Senior Vice President and Chief Actuary
A. S. Williams III 59 Senior Vice President, Investments and Treasurer
24
NAME AGE POSITION
- -------------------- --- ------------------------------------------------
Judy Wilson 37 Senior Vice President, Guaranteed Investment
Contracts
Jerry W. DeFoor 43 Vice President and Controller, and Chief
Accounting Officer
All executive officers are elected annually and serve at the pleasure of the
Board of Directors. None is related to any director of the Company or to any
other executive officer.
Mr. Nabers has been Chairman of the Board, President and Chief Executive
Officer and a Director since May 1994. From May 1992 to May 1994, he was
President and Chief Executive Officer and a Director. Mr. Nabers was President
and Chief Operating Officer and a Director from August 1982 until May 1992. From
July 1981 to August 1982, he was Senior Vice President of the Company. Since
August 1982, he has also been President of Protective Life and had been its
Senior Vice President from September 1981 to August 1982. From February 1980 to
September 1981, he served as Senior Vice President, Operations of Protective
Life. From 1979 to February 1980, he was Senior Vice President, Operations and
General Counsel of Protective Life. From February 1980 to March 1983, he served
as President of Empire General Life Insurance Company, a subsidiary, and
from March 1983 to December 31, 1984, he was Chairman of the Executive Committee
of Empire General. He is also a director of Energen Corporation, National Bank
of Commerce of Birmingham, and Alabama National Bancorporation.
Mr. Briggs has been Executive Vice President of the Company and of
Protective Life since October 1993. From January 1993 to October 1993, he was
Senior Vice President, Life Insurance and Investment Products of the Company and
of Protective Life. Mr. Briggs had been Senior Vice President, Ordinary
Marketing of the Company since August 1988 and of Protective Life since April
1986. From July 1983 to April 1986, he was President of First Protective
Insurance Group, Inc.
Mr. Johns has been Executive Vice President and Chief Financial Officer of
the Company and of Protective Life since October 1993. From August 1988 to
October 1993, he served as Vice President and General Counsel of Sonat Inc. He
is a director of National Bank of Commerce of Birmingham, Alabama National
Bancorporation, and Parisian Services, Inc.
Mr. Bentley has been Senior Vice President, Group of the Company since
August 1988 and of Protective Life since December 1978. Mr. Bentley has been
employed by Protective Life since October 1965.
Ms. King has been Senior Vice President, Investment Products Division of the
Company and of Protective Life since April 1995. From August 1994 to March 1995,
she served as Senior Vice President and Chief Investment Officer of Provident
Life and Accident Insurance Company and of its parent company, Provident Life
and Accident Insurance Company of America. She served as President of Provident
National Assurance Company from November 1987 to March 1995. From November 1986
to August 1994, she served as Vice President of Provident Life and Accident
Insurance Company and of its parent company, Provident Life and Accident
Insurance
25
Company of America. Since 1975, Ms. King served in a number of capacities
with Provident National Assurance Company.
Ms. Long has been Senior Vice President and General Counsel of the Company
and of Protective Life since February 1994. From August 1993 to January 1994,
Ms. Long served as General Counsel of the Company and from February 1984 to
January 1994 she practiced law with the law firm of Maynard, Cooper & Gale, P.C.
Mr. Massengale has been Senior Vice President of the Company and of
Protective Life since May 1992. From May 1989 to May 1992, he was Senior Vice
President, Operations and Systems of the Company and of Protective Life. From
January 1983 to May 1989, he served as Senior Vice President, Corporate Systems
of the Company and of Protective Life.
Mr. Schultz has been Senior Vice President, Financial Institutions of the
Company and of Protective Life since March 1993. Mr. Schultz served as Vice
President, Financial Institutions of the Company from February 1993 to March
1993 and of Protective Life from February 1989 to March 1993. From June 1977
through January 1989, he was employed by and served in a number of capacities
with The Minnesota Mutual Life Insurance Company, finally serving as Director,
Group Sales.
