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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NUMBER 0-9924
[Logo]
PROTECTIVE LIFE CORPORATION
(Exact name of Registrant as specified in its charter)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(Address of principal executive offices, including zip code)
DELAWARE 95-2492236
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Registrant's telephone number, including area code (205) 879-9230
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $0.50 PAR VALUE
(Title of class)
JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK, $1.00 PAR VALUE
(Title of class)
Name of each exchange
on which registered
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
PREFERRED STOCK, $1.00 PAR VALUE
(Title of class)
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy statement or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
Aggregate market value of voting stock held by nonaffiliates of the Registrant
as of March 11, 1994: $470,959,808
Number of shares of Common Stock, $0.50 Par Value, outstanding as of March 11,
1994: 13,693,244
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1993 Annual Report To Stockholders (the "1993
Annual Report To Stockholders") are incorporated by reference into Parts I, II,
and IV of this Report.
Portions of the Registrant's Proxy Statement dated March 25, 1994, are
incorporated by reference into Part III of this Report.
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PROTECTIVE LIFE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1993
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . . . . 19
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . 20
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 22
Item 8. Financial Statements and Supplementary Data . . . . . . . . 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . 24
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . 24
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 13. Certain Relationships and Related Transactions . . . . . . . 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 26
2
PART I
ITEM 1. BUSINESS
Protective Life Corporation is an insurance holding company, whose
subsidiaries provide financial services through the production, distribution,
and administration of insurance and investment products. Founded in 1907,
Protective Life Insurance Company ("Protective Life") is the Company's principal
operating subsidiary. Unless the context otherwise requires, the "Company"
refers to the consolidated group of Protective Life Corporation and its
subsidiaries. The Company has five marketing divisions: Agency, Group,
Guaranteed Investment Contracts, Financial Institutions, and Investment
Products. The Company has two additional business segments: Acquisitions and
Corporate and Other.
The following table sets forth revenues, income before income tax, and
identifiable assets for the Company's business segments.
3
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(dollars in thousands)
TOTAL REVENUES:
Agency . . . . . . . . . . . . . . . $ 111,654 $ 90,690 $ 80,592 $ 73,113 $ 66,960
Group . . . . . . . . . . . . . . . 143,423 129,778 129,576 133,235 121,533
Financial Institutions . . . . . . . 97,511 64,376 36,041 39,341 29,818
Investment Products . . . . . . . . 80,115 55,768 35,742 16,008 7,451
Guaranteed Investment Contracts . . 167,233 138,616 104,803 35,739 259
Acquisitions . . . . . . . . . . . . 123,855 93,634 95,847 79,769 87,061
Corporate and Other . . . . . . . . 33,970 54,613 36,032 15,040 11,432
Unallocated Realized Investment
Gains(Losses) . . . . . . . . . . 1,876 (1,449) (2,685) (1,759) 209
----------- ---------- ---------- ---------- ----------
$ 759,637 $ 626,026 $ 515,948 $ 390,486 $ 324,723
----------- --------- ---------- ---------- ----------
----------- --------- ---------- ---------- ----------
Agency . . . . . . . . . . . . . . . 14.7% 14.5% 15.6% 18.7% 20.6%
Group . . . . . . . . . . . . . . . 18.9 20.7 25.1 34.1 37.4
Financial Institutions . . . . . . . 12.9 10.2 7.0 10.1 9.2
Investment Products . . . . . . . . 10.6 8.9 6.9 4.1 2.3
Guaranteed Investment Contracts . . 22.0 22.2 20.4 9.2 0.1
Acquisitions . . . . . . . . . . . . 16.3 15.0 18.5 20.4 26.8
Corporate and Other . . . . . . . . 4.4 8.7 7.0 3.8 3.5
Unallocated Realized Investment
Gains(Losses) . . . . . . . . . . 0.2 (0.2) (0.5) (0.4) 0.1
----------- ---------- ---------- ---------- ----------
100.0% 100.0% 100.0% 100.0% 100.0%
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX:
Agency . . . . . . . . . . . . . . . $ 20,064 $ 12,985 $ 12,087 $ 9,877 $ 3,703
Group . . . . . . . . . . . . . . . 10,394 7,731 8,146 6,193 6,059
Financial Institutions . . . . . . . 8,196 5,411 4,447 3,120 2,964
Investment Products . . . . . . . . 2,931 4,601 391 (1,351) (1,423)
Guaranteed Investment Contracts* . . 25,405 14,533 9,933 2,919 (289)
Acquisitions . . . . . . . . . . . . 29,845 20,031 23,494 17,659 17,736
Corporate and Other* . . . . . . . . (13,667) (3,896) (4,110) 3,624 3,327
Unallocated Realized Investment
Gains(Losses) . . . . . . . . . . 1,876 (1,449) (2,685) (1,759) 209
----------- ---------- ---------- ---------- ----------
$ 85,044 $ 59,947 $ 51,703 $ 40,282 $ 32,286
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Agency . . . . . . . . . . . . . . . 23.6% 21.7% 23.4% 24.5% 11.5%
Group . . . . . . . . . . . . . . . 12.2 12.9 15.8 15.4 18.8
Financial Institutions . . . . . . . 9.6 9.0 8.6 7.8 9.2
Investment Products . . . . . . . . 3.5 7.7 0.8 (3.4) (4.4)
Guaranteed Investment Contracts . . 29.9 24.2 19.1 7.3 (0.9)
Acquisitions . . . . . . . . . . . . 35.1 33.4 45.4 43.8 54.9
Corporate and Other . . . . . . . . (16.1) (6.5) (7.9) 9.0 10.3
Unallocated Realized Investment
Gains(Losses) . . . . . . . . . . 2.2 (2.4) (5.2) (4.4) 0.6
----------- ---------- ---------- ---------- ----------
100.0% 100.0% 100.0% 100.0% 100.0%
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
IDENTIFIABLE ASSETS:
Agency . . . . . . . . . . . . . . . $ 642,325 $ 507,460 $ 412,019 $ 343,414 $ 301,910
Group . . . . . . . . . . . . . . . 208,968 161,744 149,218 140,180 136,963
Financial Institutions . . . . . . . 192,486 146,713 67,404 63,141 45,416
Investment Products . . . . . . . . 879,365 686,503 432,054 233,205 74,277
Guaranteed Investment Contracts . . 2,041,564 1,696,786 1,291,743 740,137 52,510
Acquisitions . . . . . . . . . . . . 1,145,357 599,022 576,549 610,867 461,501
Corporate and Other . . . . . . . . 205,940 208,439 191,303 200,253 159,703
----------- ---------- ---------- ---------- ----------
$5,316,005 $4,006,667 $3,120,290 $2,331,197 $1,232,280
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Agency . . . . . . . . . . . . . . . 12.1% 12.7% 13.2% 14.7% 24.5%
Group . . . . . . . . . . . . . . . 3.9 4.0 4.8 6.0 11.1
Financial Institutions . . . . . . . 3.6 3.7 2.2 2.7 3.7
Investment Products . . . . . . . . 16.6 17.1 13.8 10.0 6.0
Guaranteed Investment Contracts . . 38.4 42.3 41.4 31.8 4.3
Acquisitions . . . . . . . . . . . . 21.5 15.0 18.5 26.2 37.5
Corporate and Other . . . . . . . . 3.9 5.2 6.1 8.6 12.9
----------- ---------- ---------- ---------- ----------
100.0% 100.0% 100.0% 100.0% 100.0%
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
<FN>
*Income before income tax for the Guaranteed Investment Contracts Division has not been reduced by pretax minority interest of
$1,631 in 1991 and $1,326 in 1990. Income before income tax for the Corporate and Other segment has not been reduced by pretax
minority interest of $19 in 1993 and $90 in 1992 and 1991.
4
The primary components of revenues are premiums and policy fees, net
investment income, and realized investment gains or losses. Premiums and policy
fees are attributable directly to each business segment. Net investment income
is allocated based on directly related assets required for transacting that
segment of business. Realized investment gains or losses and expenses are
allocated to the business segments in a manner that most appropriately reflects
the operations of that segment. Unallocated realized investment gains or losses
are deemed not to be associated with any specific business segment. Assets are
allocated based on policy liabilities and deferred policy acquisition costs
directly attributable to each segment.
AGENCY DIVISION
Since 1983, the Agency Division has utilized a distribution system based on
experienced independent personal producing general agents who are recruited by
regional sales managers. At December 31, 1993, there were 26 regional sales
managers located in Alabama, Arizona, Arkansas, California, Colorado, Florida,
Georgia, Illinois, Indiana, Iowa, Louisiana, Maine, Maryland, Michigan,
Minnesota, Missouri, New Jersey, North Carolina, Ohio, Oregon, Texas, and
Wisconsin. During 1993, the Division had approximately 12,847 independent
personal producing general agents, brokers, and other agents under contract of
whom approximately 517 received first year commissions in excess of $10,000 from
the Company. In 1993, the Division began distributing insurance products
through securities broker-dealers. The Division also distributes insurance
products through the payroll deduction market.
Current marketing efforts in the Agency Division are directed toward the
Company's various universal life products and products designed to compete in
the term marketplace. Universal life products combine traditional life
insurance protection with the ability to tailor a more flexible payment schedule
to the individual's needs, provide an accumulation of cash values on which
income taxes are deferred, and permit the Company to change interest rates
credited on policy cash values as often as monthly to reflect current market
rates. The Company currently emphasizes back-end loaded universal life policies
which reward the continuing policyholder and which should maintain the
persistency of its universal life business. The products designed to compete in
the term marketplace are term-like policies with guaranteed level premiums for
the first 15 years which provide a competitive net cost to the insured.
The Division's total revenues and income before income tax have increased
each year from 1989 through 1993 primarily due to a growing block of business
brought about by sales and improved persistency.
