-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, H/8PO1A972SkH4WAhq1ffWRkXhD1Xl1usmGUCA/vom2dfSwGswXSN7ZeV43Cy9n9 8jW9mQ+JFvZSTqmh3Dr+7w== 0000912057-94-003845.txt : 19941117 0000912057-94-003845.hdr.sgml : 19941117 ACCESSION NUMBER: 0000912057-94-003845 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTECTIVE LIFE INSURANCE CO CENTRAL INDEX KEY: 0000310826 STANDARD INDUSTRIAL CLASSIFICATION: 6311 IRS NUMBER: 630169720 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-31940 FILM NUMBER: 94559353 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 10-Q - - - ------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------- 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, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Numbers 33-31940; 33-39345; 33-57052 PROTECTIVE LIFE INSURANCE COMPANY (Exact name of registrant as specified in its charter) TENNESSEE 63-0169720 (State of incorporation) (IRS Employer Identification Number) 2801 HIGHWAY 280 SOUTH BIRMINGHAM, ALABAMA 35223 (Address of principal executive offices) (205) 879-9230 (Registrant's telephone number) 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 (or for such shorter period that the registrant was required to file such reports), 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 4, 1994: 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
PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Report of Independent Accountants ...................................... 2 Consolidated Condensed Statements of Income for the Three and Nine Months ended September 30, 1994 and 1993 (unaudited) ............ 3 Consolidated Condensed Balance Sheets as of September 30, 1994 (unaudited) and December 31, 1993 ................................... 4 Consolidated Condensed Statements of Cash Flows for the Nine Months ended September 30, 1994 and 1993 (unaudited) ... 5 Notes to Consolidated Condensed Financial Statements (unaudited) ....... 6 Item 2. Management's Narrative Analysis of the Results of Operations ... 9 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K ............................... 14 Signature .................................................................. 14
REPORT OF INDEPENDENT ACCOUNTANTS To the Directors and Stockholder Protective Life Insurance Company Birmingham, Alabama We have reviewed the accompanying consolidated condensed balance sheet of Protective Life Insurance Company and subsidiaries as of September 30, 1994, and the related consolidated condensed statements of income and cash flows for the three-month and nine-month periods ended September 30, 1994 and 1993. 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 generally accepted auditing standards, 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 consolidated condensed financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1993, and the related consolidated statements of income, stockholder's equity, and cash flows for the year then ended (not presented herein); and in our report dated February 14, 1994, we expressed an unqualified opinion which contains an explanatory paragraph regarding the changes in accounting for certain investments in debt and equity securities in 1993 and postretirement benefits other than pensions in 1992 on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 1993, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. COOPERS & LYBRAND L.L.P. Birmingham, Alabama October 25, 1994 2 PROTECTIVE LIFE INSURANCE COMPANY CONSOLIDATED CONDENSED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------ ------------------ 1994 1993 1994 1993 ---- ---- ---- ---- REVENUES Premiums and policy fees (net of reinsurance ceded: three months: 1994 - $50,714; 1993 - $33,045 $101,876 $ 94,421 $289,362 $254,273 nine months: 1994 - $121,462; 1993 - $93,927) Net investment income 101,283 93,453 295,978 255,543 Realized investment gains 3,122 (39) 4,855 763 Other income 643 1,113 2,871 3,101 ------- ------ ------- ------- 206,924 188,948 593,066 513,680 ------- ------- ------- ------- BENEFITS AND EXPENSES Benefits and settlement expenses (net of reinsurance ceded: three months: 1994 - $31,118; 1993 - $18,321 134,208 126,680 376,536 339,058 nine months: 1994 - $80,541; 1993 - $57,558) Amortization of deferred policy acquisition costs 20,485 19,021 60,194 52,057 Other operating expenses (net of reinsurance ceded: three months: 1994 - $3,793; 1993 - $3,368 24,859 23,596 81,457 63,723 nine months: 1994 - $9,842; 1993 - $8,900) ------- ------- ------- ------- 179,552 169,297 518,187 454,838 ------- ------- ------- ------- INCOME BEFORE INCOME TAX 27,372 19,651 74,879 58,842 Income tax expense 8,728 8,122 23,960 20,919 ------- ------- -------- -------- NET INCOME $18,644 $ 11,529 $ 50,919 $ 37,923 ------- ------- -------- -------- ------- ------- -------- --------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 3 PROTECTIVE LIFE INSURANCE COMPANY CONSOLIDATED CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30 DECEMBER 31 1994 1993 ----------- ----------- (UNAUDITED) ASSETS Investments: Fixed maturities $3,388,320 $3,051,292 Equity securities 45,197 40,596 Mortgage loans on real estate 1,394,367 1,408,444 Investment in real estate, net 29,407 21,928 Policy loans 139,462 141,136 Other long-term investments 28,404 22,760 Short-term investments 131,061 79,772 ---------- ---------- Total investments 5,156,218 4,765,928 Cash 0 23,951 Accrued investment income 53,930 51,330 Accounts and premiums receivable, net 19,785 20,473 Reinsurance receivables 91,273 102,559 Deferred policy acquisition costs 374,359 299,307 Property and equipment, net 32,154 33,046 Receivables from related parties 120 382 Other assets 10,757 7,473 Assets held in separate accounts 88,533 3,400 ---------- ---------- TOTAL ASSETS $5,827,129 $5,307,849 ---------- ---------- ---------- ---------- LIABILITIES Policy liabilities and accruals $1,620,586 $1,469,630 Guaranteed investment contract deposits 2,251,587 2,015,075 Annuity deposits 1,175,551 1,005,742 Other policyholders' funds 179,107 141,975 Other liabilities 79,469 74,375 Accrued income taxes 4,841 7,483 Deferred income taxes (11,813) 69,118 Debt 46 118 Indebtedness to related parties 46,051 48,943 Liabilities related to separate accounts 88,533 3,400 ---------- ---------- TOTAL LIABILITIES 5,433,958 4,835,859 ---------- ---------- COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B REDEEMABLE PREFERRED STOCK, $1 par value, at redemption value; Shares authorized and issued: 2,000 2,000 2,000 ---------- ---------- STOCKHOLDER'S EQUITY Common Stock, $1 par value Shares authorized and issued: 5,000,000 5,000 5,000 Additional paid-in capital 126,494 126,494 Net unrealized gains (losses) on investments (Net of income tax: 1994 - $(48,694); 1993 - $19,774) (90,431) 39,284 Retained earnings 356,044 305,176 Note receivable from PLC Employee Stock Ownership Plan (5,936) (5,964) ---------- ---------- TOTAL STOCKHOLDER'S EQUITY 391,171 469,990 ---------- ---------- $5,827,129 $5,307,849 ---------- ---------- ---------- ----------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 4 PROTECTIVE LIFE INSURANCE COMPANY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 ----------------- 1994 1993 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 50,919 $ 37,923 Adjustments to reconcile net income to net cash provided by operating activities: Net change in deferred policy acquisition costs (67,821) (21,137) Depreciation expense 3,409 2,287 Deferred income taxes (80,931) (2,919) Accrued income taxes (2,642) 5,195 Interest credited to universal life and investment products 183,642 164,095 Policy fees assessed on universal life and investment products (58,887) (44,328) Change in accrued investment income and other receivables 9,636 (97,972) Change in policy liabilities and other policyholders' funds of traditional life and health products 84,215 139,062 Change in other liabilities 6,502 28,232 Other (net) (2,168) 3,551 ------------ ----------- Net cash provided by operating activities 125,874 213,989 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cost of investments acquired Investments available for sale (1,227,707) Other (112,964) (1,569,345) Maturities and principal reductions of investments Investments available for sale 325,243 Other 129,296 826,776 Sale of investments Investments available for sale 349,944 Other 16,183 167,583 Acquisitions and bulk reinsurance assumptions 39,328 17,995 Purchase of property and equipment (2,933) (2,479) Sale of property and equipment 1,817 236 ----------- ----------- Net cash used in investing activities (481,793) (559,234) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings under line of credit arrangements and long-term debt 373,186 417,601 Capital Contribution from PLC 35,000 Principal payments on line of credit arrangements and long-term debt (373,258) (401,923) Principal payment on surplus note to PLC (4,750) Dividends to PLC (50) (50) Change in universal life and investment product deposits 336,840 326,021 ----------- ----------- Net cash provided by financing activities 331,968 376,649 ----------- ----------- INCREASE (DECREASE) IN CASH (23,951) 31,404 CASH AT BEGINNING OF PERIOD 23,951 11,567 ----------- ------------ CASH AT END OF PERIOD $ 0 $ 42,971 ----------- ------------ ----------- ------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period: Interest on notes and mortgages payable $(3,713) $ (773) Income taxes $(37,687) $ (19,296) SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Change in minority interest in consolidated subsidiary $ (1,311) Reduction of principal on note from ESOP $ 28 $ 156 Transfer of SEHP to PLC $ 2,535 Acquisitions and bulk reinsurance assumptions Assets acquired $ 41,818 $ 426,965 Liabilities assumed (49,049) (429,580) ----------- ---------- Net $ (7,231) $ (2,615) ----------- ---------- ----------- ----------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 5 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 ("Protective Life") have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1994 are not necessarily indicative of the results that may be expected for the year ending December 31, 1994. For further information, refer to the consolidated financial statements and notes thereto included in Protective Life's annual report on Form 10-K for the year ended December 31, 1993. Protective Life is a wholly-owned subsidiary of Protective Life Corporation ("PLC"). NOTE B - COMMITMENTS AND CONTINGENT LIABILITIES At September 30, 1994, Protective Life was committed to fund approximately $333.7 million of long-term investments. Also, PLC has issued a guarantee in connection with the sale of certain tax exempt mortgage loans which may be put to Protective Life in the event of default. At September 30, 1994, the loans totaled $17.1 million. 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. Protective Life and its subsidiaries, like other life and health insurers, from time to time are involved in litigation. To date, no such lawsuit has resulted in the award of any significant amount of damages against Protective Life. There are currently several lawsuits pending against Protective Life in Alabama, one of which is a class action concerning the sale of credit insurance. Although the outcome of any litigation cannot be predicted with certainty, Protective Life believes that such litigation will not have a material adverse effect on its financial position. 6 NOTE C - STATUTORY REPORTING PRACTICES Financial statements prepared in conformity with generally accepted accounting principles (i.e., GAAP) differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. At September 30, 1994, Protective Life and its life insurance subsidiaries had consolidated stockholder's equity and net income prepared in conformity with statutory reporting practices of $311.3 million and $32.6 million, respectively. NOTE D - RECENTLY ADOPTED ACCOUNTING STANDARDS At December 31, 1993, Protective Life adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." For purposes of adopting SFAS No. 115 Protective Life has classified all of its investments in fixed maturities, equity securities, and short-term investments as "available for sale." As prescribed in SFAS No. 115, these investments are recorded at their market values with the resulting net unrealized gain or loss, net of income tax, recorded as a component of stockholder's equity. The effect of adopting SFAS No. 115 at December 31, 1993 was to increase fixed maturities by $65.6 million, decrease deferred policy acquisition costs by $12.4 million, increase the liability for deferred income taxes by $18.6 million, and increase stockholder's equity by $34.6 million. The effect of having adopted SFAS No. 115 at September 30, 1994 (compared to financial statements prepared under previous accounting standards) was to decrease fixed maturities by $165.8 million, increase deferred policy acquisition costs by $26.3 million, decrease the liability for deferred income taxes by $48.8 million, and decrease stockholder's equity by $90.7 million. NOTE E - CONSOLIDATED PRO FORMA RESULTS On July 30, 1993, Protective Life acquired Wisconsin National Life Insurance Company ("Wisconsin National"). Summarized below are the consolidated results of operations for the nine months ended September 30, 1993, on an unaudited pro forma basis, as if the Wisconsin National acquisition had occurred as of January 1, 1993. The pro forma information is based on Protective Life's historical consolidated results of operations for the nine months ended September 30, 1993 and on data provided by Wisconsin National, using financial statement classifications consistent with those used by Protective Life after giving effect to certain pro forma adjustments. The pro forma financial information does not purport to be indicative of results of operations that would have occurred had the transactions occurred on the basis assumed above nor are they indicative of the future operations of the combined enterprises.
