TEXT-Fitch affirms Protective Life Corp, outlook is stable

Tue Dec 11, 2012 4:11pm EST

Dec 11 - 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 follows at the end of this

PL's ratings reflect the group's good operating performance, including strong
investment results, solid debt service capability and sound risk-adjusted
capitalization. The company's financial leverage ratio is in line with rating
expectations, but overall leverage is high driven by reserve financing.

Fitch views PL's operating results as good and in line with expectations for the
rating. Full-year 2012 results are expected to be relatively flat with the prior
year, as favorable factors, including good mortality and improved equity market
performance, are offset by the impact of ongoing low interest rates, including
lower lapses and a slowdown in top line growth. PL is deemphasizing growth in
variable annuities going forward, although it plans to grow life sales through
institutional channels.

Fitch views PL's ability to service adjusted debt interest expense as solid
based on GAAP earnings coverage in the 8x range. Cash interest coverage, which
considers maximum statutory dividend capacity and committed cash at the holding
company relative to adjusted interest expense, is also strong at about 6x.

PL estimates the NAIC risk-based capital ratio of Protective Life Insurance
Company, the group's primary operating company, at 462% as of Sept. 30, 2012,
compared with 433% at year-end 2011. It is expected to increase further for the
full year 2012 reflecting a fourth quarter captive reinsurance reserve financing
transaction. PL indicates that, following the transaction, all XXX and AXXX
reserve financing needs are now funded to the peak. New business written in the
second half of 2012 and 2013 is not expected to require reserve financing.

PL's financial leverage ratio (FLR) was 29% at the end of the third quarter
compared to 28% at year-end 2011. New debt issued in 2012 was used to pay off
existing debt, so the increase in the ratio was due mainly to the new DAC
accounting rules, which resulted in a decrease in GAAP equity. The FLR is in
line with rating expectations. Fitch notes, however, that the FLR excludes
reserve funding arrangements, which are included in Fitch's total financings and
commitments ratio (TFC). Fitch views PL's TFC as very high relative to peers at
1.8x as of Sept. 30, 2012. Fitch generally views PL's reserve financing
activities as well managed.

Key concerns include macroeconomic headwinds from low interest rates and high
financial market volatility. 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 good
GAAP operating profitability and earnings-based coverage of interest expense;
financial leverage below 25%; TFC below 1.0x range.

The key rating triggers that could result in a downgrade include material
declines in GAAP equity 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';
--$288 million of 6.25% subordinated debt due 2042' at 'BB+';
--$150 million of 6.00% subordinated debt due 2042 at 'BB+';
--$103 million of 6.13% trust preferreds issued through PLC Capital Trust V due
2034 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' (Oct. 18, 2012).

Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended
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