Mr. Stuenkel has been Senior Vice President and Chief Actuary of the Company
and of Protective Life since March 1987. Mr. Stuenkel is a Fellow of the Society
of Actuaries and has been employed by Protective Life since September 1978.
Mr. Williams has been Senior Vice President, Investments and Treasurer of
the Company since July 1981. Mr. Williams also serves as Senior Vice President,
Investments and Treasurer of Protective Life. Mr. Williams has been employed by
Protective Life since November 1964.
Ms. Wilson has been Senior Vice President, Guaranteed Investment Contracts
of the Company and of Protective Life since January 1, 1995. From July 1991 to
December 31, 1994, she served as Vice President, Guaranteed Investment Contracts
of Protective Life. From October 1989 through July 1991, Ms. Wilson was employed
by an affiliated insurer.
Mr. DeFoor has been Vice President and Controller, and Chief Accounting
Officer of the Company and of Protective Life since April 1989. Mr. DeFoor is a
certified public accountant and has been employed by Protective Life since
August 1982.
Certain of these executive officers also serve as executive officers and/or
directors of various other Company subsidiaries.
Directors and executive officers of the Company are required to report
changes in their beneficial ownership of the Company's Common Stock to the
Securities and Exchange Commission. In 1995, a report concerning a gift of 1,338
shares to charity by Mr. Rushton and a second report concerning the acquisition
of 41.4 shares through the Company's Dividend Reinvestment Plan by Mr. Nabers'
daughters were filed late.
26
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Items 11 through 13 is incorporated herein by
reference from the Company's definitive proxy statement for the Annual Meeting
of Stockholders, May 6, 1996, to be filed with the Securities and Exchange
Commission by the Company pursuant to Regulation 14A within 120 days after the
end of its 1995 fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
The following financial statements set forth in the Company's 1995
Annual Report to Stockholders as indicated in the following table are
incorporated by reference (see Exhibit 13).
PAGE
----
Report of Independent Accountants........................... 63
Consolidated Statements of Income for the years ended
December 31, 1995, 1994, and 1993.......................... 43
Consolidated Balance Sheets as of December 31, 1995 and
1994....................................................... 44
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1994, and 1993.............. 46
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993.......................... 47
Notes to Consolidated Financial Statements.................. 48
2. Financial Statement Schedules:
The Report of Independent Accountants which covers the financial
statement schedules appears on page 23 of this report. The following
schedules are located in this report on the pages indicated.
PAGE
----
Schedule II -- Condensed Financial Information of
Registrant................................................. 34
Schedule III -- Supplementary Insurance Information......... 38
Schedule IV -- Reinsurance.................................. 39
27
All other schedules to the consolidated financial statements required
by Article 7 of Regulation S-X are not required under the related
instructions or are inapplicable and therefore have been omitted.
3. Exhibits:
Included as exhibits are the items listed below. The Company will
furnish a copy of any of the exhibits listed upon the payment of
$5.00 per exhibit to cover the cost of the Company in furnishing the
exhibit.
