At December 31, 2001, approximately $1,053.6 million of consolidated share-owner's equity, excluding net unrealized gains on investments, represented net assets of Protective and its subsidiaries that cannot be transferred to PLC in the form of dividends, loans, or advances. In addition, Protective and its subsidiaries are subject to various state statutory and regulatory restrictions on their ability to pay dividends to PLC. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as ordinary dividends to PLC by Protective in 2002 is estimated to be $99.0 million.
On October 1, 2001, Protective transferred its ownership interest in a small subsidiary to PLC. This transfer was recorded as a common dividend at an amount equal to Protective's basis in the subsidiary, which approximated fair value.
PLC owns all of the 2,000 shares of preferred stock issued by Protective's subsidiary, Protective Life and Annuity Insurance Company (PL&A). The stock pays, when and if declared, noncumulative participating dividends to the extent PL&A's statutory earnings for the immediately preceding fiscal year exceeded $1.0 million. In 2001, PL&A paid a $1.0 million preferred dividend to PLC. PL&A paid no preferred dividends during 2000 or 1999.
On August 6, 1990, PLC announced that its Board of Directors approved the formation of an Employee Stock Ownership Plan (ESOP). On December 1, 1990, Protective transferred to the ESOP 520,000 shares of PLC's common stock held by it in exchange for a note. The outstanding balance of the note, $4.5 million at December 31, 2001, is accounted for as a reduction to share-owner's equity. The stock will be used to match employee contributions to PLC's existing 401(k) Plan. The ESOP shares are dividend paying. Dividends on the shares are used to pay the ESOP's note to Protective.
Protective leases furnished office space and computers to affiliates. Lease revenues were $4.0 million in 2001, $4.0 million in 2000, and $3.7 million in 1999. Protective purchases data processing, legal, investment and management services from affiliates. The costs of such services were $82.6 million, $76.7 million, and $69.2 million in 2001, 2000, and 1999, respectively. Commissions paid to affiliated marketing organizations of $10.0 million, $12.0 million, and $11.4 million in 2001, 2000, and 1999, respectively, were included in deferred policy acquisition costs.
Certain corporations with which PLC's directors were affiliated paid Protective premiums and policy fees or other amounts for various types of insurance and investment products. Such premiums, policy fees, and other amounts totaled $19.6 million, $50.9 million and $70.3 million in 2001, 2000, and 1999, respectively. Protective and/or PLC paid commissions, interest on debt and investment products, and fees to these same corporations totaling $5.9 million, $28.2 million and $16.7 million in 2001, 2000, and 1999, respectively.
For a discussion of indebtedness to related parties, see Note E.
Protective operates business segments each having a strategic focus which can be grouped into three general categories: life insurance, retirement savings and investment products and specialty insurance products. An operating segment is generally distinguished by products and/or channels of distribution. A brief description of each division follows.
The Life Marketing segment markets level premium term and term-like insurance, universal life, and variable universal life products on a national basis primarily through networks of independent insurance agents and brokers, and in the "bank owned life insurance" market.
The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment's primary focus is on life insurance policies sold to individuals.
Note K-- OPERATING SEGMENTS - (Continued)
Retirement Savings and Investment Products
The Stable Value Contracts segment markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans. The segment also markets fixed and floating rate funding agreements to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds.
The Annuities segment manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and the Life Marketing segment's sales force.
Specialty Insurance Products
The Credit Products segment markets credit life and disability insurance products through banks, consumer finance companies, and automobile dealers, and markets vehicle and recreational marine extended service contracts.
Corporate and Other
Protective has an additional business segment herein referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on unallocated capital and interest on substantially all debt). This segment also includes earning from several lines of business which Protective is not actively marketing (mostly cancer insurance and group annuities).
Protective uses the same accounting policies and procedures to measure operating segment income and assets as it uses to measure its consolidated net income and assets. Operating segment income is generally income before income tax. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of deferred policy acquisition costs are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner which most appropriately reflects the operations of that segment. Unallocated realized investment gains (losses) are deemed not to be associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
The following table sets forth total operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses), the recognition of income tax expense, income from discontinued operations, and cumulative effect of change in accounting principle. Asset adjustments represent the inclusion of assets related to discontinued operations.
In December 2001, Protective sold substantially all of its Dental Division and discontinued other Dental related operations. Additionally, other adjustments were made to combine its life insurance marketing operations into a single segment, and to reclassify certain smaller businesses. Prior period segment results have been restated to reflect these changes.
