Protective leases administrative and marketing office space in approximately 46 cities, including approximately 143,034 square feet in Birmingham, with most leases being for periods of three to five years. The aggregate annualized rent is approximately $7.8 million.
Net investment income for 2000 was $73.7 million or 11.8% higher than for the preceding year primarily due to increases in the average amount of invested assets. Invested assets have increased primarily due to acquisitions, receiving stable value and annuity deposits, and the asset growth that results from the sale of various insurance products. The January 2000 Lyndon acquisition increased net investment income $21.8 million. The percentage earned on average cash and investments was 7.1% in 2000 and 1999.
Protective has an allowance for uncollectible amounts on investments. The allowance totaled $21.8 million at December 31, 2000 and $21.1 million at December 31, 1999. Realized investment gains in 2000 were $27.7 million and realized investment losses were $42.3 million, including a $0.7 million increase in the allowance for uncollectible amounts on investments.
The Individual Life Division’s 2000 pretax income was $39.4 million, $8.0 million above 1999. The Division has grown through sales. The Division’s mortality experience was approximately $0.8 million better than expected in 2000 as compared to being approximately $1.8 million better than expected in 1999. The Division’s 2000 results also include expenses to develop new distribution channels.
In 2000, the West Coast Division had pretax operating income of $36.4 million, $10.3 million above 1999. The Division has grown through sales.
The Financial Institutions Division’s 2000 pretax income increased $12.3 million to $34.8 million. Included in the Division’s 2000 results were $16.9 million from the Lyndon acquisition. Earnings of the Division’s other businesses were lower than expected due to higher than expected claims.
The Investment Products Division’s 2000 pretax operating income was $13.6 million, an increase of $2.2 million. The increase reflects the Division’s growth through sales. The Division had no realized investment gains or losses (net of related amortization of deferred policy acquisition costs) in 1999 or 2000. As a result, total pretax income was $13.6 million in 2000 and $11.4 million in 1999.
The Corporate and Other segment consists of net investment income on unallocated capital, several lines of business which Protective is not actively marketing (mostly health insurance), and other operating expenses not identified with the preceding business segments (including interest on substantially all debt). Pretax operating losses for this segment were $24.0 million in 2000 as compared to pretax operating losses of $5.6 million in 1999. Earnings from health insurance lines decreased $7.0 million. In 2000, higher short-term interest rates and an inverted yield curve reduced investment income and increased interest expense.
NET INCOME ----------------------------------- YEAR ENDED PERCENTAGE DECEMBER 31 AMOUNT INCREASE (DECREASE) -------------- ------------------- (in thousands) 2000.................................. $124,035 (3.3)% 1999.................................. 128,258 9.5 1998.................................. 117,183 20.3
Compared to 1999, net income in 2000 decreased 3.3%, reflecting improved operating earnings in the Individual Life, West Coast, Dental Benefits, Financial Institutions, Investment Products, and Stable Value Products Divisions, which were offset by lower operating earnings in the Acquisitions Division, the Corporate and Other segment and higher realized investment losses.