ITEM NUMBER DOCUMENT
- ----------- -----------------------------------------------------------------
*3(a) 1985 Restated Certificate of Incorporation of the Company filed
as Exhibit 3(a) to the Company's Form 10-K Annual Report for the
year ended December 31, 1993
*3(a)(1) Certificate of Amendment of 1985 Restated Certificate of
Incorporation of the Company filed with the Secretary of State of
Delaware on June 1, 1987 and filed as Exhibit 3(a)(1) to the
Company's Form 10-K Annual Report for the year ended December 31,
1993
*3(a)(2) Certificate of Amendment of 1985 Restated Certificate of
Incorporation of the Company filed with the Secretary of State of
Delaware on May 5, 1994 and filed as Exhibit 3(a)(5) to the
Company's Form 10-Q Quarterly Report for the period ended March
31, 1994
*3(a)(3) Certificate of Designation of Junior Participating Cumulative
Preferred Stock of the Company filed with the Secretary of State
of Delaware on August 9, 1995 and filed as Exhibit A to Exhibit 1
to the Company's Form 8-A Report filed August 7, 1995 and filed
as Exhibit A to Exhibit 2 to the Company's Form 8-K Report filed
August 7, 1995
3(a)(4) Certificate of Decrease of Shares Designated as Junior
Participating Cumulative Preferred Stock of the Company filed
with the Secretary of State of Delaware on August 8, 1995
*3(b) 1995 Amended and Restated By-laws of the Company filed as Exhibit
1 to the Company's Form 8-K Report filed August 7, 1995
*4(a) Reference is made to Exhibits 3(a) through 3(a)(4) above
- ------------------------
*incorporated by reference
28
ITEM NUMBER DOCUMENT
- ----------- -----------------------------------------------------------------
*4(b) Reference is made to Exhibit 3(b) above
*4(c) Certificate of Formation of PLC Capital L.L.C. ("PLC Capital")
filed as Exhibit 4(c) to the Company's and PLC Capital's
Registration Statement No. 33-52831
*4(d) Amended and Restated Limited Liability Company Agreement of PLC
Capital L.L.C. filed as Exhibit 4(d) to the Company's and PLC
Capital's Registration Statement No. 33-52831
*4(e) Form of Action establishing series of Preferred Securities
(included as Annex A to Exhibit 4(d) to the Company's and PLC
Capital's Registration Statement No. 33-52831)
*4(f) Specimen Preferred Security Certificate (included as Annex B to
Exhibit 4(d) to the Company's and PLC Capital's Registration
Statement No. 33-52831)
*4(g) Rights Agreement, dated as of August 7, 1995, between the Company
and AmSouth Bank of Alabama (formerly, AmSouth Bank N.A.), as
Rights Agent filed as Exhibit 2 to the Company's Form 8-K filed
August 7, 1995 and filed as Exhibit 1 to the Company's Form 8-A
filed August 7, 1995
*10(a) Management Incentive Plan filed as Exhibit 10(a) to the Company's
Form 10-K Annual Report for the year ended December 31, 1984
*10(a)(1) Amendment to the Company's Management Incentive Plan renamed as
the Company's Annual Incentive Plan filed as Exhibit 10(a)(1) to
the Company's Form 10-Q Report filed May 14, 1990
*10(b) The Company's 1992 Performance Share Plan filed as Exhibit
10(b)(3) to the Company's Form 10-Q filed May 15, 1992
10(b)(1) First Amendment to the Company's 1992 Performance Share Plan
*10(c) Excess Benefit Plan amended and restated as of January 1, 1989
filed as Exhibit 10(c)(1) to the Company's Form 10-K Annual
Report for the year ended December 31, 1991
- ------------------------
*incorporated by reference
29
ITEM NUMBER DOCUMENT
- ----------- -----------------------------------------------------------------
*10(d) Indemnity Agreements filed as Exhibits to the Company's Form 10-Q
Report, filed August 14, 1986
*10(e) Reference is made to Exhibit 4(g) above
*10(f) Form of Severance Compensation Agreement filed as Exhibit 10(i)
to the Company's Form 10-K Annual Report for the year ended
December 31, 1991
*10(f)(1) Form of First Amendment to Severance Compensation Agreement filed
as Exhibit 10(i)(1) to the Company's Form 10-K Annual Report for
the year ended December 31, 1991
*10(g) The Company's Deferred Compensation Plan for Directors Who Are
Not Employees of the Company filed as Exhibit 4 to the Company's
Form S-8 filed August 27, 1993
*10(h) The Company's Deferred Compensation Plan for Officers filed as
Exhibit 4 to the Company's Form S-8 filed January 13, 1994
13 1995 Annual Report To Stockholders
21 Organization Chart of the Company and Affiliates
23 Consent of Coopers & Lybrand L.L.P.
24 Power of Attorney
27 Financial Data Schedule
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this form
pursuant to Item 14(c) of this Form 10-K: Exhibit Item Numbers
10(a), 10(a)(1), 10(b), 10(b)(1), 10(c), 10(f), 10(f)(1), 10(g), and
10(h).