NINE MONTHS ENDED SEPTEMBER 30, 1993 ------------------ (IN THOUSANDS) (UNAUDITED) Total revenues $545,439 Net income $ 39,801
7 NOTE F - SUBSEQUENT EVENT On October 3, 1994 Protective Life acquired, via a 100% coinsurance transaction, a block of individual life insurance policies. The statutory purchase price was approximately $41.5 million. 8 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS Protective Life Insurance Company ("Protective Life") is a wholly-owned and the principal operating subsidiary of Protective Life Corporation ("PLC"), an insurance holding company whose common stock is traded on the New York Stock Exchange. Founded in 1907, Protective Life provides financial services through the production, distribution, and administration of insurance and investment products. Over the last twenty-five years PLC has made over thirty acquisitions of smaller insurance companies or blocks of policies. Many of these transactions included Protective Life. Additionally, PLC has from time to time merged other life insurance companies it has acquired into Protective Life. In July 1993, Protective Life acquired Wisconsin National Life Insurance Company ("Wisconsin National") and acquired by reinsurance a block of universal life policies. In April 1994, Protective Life acquired by reinsurance a block of payroll deduction policies. In accordance with General Instruction H(2)(a), Protective Life includes the following analysis with the reduced disclosure format. REVENUES The following table sets forth revenues by source for the period shown:
NINE MONTHS PERCENTAGE ENDED INCREASE SEPTEMBER 30 (DECREASE) ------------- -------------- (IN THOUSANDS) 1994 1993 ---- ---- Premiums and policy fees $289,362 $254,273 13.8% Net investment income 295,978 255,543 15.8 Realized investment gains 4,855 763 536.3 Other income 2,871 3,101 (7.4) -------- -------- $593,066 $513,680 -------- -------- -------- --------
Premiums and policy fees increased $35.1 million or 13.8% in the first nine months of 1994 over the first nine months of 1993. Increases in premiums and policy fees from the Agency and Financial Institutions Divisions represent increases of $7.2 million and $12.4 million, respectively. The Wisconsin National acquisition resulted in an $8.6 million increase in premiums and policy fees and the reinsurance in 1993 of a block of universal life policies resulted in a $3.4 million increase. The reinsurance of a block of payroll deduction policies effective April 2, 1994 resulted in a $6.0 million increase. Decreases in older acquired blocks of policies represent a $2.8 million decrease in premiums and policy fees. 9 Net investment income in the first nine months of 1994 increased by $40.4 million or 15.8% over the corresponding period of the preceding year, primarily due to increases in the average amount of invested assets. Invested assets have increased primarily due to receiving annuity and guaranteed investment contract ("GIC") deposits and to acquisitions. Annuity and GIC deposits are not considered revenues in accordance with generally accepted accounting principles. These deposits are included in the liability section of the balance sheet. The Wisconsin National acquisition and the reinsurance of a block of universal life policies and a block of payroll deduction policies resulted in an increase in net investment income of $16.0 million in the first nine months of 1994. Protective Life generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash-flow needs. However, the Company may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, Protective Life has classified its fixed maturities as "available for sale." The sales of investments that have occurred have largely resulted from portfolio management decisions to maintain proper matching of assets and liabilities. Realized investment gains for the first nine months of 1994 were $4.1 million higher than the corresponding period of 1993. Realized investment gains in the first nine months of 1993 were reduced by an $8.7 million increase in Protective Life's allowance for uncollectible amounts on investments (primarily relating to mortgage loans) which were recorded as a realized investment loss. In 1994, realized investment gains on the sale of equity securities were partially offset by realized investment losses incurred