GROUP DIVISION
The Company markets its group insurance products primarily in the
southeastern and southwestern United States using the services of brokers who
specialize in group products. Sales offices in Alabama, Florida, Georgia,
Illinois, Missouri, North Carolina, Ohio, Oklahoma, Tennessee, and Texas are
maintained to serve these brokers.
The Group Division offers substantially all forms of group insurance
customary in the industry, making available complete packages of life and
accident and health insurance to employers. The life and accident and health
insurance packages include hospital and medical coverages as well as dental and
disability coverages. To address rising health care costs, the
5
Division provides cost containment services such as utilization review and
catastrophic case management. Group policies are directed primarily at
employers and associations with between 25 and 1,000 employees.
Two new marketing initiatives will permit direct sales to employers (by
full-time Company employees) of cancer, dental, and other supplemental insurance
coverages. The Division hopes to have these initiatives fully operational in
1994.
Group accident and health insurance is generally considered to be cyclical.
Profits rise or fall as competitive forces allow or prevent rate increases to
keep pace with changes in group health medical costs. The Company is placing
marketing emphasis on other health insurance products which are not as subject
to medical cost inflation. These products include dental insurance policies and
hospital indemnity policies which are distributed nationally through the
Division's existing distribution system, as well as through joint marketing
arrangements with independent marketing organizations, and through reinsurance
contracts with other insurers. These products also include an individual cancer
insurance policy marketed through a nationwide network of agents. It is
anticipated that a significant part of the growth in the Company's health
insurance premium income in the next several years will be from products like
dental and individual cancer insurance which have not been as subject to medical
cost inflation as traditional group health products.
The Division's total revenues have increased each year from 1989 through
1993 primarily due to increased sales. Income before income tax has increased
each year except in 1992 which was lower than the preceding year due to less
favorable life and health claims experience.
FINANCIAL INSTITUTIONS DIVISION
The Financial Institutions Division specializes in marketing insurance
products through commercial banks, savings and loan associations, and mortgage
bankers. The Division markets an array of life and health products, the
majority of which are used to secure consumer and mortgage loans made by
financial institutions located primarily in the southeastern United States. The
Division also markets life and health products through the consumer finance
industry and through automobile dealerships. The Division markets through both
employee field representatives and brokers. The Division also offers certain
products through direct mail solicitation to customers of financial
institutions.
In July 1992, in a major expansion of the Division, the Company acquired
the credit insurance business of Durham Life Insurance Company ("Durham") which
more than doubled the reserves the Company then held for its existing credit
insurance activities. The acquisition provided significant market share in the
southeastern states not previously covered by the Company. The larger size of
the Division has allowed it to lower unit costs through economies of scale.
After increases in total revenues in 1989 and 1990, the Division
experienced a reduction in 1991 revenues that was largely recession-related,
reflecting the fact that the demand for credit life and credit health insurance
is related to the level of loan demand. Total revenues significantly increased
in 1992 and 1993 due to the Durham acquisition and increased sales. The
6
Division's income before income tax has increased each year since 1989 due to
a related increase in loan demand.
INVESTMENT PRODUCTS DIVISION
The Investment Products Division manufactures, sells, and supports annuity
products. These products are sold through the Agency Division, financial
institutions, and broker-dealer distribution channels. This Division was formed
to respond to an increased consumer demand for savings vehicles.
In April 1990, the Company began sales of modified guaranteed annuity
products ("MGA products") which guarantee a compounded interest rate for a fixed
term. MGA products provide the Company a greater degree of protection from
changes in interest rates, because contract values are "market-value adjusted"
upon surrender prior to maturity.
During 1992, the Company acquired a marketing company that had previously
been under contract with the Company to distribute annuities. This acquisition
improved the Division's ability to distribute the Company's annuity products.
In late 1992, the Division ceased sales of single premium deferred
annuities in an effort to focus marketing efforts on products with less
disintermediation risk such as the MGA. Also, in 1993, the Division initiated
development of variable annuity products, for introduction in early 1994, to
broaden the Division's product line.
The Division also includes Protective Equity Services, Inc. ("PES"), a
securities broker-dealer subsidiary. Through PES, licensed members of the
Company's field force can sell stocks, bonds, mutual funds, and other financial
instruments that may be manufactured or issued by companies other than the
Company. The Company's MGA products are also sold through PES.
The Division's total revenues have increased each year since 1989 as
annuity account balances have increased. Income before income tax has improved
each year since 1989, except for 1993. In 1993, the Division's results reflect
an increase of $3.2 million of amortization of deferred policy acquisition
costs.
GUARANTEED INVESTMENT CONTRACTS DIVISION
In November 1989, the Company began selling guaranteed investment contracts
("GICs"). The Company's GICs are contracts, generally issued to a 401(k) or
other retirement savings plan, which guarantee a fixed return on deposits from
the plan for a specified period and often provide flexibility for withdrawals,
in keeping with the benefits provided by the plan. The Company also offers a
related product which is purchased primarily as a temporary investment vehicle
by the trustees of escrowed municipal bond proceeds. GICs are sold to customers
through a network of specialized GIC managers, consultants, and brokers.
The Company entered the GIC business in 1989 through a joint venture. The
joint venture arrangement was ended in 1991.
7
Life insurer credit concerns and a demand shift to non-traditional GIC
alternatives have generally caused the GIC market to contract somewhat.
Management believes that, due to its credit position, Protective Life remains
well positioned in this market. The Company anticipates broadening its GIC
marketing capability by introducing new products in 1994. Management
believes that the introduction of these new products should enhance the
Company's ability to compete in the marketplace by broadening the Division's
product line.
The Division's total revenues and income before income tax have
significantly increased each year since 1989 as GIC account balances have
increased. The rate of growth in GIC account balances will most likely
significantly decrease as the number of maturing contracts increases.
The assets supporting the Company's GIC and annuity businesses are
generally susceptible to interest rate and asset/liability matching risks. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES" in the Company's 1993 Annual
Report to Stockholders.
ACQUISITIONS DIVISION
The Company actively seeks to acquire blocks of insurance policies. These
acquisitions may be accomplished through acquisitions of companies or through
the assumption or reinsurance of policies. Reinsurance transactions may be made
from court-administered insolvent companies or from companies otherwise
divesting themselves of blocks of business. Most acquisitions do not include
the Company's acquisition of an active sales force, but some do. Blocks of
policies acquired through the Acquisitions Division are administered as "closed"
blocks; i.e., no new policies are being sold. Therefore, the amount of
insurance in force for a particular acquisition is expected to decline with time
due to lapses and deaths of the insureds. The experience of the Company has
been that acquired or reinsured business can be administered more efficiently by
the Company than by previous management or court administrators. In addition,
in some instances a supervising court may permit legal modification of the terms
of reinsured policies to increase the profitability of the reinsurance (and thus
encourage such transactions).
More than twenty separate transactions were made between 1970 and 1987.
From 1987 through 1989, the Company encountered more competition concerning
acquisitions; however, it did not change its strategy concerning the margins it
sought from acquisitions. Consequently, no material transactions were entered
into from 1987 to 1989.
The environment for acquisitions has become more favorable since 1989 and
management believes that this favorable environment likely will continue into
the immediate future. Insurance companies are facing heightened regulatory and
market pressure to increase statutory capital and thus may seek to increase
capital by selling blocks of policies. Insurance companies also appear to be
selling blocks of policies in conjunction with programs to narrow strategic
focus. In addition, smaller companies without strong ratings may face
difficulties in marketing and thus may seek to be acquired.
Several states have enacted statutes that allow policyholders to "opt out"
of an assumption reinsurance transaction; this environment appears to have
caused sellers to place more emphasis
8
on the financial condition and acquisition experience of the purchaser which
management believes will favorably impact the Company's competitive position.
However, it appears that other companies are entering this market and therefore
the Company may face increased competition in future acquisitions.
Total revenues and income before income tax from the Acquisitions Division
are expected to decline with time unless new acquisitions are made. Therefore,
the Division's revenues and earnings may fluctuate from year-to-year depending
upon the level of acquisition activity. Revenues and earnings declined in 1990
and 1992, but increased in 1991 and 1993 due to new acquisitions.
In the fourth quarter of 1990, Protective Life reinsured two separate
blocks of insurance. In the first quarter of 1992, Employers National Life
Insurance Company, a small Texas insurance company, was purchased and merged
into Protective Life. In the third quarter of 1993, Protective Life acquired
Wisconsin National Life Insurance Company and coinsured a small block of
universal life policies.
CORPORATE AND OTHER
The Corporate and Other segment consists of several small insurance lines
of business, net investment income and expenses not attributable to the business
segments described above (including interest on substantially all debt), the
earnings of Southeast Health Plan, Inc. ("SEHP"), and the operations of several
small noninsurance subsidiaries. The earnings of this segment may fluctuate
from year to year.
In 1988, the Company acquired convertible preferred stock of SEHP, a
Birmingham-based health maintenance organization. In August 1991, the Company
converted the preferred stock into 80% of the common stock of SEHP. In August
1993, the Company sold its interest in SEHP.
In 1991, this segment's earnings were reduced from 1990 levels as a result
of interest on debt relating to a 1990 reinsurance transaction, a write-off of
certain computer equipment, and losses at SEHP.
In 1992, Corporate and Other earnings were slightly higher due to SEHP
having a $0.6 million profit compared to the loss in 1991, the SEHP increase
being largely offset by several factors of negative effect.
In 1993, the Company changed the method used to apportion net investment
income within the Company. This change resulted in increased income
attributable to the Agency, Investment Products, and Acquisitions Divisions of
$3.0 million, $2.0 million, and $2.6 million, respectively, while decreasing
income of the Corporate and Other segment.
INSURANCE IN FORCE
The Company's total consolidated life insurance in force at December 31,
1993 was $42.5 billion. The following table shows sales by face amount and
insurance in force for the Company's business segments.