Birmingham, Alabama In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Protective Life Insurance Company and Subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
YEAR ENDED DECEMBER 31 --------------------------------- 2000 1999 1998 ---- ---- ---- REVENUES Premiums and policy fees............................................... $1,545,969 $1,137,256 $1,027,340 Reinsurance ceded ..................................................... (822,450) (538,033) (459,215) --------- --------- --------- Net of reinsurance ceded............................................. 723,519 599,223 568,125 Net investment income.................................................. 696,937 623,231 603,795 Realized investment gains (losses)..................................... (14,599) 4,760 2,136 Other income........................................................... 51,202 27,102 20,201 --------- --------- --------- 1,457,059 1,254,316 1,194,257 --------- --------- --------- BENEFITS AND EXPENSES Benefits and settlement expenses (net of reinsurance ceded: 2000 - $538,291; 1999 - $344,474; 1998 - $330,494).................................... 924,210 771,527 730,496 Amortization of deferred policy acquisition costs ..................... 149,574 104,913 111,188 Amortization of goodwill............................................... 3,867 Other operating expenses (net of reinsurance ceded: 2000 - $223,498; 1999 - $150,570; 1998 - $166,375).................................... 187,302 176,439 172,228 --------- --------- --------- 1,264,953 1,052,879 1,013,912 --------- --------- --------- INCOME BEFORE INCOME TAX.................................................. 192,106 201,437 180,345
INCOME TAX EXPENSE Current.............................................................. 15,491 47,504 48,237 Deferred............................................................. 52,580 25,675 14,925 ------- ------- ------- 68,071 73,179 63,162 ------- ------- ------- NET INCOME................................................................ $ 124,035 $ 128,258 $ 117,183 ======= ======= =======
PROTECTIVE LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)
INCREASE(DECREASE) IN CASH................................................................... 33,517 0 (39,197) CASH AT BEGINNING OF YEAR.................................................................... 0 0 39,197 --------- --------- --------- CASH AT END OF YEAR..........................................................................$ 33,517 $ 0 $ 0 ========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Reduction of principal on note from ESOP................................................$ 307 $ 51 $ 179 Acquisitions, related reinsurance transactions and subsidiary transfer Assets acquired.....................................................................$ 759,067 $ 12,502 $ 247,894 Liabilities assumed................................................................. (384,207) (12,502) (380,405) Equity from subsidiary transfer (see Note A)........................................ (233,820) 0 0 --------- ------ ------- Net ....................................................................................$ 141,040 $ 0 $(132,511) ========= ====== =======
PROTECTIVE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All dollar amounts in tables are in thousands) Note A-- SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION
The consolidated financial statements include the accounts, after intercompany eliminations, of Protective Life Insurance Company and its wholly-owned subsidiaries. Protective is a wholly-owned subsidiary of Protective Life Corporation (PLC), an insurance holding company.
The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, and other factors.
In 1999, Protective adopted Statement of Financial Accounting Standards (SFAS) No. 134, “Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,” Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” and Statement of Position 97-3, “Accounting by Insurance and Other Enterprises for Insurance Related Assessments” issued by the American Institute of Certified Public Accountants. The adoption of these accounting standards did not have a material effect on PLC’s or Protective’s financial statements.
The Financial Accounting Standards Board (FASB) has issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Effective January 1, 2001, SFAS No. 133 (as amended by SFAS Nos. 137 and 138) requires Protective to record derivative financial instruments, including certain derivative instruments embedded in other contracts, on its balance sheet and to carry such derivatives at fair value. Derivatives that are not designated to be part of a qualifying hedging relationship must be adjusted to fair value each period
Note A-- SIGNIFICANT ACCOUNTING POLICIES (Continued) Protective's balance sheets at December 31, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows:
2000 1999 ---- ---- Total investments.................... $10,258,809 $ 8,894,426 Deferred policy acquisition costs.... 1,192,696 992,518 All other assets..................... 3,654,604 2,918,857 ---------- ---------- $15,106,109 $12,805,801 ========== ==========
Protective accounts for certain interest rate swaps designated as hedges of available-for-sale securities on a mark-to-market basis. The accrual of interest payable or receivable on these interest rate swaps is reported in investment income. Changes in the market values of these interest rate swaps, exclusive of net interest accruals, are reported in other comprehensive income on a net-of-tax basis.
Protective utilizes foreign currency swaps as hedges of the foreign currency exchange risk associated with its obligations under certain stable value contracts denominated in foreign currencies. Gains and losses are recognized on the currency swaps to the extent of changes in spot exchange rates since inception of the contracts.
At December 31, 2000, contracts with a notional amount of $2,424.3 million were in a $13.0 million net unrealized loss position. At December 31, 1999, contracts with a notional amount of $1,328.9 million were in a $2.1 million net unrealized gain position. Protective recognized realized investment gains related to derivative financial instruments of $4.5 million and $3.8 million in 2000 and 1999, respectively.
Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. Protective has deposits with certain financial institutions which exceed federally insured limits. Protective has reviewed the credit worthiness of these financial institutions and believes there is minimal risk of a material loss.
