Year Ended Percentage December 31 Increase ---------------------------- ------------- 1999 1998 ----- ------- (in thousands)
In 1999, premiums and policy fees, net of reinsurance (“premiums and policy fees”) increased $31.1 million or 5.5% over 1998. The Individual Life Division’s premiums and policy fees decreased $33.7 million due to an increased use of reinsurance by the Division. Premiums and policy fees from the West Coast Division increased $0.8 million. The West Coast Division has also increased its use of reinsurance. In the Acquisitions Division, decreases in older acquired blocks resulted in a $10.9 million decrease in premiums and policy fees. The coinsurance of a block of policies from Lincoln National Corporation (Lincoln National) in October 1998 resulted in a $29.0 million increase in premiums and policy fees in 1999. Premiums and policy fees in the Dental Division increased $44.5 million due to a general growth in business. Premiums and policy fees from the Financial Institutions Division decreased $4.3 million, including an $11.0 million decrease related to the normal decrease in premiums on closed blocks of policies acquired in prior years. The increase in premiums and policy fees from the Investment Products Division was $5.4 million.
Net investment income for 1999 was $19.4 million or 3.2% 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 coinsurance of a block of policies from Lincoln National in October 1998 and the September 1999 recapture of a block of credit policies increased 1999 net investment income $18.8 million. The percentage earned on average cash and investments was 7.1% in 1999 and 7.3% in 1998.
Protective generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, Protective may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, Protective has classified its fixed maturities and certain other securities as “available for sale.” The sales of investments that have occurred generally result from portfolio management decisions to maintain proper matching of assets and liabilities.
Other income consists primarily of revenues of Protective’s non-insurance subsidiaries and rental of space in its administrative building to PLC. Other income increased $6.9 million in 1999 as compared to 1998.
Operating Income (Loss)(1) Life Insurance Individual Life $ 31,433 $ 30,183 West Coast 26,063 20,983 Acquisitions 64,460 52,940 Specialty Insurance Products Dental 18,045 10,206 Financial Institutions 22,570 17,650 Retirement Savings and Investment Products Stable Value Products 29,465 30,780 Investment Products 11,360 10,639 Corporate and Other (5,273) 5,718 -------------------------------------------------------------------------------------- Total operating income 198,123 179,099 -------------------------------------------------------------------------------------- Realized Investment Gains (Losses) Stable Value Products (549) 1,609 Investment Products 1,446 1,318 Unallocated Realized Investment Gains (Losses) 3,863 (791) Related Amortization of Deferred Policy Acquisition Costs Investment Products (1,446) (890) --------------------------------------------------------------------------------------- Total net 3,314 1,246 --------------------------------------------------------------------------------------- Income (Loss) Before Income Tax Life Insurance Individual Life 31,433 30,183 West Coast 26,063 20,983 Acquisitions 64,460 52,940 Specialty Insurance Products Dental 18,045 10,206 Financial Institutions 22,570 17,650 Retirement Savings and Investment Products Stable Value Products 28,916 32,389 Investment Products 11,360 11,067 Corporate and Other (5,273) 5,718 Unallocated Realized Investment Gains (Losses) 3,863 (791) -------------------------------------------------------------------------------------- Total income before income tax $201,437 $180,345 --------------------------------------------------------------------------------------
Headquartered in San Francisco, West Coast was acquired by Protective in June 1997. In 1999, the Division had pretax operating income of $26.1 million, $5.1 million above 1998. This increase reflects the Division’s growth through sales.
In the ordinary course of business, the Acquisitions Division regularly considers acquisitions of smaller insurance companies or blocks of policies. Blocks of policies acquired through the Division are usually administered as “closed” blocks; i.e., no new policies are being marketed. Therefore, earnings from the Acquisitions Division are normally expected to decline over time (due to the lapsing of policies resulting from deaths of insureds of terminations of coverage) unless new acquisitions are made.
