-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HLfQQkeT/yHyYinoKFD/Gk+Cf/hIAWynLMTWnAKmHXcpWYGtWoBSbdUqoGwSHIrr w7WLLIOk1KR9rqCIiRceyQ== 0000310826-01-500020.txt : 20020410 0000310826-01-500020.hdr.sgml : 20020410 ACCESSION NUMBER: 0000310826-01-500020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTECTIVE LIFE INSURANCE CO CENTRAL INDEX KEY: 0000310826 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 630169720 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-31940 FILM NUMBER: 1787061 BUSINESS ADDRESS: STREET 1: 2801 HIGHWAY 280 SOUTH CITY: BIRMINGHAM STATE: AL ZIP: 35223 BUSINESS PHONE: 2058799230 MAIL ADDRESS: STREET 1: PO BOX 2606 CITY: BIRMINGHAM STATE: AL ZIP: 35202 10-Q 1 plico10q3q01.htm 10Q ___________________________________________________________________________

FORM 10-Q

_____________

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from _ to _

Commission File Numbers 33-31940; 33-39345; 33-57052;333-02249

Protective Life Insurance Company

(Exact name of Registrant as specified in its charter)

		TENNESSEE	63-0169720
		(State or other jurisdiction	(IRS Employer
		incorporation or organization)	Identificiation No.

2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223

(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (205) 879-9230

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[ ]

Number of shares of Common Stock, $1.00 par value, outstanding as of November 9, 2001: 5,000,000 shares.

The registrant meets the conditions set forth in General Instruction H(1)(a)and (b) of Form 10-Q and
is therefore filing this Form with the reduced disclosure format pursuant to General Instruction H(2)

PROTECTIVE LIFE INSURANCE COMPANY

INDEX


Part I.  Financial Information:
   Item 1.  Financial Statements:
       Report of Independent Accountants........................................
       Consolidated Condensed Statements of Income for the Three and
           Nine Months ended September 30, 2001 and 2000 (unaudited)............
       Consolidated Condensed Balance Sheets as of September 30, 2001
           (unaudited) and December 31, 2000....................................
       Consolidated Condensed Statements of Cash Flows for the
           Nine Months ended September 30, 2001 and 2000 (unaudited)............
       Notes to Consolidated Condensed Financial Statements (unaudited).........

   Item 2.  Management's Narrative Analysis of the Results of Operations........

Part II.  Other Information:
   Item 6.  Exhibits and Reports on Form 8-K....................................

Signature.......................................................................

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Share Owner
Protective Life Insurance Company

We have reviewed the accompanying consolidated condensed balance sheet of Protective Life Insurance Company and subsidiaries as of September 30, 2001, and the related consolidated condensed statements of income for each of the three-month and nine-month periods ended September 30, 2001 and 2000, and the consolidated condensed statements of cash flows for the nine-month periods ended September 30, 2001 and 2000. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2000, and the related consolidated statements of income, share-owner’s equity, and cash flows for the year then ended (not presented herein), and in our report dated March 1, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2000 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Birmingham, Alabama
November 8, 2001


                                                   PROTECTIVE LIFE INSURANCE COMPANY
                                              CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                                        (DOLLARS IN THOUSANDS)
                                                              (UNAUDITED)



                                                                THREE  MONTHS ENDED         NINE  MONTHS ENDED
                                                                   SEPTEMBER 30                 SEPTEMBER 30
                                                               2001           2000          2001           2000
                                                               ----           ----          ----           ----
REVENUES
    Premiums and policy fees ..........................   $   420,745    $   377,852    $ 1,260,231    $ 1,118,089
    Reinsurance ceded .................................      (192,542)      (199,680)      (554,307)      (585,344)
                                                             ---------      ---------     ----------     ----------
Premiums and policy fees, net of reinsurance ceded ....       228,203        178,172        705,924        532,745
    Net investment income .............................       211,918        176,295        613,815        512,961
    Realized investment gains (losses)
      Derivative financial instruments ................         6,415          1,080          6,918            580
      All other investments ...........................       (10,900)        (6,932)        (9,934)        (7,842)
    Other income ......................................        13,484         12,607         40,083         38,710
                                                             ---------      ---------    -----------    -----------
                                                              449,120        361,222      1,356,806      1,077,154
                                                             ---------      ---------    -----------    -----------
BENEFITS AND EXPENSES
    Benefits and settlement expenses
      (net of reinsurance ceded:
      three months: 2001 - $179,043; 2000 - $131,984
      nine months: 2001 - $371,256; 2000 - $371,234) ..       288,292        233,117        900,046        691,629
    Amortization of deferred policy acquisition costs .        34,584         38,054         95,203        107,018
    Amortization of goodwill ..........................         2,075            505          6,224          1,372
    Other operating expenses (net of reinsurance ceded:
      three months: 2001 - $33,675; 2000 - $48,461
      nine months: 2001 - $119,138; 2000 - $131,268) ..        67,063         40,784        191,122        134,316
                                                             ---------      ---------    -----------      ---------
                                                              392,014        312,460      1,192,595        934,335
                                                             ---------      ---------    -----------      ---------
INCOME BEFORE INCOME TAX ..............................        57,106         48,762        164,211        142,819

Income tax expense ....................................        18,561         17,274         55,931         50,504
                                                             ---------      ---------    -----------      ---------

INCOME BEFORE CUMULATIVE EFFECT OF
    CHANGE IN ACCOUNTING PRINCIPLE ....................        38,545         31,488        108,280         92,315

Cumulative effect of change in accounting principle ...                                      (8,341)
                                                             ---------      ---------    -----------      ---------
NET INCOME ............................................   $    38,545    $    31,488    $    99,939    $    92,315
                                                             =========      =========    ===========      =========


See notes to consolidated condensed financial statements


                                                   PROTECTIVE LIFE INSURANCE COMPANY
                                                 CONSOLIDATED CONDENSED BALANCE SHEETS
                                                        (DOLLARS IN THOUSANDS)

                                                                    SEPTEMBER 30   DECEMBER 31
                                                                        2001           2000
                                                                    ------------   ------------
                                                                     (UNAUDITED)
ASSETS
   Investments:
     Fixed maturities, at market ...............................   $  9,512,577    $  7,390,110
     Equity securities, at market ..............................         62,830          41,792
     Mortgage loans on real estate .............................      2,507,560       2,268,224
     Investment in real estate, net of accumulated depreciation          20,810          12,566
     Policy loans ..............................................        329,762         230,527
     Other long-term investments ...............................        179,646          66,646
     Short-term investments ....................................         79,682         172,699
                                                                    ------------    ------------
       Total investments .......................................     12,692,867      10,182,564

   Cash ........................................................        256,193          33,517
   Accrued investment income ...................................        147,547         121,996
   Accounts and premiums receivable, net .......................        108,825          72,189
   Accounts receivable - investments ...........................        558,900
   Reinsurance receivables .....................................      1,152,856       1,099,574
   Deferred policy acquisition costs ...........................      1,374,836       1,189,380
   Goodwill, net ...............................................        235,577         241,831
   Property and equipment, net .................................         50,530          51,166
   Other assets ................................................        243,814         120,874
   Receivable from related parties .............................                          4,768
   Assets related to separate accounts
     Variable Annuity ..........................................      1,514,327       1,841,439
     Variable Universal Life ...................................         65,193          63,504
     Other .....................................................          3,923           3,746
                                                                    ------------    ------------
                                                                   $ 18,405,388    $ 15,026,548
                                                                    ============    ============
LIABILITIES
   Policy liabilities and accruals .............................   $  6,949,790    $  5,969,002
   Stable value investment contract deposits ...................      3,838,608       3,177,863
   Annuity deposits ............................................      2,407,805       1,916,894
   Other policyholders' funds ..................................        144,780         125,336
   Accounts payable - investments ..............................        939,951
   Other liabilities ...........................................        407,584         324,901
   Accrued income taxes ........................................         37,377         (10,932)
   Deferred income taxes .......................................        170,726          72,065
   Debt:
     Notes payable .............................................          2,297           2,315
   Indebtedness to related parties .............................          8,000          10,000
   Liabilities related to separate accounts
     Variable Annuity ..........................................      1,514,327       1,841,439
     Variable Universal Life ...................................         65,193          63,504
     Other .....................................................          3,923           3,746
                                                                    ------------    ------------
                                                                     16,490,361      13,496,133
                                                                    ------------    ------------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B