LIFE INSURANCE
----------------------------------
LIFE
OPERATING SEGMENT INCOME MARKETING ACQUISITIONS
- ----------------------------------------------------------------------------------------------------------
2001
Gross premiums and policy fees $ 542,407 $ 243,914
Reinsurance ceded (421,411) (61,482)
- ----------------------------------------------------------------------------------------------------------
Net premium and policy fees 120,996 182,432
Net investment income 178,866 187,535
Realized investment gains (losses) - -
Other income 1,134 345
- ----------------------------------------------------------------------------------------------------------
Total revenues 300,996 370,312
- ----------------------------------------------------------------------------------------------------------
Benefits and settlement expenses 190,538 238,877
Amortization of deferred policy acquisition costs and goodwill 41,399 20,500
Other operating expenses (22,957) 41,684
- ----------------------------------------------------------------------------------------------------------
Total benefits and expenses 208,980 301,061
- ----------------------------------------------------------------------------------------------------------
Income from continuing operations before income tax 92,016 69,251
Income tax expense
Discontinued operations, net of income tax
Change in accounting principle, net of income tax
- ----------------------------------------------------------------------------------------------------------
Net income
- ----------------------------------------------------------------------------------------------------------
2000
Gross premiums and policy fees $ 487,720 $ 134,099
Reinsurance ceded (387,907) (31,102)
- ----------------------------------------------------------------------------------------------------------
Net premium and policy fees 99,813 102,997
Net investment income 152,317 116,940
Realized investment gains (losses) - -
Other income (1,379) (4)
- ----------------------------------------------------------------------------------------------------------
Total revenues 250,751 219,933
- ----------------------------------------------------------------------------------------------------------
Benefits and settlement expenses 149,430 125,151
Amortization of deferred policy acquisition costs and goodwill 48,770 17,081
Other operating expenses (23,255) 24,077
- ----------------------------------------------------------------------------------------------------------
Total benefits and expenses 174,945 166,309
- ----------------------------------------------------------------------------------------------------------
Income from continuing operations before income tax 75,806 53,624
Income tax expense
Discontinued operations, net of income tax
Change in accounting principle, net of income tax
- ----------------------------------------------------------------------------------------------------------
Net income
- ----------------------------------------------------------------------------------------------------------
1999
Gross premiums and policy fees $ 361,824 $ 148,620
Reinsurance ceded (246,111) (33,754)
- ----------------------------------------------------------------------------------------------------------
Net premium and policy fees 115,713 114,866
Net investment income 138,044 129,806
Realized investment gains (losses) - -
Other income (948) (9)
- ----------------------------------------------------------------------------------------------------------
Total revenues 252,809 244,663
- ----------------------------------------------------------------------------------------------------------
Benefits and settlement expenses 147,631 129,581
Amortization of deferred policy acquisition costs and goodwill 29,481 19,444
Other operating expenses 18,201 31,178
- ----------------------------------------------------------------------------------------------------------
Total benefits and expenses 195,313 180,203
- ----------------------------------------------------------------------------------------------------------
Income from continuing operations before income tax 57,496 64,460
Income tax expense
Discontinued operations, net of income tax
Change in accounting principle, net of income tax
- ----------------------------------------------------------------------------------------------------------
Net income
- ----------------------------------------------------------------------------------------------------------
Operating Segment Assets
2001
Investments and other assets $3,431,441 $4,091,672
Deferred policy acquisition costs and goodwill 829,021 418,268
- ----------------------------------------------------------------------------------------------------------
Total assets $4,260,462 $4,509,940
- ----------------------------------------------------------------------------------------------------------
2000
Investments and other assets $2,834,956 $1,602,352
Deferred policy acquisition costs and goodwill 710,468 222,620
- ----------------------------------------------------------------------------------------------------------
Total assets $3,545,424 $1,824,972
- ----------------------------------------------------------------------------------------------------------
(1)Adjustments to net income represent the inclusion of unallocated realized investment gains (losses) and the
recognition of income tax expense, income from discontinued operations, and cumulative effect of change in
accounting principle. Asset adjustments represent the inclusion of assets related to discontinued operations.