The Stable Value Products Division’s 1999 pretax operating income decreased $1.3 million to $29.5 million. This decrease was primarily due to lower interest rate spreads. Realized investment losses associated with this Division in 1999 were $0.5 million as compared to realized investment gains of $1.6 million in 1998. As a result, total pretax income was $28.9 million in 1999 and $32.4 million in 1998.
The Investment Products Division’s 1999 pretax operating income was $11.4 million, an increase of $0.7 million. Realized investment gains, net of related amortization of deferred policy acquisition costs, were $0.4 million in 1998. The Division had no realized investment gains or losses (net of related amortization of deferred policy acquisition costs) in 1999. As a result, total pretax income was $11.4 million in 1999 and $11.1 million in 1998.
Net Income ------------------------- Year Ended Percentage December 31 Amount Increase ------------- ---------- ---------- (in thousands)
Report of Independent Accountants............................................................................. Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997....................... Consolidated Balance Sheets as of December 31, 1999 and 1998.................................................. Consolidated Statements of Share-Owner's Equity for the years ended December 31, 1999, 1998, and 1997.......................................................................... Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.................... Notes to Consolidated Financial Statements.................................................................... Financial Statement Schedules: Schedule III- Supplementary Insurance Information....................................................... Schedule IV-- Reinsurance ..............................................................................
CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) December 31 ------------------------------ 1999 1998 ------------------------------ ASSETS Investments: Fixed maturities, at market (amortized cost: 1999-$6,517,851; 1998-$6,307,274)... $6,275,607 $ 6,400,262 Equity securities, at market (cost: 1999-$32,092; 1998-$15,151).................. 30,696 12,258 Mortgage loans on real estate.................................................... 1,946,690 1,623,603 Investment real estate, net of accumulated depreciation (1999-$1,014; 1998-$782). 15,582 14,868 Policy loans..................................................................... 232,126 232,670 Other long-term investments...................................................... 68,890 70,078 Short-term investments........................................................... 81,171 159,655 ------------------------------ Total investments 8,650,762 8,513,394
LIABILITIES Policy liabilities and accruals: Future policy benefits and claims............................................... $ 4,566,426 $ 4,140,003 Unearned premiums............................................................... 507,659 389,294 ------------------------------- 5,074,085 4,529,297 Stable value investment contract deposits............................................ 2,680,009 2,691,697 Annuity deposits..................................................................... 1,639,231 1,519,820 Other policyholders' funds........................................................... 116,815 219,356 Other liabilities.................................................................... 293,862 226,310 Accrued income taxes................................................................. (25,833) (10,992) Deferred income taxes................................................................ (32,335) 51,735 Note payable......................................................................... 2,338 2,363 Indebtedness to related parties...................................................... 14,000 20,898 Liabilities related to separate accounts............................................. Variable Annuity................................................................ 1,778,618 1,285,952 Variable Universal Life......................................................... 40,293 13,606 Other........................................................................... 3,517 3,482 --------------------------------- Total liabilities............................................................. 11,584,600 10,553,524 ================================
SHARE-OWNER'S EQUITY Preferred Stock, $1.00 par value, shares authorized and issued: 2,000, liquidation preference $2,000....................... 2 2 Common Stock, $1.00 par value........................................................ 5,000 5,000 Shares authorized and issued: 5,000,000 Additional paid-in capital........................................................... 327,992 327,992 Note receivable from PLC Employee Stock Ownership Plan............................... (5,148) (5,199) Retained earnings.................................................................... 814,777 686,519 Accumulated other comprehensive income Net unrealized gains on investments (net of income tax: 1999-$(78,658); 1998-$29,646) (146,080) 55,057 ------------------------------ Total share-owner's equity.................................................... 996,543 1,069,371 ------------------------------ $12,581,143 $11,622,895 ==============================
Note Receivable Net Additional From Unrealized Total Preferred Common Paid-In PLC Retained Gains (Losses) Share-Owner's Stock Stock Capital ESOP Earningson Investments Equity ---------------------------------------------------------------------------------