SHARE-OWNER'S EQUITY
   Preferred Stock, $1.00 par value, shares authorized and
     issued:  2,000, liquidation preference $2,000 .............              2               2
   Common Stock, $1.00 par value, shares authorized and
     issued: 5,000,000  ........................................          5,000           5,000
   Additional paid-in capital ..................................        762,419         632,805
   Note receivable from PLC Employee Stock Ownership Plan ......         (4,498)         (4,841)
   Retained earnings ...........................................      1,038,465         948,819
   Accumulated other comprehensive income (loss):
     Net unrealized gains (losses) on investments (net of income
       tax: 2001 - $61,190; 2000 - $(27,661)) ..................        113,639         (51,370)
                                                                    ------------    ------------
                                                                      1,915,027       1,530,415
                                                                    ------------    ------------
                                                                   $ 18,405,388    $ 15,026,548
                                                                    ============    ============

See notes to consolidated condensed financial statements

PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

NINE MONTHS ENDED
SEPTEMBER 30
-----------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................ $ 99,939 $ 92,315
Adjustments to reconcile net income to net cash
provided by operating activities:
Realized investment gains ....................................... 3,016 7,262
Amortization of deferred policy acquisition costs ............... 95,203 111,866
Capitalization of deferred policy acquisition costs ............. (232,630) (266,820)
Depreciation expense ............................................ 9,031 6,824
Deferred income tax ............................................. 20,736 15,273
Accrued income tax .............................................. 48,310 40,580
Amortization of goodwill ........................................ 6,224 1,372
Interest credited to universal life and investment products ..... 681,442 633,147
Policy fees assessed on universal life and investment products .. (155,106) (147,933)
Change in accrued investment income and other receivables ....... (90,065) 44,609
Change in policy liabilities and other policyholders' funds
of traditional life and health products ....................... (2,560) (84,801)
Change in other liabilities ..................................... 79,047 (19,344)
Other (net) ..................................................... (21,444) 5,970
--------- ---------
Net cash provided by operating activities ......................... 541,143 440,320
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments
Investments available for sale .................................. 2,467,861 9,400,353
Other ........................................................... 206,937 35,696
Sale of investments
Investments available for sale .................................. 1,977,264 580,406
Other ........................................................... 1,363 66,795
Cost of investments acquired
Investments available for sale .................................. (5,827,327) (10,253,006)
Corporate owned life insurance .................................. (100,000)
Other ........................................................... (119,025) (307,318)
Acquisitions and bulk reinsurance assumptions ..................... 137,754 (150,903)
Purchase of property and equipment ................................ (8,053) (4,164)
----------- -----------
Net cash used in investing activities ............................. (1,263,226) (632,141)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit arrangements and debt 1,284,100 1,590,400
Principal payments on line of credit arrangements and debt ........ (1,284,100) (1,578,500)
Capital contribution from PLC ..................................... 111,000 59,000
Principal payment on surplus notes to PLC ......................... (2,000) (2,000)
Investment product deposits and change in universal life deposits . 1,537,164 1,533,505
Investment product withdrawals .................................... (701,405) (1,379,119)
----------- -----------
Net cash provided by financing activities ......................... 944,759 223,286
----------- -----------
INCREASE IN CASH ..................................................... 222,676 31,465
CASH AT BEGINNING OF PERIOD .......................................... 33,517 0
----------- -----------
CASH AT END OF PERIOD ................................................ $ 256,193 $ 31,465
=========== ===========
See notes to consolidated condensed financial statements

PROTECTIVE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements of Protective Life Insurance Company and subsidiaries (“Protective Life”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the consolidated financial statements and notes thereto included in the Protective Life’s annual report on Form 10-K for the year ended December 31, 2000.

Protective Life is a wholly-owned subsidiary of Protective Life Corporation ("PLC").

NOTE B - COMMITMENTS AND CONTINGENT LIABILITIES

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. Protective Life does not believe 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.

A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive non-economic compensatory damages. In some states, juries, judges and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments in any given lawsuit. In addition, in some class action and other lawsuits, companies have made material settlement payments. Protective Life, like other financial service companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, Protective Life believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of Protective Life.

NOTE C - OPERATING SEGMENTS

Protective Life operates seven divisions whose principal strategic focuses can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. The following table sets forth operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses) and the recognition of income tax expense and the cumulative effect of change in accounting principle. There are no asset adjustments.


                                                      OPERATING SEGMENT INCOME FOR THE
                                                    THREE MONTHS ENDED SEPTEMBER 30, 2001
                                    ----------------------------------------------------------------
                                                                (IN THOUSANDS)
                                                                              SPECIALTY INSURANCE
                                                 LIFE INSURANCE                    PRODUCTS
                                      INDIVIDUAL                               DENTAL   FINANCIAL
                                         LIFE     WEST COAST   ACQUISITIONS   BENEFITS INSTITUTIONS
                                      ---------- ------------  ------------   -------- ------------
Premiums and policy fees .........   $  96,489    $  33,870    $  52,538    $  85,975    $ 129,614
Reinsurance ceded ................     (75,625)     (27,376)      (9,193)      (8,334)     (68,339)
                                       --------     --------      -------      -------     --------
   Net of reinsurance ceded ......      20,864        6,494       43,345       77,641       61,275
Net investment income ............      19,803       26,351       46,228        2,444       11,823
Realized investment gains (losses)
Other income .....................         394                                  4,526        7,751
                                       --------     --------     --------     --------     --------
       Total revenues ............      41,061       32,845       89,573       84,611       80,849
                                       --------     --------     --------     --------     --------
Benefits and settlement expenses .      22,777       21,009       59,715       50,593       34,911
Amortization of deferred policy
   acquisition costs .............         873       4,192        7,000        1,898       13,938
Amortization of goodwill .........                                              1,368          707
Other operating expenses .........       2,482       (3,914)       6,912       24,015       22,828
                                       --------     --------     --------     --------     --------
       Total benefits and expenses      26,132       21,287       73,627       77,874       72,384
                                       --------     --------     --------     --------     --------
Income before income tax .........      14,929       11,558       15,946        6,737        8,465

                                         RETIREMENT SAVINGS AND
                                          INVESTMENT PRODUCTS
                                         STABLE                CORPORATE
                                         VALUE    INVESTMENT      AND                      TOTAL
                                        PRODUCTS   PRODUCTS      OTHER     ADJUSTMENTS  CONSOLIDATED
                                        --------  ----------   ----------  -----------  ------------
Premiums and policy fees .........                $   6,948    $  15,311                 $ 420,745
Reinsurance ceded ................                                (3,675)                 (192,542)
                                                     -------     --------                 ---------
   Net of reinsurance ceded ......                    6,948       11,636                   228,203
Net investment income ............   $  66,373       44,188       (5,292)                  211,918
Realized investment gains (losses)       5,233        1,046                 $ (10,764)      (4,485)
Other income .....................                      875          (62)                   13,484
                                       --------     --------     ---------    --------    ---------
       Total revenues ............      71,606       53,057        6,282      (10,764)     449,120
                                       --------     --------     ---------    --------    ---------
Benefits and settlement expenses .      57,117       36,246        5,924                   296,072
Amortization of deferred policy
   acquisition costs .............         503        5,693          487                    26,804
Amortization of goodwill .........                                                           2,075
Other operating expenses .........         986        5,956        7,798                    67,063
                                       --------     --------     --------                 ---------
       Total benefits and expenses      58,606       47,895       14,209                   392,014
                                       --------     --------     --------                 ---------
Income before income tax .........      13,000        5,162       (7,927)                   57,106
Income tax expense ...............                                             18,561       18,561
Cumulative effect of change in
   accounting principle
       Net income ................                                                       $  38,545
                                                                                          =========

                                                      OPERATING SEGMENT INCOME FOR THE
                                                     THREE MONTHS ENDED SEPTEMBER 30, 2000
                                    ----------------------------------------------------------------
                                                                (IN THOUSANDS)
                                                                              SPECIALTY INSURANCE
                                                LIFE INSURANCE                     PRODUCTS