SPECIALTY
RETIREMENT SAVINGS AND INSURANCE PRODUCTS
INVESTMENT PRODUCTS
----------------------------------------------------------------------------------------------------------
STABLE VALUE CREDIT CORPORATE TOTAL
CONTRACTS ANNUITIES PRODUCTS AND OTHER ADJUSTMENTS (1) CONSOLIDATED
----------------------------------------------------------------------------------------------------------
- $ 28,145 $ 524,281 $ 51,072 - $ 1,389,819
- (274,220) (14,038) - (771,151)
-
----------------------------------------------------------------------------------------------------------
- 28,145 250,061 37,034 - 618,668
$ 261,079 167,809 48,617 (4,803) - 839,103
7,218 1,139 - - $ (16,198) (7,841)
- 3,441 31,907 1,751 - 38,578
----------------------------------------------------------------------------------------------------------
268,297 200,534 330,585 33,982 (16,198) 1,488,508
----------------------------------------------------------------------------------------------------------
222,306 137,204 154,893 28,806 - 972,624
1,662 24,021 60,508 1,795 - 149,885
3,961 24,073 79,453 25,827 - 152,041
----------------------------------------------------------------------------------------------------------
227,929 185,298 294,854 56,428 - 1,274,550
----------------------------------------------------------------------------------------------------------
40,368 15,236 35,731 (22,446) (16,198) 213,958
70,457 70,457
(28,502) (28,502)
(8,341) (8,341)
----------------------------------------------------------------------------------------------------------
$ 106,658
----------------------------------------------------------------------------------------------------------
- $ 30,127 $ 479,397 $ 44,600 - $ 1,175,943
- - (258,931) (8,168) - (686,108)
----------------------------------------------------------------------------------------------------------
- 30,127 220,466 36,432 - 489,835
$ 243,133 132,204 46,464 1,023 - 692,081
(6,556) 410 - - $ (8,453) (14,599)
- 2,809 28,352 5,416 - 35,194
----------------------------------------------------------------------------------------------------------
236,577 165,550 295,282 42,871 (8,453) 1,202,511
----------------------------------------------------------------------------------------------------------
207,143 109,607 135,494 33,953 - 760,778
900 24,156 52,646 2,141 - 145,694
3,882 18,203 72,316 26,194 - 121,417
----------------------------------------------------------------------------------------------------------
211,925 151,966 260,456 62,288 - 1,027,889
----------------------------------------------------------------------------------------------------------
24,652 13,584 34,826 (19,417) (8,453) 174,622
61,478 61,478
10,891 10,891
- -
----------------------------------------------------------------------------------------------------------
$ 124,035
----------------------------------------------------------------------------------------------------------
- $ 24,248 $ 284,891 $ 41,438 - $ 861,021
- - (176,928) (5,504) - (462,297)
----------------------------------------------------------------------------------------------------------
- 24,248 107,963 35,934 - 398,724
$ 210,208 106,599 24,121 9,051 - 617,829
(549) 1,446 - - $ 3,863 4,760
- 2,146 15,831 5,579 - 22,599
----------------------------------------------------------------------------------------------------------
209,659 134,439 147,915 50,564 3,863 1,043,912
----------------------------------------------------------------------------------------------------------
175,290 88,642 55,899 32,613 - 629,656
744 19,820 24,718 2,482 - 96,689
4,709 14,617 44,728 17,521 - 130,954
----------------------------------------------------------------------------------------------------------
180,743 123,079 125,345 52,616 - 857,299
----------------------------------------------------------------------------------------------------------
28,916 11,360 22,570 (2,052) 3,863 186,613
67,991 67,991
9,636 9,636
- -
----------------------------------------------------------------------------------------------------------
$ 128,258
----------------------------------------------------------------------------------------------------------
$3,872,637 $4,501,667 $1,050,546 $955,984 $109,881 $18,013,828
6,374 128,488 177,874 8,650 1,568,675
----------------------------------------------------------------------------------------------------------
$3,879,011 $4,630,155 $1,228,420 $964,634 $109,881 $19,582,503
----------------------------------------------------------------------------------------------------------
$3,340,099 $3,844,169 $1,220,733 $552,178 $200,850 $13,595,337
2,144 120,219 150,984 10,006 214,770 1,431,211
----------------------------------------------------------------------------------------------------------
$3,342,243 $3,964,388 $1,371,717 $562,184 $415,620 $15,026,548
----------------------------------------------------------------------------------------------------------
Note L-- EMPLOYEE BENEFIT PLANS
PLC has a defined benefit pension plan covering substantially all of its employees. The plan is not separable by affiliates participating in the plan. However, approximately 86% of the participants in the plan are employees of Protective. The benefits are based on years of service and the employee’s highest thirty-six consecutive months of compensation. PLC’s funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements of ERISA plus such additional amounts as PLC may determine to be appropriate from time to time. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.