- ------------------------
*incorporated by reference
30
(b) Reports on Form 8-K:
(1) Form 8-K, dated February 16, 1995
-- Item 5
(2) Form 8-K, dated April 27, 1995
-- Item 5
(3) Form 8-K, dated July 25, 1995
-- Item 5
(4) Form 8-K, dated August 7, 1995
-- Item 5
-- Item 7
(5) Form 8-K, dated October 25, 1995
-- Item 5
31
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROTECTIVE LIFE CORPORATION
By: /s/ Drayton Nabers, Jr.
-----------------------------------------
Drayton Nabers, Jr.
Chairman of the Board, President
and Chief Executive Officer
March 22, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ---------------------------------------------- ---------------------------------------------- ------------------
/s/ Drayton Nabers, Jr. Chairman of the Board, President and Chief
------------------------------------ Executive Officer (Principal Executive March 22, 1996
DRAYTON NABERS, JR. Officer) and Director
/s/ John D. Johns Executive Vice President and Chief Financial
------------------------------------ Officer (Principal Financial Officer) March 22, 1996
JOHN D. JOHNS
/s/ Jerry W. DeFoor Vice President and Controller, and Chief
------------------------------------ Accounting Officer (Principal Accounting March 22, 1996
JERRY W. DEFOOR Officer)
*
------------------------------------ Chairman Emeritus and Director March 22, 1996
WILLIAM J. RUSHTON III
*
------------------------------------ Director March 22, 1996
JOHN W. WOODS
32
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ---------------------------------------------- ---------------------------------------------- ------------------
*
------------------------------------ Director March 22, 1996
WILLIAM J. CABANISS, JR.
*
------------------------------------ Director March 22, 1996
H. G. PATTILLO
*
------------------------------------ Director March 22, 1996
JOHN J. MCMAHON, JR.
*
------------------------------------ Director March 22, 1996
A. W. DAHLBERG
*
------------------------------------ Director March 22, 1996
JOHN W. ROUSE, JR.
*
------------------------------------ Director March 22, 1996
ROBERT T. DAVID
*
------------------------------------ Director March 22, 1996
RONALD L. KUEHN, JR.
*
------------------------------------ Director March 22, 1996
HERBERT A. SKLENAR
- ------------------------
*Drayton Nabers, Jr., by signing his name hereto, does sign this document on
behalf of each of the persons indicated above pursuant to powers of attorney
duly executed by such persons and filed with the Securities and Exchange
Commission.
By: /s/ Drayton Nabers, Jr.
-----------------------------------------
DRAYTON NABERS, JR.
Attorney-in-Fact
33
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
REVENUES
Dividends from subsidiaries*................................................. $ 13,691 $ 1,885 $ (91)
Service fees from subsidiaries*.............................................. 37,410 28,949 21,143
Investment income............................................................ 3,671 5,339 4,276
Other income/(loss).......................................................... (1,879) 1,582 3,662
--------- --------- ---------
52,893 37,755 28,990
--------- --------- ---------
EXPENSES
Operating and administrative................................................. 28,941 28,499 25,340
Interest -- subsidiaries*.................................................... 4,993 2,491
Interest -- others........................................................... 8,206 6,793 5,300
--------- --------- ---------
42,140 37,783 30,640
--------- --------- ---------
INCOME BEFORE FEDERAL INCOME TAX AND OTHER ITEMS BELOW......................... 10,753 (28) (1,650)
INCOME TAX EXPENSE (BENEFIT)................................................... 3 128 (1,325)
--------- --------- ---------
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES................... 10,750 (156) (325)
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES*................................ 65,915 70,557 56,875
--------- --------- ---------
NET INCOME..................................................................... $ 76,665 $ 70,401 $ 56,550
--------- --------- ---------
--------- --------- ---------
- ------------------------
*Eliminated in consolidation.
