Exhibit 99
to
Form 10-K
of
Protective Life Insurance Company
for
Fiscal Year
Ended December 31, 1999
Safe Harbor for Forward-Looking Statements
The Private
Securities Litigation Reform Act of 1995 (the “Act”) encourages
companies to make “forward-looking statements” by creating a safe
harbor to protect the companies from securities law liability in connection with
forward-looking statements. Forward-looking statements can be identified by use
of words such as “expect,” “estimate,” “project, ”
budget,” “forecast,” “anticipate,” “plan,”
and similar expressions. Protective Life Insurance Company
(“Protective”) intends to qualify both its written and oral
forward-looking statements for protection under the Act.
To qualify oral
forward-looking statements for protection under the Act, a readily available
written document must identify important factors that could cause actual results
to differ materially from those in the forward-looking statements. Protective
provides the following information to qualify forward-looking statements for the
safe harbor protection of the Act.
The operating
results of companies in the life and health insurance industry have historically
been subject to significant fluctuations due to changing competition, economic
conditions, interest rates, investment performance, insurance ratings, and other
factors. Certain known trends and uncertainties which may affect future results
of Protective are discussed more fully below.
We operate in a mature, highly competitive industry, which could
limit our ability to gain or maintain our position in the industry.
Life and health
insurance is a mature industry. In recent years, the industry has experienced
little growth in life insurance sales, though the aging population has increased
the demand for retirement savings products. Life and health insurance is a
highly competitive industry and Protective encounters significant competition in
all lines of business from other insurance companies, many of which have greater
financial resources than Protective, as well as competition from other providers
of financial services.
The life and
health insurance industry is consolidating, with larger, potentially more
efficient organizations emerging from consolidation. Also, some mutual insurance
companies are converting to stock ownership, which will give them greater access
to capital markets. Additionally, commercial banks, insurance companies, and
investment banks may now combine, provided certain requirements are satisfied.
Protective’s
ability to compete is dependent upon, among other things, its ability to attract
and retain distribution channels to market its insurance and investment
products, its ability to develop competitive and profitable products, its
ability to maintain low unit costs, and its maintenance of strong ratings from
rating agencies. Irrational competition from other insurers could adversely
affect Protective’s competitive position.
A ratings downgrade could adversely affect our ability to compete.
Ratings are an
important factor in Protective’s competitive position. Rating organizations
periodically review the financial performance and condition of insurers,
including Protective and its insurance subsidiaries. A downgrade in the ratings
of Protective and its life insurance subsidiaries could adversely affect its
ability to sell its products, retain existing business, and compete for
attractive acquisition opportunities.
Rating
organizations assign ratings based upon several factors. While most of the
factors relate to the rated company, some of the factors relate to general
economic conditions and circumstances outside the rated company’s control.
For the past several years rating downgrades in the industry have exceeded
upgrades.
Our policy claims fluctuate from year to year.
Protective’s
results may fluctuate from year to year due to fluctuations in policy claims
received by Protective.
We could be forced to sell illiquid investments at a loss to
cover policyholder withdrawals.
Many of the
products offered by Protective and its life insurance subsidiaries allow
policyholders and contract holders to withdraw their funds under defined
circumstances. The subsidiaries manage their liabilities and configure their
investment portfolios so as to provide and maintain sufficient liquidity to
support anticipated withdrawal demands and contract benefits and maturities.
While Protective and its life insurance subsidiaries own a significant amount of
liquid assets, a certain portion of their assets are relatively illiquid.
Unanticipated withdrawal or surrender activity could, under some circumstances,
compel Protective and its insurance subsidiaries to dispose of illiquid assets
on unfavorable terms, which could have an adverse effect on Protective.
Interest-rate fluctuations could negatively affect our spread income.
Significant
changes in interest rates expose insurance companies to the risk of not earning
anticipated spreads between the interest rate earned on investments and the
credited interest rates paid on outstanding policies. Both rising and declining
interest rates can negatively affect Protective’s spread income. While
Protective develops and maintains asset/liability management programs and
procedures designed to preserve spread income in rising or falling interest rate
environments, no assurance can be given that changes in interest rates will not
affect such spreads.
Lower interest
rates may result in lower sales of Protective’s insurance and investment
products. In addition, certain of Protective’s insurance and investment
products guarantee a minimum credited interest rate.
Insurance companies are highly regulated.
Protective and
its 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 many aspects of the
insurance business, which may include premium rates, marketing practices,
advertising, policy forms, and capital adequacy, and is concerned primarily with
the protection of policyholders rather than share owners. Protective cannot
predict what regulatory initiatives may be enacted which could adversely affect
Protective.
Protective and
its insurance subsidiaries act as fiduciaries and are subject to regulation by
the United States Department of Labor when providing a variety of products and
services to employee benefit plans governed by the Employee Retirement Income
Security Act (ERISA). Severe penalties are imposed on insurers that breach their
fiduciary duties to the plans under ERISA.
Certain
policies, contracts, and annuities offered by Protective and its insurance
subsidiaries are subject to regulation under the federal securities laws
administered by the Securities and Exchange Commission. The federal securities
laws contain regulatory restrictions and criminal, administrative, and private
remedial provisions.