9
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(dollars in thousands)
New Business Written
Agency . . . . . . . . . . . . . $ 4,440,510 $ 4,877,038 $ 4,244,903 $ 3,581,071 $ 3,320,370
Group. . . . . . . . . . . . . . 252,345 328,258 390,141 852,893 595,053
Financial Institutions . . . . . 2,776,276 1,149,265 1,057,886 1,095,595 865,889
----------- ----------- ----------- ----------- -----------
Total. . . . . . . . . . . . . $ 7,469,131 $ 6,354,561 $ 5,692,930 $ 5,529,559 $ 4,781,312
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Business Acquired
Financial Institutions . . . . . $ 1,432,338
Acquisitions . . . . . . . . . . $ 4,378,812 1,302,330 $ 1,570,401
----------- ----------- ----------- ----------- -----------
Total. . . . . . . . . . . . . $ 4,378,812 $ 2,734,668 $ 0 $ 1,570,401 $ 0
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Insurance in Force at End of Year(1)
Agency . . . . . . . . . . . . . $22,975,577 $20,634,927 $16,655,923 $13,850,255 $11,889,328
Group. . . . . . . . . . . . . . 6,716,724 6,315,410 7,088,931 6,817,663 6,756,661
Financial Institutions . . . . . 4,306,179 3,690,610 2,446,815 2,319,150 2,220,733
Acquisitions . . . . . . . . . . 8,452,114 3,836,066 4,385,948 5,290,020 4,278,356
----------- ----------- ----------- ----------- -----------
Total. . . . . . . . . . . . . $42,450,594 $34,477,013 $30,577,617 $28,277,088 $25,145,078
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<FN>
(1) Reinsurance assumed has been included; reinsurance ceded (1993-$7,484,566; 1992-$6,982,127;
1991-$5,292,080; 1990-$3,597,097; 1989-$2,547,941) has not been deducted.
The ratio of voluntary terminations of individual life insurance to mean
individual life insurance in force, which is determined by dividing the amount
of insurance terminated due to surrenders and lapses during the year by the mean
of the insurance in force at the beginning and end of the year, adjusted for the
timing of major acquisitions and assumptions was:
RATIO OF
YEAR ENDED VOLUNTARY
DECEMBER 31 TERMINATIONS
----------- ------------
1989 . . . . . . . . . . 14.0%
1990 . . . . . . . . . . 11.6
1991 . . . . . . . . . . 8.9
1992 . . . . . . . . . . 9.0
1993 . . . . . . . . . . 8.7
Net terminations reflect voluntary lapses and cash surrenders, some of
which may be due to the replacement of the Company's products with competitors'
products. Also, a higher percentage of voluntary lapses typically occurs in the
first 15 months of a policy, and accordingly, lapses will tend to increase or
decrease in proportion to the change in new insurance written during the
immediately preceding periods.
The amount of investment products in force is measured by account balances.
The following table shows guaranteed investment contract and annuity account
balances.
10
GUARANTEED MODIFIED
YEAR ENDED INVESTMENT GUARANTEED FIXED
DECEMBER 31 CONTRACTS ANNUITIES ANNUITIES
----------- ---------- ---------- ---------
(dollars in thousands)
1989 $ 45,578 $ 97,710
1990 726,866 $ 37,063 205,032
1991 1,264,603 115,477 324,662
1992 1,694,530 299,608 374,451
1993 2,015,075 468,689 537,053
UNDERWRITING
The underwriting policies of the Company's insurance subsidiaries are
established by management. With respect to individual insurance, the
subsidiaries use information from the application and, in some cases, inspection
reports, attending physician statements, or medical examinations to determine
whether a policy should be issued as applied for, rated, or rejected. Medical
examinations of applicants are required for individual life insurance in excess
of certain prescribed amounts (which vary based on the type of insurance) and
for most ordinary insurance applied for by applicants over age 50. In the case
of "simplified issue" policies, which are issued primarily through the Financial
Institutions Division and the payroll deduction market, coverage is rejected if
the responses to certain health questions contained in the application indicate
adverse health of the applicant. For other than "simplified issue" policies,
medical examinations are requested of any applicant, regardless of age and
amount of requested coverage if an examination is deemed necessary to underwrite
the risk. Substandard risks may be referred to reinsurers for rating and in
some instances, full or partial reinsurance of the substandard risk.
The Company's insurance subsidiaries require blood samples to be drawn with
ordinary insurance applications for coverage at $100,000 (ages 16-50) or
$150,000 (age 51 and above). Blood samples are tested for a wide range of
chemical values and are screened for antibodies to the HIV virus. Applications
also contain questions permitted by law regarding the HIV virus which must be
answered by the proposed insureds.
Group insurance underwriting policies, which are administered by
experienced group underwriters, are similar to the underwriting policies of
other major group insurers. The underwriting policies are designed for single
employer groups. Initial premium rates are based on prior claim experience and
manual premium rates with relative weights depending on the size of the group
and the nature of the benefits.
INVESTMENTS
The Company's investment philosophy is to maintain a portfolio that is
matched with respect to yield, risk, and cash flow characteristics to its
liabilities. The types of assets in which the Company may invest are governed
by state laws which prescribe qualified investment assets. Within the
parameters of these laws, the Company invests its assets giving consideration to
such factors as liquidity needs, investment quality, investment return, matching
of assets and liabilities, and the composition of the investment portfolio by
asset type and credit exposure. Because liquidity is important, the Company
continually balances maturity against yield and quality considerations in
selecting new investments.
11
The Company's asset/liability matching practices involve monitoring of
asset and liability durations for various product lines; cash flow testing under
various interest rate scenarios; and rebalancing of assets and liabilities with
respect to yield, risk, and cash flow characteristics.
In accordance with current generally accepted accounting principles, most
of the Company's fixed maturities, equity securities, and short-term investments
are valued at market. Mortgage loans, investment real estate, policy loans, and
other long-term investments are valued at amortized cost. The following table
shows the Company's investments at December 31, 1993, valued on the basis of
generally accepted accounting principles.
PERCENT OF TOTAL
ASSET VALUE INVESTMENTS
-------------------- ----------------
(dollars in thousands)
Fixed maturities:
Bonds:
Mortgage-backed securities $1,561,587 32.8%
United States Government
and government agencies
and authorities 92,190 1.9
States, municipalities, and
political subdivisions 15,155 0.3
Public utilities 343,623 7.2
Convertibles and bonds
with warrants attached 1,254 0.0
All other corporate bonds 850,616 17.9
Bank loan participations 151,278 3.2
Redeemable preferred stocks 35,589 0.7
---------- -----
Total fixed maturities 3,051,292 64.0
---------- -----
Equity securities:
Common stocks - industrial,
miscellaneous, and all other 36,253 0.8
Nonredeemable preferred stocks 4,343 0.1
---------- -----
Total equity securities 40,596 0.9
---------- -----
Mortgage loans on real estate 1,407,744 29.5
Investment real estate 22,061 0.5
Policy loans 141,135 3.0
Other long-term investments 20,191 0.4
Short-term investments 83,692 1.7
---------- -----
Total investments $4,766,711 100.0%
---------- -----
---------- -----
Approximately 51% of the Company's bond portfolio is invested in mortgage-
backed securities. Mortgage-backed securities are based upon residential
mortgages which have been pooled into securities. Mortgage-backed securities
may have greater cash flow volatility as a result of the pass-through of
prepayments of principal on the underlying loans. Prepayments of principal on
the underlying residential loans can be expected to accelerate with decreases in
interest rates and diminish with increases in interest rates.
12
In management's view, the overall quality of the Company's investment
portfolio continues to be strong. The following table shows the approximate
percentage distribution of the Company's fixed maturities by rating (utilizing
Standard & Poor Corporation's rating categories) at December 31, 1993:
PERCENT OF
FIXED
TYPE MATURITIES
---- ----------
Bonds
AAA 52.5%
AA 7.8
A 15.1
BBB 16.2
BB or Less 2.2
Bank Loan Participations
Investment Grade 1.0
Non-Investment Grade 4.0
Redeemable Preferred Stock 1.2
-----
Total 100.0%
-----
-----
At December 31, 1993, approximately 97.7% of the Company's bond portfolio
was invested in U.S. Government-backed securities or investment grade corporate
bonds and only 2.3% of its bond portfolio was rated less than investment grade
by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
Risks associated with investments in less than investment-grade debt
obligations may be significantly higher than risks associated with investments
in debt securities rated investment grade. Risk of loss upon default by the
borrower is significantly greater with respect to such debt obligations than
with other debt securities because these obligations may be unsecured or
subordinated to other creditors. Additionally, there is often a thinly traded
market for such securities and current market quotations are frequently not
available for some of these securities. Issuers of less than investment-grade
debt obligations usually have higher levels of indebtedness and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than investment-grade issuers.
The Company also invests in those bank loan participations that are the
most senior debt issued in highly leveraged transactions. They are generally
unrated by the credit rating agencies. In selecting bank participations for
investment, the Company requires cash flows, without asset sales, to cover all
interest and scheduled amortization of the bank debt by 140% and to cover total
debt service by 110%. The debt is generally secured by most of the tangible
assets of the issuing company. Of the $151.3 million of bank loan
participations owned by the Company at December 31, 1993, $121.7 million were
classified by the Company as less than investment grade.
The Company also invests a significant portion of its portfolio in
mortgage loans. Results for these investments have been excellent due to
careful management and a focus on a specialized segment of the market. The
Company generally does not lend on speculative properties and has specialized in
making loans on either credit-oriented commercial properties, or credit-anchored
strip shopping centers in smaller towns and cities.
13
The following table shows a breakdown of the Company's mortgage loan
portfolio by property type:
PERCENTAGE OF
TOTAL
PROPERTY TYPE MORTGAGE LOANS
------------- --------------
Retail 79%
Warehouses 9
Office Building 8
Apartments 2
Mixed-use 1
Other 1
----
Total 100%
----
----
The Company's mortgage lending criteria generally require that loan-to-
value ratios on each mortgage remain at or under 75%. Rental payments from
credit anchors (i.e., excluding rental payments from smaller local tenants)
generally exceed 70% of the property's operating expenses and debt service. The
average size mortgage loan in the Company's portfolio is approximately $1.4
million. The largest single loan amount is $9.3 million.