See notes to condensed financial statements.
34
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
DECEMBER 31
------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
ASSETS
Investments:
Short-term investments.............................................................. $ $ 1,900
Long-term investments............................................................... 72 77
Investment real estate.............................................................. 133 133
Investments in subsidiaries (equity method)*........................................ 710,212 420,126
----------- -----------
710,417 422,236
Cash.................................................................................. 71 196
Receivables from subsidiaries*........................................................ 35,134 41,188
Other receivables..................................................................... 1,024
Accrued income taxes.................................................................. 4,603 1,884
Other................................................................................. 5,138 4,090
----------- -----------
Total Assets...................................................................... $ 755,363 $ 470,618
----------- -----------
----------- -----------
LIABILITIES
Accrued expenses and other liabilities................................................ $ 37,381 $ 29,581
Deferred income taxes................................................................. 6,305 3,044
Long-term debt:
Subsidiaries*....................................................................... 69,620 69,620
Banks............................................................................... 40,500 23,000
Senior Notes........................................................................ 75,000 75,000
----------- -----------
Total Liabilities................................................................. 228,806 200,245
----------- -----------
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock
Junior Participating Cumulative Preferred Stock
Common Stock.......................................................................... 15,668 15,668
Additional paid-in capital............................................................ 96,371 71,295
Net unrealized gains (losses) on investments (all from subsidiaries, net of income
tax: 1995 -- $31,157; 1994 -- $(57,902))........................................... 57,863 (107,532)
Retained earnings (including undistributed income of subsidiaries: 1995 -- $444,305;
1994 -- $378,390).................................................................... 373,922 314,857
Treasury stock........................................................................ (12,008) (18,323)
Unallocated stock in Employee Stock Ownership Plan.................................... (5,259) (5,592)
----------- -----------
Total Stockholders' Equity........................................................ 526,557 270,373
----------- -----------
$ 755,363 $ 470,618
----------- -----------
----------- -----------
- ------------------------
*Eliminated in consolidation.
See notes to condensed financial statements.
35
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
---------- ------------ ----------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................... $ 76,665 $ 70,401 $ 56,550
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed net income of subsidiaries*.................... (65,915) (70,558) (56,875)
Deferred income taxes.................................................. 3,261 1,227 (2,381)
Gain on sale of subsidiary............................................. (3,522)
Other (net)............................................................ 7,043 6,911 7,725
---------- ------------ ----------
Net cash provided by operating activities................................ 21,054 7,981 1,497
---------- ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of and/or additional investments in subsidiaries*............... (27,731) (23,071) (41,806)
Loan to subsidiary*...................................................... (20,000)
Principal payments received on loan to subsidiary*....................... 4,750 9,500 11,550
Sale of subsidiary....................................................... 2,091
Change in other long-term investments.................................... 5 (77) 1,041
Change in short-term investments......................................... 1,900 97 (1,147)
---------- ------------ ----------
Net cash used in investing activities (21,076) (13,551) (48,271)
---------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing under line of credit arrangements and long-term
debt.................................................................... 52,300 87,200 68,300
Principal payments on line of credit arrangements and long-term debt..... (34,800) (136,200) (7,500)
Proceeds from borrowing under long-term debt to subsidiary*.............. 69,620
Purchase of Treasury Stock............................................... (3) (191)
Dividends to stockholders................................................ (17,600) (15,071) (13,827)
---------- ------------ ----------
Net cash provided by (used in) financing activities...................... (103) 5,358 46,973
---------- ------------ ----------
INCREASE (DECREASE) IN CASH................................................ (125) (212) 199
CASH AT BEGINNING OF YEAR.................................................. 196 408 209
---------- ------------ ----------
CASH AT END OF YEAR........................................................ $ 71 $ 196 $ 408
---------- ------------ ----------
---------- ------------ ----------
- ------------------------
*Eliminated in consolidation.