Note A-- SIGNIFICANT ACCOUNTING POLICIES (Continued) Activity in the liability for unpaid claims is summarized as follows:
2000 1999 1998 ---- ---- ---- Balance beginning of year........... $120,575 $ 90,332 $106,121 Less reinsurance................ 47,661 20,019 18,673 ------- ------ ------- Net balance beginning of year....... 72,914 70,313 87,448 ------- ------ ------- Incurred related to: Current year........................ 311,633 311,002 288,015 Prior year.......................... (4,489) (5,574) (10,198) ------- ------- ------- Total incurred.................. 307,144 305,428 277,817 ------- ------- ------- Paid related to: Current year........................ 241,566 264,298 236,001 Prior year.......................... 60,972 40,197 58,951 ------- ------- ------- Total paid...................... 302,538 304,495 294,952 ------- ------- ------- Other changes: Acquisitions and reserve transfers............ 6,623 1,668 0 ------ ------ ------ Net balance end of year............. 84,143 72,914 70,313 Plus reinsurance................ 25,830 47,661 20,019 ------- ------- ------ Balance end of year................. $109,973 $120,575 $ 90,332 ======= ======= ======
Note B-- RECONCILIATION WITH STATUTORY REPORTING PRACTICES Financial statements prepared in conformity with accounting principals generally accepted in the United States of America differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. The most significant differences are as follows: (a) acquisition costs of obtaining new business are deferred and amortized over the approximate life of the policies rather than charged to operations as incurred; (b) benefit liabilities are computed using a net level method and are based on realistic estimates of expected mortality, interest, and withdrawals as adjusted to provide for possible unfavorable deviation from such assumptions; (c) deferred income taxes are provided for temporary differences between financial and taxable earnings; (d) the Asset Valuation Reserve and Interest Maintenance Reserve are restored to share-owner’s equity; (e) furniture and equipment, agents’ debit balances, and prepaid expenses are reported as assets rather than being charged directly to surplus (referred to as nonadmitted assets); (f) certain items of interest income, such as mortgage and bond discounts, are amortized differently; and (g) bonds are recorded at their market values instead of amortized cost.
As of December 31, 2000, Protective and its insurance subsidiaries had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $83.6 million.
The National Association of Insurance Commissioners has adopted the Codification of Statutory Accounting Principles (Codification). Codification changes current statutory accounting rules in several areas and is effective January 1, 2001. Although Protective has not estimated the potential effect, it does not believe Codification will have a material effect on the financial position, results of operations, or liquidity of Protective.
2000 1999 1998 ---- ---- ---- Fixed maturities.......................... $ (14,896) $ 13,049 $ 4,374 Equity securities......................... 1,685 (3,371) (4,465) Mortgage loans and other investments...... (1,388) ( 4,918) 2,227 ------ ----- ----- $ (14,599) $ 4,760 $ 2,136 ====== ===== =====
Protective recognizes permanent impairments through changes to an allowance for uncollectible amounts on investments. The allowance totaled $21.8 million at December 31, 2000 and $21.1 million at December 31, 1999. Additions and reductions to the allowance are included in realized investment gains (losses). Without such additions/reductions, Protective had net realized investment losses of $13.9 million in 2000, net realized investment gains of $1.7 million in 1999, and net realized investment gains of $3.2 million in 1998.
Note C-- INVESTMENT OPERATIONS (Continued) . In 2000, gross gains on the sale of investments available for sale (fixed maturities, equity securities and short-term investments) were $21.2 million and gross losses were $34.4 million. In 1999, gross gains were $48.8 million and gross losses were $33.6 million. In 1998, gross gains were $32.3 million and gross losses were $32.5 million.
The amortized cost and estimated market values of Protective’s investments classified as available for sale at December 31 are as follows:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET 2000 COST GAINS LOSSES VALUES ---- ----------- ---------- ---------- ---------- Fixed maturities: Bonds: Mortgage-backed securities...... $2,915,813 $ 49,372 $ 33,173 $2,932,012 United States Government and authorities................... 95,567 2,662 0 98,229 States, municipalities, and political subdivision......... 88,222 3,408 0 91,630 Public utilities................ 631,698 7,803 5,591 633,910 Convertibles and bonds with warrants...................... 69,013 11,277 12,145 68,145 All other corporate bonds....... 3,662,586 49,536 146,732 3,565,390 Redeemable preferred stocks.......... 801 0 7 794 --------- ------- ------- --------- 7,463,700 124,058 197,648 7,390,110 Equity securities....................... 44,450 2,761 5,419 41,792 Short-term investments.................. 172,699 0 0 172,699 --------- ------- ------- --------- $7,680,849 $126,819 $203,067 $7,604,601 ========= ======= ======= =========
Note C-- INVESTMENT OPERATIONS (Continued) The amortized cost and estimated market values of fixed maturities at December 31, by expected maturity, are shown as follows. Expected maturities are derived from rates of prepayment that may differ from actual rates of prepayment.
