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FORM 10-Q
------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Numbers 33-31940; 33-39345; 33-57052; 333-02249
PROTECTIVE LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
TENNESSEE 63-0169720
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(Address of principal executive offices and zip code)
(205) 879-9230
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Number of shares of Common Stock,$1.00 par value, outstanding as of November 7,
1997: 5,000,000 shares.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A) AND
(B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
PROTECTIVE LIFE INSURANCE COMPANY
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Report of Independent Accountants...................................
Consolidated Condensed Statements of Income for the Three and Nine
Months ended September 30, 1997 and 1996 (unaudited)..............
Consolidated Condensed Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996.................................
Consolidated Condensed Statements of Cash Flows for the
Nine Months ended September 30, 1997 and 1996 (unaudited).........
Notes to Consolidated Condensed Financial Statements (unaudited)....
Item 2. Management's Narrative Analysis of the Results of Operations...
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K.................................
Signature...................................................................
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholder
Protective Life Insurance Company
Birmingham, Alabama
We have reviewed the accompanying consolidated condensed balance sheet of
Protective Life Insurance Company and subsidiaries as of September 30, 1997, and
the related consolidated condensed statements of income for the three-month and
nine-month periods ended September 30, 1997 and 1996, and consolidated condensed
statements of cash flows for the nine-month periods ended September 30, 1997 and
1996. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of income, stockholder's equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
11, 1997, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 31, 1996, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
October 23, 1997
2
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- -----
REVENUES
Premiums and policy fees (net of reinsurance ceded:
three months: 1997 - $95,507; 1996 - $81,453
nine months: 1997 - $221,292; 1996 - $247,988) $104,833 $110,310 $333,703 $343,111
Net investment income 149,452 124,516 405,245 369,280
Realized investment gains 61 861 1,781 5,882
Other income 893 902 2,381 4,100
---------- ----------- --------- ----------
255,239 236,589 743,110 722,373
-------- --------- -------- --------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
three months: 1997 - $51,059; 1996 - $64,420
nine months: 1997 - $93,780; 1996 - $182,201) 157,407 157,931 479,560 466,692
Amortization of deferred policy acquisition costs 28,488 18,822 67,517 70,162
Other operating expenses (net of reinsurance ceded
three months: 1997 - $26,459; 1996 - $24,368
nine months: 1997 - $63,086; 1996 - $67,183) 26,225 32,031 82,692 95,746
--------- --------- ---------- ---------
212,120 208,784 629,769 632,600
-------- --------- --------- ---------
INCOME BEFORE INCOME TAX 43,119 27,805 113,341 89,773
Income tax expense 14,433 9,494 38,888 30,647
--------- ---------- --------- ---------
NET INCOME $ 28,686 $ 18,311 $ 74,453 $ 59,126
========= ========= ========= =========
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30 DECEMBER 31
1997 1996
--------------- -------------
(Unaudited)
ASSETS
Investments:
Fixed maturities $ 6,131,512 $4,662,997
Equity securities 18,620 35,250
Mortgage loans on real estate 1,262,509 1,503,781
Investment in real estate, net 14,637 14,172
Policy loans 194,190 166,704
Other long-term investments 58,217 29,193
Short-term investments 177,346 101,215
------------- -----------
Total investments 7,857,031 6,513,312
Cash 0 114,384
Accrued investment income 90,558 70,541
Accounts and premiums receivable, net 38,877 43,469
Reinsurance receivables 473,521 332,614
Deferred policy acquisition costs 630,191 488,201
Property and equipment, net 36,875 35,489
Other assets 22,111 14,636
Assets held in separate accounts 880,083 550,697
------------- -----------
$10,029,247 $8,163,343
=========== ==========
LIABILITIES
Policy liabilities and accruals $ 3,580,404 $2,706,002
Guaranteed investment contract deposits 2,784,252 2,474,728
Annuity deposits 1,481,726 1,331,067
Other policyholders' funds 170,051 142,221
Other liabilities 164,811 117,847
Accrued income taxes 24,168 1,854
Deferred income taxes 38,622 37,722
Indebtedness to related parties 23,268 25,014
Liabilities related to separate accounts 880,083 550,697
------------- -----------
9,147,385 7,387,152
------------ ----------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B
STOCKHOLDER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and
issued: 2,000, liquidation preference $2,000 2 2
