A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of the primary life/health subsidiaries of Protective Life Corporation (Protective) (headquartered in Birmingham, AL) [NYSE: PL], led by Protective Life Insurance Company (Brentwood, TN). Additionally, A.M. Best has affirmed the ICR of “a-” and debt ratings of Protective. (See link below for a detailed listing of the companies and ratings.) The outlook for all ratings is stable.
The ratings reflect Protective’s diversified business profile, favorable operating results and proven ability to acquire and integrate insurance companies and blocks of business. A.M. Best notes that recent acquisitions have been accretive and have resulted in a predictable and stable source of earnings. Additionally, these acquisitions have enabled the company to enter new markets and realize certain operating efficiencies.
The ratings also acknowledge Protective’s sound risk-adjusted capitalization on both a consolidated basis and within each of the insurance operating entities. While financial leverage at the holding company remains relatively high, A.M. Best notes that Protective’s debt-to-capital ratio and interest coverage ratios have improved modestly over the past year and remain within A.M. Best’s guidelines for the current ratings. In addition, the company maintains multiple sources of liquidity including strong cash flows from its insurance operating entities, access to a line of credit of up to $750 million, cash held at the holding company equivalent to 12 months’ interest expense and a fairly liquid investment portfolio, which is currently in a sizable net unrealized gain position.
A.M. Best has observed that Protective’s life and annuity sales were generally flat year over year, reflecting a number of market conditions. In order to improve profitability, premium rates were increased on existing life insurance product lines while certain traditional life products were discontinued. In addition, A.M. Best notes that sales of universal life insurance with secondary guarantees have been impacted by new regulatory guidelines that require an increase in reserves. Fixed annuity sales have declined due to the unfavorable interest rate environment. On the positive side, variable annuity sales have increased substantially in 2012, as some competitors exited the market and others aggressively reduced product features. Given that Protective’s variable annuity sales really started to accelerate in 2010, these products generally have less risk and higher returns relative to what was sold pre-crisis.