Many of the mortgage loans have call provisions after 3 to 10 years. Assuming the loans are called at their next call dates, approximately $121.3 million would become due in 2001, $595.5 million in 2002 to 2005, and $282.6 million in 2006 to 2010, and $21.4 million thereafter.
At December 31, 2000, the average mortgage loan was approximately $2.3 million, and the weighted average interest rate was 7.8%. The largest single mortgage loan was $19.0 million.
At December 31, 2000 and 1999, Protective’s problem mortgage loans (over ninety days past due) and foreclosed properties totaled $20.6 million and $22.9 million, respectively. Since Protective’s mortgage loans are collateralized by real estate, any assessment of impairment is based upon the estimated fair value of the real estate. Based on Protective’s evaluation of its mortgage loan portfolio, Protective does not expect any material losses on its mortgage loans.
Certain investments with a carrying value of $4.7 million were non-income producing for the twelve months ended December 31, 2000.
Note C-- INVESTMENT OPERATIONS (Continued) Policy loan interest rates generally range from 4.0% to 8.0%.
2000 1999 1998 ---- ---- ---- Statutory federal income tax rate applied to pretax income........ 35.0% 35.0% 35.0% Dividends received deduction and tax-exempt interest.............. (0.6) (0.1) (0.1) Low-income housing credit......................................... (0.4) (0.5) (0.5) Other............................................................. 0.2 0.3 0.1 State income taxes................................................ 1.2 1.6 0.5 ---- ---- ---- Effective income tax rate......................................... 35.4% 36.3% 35.0% ==== ==== ====
2000 1999 1998 ---- ---- ---- Deferred policy acquisition costs................................. $ 44,815 $ 46,175 $ 60,746 Benefits and other policy liability changes....................... 10,969 (27,158) (41,268) Temporary differences of investment income........................ (3,333) 6,655 (3,491) Other items....................................................... 129 3 (1,062) ------ ------ ------ $ 52,580 $ 25,675 $ 14,925 ====== ====== ======
Note D-- FEDERAL INCOME TAXES (Continued) Under pre-1984 life insurance company income tax laws, a portion of Protective’s gain from operations which was not subject to current income taxation was accumulated for income tax purposes in a memorandum account designated as Policyholders’ Surplus. The aggregate accumulation in this account at December 31, 2000 was approximately $70.5 million. Should the accumulation in the Policyholders’ Surplus account exceed certain stated maximums, or should distributions including cash dividends be made to PLC in excess of approximately $882 million, such excess would be subject to federal income taxes at rates then effective. Deferred income taxes have not been provided on amounts designated as Policyholders’ Surplus. Under current income tax laws, Protective does not anticipate paying income tax on amounts in the Policyholders’ Surplus accounts.
Note E-- DEBT Under revolving line of credit arrangements with several banks, PLC can borrow up to $125 million on an unsecured basis. These lines of credit arrangements contain, among other provisions, requirements for maintaining certain financial ratios, and restrictions on indebtedness incurred by PLC’s subsidiaries including Protective. Additionally, PLC, on a consolidated basis, cannot incur debt in excess of 50% of its total capital. At December 31, 2000, PLC had no borrowings outstanding under these credit arrangements.
Protective has arranged sources of credit to temporarily fund scheduled investment commitments. Protective expects that the rate received on its investments will equal or exceed its borrowing rate. Protective had no such temporary borrowings outstanding at December 31, 2000 and 1999. Also, Protective has a mortgage note on investment real estate amounting to approximately $2.3 million that matures in 2003.
Note J-- RELATED PARTY MATTERS On August 6, 1990, PLC announced that its Board of Directors approved the formation of an Employee Stock Ownership Plan (ESOP). On December 1, 1990, Protective transferred to the ESOP 520,000 shares of PLC's common stock held by it in exchange for a note. The outstanding balance of the note, $4.8 million at December 31, 2000, is accounted for as a reduction to share-owner's equity. The stock will be used to match employee contributions to PLC's existing 401(k) Plan. The ESOP shares are dividend paying. Dividends on the shares are used to pay the ESOP's note to Protective.