                                     INDIVIDUAL                               DENTAL     FINANCIAL
                                        LIFE      WEST COAST  ACQUISITIONS   BENEFITS   INSTITUTIONS
                                     ----------   ----------  ------------   --------   ------------
Premiums and policy fees .........   $  84,161    $  30,978    $  33,045    $  69,763    $ 121,150
Reinsurance ceded ................     (62,308)     (24,177)      (7,240)     (23,107)     (66,531)
                                       --------     --------     --------     --------     --------
   Net of reinsurance ceded ......      21,853        6,801       25,805       46,656       54,619
Net investment income ............      15,630       22,787       29,077        1,876       11,390
Realized investment gains (losses)
Other income .....................        (879)                        9        4,291        7,439
                                       --------     --------     --------     --------     --------
       Total revenues ............      36,604       29,588       54,891       52,823       73,448
                                       --------     --------     --------     --------     --------
Benefits and settlement expenses .      16,355       21,252       32,141       32,960       34,725
Amortization of deferred policy
   acquisition costs .............       8,423        4,205        4,252        1,676       12,598
Amortization of goodwill .........                                                             505
Other operating expenses .........       2,036       (5,357)       5,929       11,980       16,653
                                       --------     --------     --------     --------     --------
       Total benefits and expenses      26,814       20,100       42,322       46,616       64,481
                                       --------     --------     --------     --------     --------
Income before income tax .........       9,790        9,488       12,569        6,207        8,967


                                      RETIREMENT SAVINGS AND
                                       INVESTMENT PRODUCTS

                                       STABLE                   CORPORATE
                                       VALUE      INVESTMENT       AND                      TOTAL
                                      PRODUCTS     PRODUCTS       OTHER    ADJUSTMENTS   CONSOLIDATED
                                      --------    ----------     --------  -----------   ------------
Premiums and policy fees .........                $   7,849    $  30,906                 $ 377,852
Reinsurance ceded ................                               (16,317)                 (199,680)
                                                     -------     --------                 ---------
   Net of reinsurance ceded ......                    7,849       14,589                   178,172
Net investment income ............   $  61,417       35,138       (1,020)                  176,295
Realized investment gains (losses)      (2,183)          37                 $  (3,706)      (5,852)
Other income .....................                      870          877                    12,607
                                       --------     --------     --------      -------    ---------
       Total revenues ............      59,234       43,894       14,446       (3,706)     361,222
                                       --------     --------     --------      -------    ---------
Benefits and settlement expenses .      53,270       28,963       13,451                   233,117
Amortization of deferred policy
   acquisition costs .............         229        6,230          441                    38,054
Amortization of goodwill .........                                                             505
Other operating expenses .........         879        4,349        4,315                    40,784
                                       --------     --------     --------      -------    ---------
       Total benefits and expenses      54,378       39,542       18,207                   312,460
                                       --------     --------     --------      -------    ---------
Income before income tax .........       4,856        4,352       (3,761)                   48,762
Income tax expense ...............                                             17,274       17,274
Cumulative effect of change in
   accounting principle
       Net income ................                                                       $  31,488
                                                                                           ========

                                                      OPERATING SEGMENT INCOME FOR THE
                                                     NINE MONTHS ENDED SEPTEMBER 30, 2001
                                    ------------------------------------------------------------------
                                                                 (IN THOUSANDS)

                                                                             SPECIALTY INSURANCE
                                               LIFE INSURANCE                      PRODUCTS

                                      INDIVIDUAL                             DENTAL      FINANCIAL
                                        LIFE       WEST COAST ACQUISITIONS  BENEFITS    INSTITUTIONS
                                      ----------   ---------- ------------  ---------   ------------
Premiums and policy fees .........   $ 282,106    $  94,888    $ 154,893    $ 267,716    $ 377,891
Reinsurance ceded ................    (202,041)     (60,915)     (29,541)     (35,117)    (202,576)
                                      ---------     --------    ---------    ---------    ---------
   Net of reinsurance ceded ......      80,065       33,973      125,352      232,599      175,315
Net investment income ............      54,703       75,622      131,793        7,163       35,366
Realized investment gains (losses)
Other income .....................         819                       (52)      13,473       22,531
                                      ---------    ---------    ---------    ---------    ---------
       Total revenues ............     135,587      109,595      257,093      253,235      233,212
                                      ---------    ---------    ---------    ---------    ---------
Benefits and settlement expenses .      87,371       72,734      173,086      153,369      108,515
Amortization of deferred policy
   acquisition costs .............       8,217       11,336       14,341        5,410       36,440
Amortization of goodwill .........                                              4,104        2,120
Other operating expenses .........       3,374       (7,351)      21,517       67,561       60,019
                                      ---------    ---------    ---------    ---------    ---------
       Total benefits and expenses      98,962       76,719      208,944      230,444      207,094
                                      ---------    ---------    ---------    ---------    ---------
Income before income tax .........      36,625       32,876       48,149       22,791       26,118

                                        RETIREMENT SAVINGS AND
                                         INVESTMENT PRODUCTS

                                         STABLE                       CORPORATE
                                         VALUE        INVESTMENT         AND                        TOTAL
                                        PRODUCTS       PRODUCTS         OTHER     ADJUSTMENTS    CONSOLIDATED
                                       ----------     -----------     ----------  -----------    ------------
Premiums and policy fees .........                  $    21,420    $    61,317                   $ 1,260,231
Reinsurance ceded ................                                     (24,117)                     (554,307)
   Net of reinsurance ceded ......                       21,420         37,200                       705,924
Net investment income ............   $   196,117        122,047         (8,996)                      613,815
Realized investment gains (losses)         7,928          1,070                   $   (12,014)        (3,016)
Other income .....................                        2,599            713                        40,083
                                        ---------      ---------       --------       --------    -----------
       Total revenues ............       204,045        147,136         28,917        (12,014)     1,356,806
                                        ---------      ---------       --------       --------    -----------
Benefits and settlement expenses .       167,617         99,782         37,572                       900,046
Amortization of deferred policy
   acquisition costs .............         1,111         17,011          1,337                        95,203
Amortization of goodwill .........                                                                     6,224
Other operating expenses .........         2,967         17,809         25,226                       191,122
                                        ---------      ---------       --------       -------     -----------
       Total benefits and expenses       171,695        134,602         64,135                     1,192,595
                                        ---------      ---------       --------       -------     -----------
Income before income tax .........        32,350         12,534        (35,218)                      164,211
Income tax expense ...............                                                     55,931         55,931
Cumulative effect of change in
   accounting principle ..........                                                     (8,341)        (8,341)
                                                                                                    ---------
       Net income ................                                                               $    99,939
                                                                                                    =========

                                                     OPERATING SEGMENT INCOME FOR THE
                                                   NINE MONTHS ENDED SEPTEMBER 30, 2000
                                     -----------------------------------------------------------------
                                                              (IN THOUSANDS)

                                                                            SPECIALTY INSURANCE
                                                LIFE INSURANCE                    PRODUCTS

                                      INDIVIDUAL                              DENTAL      FINANCIAL
                                         LIFE     WEST COAST  ACQUISITIONS   BENEFITS    INSTITUTIONS
                                      ----------  ----------  ------------   --------    ------------

Premiums and policy fees ..........   $ 250,557    $  99,939    $ 101,803    $ 198,136    $ 355,686
Reinsurance ceded .................    (178,942)     (78,426)     (22,151)     (60,069)    (197,362)
                                       ---------     --------     --------     --------    ---------
   Net of reinsurance ceded .......      71,615       21,513       79,652      138,067      158,324
Net investment income .............      44,966       66,999       87,992        6,640       33,692
Realized investment gains (losses)
Other income ......................      (2,446)                        9       11,028       22,467
                                       ---------     --------    ---------    ---------    ---------
       Total revenues .............     114,135       88,512      167,653      155,735      214,483
                                       ---------     --------    ---------    ---------    ---------
Benefits and settlement expenses ..      62,365       64,670       96,691      100,633       99,674
Amortization of deferred policy
   acquisition costs ..............      22,957       10,120       13,179        4,715       35,371
Amortization of goodwill ..........                                                           1,372
Other operating expenses ..........        (665)     (12,651)      18,635       35,714       52,681
                                        --------     --------    ---------    ---------    ---------
       Total benefits and expenses       84,657       62,139      128,505      141,062      189,098
                                        --------     --------    ---------    ---------    ---------
Income before income tax ..........      29,478       26,373       39,148       14,673       25,385