Many of the Company's mortgage loans have call or interest rate reset
provisions after five to seven years. However, if interest rates were to
significantly increase, the Company may be unable to increase the interest rates
on its existing mortgage loans commensurate with the significantly increased
market rates, or call the loans.
At December 31, 1993, 1.9% of the mortgage loan portfolio was
nonperforming. It is the Company's policy to cease to carry accrued interest on
loans that are over 90 days delinquent. For loans less than 90 days delinquent,
interest is accrued unless it is determined that the accrued interest is not
collectible. If a loan becomes over 90 days delinquent, it is the Company's
policy to initiate foreclosure proceedings or, much less often, to adopt a
workout arrangement to bring the loan current.
As a general rule, the Company does not invest directly in real estate.
The investment real estate held by the Company consists largely of properties
obtained through foreclosures or the acquisition of other insurance companies.
At foreclosure, a new appraisal is obtained, and the value of real estate
acquired through foreclosure is valued at the lesser of the mortgage loan
balance plus costs of foreclosure or appraised value. In the Company's
experience, the appraised value of foreclosed properties often equals or exceeds
the mortgage loan balance on the property plus costs of foreclosure. Also,
foreclosed properties often generate a positive cash flow, enabling the Company
to hold and manage the property until the property can be profitably sold.
The Company has established an allowance for uncollectible amounts on
investments. This allowance was $35.9 million at December 31, 1993.
A combination of futures contracts and options on treasury notes are
currently being used in connection with a hedging program which is designed to
hedge against rising interest rates for asset/liability management of certain
investments, primarily mortgage loans on real estate, and liabilities arising
from interest sensitive products such as GICs and individual annuities.
14
Realized investment gains and losses on such contracts are deferred and
amortized over the life of the hedged asset. The Company also uses interest
rate swap contracts to effectively convert certain investments from a variable
to a fixed rate of interest.
For further discussion regarding the maturity of and the concentration of
risk among the Company's invested assets, see Note C to the Consolidated
Financial Statements.
The following table shows the investment results of the Company for the
years 1989 through 1993:
CASH, ACCRUED PERCENTAGE
INVESTMENT INCOME, EARNED ON REALIZED
YEAR ENDED AND INVESTMENTS NET AVERAGE OF CASH INVESTMENT
DECEMBER 31 AT DECEMBER 31 INVESTMENT INCOME AND INVESTMENTS GAINS (LOSSES)
- ----------- ------------------ ----------------- --------------- --------------
(dollars in thousands)
1989 $1,029,667 $ 82,453 9.5% $ 209
1990 2,077,746 136,995 9.4 (3,154)
1991 2,837,278 233,502 9.4 (3,085)
1992 3,653,074 284,069 8.9 (14)
1993 4,845,167 362,130 8.7 5,054
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES" in the Company's 1993
Annual Report to Stockholders for certain information relating to the Company's
investments and liquidity.
The Company is involved in financial guarantees of the debt of others. For
further details, see Note G to Consolidated Financial Statements.
INDEMNITY REINSURANCE
As is customary in the insurance industry, the Company's insurance
subsidiaries cede insurance to other insurance companies. The ceding insurance
company remains contingently liable with respect to ceded insurance should any
reinsurer be unable to meet the obligations assumed by it. The Company sets a
limit on the amount of insurance retained on the life of any one person. In the
individual lines it will not retain more than $500,000, including accidental
death benefits, on any one life. Certain of the term-like plans of the Company
have a retention of $50,000 per life. For group insurance, the maximum amount
retained on any one life is $100,000. At December 31, 1993, the Company had
insurance in force of $42.5 billion of which approximately $7.5 billion was
ceded to reinsurers.
RESERVES
The applicable insurance laws under which the Company's insurance
subsidiaries operate require that each insurance company report policy reserves
as liabilities to meet future obligations on the outstanding policies. These
reserves are the amounts which, with the additional premiums to be received and
interest thereon compounded annually at certain assumed rates, are calculated in
accordance with applicable law to be sufficient to meet the various policy
15
and contract obligations as they mature. These laws specify that the reserves
shall not be less than reserves calculated using certain named mortality tables
and interest rates.
The reserves carried in the Company's financial reports (presented on the
basis of generally accepted accounting principles) differ from those specified
by the laws of the various states and carried in the insurance subsidiaries'
statutory financial statements (presented on the basis of statutory accounting
principles mandated by state insurance regulation). For policy reserves other
than those for universal life policies, annuity contracts, and GICs, these
differences arise from the use of mortality and morbidity tables and interest
rate assumptions which are deemed under generally accepted accounting principles
to be more appropriate for financial reporting purposes than those required for
statutory accounting purposes; from the introduction of lapse assumptions into
the reserve calculation; and from the use of the net level premium reserve
method on all business. Policy reserves for universal life policies, annuity
contracts, and GICs are carried in the Company's financial reports at the
account value of the policy or contract.
FEDERAL INCOME TAX CONSEQUENCES
The Company's insurance subsidiaries are taxed by the federal government in
a manner similar to companies in other industries. However, certain
restrictions on consolidating life insurance company income with noninsurance
income are applicable to the Company; thus, the Company is not able to fully
consolidate the operating results of its subsidiaries for federal income tax
purposes.
Under pre-1984 tax law, certain income of the Company was not taxed
currently, but was accumulated in the "Policyholders' Surplus Account" for each
insurance company subsidiary to be taxed only when such income was distributed
to the stockholders or when certain limits on accumulated amounts were exceeded.
Consistent with current tax law, amounts accumulated in the Policyholders'
Surplus Account have been carried forward, although no accumulated income may be
added to these accounts. As of December 31, 1993, the combined Policyholders'
Surplus Accounts for the life insurance subsidiaries of the Company and the
estimated tax which would become payable on these amounts if distributed to
stockholders were $50.7 million and $17.7 million, respectively. The Company
does not anticipate any of its life insurance subsidiaries exceeding applicable
limits on amounts accumulated in these accounts and, therefore, does not expect
to involuntarily pay tax on the amounts held therein.
COMPETITION
The Company operates in a highly competitive industry. In connection with
the development and sale of its products, the Company encounters significant
competition from other insurance companies, many of which have financial
resources greater than those of the Company, as well as from other investment
alternatives available to its customers. 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. Management
believes that the Company's ability to compete is dependent upon, among other
things, its ability to attract and retain agents to market its insurance
products, its ability to develop competitive and profitable products, and its
maintenance of a high rating from rating agencies.
16
Nontraditional sources of health care coverages, such as health maintenance
organizations and preferred provider organizations, are developing rapidly in
the Company's operating territory and provide competitive alternatives to the
Company's group health products.
Banks, by offering bank investment contracts currently guaranteed by the
FDIC, provide competitive alternatives to GICs. In addition, banks and other
financial institutions may be granted approval to underwrite and sell insurance
products and compete directly with the Company.
REGULATION
Insurance companies are subject to comprehensive and detailed regulation
and supervision in the states in which they transact business. The laws of the
various jurisdictions establish supervisory agencies with broad administrative
powers relative to granting and revoking licenses to transact business,
regulating trade practices, licensing agents, approving policy forms,
establishing reserve requirements, fixing maximum interest rates on life
insurance policy loans and minimum rates for accumulation of surrender values,
prescribing the form and content of required statutory financial statements, and
regulating the type and amount of investments permitted. Insurance companies
are required to file detailed annual reports with the supervisory agencies in
each of the jurisdictions in which they do business and their business and
accounts are subject to examination by such agencies at any time. Under the
rules of the National Association of Insurance Commissioners ("NAIC"), insurance
companies are examined periodically (generally every three years) by one or more
of the supervisory agencies on behalf of the states in which they do business.
To date, no such insurance department examinations have produced any significant
adverse findings regarding any insurance company subsidiary of the Company.
Recently, the insurance regulatory framework has been placed under
increased scrutiny by various states, the federal government, and the NAIC.
Various states have considered or enacted legislation which changes, and in many
cases increases, the state's authority to regulate insurance companies.
Legislation is under consideration in Congress which would result in the federal
government assuming some role in the regulation of insurance companies. The
NAIC, in conjunction with state regulators, has been reviewing existing
insurance laws and regulations. The NAIC recently approved and recommended to
the states for adoption and implementation several regulatory initiatives
designed to reduce the risk of insurance company insolvencies. These
initiatives include a risk-based capital requirement.
A life insurance company's statutory capital is computed according to rules
prescribed by the NAIC as modified by the insurance company's state of domicile.
Statutory accounting rules are different from generally accepted accounting
principles and are intended to reflect a more conservative view. The NAIC's
risk-based capital requirements require insurance companies to calculate and
report information under a risk-based capital formula. These risk-based capital
requirements are intended to allow insurance regulators to identify inadequately
capitalized insurance companies based upon the types and mixtures of risks
inherent in the insurer's operations. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. Based upon
the December 31, 1993 statutory financial reports of the Company's insurance
subsidiaries, management believes that the Company's insurance subsidiaries are
adequately capitalized under the formula.
17
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. The Company does not believe that any
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.
In addition, several states, including the states in which the Company's
insurance subsidiaries are domiciled, have enacted legislation or adopted
regulations regarding insurance holding company systems. These laws require
registration of and periodic reporting by insurance companies domiciled within
the jurisdiction which control or are controlled by other corporations or
persons so as to constitute an insurance holding company system. These laws
also affect the acquisition of control of insurance companies as well as
transactions between insurance companies and companies controlling them. Most
states, including Tennessee, where Protective Life is domiciled, require
administrative approval of the acquisition of control of an insurance company
domiciled in the state or the acquisition of control of an insurance holding
company whose insurance subsidiary is incorporated in the state. In Tennessee,
the acquisition of 10% of the voting securities of a person is generally deemed
to be the acquisition of control for the purpose of the insurance holding
company statute and requires not only the filing of detailed information
concerning the acquiring parties and the plan of acquisition, but also
administrative approval prior to the acquisition.