Note K-- OPERATING SEGMENTS Protective operates seven divisions each having a strategic focus which can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. Each division has a senior officer of Protective responsible for its operations. A division is generally distinguished by products and/or channels of distribution. A brief description of each division follows.
Life Insurance The Individual Life Division markets level premium term and term-like insurance, universal life, and variable universal life products on a national basis primarily through networks of independent insurance agents.
The West Coast Division sells universal life and level premium term-like insurance products in the life insurance brokerage market and in the "bank owned life insurance" market.
The Investment Products Division manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and the Individual Life Division's sales force.
Corporate and Other Protective has an additional business segment herein referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the Divisions above (including net investment income on unallocated capital and interest on substantially all debt). This segment also includes earnings from several lines of business which Protective is not actively marketing (mostly health insurance).
The following table sets forth total operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses), the reclassification and tax effecting of pretax minority interest, and the recognition of income tax expense. There are no asset adjustments.
LIFE INSURANCE INDIVIDUAL OPERATING SEGMENT INCOME LIFE WEST COAST ACQUISITIONS --------------------------------------------------------------------------------------------------------------------------- Premiums and policy fees $ 340,238 $ 147,482 $ 134,099 Reinsurance ceded (266,412) (121,495) (31,102) --------------------------------------------------------------------------------------------------------------------------- Net of reinsurance ceded 73,826 25,987 102,997 Net investment income 60,629 91,688 116,940 Realized investment gains (losses) Other income (1,379) (4) --------------------------------------------------------------------------------------------------------------------------- Total revenues 133,076 117,675 219,933 --------------------------------------------------------------------------------------------------------------------------- Benefits and settlement expenses 70,365 79,065 125,151 Amortization of deferred policy acquisition costs and goodwill 33,767 15,003 17,081 Other operating expenses (10,495) (12,760) 24,077 --------------------------------------------------------------------------------------------------------------------------- Total benefits and expenses 93,637 81,308 166,309 --------------------------------------------------------------------------------------------------------------------------- Income before income tax 39,439 36,367 53,624 Income tax expense --------------------------------------------------------------------------------------------------------------------------- Net income --------------------------------------------------------------------------------------------------------------------------- Premiums and policy fees $ 274,598 $ 87,226 $ 148,620 Reinsurance ceded (182,092) (64,019) (33,754) --------------------------------------------------------------------------------------------------------------------------- Net of reinsurance ceded 92,506 23,207 114,866 Net investment income 59,916 78,128 129,806 Realized investment gains (losses) Other income (2,250) 1,302 (9) --------------------------------------------------------------------------------------------------------------------------- Total revenues 150,172 102,637 244,663 --------------------------------------------------------------------------------------------------------------------------- Benefits and settlement expenses 74,455 73,176 129,581 Amortization of deferred policy acquisition costs 23,434 6,047 19,444 Other operating expenses 20,850 (2,649) 31,178 --------------------------------------------------------------------------------------------------------------------------- Total benefits and expenses 118,739 76,574 180,203 --------------------------------------------------------------------------------------------------------------------------- Income before income tax 31,433 26,063 64,460 Income tax expense --------------------------------------------------------------------------------------------------------------------------- Net income --------------------------------------------------------------------------------------------------------------------------- Premiums and policy fees $ 228,701 $ 75,757 $ 125,329 Reinsurance ceded (102,533) (53,377) (28,594) --------------------------------------------------------------------------------------------------------------------------- Net of reinsurance ceded 126,168 22,380 96,735 Net investment income 55,779 63,492 112,154 Realized investment gains (losses) Other income 70 6 1,713 --------------------------------------------------------------------------------------------------------------------------- Total revenues 182,017 85,878 210,602 --------------------------------------------------------------------------------------------------------------------------- Benefits and settlement expenses 106,308 54,617 112,051 Amortization of deferred policy acquisition costs 30,543 4,924 18,894 Other operating expenses 14,983 5,354 26,717 --------------------------------------------------------------------------------------------------------------------------- Total benefits and expenses 151,834 64,895 157,662 --------------------------------------------------------------------------------------------------------------------------- Income before income tax 30,183 20,983 52,940 Income tax expense --------------------------------------------------------------------------------------------------------------------------- Net income --------------------------------------------------------------------------------------------------------------------------- Operating Segment Assets Investments and other assets $1,237,867 $1,576,577 $1,604,854 Deferred policy acquisition costs and goodwill 354,320 276,518 223,430 --------------------------------------------------------------------------------------------------------------------------- Total assets $1,592,187 $1,853,095 $1,828,284 --------------------------------------------------------------------------------------------------------------------------- Investments and other assets $1,205,968 $1,343,517 $1,553,954 Deferred policy acquisition costs 379,117 200,605 235,903 --------------------------------------------------------------------------------------------------------------------------- Total assets $1,585,085 $1,544,122 $1,789,857 --------------------------------------------------------------------------------------------------------------------------- Investments and other assets $1,076,202 $1,149,642 $1,600,123 Deferred policy acquisition costs 301,941 144,455 255,347 --------------------------------------------------------------------------------------------------------------------------- Total assets $1,378,143 $1,294,097 $1,855,470 --------------------------------------------------------------------------------------------------------------------------- (1) Adjustments represent the inclusion of unallocated realized investment gains (losses) and the recognition of income tax expense. There are no asset adjustments.