                                         RETIREMENT SAVINGS AND
                                          INVESTMENT PRODUCTS

                                         STABLE                       CORPORATE
                                         VALUE         INVESTMENT        AND                        TOTAL
                                        PRODUCTS        PRODUCTS        OTHER      ADJUSTMENTS   CONSOLIDATED
                                        --------       ----------     ---------    -----------   ------------
Premiums and policy fees .........                  $    22,858    $    89,110                   $ 1,118,089
Reinsurance ceded ................                                     (48,394)                     (585,344)
                                                        --------       --------                    ----------
   Net of reinsurance ceded ......                       22,858         40,716                       532,745
Net investment income ............   $   178,850         95,810         (1,988)                      512,961
Realized investment gains (losses)        (2,272)           457                   $    (5,447)        (7,262)
Other income .....................                        2,260          5,392                        38,710
                                        ---------      ---------       --------        -------    -----------
       Total revenues ............       176,578        121,385         44,120         (5,447)     1,077,154
                                        ---------      ---------       --------        -------    -----------
Benefits and settlement expenses .       152,299         78,837         36,460                       691,629
Amortization of deferred policy
   acquisition costs .............           658         18,298          1,720                       107,018
Amortization of goodwill .........                                                                     1,372
Other operating expenses .........         2,907         13,011         24,684                       134,316
                                        ---------      ---------       --------                     ---------
       Total benefits and expenses       155,864        110,146         62,864                       934,335
                                        ---------      ---------       --------                     ---------
Income before income tax .........        20,714         11,239        (18,744)                      142,819
Income tax expense ...............                                                     50,504         50,504
                                                                                                    ---------
       Net income ................                                                               $    92,315
                                                                                                    =========

                                                        OPERATING SEGMENT ASSETS
                                                           SEPTEMBER 30, 2001
                                    --------------------------------------------------------------
                                                             (IN THOUSANDS)

                                                                            SPECIALTY INSURANCE
                                                LIFE INSURANCE                    PRODUCTS

                                     INDIVIDUAL                               DENTAL   FINANCIAL
                                       LIFE      WEST COAST  ACQUISITIONS    BENEFITS INSTITUTIONS
                                     ----------  ----------  ------------   --------- ------------

Investments and other assets ....   $1,516,896   $1,734,832   $2,429,131   $  192,332   $1,077,983
Deferred policy acquisition costs
   and goodwill .................      497,935      315,094      292,569      212,247      165,541
                                     ---------    ---------    ---------     ---------   ---------
       Total assets .............   $2,014,831   $2,049,926   $2,721,700   $  404,579   $1,243,524
                                     =========    =========   ==========     ========    =========

                                     RETIREMENT SAVINGS AND
                                       INVESTMENT PRODUCTS

                                       STABLE                   CORPORATE
                                        VALUE     INVESTMENT       AND           TOTAL
                                      PRODUCTS     PRODUCTS       OTHER       CONSOLIDATED
                                    ------------  -----------   -----------   ------------
Investments and other assets ....   $ 3,995,087   $ 3,985,603   $ 1,863,111    $16,794,975
Deferred policy acquisition costs
   and goodwill .................         6,899       144,246       (24,118)     1,610,413
                                      ---------     ---------     ---------     ----------
       Total assets .............   $ 4,001,986   $ 4,129,849   $ 1,838,993    $18,405,388
                                      =========     =========     =========     ==========

                                                      OPERATING SEGMENT ASSETS
                                                          DECEMBER 31, 2000
                                    ---------------------------------------------------------------
                                                            (IN THOUSANDS)


                                                                           SPECIALTY INSURANCE
                                               LIFE INSURANCE                    PRODUCTS

                                    INDIVIDUAL                                DENTAL    FINANCIAL
                                       LIFE     WEST COAST  ACQUISITIONS     BENEFITS  INSTITUTIONS
                                    ----------  ----------  ------------     --------  ------------
Investments and other assets ....   $1,237,867   $1,576,577   $1,604,854   $  192,906   $1,369,915
Deferred policy acquisition costs
   and goodwill .................      354,320      276,518      223,430      214,770      150,984
                                     ---------    ---------    ---------      -------    ---------
       Total assets .............   $1,592,187   $1,853,095   $1,828,284   $  407,676   $1,520,899
                                     =========    =========    =========      =======    =========


                                      RETIREMENT SAVINGS AND
                                       INVESTMENT PRODUCTS

                                       STABLE                      CORPORATE
                                       VALUE       INVESTMENT         AND        TOTAL
                                      PRODUCTS      PRODUCTS         OTHER    CONSOLIDATED
                                     ----------    ----------      ---------  ------------
Investments and other assets ....   $ 3,340,099   $ 3,844,168   $   428,951   $13,595,337
Deferred policy acquisition costs
   and goodwill .................         2,144       127,334        81,711     1,431,211
                                     ----------     ---------       -------    ----------
       Total assets .............   $ 3,342,243   $ 3,971,502   $   510,662   $15,026,548
                                     ==========     =========       =======    ==========

NOTE D - STATUTORY REPORTING PRACTICES

Financial statements prepared in conformity with accounting principles generally accepted in the United States of America (i.e., GAAP) differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. At September 30, 2001, and for the nine months then ended, Protective Life and its life insurance subsidiaries had combined share-owner’s equity and a net loss prepared in conformity with statutory reporting practices of $629.2 million and $63.5 million, respectively. The net loss was primarily due to the payment of a reinsurance-ceding commission to coinsure a block of individual life policies from Standard Insurance Company.

The National Association of Insurance Commissioners (“NAIC”) has adopted the Codification of Statutory Accounting Principles (“Codification”). Codification changed statutory accounting rules in several areas and was effective January 1, 2001. The adoption of Codification did not have a material effect on Protective Life’s statutory capital.

NOTE E - INVESTMENTS

As prescribed by Statement of Financial Accounting Standard (“SFAS”) No. 115, certain investments are recorded at their market values with the resulting net unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, recorded as a component of share-owner’s equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the application of SFAS No. 115 does not affect Protective Life’s operations, its reported share-owner’s equity will fluctuate significantly as interest rates change.

Protective Life’s balance sheets at September 30, 2001 and December 31, 2000, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows:



                                    September 30  December 31
                                    ------------  -----------
                                          (In Thousands)

Total investments ...............   $12,483,615   $10,258,809
Deferred policy acquisition costs     1,409,259     1,192,696
All other assets ................     4,337,685     3,654,604
                                     ----------    ----------
                                    $18,230,559   $15,106,109
                                     ==========    ==========

Deferred income taxes ...........   $   109,536   $   100,256
All other liabilities ...........    16,319,635    13,424,068
                                     ----------    ----------
                                     16,429,171    13,524,324
Share-owner's equity ............     1,801,388     1,581,785
                                     ----------    ----------
                                    $18,230,559   $15,106,109
                                     ==========    ==========

NOTE F - RECENTLY ISSUED ACCOUNTING STANDARDS

On January 1, 2001, Protective Life adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133, as amended by SFAS No. 137 and 138, will require Protective Life to record derivative financial instruments, at fair value on the balance sheet. Changes in fair value of a derivative instrument are reported in net income or other comprehensive income, depending on the designated use of the derivative instrument. The adoption of SFAS No. 133 resulted in a cumulative after-tax charge to net income of $8.3 million and a cumulative after-tax increase to other comprehensive income of $4.0 million on January 1, 2001. The charge to net income and increase to other comprehensive income primarily resulted from the recognition of derivative instruments embedded in the Company’s corporate bond portfolio. In addition, the charge to net income includes the recognition of the ineffectiveness on existing hedging relationships including the difference in spot and forward exchange rates related to foreign currency swaps used as an economic hedge of foreign-currency-denominated stable value contracts. Prospectively, the adoption of SFAS No. 133 may introduce volatility into Protective Life’s reported net income and other comprehensive income depending on future market conditions and Protective Life’s hedging activities.

In September 2000 the Financial Accounting Standards Board (“FASB”) issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinquishments of Liabilities, a replacement of SFAS No. 125". SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets. This Statement is effective for transfers and servicing of financial assets and extinquishments of liabilities occurring after March 31, 2001. The adoption of this accounting standard did not have a material effect on Protective Life’s financial position or results of operations.