Tennessee insurance laws also impose certain restrictions on Protective
Life's ability to pay dividends to the Company. Under Tennessee insurance laws,
Protective Life may only pay dividends out of that part of its available surplus
which is derived from realized statutory net profits. In addition, the
Tennessee Commissioner of Insurance must approve (or not disapprove within 30
days of notice) payment of a dividend from Protective Life which exceeds,
together with all dividends paid by Protective Life within the previous 12
months, the greater of (i) 10% of Protective Life's surplus as regards
policyholders at the preceding December 31 or (ii) the net gain from operations
of Protective Life for the 12 months ended on such December 31.
Additional issues related to regulation of the Company and its insurance
subsidiaries are discussed in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES" in the
Company's 1993 Annual Report to Stockholders.
EMPLOYEES
The Company had 990 full-time employees, including 841 in the Home Office
in Birmingham, Alabama at December 31, 1993. These employees are covered by
contributory major medical insurance, group life, and long-term disability
insurance plans. The cost of these benefits in 1993 amounted to approximately
$2.0 million for the Company. In addition, substantially all of the employees
are covered by a pension plan. The Company also matches employee contributions
to its 401(k) Plan. See Note K to Consolidated Financial Statements.
18
RECENT DEVELOPMENTS
The Clinton Administration has advocated changes to the current health care
delivery system which will address both affordability and availability issues.
The ultimate scope and effective date of any proposals are unknown at this time
and are likely to be modified as they are considered for enactment by Congress.
It is anticipated that these proposals may adversely affect certain products in
the Company's group health insurance business. In addition to the federal
initiatives, a number of states are considering legislative programs that are
intended to affect the accessibility and affordability of health care. Some
states have recently enacted health care reform legislation. These various
state programs (which could be preempted by any federal program) may also
adversely affect the Company's group health insurance business. However, in
light of the small relative proportion of the Company's earnings attributable to
group health insurance, management does not expect that either the federal or
state proposals will have a material adverse effect on the Company's earnings.
The Company has entered into a joint venture arrangement with the Lippo
Group to enter the Hong Kong insurance market. Subject to regulatory approval,
the Company and the Lippo Group will jointly own a recently acquired, inactive
Hong Kong insurer. Management anticipates that the Hong Kong insurer will
commence business in mid-1994. The Hong Kong insurer's products will be similar
to those currently being offered by the Company.
ITEM 2. PROPERTIES
The Company's Home Office building is located at 2801 Highway 280 South,
Birmingham, Alabama. This building includes the original 142,000 square-foot
building which was completed in 1976 and a second contiguous 220,000 square-foot
building which was completed in 1985. In addition, parking is provided for
approximately 1,000 vehicles.
The Company leases administrative space in Birmingham, Alabama; Brentwood,
Tennessee; Greenville, South Carolina; Cary, North Carolina; Indianapolis,
Indiana; and Oklahoma City, Oklahoma. Substantially all of these offices are
rented under leases that run for periods of three to five years. The aggregate
monthly rent is approximately $32 thousand.
Marketing offices are leased in 15 cities, substantially all under leases
for periods of three to five years with only three leases running longer than
five years. The aggregate monthly rent is approximately $31 thousand.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business of the Company, to which the
Company or any of its subsidiaries is a party or of which any of the Company's
properties is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1993 to a vote of
security holders of the Company.
19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Through Friday, October 1, 1993, the Company's Common Stock was traded on
the over-the-counter market (NASDAQ symbol: PROT) and was quoted on the NASDAQ
National Market System. On Monday, October 4, 1993, the Company's Common Stock
began trading on the New York Stock Exchange (NYSE symbol: PL). The following
table sets forth the highest and lowest closing prices of the Company's Common
Stock, $0.50 par value, as reported by NASDAQ and the New York Stock Exchange
during the periods indicated, along with the dividends paid per share of Common
Stock during the same periods.
RANGE DIVIDENDS
------------- ---------
HIGH LOW
---- ---
1992
First Quarter . . . . $26 $19 $.21
Second Quarter . . . 26 1/4 21 3/4 .23
Third Quarter . . . . 28 1/2 23 1/4 .23
Fourth Quarter . . . 30 3/4 27 1/2 .23
1993
First Quarter . . . . $33 1/2 $27 1/2 $.23
Second Quarter . . . 37 30 3/4 .26
Third Quarter . . . . 50 1/2 34 1/2 .26
Fourth Quarter . . . 52 3/8 41 7/8 .26
At February 18, 1994, there were approximately 2,170 holders of record of
Company Common Stock.
The Company (or its predecessor) has paid cash dividends each year since
1926 and each quarter since 1934. The Company expects to continue to pay cash
dividends, subject to the earnings and financial condition of the Company and
other relevant factors. The ability of the Company to pay cash dividends is
dependent in part on cash dividends received by the Company from its life
insurance subsidiaries. See Item 7 - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES"
in the Company's 1993 Annual Report to Stockholders. Such subsidiary dividends
are restricted by the various insurance laws of the states in which the
subsidiaries are incorporated. See Item 1 - "BUSINESS - REGULATION".
20
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31
--------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- ---------
(dollars in thousands, except per share amounts)
INCOME STATEMENT DATA
Premiums and policy fees . . . . . $370,758 $323,136 $273,975 $248,448 $236,830
Net investment income. . . . . . . 362,130 284,069 233,502 136,995 82,453
Realized investment gains(losses). 5,054 (14) (3,085) (3,154) 209
Other income . . . . . . . . . . . 21,695 18,835 11,556 8,197 5,231
-------- -------- -------- -------- --------
Total revenues . . . . $759,637 $626,026 $515,948 $390,486 $324,723
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Benefits and expenses. . . . . . . $674,593 $566,079 $464,245 $350,204 $292,437
Income tax expense . . . . . . . . $28,475 $17,384 $14,477 $11,279 $10,493
Minority interest. . . . . . . . . $19 $90 $1,437 $870 $0
Net income . . . . . . . . . . . $56,550(1) $41,420(2) $35,789 $28,133 $21,793
PER SHARE DATA
Net income(3). . . . . . . . . . . $4.13(1) $3.03(2) $2.62 $2.07 $1.58
Cash dividends . . . . . . . . . . $1.01 $0.90 $0.82 $0.73 $0.70
Weighted average number of
shares outstanding . . . . 13,690,789 13,657,993 13,649,031 13,611,646 13,803,885
Stockholders' equity . . . . . . . $26.34(4) $20.56 $18.44 $16.29 $15.50
DECEMBER 31
--------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- ---------
(dollars in thousands)
BALANCE SHEET DATA
Total assets . . . . . . . . . . . $5,316,005 $4,006,667 $3,120,290 $2,331,197 $1,232,280
Long-term debt . . . . . . . . . . $137,598 $31,014 $23,548 $2,079 $2,106
Total debt . . . . . . . . . . . $147,118 $88,248 $57,579 $81,145 $27,831
Stockholders' equity . . . . . . . $360,733(4) $281,400 $251,745 $222,326 $211,669
<FN>
- ---------------
(1) Reduced by $1,261 or $.09 per share representing a one-time adjustment to income tax expense due to the change in
the corporation income tax rate from 34% to 35%.
(2) Reduced by $1,053 or $.08 per share representing the cumulative effect of a change in accounting principle for the
adoption of SFAS No. 106.
(3) Net income per share is computed using the weighted average number of shares outstanding during each period.
(4) Increased by $34.6 million or $2.52 per share from the adoption of SFAS No. 115.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information regarding the Company's financial condition and results of
operations is included under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the Company's 1993 Annual
Report to Stockholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data for the Company and its
subsidiaries, which are included under the caption "CONSOLIDATED FINANCIAL
STATEMENTS" in the Company's 1993 Annual Report to Stockholders, are
incorporated herein by reference.
22
COOPERS & LYBRAND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders
Protective Life Corporation
Birmingham, Alabama
Our report on the consolidated financial statements of Protective Life
Corporation and Subsidiaries has been incorporated by reference in this
Form 10-K from page 66 of the 1993 Annual Report to Stockholders of Protective
Life Corporation. In connection with our audits of such financial statements,
we have also audited the related financial statement schedules listed in the
index on page 27 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand
- ---------------------
COOPERS & LYBRAND
Birmingham, Alabama
February 14, 1994
23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for the information concerning executive officers of the Company set
forth below, the information called for by this Item 10 is incorporated herein
by reference to the section entitled "ELECTION OF DIRECTORS AND INFORMATION
ABOUT NOMINEES" in the Company's definitive proxy statement for the Annual
Meeting of Stockholders, May 2, 1994, to be filed with the Securities and
Exchange Commission by the Company pursuant to Regulation 14A within 120 days
after the end of its 1993 fiscal year.
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Drayton Nabers, Jr. 53 President and Chief Executive
Officer and a Director
R. Stephen Briggs 44 Executive Vice President
John D. Johns 41 Executive Vice President and
Chief Financial Officer
Ormond L. Bentley 58 Senior Vice President,
Group
Deborah J. Long 40 Senior Vice President and
General Counsel
Jim E. Massengale 51 Senior Vice President
Steven A. Schultz 40 Senior Vice President,
Financial Institutions
Wayne E. Stuenkel 40 Senior Vice President
and Chief Actuary
A. S. Williams III 57 Senior Vice President,
Investments and Treasurer
Jerry W. DeFoor 41 Vice President and Controller,
and Chief Accounting Officer
24
All executive officers are elected annually and serve at the pleasure of
the Board of Directors. None is related to any director of the Company or to
any other executive officer.
