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Aug. 14, 2019, 2:43 p.m. EDT

10-Q: PROTECTIVE LIFE INSURANCE CO

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q and our audited consolidated financial statements for the year ended December 31, 2018, included in our most recent Annual Report on Form 10-K. For a more complete understanding of our business and current period results, please read the following MD&A in conjunction with our latest Annual Report on Form 10-K and other filings with the United States Securities and Exchange Commission (the "SEC"). Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior period amounts comparable to those of the current period. Such reclassifications had no effect on previously reported net income or shareowner's equity. FORWARD-LOOKING STATEMENTS - CAUTIONARY LANGUAGE This report reviews our financial condition and results of operations, including our liquidity and capital resources. Historical information is presented and discussed, and where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate, or imply future results, performance, or achievements instead of historical facts and may contain words like "believe," "expect," "estimate," "project," "budget," "forecast," "anticipate," "plan," "will," "shall," "may," and other words, phrases, or expressions with similar meaning. Forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from the results contained in the forward-looking statements, and we cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. For more information about the risks, uncertainties, and other factors that could affect our future results, please refer to Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A, Risk Factors, of this report, as well as Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. IMPORTANT INVESTOR INFORMATION We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other reports as required. We are an electronic filer and the SEC maintains an internet site at http://www.sec.gov that contains our annual, quarterly, and current reports and other information filed electronically by the Company. We make available through our website, http://www.protective.com , our annual reports on Form 10-K, Quarterly reports on Form 10-Q, Current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC. The information found on our website is not part of this or any other report filed with or furnished to the SEC. We will furnish such documents to anyone who requests such copies in writing. Requests for copies should be directed to: Financial Information, Protective Life Corporation, P. O. Box 2606, Birmingham, Alabama 35202, Telephone (205) 268-3912, Fax (205) 268-3642. We also make available to the public current information, including financial information, regarding the Company and our affiliates on the Financial Information page of our website, www.protective.com . We encourage investors, the media and others interested in us and our affiliates to review the information we post on our website. The information found on our website is not part of this or any other report filed with or furnished to the SEC. OVERVIEW Our Business We are a wholly owned subsidiary of Protective Life Corporation ("PLC"). Founded in 1907, we are the largest operating subsidiary of PLC. On February 1, 2015, PLC became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (now known as Dai-ichi Life Holdings, Inc., "Dai-ichi Life"), when DL Investment (Delaware), Inc., a wholly owned subsidiary of Dai-ichi Life, merged with and into PLC. Prior to February 1, 2015, PLC's stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger, PLC and the Company remain SEC registrants for financial reporting purposes in the United States. We provide financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires, the "Company," "we," "us," or "our" refers to the consolidated group of Protective Life Insurance Company and our subsidiaries. We have several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. We periodically evaluate our operating segments and make adjustments to our segment reporting as needed. Our operating segments are Life Marketing, Acquisitions, Annuities, Stable Value Products, and Asset Protection. We have an additional reporting segment referred to as Corporate and Other.

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                    Life Marketing - We market fixed universal life ("UL"), indexed
                    universal life ("IUL"), variable universal life ("VUL"), bank-owned
                    life insurance ("BOLI"), and level premium term insurance
                    ("traditional") products on a national basis primarily through
                    networks of independent insurance agents and brokers, broker-dealers,
                    financial institutions, independent distribution organizations, and
                    affinity groups.
                    Acquisitions - We focus on acquiring, converting, and/or servicing
                    policies and contracts from other companies. This segment's primary
                    focus is on life insurance policies and annuity products that were
                    sold to individuals. The level of the segment's acquisition activity
                    is predicated upon many factors, including available capital,
                    operating capacity, potential return on capital, and market dynamics.
                    Policies acquired through the Acquisitions segment are typically
                    blocks of business where no new policies are being marketed, however,
                    some recent acquisitions have included ongoing new business
                    activities. Ongoing new product sales written by the Company from
                    these acquisitions are included in the Life Marketing and/or
                    Annuities segment. As a result, earnings and account values are
                    expected to decline as the result of lapses, deaths, and other
                    terminations of coverage unless new acquisitions are made.
                    Annuities - We market fixed and variable annuity ("VA") products.
                    These products are primarily sold through broker-dealers, financial
                    institutions, and independent agents and brokers.
                    Stable Value Products - We sell fixed and floating rate funding
                    agreements directly to the trustees of municipal bond proceeds, money
                    market funds, bank trust departments, and other institutional
                    investors. The segment also issues funding agreements to the Federal
                    Home Loan Bank ("FHLB"), and markets guaranteed investment
                    contracts ("GICs") to 401(k) and other qualified retirement savings
                    plans. We also have an unregistered funding agreement-backed notes
                    program which provides for offers of notes to both domestic and
                    international institutional investors.
                    Asset Protection - We market extended service contracts, guaranteed
                    asset protection ("GAP") products, credit life and disability
                    insurance, and other specialized ancillary products to protect
                    consumers' investments in automobiles and recreational vehicles. GAP
                    products are designed to cover the difference between the scheduled
                    loan pay-off amount and an asset's actual cash value in the case of a
                    total loss. Each type of specialized ancillary product protects
                    against damage or other loss to a particular aspect of the underlying
                    asset.
                    Corporate and Other - This segment primarily consists of net
                    investment income on assets supporting our equity capital,
                    unallocated corporate overhead, and expenses not attributable to the
                    segments above. This segment includes earnings from several
                    non-strategic or runoff lines of business, financing and
                    investment-related transactions, and the operations of several small
                    subsidiaries.
        