Balance, December 31, 1996.............................. $ 2 $5,000 $237,992 $(5,579) $532,088 $ 6,688 $ 776,191 ------------ Net income for 1997................................ 97,448 97,448 Increase in net unrealized gains on investments (net of income tax-$30,275) 56,225 56,225 56,225 Reclassification adjustment for amounts included in net income (net of income tax: $(638))....... (1,186) (1,186) ------------ Comprehensive income for 1997...................... 152,487 ------------ Preferred dividends ($50 per share)................ (100) (100) Capital contribution from PLC...................... 90,000 90,000 Decrease in note receivable from PLC ESOP.......... 201 201 --------------------------------------------------------------------------------- Balance, December 31, 1997.............................. 2 5,000 327,992 (5,378) 629,436 61,727 1,018,779 -------------- Net income for 1998................................ 117,183 117,183 Decrease in net unrealized gains on investments (net of income tax-$(2,844)) (5,281) (5,281) Reclassification adjustment for amounts included in net income (net of income tax: $(747))....... (1,389) (1,389) ------------ Comprehensive income for 1998...................... 110,513 ------------ Common dividends ($12 per share)................... (60,000) (60,000) Preferred dividends ($50 per share)................ (100) (100) Decrease in note receivable from PLC ESOP.......... 179 179 --------------------------------------------------------------------------------- Balance, December 31, 1998.............................. 2 5,000 327,992 (5,199) 686,519 55,057 1,069,371 -------------- Net income for 1999................................ 128,258 128,258 Decrease in net unrealized gains on investments (net of income tax-$(106,638)) (198,043) (198,043) Reclassification adjustment for amounts included In net income (net of income tax - ($1,666)).... (3,094) (3,094) ------------- Comprehensive loss for 1999........................ (72,879) ------------- Decrease in note receivable from PLC ESOP.......... 51 51 --------------------------------------------------------------------------------- Balance, December 31, 1999.............................. $ 2 $5,000 $327,992 $(5,148) $814,777 $(146,080) $ 996,543 =================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES Maturities and principal reduction of investments: Investments available for sale...................................................... 9,973,742 10,445,407 6,462,663 Other............................................................................... 243,280 198,559 324,242 Sale of investments: Investment available for sale....................................................... 537,343 1,080,265 1,108,058 Other............................................................................... 267,892 155,906 695,270 Cost of investments acquired: Investments available for sale...................................................... (10,625,354) (11,505,098) (8,426,980) Other............................................................................... (864,100) (662,350) (718,335) Acquisitions and bulk reinsurance assumptions........................................... 46,508 (169,124) Purchase of property and equipment...................................................... (18,075) (13,077) (6,087) Sale of property and equipment.......................................................... 151 2,681 ------------------------------------- Net cash used in investing activities........................................................ (438,613) (300,388) (727,612) -------------------------------------
INCREASE(DECREASE) IN CASH................................................................... 0 (39,197) (75,187) CASH AT BEGINNING OF YEAR.................................................................... 0 39,197 114,384 -------------------------------------- CASH AT END OF YEAR..........................................................................$ 0 $ 0 $ 39,197 ======================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year: Interest on debt....................................................................$ 5,611 $ 8,338 $ 4,343 Income taxes........................................................................$ 56,192 $ 57,429 $ 70,133
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Reduction of principal on note from ESOP................................................$ 51 $ 179 $ 201 Acquisitions and bulk reinsurance assumptions Assets acquired.....................................................................$ 12,502 $ 247,894 $1,114,832 Liabilities assumed................................................................. (12,502) (380,405) (902,267) -------------------------------------- Net.................................................................................$ 0 $ (132,511)$ 212,565 ======================================
(All dollar amounts in tables are in thousands) Note A-- SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION
In 1997 Protective adopted Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities;" SFAS No. 130, "Reporting Comprehensive Income;" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information."
In 1999, Protective adopted SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,” and 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.
Note A-- SIGNIFICANT ACCOUNTING POLICIES (Continued) Investments are reported on the following bases less allowances for uncollectible amounts on investments, if applicable:
· Fixed maturities (bonds, and redeemable preferred stocks)-- at current market value. Where market values are unavailable, Protective obtains estimates from independent pricing services or estimates market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics.