A tax law change could adversely affect our ability to compete
with non-insurance products.
Under the
Internal Revenue Code of 1986, as amended, income tax payable by policyholders
on investment earnings is deferred during the accumulation period of certain
life insurance and annuity products. This favorable tax treatment may give
certain of Protective’s products a competitive advantage over other
non-insurance products. To the extent that the Internal Revenue Code is revised
to reduce the tax-deferred status of life insurance and annuity products, or to
increase the tax-deferred status of competing products, all life insurance
companies, including Protective and its subsidiaries, would be adversely
affected with respect to their ability to sell such products, and, depending on
grandfathering provisions, the surrenders of existing annuity contracts and life
insurance policies. In addition, life insurance products are often used to fund
estate tax obligations. If the estate tax was eliminated, the demand for certain
life insurance products would be adversely affected. Protective cannot predict
what future tax initiatives may be proposed which could affect Protective.
Financial Services companies are frequently the targets of
litigation, including class action litigation, which could result in substantial
judgements.
A number of
civil jury verdicts have been returned against insurers in the jurisdictions in
which Protective does business involving the insurers’ sales practices,
alleged agent misconduct, failure to properly supervise agents, and other
matters. Increasingly these lawsuits have resulted in the award of substantial
judgments against the insurer that are disproportionate to the actual damages,
including material amounts of punitive damages. In some states, including
Alabama (where Protective maintains its headquarters), juries have substantial
discretion in awarding punitive and non-economic compensatory damages, which
creates the potential for unpredictable material adverse judgments in any given
lawsuit. In addition, in some class action and other lawsuits involving
insurers’ sales practices, insurers have made material settlement payments.
Protective, like other financial services companies, in the ordinary course of
business, is involved in such litigation or, alternatively, in arbitration. The
outcome of any such litigation or arbitration cannot be predicted.
Our investments are subject to risks.
Certain of
Protective’s invested assets (including derivative financial instruments)
are subject to customary risks of defaults and changes in market values. The
value of Protective’s commercial mortgage portfolio depends in part on the
financial condition of the tenants occupying the properties which Protective has
financed. Factors that may affect the overall default rate on, and market value
of, Protective’s invested assets include interest rate levels, financial
market performance, and general economic conditions, as well as particular
circumstances affecting the businesses of individual borrowers and tenants.
Our growth from acquisitions involves risks.
Protective’s
acquisitions have increased its earnings in part by allowing Protective to enter
new markets and to position itself to realize certain operating efficiencies
associated with economies of scale. There can be no assurance, however, that
Protective will realize the anticipated financial results from its acquisitions,
or that suitable acquisitions, presenting opportunities for continued growth and
operating efficiencies, or capital to fund acquisition will continue to be
available to Protective.
We are dependent on the performance of others.
Protective’s
results may be affected by the performance of others because Protective has
entered into various ventures involving other parties. Examples include, but are
not limited to: many of Protective’s products are sold through independent
distribution channels; the Investment Products Division’s variable annuity
deposits are invested in funds managed by third parties; dental services are
performed by a contracted panel of independent dentists; and a portion of the
sales in the Individual Life, West Coast, and Financial Institutions Divisions
comes from arrangements with unrelated marketing organizations.
As with all
financial services companies, our ability to conduct business is dependent upon
consumer confidence in the industry and its products. Actions of competitors and
financial difficulties of other companies in the industry, could undermine
consumer confidence and adversely affect Protective.
Year 2000 computer compliance issues may adversely affect us.
Protective
shares computer hardware and software with its parent, Protective Life
Corporation (“PLC”), and other affiliates of PLC.
As of February
29, 2000, PLC and Protective have had no Year 2000 issues which have impaired
their operations. Although PLC believes it has made all of the modifications
necessary for its systems to process transactions dated beyond 1999, it is
possible that Year 2000 issues involving PLC or Protective or their suppliers
may emerge during 2000. Therefore, there can be no assurances that the Year 2000
issue will not otherwise adversely affect PLC or Protective.
Should some of
Protective’s systems become unavailable due to Year 2000 problems, in a
reasonable likely worst case scenario, Protective could experience delays in its
ability to perform certain functions, but does not expect an inability to
perform critical functions or to otherwise conduct business. However, other
worst case scenarios could have an adverse effect on Protective and its
operations.
Our reinsurance program involves risks.
Protective and
its insurance subsidiaries cede insurance to other insurance companies through
reinsurance. However, Protective remains liable with respect to ceded insurance
should any reinsurer fail to meet the obligations assumed by it. The cost of
reinsurance is, in some cases, reflected in the premium rates charged by
Protective. Under certain reinsurance agreements, the reinsurer may increase the
rate it charges Protective for the reinsurance, though Protective does not
anticipate increases to occur. Therefore, if the cost of reinsurance were to
increase or if reinsurance were to become unavailable, Protective could be
adversely affected.
Additionally,
Protective assumes policies of other insurers. Any regulatory or other adverse
development affecting the ceding insurer could also have an adverse effect on
Protective.
Forward-looking
statements express expectations of future events and/or results. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to these
inherent uncertainties, investors are urged not to place undue reliance on
forward-looking statements. In addition, Protective undertakes no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events, or changes to projections over time.