In June 2001, the FASB issued SFAS Nos. 141, “Business Combinations”, and 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires that business combinations initiated after June 30, 2001, be accounted for using the purchase method. SFAS No. 142 revises the standards for accounting for acquired goodwill and other intangible assets. This statement is effective for fiscal years beginning after December 15, 2001, and effective for any goodwill or intangible asset acquired after June 30, 2001. Protective Life does not expect the adoption of SFAS No. 142 to have a material effect on Protective Life’s financial position or results of operations.

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires that companies record the fair value of a liability for an asset retirement obligation in the period in which the liability is incurred. The Statement is effective for fiscal years beginning after June 15, 2002. Protective Life does not expect the adoption of SFAS No. 143 to have a material effect on Protective Life’s financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 requires that the same accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and expands the use of discontinued operations accounting to include more types of transactions. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Protective Life does not expect the adoption of SFAS No. 144 to have a material effect on Protective Life’s financial position or results of operations.

NOTE G - DERIVATIVES AND HEDGING ACTIVITIES

Protective Life utilizes a risk management strategy that incorporates the use of derivative instruments, primarily to reduce its exposure to interest rate risk as well as currency exchange risk.

Combinations of interest rate swap contracts, options and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments and mortgage-backed securities. Interest rate swap contracts generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date. Interest rate futures generally involve exchange traded contracts to buy or sell treasury bonds and notes in the future at specified prices. Interest rate options represent contracts that allow the holder of the option to receive cash or purchase, sell or enter into a financial instrument at a specified price within a specified period of time. Protective Life uses interest rate swap contracts, caps, and floors to modify the interest characteristics of certain investments. Swap contracts are also used to alter the effective durations of assets and liabilities. Protective Life uses foreign currency swaps to reduce its exposure to currency exchange risk on certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.

Derivative instruments expose Protective Life to credit and market risk. Protective Life minimizes its credit risk by entering into transactions with highly rated counterparties. Protective Life manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken.

Protective Life monitors its use of derivatives in connection with its overall asset/liability management programs and procedures. Protective Life’s asset/liability committee is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into Protective Life’s overall interest rate and currency exchange risk management strategies.

All derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is entered into, Protective Life designates the derivative as (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value” hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge), or (3) as an other derivative either held for investment purposes or held as a natural hedging instrument designed to act as an economic hedge against the changes in value or cash flows of a hedged item (“other” derivative). Changes in the fair value of a derivative that is highly effective as – and that is designated and qualifies as – a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as – and that is designated and qualified as – a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows. Changes in the fair value of other derivatives are recognized in current earnings and reported in Realized Investment Gains (Losses) – Derivative Financial Instruments in Protective Life’s consolidated condensed statements of income.

Protective Life formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. Protective Life also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, Protective Life discontinues hedge accounting prospectively, as discussed below.

Protective Life discontinues hedge accounting prospectively when (1) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) the derivative is dedesignated as a hedge instrument, because it is unlikely that a forecasted transaction will occur; (4) because a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument is no longer appropriate.

When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative will continue to be carried on the balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative will continue to be carried on the balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment will be removed from the balance sheet and recognized as a gain or loss in current-period earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all other situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the balance sheet, with changes in its fair value recognized in current-period earnings.

Fair-Value Hedges

Protective Life has designated, as a fair value hedge, callable interest rate swaps used to modify the interest characteristics of certain stable value contracts. In assessing hedge effectiveness, Protective Life excludes the embedded call option’s time value component from each derivative’s total gain or loss. For the nine months ended September 30, 2001, total measured ineffectiveness for the fair value hedging relationships was insignificant while the excluded time value component resulted in a pre-tax gain of $1.2 million. Both the measured ineffectiveness and the excluded time value component are reported in Realized Investment Gains (Losses) – Derivative Financial Instruments in Protective Life’s consolidated condensed statements of income.

Cash-Flow Hedges

Protective Life has not designated any hedging relationships as a cash flow hedge.

Other Derivatives

Protective Life uses certain interest rate swaps, caps, floors, options and futures contracts as economic hedges against the changes in value or cash flows of outstanding mortgage loan commitments and certain owned investments of Protective Life. For the nine months ended September 30, 2001, Protective Life recognized total pre-tax gains of $5.7 million representing the change in fair value of these derivative instruments.

On its foreign currency swaps, Protective Life recognized a $0.9 million pre-tax loss for the first nine months of fiscal 2001 while recognizing a $6.1 million foreign exchange pre-tax gain on the related foreign-currency-denominated stable value contracts. The net gain primarily results from the difference in the forward and spot exchange rates used to revalue the currency swaps and the stable value contracts, respectively. This net gain is reflected in Realized Investment Gains (Losses) – Derivative Financial Instruments in Protective Life’s consolidated condensed statements of income.

Protective Life has entered into asset swap arrangements to effectively sell the equity options embedded in owned convertible bonds in exchange for a interest rate swap that converts the remaining host bond to a variable rate instrument. For the nine months ended September 30, 2001, Protective Life recognized a $12.0 million pre-tax gain for the change in the asset swaps’ fair value and recognized a $17.2 million pre-tax loss to separately record the embedded equity options at fair value.

NOTE H - COMPREHENSIVE INCOME

The following table sets forth Protective Life’s comprehensive income for the periods shown:

                                                  THREE MONTHS ENDED     NINE MONTHS ENDED
                                                     SEPTEMBER 30           SEPTEMBER 30
                                                  -------------------    ------------------
                                                     2001       2000       2001       2000
                                                     ----       ----       ----       ----
Net income ....................................   $ 38,545   $ 31,488   $ 99,939   $ 92,315
Increase in net unrealized gains
   on investments (net of income tax:
   three months: 2001 - $58,125; 2000 - $39,584
   nine months: 2001 - $83,247; 2000 - $32,645)    107,946     73,513    154,601     60,626
Reclassification adjustment for amounts
   included in net income (net of income tax:
   three months: 2001 - $3,815; 2000 -$2,426
   nine months: 2001 - $3,477; 2000 - $2,745) .      7,085      4,506      6,457      5,097
Transition adjustment on derivative financial
   instruments (net of income tax:
   nine months: 2001 - $2,127) ................                            3,951
                                                   -------    -------    -------    -------
Comprehensive income ..........................   $153,576   $109,507   $264,948   $158,038
                                                   =======    =======    =======    =======

NOTE I - SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for the periods presented below:

                                                        NINE MONTHS ENDED
                                                           SEPTEMBER 30
                                                     ----------------------
                                                        2001        2000
                                                        ----        ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash paid during the period:
     Interest on debt ...........................   $     921    $   2,447
     Income taxes ...............................         431       12,383
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
   FINANCING ACTIVITIES
   Reduction of principal on note from ESOP .....         342          307
   Acquisitions and bulk reinsurance assumptions
     Assets acquired, net of cash ...............     658,200      496,221
     Liabilities assumed ........................    (795,954)    (345,318)
     Equity from subsidiary transfer ............      (7,772)
                                                     ---------    ---------
     Net ........................................   $(145,526)   $ 150,903
                                                     =========    =========

NOTE J - ACQUISITION

On October 1, 2001, PLC announced that Protective Life had completed the acquisition of the stock of Inter-State Assurance Company and First Variable Life Insurance Company from Ilona Financial Group, Inc., a subsidiary of Irish Life & Permanent plc of Dublin, Ireland. The purchase price was approximately $250 million. The companies’ business primarily consists of universal life insurance products and fixed and variable annuities, representing approximately 170,000 policies, $160 million of annual premiums, and $1.6 billion of reserves.

NOTE K - RECLASSIFICATIONS

Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets, or share-owner’s equity.

NOTE L - PENDING SALE OF DENTAL BENEFITS DIVISION

On July 10, 2001, PLC announced that it had entered into an agreement to sell substantially all of its Dental Benefits Division to Fortis, Inc. for approximately $300 million. Substantially all of the Dental Benefits Division is owned by Protective Life. Protective Life anticipates that the transaction will close in December 2001, and will be accounted for as discontinued operations. The transaction is subject to regulatory approval and certain customary closing conditions. Protective Life will realize a pretax gain on the sale, but will incur income tax expense and exit costs that currently are estimated to result in a loss after income tax of approximately $23.9 million. Protective Life will also discontinue other health insurance lines that are operated by the Dental Benefits Division, but are currently reported in the Corporate and Other segment. These other health insurance lines reported a loss in the second quarter of 2001 of approximately $16.0 million due to reserve strengthening.