1999 1998 ----------------------------- Total investments.........................................$ 8,894,426 $ 8,412,167 Deferred policy acquisition costs......................... 992,518 857,949 All other assets.......................................... 2,918,857 2,268,076 ----------------------------- $12,805,801 $11,538,192 =============================
Deferred income taxes.....................................$ 46,243 $ 22,089 All other liabilities..................................... 11,616,935 10,501,789 ----------------------------- 11,663,178 10,523,878 Share-owner's equity...................................... 1,142,623 1,014,314 ----------------------------- $12,805,801 $11,538,192 =============================
o Traditional Life, Health, and Credit Insurance Products-- Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits and include whole life insurance policies, term and term-like life insurance policies, limited-payment life insurance policies, and certain annuities with life contingencies. Life insurance and immediate annuity premiums are recognized as revenue when due. Health and credit insurance premiums are recognized as revenue over the terms of the policies. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contracts. This is accomplished by means of the provision for liabilities for future policy benefits and the amortization of deferred policy acquisition costs.
Liabilities for future policy benefits on traditional life insurance products have been computed using a net level method including assumptions as to investment yields, mortality, persistency, and other assumptions based on Protective’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Reserve investment yield assumptions are graded and range from 2.5% to 7.0%. The liability for future policy benefits and claims on traditional life, health, and credit insurance products includes estimated unpaid claims that have been reported to Protective and claims incurred but not yet reported. Policy claims are charged to expense in the period that the claims are incurred.
Balance beginning of year................................ $90,332 $106,121 $108,159 Less reinsurance..................................... 20,019 18,673 6,423 ----------------------------------------
Incurred related to: Current year............................................. 311,002 288,015 258,322 Prior year............................................... (5,574) (10,198) (14,540) ----------------------------------------- Total incurred....................................... 305,428 277,817 243,782 -----------------------------------------
Net balance end of year.................................. 72,914 70,313 87,448 Plus reinsurance..................................... 47,661 20,019 18,673 -----------------------------------------
Universal Life and Investment Products - Universal life and investment products include universal life insurance, guaranteed investment contracts, deferred annuities, and annuities without life contingencies. Revenues for universal life and investment products consist of policy fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest credit rates for universal life and investment products ranged from 3.4% to 9.4% in 1999.
The cost to acquire blocks of insurance representing the present value of future profits from such blocks of insurance is also included in deferred policy acquisition costs. Protective amortizes the present value of future profits over the premium payment period, including accrued interest of up to approximately 8%. The unamortized present value of future profits for all acquisitions was approximately $340.6 million and $370.3 million at December 31, 1999 and 1998, respectively. During 1999 $13.3 million of present value of future profits was capitalized (relating to acquisitions made during the year) and $43.0 million was amortized. During 1998 $132.5 million of present value of future profits was capitalized, and $37.1 million was amortized.
Note B-- RECONCILIATION WITH STATUTORY REPORTING PRACTICES (Continued) The reconciliations of net income and share-owner’s equity prepared in conformity with statutory reporting practices to that reported in the accompanying consolidated financial statements are as follows:
In conformity with statutory reporting practices:(1)................................... $75,114 $147,077 $134,417 $ 567,634 $ 531,956 $ 579,111 Additions (deductions) by adjustment: Deferred policy acquisition costs, net of amortization.............................. 120,644 68,155 10,310 1,011,524 841,425 632,605 Deferred income tax......................... (25,675) (14,925) 13,981 32,335 (51,735) (49,417) Asset Valuation Reserve..................... 41,104 66,922 67,369 Interest Maintenance Reserve................ (226) (1,355) (1,434) 19,328 15,507 9,809 Nonadmitted items........................... 51,350 42,835 30,500 Other timing and valuation adjustments...... 72,527 (76,214) (54,494) (467,130) (282,480) (215,448) Noninsurance affiliates..................... 20,698 18,171 17,530 (4) Consolidation elimination................... (134,824) (23,726) (22,862) (259,602) (95,059) (35,746) -------------------------------------------------------------------------- In conformity with generally accepted accounting principles........................... $128,258 $117,183 $ 97,448 $ 996,543 $1,069,371 $1,018,779 ==========================================================================
As of December 31, 1999, Protective and its insurance subsidiaries had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $53.6 million.