Mr. Nabers was President and Chief Operating Officer and a Director from
August 1982 until May 1992, when he became President and Chief Executive
Officer. From July 1981 to August 1982, he was Senior Vice President of the
Company. Since August 1982, he has also been President of Protective Life and
had been its Senior Vice President from September 1981 to August 1982. From
February 1980 to September 1981, he served as Senior Vice President, Operations
of Protective Life. From 1979 to February 1980, he was Senior Vice President,
Operations and General Counsel of Protective Life. From February 1980 to March
1983, he served as President of Empire General Life Insurance Company, a
subsidiary, and from March 1983 to December 31, 1984, he was Chairman of the
Executive Committee of Empire General. He is also a director of Energen
Corporation and National Bank of Commerce of Birmingham.
Mr. Briggs has been Executive Vice President of the Company and of
Protective Life since October 1993. From January 1993 to October 1993, he was
Senior Vice President, Life Insurance and Investment Products of the Company and
of Protective Life. Mr. Briggs had been Senior Vice President, Ordinary
Marketing of the Company since August 1988 and of Protective Life since April
1986. From July 1983 to April 1986, he was President of First Protective
Insurance Group, Inc.
Mr. Johns has been Executive Vice President and Chief Financial Officer of
the Company and of Protective Life since October 1993. From August 1988 to
October 1993, he served as Vice President and General Counsel of Sonat, Inc. He
is a director of National Bank of Commerce of Birmingham and Parisian Services,
Inc.
Mr. Bentley has been Senior Vice President, Group of the Company since
August 1988 and of Protective Life since December 1978. Mr. Bentley has been
employed by Protective Life since October 1965.
Ms. Long has been Senior Vice President and General Counsel of the Company
and of Protective Life since February 1, 1994. From August 2, 1993 to January
31, 1994, Ms. Long served as General Counsel of the Company and from February
1984 to January 31, 1994 she practiced law with the law firm of Maynard, Cooper
& Gale, P.C.
Mr. Massengale has been Senior Vice President of the Company and of
Protective Life since May 1992. From May 1989 to May 1992, he was Senior Vice
President, Operations and Systems of the Company and Protective Life. From
January 1983 to May 1989, he served as Senior Vice President, Corporate Systems
of the Company and Protective Life.
Mr. Schultz has been Senior Vice President, Financial Institutions of the
Company and of Protective Life since March 1993. Mr. Schultz served as Vice
President, Financial Institutions of the Company from February 1993 to March
1993 and of Protective Life from February 1989 to March 1993. From June 1977
through January 1989, he was employed by and served in a number of capacities
with The Minnesota Mutual Life Insurance Company, finally serving as Director,
Group Sales.
25
Mr. Stuenkel has been Senior Vice President and Chief Actuary of the
Company and of Protective Life since March 1987. Mr. Stuenkel is a Fellow of
the Society of Actuaries and has been employed by Protective Life since
September 1978.
Mr. Williams has been Senior Vice President, Investments and Treasurer of
the Company since July 1981. Mr. Williams also serves as Senior Vice President,
Investments and Treasurer of Protective Life. Mr. Williams has been employed by
Protective Life since November 1964.
Mr. DeFoor has been Vice President and Controller, and Chief Accounting
Officer of the Company and Protective Life since April 1989. Mr. DeFoor is a
certified public accountant and has been employed by Protective Life since
August 1982.
Certain of these executive officers also serve as executive officers and/or
directors of various other Company subsidiaries.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Items 11 through 13 is incorporated herein by
reference from the Company's definitive proxy statement for the Annual Meeting
of Stockholders, May 2, 1994, to be filed with the Securities and Exchange
Commission by the Company pursuant to Regulation 14A within 120 days after the
end of its 1993 fiscal year.
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:
The following financial statements set forth in
the Company's 1993 Annual Report to Stockholders
as indicated on the following table are
incorporated by reference (See Exhibit 13).
PAGE
Report of Independent Accountants. . . . . . . . 66
Consolidated Statements of Income for the years
ended December 31, 1993, 1992, and 1991 . . . . 43
Consolidated Balance Sheets as of December 31,
1993 and 1992 . . . . . . . . . . . . . . . . . 44
26
PAGE
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1993, 1992,
and 1991. . . . . . . . . . . . . . . . . . . . 46
Consolidated Statements of Cash Flows
for the years ended December 31, 1993, 1992,
and 1991. . . . . . . . . . . . . . . . . . . . 47
Notes to Consolidated Financial Statements. . . . 48
2. Financial Statement Schedules:
The Report of Independent Accountants which covers
the financial statement schedules appears on page
23 of this report. The following schedules are
located in this report on the pages indicated.
PAGE
Schedule I - Summary of Investments -
Other Than Investments in Related Parties. . . . 33
Schedule III - Condensed Financial Information
of Registrant . . . . . . . . . . . . . . . . . 34
Schedule V - Supplementary Insurance Information . 38
Schedule VI - Reinsurance . . . . . . . . . . . . 39
Schedule IX - Short-Term Borrowings . . . . . . . 40
All other schedules to the consolidated financial
statements required by Article 7 of Regulation S-X
are not required under the related instructions or
are inapplicable and therefore have been omitted.
3. Exhibits:
Included as exhibits are the items listed below.
The Company will furnish a copy of any of the
exhibits listed upon the payment of $5.00 per
exhibit to cover the cost of the Company in
furnishing the exhibit.
ITEM NUMBER DOCUMENT
3(a) 1985 Restated Certificate of Incorporation of the Company
3(a)(1) Certificate of Amendment of 1985 Restated Certificate of
Incorporation of the Company
27
*3(a)(2) Certificate of Designation of Junior Participating
Cumulative Preferred Stock of the Company filed with the
Secretary of State of Delaware on July 14, 1987 - Filed as
Exhibit A to the Company's Form 8-K Report filed July 15,
1987
*3(a)(3) Certificate of Correction of Certificate of Designation of
Junior Participating Cumulative Preferred Stock of the
Company filed with the Secretary of State of Delaware on
July 27, 1987 - Filed as Exhibit 3(a)(4) to the Company's
Form 10-K Annual Report for the year ended December 31, 1987
*3(b) By-laws of the Company filed as Exhibit C to the Company's
Form 10 Registration Statement filed September 4, 1981
*3(b)(1) Amended By-laws of the Company filed as Exhibit B to the
Company's Form 8-K Report filed May 18, 1983
4(a) 1985 Restated Certificate of Incorporation of the Company
(filed as Exhibit 3(a))
4(a)(1) Certificate of Amendment of 1985 Restated Certificate of
Incorporation of the Company (filed as Exhibit 3(a)(1))
*10(a) Management Incentive Plan filed as Exhibit 10(a) to the
Company's Form 10-K Annual Report for the year ended
December 31, 1984
*10(a)(1) Amendment to the Company's Management Incentive Plan renamed
as the Company's Annual Incentive Plan filed as Exhibit
10(a)(1) to the Company's Form 10-Q Report filed May 14,
1990
*10(b) Performance Share Plan filed as Exhibit G to the Company's
Form 10 Registration Statement filed September 4, 1981
(expired as to new grants)
- --------------------------
*incorporated by reference 28
*10(b)(1) 1983 Performance Share Plan filed as Exhibit C to the
Company's Form 8-K Report filed May 18, 1983
*10(b)(2) The Company's 1983 Performance Share Plan (as amended March
19, 1990) filed as Exhibit 10(b)(2) to the Company's Form
10-Q Report filed May 14, 1990
*10(b)(3) The Company's 1992 Performance Share Plan filed as Exhibit
10(b)(3) to the Company's Form 10-Q filed May 15, 1992
*10(c) Excess Benefit Plan filed as Exhibit 10(c) to the Company's
Form 10-K Annual Report for the year ended December 31, 1984
*10(c)(1) Excess Benefit Plan amended and restated as of January 1,
1989 filed as Exhibit 10(c)(1) to the Company's Form 10-K
Annual Report for the year ended December 31, 1991
*10(d) Bond Purchase Agreement filed as Exhibit 10(d) to the
Company's Form 10-K Annual Report for the year ended
December 31, 1991
*10(d)(1) Escrow Agreement filed as Exhibit 10(d)(1) to the Company's
Form 10-K Annual Report for the year ended December 31, 1991
*10(e) Indemnity Agreements filed as Exhibits to the Company's Form
10-Q Report, filed August 14, 1986
*10(f) Preferred Share Purchase Rights Plan filed as Exhibit to the
Company's Form 8-A Report filed July 15, 1987, as amended
July 23 and July 29, 1987
*10(i) Form of Severance Compensation Agreement filed as Exhibit
10(i) to the Company's Form 10-K Annual Report for the year
ended December 31, 1991
*10(i)(1) Form of First Amendment to Severance Compensation Agreement
filed as Exhibit 10(i)(1) to the Company's Form 10-K Annual
Report for the year ended December 31, 1991
*10(iii)(A)(1) The Company's Deferred Compensation Plan for Directors who
are not Employees of the Company filed as Exhibit 4 to the
Company's Form S-8 filed August 27, 1993
- --------------------------
*incorporated by reference 29
*10(iii)(A)(2) The Company's Deferred Compensation Plan for Officers filed
as Exhibit 4 to the Company's Form S-8 filed January 13,
1994
13 1993 Annual Report To Stockholders
21 Organization Chart of the Company and Affiliates
23 Consent of Coopers & Lybrand
24 Power of Attorney
The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an
exhibit to this form pursuant to Item 14(c) of this Form 10-K:
Exhibit Item Numbers 10(a), 10(a)(1), 10(b), 10(b)(1), 10(b)(2),
10(b)(3), 10(c), 10(c)(1), 10(i), 10(i)(1), 10(iii)(A)(1), and
10(iii)(A)(2).