RECENT SIGNIFICANT TRANSACTIONS

The GWL&A Master Transaction Agreement and other transaction documents contain certain customary representations and warranties made by each of the parties, and certain customary covenants regarding the Sellers and the Individual Life Business, and provide for indemnification, among other things, for breaches of those representations, warranties, and covenants.

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        RISKS AND UNCERTAINTIES
        The factors which could affect our future results include, but are not limited
        to, general economic conditions and the following risks and uncertainties:
        General
                     exposure to risks related to natural and man-made disasters and
                     catastrophes, such as diseases, epidemics, pandemics, malicious
                     acts, cyber attacks, terrorist acts, and climate change, which could
                     adversely affect our operations and results;
                     a disruption or cyber attack affecting the electronic, communication
                     and information technology systems or other technologies of the
                     Company or those on whom the Company relies could adversely affect
                     our business, financial condition, and results of operations;
                     confidential information maintained in the systems of the Company or
                     other parties upon which we rely could be compromised or
                     misappropriated as a result of security breaches or other related
                     lapses or incidents, damaging our business and reputation and
                     adversely affecting our financial condition and results of
                     operations;
                     our results and financial condition may be negatively affected
                     should actual experience differ from management's models,
                     assumptions, or estimates;
                     we may not realize our anticipated financial results from our
                     acquisitions strategy;
        


we may experience competition in our acquisition segment;







                     assets allocated to the MONY Closed Block benefit only the holders
                     of certain policies; adverse performance of Closed Block assets or
                     adverse experience of Closed Block liabilities may negatively affect
                     us;
        


we are dependent on the performance of others;







                     our risk management policies, practices, and procedures could leave
                     us exposed to unidentified or unanticipated risks, which could
                     negatively affect our business or result in losses;
                     our strategies for mitigating risks arising from our day-to-day
                     operations may prove ineffective resulting in a material adverse
                     effect on our results of operations and financial condition;
                     events that damage our reputation or the reputation of our industry
                     could adversely impact our business, results of operations, or
                     financial condition;
                     we may not be able to protect our intellectual property and may be
                     subject to infringement claims;
        


developments in technology may impact our business;







        Financial Environment
                     interest rate fluctuations and sustained periods of low or high
                     interest rates could negatively affect our interest earnings and
                     spread income, or otherwise impact our business;
                     our investments are subject to market and credit risks, which could
                     be heightened during periods of extreme volatility or disruption in
                     financial and credit markets;
                     credit market volatility or disruption could adversely impact the
                     Company's financial condition or results from operations;
                     disruption of the capital and credit markets could negatively affect
                     the Company's ability to meet its liquidity and financial needs;
        


equity market volatility could negatively impact our business;







                     our use of derivative financial instruments within our risk
                     management strategy may not be effective or sufficient;
                     our ability to grow depends in large part upon the continued
                     availability of capital;
                     we could be forced to sell investments at a loss to cover
                     policyholder withdrawals;
                     difficult general economic conditions could materially adversely
                     affect our business and results of operations;
                     we may be required to establish a valuation allowance against our
                     deferred tax assets, which could have a material adverse effect on
                     our results of operations, financial condition, and capital
                     position;
        


we could be adversely affected by an inability to access our credit facility;







                     the amount of statutory capital or risk-based capital that we have
                     and the amount of statutory capital or risk-based capital that we
                     must hold to maintain our financial strength and credit ratings and
                     meet other requirements can vary significantly from time to time and
                     is sensitive to a number of factors outside of our control;
                     we could be adversely affected by a ratings downgrade or other
                     negative action by a rating organization;
        


we could be adversely affected by an inability to access FHLB lending;

our securities lending program may subject us to liquidity and other risks;







                     our financial condition or results of operations could be adversely
                     impacted if our assumptions regarding the fair value and future
                     performance of our investments differ from actual experience;
                     adverse actions of certain funds or their advisers could have a
                     detrimental impact on our ability to sell our variable life and
                     annuity products, or maintain current levels of assets in those
                     products;
        








