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.
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
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
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.
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
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.
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:
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.
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.
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.
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.
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:
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.
The following table shows a breakdown of the Company's mortgage loan portfolio by property type:
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.
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:
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
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.
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.
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.
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.


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.
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.
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.
PART II
ITEM 5.
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.
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".
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
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.

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.
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
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.


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
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.
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.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.
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.
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
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
*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,
*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,
*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,
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
* 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
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES DECEMBER 31, 1993 (in thousands)
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)
See notes to condensed financial statements.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS PROTECTIVE LIFE CORPORATION (PARENT COMPANY) (in thousands)
See notes to condensed financial statements.
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)
See notes to condensed financial statements.
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
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.
SCHEDULE V - SUPPLEMENTARY INSURANCE INFORMATION PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES (in thousands)
SCHEDULE VI - REINSURANCE PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES (dollars in thousands)
SCHEDULE IX - SHORT-TERM BORROWINGS PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES (dollars in thousands)
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 .....................................................................