$ 294,564 $ 479,397 $ 30,127 $120,062 $ 1,545,969 (78,951) (258,931) (65,559) (822,450) ------------------------------------------------------------------------------------------------------------------------- 215,613 220,466 30,127 54,503 723,519 8,913 46,464 $ 243,133 132,204 (3,034) 696,937 (6,556) 410 $(8,453) (14,599) 15,279 28,352 2,809 6,145 51,202 ------------------------------------------------------------------------------------------------------------------------- 239,805 295,282 236,577 165,550 57,614 1,457,059 ------------------------------------------------------------------------------------------------------------------------- 151,202 135,494 207,143 109,607 46,183 924,210 7,739 52,646 900 24,156 2,149 153,441 58,805 72,316 3,882 18,203 33,274 187,302 ------------------------------------------------------------------------------------------------------------------------- 217,746 260,456 211,925 151,966 81,606 1,264,953 ------------------------------------------------------------------------------------------------------------------------- 22,059 34,826 24,652 13,584 (23,992) 192,106 68,071 68,071 ------------------------------------------------------------------------------------------------------------------------- $ 124,035 -------------------------------------------------------------------------------------------------------------------------
$ 217,661 $ 284,891 $ 24,248 $100,012 $ 1,137,256 (52,252) (176,928) (28,988) (538,033) ------------------------------------------------------------------------------------------------------------------------- 165,409 107,963 24,248 71,024 599,223 11,141 24,121 $ 210,208 106,599 3,312 623,231 (549) 1,446 $ 3,863 4,760 7,628 15,831 2,146 2,454 27,102 ------------------------------------------------------------------------------------------------------------------------- 184,178 147,915 209,659 134,439 76,790 1,254,316 ------------------------------------------------------------------------------------------------------------------------- 119,950 55,899 175,290 88,642 54,534 771,527 8,219 24,718 744 19,820 2,487 104,913 37,674 44,728 4,709 14,617 25,332 176,439 ------------------------------------------------------------------------------------------------------------------------- 165,843 125,345 180,743 123,079 82,353 1,052,879 ------------------------------------------------------------------------------------------------------------------------- 18,335 22,570 28,916 11,360 (5,563) 201,437 73,179 73,179 ------------------------------------------------------------------------------------------------------------------------- $ 128,258 -------------------------------------------------------------------------------------------------------------------------
$ 197,673 $ 727,857 $2,766,178 $3,355,863 $418,609 $11,569,619 25,819 51,339 1,156 117,577 8 1,011,524 ------------------------------------------------------------------------------------------------------------------------- $ 223,492 $ 779,196 $2,767,334 $3,473,440 $418,617 $12,581,143 -------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation, beginning of the year....................... $36,530 $36,547 Service cost - benefits earned during the year............................ 3,338 3,270 Interest cost - on projected benefit obligation........................... 3,195 2,779 Actuarial gain (loss)..................................................... 1,968 (5,729) Plan amendment............................................................ 833 32 Benefits paid............................................................. (326) (369) ------ ------ Projected benefit obligation, end of the year............................. 45,538 36,530 ------ ------ Fair value of plan assets beginning of the year........................... 34,420 25,147 Actual return on plan assets.............................................. (148) 2,594 Employer contribution..................................................... 6,876 7,048 Benefits paid............................................................. (326) (369) ------ ------ Fair value of plan assets end of the year................................. 40,822 34,420 ------ ------ Plan assets less than the projected benefit obligation.................... (4,716) (2,110) Unrecognized net actuarial loss from past experience different from that assumed........................................... 7,766 2,601 Unrecognized prior service cost........................................... 1,226 569 Unrecognized net transition asset......................................... (17) ----- ----- Net pension liability recognized in balance sheet......................... $ 4,276 $ 1,043 ===== =====
Note L-- EMPLOYEE BENEFIT PLANS (Continued) PLC also sponsors an unfunded excess benefits plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed by federal income tax law. At December 31, 2000 and 1999, the projected benefit obligation of this plan totaled $14.3 million and $13.1 million, respectively, of which $10.1 million and $8.3 million, respectively, have been recognized in PLC’s financial statements.
