Exhibit 99
to
Form 10-Q
of
Protective Life Insurance Company
for the nine months
Ended September 30, 1997
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,"
"anticipated," "plan," and similar expressions. Protective Life Insurance
Company ("Protective Life") 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 Life provides the following information
to qualify forward-looking statements for the safe harbor protection of the Act.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors. Certain known trends and uncertainties
which may affect future results of Protective Life are discussed more fully
below.
MATURE INDUSTRY; COMPETITION. Life and health insurance 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. Life and health insurance is a highly competitive
industry and Protective Life's Divisions encounter significant competition in
all their respective lines of business from other insurance companies, many of
which have greater financial resources than Protective Life, as well as
competition from other providers of financial services.
Management believes that Protective Life'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 claims-paying and financial
strength ratings from rating agencies.
Protective Life competes against other insurance companies and
financial institutions in the origination of commercial mortgage loans.
RATINGS. Ratings are an important factor in the competitive position of
life insurance companies. Ratings organizations periodically review the
financial performance and condition
of insurers, including Protective Life's insurance subsidiaries. A downgrade in
the ratings of Protective Life's insurance subsidiaries could adversely affect
its ability to sell its products and its ability to compete for attractive
acquisition opportunities.
Rating organizations assign ratings based upon several factors. While
most of the considered factors related to the rated company, some of the factors
relate to general economic conditions and circumstances outside the rated
company's control.
Rating downgrades have exceeded upgrades for the past several years,
and public pronouncements by the rating agencies indicate that this trend is
expected to continue for the near future.
POLICY CLAIMS FLUCTUATIONS. Protective Life's results may fluctuate
from year to year on account of fluctuations in policy claims received by
Protective Life.
LIQUIDITY AND INVESTMENT PORTFOLIO. Many of the products offered by
Protective Life's insurance subsidiaries allow policyholders and contractholders
to withdraw their funds under defined circumstances. Protective Life's insurance
subsidiaries design products and configure investment portfolios so as to
provide and maintain sufficient liquidity to support anticipated withdrawal
demands and contract benefits and maturities. Asset/liability management
programs and procedures are used to monitor the relative duration of Protective
Life's assets and liabilities. While Protective Life's insurance subsidiaries
own a significant amount of liquid assets, many of their assets are relatively
illiquid. Significant unanticipated withdrawal or surrender activity could,
under some circumstances, compel Protective Life's insurance subsidiaries to
dispose of illiquid assets on unfavorable terms, which could have a material
adverse effect on Protective Life.
INTEREST RATE FLUCTUATIONS. Significant changes in interest rates
expose life insurance companies to the risk of not earning anticipated spreads
between the interest rate earned on investments and the interest rate credited
to its life insurance and investment products. Both rising and declining
interest rates can negatively affect Protective Life's spread income. For
example, certain of Protective Life's insurance and investment products
guarantee a minimum credited interest rate. While Protective Life 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 significant changes in interest rates will not
materially affect such spreads.
Lower interest rates may result in lower sales of Protective Life's
insurance and investment products.
INVESTMENT RISKS. Protective Life's invested assets are subject to
inherent risks of defaults and changes in market values. The value of Protective
Life's commercial mortgage portfolio depends in part on the financial condition
of the tenants occupying the properties on which Protective Life has made loans.
Factors that may affect the overall default rate on, and market value of,
Protective Life's invested assets include the level of interest rates,
performance of the financial markets, and general economic conditions, as well
as particular circumstances affecting the businesses of individual borrowers and
tenants.
CONTINUING SUCCESS OF ACQUISITION STRATEGY. Protective Life has
actively pursued a strategy of acquiring blocks of insurance policies. This
acquisition strategy has increased Protective Life's earnings in part by
allowing Protective Life to position itself to realize certain operating
efficiencies associated with economies of scale. There can be no assurance,
however, that suitable acquisitions, presenting opportunities for continued
growth and operating efficiencies, will continue to be available to Protective
Life, or that Protective Life will realize the anticipated financial results
from its acquisitions.
REGULATION AND TAXATION. Protective Life'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, benefits, marketing practices, advertising, policy
forms, underwriting standards, and capital adequacy, and is concerned primarily
with the protection of policyholders rather than stockholders. Protective Life
cannot predict the form of any future regulatory initiatives.
Under the Internal Revenue Code of 1986, as amended (the Code), 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 Life's products a
competitive advantage over other non-insurance products. To the extent that the
Code is revised to reduce the tax-deferred status of life insurance and annuity
products, or to increase the tax-deferred status of competing products, all life
insurance companies, including Protective Life's subsidiaries, would be
adversely affected.
Protective Life cannot predict what future initiatives the President or
Congress may propose which may affect the life and health insurance industry and
Protective Life.
LITIGATION. A number of civil 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 insurer 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. 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.
RELIANCE UPON THE PERFORMANCE OF OTHERS. Protective Life has entered
into various ventures involving other parties. Examples include, but are not
limited to: many of Protective Life's products are sold through independent
distribution channels; the Investment Products Division's variable annuity
deposits are invested in funds managed by unaffiliated investment managers; a
portion of the sales in the Financial Institutions, Dental and Consumer
Benefits, and Individual Life Divisions comes from arrangements with unrelated
marketing organizations; and Protective Life has entered the Hong Kong insurance
market in a joint venture with the Lippo Group. Therefore, Protective Life's
results may be affected by the performance of others.
REINSURANCE. As is customary in the insurance industry, Protective
Life's insurance subsidiaries cede insurance to other insurance companies.
However, the ceding insurance company remains liable with respect to ceded
insurance should any reinsurer fail to meet the obligations assumed by it.
Additionally, Protective Life assumes policies of other insurers. Any regulatory
or other adverse development affecting the ceding insurer could also have an
adverse effect on Protective Life.
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 Life 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.