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Fitch Affirms Protective Life Corp. & Subs Following Announcement of Liberty Life Acquisition

^{Published on 2010-10-22 07:00:48 - Market Wire}
 

NEW YORK--([ 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 Stable. A full rating list is shown below.

The affirmation follows an announcement by PL that its primary life insurance subsidiary, Protective Life Insurance Company (PLICO), will acquire a block of approximately 1.3 million life insurance policies through a reinsurance transaction with Liberty Life Insurance Company (Liberty Life). The transaction is expected to close in early 2011.

The rationale for the rating action is that the announced transaction is consistent with PL's acquisition strategy and represents modest execution risk given the relative size of the transaction and PL's extensive track record of successfully acquiring blocks of life insurance. Under the terms of the transaction, PLICO will reinsure on a coinsurance basis approximately $1.6 billion of statutory reserves and pay to Liberty Life a $200.5 million ceding commission plus the statutory interest maintenance reserve on assets transferred from Liberty at closing. Fitch estimates that the block acquired from Liberty Life will represent approximately 5% of PLICO's statutory liabilities after the acquisition. Although the acquisition is expected to be accretive to earnings, it will increase PL's risk based capital (RBC) charges. Fitch's pro forma RBC 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 Fitch's ratings.

The key rating drivers that could result in an upgrade include improvement 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 with a Stable Rating Outlook:

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% 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 ]

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