The National Association of Insurance Commissioners has adopted the Codification of Statutory Accounting Principles (Codification). The Codification changes current statutory accounting rules in several areas. Protective has not estimated the potential effect the Codification may have on the statutory capital of Protective and its insurance subsidiaries. The Codification will become effective January 1, 2001.
Note C-- INVESTMENT OPERATIONS Major categories of net investment income for the years ended December 31 are summarized as follows:
Protective recognizes permanent impairments through changes to an allowance for uncollectible amounts on investments. The allowance totaled $20.4 million at December 31, 1999 and $24.1 million at December 31, 1998. Additions and reductions to the allowance are included in realized investment gains (losses). Without such additions/reductions, Protective had net realized investment gains of $1.0 million in 1999, net realized investment gains of $3.2 million in 1998, and net realized investment losses of $6.1 million in 1997.
Note C-- INVESTMENT OPERATIONS (Continued) In 1999, gross gains on the sale of investments available for sale (fixed maturities, equity securities and short-term investments) 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. In 1997, gross gains were $21.3 million and gross losses were $23.5 million.
Gross Gross Estimated Amortized Unrealized Unrealized Market 1998 Cost Gains Losses Values --------------------------------------------------------------------------------------------------------------------
Fixed maturities: Bonds: Mortgage-backed........................... $2,581,561 $ 41,626 $33,939 $2,589,248 United States Government and authorities............................... 72,697 2,812 0 75,509 States, municipalities, and political subdivisions.................... 29,521 1,131 0 30,652 Public utilities............................ 533,082 15,066 0 548,148 Convertibles and bonds with warrants.................................. 694 179 515 All other corporate bonds................... 3,083,782 98,992 32,629 3,150,145 Redeemable preferred stocks............... 5,937 108 0 6,045 -------------------------------------------------------- 6,307,274 159,735 66,747 6,400,262 Equity securities............................ 15,151 456 3,349 12,258 Short-term investments....................... 159,655 0 0 159,655 -------------------------------------------------------- $6,482,080 $160,191 $70,096 $6,572,175 =========================================================
Estimated Amortized Market Cost Values ------------------------- ------ Due in one year or less........................... $ 321,155 $ 320,601 Due after one year through five years............. 2,913,620 2,863,873 Due after five years through ten years............ 2,152,116 2,049,482 Due after ten years............................... 1,130,960 1,041,651 ------------------------- $6,517,851 $6,275,607 =========================
Estimated Amortized Market Cost Values ------------------------- ------ Due in one year or less........................... $ 705,859 $ 709,686 Due after one year through five years............. 3,255,973 3,325,078 Due after five years through ten years............ 1,655,055 1,690,581 Due after ten years............................... 690,387 674,917 ------------------------- $6,307,274 $6,400,262 =========================
Rating 1999 1998 ---------------- -------------------------- AAA................................................. 37.5% 34.3% AA.................................................. 6.3 6.2 A................................................... 26.6 29.4 BBB................................................. 25.7 26.5 BB or less.......................................... 3.8 3.5 Redeemable preferred stocks......................... 0.1 0.1 -------------------------- 100.0% 100.0% ==========================
At December 31, 1999 and 1998, Protective had bonds which were rated less than investment grade of $243.6 million and $222.9 million, respectively, having an amortized cost of $293.1 million and $252.0 million, respectively. At December 31, 1999, approximately $81.5 million of the bonds rated less than investment grade were securities issued in company-sponsored commercial mortgage loan securitizations. Approximately $910.4 million of bonds are not publicly traded.
Certain investments, principally real estate, with a carrying value of $36.3 million were non-income producing for the twelve months ended December 31, 1999.