(b) Reports on Form 8-K:
(1) Form 8-K, filed February 17, 1993
- Item 5
(2) Form 8-K, filed April 28, 1993
- Item 5
(3) Form 8-K, filed July 28, 1993
- Item 5
(4) Form 8-K, filed August 4, 1993
- Item 2
- Item 7
(5) Form 8-K, filed September 14, 1993
- Item 5
(6) Form 8-K, filed October 1, 1993
- Item 5
(7) Form 8-K, filed October 28, 1993
- Item 5
- --------------------------
*incorporated by reference 30
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PROTECTIVE LIFE CORPORATION
By:/s/Drayton Nabers, Jr.
--------------------------------------
Drayton Nabers, Jr.
President and Chief Executive Officer
March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
/s/Drayton Nabers, Jr. President and Chief Executive March 25, 1994
- ------------------------- Officer (Principal Executive
DRAYTON NABERS, JR. Officer) and Director
/s/John D. Johns Executive Vice President and March 25, 1994
- ------------------------- Chief Financial Officer
JOHN D. JOHNS (Principal Financial Officer)
/s/Jerry W. DeFoor Vice President and Controller, March 25, 1994
- ------------------------- and Chief Accounting Officer
JERRY W. DEFOOR (Principal Accounting Officer)
* Chairman of the Board and March 25, 1994
- ------------------------- Director
WILLIAM J. RUSHTON III
* Director March 25, 1994
- -------------------------
JOHN W. WOODS
* Director March 25, 1994
- -------------------------
CRAWFORD T. JOHNSON III
31
* Director March 25, 1994
- -------------------------
WILLIAM J. CABANISS, JR.
* Director March 25, 1994
- -------------------------
H. G. PATTILLO
* Director March 25, 1994
- -------------------------
EDWARD L. ADDISON
* Director March 25, 1994
- -------------------------
JOHN J. MCMAHON, JR.
* Director March 25, 1994
- -------------------------
A. W. DAHLBERG
* Director March 25, 1994
- -------------------------
JOHN W. ROUSE, JR.
* Director March 25, 1994
- -------------------------
ROBERT T. DAVID
* Director March 25, 1994
- -------------------------
RONALD L. KUEHN, JR.
* Director March 25, 1994
- -------------------------
HERBERT A. SKLENAR
- --------------------
*Drayton Nabers, Jr., by signing his name hereto, does sign this document
on behalf of each of the persons indicated above pursuant to powers of attorney
duly executed by such persons and filed with the Securities and Exchange
Commission.
By: /s/Drayton Nabers, Jr.
--------------------------------------
DRAYTON NABERS, JR.
Attorney-in-fact
32
SCHEDULE I - SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1993
(in thousands)
COL. A COL. B COL. C COL. D
------ ------ ------ ------
AMOUNT AT
WHICH SHOWN
IN BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
------------------ ---------- ---------- ----------
Fixed maturities:
Bonds:
Mortgage-backed securities $1,531,012 $1,561,587 $1,561,587
United States Government and
government agencies and
authorities 89,372 92,190 92,190
States, municipalities, and
political subdivisions 15,024 15,155 15,155
Public utilities 339,613 343,623 343,623
Convertibles and bonds with
warrants attached 1,421 1,254 1,254
All other corporate bonds 822,505 850,616 850,616
Bank loan participations 151,278 151,278 151,278
Redeemable preferred stocks 35,445 35,589 35,589
---------- ---------- ----------
Total fixed maturities 2,985,670 3,051,292 3,051,292
---------- ---------- ----------
Equity securities:
Common stocks - industrial,
miscellaneous, and all other 29,259 36,253 36,253
Nonredeemable preferred stocks 4,072 4,343 4,343
---------- ---------- ----------
Total equity securities 33,331 40,596 40,596
---------- ---------- ----------
Mortgage loans on real estate 1,407,744 ******** 1,407,744
Investment real estate 22,061 ******** 22,061
Policy loans 141,135 ******** 141,135
Other long-term investments 20,191 ******** 20,191
Short-term investments 83,692 ******** 83,692
---------- ----------
Total investments $4,693,824 ******** $4,766,711
---------- ----------
---------- ----------
33
SCHEDULE III - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
STATEMENTS OF INCOME
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(in thousands)
1993 1992 1991
------- ------- -------
REVENUES
Dividends from subsidiaries* $ (91) $ 6,261 $ 5,992
Service fees from subsidiaries* 21,143 26,766 25,372
Realized investment gains 140
Investment income 4,276 2,976 2,820
Other income 3,662 154 158
------- ------- -------
28,990 36,297 34,342
------- ------- -------
EXPENSES
Operating and administrative 25,340 24,302 17,680
Interest - subsidiaries* 579 246
Interest - others 5,300 4,221 4,657
------- ------- -------
30,640 29,102 22,583
------- ------- -------
INCOME BEFORE FEDERAL INCOME
TAX AND OTHER ITEMS BELOW (1,650) 7,195 11,759
INCOME TAX EXPENSE (BENEFIT) (1,325) (503) 2,368
------- ------- -------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES (325) 7,698 9,391
EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE* 56,875 34,775 26,398
------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 56,550 42,473 35,789
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (1,053)
------- ------- -------
NET INCOME $56,550 $41,420 $35,789
------- ------- -------
------- ------- -------
<FN>
*Eliminated in consolidation.
See notes to condensed financial statements.
34
SCHEDULE III - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
BALANCE SHEETS
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
(in thousands)
DECEMBER 31
--------------------
1993 1992
-------- --------
ASSETS
Investments:
Short-term investments $ 1,997 $ 850
Long-term investments 1,041
Investment real estate 133 133
Investments in subsidiaries (equity method)* 473,313 338,160
-------- --------
475,443 340,184
Cash 408 209
Receivables from subsidiaries* 50,285 41,835
Other receivables 229
Accrued income taxes 1,216 2,973
Other 1,225 774
-------- --------
Total Assets $528,577 $386,204
-------- --------
-------- --------
LIABILITIES
Accrued expenses and other liabilities $ 19,027 $ 14,406
Deferred income taxes 1,817 4,198
Short-term debt:
Banks 9,500 57,200
Long-term debt:
Banks 137,500 29,000
-------- --------
Total Liabilities 167,844 104,804
-------- --------
STOCKHOLDERS' EQUITY
Preferred Stock
Junior Participating Cumulative
Preferred Stock
Common Stock 7,834 7,834
Additional paid-in capital 70,469 70,335
Net unrealized gains on investments
(all from subsidiaries, net of
income tax: 1993 - $21,153; 1992 - $1,628) 39,284 3,156
Retained earnings (including undistributed
income of subsidiaries: 1993 - $307,833;
1992 - $250,958) 267,361 224,638
Treasury stock (18,359) (18,363)
Unallocated stock in Employee Stock Ownership Plan (5,856) (6,200)
-------- --------
Total Stockholders' Equity 360,733 281,400
-------- --------
$528,577 $386,204
-------- --------
-------- --------
<FN>
*Eliminated in consolidation.
See notes to condensed financial statements.
35
SCHEDULE III - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
STATEMENTS OF CASH FLOWS
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(in thousands)
1993 1992 1991
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $56,550 $41,420 $35,789
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net income
of subsidiaries* (56,875) (34,775) (26,398)
Deferred income taxes (2,381) 1,038 3,178
Gain on sale of subsidiary (3,522)
Other (net) 7,725 (6,209) 14,352
------- ------- -------
Net cash provided by operating activities 1,497 1,474 26,921
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of and/or additional investments
in subsidiaries* (41,806) (675) (14,008)
Loan to subsidiary* (20,000) (19,700)
Principal payments received on loan
to subsidiary* 11,550 4,500 1,000
Sale of subsidiary 2,091
Change in other long-term
investments 1,041 4,134 (5,175)
Change in short-term investments (1,147) 499 (549)
------- ------- -------
Net cash used in investing activities (48,271) (11,242) (18,732)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on line of credit
arrangements and long-term debt (7,500) (13,000) (50,743)
Proceeds from borrowing under line of
credit arrangements and long-term debt 68,300 43,700 48,900
Principal payments on long-term debt
to subsidiary* (8,997) (281)
Proceeds from borrowing under
long-term debt to subsidiary* 5,318
Dividends to stockholders (13,827) (12,304) (11,210)
------- ------- -------
Net cash provided by (used in) financing
activities 46,973 9,399 (8,016)
------- ------- -------
INCREASE (DECREASE) IN CASH 199 (369) 173
CASH AT BEGINNING OF YEAR 209 578 405
------- ------- -------
CASH AT END OF YEAR $ 408 $ 209 $ 578
------- ------- -------
------- ------- -------
<FN>
*Eliminated in consolidation.
See notes to condensed financial statements.
36
SCHEDULE III - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The Company publishes consolidated financial statements that are its primary
financial statements. Therefore, these parent company condensed financial
statements are not intended to be the primary financial statements of the
Company, and should be read in conjunction with the consolidated financial
statements and notes thereto of Protective Life Corporation and subsidiaries.
NOTE 1 - DEBT
At December 31, 1993, the Company had borrowed $118.0 million of its $138
million revolving line of credit. In addition, the Company has borrowed $29.0
million under an installment note. Future maturities of this note are $9.5
million in 1994, $9.5 million in 1995, and $10.0 million in 1996.
NOTE 2 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1993 1992 1991
------ ------ -------
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest Paid to Banks $5,540 $4,131 $ 4,657
Interest Paid to Subsidiary* 613 246
------ ------ -------
$5,540 $4,744 $ 4,903
------ ------ -------
------ ------ -------
Income Taxes (reduced by amounts received
from affiliates under a tax sharing
agreement) $ (701) $ 437 $ (526)
------ ------ -------
------ ------ -------
NONCASH INVESTING AND FINANCING ACTIVITIES
Reissuance of Treasury Stock to ESOP $ 3 $ 16 $ 28
------ ------ -------
------ ------ -------
Unallocated Stock in ESOP $ 344 $ 345 $ 345
------ ------ -------
------ ------ -------
Reissuance of Treasury Stock $ 135 $1,003
------ ------
------ ------
NOTE 3 - SUBSIDIARY SURPLUS DEBENTURES
Protective Life Insurance Company ("Protective Life") has issued surplus
debentures to the Company in order to finance acquisitions and growth. At
December 31, 1993, the balance of the surplus debentures was $48.9 million. The
surplus debentures are included in receivables from subsidiaries. Protective
Life must obtain the approval of the Commissioner of Insurance before it may
repay any portion of the surplus debenture.
