N@N

Fitch Affirms Protective Life Corporation;; Outlook Stable

^{Published on 2011-10-05 16:35:36 - 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 Stable. A full ratings list is shown below.

The rating rationale is that PL's reported credit metrics are consistent with Fitch's expectations. Over the past year, PL has continued to report operating profits in line with expectations, its operating subsidiaries have remained strongly capitalized on a statutory basis, investment impairments have remained well within the levels contemplated by the Fitch investment stress test and PL continues to migrate from reserve-intensive level premium life insurance products to universal life products with lower reserve requirements.

Reported risk-adjusted statutory capital rose from yearend 2009 to 2010, but declined modestly in the first half of 2011, which was expected following the close of PL's coinsurance of a book of life business from Liberty Life Insurance Company. Nonetheless, Protective Life Insurance Company's risk based capital ratio remains strong on both a reported basis and when subjected to Fitch's investment stress test.

PL's financial leverage ratio has declined, but remains near the high end of the rating expectation of 25% - 30%. Additionally, Fitch notes that under its Total Financings and Commitments ratio (TFC), PL demonstrates high (above average) leverage compared to peers at approximately 1.4 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. Fitch's TFC ratio captures surplus notes and letters of credit used to finance Regulation XXX reserves while traditional financial leverage does not.

Fitch also believes that PL's liquidity position is sound. The company has no significant debt maturing until 2013. Also, PL has recently indicated its intention to maintain a cash balance of 12 months interest coverage (approximately $70 million) in cash and liquid assets at the holding company by year-end 2011 and going forward.

PL has rapidly grown its variable annuity book of business in 2010 and the first half of 2011. While variable annuities sales grew for the entire industry, PL's growth rate had exceeded the industry's rate of growth. Rapid growth can be a concern in mature product lines because it can signal aggressive pricing or product design. Fitch believes PL's variable annuity products have moderate risk that is mitigated by PL's hedging strategy.

Key concerns include a macroeconomic headwind in the form of low interest rates, high financial market volatility and the risk of contagion from the Eurozone debt crisis. These conditions are expected to constrain PL's ability to improve earnings over the near term and could have a material negative effect on the company's earnings and capital in a severe, albeit unexpected, scenario.

The key rating triggers that could result in an upgrade include continued recovery in earnings combined with growth in equity and surplus (particularly if accomplished through retained earnings). Ratings could be upgraded if financial leverage remains below 25% and TFC leverage falls into the 0.8x to 1.0x range. Ratings could also be positively affected if EBIT-based interest coverage rose above 9x.

The key rating triggers that could result in a downgrade include material declines in GAAP (that would drive financial leverage above 30%) or statutory capital (that would drive reported RBC below 300%), a downturn or weak growth in earnings, or a material reinsurance loss. Ratings could also be pressured if interest coverage fell below 5x.

Fitch has affirmed the following ratings with a Stable Rating Outlook:

Protective Life Corporation

--IDR 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 ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018 ]

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: [ HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS ]. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '[ WWW.FITCHRATINGS.COM ]'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.