See notes to condensed financial statements.
36
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The Company publishes consolidated financial statements that are its primary
financial statements. Therefore, these parent company condensed financial
statements are not intended to be the primary financial statements of the
Company, and should be read in conjunction with the consolidated financial
statements and notes thereto of Protective Life Corporation and subsidiaries.
NOTE 1 - DEBT
At December 31, 1995, the Company had borrowed $40.5 million of its $60.0
million revolving line of credit. Borrowings under the revolving line of credit
become due in 1998. In addition, $75.0 million of Senior Notes due 2004 and
$55.0 million of subordinated debentures due 2024 were outstanding at December
31, 1995. The subordinated debentures were issued to PLC Capital L.L.C., an
affiliate, in connection with the issuance of Monthly Income Preferred
Securities by PLC Capital L.L.C.
NOTE 2 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1995 1994 1993
--------- --------- ---------
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest Paid to Non-Affiliates................................................. $ 6,634 $ 2,783 $ 5,540
Interest Paid to Subsidiary*.................................................... 6,266 3,498
--------- --------- ---------
$ 12,900 $ 6,281 $ 5,540
--------- --------- ---------
--------- --------- ---------
Income Taxes (reduced by amounts received from affiliates under a tax sharing
agreement)..................................................................... $ (538) $ (431) $ (701)
--------- --------- ---------
--------- --------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES
Reissuance of Treasury Stock to ESOP............................................ $ 350 $ 3 $ 3
--------- --------- ---------
--------- --------- ---------
Unallocated Stock in ESOP....................................................... $ 333 $ 264 $ 344
--------- --------- ---------
--------- --------- ---------
Reissuance of Treasury Stock.................................................... $ 31,014 $ 1,050 $ 135
--------- --------- ---------
--------- --------- ---------
NOTE 3 - SUBSIDIARY SURPLUS DEBENTURES
Protective Life Insurance Company ("Protective Life") has issued surplus
debentures to the Company in order to finance acquisitions and growth. At
December 31, 1995, the balance of the surplus debentures was $34.7 million. The
surplus debentures are included in receivables from subsidiaries. Protective
Life must obtain the approval of the Commissioner of Insurance before it may
repay any portion of the surplus debenture.
NOTE 4 - PURCHASE OF SUBSIDIARY
On March 20, 1995, the Company acquired National Health Care Systems of
Florida, Inc. (also known as "DentiCare"). The purchase price was paid with a
combination of the Company's Common Stock ($30.7 million) and cash ($7.6
million). In connection with the acquisition, the Company reissued 1,316,458
shares of its Common Stock previously held as Treasury Stock.
- ------------------------
*Eliminated in consolidation.