from sales of fixed maturity investments that occurred to maintain proper matching of assets and liabilities. Recently, rising interest rates have caused market values to fall below amortized cost for many of Protective Life's fixed maturity investments. Therefore, some realized investment losses may be incurred upon future sales of investments to maintain proper matching of assets and liabilities. Protective Life does not anticipate such realized investment losses will be material. Other income consists primarily of fees from administrative- services-only types of group accident and health insurance contracts, and from rental of space in its administrative building to PLC. 10 INCOME BEFORE INCOME TAX The following table sets forth income or loss before income tax by business segment for the periods shown:
INCOME (LOSS) BEFORE INCOME TAX NINE MONTHS ENDED SEPTEMBER 30 (IN THOUSANDS) ------------------------------- BUSINESS SEGMENT 1994 1993 - - - ---------------- ---- ---- Agency $ 12,699 $14,021 Group 7,103 8,649 Financial Institutions 6,055 5,126 Investment Products 4,091 2,344 Guaranteed Investment Contracts 28,329 15,423 Acquisitions 28,605 19,013 Corporate and Other (12,477) (8,536) Unallocated Realized Investment Gains (Losses) 474 2,802 ---------- --------- $ 74,879 $58,842 ---------- --------- ---------- ---------
Agency pretax earnings were $1.3 million lower in the first nine months of 1994 as compared to the first nine months of 1993 primarily due to $1.8 million of expenses to develop new marketing ventures. Group pretax earnings were $1.5 million lower in the first nine months of 1994 as compared to the first nine months of 1993 due to start up expenses of approximately $2.1 million related to the establishment of a special marketing unit to sell dental plans through mail and telephone solicitations. Lower traditional group life and health earnings were offset by improved earnings from dental products. Pretax earnings of the Financial Institutions Division were $0.9 million higher in the first nine months of 1994 as compared to the same period in 1993 due to the growth in premiums and policy fees. Investment Products Division pretax earnings were $1.7 million higher in the first nine months of 1994 compared to the same period of 1993. The Division's earnings have increased due to the growth in annuity deposits, though the increase was largely offset by realized investment losses from the sale of investments to maintain proper matching of assets and liabilities, and increased expenses of approximately $1.7 million related to the development and introduction of a variable annuity. Variable annuity deposits are reported in the accompanying financial statements as "liabilities related to separate accounts." The Guaranteed Investment Contract ("GIC") Division had pretax earnings of $28.3 million in the first nine months of 1994 and $15.4 million in the corresponding period of 1993. Realized investment gains associated with this Division were $7.6 million higher in the first nine months of 1994 as compared to the same period last year. GIC earnings have also increased due to improved investment results and to the growth in deposits placed with Protective Life. At September 30, 1994, GIC deposits totaled $2.3 billion compared to $2.0 billion one year earlier. 11 Pretax earnings from the Acquisitions Division increased $9.6 million in the first nine months of 1994 as compared to the same period of 1993. Earnings from the Acquisitions Division are 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. As previously discussed, Protective Life completed its acquisition of Wisconsin National and acquired by reinsurance a block of universal life policies during the 1993 third quarter. These two acquisitions represent all of the increase. In the ordinary course of business, the Acquisitions Division regularly considers acquisitions of smaller insurance companies or blocks of policies. On April 2, 1994 the Division acquired by reinsurance a small block of payroll deduction policies. On October 3, 1994 the Division announced it had acquired, through a coinsurance transaction, a block of 130,000 individual life insurance policies from Reliance Standard Life Insurance Company. The statutory purchase price paid was approximately $41.5 million. The block of policies currently generates approximately $25 million in annual premiums and involves $110 million in reserves. The Corporate and Other segment consists of several small insurance lines of business, net investment income and other operating expenses not identified with the preceding operating divisions (including interest on substantially all debt), and the operations of a small noninsurance subsidiary. Pretax earnings for this segment were $3.9 million lower in the first nine months of 1994 as compared to the first nine months of 1993 primarily due to higher expenses. INCOME TAXES The following table sets forth the effective tax rates for the periods shown:
NINE MONTHS ENDED ESTIMATED EFFECTIVE SEPTEMBER 30 INCOME TAX RATES ------------ ------------------- 1994 32.0% 1993 33.5
In August, 1993, the corporate income tax rate was increased from 34% to 35%, which resulted in an increase to income tax expense of $1.2 million due to a recalculation of Protective Life's deferred income tax liability. The effective income tax rate for the first nine months of 1993 was 33.5%. Management's estimate of the effective income tax rate for 1994 is 32.0%. 12 NET INCOME The following table sets forth net income for the periods shown:
NET INCOME NINE MONTHS ------------------------------ ENDED TOTAL PERCENTAGE SEPTEMBER 30 (IN THOUSANDS) INCREASE ------------- -------------- ---------- 1994 $50,919 34.3% 1993 37,923 28.7
Compared to the same period in 1993, net income in the first nine months of 1994 increased $13.0 million, reflecting improved earnings in the Financial Institutions, Investment Products, GIC, and Acquisitions Divisions, which were partially offset by lower earnings in the Agency and Group Divisions and the Corporate and Other segment. RECENTLY ISSUED ACCOUNTING STANDARDS Protective Life recently adopted Statement of Financial Accounting Standards ("SFAS") No. 115 which requires Protective Life to carry its investment in fixed maturities and certain other securities at market value instead of amortized cost. Under SFAS No. 115, unrealized gains and losses, net of income tax, on such investments are reported as a component of stockholder's equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the adoption of SFAS No. 115 will not affect Protective Life's operations, its reported stockholder's equity may fluctuate significantly as interest rates change. During the first nine months of 1994, interest rates rose over two percentage points. Even though Protective Life believes its asset/liability matching practices and certain product features provide significant protection for Protective Life against the effects of changes in interest rates, the new accounting rule required reporting a $125.3 million decrease in stockholder's equity. In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." In October 1994, the FASB amended SFAS No. 114 with the issuance of SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." Protective Life anticipates that the impact of adopting SFAS Nos. 114 and 118 on its financial condition will be immaterial. In October 1994, the FASB issued SFAS No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." The Company anticipates that the impact of adopting SFAS No. 119 on its financial condition and presentation will be immaterial. 13 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 - Financial data schedule 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 11, 1994 /s/ Jerry W. DeFoor Jerry W. DeFoor ---------------------------- Vice President and Controller, and Chief Accounting Officer (Duly authorized officer) 14 EX-27 2 EXHIBIT 27
7 This schedule contains summary financial information extracted from the condensed consolidated statement of income and condensed consolidated balance sheet on pages 3 and 4 of Protective Life's Form 10-Q for the quarterly period ended September 30, 1994 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 3,388,320 0 0 45,197 1,394,367 29,407 5,156,218 0 91,273 374,359 5,827,129 1,520,348 100,238 0 179,107 46 5,000 2,000 0 386,171 5,827,129 289,362 295,978 4,855 2,871 376,536 60,194 81,457 74,879 23,960 50,919 0 0 0 50,919 0 0 0 0 0 0 0 0 0 Protective Life is a wholly owned subsidiary of Protective Life Corporation and therefore no earnings per share is presented.
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