Note D-- FEDERAL INCOME TAXES Protective's effective income tax rate varied from the maximum federal income tax rate as follows:
Note F-- RECENT ACQUISITIONS In June 1997, Protective acquired West Coast Life Insurance Company ("West Coast"). In September 1997, Protective acquired the Western Diversified Group. In October 1997, Protective coinsured a block of credit policies.
West Coast Division. 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.
Acquisitions Division. The Acquisitions Division focuses on acquiring, converting, and servicing policies acquired from other companies. The Division’s primary focus is on life insurance policies sold to individuals.
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 capital and interest on substantially all debt).
$ 317,360 $ 284,891 $ 24,248 $ 313 $ 1,137,256 (81,240) (176,928) (538,033) ------------------------------------------------------------------------------------------------------------------------- 236,120 107,963 24,248 313 599,223 14,915 24,121 $ 210,208 106,599 (462) 623,231 (549) 1,446 $ 3,863 4,760 6,277 15,831 2,146 3,805 27,102 ------------------------------------------------------------------------------------------------------------------------- 257,312 147,915 209,659 134,439 3,656 1,254,316 ------------------------------------------------------------------------------------------------------------------------- 172,166 55,899 175,290 88,642 2,318 771,527 10,705 24,718 744 19,820 1 104,913 56,396 44,728 4,709 14,617 6,610 176,439 ------------------------------------------------------------------------------------------------------------------------- 239,267 125,345 180,743 123,079 8,929 1,052,879 ------------------------------------------------------------------------------------------------------------------------- 18,045 22,570 28,916 11,360 (5,273) 201,437 73,179 73,179 ------------------------------------------------------------------------------------------------------------------------- $ 128,258 -------------------------------------------------------------------------------------------------------------------------
$ 277,316 $ 301,230 $ 18,809 $ 198 $1,027,340 (85,753) (188,958) (459,215) ------------------------------------------------------------------------------------------------------------------------- 191,563 112,272 18,809 198 568,125 15,245 25,068 $ 213,136 105,827 13,094 603,795 1,609 1,318 $ (791) 2,136 4,295 10,302 1,799 2,016 20,201 ------------------------------------------------------------------------------------------------------------------------- 211,103 147,642 214,745 127,753 15,308 1,194,257 ------------------------------------------------------------------------------------------------------------------------- 140,632 52,629 178,745 85,045 469 730,496 10,352 28,526 735 17,213 1 111,188 49,913 48,837 2,876 14,428 9,120 172,228 ------------------------------------------------------------------------------------------------------------------------- 200,897 129,992 182,356 116,686 9,590 1,013,912 ------------------------------------------------------------------------------------------------------------------------- 10,206 17,650 32,389 11,067 5,718 180,345 63,162 63,162 ------------------------------------------------------------------------------------------------------------------------- $ 117,183 -------------------------------------------------------------------------------------------------------------------------
$ 260,590 $ 196,694 $ 12,367 $ 229 $ 814,420 (109,480) (124,431) (334,214) ------------------------------------------------------------------------------------------------------------------------- 151,110 72,263 12,367 229 480,206 23,810 16,341 $ 211,915 105,196 5,284 557,488 (3,180) 589 $4,415 1,824 1,278 3,033 (192) 1,403 6,149 ------------------------------------------------------------------------------------------------------------------------- 176,198 91,637 208,735 117,960 6,916 1,045,667 ------------------------------------------------------------------------------------------------------------------------- 110,148 27,643 179,235 82,019 339 658,872 15,711 30,812 618 15,110 3 107,175 38,572 20,165 3,945 12,312 6,833 129,870 ------------------------------------------------------------------------------------------------------------------------- 164,431 78,620 183,798 109,441 7,175 895,917 ------------------------------------------------------------------------------------------------------------------------- 11,767 13,017 24,937 8,519 (259) 149,750 52,302 52,302 ------------------------------------------------------------------------------------------------------------------------- $ 97,448 -------------------------------------------------------------------------------------------------------------------------
$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 -------------------------------------------------------------------------------------------------------------------------