PLC sponsors a defined contribution retirement plan which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code. PLC established an Employee Stock Ownership Plan (ESOP) to match voluntary employee contributions to PLC’s 401(k) Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees who are not otherwise under a bonus or sales incentive plan. Expense related to the ESOP consists of the cost of the shares allocated to participating employees plus the interest expense on the ESOP’s note payable to Protective less dividends on shares held by the ESOP. At December 31, 2000, PLC had committed up to 143,229 shares to be released to fund employee benefits. The expense recorded by PLC for these employee benefits was less than $0.1 million in 2000, 1999, and 1998.
Note M-- STOCK BASED COMPENSATION (Continued) In 1998 and 1999, 71,340 and 99,380 performance shares were awarded, respectively, having an estimated fair value on the grant date of $2.3 million and $3.4 million, respectively. In 2000, 3,330 performance shares and 513,618 stock appreciation rights (SARs) were awarded, having a combined estimated fair value on the grant date of $3.7 million. The SARs, if earned, expire after ten years.
A performance share is equivalent in value to one share of PLC Common Stock. With respect to SARs, PLC will pay an amount equal to the difference between the specified base price of PLC’s Common Stock and the market value at the exercise date. Awards are paid in shares of PLC Common Stock. At December 31, 2000, outstanding awards measured at maximum payouts were 398,878 performance shares and 793,236 SARs.
During 1996 and 2000, SARs were granted to certain officers of PLC to provide long-term incentive compensation based solely on the performance of PLC’s Common Stock. The SARs are exercisable after five years (earlier upon the death, disability, or retirement of the officer, or in certain circumstances, of a change in control of PLC) and expire after ten years or upon termination of employment. In 2000, 217,500 SARs were awarded, having an estimated fair value on the grant date of $1.5 million. The number of SARs granted in 1996 and 2000 outstanding at December 31, 2000, was 660,000 and 215,000, respectively.
The expense recorded by PLC for its stock-based compensation plans was $4.1 million, $4.0 million, and $3.3 million in 2000, 1999, and 1998, respectively.
Note N-- REINSURANCE Protective reinsures certain of its risks with, and assumes risks from other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Under yearly renewable term agreements, Protective generally pays specific premiums to the reinsurer and receives specific amounts from the reinsurer as reimbursement for certain expenses. Coinsurance agreements are accounted for by passing a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate part of the premiums less commissions and is liable for a corresponding part of all benefit payments. Modified coinsurance is accounted for similarly to coinsurance except that the liability for future policy benefits is held by the original company, and settlements are made on a net basis between the companies. A substantial portion of Protective’s new life insurance and credit insurance sales are being reinsured. Protective reviews the financial condition of its reinsurers and monitors the amount of reinsurance it has with its reinsurers.
ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR AMOUNT VALUES AMOUNT VALUES --------- ---------- --------- ---------- Assets (see Notes A and C): Investments: Fixed maturities.................... $7,390,110 $7,390,110 $6,304,554 $6,304,554 Equity securities................... 41,792 41,792 30,696 30,696 Mortgage loans on real estate....... 2,268,224 2,385,174 1,946,690 1,909,026 Short-term investments.............. 172,699 172,699 81,171 81,171