The actuarial present value of benefit obligations and the funded status of the plan taken as a whole at December 31 are as follows:
2001 2000
---- ----
Projected benefit obligation, beginning of the year..................... $45,538 $36,530
Service cost - benefits earned during the year.......................... 3,739 3,338
Interest cost - on projected benefit obligation......................... 3,531 3,195
Actuarial gain (loss)................................................... (357) 1,968
Plan amendment.......................................................... 1,162 833
Divestiture............................................................. (2,165)
Benefits paid........................................................... (579) (326)
-------- --------
Projected benefit obligation, end of the year........................... 50,869 45,538
-------- --------
Fair value of plan assets beginning of the year......................... 40,822 34,420
Actual return on plan assets............................................ (1,440) (148)
Employer contribution................................................... 5,221 6,876
Benefits paid........................................................... (579) (326)
-------- --------
Fair value of plan assets end of the year............................... 44,024 40,822
-------- --------
Plan assets less than the projected benefit obligation.................. (6,845) (4,716)
Unrecognized net actuarial loss from past experience different from that
assumed................................................................ 10,213 7,766
Unrecognized prior service cost......................................... 2,026 1,226
-------- ---------
Net pension asset recognized in balance sheet........................... $ 5,394 $ 4,276
======== =========
Net pension cost of the defined benefit pension plan includes the following components for the years ended December 31:
2001 2000 1999
---- ---- ----
Service cost............................... $ 3,739 $ 3,338 $ 3,270
Interest cost.............................. 3,531 3,195 2,779
Expected return on plan assets............. (3,669) (3,049) (2,348)
Amortization of prior service cost......... 176 176 115
Amortization of transition asset........... (17) (17)
Amortization of losses..................... 141
Recognized net actuarial loss.............. 494
Cost of divestiture........................ 186
------- ------- -------
Net pension cost........................... $ 4,104 $ 3,643 $ 4,293
======= ======= =======
Protective's share of the net pension cost was approximately $5.4 million, $4.1 million, and $3.6 million, in 2001, 2000, and 1999, respectively.
Assumptions used to determine the benefit obligations as of December 31 were as follows:
2001 2000 1999
---- ---- ----
Weighted average discount rate................... 7.25% 7.50% 8.00%
Rates of increase in compensation level.......... 5.00 5.25 5.75
Expected long-term rate of return on assets...... 8.50 8.50 8.50
At December 31, 2001 approximately $7.2 million of the assets of the pension plan were in a group annuity contract with Protective and therefore are included in the general assets of Protective. Approximately $36.8 million of the assets of the pension plan are invested in a collective trust managed by Northern Trust Corporation.
Note L-- EMPLOYEE BENEFIT PLANS (Continued)
Prior to July 1999, upon retirement, the amount of pension plan assets vested in the retiree were used to purchase a single premium annuity from Protective in the retiree’s name. Therefore, amounts presented above as plan assets exclude assets relating to such retirees. Beginning July 1999, retiree obligations are being fulfilled from pension plan assets.
PLC also sponsors an unfunded excess benefits plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed by federal income tax law. At December 31, 2001 and 2000, the projected benefit obligation of this plan totaled $15.9 million and $14.4 million, respectively, of which $13.8 million and $10.5 million, respectively, have been recognized in PLC’s financial statements.
Net pension costs of the excess benefits plan includes the following components for the years ended December 31:
2001 2000 1999
---- ---- ----
Service cost............................................. $ 686 $ 736 $ 695
Interest cost............................................ 1,121 1,067 887
Amortization of prior service cost....................... 19 19 113
Amortization of transition asset......................... 37 37 37
Recognized net actuarial loss............................ 233 194 265
Cost of divestiture and special termination benefits..... 1,807
------ ------ ------
Net pension cost....................................... $3,903 $2,053 $1,997
====== ====== ======
In addition to pension benefits, PLC provides limited healthcare benefits to eligible retired employees until age 65. The postretirement benefit is provided by an unfunded plan. At December 31, 2001 and 2000, the liability for such benefits was approximately $1.2 million. The expense recorded by PLC was $0.1 million in 2001, 2000 and 1999. PLC's obligation is not materially affected by a 1% change in the healthcare cost trend assumptions used in the calculation of the obligation.
Life insurance benefits for retirees are provided through the purchase of life insurance policies upon retirement from $10,000 up to a maximum of $75,000. This plan is partially funded at a maximum of $50,000 face amount of insurance.
PLC sponsors a defined contribution retirement plan which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code. PLC established an Employee Stock Ownership Plan (ESOP) to match voluntary employee contributions to PLC's 401(k) Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees who are not otherwise under a bonus or sales incentive plan. Expense related to the ESOP consists of the cost of the shares allocated to participating employees plus the interest expense on the ESOP's note payable to Protective less dividends on shares held by the ESOP. At December 31, 2001, PLC had committed approximately 166,861 shares to be released to fund employee benefits. The expense recorded by PLC for these employee benefits was less than $0.1 million in 2001, 2000, and 1999.