        Industry and Regulation
                     the business of our company is highly regulated and is subject to
                     routine audits, examinations, and actions by regulators, law
                     enforcement agencies, and self-regulatory organizations;
                     we may be subject to regulations of, or regulations influenced by,
                     international regulatory authorities or initiatives;
                     NAIC actions, pronouncements and initiatives may affect our product
                     profitability, reserve and capital requirements, financial condition
                     or results of operations;
        


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                     our use of captive reinsurance companies to finance statutory
                     reserves related to our term and universal life products and to
                     reduce volatility affecting our variable annuity products, may be
                     limited or adversely affected by regulatory action, pronouncements
                     and interpretations;
                     laws, regulations and initiatives related to unreported deaths and
                     unclaimed property and death benefits may result in operational
                     burdens, fines, unexpected payments or escheatments;
                     we are subject to insurance guaranty fund laws, rules and
                     regulations that could adversely affect our financial condition or
                     results of operations;
                     we are subject to insurable interest laws, rules and regulations
                     that could adversely affect our financial condition or results of
                     operations;
                     the Healthcare Act and related regulations could adversely affect
                     our results of operations or financial condition;
                     laws, rules and regulations promulgated in connection with the
                     enactment of the Dodd-Frank Wall Street Reform and Consumer
                     Protection Act may adversely affect our results of operations or
                     financial condition;
                     new and amended regulations regarding the standard of care or
                     standard of conduct applicable to investment professionals,
                     insurance agencies, and financial institutions that recommend or
                     sell annuities or life insurance products may have a material
                     adverse impact on our ability to sell annuities and other products
                     and to retain in-force business and on our financial condition or
                     results of operations;
                     we may be subject to regulation, investigations, enforcement
                     actions, fines and penalties imposed by the SEC, FINRA and other
                     federal and international regulators in connection with our business
                     operations;
                     changes to tax law, or interpretations of existing tax law could
                     adversely affect our ability to compete with non-insurance products
                     or reduce the demand for certain insurance products;
                     financial services companies are frequently the targets of legal
                     proceedings, including class action litigation, which could result
                     in substantial judgments;
                     the financial services and insurance industries are sometimes the
                     target of law enforcement investigations and the focus of increased
                     regulatory scrutiny;
                     new accounting rules, changes to existing accounting rules, or the
                     grant of permitted accounting practices to competitors could
                     negatively impact us;
                     if our business does not perform well, we may be required to
                     recognize an impairment of our goodwill and indefinite lived
                     intangible assets which could adversely affect our results of
                     operations or financial condition;
        


use of reinsurance introduces variability in our statements of income;







                     our reinsurers could fail to meet assumed obligations, increase
                     rates, terminate agreements or be subject to adverse developments
                     that could affect us;
                     our policy claims fluctuate from period to period resulting in
                     earnings volatility;
                     we operate in a mature, highly competitive industry, which could
                     limit our ability to gain or maintain our position in the industry
                     and negatively affect profitability; and
                     our ability to maintain competitive unit costs is dependent upon the
                     level of new sales and persistency of existing business.
        


For more information about the risks, uncertainties, and other factors that could affect our future results, please see Part II, Item 1A, Risk Factors of this report and Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K.







                     changes in the guaranteed living withdrawal benefits ("GLWB")
                     embedded derivatives exclusive of the portion attributable to the
                     economic cost of the GLWB,
        


actual GLWB incurred claims, and







                     the amortization of deferred policy acquisition costs ("DAC"), value
                     of business acquired ("VOBA"), and certain policy liabilities that
                     is impacted by the exclusion of these items.
        


After-tax adjusted operating income (loss) is derived from pre-tax adjusted operating income (loss) with the inclusion of income tax expense or benefits associated with pre-tax adjusted operating income. Income tax expense or benefits is allocated to the items excluded from pre-tax adjusted operating income (loss) at the statutory federal income tax rate for the associated period. Income tax expense or benefits allocated to after-tax adjusted operating income (loss) can vary period to period based on changes in our effective income tax rate.

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The items excluded from adjusted operating income (loss) are important to understanding the overall results of operations. Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) are not substitutes for income before income taxes or net income (loss), respectively. These measures may not be comparable to similarly titled measures reported by other companies. Our belief is that pre-tax and after-tax adjusted operating income

Aug 14, 2019

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