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS

Protective Life Insurance Company (“Protective Life”) is a wholly-owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company whose common stock is traded on the New York Stock Exchange under the symbol “PL”. Founded in 1907, Protective Life provides financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires “Protective Life” refers to the consolidated group of Protective Life Insurance Company and its subsidiaries.

In accordance with General Instruction H(2)(a), Protective Life includes the following analysis with the reduced disclosure format.

Protective Life operates seven divisions whose principal strategic focuses can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. Protective Life’s Divisions are: Individual Life, West Coast, Acquisitions, Dental Benefits, Financial Institutions, Stable Value Products, and Investment Products. Protective Life also has an additional business segment which is Corporate and Other.

This report includes “forward-looking statements” which express expectations of future events and/or results. All statements based on future expectations rather than on historical facts are forward-looking statements that involve a number of risks and uncertainties, and Protective Life cannot give assurance that such statements will prove to be correct. Please refer to Exhibit 99 herein for more information about factors which could affect future results.

The following discussion and analysis primarily relates to the nine months ended September 30, 2001, as it compares to the same period last year. Unless otherwise noted, the general factors discussed also apply to the quarter ended September 30, 2001, as it compares to the same quarter last year. Where needed for a more complete understanding of Protective Life’s operating results, information related to the quarters ended September 30, 2001 and 2000 has been provided. It is management’s opinion that quarterly operating results for insurance enterprises are not necessarily indicative of results to be achieved in succeeding quarters, and that a review of operating results over a longer period yields a better understanding of Protective Life’s performance.

Revenues

The following table sets forth revenues by source for the period shown, and the percentage change from the prior period:

                                            THREE MONTHS                   NINE MONTHS
                                               ENDED                          ENDED
                                            SEPTEMBER 30                   SEPTEMBER 30
                                     ---------------------------   ---------------------------
                                                          (IN THOUSANDS)
                                          2001           2000           2001          2000
                                          ----           ----           ----          ----
Premiums and policy fees .........   $   228,203    $   178,172    $   705,924    $   532,745
Net investment income ............       211,918        176,295        613,815        512,961
Realized investment gains (losses)
  Derivative financial instruments         6,415          1,080          6,918            580
  All other investments ..........       (10,900)        (6,932)        (9,934)        (7,842)
Other income .....................        13,484         12,607         40,083         38,710
                                         -------        -------      ---------      ---------
                                     $   449,120    $   361,222    $ 1,356,806    $ 1,077,154
                                         =======        =======      =========      =========

Premiums and policy fees, net of reinsurance ceded, increased $173.2 million or 32.5% in the first nine months of 2001 over the nine months of 2000. Premiums and policy fees in the Individual Life Division increased $8.5 million in the first nine months of 2001 as compared to the same period in 2000. Premiums and policy fees in the West Coast Division increased $12.5 million in the first nine months of 2001 as compared to the same period in 2000. Premiums and policy fees in the Acquisitions Division are expected to decline with time unless new acquisitions are made. In the first quarter of 2001 Protective Life coinsured a block of individual life policies from Standard Insurance Company. This coinsurance arrangement resulted in a $52.2 million increase in premium and policy fees. Premiums and policy fees from older acquired blocks decreased $6.5 million in the first nine months of 2001 as compared to the same period last year. In October 2000, PLC transferred ownership of twenty companies (that provide prepaid dental products) to Protective Life. In May 2001, PLC transferred ownership of five additional companies (that provide prepaid dental products) to Protective Life. The operations of these companies are included in Protective Life’s Dental Benefits Division and resulted in a $88.9 million increase in premium and policy fees in the Division in the first nine months of 2001. Premiums and policy fees related to the Dental Benefits Division’s other businesses increased $5.6 million in the first nine months of 2001 as compared to the same period in 2000. Premiums and policy fees from the Financial Institutions Division increased $17.0 million in the first nine months of 2001 as compared to the first nine months of 2000. Premiums and policy fees from the Investment Products Division decreased $1.4 million in the first nine months of 2001 as compared to the same period last year. Premiums and policy fees relating to various health insurance lines in the Corporate and Other segment decreased $3.5 million in the first nine months of 2001 as compared to the same period in 2000.

Net investment income in the first nine months of 2001 increased by $100.9 million over the corresponding period of the preceding year primarily due to an increase in the average amount of invested assets. The January 2001 acquisition of a block of individual life policies resulted in an increase in investment income of $41.9 million.

Protective Life generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash-flow needs. However, Protective Life may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, Protective Life has classified its fixed maturities and certain other securities as “available for sale.” The sales of investment that have occurred have resulted principally from portfolio management decisions to maintain approximate matching of assets and liabilities.

Realized investment gains related to derivative financial instruments were $6.9 million for the first nine months of 2001 compared to gains of $0.6 million in the same period of 2000. Realized investment losses related to all other investments were $9.9 million for the first nine months of 2001 compared to a loss of $7.8 million for the corresponding period of 2000. During the third quarter of 2001, Protective Life recorded other than temporary impairments in its investments of $12.6 million.

Other income consists primarily of revenues from Protective Life’s direct response business, service contract business, non-insurance subsidiaries and rental of space in its administrative building to PLC. In the first nine months of 2001 as compared to the same period of 2000, revenues from Protective Life’s direct response business and service contract business increased $1.7 million and decreased $2.0 million, respectively. Income from other sources increased $1.7 million.

Income Before Income Tax

The following table sets forth operating income or loss and income or loss before income tax by business segment for the periods shown:

                            OPERATING INCOME (LOSS) AND INCOME (LOSS) BEFORE INCOME TAX
                                                 (IN THOUSANDS)

                                                         THREE MONTHS ENDED       NINE MONTHS ENDED
                                                            SEPTEMBER 30             SEPTEMBER 30
                                                         ------------------       ------------------
                                                         2001         2000         2001         2000
                                                         ----         ----         ----         ----
Operating Income (Loss)(1)
Life Insurance
     Individual Life ..............................   $  14,929    $   9,790    $  36,625    $  29,478
     West Coast ...................................      11,558        9,488       32,876       26,373
     Acquisitions .................................      15,946       12,569       48,149       39,148
Specialty Insurance Products
     Dental Benefits ..............................       6,737        6,207       22,791       14,673
     Financial Institutions .......................       8,465        8,967       26,118       25,385
Retirement Savings and Investment Products
     Stable Value Products ........................       7,767        7,039       24,422       22,986
     Investment Products ..........................       5,162        4,352       12,534       11,239
Corporate and Other ...............................      (7,927)      (3,761)     (35,218)     (18,744)
                                                        --------     --------    ---------    ---------
           Total operating income .................      62,637       54,651      168,297      150,538
                                                        ========     ========    =========    =========
Realized Investment Gains (Losses)
     Stable Value Products ........................       5,233       (2,183)       7,928       (2,272)
     Investment Products ..........................       1,046           37        1,070          457
     Unallocated Realized Investment Gains (Losses)     (10,764)      (3,706)     (12,014)      (5,447)
Related Amortization of Deferred Policy
  Acquisition Costs
     Investment Products ..........................      (1,046)         (37)      (1,070)        (457)
                                                         -------      -------      -------      -------
           Total net ..............................      (5,531)      (5,889)      (4,086)      (7,719)
                                                         -------      -------      -------      -------
Income (Loss) Before Income Tax
Life Insurance
     Individual Life ..............................      14,929        9,790       36,625       29,478
     West Coast ...................................      11,558        9,488       32,876       26,373
     Acquisitions .................................      15,946       12,569       48,149       39,148
Specialty Insurance Products
     Dental Benefits ..............................       6,737        6,207       22,791       14,673
     Financial Institutions .......................       8,465        8,967       26,118       25,385
Retirement Savings and Investment Products
     Stable Value Products ........................      13,000        4,856       32,350       20,714
     Investment Products ..........................       5,162        4,352       12,534       11,239
Corporate and Other ...............................      (7,927)      (3,761)     (35,218)     (18,744)
Unallocated Realized Investment Gains (Losses) ....     (10,764)      (3,706)     (12,014)      (5,447)
                                                        --------     --------    ---------    ---------
           Total income before income tax .........   $  57,106    $  48,762    $ 164,211    $ 142,819
                                                        ========     ========    =========    =========
(1) Income before income tax excluding realized investment gains and losses and related amortization of deferred policy acquisition
    costs.