37
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
(in thousands)
COL. A COL. B COL. C COL. D COL. E COL. F COL. G
- ------------------------------ ----------- ------------- ----------- ------------- ----------- -----------
GIC AND
FUTURE ANNUITY
DEFERRED POLICY DEPOSITS AND PREMIUMS
POLICY BENEFITS OTHER AND NET REALIZED
ACQUISITION AND UNEARNED POLICYHOLDERS' POLICY INVESTMENT INVESTMENT
SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES INCOME(1) GAINS(LOSSES)
- ------------------------------ ----------- ------------- ----------- ------------- ----------- ----------- --------------
Year Ended
December 31, 1995:
Acquisitions.............. $ 123,889 $ 851,994 $ 590 $ 250,550 $ 98,501 $ 95,018 $ 0
Financial Institutions.... 36,283 84,162 189,973 1,495 23,875 9,377 0
Group..................... 24,974 123,279 5,371 85,925 142,483 14,432 0
Guaranteed Investment
Contracts................ 993 68,704 0 2,451,693 0 203,376 (3,908)
Individual Life........... 186,496 672,569 336 14,709 99,018 40,277 0
Investment Products....... 37,747 127,104 0 1,061,507 4,566 95,706 4,937
Corporate and Other....... 14 342 62 263 1,445 17,738 0
Unallocated Realized
Investment Gains
(Losses)................. 0 0 0 0 0 0 583
----------- ------------- ----------- ------------- ----------- ----------- --------------
TOTAL................... $ 410,396 $ 1,928,154 $ 196,332 $ 3,866,142 $ 369,888 $ 475,924 $ 1,612
----------- ------------- ----------- ------------- ----------- ----------- --------------
----------- ------------- ----------- ------------- ----------- ----------- --------------
Year Ended
December 31, 1994:
Acquisitions.............. $ 110,202 $ 856,889 $ 381 $ 266,828 $ 86,376 $ 83,750 $ 532
Financial Institutions.... 68,060 43,198 99,798 2,758 98,027 9,224 0
Group..................... 22,685 116,324 2,905 84,689 131,096 14,381 0
Guaranteed Investment
Contracts................ 996 0 0 2,281,674 0 180,591 3,000
Individual Life........... 162,186 571,070 320 13,713 84,925 37,319 0
Investment Products....... 70,298 102,705 0 1,027,527 1,635 80,780 (2,500)
Corporate and Other......... 17 4,109 75 263 713 11,780 0
Unallocated Realized
Investment Gains
(Losses)................. 0 0 0 0 0 0 5,266
----------- ------------- ----------- ------------- ----------- ----------- --------------
TOTAL................... $ 434,444 $ 1,694,295 $ 103,479 $ 3,677,452 $ 402,772 $ 417,825 $ 6,298
----------- ------------- ----------- ------------- ----------- ----------- --------------
----------- ------------- ----------- ------------- ----------- ----------- --------------
Year Ended
December 31, 1993:
Acquisitions.............. $ 69,942 $ 705,487 $ 501 $ 259,513 $ 58,561 $ 65,290 $ 0
Financial Institutions.... 59,163 39,508 85,042 2,913 87,355 8,956 0
Group..................... 20,520 99,412 2,786 83,522 126,027 14,522 0
Guaranteed Investment
Contracts................ 1,464 0 0 2,015,075 0 166,058 1,175
Individual Life........... 129,265 483,604 368 11,762 77,338 34,154 0
Investment Products....... 19,210 52,516 0 789,668 856 66,706 2,003
Corporate and Other....... 20 318 88 339 20,621 6,444 0
Unallocated Realized
Investment Gains
(Losses)................. 0 0 0 0 0 0 1,876
----------- ------------- ----------- ------------- ----------- ----------- --------------
TOTAL................... $ 299,584 $ 1,380,845 $ 88,785 $ 3,162,792 $ 370,758 $ 362,130 $ 5,054
----------- ------------- ----------- ------------- ----------- ----------- --------------
----------- ------------- ----------- ------------- ----------- ----------- --------------
COL. A COL. H COL. I COL. J
- ------------------------------ ----------- ------------ -----------
AMORTIZATION
BENEFITS OF DEFERRED
AND POLICY OTHER
SETTLEMENT ACQUISITION OPERATING
SEGMENT EXPENSES COSTS EXPENSES(1)
- ------------------------------ ----------- ------------ -----------
Year Ended
December 31, 1995:
Acquisitions.............. $ 100,016 $ 20,601 $ 21,534
Financial Institutions.... (19,574) 28,609 16,301
Group..................... 109,447 3,052 55,384
Guaranteed Investment
Contracts................ 165,963 386 2,864
Individual Life........... 80,067 20,403 31,142
Investment Products....... 72,111 11,479 11,995
