Exhibit 99
to
Form 10-Q
of
Protective Life Insurance Company
for the nine months
ended September 30, 1998
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. Insurance is a highly competitive industry and
Protective Life encounters significant competition in all 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.
The life and health insurance industry is consolidating, with larger,
more efficient organizations emerging from consolidation. Also, mutual insurance
companies are converting to stock ownership which will give them greater access
to capital markets.
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. Rating 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 life 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 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.
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. Formal 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. Sudden and/or 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 rates
paid on outstanding policies. 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.
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 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 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 with respect to their ability
to sell such products, and, depending on grandfathering provisions, the
surrenders of existing annuity contracts and life insurance policies. Protective
Life cannot predict what future initiatives the President or Congress may
propose which may affect Protective Life.
LITIGATION. A number of civil jury verdicts have been returned against
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 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 class action and other lawsuits
involving insurers' sales practices, insurers have made material settlement
payments.
INVESTMENT RISKS. Protective Life's invested assets are subject to
customary 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 which Protective Life has
financed. Factors that may affect the overall default rate on, and market value
of, Protective Life'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.
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.
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 Individual Life, Dental, and Financial Institutions
Divisions comes from arrangements with unrelated marketing organizations; and
Protective Life has entered the Hong Kong insurance market in a joint venture.
Therefore Protective Life's results may be affected by the performance of
others.
YEAR 2000. Computer hardware and software often denote the year using
two digits rather than four; for example, the year 1998 often is denoted by such
hardware and software as "98." It is probable that such hardware and software
will malfunction when calculations involving
the year 2000 are attempted because the hardware and/or software will interpret
"00" as representing the year 1900 rather that the year 2000. This "Year 2000"
issue potentially affects all individuals and companies (including Protective
Life, its customers, business partners, suppliers, banks, custodians and
administrators). The problem is most prevalent in older mainframe systems, but
personal computers and equipment containing computer chips could also be
affected.
Protective Life shares computer hardware and software with its parent,
Protective Life Corporation ("PLC"), and other affiliates of PLC. PLC began work
on the Year 2000 problem in 1995 and has developed and implemented a Year 2000
transition plan intended to identify and modify or replace important hardware
and/or software systems on which it relies that have Year 2000 issues or to
develop appropriate contingency measures. PLC is also confirming that its
service providers are implementing plans to identify and modify or replace their
systems that have a Year 2000 issue.
PLC currently anticipates that its systems with Year 2000 issues will
have been addressed and appropriate action taken before December 31, 1999.
Due to the fact that PLC does not control all of the factors that could
impact its Year 2000 readiness, there can be no assurances that PLC's efforts
will be successful, that interactions with other service providers with Year
2000 issues will not impair PLC's operations, or that the Year 2000 issue will
not otherwise adversely affect PLC.
Should some of PLC's systems not be available due to Year 2000
problems, in a reasonably likely worst case scenario, PLC may experience
significant 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, depending upon their duration,
could have a material adverse effect on PLC and Protective Life and their
operations.
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. The
cost of reinsurance is, in some cases, reflected in the premium rates charged by
Protective Life. Under certain reinsurance agreements, the reinsurer may
increase the rate it charges Protective Life for the reinsurance, though
Protective Life does not anticipate increases to occur. Therefore, if the cost
of reinsurance were to increase with respect to policies where the rates have
been guaranteed by Protective Life, Protective Life could be adversely affected.
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.