$208,071 $536,058 $2,887,732 $2,313,279 $525,896 $9,742,676 22,459 52,836 1,785 56,074 952 632,605 ------------------------------------------------------------------------------------------------------------------------- $230,530 $588,894 $2,889,517 $2,369,353 $526,848 $10,375,281 -------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation, beginning of the year.................................... $ 36,547 $ 30,612 Service cost - benefits earned during the year......................................... 3,270 2,585 Interest cost - on projected benefit obligation........................................ 2,779 2,203 Actuarial gain (loss).................................................................. (5,729) 2,115 Plan amendment......................................................................... 32 160 Benefits paid.......................................................................... (369) (1,128) --------------------- Projected benefit obligation, end of the year.......................................... 36,530 36,547 --------------------- Fair value of plan assets beginning of the year........................................ $ 25,147 $ 21,763 Actual return on plan assets........................................................... 2,594 1,689 Employer contribution.................................................................. 7,048 2,823 Benefits paid.......................................................................... (369) (1,128) --------------------- Fair value of plan assets end of the year.............................................. $ 34,420 25,147 --------------------- Plan assets less than the projected benefit obligation................................. $ (2,110) $(11,400) Unrecognized net actuarial loss from past experience different from that assumed....... 2,601 9,069 Unrecognized prior service cost........................................................ 569 652 Unrecognized net transition asset...................................................... (17) (34) --------------------- Net pension liability recognized in balance sheet...................................... $ 1,043 $ (1,713) =====================
Assumptions used to determine the benefit obligations as of December 31 were as follows:
Service cost.................................................................. $ 695 $ 611 $ 544 Interest cost................................................................. 887 722 651 Plan amendment................................................................ 351 Amortization of prior service cost............................................ 113 112 112 Amortization of transition asset.............................................. 37 37 37 Recognized net actuarial loss................................................. 265 173 180 ------------------------------------ Net pension cost.............................................................. $1,997 $1,655 $1,875 ====================================
Life insurance benefits for retirees are provided through the purchase of life insurance policies upon retirement equal to the employees’ annual compensation up to a maximum of $75,000. This plan is partially funded at a maximum of $50,000 face amount of insurance.
PLC sponsors a defined contribution 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 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, 1999, PLC had committed up to 120,812 shares to be released to fund employee benefits. The expense recorded by PLC for these employee benefits was less than $0.1 million in 1999, 1998, and 1997.
PLC sponsors a deferred compensation plan for certain directors, officers, agents, and others. Compensation deferred is credited to the participants in cash, PLC Common Stock, or a combination thereof.
Since 1973 PLC has had a Long-Term Incentive Plan (previously known as the Performance Share Plan) to motivate senior management to focus on PLC’s long-range earnings performance through the awarding of performance shares. The criterion for payment of performance share awards is based upon a comparison of PLC’s average return on average equity and total rate of return over a four year award period (earlier upon the death, disability or retirement of the executive, or in certain circumstances, of a change in control of PLC) to that of a comparison group of publicly held life and multiline insurance companies. If PLC’s results are below the median of the comparison group, no portion of the award is earned. If PLC’s results are at or above the 90th percentile, the award maximum is earned. Under the plan approved by share owners in 1992 and 1997, up to 6,400,000 shares may be issued in payment of awards. The number of shares granted in 1999, 1998, and 1997 were 99,380, 71,340 and 98,780, respectively, having an approximate market value on the grant date of $3.4 million, $2.3 million, and $2.0 million, respectively. At December 31, 1999, outstanding awards measured at target and maximum payouts were 424,960 and 571,396 shares, respectively. The expense recorded by PLC for the Long-Term Incentive Plan was $3.4 million, $2.7 million, and $2.7 million in 1999, 1998, and 1997, respectively.
Note N - REINSURANCE Protective assumes risks from, and reinsures certain of its risks with other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Yearly renewable term and 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.