NOTE 4 - SALE OF SUBSIDIARY
On January 27, 1993, Protective Life contributed (in the form of a dividend) its
80% ownership interest in the common stock of Southeast Health Plan, Inc.
("SEHP"). Because SEHP was in a deficit position, the transaction was recorded
as a "negative" dividend by the Company. On August 6, 1993, the Company sold
its ownership interest in SEHP. The sale has been accounted for in a manner
similar to an installment sale. A gain of $3.5 million is included in the
Company's 1993 other income.
- ----------------------------
*Eliminated in consolidation.
37
SCHEDULE V - SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
(in thousands)
COL. A COL. B COL. C COL. D COL. E COL. F
------ ------ ------ ------ ------ ------
GIC AND
FUTURE ANNUITY
DEFERRED POLICY DEPOSITS AND PREMIUMS
POLICY BENEFITS OTHER AND
ACQUISITION AND UNEARNED POLICYHOLDERS' POLICY
SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES
------- ----------- -------- -------- -------------- ---------
Year Ended
December 31, 1993:
Agency $129,265 $ 483,604 $ 368 $ 11,762 $ 77,338
Group 20,520 99,412 2,786 83,522 126,027
Financial Institutions 59,163 39,508 85,042 2,913 87,355
Investment Products 19,210 52,516 0 789,668 856
Guaranteed Investment
Contracts 1,464 0 0 2,015,075 0
Acquisitions 69,942 705,487 501 259,513 58,561
Corporate and Other 20 318 88 339 20,621
Unallocated Realized
Investment Gains (Losses) 0 0 0 0 0
-------- ---------- -------- ---------- --------
TOTAL $299,584 $1,380,845 $ 88,785 $3,162,792 $370,758
-------- ---------- -------- ---------- --------
-------- ---------- -------- ---------- --------
Year Ended
December 31, 1992:
Agency $110,408 $382,025 $ 2 $ 8,847 $ 62,776
Group 14,801 66,551 2,422 77,671 112,985
Financial Institutions 49,684 20,207 71,878 3,246 56,990
Investment Products 30,517 27,051 0 626,171 586
Guaranteed Investment
Contracts 2,256 0 0 1,694,530 0
Acquisitions 65,868 428,991 655 80,458 48,068
Corporate and Other 1,678 4,767 220 439 41,731
Unallocated Realized
Investment Gains (Losses) 0 0 0 0 0
-------- ---------- -------- ---------- --------
TOTAL $275,212 $929,592 $75,177 $2,491,362 $323,136
-------- ---------- -------- ---------- --------
-------- ---------- -------- ---------- --------
Year Ended
December 31, 1991:
Agency $ 87,801 $317,221 $ 2 $ 6,932 $ 55,755
Group 10,285 63,217 1,895 73,693 112,317
Financial Institutions 25,513 5,815 34,541 432 31,267
Investment Products 20,791 17,280 0 392,214 205
Guaranteed Investment
Contracts 2,985 0 0 1,264,603 0
Acquisitions 65,873 406,622 880 82,634 50,104
Corporate and Other 2,163 8,453 1,531 591 24,327
Unallocated Realized
Investment Gains (Losses) 0 0 0 0 0
-------- ---------- -------- ---------- --------
TOTAL $215,411 $818,608 $38,849 $1,821,099 $273,975
-------- ---------- -------- ---------- --------
-------- ---------- -------- ---------- --------
COL. A COL. G COL. H COL. I COL. J
------ ------ ------ ------ ------
AMORTIZATION
BENEFITS OF DEFERRED
NET REALIZED AND POLICY OTHER
INVESTMENT INVESTMENT SETTLEMENT ACQUISITION OPERATING
SEGMENT INCOME(1) GAINS(LOSSES) EXPENSES COSTS EXPENSES(1)
------- ---------- ------------- ---------- ------------- -----------
EXPENSES(1)
Year Ended
December 31, 1993:
Agency $ 34,154 $ 0 $ 55,973 $18,069 $ 17,548
Group 14,522 0 101,266 2,271 29,492
Financial Institutions 8,956 0 42,840 31,202 15,273
Investment Products 66,706 2,003 49,569 12,822 14,793
Guaranteed Investment
Contracts 166,058 1,175 137,379 1,170 3,279
Acquisitions 65,290 0 73,463 7,832 12,715
Corporate and Other 6,444 0 13,394 239 34,004
Unallocated Realized
Investment Gains (Losses) 0 1,876 0 0 0
-------- -------- -------- ------- --------
TOTAL $362,130 $ 5,054 $473,884 $73,605 $127,104
-------- -------- -------- ------- --------
-------- -------- -------- ------- --------
Year Ended
December 31, 1992:
Agency $ 27,723 $ 0 $ 49,755 $11,493 $ 16,457
Group 12,620 0 93,380 1,664 27,003
Financial Institutions 6,084 0 25,342 22,121 11,502
Investment Products 46,618 473 37,021 4,517 9,629
Guaranteed Investment
Contracts 137,654 962 117,321 1,267 5,495
Acquisitions 45,543 0 56,901 7,404 9,298
Corporate and Other 7,827 0 29,837 485 28,187
Unallocated Realized
Investment Gains (Losses) 0 (1,449) 0 0 0
-------- -------- -------- ------- --------
TOTAL $284,069 $ (14) $409,557 $48,951 $107,571
-------- -------- -------- ------- --------
-------- -------- -------- ------- --------
Year Ended
December 31, 1991:
Agency $ 24,611 $ 0 $ 44,316 $10,639 $ 13,550
Group 12,425 0 97,794 1,153 22,483
Financial Institutions 4,108 0 8,917 17,008 5,669
Investment Products 30,674 119 25,336 2,238 7,777
Guaranteed Investment
Contracts 105,217 (519) 91,485 826 2,559
Acquisitions 45,742 0 55,195 8,230 8,928
Corporate and Other 10,725 0 23,548 170 16,424
Unallocated Realized
Investment Gains (Losses) 0 (2,685) 0 0 0
-------- -------- -------- ------- --------
TOTAL $233,502 $(3,085) $346,591 $40,264 $ 77,390
-------- -------- -------- ------- --------
-------- -------- -------- ------- --------
<FN>
(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.
38
SCHEDULE VI - REINSURANCE
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
(dollars in thousands)
COL. A COL. B COL. C COL. D COL. E COL. F
------ ------ ------ ------ ------ ------
PERCENTAGE
CEDED TO ASSUMED FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED TO
AMOUNT COMPANIES COMPANIES AMOUNT NET
------ ----------- ------------ ----------- ------------
Year Ended
December 31, 1993:
Life insurance
in force $40,149,017 $7,484,566 $2,301,577 $34,966,028 6.6%
----------- ---------- ---------- ----------- ----
----------- ---------- ---------- ----------- ----
Premiums and
policy fees:
Life insurance $ 230,706 $ 37,995 $ 8,329 $ 201,040 4.1%
Accident/health
insurance 254,672 88,917 3,963 169,718 2.3%
----------- ---------- ---------- -----------
TOTAL $ 485,378 $ 126,912 $ 12,292 $ 370,758
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Year Ended
December 31, 1992:
Life insurance
in force $33,811,280 $6,982,127 $ 665,733 $27,494,886 2.4%
----------- ---------- ---------- ----------- ----
----------- ---------- ---------- ----------- ----
Premiums and
policy fees:
Life insurance $ 180,018 $ 34,824 $ 16,092 $ 161,286 10.0%
Accident/health
insurance 228,192 74,531 8,189 161,850 5.1%
----------- ---------- ---------- -----------
TOTAL $ 408,210 $ 109,355 $ 24,281 $ 323,136
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Year Ended
December 31, 1991:
Life insurance
in force $30,158,445 $5,292,080 $ 419,172 $25,285,537 1.7%
----------- ---------- ---------- ----------- ----
----------- ---------- ---------- ----------- ----
Premiums and
policy fees:
Life insurance $ 161,366 $ 28,378 $ 8,997 $ 141,985 6.3%
Accident/health
insurance 191,937 61,550 1,603 131,990 1.2%
----------- ---------- ---------- -----------
TOTAL $ 353,303 $ 89,928 $ 10,600 $ 273,975
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
39
SCHEDULE IX - SHORT-TERM BORROWINGS
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
(dollars in thousands)
COL. A COL. B COL. C COL. D COL. E COL. F
------ ------ ------ ------ ------ ------
WEIGHTED
MAXIMUM AVERAGE AVERAGE
WEIGHTED AMOUNT AMOUNT INTEREST
BALANCE AVERAGE OUTSTANDING OUTSTANDING RATE
CATEGORY OF AGGREGATE AT END INTEREST DURING DURING DURING
SHORT-TERM BORROWINGS OF PERIOD RATE THE PERIOD THE PERIOD THE PERIOD
- --------------------- --------- -------- ----------- ----------- ----------
Year Ended
December 31, 1993:
Banks None None $ 70,950 $36,821 4.1%
Repurchase Agreements None None 145,228 18,749 4.2
Year Ended
December 31, 1992:
Banks $49,700 4.3% 91,800 42,603 4.9
Year Ended
December 31, 1991:
Banks 29,500 6.5 92,200 43,141 7.6
Repurchase Agreements None None 29,155 4,009 6.3
40
EXHIBITS TO FORM 10-K
OF
PROTECTIVE LIFE CORPORATION
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1993
INDEX TO EXHIBITS
PAGE
3(a)....................................................................
3(a)(1).................................................................
13 .....................................................................
21 .....................................................................
23 .....................................................................
24 .....................................................................