Common Stock, $1 par value
Shares authorized and issued: 5,000,000 5,000 5,000
Additional paid-in capital 237,992 237,992
Net unrealized gains on investments
(net of income tax: 1997 -$22,139; 1996 - $3,601) 37,754 6,688
Retained earnings 606,491 532,088
Note receivable from PLC
Employee Stock Ownership Plan (5,377) (5,579)
------------- ------------
881,862 776,191
------------ -----------
$10,029,247 $8,163,343
=========== ==========
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $74,453 $59,126
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred policy acquisition costs 67,517 70,162
Capitalization of deferred policy acquisition costs (88,403) (70,146)
Depreciation expense 1,714 3,997
Deferred income tax (17,639) 211
Accrued income tax 17,669 3,568
Interest credited to universal life and investment products 357,880 206,763
Policy fees assessed on universal life and investment products (97,491) (84,362)
Change in accrued investment income and other receivables (33,948) (84,380)
Change in policy liabilities and other policyholders'
funds of traditional life and health products (5,602) 53,332
Change in other liabilities (15,877) 2,842
Other (net) (5,063) (1,776)
-------------- -------------
Net cash provided by operating activities 255,210 159,337
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments
Investments available for sale 4,613,642 457,488
Other 225,427 94,816
Sale of investments
Investments available for sale 1,060,668 750,557
Other 689,043 561,440
Cost of investments acquired
Investments available for sale (6,476,664) (2,049,715)
Other (582,300) (335,397)
Acquisitions and bulk reinsurance assumptions (169,124) 172,726
Purchase of property and equipment (3,285) (5,222)
Sale of property and equipment 2,681 143
--------------- --------------
Net cash used in investing activities (639,912) (353,164)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution from PLC 1,988 78,699
Proceeds from borrowings under line of credit arrangements and debt 1,134,538 742,750
Principal payments on line of credit arrangements and debt (1,134,538) (742,750)
Principal payment on surplus note to PLC (4,893) (10,000)
Dividends to PLC (50) (50)
Investment product deposits and change in universal life deposits 771,804 842,765
Investment product withdrawals (498,531) (711,826)
------------- -------------
Net cash provided by financing activities 270,318 199,588
------------- -------------
INCREASE (DECREASE) IN CASH (114,384) 5,761
CASH AT BEGINNING OF PERIOD 114,384 6,198
------------- --------------
CASH AT END OF PERIOD $ 0 $ 11,959
================ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest on notes and mortgages payable $ (3,634) $ (3,721)
Income taxes $ (34,992) $ (26,809)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Reduction of principal on note from ESOP $ 202 $ 186
Acquisitions and bulk reinsurance assumptions
Assets acquired $ 1,114,832 $ 200,737
Liabilities assumed (902,267) (253,480)
------------- ------------
Net $ 212,565 $ (52,743)
============= ============
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
of Protective Life Insurance Company ("Protective Life") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the disclosures required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 1997, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. The year-end consolidated condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. For further information, refer to the
consolidated financial statements and notes thereto included in Protective
Life's annual report on Form 10-K for the year ended December 31, 1996.
Protective Life is a wholly-owned subsidiary of Protective Life
Corporation ("PLC").
NOTE B - COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. Protective Life does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
A number of civil jury verdicts have been returned against life and
health insurers in the jurisdictions in which Protective Life 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 insurers that are
disproportionate to the actual damages, including material amounts of punitive
damages. In some states (including Alabama), juries have substantial discretion
in awarding punitive damages which creates the potential for unpredictable
material adverse judgments in any given punitive damages suit. Protective Life
and its subsidiaries, like other life and health insurers, in the ordinary
course of business, are involved in such litigation, including purported class
action litigation. The outcome of any such litigation cannot be predicted with
certainty. In addition, in some lawsuits involving insurers' sales practices,
insurers have made material settlement payments to end litigation.
Although the outcome of any litigation cannot be predicted with
certainty, Protective Life believes that at the present time there are no
pending or threatened lawsuits that are reasonably
6
likely to have a material adverse effect on the financial position, results of
operations, or liquidity of Protective Life.