Corporate and Other....... 1,476 3 25,794
Unallocated Realized
Investment Gains
(Losses)................. 0 0 0
----------- ------------ -----------
TOTAL................... $ 509,506 $ 84,533 $ 165,014
----------- ------------ -----------
----------- ------------ -----------
Year Ended
December 31, 1994:
Acquisitions.............. $ 97,649 $ 14,460 $ 19,374
Financial Institutions.... 46,360 36,592 15,873
Group..................... 98,930 2,724 35,574
Guaranteed Investment
Contracts................ 147,383 893 5,172
Individual Life........... 67,451 18,771 19,254
Investment Products....... 58,424 14,679 16,201
Corporate and Other......... 913 3 25,595
Unallocated Realized
Investment Gains
(Losses)................. 0 0
----------- ------------ -----------
TOTAL................... $ 517,110 $ 88,122 $ 137,043
----------- ------------ -----------
----------- ------------ -----------
Year Ended
December 31, 1993:
Acquisitions.............. $ 73,463 $ 7,832 $ 12,715
Financial Institutions.... 42,840 31,202 15,273
Group..................... 101,266 2,271 29,492
Guaranteed Investment
Contracts................ 137,379 1,170 3,279
Individual Life........... 55,973 18,069 17,548
Investment Products....... 49,569 12,822 14,793
Corporate and Other....... 13,394 239 34,004
Unallocated Realized
Investment Gains
(Losses)................. 0 0 0
----------- ------------ -----------
TOTAL................... $ 473,884 $ 73,605 $ 127,104
----------- ------------ -----------
----------- ------------ -----------
- ------------------------------
(1) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if
different methods were applied.
38
SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------ ----------- ----------- ----------- ----------- ------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
----------- ----------- ----------- ----------- ------------
Year Ended December 31, 1995:
Life insurance in force........... $50,346,719 $17,524,366 $11,537,144 $44,359,497 26.0%
----------- ----------- ----------- ----------- ---
----------- ----------- ----------- ----------- ---
Premiums and policy fees:
Life insurance.................. $ 287,526 $ 116,091 $ 66,565 $ 238,000 28.0%
Accident/health insurance....... 335,387 217,082 13,583 131,888 10.3%
----------- ----------- ----------- -----------
TOTAL......................... $ 622,913 $ 333,173 $ 80,148 $ 369,888
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year Ended December 31, 1994:
Life insurance in force........... $40,909,454 $ 8,639,272 $ 8,968,166 $41,238,348 21.7%
----------- ----------- ----------- ----------- ---
----------- ----------- ----------- ----------- ---
Premiums and policy fees:
Life insurance.................. $ 256,840 $ 46,029 $ 31,032 $ 241,843 12.8%
Accident/health insurance....... 283,883 126,545 3,591 160,929 2.2%
----------- ----------- ----------- -----------
TOTAL......................... $ 540,723 $ 172,574 $ 34,623 $ 402,772
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year Ended December 31, 1993:
Life insurance in force........... $40,149,017 $ 7,484,566 $ 2,301,577 $34,966,028 6.6%
----------- ----------- ----------- ----------- ---
----------- ----------- ----------- ----------- ---
Premiums and policy fees:
Life insurance.................. $ 230,706 $ 37,995 $ 8,329 $ 201,040 4.1%
Accident/health insurance....... 254,672 88,917 3,963 169,718 2.3%
----------- ----------- ----------- -----------
TOTAL......................... $ 485,378 $ 126,912 $ 12,292 $ 370,758
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
39
EXHIBITS TO FORM 10-K
OF
PROTECTIVE LIFE CORPORATION
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995
INDEX TO EXHIBITS
PAGE
----
3(a)(4)................................................................
10(b)(1)................................................................
13......................................................................
21......................................................................
23......................................................................
24......................................................................
27......................................................................