PLC sponsors a deferred compensation plan for certain directors, officers, agents, and others. Compensation deferred is credited to the participants in cash, PLC Common Stock, or as a combination thereof.
Note M-- STOCK BASED COMPENSATION
Certain Protective employees participate in PLC's stock-based incentive plans and receive stock appreciation rights (SARs) from PLC.
Since 1973, PLC has had stock-based incentive plans to motivate management to focus on PLC's long-range performance through the awarding of stock-based compensation. Under plans approved by share owners in 1997 and 1998, up to 5,000,000 shares may be issued in payment of awards.
The criteria for payment of performance awards is based upon a comparison of PLC's average return on average equity and total rate of return over a four year award period (earlier upon the death, disability, or retirement of the executive, or in certain circumstances, of a change in control of PLC) to that of a comparison group of publicly held life and multiline insurance companies. If PLC's results are below the median of the comparison group, no portion of the award is earned. If PLC's results are at or above the 90th percentile, the award maximum is earned.
Note M-- STOCK BASED COMPENSATION (Continued)
In 1999, 99,380 performance shares were awarded, having an estimated fair value on the grant date of $3.4 million. In 2000, 3,330 performance shares and 513,618 stock appreciation rights (SARs) were awarded, having a combined estimated fair value on the grant date of $3.7 million. In 2001, 153,490 performance shares and 40,000 SARs were awarded, having a combined estimated fair value on the grant date of $4.9 million. The SARs, if earned, expire after ten years.
A performance share is equivalent in value to one share of PLC Common Stock. With respect to SARs, PLC will pay an amount equal to the difference between the specified base price of PLC's Common Stock and the market value at the exercise date. Awards are paid in shares of PLC Common Stock. At December 31, 2002, outstanding awards measured at maximum payouts were 423,362 performance shares and 853,236 SARs.
During 1996, 2000, and 2001, SARs were granted to certain officers of PLC to provide long-term incentive compensation based solely on the performance of PLC's Common Stock. The SARs are exercisable after five years (earlier upon the death, disability, or retirement of the officer, or in certain circumstances, of a change in control of PLC) and expire after ten years or upon termination of employment. In 2000, 217,500 SARs were awarded, having an estimated fair value on the grant date of $1.5 million. In 2001, 62,500 SARs were awarded, having an estimated fair value on the grant date of $0.6 million. The number of SARs granted in 1996, 2000, and 2001, outstanding at December 31, 2001, was 660,000, 215,000, and 62,500, respectively.
The 1996 SARs have a base price of $17.4375. The 2000 SARs have a base price of $22.31. The 2001 SARs have a base price of $31.26 and $31.29. The fair value of the 2001 SARs was estimated using a Black-Scholes option pricing model. Assumptions used in the model were as follows: expected volatility of 26.4% (approximately equal to that of the S&P Life Insurance Index), a risk-free interest rate of 4.7%, a dividend rate of 1.9%, and an expected exercise date of 2007.
The expense recorded by PLC for its stock-based compensation plans was $5.6 million, $4.1 million, and $4.0 million in 2001, 2000, and 1999, respectively.
Note N-- REINSURANCE
Protective reinsures certain of its risks with, and assumes risks from other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Under yearly renewable term agreements, Protective generally pays specific premiums to the reinsurer and receives specific amounts from the reinsurer as reimbursement for certain expenses. Coinsurance agreements are accounted for by passing a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate part of the premiums less commissions and is liable for a corresponding part of all benefit payments. Modified coinsurance is accounted for similarly to coinsurance except that the liability for future policy benefits is held by the original company, and settlements are made on a net basis between the companies. A substantial portion of Protective's new life insurance sales are being reinsured. Protective reviews the financial condition of its reinsurers and monitors the amount of reinsurance it has with its reinsurers.