NOTE C - STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principles (i.e., GAAP) differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. At September 30, 1997, and for the nine months then ended,
Protective Life and its life insurance subsidiaries had consolidated
stockholder's equity and net income prepared in conformity with statutory
reporting practices of $417.2 million and $84.9 million, respectively.
NOTE D - INVESTMENTS
At December 31, 1993, Protective Life adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." For purposes of adopting SFAS No. 115 Protective
Life has classified all of its investments in fixed maturities, equity
securities, and short-term investments as "available for sale." As prescribed in
SFAS No. 115, these investments are recorded at their market values with the
resulting net unrealized gain or loss, net of income tax and a related
adjustment to deferred policy acquisition costs, recorded as a component of
stockholder's equity.
Protective Life's balance sheets at September 30, 1997 and December 31,
1996, prepared on the basis of reporting investments at amortized cost rather
than at market values, are as follows:
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN THOUSANDS)
Total investments $7,780,616 $6,495,259
Deferred policy acquisition costs 646,713 495,965
All other assets 1,542,025 1,161,830
---------- ----------
$9,969,354 $8,153,054
========== ==========
Deferred income taxes $ 16,483 $ 34,121
All other liabilities 9,108,763 7,349,430
---------- ----------
9,125,246 7,383,551
Stockholder's equity 844,108 769,503
----------- -----------
$9,969,354 $8,153,054
========== ==========
NOTE E - ACCOUNTING POLICIES FOR DERIVATIVE FINANCIAL INSTRUMENTS
Protective Life does not use derivative financial instruments for
trading purposes. Combinations of futures contracts and options on treasury
notes are currently being used as hedges for asset/liability management of
certain investments, primarily mortgage loans on real estate, mortgage-backed
securities, and liabilities arising from interest-sensitive products such as
guaranteed investment contracts and annuities. Realized investment gains and
losses on such contracts are deferred and amortized over the life of the hedged
asset. At September 30, 1997,
7
open option contracts with a notional amount of $1.2 billion were in a $1.1
million unrealized loss position. Additionally, Protective Life uses interest
rate swap contracts to convert certain investments from a variable to a fixed
rate of interest. At September 30, 1997, related open interest rate swap
contracts with a notional amount of $135.3 million were in a $0.6 million
unrealized loss position.
NOTE F - RECENTLY ADOPTED ACCOUNTING STANDARDS
In June 1996 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement is effective for transactions entered into after January 1, 1997.
NOTE G - RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
previously reported net income, total assets, or stockholder's equity.
8
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
Protective Life Insurance Company ("Protective Life") is a wholly-owned
and the principal operating subsidiary of Protective Life Corporation ("PLC"),
an insurance holding company whose common stock is traded on the New York Stock
Exchange. Founded in 1907, Protective Life provides financial services through
the production, distribution, and administration of insurance and investment
products.
In accordance with General Instruction H(2)(a), Protective Life
includes the following analysis with the reduced disclosure format.
Protective Life has six operating divisions: Acquisitions, Dental and
Consumer Benefits ("Dental"), Financial Institutions, Guaranteed Investment
Contracts ("GIC"), Individual Life, and Investment Products. Protective Life
also has an additional business segment which is described herein as Corporate
and Other.
The Dental Division (formerly known as the Group Division) recently
exited from the traditional group major medical business, fulfilling the
Division's strategy to focus primarily on dental and related products.
Accordingly, the Division was renamed the Dental and Consumer Benefits Division.
REVENUES
The following table sets forth revenues by source for the period shown,
and the percentage change from the prior period:
NINE MONTHS PERCENTAGE
ENDED INCREASE/
SEPTEMBER 30 (DECREASE)
(IN THOUSANDS)
1997 1996
---- ----
Premiums and policy fees $333,703 $343,111 (2.7)%
Net investment income 405,245 369,280 9.7
Realized investment gains 1,781 5,882 (69.7)
Other income 2,381 4,100 (41.9)
---------- ----------
$743,110 $722,373
Premiums and policy fees decreased $9.4 million or 2.7% in the first
nine months of 1997 over the first nine months of 1996. The coinsurance by the
Acquisitions Division of a block of policies and the acquisition of a small life
insurance company in the fourth quarter of 1996 resulted in a $6.1 million
increase in premiums and policy fees. Decreases in older acquired blocks
resulted in a $6.0 million decrease in premiums and policy fees. The Dental
Division's exit from the group major medical business resulted in a $22.4
million decrease in premiums and policy fees. Premiums and policy fees related
to the Dental Division's other businesses increased $19.5
9
million in the first nine months of 1997 as compared to the same period in 1996.