The Individual Life Division’s pretax operating income was $36.6 million in the first nine months of 2001 compared to $29.5 million in the same period of 2000. The Division’s mortality experience was $1.8 million less favorable than expected in the first nine months 2001 (including life insurance claims related to the attacks on September 11 which after reinsurance netted to $0.5 million) as compared to $2.5 million better than expected in the first nine months of 2000. The higher claims were offset by earnings growth. Also, the Division received $3.1 million of additional investment income in the first nine months of 2001 from an internal duration/interest rate swap with Protective Life’s Stable Value Products Division.

West Coast had pretax operating income of $32.9 million for the first nine months of 2001 compared to $26.4 million for the same period last year. The increase reflects the Division’s growth through sales.

Pretax operating income from the Acquisitions Division was $48.1 million in the first nine months of 2001 as compared to $39.1 million in the same period of 2000. The coinsurance of a block of life insurance policies from Standard Life Insurance Company resulted in $9.4 million of the increase in earnings in the first nine months of 2001 as compared to the same period last year. Additionally, the Division received $2.0 million additional investment income in the first nine months of 2001 from an internal rate swap with the Company’s Stable Value Products Division. These increases were partially offset by a change in mortality experience. The Division’s mortality experience was $1.6 million less favorable than expected in the first nine months of 2001 as compared to $2.9 million better than expected in the first nine months of 2000. Earnings from the Acquisitions Division are normally expected to decline over time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made.

The Dental Benefits Division’s pretax operating income was $22.8 million in the first nine months of 2001 compared to $14.7 million in the first nine months of 2000. The aforementioned transfer of companies from PLC resulted in a $5.5 million increase in pretax operating income. Earlier this year, Protective Life announced that it had entered into an agreement to sell substantially all of its Dental Benefits Division to Fortis, Inc. The companies anticipate that the transaction will be completed in December, subject to regulatory approval and customary closing conditions.

Pretax operating income of the Financial Institutions Division was $26.1 million in the first nine months of 2001 as compared to $25.4 million in the same period of 2000. Service contract claims were seasonally higher in the 2001 third quarter consistent with last year. Incurred credit insurance claims were also higher in the current quarter, but were offset by a release of reserves. The Division’s future results may be negatively affected by the slowing economy. Lower consumer lending and fewer automobile purchases could negatively affect the Division’s sales. Also, the level of claims typically increases in a slowing economy.

The Stable Value Products Division had pretax operating income of $24.4 million in the first nine months of 2001 as compared to $23.0 million in the corresponding period of 2000. This increase is due primarily to higher account balances. Operating spreads in the first nine months of 2001 were lower than last year. Internal duration/interest rate swaps between the Division and the Individual Life and Acquisitions Divisions shifted investment income to those Divisions as short-term interest rates have fallen and the yield curve has steepened. Realized investments gains associated with this Division in the first nine months of 2001 were $7.9 million as compared to losses of $2.3 million in the same period last year. As a result, total pretax earnings were $32.4 and $20.7 million in the first nine months of 2001 and 2000, respectively.

The Investment Products Division’s pretax operating income was $12.5 million in the first nine months of 2001 compared to $11.2 million in the same period of 2000. The 2001 operating results include a $2.0 million tax benefit related to the Division’s variable annuities which was partially offset by a $0.9 million increase in reserves related to minimum death benefit guarantees. An additional $1.0 million of tax benefit is expected in the 2001 fourth quarter. The Division’s future results may also be negatively affected by the slowing economy. Volatile equity markets could negatively affect sales of variable annuities and the fees the Division assesses on variable annuity contracts. Lower interest rates could negatively affect sales of fixed annuities. The Division had no realized investment gains or losses (net of related amortization of deferred policy acquisition costs) in the first nine months of 2001 or 2000.

The Corporate and Other segment consists primarily of net investment income on unallocated capital, and other operating expenses not identified with the preceding operating divisions (including management fees paid to PLC and interest on substantially all debt), several lines of business which Protective Life is not actively marketing (mostly health insurance), and the operations of a small noninsurance subsidiary. Pretax operating losses of this segment were $35.2 million in the first nine months of 2001 as compared to pretax operating loss of $18.7 million in the first nine months of 2000. The first nine months of 2001 included a loss of $16.0 million related to reserve strengthening in the health insurance lines that will be discontinued when the sale of the Dental Benefits Division is completed. (See section entitled “Other Matters” included herein). Excluding the other health insurance lines’ reserve strengthening in the second quarter of 2001, the Corporate and Other business segment had a pretax operating loss of $19.2 million in the first nine months of 2001, compared to a loss of $18.7 million in the same period of 2000.

Income Taxes

The following table sets forth the effective tax rates for the periods shown:

                             THREE MONTHS ENDED     NINE MONTHS ENDED
                                SEPTEMBER 30           SEPTEMBER 30
                             -------------------    ------------------
                               2001    2000            2001     2000
                               ----    ----            ----     ----
Estimated Effective Income
   Tax Rates .............     32.5%   35.4%           34.1%   35.4%

The effective income tax rate for the full year of 2000 was 35.4%. Management’s estimate of the effective income tax rate for 2001 is approximately 34.1%.

Net Income

The following table sets forth net income for the periods shown, and the percentage change from the prior period:

                       THREE MONTHS ENDED  NINE MONTHS ENDED
   NET INCOME             SEPTEMBER 30       SEPTEMBER 30
   ----------          ------------------  -----------------
                         2001      2000      2001     2000
                         ----      ----      ----     ----
Total (in thousands)   $38,545   $31,488   $99,939   $92,315

Compared to the same period in 2000, net income in the first nine months of 2001 increased $7.6 million, reflecting improved operating earnings in all Divisions which were offset by lower realized investment losses (net of related amortization of deferred policy acquisition costs), lower operating results in the Corporate and Other segment and a charge to earnings resulting from the cumulative effect of a change in accounting principle.

Recently Issued Accounting Standards

In September 2000 the Financial Accounting Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinquishments of Liabilities, a replacement of SFAS No. 125". SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets. This Statement is effective for transfers and servicing of financial assets and extinquishments of liabilities occurring after March 31, 2001.

Other Developments

On July 10, 2001, PLC announced that it had entered into an agreement to sell substantially all of its Dental Benefits Division to Fortis, Inc. for approximately $300 million. Substantially all of the Dental Benefits Division is owned by Protective Life. Protective Life anticipates that the transaction will close in December 2001, and will be accounted for as discontinued operations. The transaction is subject to regulatory approval and certain customary closing conditions. Protective Life will realize a pretax gain on the sale, but will incur income tax expense and exit costs that will result in a loss after income tax of approximately $23.9 million. Protective Life will also discontinue other health insurance lines that are operated by the Dental Benefits Division, but are currently reported in the Corporate and Other segment. These other health insurance lines reported a loss in the second quarter of 2001 of approximately $16.0 million due to reserve strengthening.

PART II

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibit 99 - Safe Harbor for Forward-Looking Statements

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Protective Life Insurance Company











Date:	November 14, 2001	/s/ Jerry W. Defoor
		Jerry W. DeFoor
		Vice President and Controller
		and Chief Accounting Officer
		(Duly authrorized officer)

EX-99 3 ex99plico301.htm EXHIBIT 99

Exhibit 99
to
Form 10-Q
of
Protective Life Insurance Company
for the nine months
ended September 30, 2001

Safe Harbor for Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Act”) encourages companies to make “forward-looking statements” by creating a safe harbor to protect the companies from securities law liability in connection with forward-looking statements. All statements based on future expectations rather than on historical facts are forward-looking statements. Protective Life Insurance Company (Protective) intends to qualify both its written and oral forward-looking statements for protection under the Act.

To qualify oral forward-looking statements for protection under the Act, a readily available written document must identify important factors that could cause actual results to differ materially from those in the forward-looking statements. Protective provides the following information to qualify forward-looking statements for the safe harbor protection of the Act.