Protective has reinsured approximately $169.5 billion, $126.0 billion and $93.5 billion in face amount of life insurance risks with other insurers representing $565.1 million, $496.4 million, and $364.7 million of premium income for 2001, 2000, and 1999, respectively. Protective has also reinsured accident and health risks representing $122.7 million, $125.8 million, and $97.1 million of premium income for 2001, 2000, and 1999, respectively. In 2001 and 2000, policy and claim reserves relating to insurance ceded of $2,059.0 million and $988.4 million, respectively, are included in reinsurance receivables. Should any of the reinsurers be unable to meet its obligation at the time of the claim, obligation to pay such claim would remain with Protective. At December 31, 2001 and 2000, Protective had paid $46.4 million and $33.5 million, respectively, of ceded benefits which are recoverable from reinsurers. In addition, at December 31, 2001, Protective had receivables of $69.3 million related to insurance assumed. Included in these receivables are $51.2 million related to the sale of Protective's Dental Division, and $783.9 million related to fixed annuities that were ceded in conjunction with the October 2001 acquisition of two small insurers.
Note O-- ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of Protective’s financial instruments at December 31 are as follows:
2001 2000
----------------------------- -----------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUES AMOUNT VALUES
---------- ----------- ---------- ------------
Assets (see Notes A and C):
Investments:
Fixed maturities......................... $9,812,091 $9,812,091 $7,390,110 $7,390,110
Equity securities........................ 60,493 60,493 41,792 41,792
Mortgage loans on real estate............ 2,512,844 2,671,074 2,268,224 2,385,174
Short-term investments................... 228,396 228,396 172,699 172,699
Liabilities (see Notes A and E):
Stable value account balances............ 3,716,530 3,821,955 3,177,863 3,250,991
Annuity account balances................. 3,248,218 3,166,052 1,916,894 1,893,749
Notes payable............................ 2,291 2,291 2,315 2,315
Other (see Note A):
Derivative Financial Instruments......... (1,634) (1,634) (6,079) (13,011)
Except as noted below, fair values were estimated using quoted market prices.
Protective estimates the fair value of its mortgage loans using discounted cash flows from the next call date.
Protective believes the fair value of its short-term investments and notes payable to banks approximates book value due to either being short-term or having a variable rate of interest.
Protective estimates the fair value of its guaranteed investment contracts and annuities using discounted cash flows and surrender values, respectively.
Protective believes it is not practicable to determine the fair value of its policy loans since there is no stated maturity, and policy loans are often repaid by reductions to policy benefits.
Protective estimates the fair value of its derivative financial instruments using market quotes or derivative pricing models. The fair value represents the net amount of cash Protective would have received (or paid) had the contracts been terminated on December 31.
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(in thousands)
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H COL. I COL. J
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
GIC, ANNUITY AMORTIZATION
DEFERRED DEPOSITS AND OF DEFERRED
POLICY FUTURE POLICY OTHER NET PREMIUMS NET BENEFITS AND POLICY OTHER
ACQUISITION BENEFITS AND UNEARNED POLICYHOLDERS' AND POLICY INVESTMENT SETTLEMENT ACQUISITIONS OPERATING
SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES INCOME(1) EXPENSES COSTS EXPENSES(1)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Year Ended
December 31, 2001:
Life Marketing $ 829,021 $3,326,841 $ 303 $ 86,937 $120,996 $178,866 $190,538 $ 41,399 $ (22,957)
Acquisitions 418,268 3,046,401 434 876,221 182,432 187,535 238,877 20,500 41,684
Stable Value Contracts 6,374 - - 3,872,637 0 261,079 222,306 1,662 3,961
Annuities 128,488 281,074 - 2,232,779 28,145 167,809 137,204 24,021 24,073
Credit Products 141,882 211,713 898,340 3,856 250,061 48,617 154,893 57,681 82,280
Corporate and Other 8,650 16,572 2,242 247 37,034 (4,803) 28,806 1,795 25,827
Adjustments(2) 0 92,084 334 24,195 0 0 0 0 0
---------- ---------- -------- ---------- -------- -------- -------- -------- --------
TOTAL $1,532,683 $6,974,685 $901,653 $7,096,872 $618,668 $839,103 $972,624 $147,058 $154,868
========== ========== ======== ========== ======== ======== ======== ======== ========
Year Ended
December 31, 2000:
Life Marketing $ 710,468 $2,753,191 $ 334 $ 102,305 $ 99,813 $152,317 $149,430 $ 48,771 $ (23,255)
Acquisitions 222,620 1,364,830 484 238,465 102,997 116,940 125,151 17,081 24,077
Stable Value Contracts 2,144 162,236 - 3,177,863 - 243,133 207,143 900 3,882
Annuities 120,219 306,021 - 1,633,203 30,127 132,204 109,607 24,156 18,203
Credit Products 112,135 293,253 929,943 3,901 220,466 46,464 135,494 50,132 74,830
Corporate and Other 10,006 40,588 2,242 129 36,432 1,024 33,953 2,140 26,196
Adjustments(2) 11,788 113,278 2,602 64,227 0 0 0 0 0
---------- ---------- -------- ---------- -------- -------- -------- -------- --------
TOTAL $1,189,380 $5,033,397 $935,605 $5,220,093 $489,835 $692,082 $760,778 $143,180 $123,933
========== ========== ======== ========== ======== ======== ======== ======== ========
Year Ended
December 31, 1999:
Life Marketing $115,713 $138,044 $147,631 $ 29,481 $ 18,201
Acquisitions 114,866 129,806 129,581 19,444 31,178
Stable Value Contracts - 210,208 175,290 744 4,709
Annuities 24,248 106,599 88,642 19,820 14,617
Credit Products 107,963 24,121 55,899 24,718 44,728
Corporate and Other 35,934 9,051 32,613 2,482 17,521
Adjustments 0 0 0 0 0
-------- -------- -------- --------- --------
TOTAL $398,724 $617,829 $629,656 $ 96,689 $130,954
======== ======== ======== ========= ========
(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.