Note O-- ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amount and estimated fair values of Protective’s financial instruments at December 31 are as follows:
Assets (see Notes A and C): Investments: Fixed maturities...................... $6,275,607 $6,275,607 $6,400,262 $6,400,262 Equity securities..................... 30,696 30,696 12,258 12,258 Mortgage loans on real estate......... 1,946,690 1,909,026 1,623,603 1,774,379 Short-term investments................ 81,171 81,171 159,655 159,655
Note P-- SUBSEQUENT EVENT On January 20, 2000, Protective acquired the Lyndon Insurance Group (Lyndon). Lyndon manufactures and markets a variety of specialty insurance products including credit insurance, and vehicle and marine service agreements.
Year Ended December 31,1999: Life Insurance Individual Life $379,117 $1,210,188 $ 338 $ 17,159 $ 92,506 $ 59,916 $ 74,455 $ 23,434 $ 20,851 West Coast 200,605 1,279,554 0 74,831 23,208 78,126 73,176 6,047 (2,649) Acquisitions 235,903 1,374,445 558 260,267 114,866 129,806 129,581 19,444 31,178 Specialty Insurance Products Dental and Consumer Benefits 25,819 126,592 2,994 74,204 236,120 14,915 172,165 10,705 56,396 Financial Institutions 51,339 150,888 503,735 9,044 107,962 24,122 55,899 24,718 44,728 Retirement Savings and Investment Products Stable Value Products 1,156 167,415 0 2,680,009 0 210,209 175,291 744 4,708 Investment Products 117,577 254,492 0 1,320,453 24,248 106,599 88,642 19,820 14,617 Corporate and Other 8 2,852 34 88 313 (462) 2,318 1 6,610 ------------------------------------------------------------------------------------------------------------------------------- TOTAL $1,011,524 $4,566,426 $507,659 $4,436,055 $ 599,223 $623,231 $ 771,527 $ 104,913 $176,439 ===============================================================================================================================
Year Ended December 31,1997: Life Insurance Individual Life... $252,321 $ 920,924 $ 356 $ 16,334 $ 127,480 $ 54,593 $ 114,678 $ 27,354 $ 18,178 West Coast........ 108,126 739,463 0 95,495 14,122 30,194 28,304 961 6,849 Acquisitions...... 138,052 1,025,340 1,437 311,150 102,635 110,155 116,506 16,606 23,016 Specialty Insurance Products Dental and Consumer Benefits....... 22,459 120,925 2,536 80,654 151,110 23,810 110,148 15,711 38,572 Financial Institutions 52,836 159,422 391,085 6,791 72,263 16,341 27,643 30,812 20,165 Retirement Savings and Investment Products Stable Value Products 1,785 180,690 0 2,684,676 0 211,915 179,235 618 3,945 Investment Products 56,074 177,150 0 1,184,268 12,367 105,196 82,019 15,110 12,312 Corporate and Other.. 952 380 1,282 185 229 5,284 339 3 6,833 ------------------------------------------------------------------------------------------------------------------------------- TOTAL........ $632,605 $3,324,294 $396,696 $4,379,553 $ 480,206 $ 557,488 $ 658,872 $ 107,175 $129,870 ===============================================================================================================================
(1) Allocations of Net Investment Income and Other Operating Expenses are based on a number of assumptions and estimates and results would change if different methods were applied.
SCHEDULE IV-- REINSURANCE PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES (Dollars in thousands)
----------------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E COL. F -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,1998: Life insurance in force........................... $ 91,980,657 $ 64,846,246 $ 18,010,434 $ 45,144,845 39.9% ===========================================================================
Premiums and policy fees: Life insurance.................................... $ 537,002 $ 294,363 $ 87,965 $ 330,604 26.6% Accident and health insurance..................... 361,705 164,852 14,279 211,132 6.8% Property and liability insurance.................. 26,389 26,389 0.0% --------------------------------------------------------------- TOTAL......................................... $ 925,096 $ 459,215 $ 102,244 $ 568,125 ===============================================================
Year Ended December 31,1997: Life insurance in force........................... $ 78,240,282 $ 34,139,554 $ 11,013,202 $ 55,113,930 20.0 ============================================================================