Premiums and policy fees from the Financial Institutions Division decreased
$27.1 million in the first nine months of 1997 as compared to the first nine
months of 1996. Decreases of $12.8 million resulted from a reinsurance
arrangement begun in 1995 whereby most of the Division's new credit insurance
sales are being ceded to a reinsurer. Decreases of $14.3 million relate to the
normal decrease in premiums on a closed block of credit insurance policies
reinsured in 1996. The Individual Life Division's premiums and policy fees
increased $16.0 million, including $6.4 million from the acquisition of West
Coast Life Insurance Company ("West Coast") in the second quarter of 1997. The
increase in premiums and policy fees from the Investment Products Division was
$2.7 million.
Net investment income in the first nine months of 1997 increased by
$36.0 million over the corresponding period of the preceding year, primarily due
to increases in the average amount of invested assets and an increase in
participating mortgage loan income. Invested assets have increased primarily due
to receiving annuity deposits and due to acquisitions. The coinsurance of a
block of policies and the acquisition of a small life insurance company in the
fourth quarter of 1996 and the acquisition of West Coast in the second quarter
of 1997 resulted in an increase in net investment income of $24.9 million in the
first nine months of 1997 as compared to the same period in 1996.
Protective Life generally purchases its investments with the intent to
hold to maturity by purchasing investments that match future cash-flow needs.
However, Protective Life may sell any of its investments to maintain approximate
matching of assets and liabilities. Accordingly, Protective Life has classified
its fixed maturities and certain other securities as "available for sale." The
sales of investments that have occurred have resulted principally from portfolio
management decisions to maintain approximate matching of assets and liabilities.
Realized investment gains for the first nine months of 1997 were $1.8
million as compared to $5.9 million in the corresponding period of 1996. In the
1996 first quarter, Protective Life sold $554 million of its commercial mortgage
loans in a securitization transaction, resulting in a $6.1 million realized
investment gain.
Other income consists primarily of fees from
administrative-services-only types of group accident and health insurance
contracts, and from rental of space in its administrative building to PLC and
affiliates.
10
INCOME BEFORE INCOME TAX
The following table sets forth income or loss before income tax by
business segment for the periods shown:
INCOME (LOSS) BEFORE INCOME TAX
NINE MONTHS ENDED SEPTEMBER 30
(IN THOUSANDS)
BUSINESS SEGMENT 1997 1996
---------------- ---- ----
Acquisitions $ 45,821 $38,888
Dental and Consumer Benefits 10,106 (166)
Financial Institutions 8,673 6,794
Guaranteed Investment Contracts 20,082 22,309
Individual Life 15,554 11,943
Investment Products 6,486 8,654
Corporate and Other 3,474 (4,439)
Unallocated Realized Investment Gains (Losses) 3,145 5,790
---------- --------
$113,341 $89,773
======== =======
Pretax earnings from the Acquisitions Division increased $6.9 million
in the first nine months of 1997 as compared to the same period of 1996.
Earnings from the Acquisitions Division are expected to decline over time (due
to the lapsing of policies resulting from deaths of insureds or terminations of
coverage) unless new acquisitions are made. The Division's most recent
acquisitions resulted in a $3.3 million increase in pretax earnings. In
addition, the Division's mortality experience was approximately $7.2 million
more favorable in the first nine months of 1997 as compared to the same period
last year.
Dental Division pretax earnings were $3.5 million higher in the first
nine months of 1997 as compared to the first nine months of 1996 excluding a
$6.8 million refund of premiums and related expenses in the 1996 third quarter.
$1.8 million of the increase was a one-time release of reserves associated with
exiting the group major medical business. Lower cancer earnings partially offset
improved traditional group life and health results. Dental earnings were $4.3
million, an increase of $0.6 million, before expenses of $1.8 million to develop
a new discounted fee-for-service program.