(2) Asset adjustments represent the inclusion of assets related to discontinued operations.
SCHEDULE IV - REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------------ ------------ ----------- ------------ --------
Year Ended December 31, 2001:
Life insurance in force........................... $191,105,511 $171,449,182 $23,152,614 $42,808,143 54.1%
============ ============ =========== =========== =====
Premiums and policy fees:
Life insurance.................................... $ 774,294 $ 565,130 $ 198,832 $ 407,996 48.7%
Accident and health insurance..................... 181,508 122,747 58,761 0.0%
Property and liability insurance.................. 158,890 83,274 76,295 151,911 50.2%
------------ ------------ ----------- -----------
TOTAL........................................... $ 1,114,692 $ 771,151 $ 275,127 $ 618,668
============ ============ =========== ===========
Year Ended December 31, 2000:
Life insurance in force........................... $153,371,754 $128,374,583 $17,050,342 $42,047,513 40.6%
============ ============ =========== ===========
Premiums and policy fees:
Life insurance.................................... $ 670,113 $ 493,793 $ 112,668 $ 288,988 39.0%
Accident and health insurance..................... 203,475 128,520 17,164 92,119 18.6%
Property and liability insurance.................. 159,354 63,795 13,169 108,728 12.1%
------------ ------------ ----------- -----------
TOTAL......................................... $ 1,032,942 $ 686,108 $ 143,001 $ 489,835
============ ============ =========== ===========
Year Ended December 31, 1999:
Life insurance in force........................... $112,726,959 $ 92,566,755 $17,089,627 $37,249,831 45.9%
============ ============ =========== ===========
Premiums and policy fees:
Life insurance.................................... $ 530,728 $ 368,139 $ 130,368 $ 292,957 44.5%
Accident and health insurance..................... 153,812 93,657 11,893 72,048 16.5%
Property and liability insurance.................. 34,109 501 111 33,719 0.3%
------------ ------------ ----------- -----------
TOTAL......................................... $ 718,649 $ 462,297 $ 142,372 $ 398,724
============ ============ =========== ===========
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Not required in accordance with General Instruction I(2)(c).
Item 11. Executive Compensation
Not required in accordance with General Instruction I(2)(c).
Item 12. Security Ownership of Certain Beneficial Owners and Management
Not required in accordance with General Instruction I(2)(c).
Item 13. Certain Relationships and Related Transactions
Not required in accordance with General Instruction I(2)(c).
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 (Item 8)
2. Financial Statement Schedules (see index annexed)
3. Exhibits:
The exhibits listed in the Exhibit Index on page 46 of this Form 10-K are filed herewith or are incorporated herein by reference. No management contract or compensatory plan or arrangement is required to be filed as an exhibit to this form. The Registrant will furnish a copy of any of the exhibits listed upon the payment of $5.00 per exhibit to cover the cost of the Registrant in furnishing the exhibit.
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Birmingham, State of Alabama on April 1, 2002.
