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
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