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Fitch Affirms Protective Life Corp. & Subsidiaries; Outlook Revised to Stable

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^{Published in Business and Finance on Tuesday, September 14th 2010 at 9:40 GMT by Market Wire}  

CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed Protective Life Corp.'s (NYSE: PL) Issuer Default Rating (IDR) at 'BBB+' and senior debt ratings at 'BBB'. Fitch has also affirmed PL's trust preferred ratings at 'BB+' and primary life insurance subsidiaries' Insurer Financial Strength (IFS) ratings at 'A'. The Rating Outlook is revised to Stable from Negative. A full ratings list is shown below.

The affirmation follows an announcement by PL that its primary life insurance subsidiary, Protective Life Insurance Company (PLICO), will acquire United Investors Life Insurance Company (UILIC) from Torchmark Corporation.

The rationale for the affirmation and revision in Rating Outlook is that PL has continued to be profitable on a GAAP and statutory basis, PL's rate of investment impairments has slowed, PL's unrealized investment loss position has improved significantly, financial leverage has improved modestly and PL continues to migrate from reserve-intensive level premium life insurance products to universal life products with lower reserve requirements.

The affirmation also considers PL's extensive experience in over 40 prior insurance acquisitions. Fitch estimates that UILIC will represent approximately 5% of PLICO's statutory liabilities and surplus after the acquisition. Although the acquisition is expected to be accretive to earnings, Fitch's pro forma risk based capital calculations indicate an initial decline in PLICO's RBC ratio on both a reported basis and when subjected to Fitch's investment stress test. Nonetheless, Fitch believes PLICO will continue to hold sufficient capital for its current rating level even after Fitch's investment stress test.

Fitch notes that under its Total Financings and Commitments ratio (TFC), PL demonstrates high (above average) leverage compared to peers at approximately 1.2 times (x). This is due mainly to financings for Regulation XXX reserving. Fitch generally views these activities as well managed, and related risks were previously captured in our ratings.

Fitch also believes that PL's liquidity position is sound. The company has no significant debt maturing until 2013 and has cash and liquid assets to meet maturing obligations at the holding company and operating company levels. Equity-adjusted leverage remains within expectations.

The key rating drivers that could result in an upgrade include a recovery in earnings, growth in equity and surplus (particularly if accomplished through retained earnings) and a reduction in leverage on both a traditional and TFC basis.

The key rating drivers that could result in a downgrade include actual realized investment losses that exceed Fitch's stress test estimates, material declines in GAAP or statutory capital, a downturn or weak growth in earnings, or a material reinsurance loss.

Fitch has affirmed the following ratings and revised the Rating Outlook to Stable from Negative:

Protective Life Corporation

--IDR at 'BBB+';

--$10 million in medium-term notes due 2011 at 'BBB';

--$250 million in senior notes due 2013 at 'BBB';

--$150 million in senior notes due 2014 at 'BBB';

--$150 million in senior notes due 2018 at 'BBB';

--$400 million of 7.38% senior notes due 2019 at 'BBB';

--$300 million of 8.45% senior notes due 2039 at 'BBB';

--$100 million of 8.00% senior retail notes due 2024 at 'BBB';

--$103 million trust preferred issued through PLC Capital Trust III due 2031 at 'BB+';

--$119 million trust preferred issued through PLC Capital IV due 2032 at 'BB+';

--$103 million trust preferred issued through PLC Capital Trust V due 2034 at 'BB+';

--$200 million class D junior subordinated notes due 2066 at 'BB+'.

Protective Life Insurance Company

Protective Life and Annuity Insurance Company

West Coast Life Insurance Company

--IFS at 'A'.

Protective Life Secured Trust

--Notes at 'A';

--Medium-term notes at 'A'.

Additional information is available at '[ www.fitchratings.com ]'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Aug. 16, 2010);

--'Life Insurance Rating Criteria' (March 24, 2010).

Applicable Criteria and Related Research:

Insurance Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766 ]

Life Insurance Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506285 ]

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