| PROTECTIVE LIFE INSURANCE COMPANY |
|---|
| BY/s/John D. Johns |
| President |
Dated: April 1, 2002
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE Title DATE
(i) Principal Executive Officer
/S/JOHN D. JOHNS President and Chief Executive Officer April 1, 2002
---------------------- (Principal Executive Officer) and Director
John D. Johns
(ii) Principal Financial Officer
/S/ALLEN W. RITCHIE Executive Vice President, April 1, 2002
----------------------- and Chief Financial Officer and Director
Allen W. Ritchie
(iii) Principal Accounting Officer
/S/JERRY W. DEFOOR Vice President and Controller, April 1, 2002
----------------------- and Chief Accounting Officer
Jerry W. DeFoor
(iv) Board of Directors:
* Director April 1, 2002
-----------------------
Richard J. Bielen
* Director April 1, 2002
-----------------------
R. Stephen Briggs
* Director April 1, 2002
-----------------------
J. William Hamer, Jr.
* Director April 1, 2002
----------------------
T. Davis Keyes
* Director April 1, 2002
----------------------
Carolyn King
* Director April 1, 2002
----------------------
Deborah J. Long
* Director April 1, 2002
----------------------
Jim E. Massengale
* Director April 1, 2002
----------------------
Steven A. Schultz
* Director April 1, 2002
----------------------
Wayne E. Stuenkel
| *BY/s/JERRY W. DEFOOR | |
| Jerry W. DeFoor | |
| Attorney-in-fact | |
EXHIBIT INDEX
ITEM
NUMBER DOCUMENT
------ --------
**** 2 - Stock Purchase Agreement
* 3(a) - Articles of Incorporation
* 3(b) - By-laws
** 4(a) - Group Modified Guaranteed Annuity Contract
*** 4(b) - Individual Certificate
** 4(c) - Tax-Sheltered Annuity Endorsement
** 4(d) - Qualified Retirement Plan Endorsement
** 4(e) - Individual Retirement Annuity Endorsement
** 4(f) - Section 457 Deferred Compensation Plan Endorsement
* 4(g) - Qualified Plan Endorsement
** 4(h) - Application for Individual Certificate
** 4(i) - Adoption Agreement for Participation in Group Modified Guaranteed
Annuity
*** 4(j) - Individual Modified Guaranteed Annuity Contract
** 4(k) - Application for Individual Modified Guaranteed Annuity Contract
** 4(l) - Tax-Sheltered Annuity Endorsement
** 4(m) - Individual Retirement Annuity Endorsement
** 4(n) - Section 457 Deferred Compensation Plan Endorsement
** 4(o) - Qualified Retirement Plan Endorsement
**** 4(p) - Endorsement - Group Policy
**** 4(q) - Endorsement - Certificate
**** 4(r) - Endorsement - Individual Contract
**** 4(s) - Endorsement (Annuity Deposits) - Group Policy
**** 4(t) - Endorsement (Annuity Deposits) - Certificate
**** 4(u) - Endorsement (Annuity Deposits) - Individual Contracts
***** 4(v) - Endorsement - Individual
***** 4(w) - Endorsement - Group Contract/Certificate
****** 4(x) - Endorsement (96) - Individual
****** 4(y) - Endorsement (96) - Group Contract
****** 4(z) - Endorsement (96) - Group Certificate
****** 4(aa) - Individual Modified Guaranteed Annuity Contract (96)
******* 4(bb) - Settlement Endorsement
******** 4(cc) - Cancellation Endorsement
* 10(a) - Bond Purchase Agreement
* 10(b) - Escrow Agreement
* 10(c) - Excess Benefit Plan amended and restated as of July 1, 2001.
* 10(d) - Form of Indemnity Agreement for Directors filed as Exhibit 19.1 to the
Company's Form 10-Q Quarterly Report filed August 14, 1986.
10(e) - Stock and Asset Purchase Agreement By and Among Protective Life
Corporation, Protective Life Insurance Company, Fortis, Inc. and Dental
Care Holdings, Inc. dated July 9, 2001.
10(f) - Indemnity Reinsurance Agreement By and Between Protective Life
Insurance Company and Fortis Benefits Insurance Company dated
December 31, 2001.
24 - Power of Attorney
99 - Safe Harbor for Forward-Looking Statements
* Previously filed or incorporated by reference in Form S-1 Registration Statement,
Registration No. 33-31940.
** Previously filed or incorporated by reference in Amendment No. 1 to Form S-1
Registration Statement, Registration No. 33-31940.
*** Previously filed or incorporated by reference from Amendment No. 2 to Form S-1
Registration Statement, Registration No. 33-31940.
**** Previously filed or incorporated by reference from Amendment No. 2 to Form S-1 Registration Statement,
Registration No. 33-57052.
***** Previously filed or incorporated by reference from Amendment No. 3 to Form S-1
Registration Statement, Registration No. 33-57052.
****** Previously filed or incorporated by reference from S-1 Registration Statement,
Registration No. 333-02249.
******* Previously filed or incorporated by reference from Amendment No. 1 to Form S-1
Registration Statement, Registration No. 333-02249.
******** Previously filed or incorporated by reference in Form S-1 Registration Statement,
Registration No. 333-32784.
