Exhibit 99
to
Form 10-Q
of
Protective Life Insurance Company
for the nine months
ended September 30, 1999
Safe Harbor for Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act")
encourages companies to make "forward-looking statements" by creating a safe
harbor to protect the companies from securities law liability in connection with
forward-looking statements. Forward-looking statements can be identified by use
of words such as "expect," "estimate," "project," "budget," "forecast,"
"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. Unless the context otherwise requires, "Protective Life" refers to the
consolidated group of Protective Life Insurance Company and its affiliates.
WE OPERATE IN A MATURE, HIGHLY COMPETITIVE INDUSTRY, WHICH COULD LIMIT OUR
ABILITY TO GAIN OR MAINTAIN OUR POSITION IN THE INDUSTRY.
Life and health insurance is a mature industry. In recent years, the
industry has experienced 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. Additionally, the United States Congress has approved
legislation that would permit commercial banks, insurance companies and
investment banks to combine, provided certain requirements are satisfied.
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 financial strength and claims-paying-ability ratings from rating
agencies.
Protective Life competes against other insurance companies and
financial institutions in the origination of commercial mortgage loans.
A RATINGS DOWNGRADE COULD ADVERSELY AFFECT OUR ABILITY TO COMPETE.
Ratings are an important factor in Protective Life's competitive
position. Rating organizations periodically review the financial performance and
condition of insurers, including Protective Life. A downgrade in the ratings of
Protective Life 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 factors relate to the rated company, some of the factors relate to
general economic conditions and circumstances outside the rated company's
control. For the past several years rating downgrades in the industry have
exceeded upgrades.
OUR POLICY CLAIMS FLUCTUATE FROM YEAR TO YEAR.
Protective Life's results may fluctuate from year to year on account of
fluctuations in policy claims received by Protective Life.
WE COULD BE FORCED TO SELL ILLIQUID INVESTMENTS AT A LOSS TO COVER POLICYHOLDER
WITHDRAWALS.
Many of the products offered by Protective Life allow policyholders and
contract holders to withdraw their funds under defined circumstances. Protective
Life designs products and configures 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 owns a significant amount of liquid
assets, many of its assets are relatively illiquid. Significant unanticipated
withdrawal or surrender activity could, under some circumstances, compel
Protective Life to dispose of illiquid assets on unfavorable terms, which could
have a material adverse effect on Protective Life.
INTEREST-RATE FLUCTUATIONS COULD NEGATIVELY AFFECT OUR SPREAD INCOME.
Significant changes in interest rates expose insurance companies to the
risk of not earning anticipated spreads between the interest rate earned on
investments and the credited 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.
INSURANCE COMPANIES ARE HIGHLY REGULATED.
Protective Life is subject to government regulation in each of the
states in which it conducts business. Such regulation is vested in state
agencies having broad administrative power dealing with many aspects of the
insurance business, which may include premium rates, marketing practices,
advertising, policy forms, and capital adequacy, and is concerned primarily with
the protection of policyholders rather than share owners. Protective Life cannot
predict the form of any regulatory initiatives.
Protective Life acts as a fiduciary and is subject to regulation by the
United States Department of Labor when providing a variety of products and
services to employee benefit plans governed by ERISA. Severe penalties are
imposed by ERISA on fiduciaries that breach their duties to the plans under
ERISA's prohibited transaction provisions.
Certain policies, contracts and annuities offered by Protective Life
are subject to regulation under the federal securities laws administered by the
Securities and Exchange Commission. The federal securities laws contain
regulatory restrictions and criminal, administrative and private remedial
provisions.
A TAX LAW CHANGE COULD ADVERSELY AFFECT OUR ABILITY TO COMPETE WITH
NON-INSURANCE PRODUCTS.
Under the Internal Revenue Code of 1986, as amended, income tax payable
by policyholders on investment earnings is deferred during the accumulation
period of certain life insurance and annuity products. This favorable tax
treatment may give certain of Protective Life's products a competitive advantage
over other non-insurance products. To the extent that the Internal Revenue Code
is revised to reduce the tax-deferred status of life insurance and annuity
products, or to increase the tax-deferred status of competing products, all life
insurance companies, including Protective Life, would be adversely affected with
respect to their ability to sell such products, and, depending on grandfathering
provisions, the surrenders of existing annuity contracts and life insurance
policies. In addition, life insurance products are often used to fund estate tax
obligations. If the estate tax was eliminated, the demand for certain life
insurance products would be adversely affected. Protective Life cannot predict
what future tax initiatives may be proposed which could affect Protective Life.
INDUSTRYWIDE LITIGATION CONCERNING SALES PRACTICES, AGENT MISCONDUCT, FAILURE TO
SUPERVISE AGENTS, AND OTHER MATTERS COULD RESULT IN SUBSTANTIAL JUDGEMENTS
AGAINST US.
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 (where Protective Life maintains its headquarters), juries
have substantial discretion in awarding punitive and non-economic compensatory
damages, which creates the potential for unpredictable material adverse
judgments in any given lawsuit. Protective Life, like other insurers, in the
ordinary course of business, is involved in such litigation or alternatively in
arbitration. The outcome of any such litigation or arbitration cannot be
predicted with certainty. In addition, in some class action and other lawsuits
involving insurers' sales practices, insurers have made material settlement
payments.
OUR INVESTMENTS ARE SUBJECT TO RISKS.
Protective Life's invested assets (including derivative financial
instruments) 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.
OUR ACQUISITION STRATEGY INVOLVES RISKS.
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. Protective
Life has also from time to time acquired other companies and continued to
operate them as subsidiaries. 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.
WE ARE DEPENDENT ON THE PERFORMANCE OF OTHERS.
Protective Life's results may be affected by the performance of others
because 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; and a portion of the sales in the Individual
Life, West Coast, Dental, and Financial Institutions Divisions comes from
arrangements with unrelated marketing organizations.
YEAR 2000 COMPUTER COMPLIANCE ISSUES MAY ADVERSELY AFFECT US.
Computer hardware and software often denote the year using two digits
rather than four; for example, the year 1999 often is denoted by such hardware
and software as "99." 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.
Because 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 or Protective Life's operations, or that the Year 2000
issue will not otherwise adversely affect PLC or Protective Life.
Should some of PLC's systems not be available due to Year 2000
problems, in a reasonable likely worst case scenario, PLC or Protective Life 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.
OUR REINSURANCE PROGRAM INVOLVES RISKS.
Protective Life cedes insurance to other insurance companies through
reinsurance. However, Protective Life 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.