Pretax earnings of the Financial Institutions Division were $1.9
million higher in the first nine months of 1997 as compared to the same period
in 1996. Included in the Division's 1997 results are earnings from the
coinsurance of a block of policies in the second quarter of 1996.
The GIC Division had pretax operating earnings of $21.9 million in the
first nine months of 1997 and $30.1 million in the corresponding period of 1996.
In December, 1996, the Company sold a major portion of its bank loan
participations in a securitization transaction which has subsequently reduced
the Division's earnings. The decrease was partially offset by a related
improvement in earnings in the Corporate and Other segment. In addition, the
Division has shortened the duration of its invested assets which also reduced
earnings. Realized investment losses associated with this Division in the first
nine months of 1997 were $1.8 million as compared
11
to $7.8 million in the same period last year. As a result, total pretax earnings
were $20.1 million in the first nine months of 1997 compared to $22.3 million
for the same period last year.
The Individual Life Division's results include West Coast which
Protective Life acquired on June 3. The Division's pretax operating earnings of
$15.6 million in the first nine months of 1997 were $4.8 million above the same
period of 1996. West Coast represents $3.0 million of the increase. Mortality
returned to normal levels in the 1997 third quarter after experiencing record
high mortality in the previous quarter which reduced earnings approximately $4.3
million. Realized investment gains, net of related amortization of deferred
policy acquisition costs, associated with this Division were $1.1 million in
1996. As a result, total pretax earnings were $15.6 million in the first nine
months of 1997 as compared to $11.9 million in the first nine months of 1996.
Investment Products Division pretax operating earnings in the first
nine months of 1997 of $6.3 million were even with the same period of 1996. The
Division's 1996 results included a one-time $0.9 million addition to earnings.
Realized investment gains associated with the Division, net of related
amortization of deferred policy acquisition costs, were $0.2 million as compared
to $2.4 million last year, resulting in total pretax earnings of $6.5 million in
the first nine months of 1997 as compared to $8.7 million in the same period of
1996.
The Corporate and Other segment consists of several small insurance
lines of business, net investment income and other operating expenses not
identified with the preceding operating divisions (including interest on
substantially all debt), and the operations of a small noninsurance subsidiary.
Pretax income for this segment was $3.5 million in the first nine months of 1997
compared to a loss of $4.4 million in the first nine months of 1996. In the 1997
third quarter the segment had $3.0 million of income from Protective Life's
participation commercial mortgage loan program. The remaining increase in
earnings relates primarily to increased net investment income on capital and
income from a securitization transaction.
INCOME TAXES
The following table sets forth the effective tax rates for the periods
shown:
NINE MONTHS
ENDED ESTIMATED EFFECTIVE
SEPTEMBER 30 INCOME TAX RATES
1996 34.1%
1997 34.3
The effective income tax rate for the full year of 1996 was 34.1%.
Management's estimate of the effective income tax rate for 1997 is 34%.
12
NET INCOME
The following table sets forth net income for the periods shown, and
the percentage change from the prior period:
NET INCOME
NINE MONTHS PERCENTAGE
ENDED TOTAL INCREASE/
SEPTEMBER 30 (IN THOUSANDS) (DECREASE)
1996 $59,126 1.4%
1997 74,453 25.9
Compared to the same period in 1996, net income in the first nine
months of 1997 increased $15.3 million, reflecting improved operating earnings
in the Acquisitions, Dental, Financial Institutions, Individual Life, and
Investment Products Divisions and the Corporate and Other segment, which were
offset by lower operating earnings in the Guaranteed Investment Contracts
Division and lower realized investment gains (net of related amortization of
deferred policy acquisition costs).
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Protective Life anticipates that the impact of adopting
these accounting standards will be immaterial to its financial condition.
13
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibit 27 - Financial data schedule
Exhibit 99 - Safe Harbor for Forward-Looking Statements
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROTECTIVE LIFE INSURANCE COMPANY
Date: November 12, 1997 /S/ JERRY W. DEFOOR
-------------------
Jerry W. DeFoor
Vice President and Controller,
and Chief Accounting Officer
(Duly authorized officer)
14