The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect Protective’s future results include, but are not limited to, general economic conditions and the known trends and uncertainties which are discussed more fully below.

We are exposed to many types of risk that could negatively affect our business.

There are many types of risks that all companies are exposed to in their businesses. For example, companies are exposed to the risks of natural disasters, malicious acts, computer viruses, and other perils. While Protective has obtained insurance, implemented risk management and contingency plans, and taken preventive measures and other precautions, no assurance can be given that there are not scenarios that could have an adverse effect on Protective.

We operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry.

Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry. Protective encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than Protective, as well as competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products.

The insurance industry is consolidating, with larger, potentially more efficient organizations emerging from consolidation. Also, some mutual insurance companies are converting to stock ownership, which will give them greater access to capital markets. Additionally, commercial banks, insurance companies, and investment banks may now combine, provided certain requirements are satisfied.

Protective’s ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong ratings from rating agencies. However, irrational competition from other insurers could adversely affect Protective’s competitive position.

A ratings downgrade could adversely affect our ability to compete.

Ratings are an important factor in Protective’s competitive position. Rating organizations periodically review the financial performance and condition of insurers, including Protective and its subsidiaries. A downgrade in the ratings of Protective and its subsidiaries could adversely affect Protective’s ability to sell its products, retain existing business, and compete for attractive acquisition opportunities.

For the past several years, rating downgrades in the industry have exceeded upgrades. Rating organizations assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating organization, general economic conditions and circumstances outside the rated company’s control. Protective cannot predict what actions the rating organizations may take, or what actions Protective may be required to take in response to the actions of the rating organizations, which could adversely affect Protective.

Our policy claims fluctuate from year to year, and actual results could differ from our expectations.

Protective’s results may fluctuate from year to year due to fluctuations in policy claims received by Protective. Certain of Protective’s businesses may experience higher claims if the economy is growing slowly or in recession.

Mortality and morbidity expectations incorporate assumptions about many factors, including for example, how a product is distributed, persistency and lapses, and future progress in the fields of health and medicine. Actual mortality and morbidity could differ from our expectations if actual results differ from those assumptions.

We could be forced to sell investments at a loss to cover policyholder withdrawals.

Many of the products offered by Protective and its insurance subsidiaries allow policyholders and contract holders to withdraw their funds under defined circumstances. The subsidiaries manage their liabilities and configure their investment portfolios so as to provide and maintain sufficient liquidity to support anticipated withdrawal demands and contract benefits and maturities. While Protective and its life insurance subsidiaries own a significant amount of liquid assets, a certain portion of their assets are relatively illiquid. Unanticipated withdrawals or surrender activity could, under some circumstances, compel Protective and its insurance subsidiaries to dispose of assets on unfavorable terms, which could have an adverse effect on Protective.

Interest-rate fluctuations could negatively affect our spread income or otherwise impact our business.

Significant changes in interest rates expose insurance companies to the risk of not earning anticipated spreads between the interest rate earned on investments and the credited interest rates paid on outstanding policies. Both rising and declining interest rates can negatively affect Protective’s spread income. While Protective develops and maintains asset/liability management programs and procedures designed to preserve spread income in rising or falling interest rate environments, no assurance can be given that changes in interest rates will not affect such spreads.

Changes in interest rates may also impact our business in other ways. Lower interest rates may result in lower sales of certain of Protective’s insurance and investment products. In addition, certain of Protective’s insurance and investment products guarantee a minimum credited interest rate.

Higher interest rates may create a less favorable environment for the origination of mortgage loans and decrease the investment income Protective receives in the form of prepayment fees, make-whole payments, and mortgage participation income. Higher interest rates may also increase the cost of debt and other obligations having floating rate or rate reset provisions, and may result in lower sales of variable products. Also, the amount of policy fees received from variable products is affected by the performance of the equity markets.

Additionally, Protective’s asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, and other factors. The effectiveness of Protective’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from these assumptions.

Insurance companies are highly regulated.

Protective and its insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with many aspects of the insurance business, which may include premium rates, marketing practices, advertising, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than share owners. From time to time, regulators may raise issues on examinations or audits of Protective. However, such issues are unlikely to result in any material impact on Protective. Protective cannot predict what regulatory actions may be taken or what initiatives may be enacted which could adversely affect Protective.

Protective and its insurance subsidiaries may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). Severe penalties are imposed for breach of duties under ERISA.

Certain policies, contracts, and annuities offered by Protective and its insurance subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions.

Tax law changes could adversely affect our ability to compete with non-insurance products or reduce the demand for certain insurance products.

Under the Internal Revenue Code of 1986, as amended, income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of Protective’s products a competitive advantage over other non-insurance products. To the extent that the Internal Revenue Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies, including Protective and its subsidiaries, would be adversely affected with respect to their ability to sell such products, and, depending upon grandfathering provisions, the surrenders of existing annuity contracts and life insurance policies. In addition, life insurance products are often used to fund estate tax obligations. Legislation has recently been enacted that would, over time, reduce and ultimately eliminate the estate tax, subject to subsequent legislative action. If the estate tax is significantly reduced or eliminated, the demand for certain life insurance products could be adversely affected. Protective cannot predict what other tax initiatives may be enacted which could adversely affect Protective.

Financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments.

A decrease in sales or persistency could negatively affect our results.

Protective’s ability to maintain low unit costs is dependent upon the level of sales and persistency. A decrease in sales or persistency without a corresponding reduction in expenses may result in higher unit costs.

Additionally, a decrease in persistency may result in higher amortization of deferred policy acquisition costs. Although many of Protective’s products contain surrender charges, the charges decrease over time and may not be sufficient to cover the unamortized deferred policy acquisition costs with respect to the insurance policy or annuity contract being surrendered.

Our investments are subject to risks.

Protective’s invested assets and derivative financial instruments are subject to customary risks of credit defaults and changes in market values. The value of Protective’s commercial mortgage loan portfolio depends in part on the financial condition of the tenants occupying the properties which Protective has financed. Factors that may affect the overall default rate on, and market value of, Protective’s invested assets, derivative financial instruments, and mortgage loans include interest rate levels, financial market performance, and general economic conditions as well as particular circumstances affecting the businesses of individual borrowers and tenants.

Our growth from acquisitions involves risks.

Protective’s acquisitions have increased its earnings in part by allowing Protective to enter new markets and to position itself to realize certain operating efficiencies. There can be no assurance, however, that Protective will realize the anticipated financial results from its acquisitions, or that suitable acquisitions, presenting opportunities for continued growth and operating efficiencies, or capital to fund acquisitions will continue to be available to Protective.

We are dependent on the performance of others.

Protective’s results may be affected by the performance of others because Protective has entered into various arrangements involving other parties. Examples include, but are not limited to, the following: many of Protective’s products are sold through independent distribution channels; the Investment Products Division’s variable annuity deposits are invested in funds managed by third parties; prepaid dental services are performed by a contracted network of independent dentists; and a portion of the sales in the Individual Life and West Coast Divisions comes from arrangements with unrelated marketing organizations. Protective may also use third-party administrators to collect premiums, pay claims, and/or perform customer service functions. Additionally, Protective’s operations are dependent on various technologies, some of which are provided and/or maintained by other parties.

As with all financial services companies, our ability to conduct business is dependent upon consumer confidence in the industry and its products. Actions of competitors and financial difficulties of other companies in the industry, could undermine consumer confidence and adversely affect Protective.

Our reinsurance program involves risks.

Protective and its insurance subsidiaries cede insurance to other insurance companies through reinsurance. However, Protective remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it.

The cost of reinsurance is, in some cases, reflected in the premium rates charged by Protective. Under certain reinsurance agreements, the reinsurer may increase the rate it charges Protective for the reinsurance, though Protective does not anticipate increases to occur. Therefore, if the cost of reinsurance were to increase or if reinsurance were to become unavailable, Protective could be adversely affected.

Additionally, Protective assumes policies of other insurers. Any regulatory or other adverse development affecting the ceding insurer could also have an adverse effect on Protective.

Forward-looking statements express expectations of future events and/or results. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, investors are urged not to place undue reliance on forward-looking statements. In addition, Protective undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to projections over time.

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