S&P Affirms Protective Life Insurance and Related Units Ratings

Jan 25, 2002, 00:00 ET from Standard & Poor's

    NEW YORK, Jan. 25 /PRNewswire/ -- Standard & Poor's today affirmed its
 double-'A'/'A-1'-plus counterparty credit and financial strength ratings on
 Protective Life Insurance Co. (Protective). At the same time, Standard &
 Poor's affirmed its double-'A' financial strength ratings on Empire General
 Life Assurance Corp., Protective Life and Annuity Insurance Co., and West
 Coast Life Insurance Co., which are Protective's explicitly supported
 subsidiaries. In addition, Standard & Poor's affirmed its single-'A' senior
 unsecured debt and triple-'B'-plus preferred stock ratings on Protective's
 parent, Protective Life Corp. The outlook is stable.
     The affirmations reflect Protective's very strong and well-diversified
 business position, extremely strong capitalization, very strong earnings and
 liquidity, strong investment portfolio with minimal credit risk, and adequate
 financial flexibility. Partially offsetting these positive factors is
 Protective's heavy reliance on reinsurance, which might restrict its pricing
 flexibility, and its above-average exposure to interest rate risk from its
 large proportion of MBS (24% of invested assets). Standard & Poor's does not
 expect any impact on the rating because of the recent change of chief
 executive officer.
     Major Rating Factors:
     -- Protective has a very strong and diversified business profile, with a
 solid position in the individual life, annuity, guaranteed investment contract
 (GIC), and credit life markets. A profitable acquisition line of business that
 acquires in-force blocks of policies and small insurance companies complements
 these businesses. Most of the growth has been in product lines that are
 considered commodity-like products--such as term life insurance and fixed
 annuities--or from opportunistic line of business, such as stable-value
 products or acquisitions of life insurance blocks.
     -- Operating performance is considered very strong based on a Standard &
 Poor's consolidated GAAP earnings adequacy ratio of 292%. The group
 demonstrated a track record of positive net income growth in the last four
 years because of careful expense management, tight underwriting, and above-
 average investment return. On the other hand, ROE has declined to 12% as of
 Sept. 30, 2001, compared with 17% in 1997. In addition, the company has well-
 diversified returns but is also very reliant on reinsurance. Standard & Poor's
 expects earnings to grow about 10% in 2002 because of the new acquisitions,
 the exit of the dental business, and improvement in the diversification of
 earnings. ROE is expected to be in the 12%-13% range as the company spends
 more capital in acquisitions.
     -- Capitalization is extremely strong and enhanced by Protective's access
 to the capital markets. On a consolidated basis, the group's capital adequacy
 ratio, based on Standard & Poor's model, was 232% at year-end 2000 and is
 expected to remain stable in 2001 despite the use of outside capital to make
 three acquisitions: Standard Life Insurance Co., Inter-State Insurance Co.,
 and First Variable Life Insurance Co. As of Sept. 30, 2001, the company
 reported a debt-plus-preferred to capital ratio of 30% and interest coverage
 of 7.7 times (x), which are acceptable for the current rating level.
     -- Liquidity is very strong, with a Standard & Poor's liquidity ratio of
 237% at year-end 2000. Liquidity is enhanced by the company's stringent
 asset/liability management and product characteristics that deter early
     -- Protective's investment portfolio is viewed as strong. Investment
 performance is above average, and invested assets are of high quality, with an
 adequate duration match between its asset and liability. Protective has some
 exposure to interest rate risk, as a substantial proportion of assets are
 invested in MBS (24% of invested assets) and commercial real estate, with 23%
 of its assets in commercial mortgages. The company reduces this exposure
 somewhat through diversification, excellent risk management, and the
 implementation of a hedging program. As a result, Protective has very little
 exposure to the Enron Corp. and Kmart Corp. bankruptcies.
     Protective Life Insurance Co. Empire General Life Assurance Corp.,
 Protective Life and Annuity Insurance Co., and West Coast Life Insurance Co.
 are Security Circle insurers, which means that they voluntarily underwent
 Standard & Poor's most comprehensive analysis and were assigned ratings in one
 of the top four categories for financial security.
     In the next few years, Standard & Poor's expects capitalization to remain
 very strong, with a Standard & Poor's capital adequacy ratio of at least 170%.
 Sales in all the divisions are expected to increase 10% or more annually as
 the company continues to growth in its nontraditional distribution channels.
 GAAP ROA is expected to be in excess of 200 basis points as the new
 acquisition start to contribute to the bottom line and the company exits the
 less-profitable business. In addition, liquidity is expected to remain very
 strong. Financial leverage ratios are expected to remain appropriate for the
 company's rating category, with interest coverage of 7x-10x and
 debt-plus-preferred leverage of about 30%.

SOURCE Standard & Poor's