Sep. 16, 2009 (Business Wire) -- Fitch Ratings has downgraded the Issuer Default Rating (IDR) of Protective Life Corp. (NYSE: PL) to 'BBB+' from 'A-' and its senior debt ratings to 'BBB' from 'BBB+'. In addition, Fitch has downgraded PL's trust preferred ratings to 'BBB-' from 'BBB'. The Insurer Financial Strength (IFS) ratings of PL's primary life insurance subsidiaries have been downgraded to 'A' from 'A+'. The Rating Outlook is Negative.
The downgrade reflects Fitch's concerns regarding the statutory capitalization of PL's primary life insurance subsidiaries, which have been under pressure due to investment losses and reserve strain associated with the company's term life insurance business.
Fitch's analysis of PL's statutory capital levels includes an assumption for future investment losses in the range of 1.5-2% of invested assets. Fitch's analysis also considers the capital and funding needs at Golden Gate Captive Insurance Company (Golden Gate), a wholly-owned South Carolina insurance captive established to fund PL's redundant term life insurance reserve requirements. Additionally, Fitch's analysis considered the company's ceded reinsurance exposure to Scottish Re, which is currently under regulatory supervision. Based on this analysis, Fitch concluded that PL's statutory capitalization is below expectations for the prior rating level.
Fitch notes that PL is actively working on financing initiatives. These initiatives may have a positive effect on Fitch's view of the life subsidiaries' statutory capital levels.
The Negative Outlook reflects uncertainties associated with the financing efforts, the reserve credit on reinsurance as well as the ultimate realization of future investment losses.
The ratings continue to reflect the company's favorable earnings performance, strong liquidity, and good competitive position in the U.S. life insurance market. Fitch believes that the PL's favorable earnings performance, which has been materially better than peers, reflects the company's concentration in the individual life insurance business, limited variable annuity exposure, and focused management approach.
Fitch also believes that PL's liquidity position is sound. The company has no significant debt maturing until 2013 and has cash and liquid assets to meet maturing obligations at the holding company and operating company levels. Equity-adjusted leverage remains within expectations, and interest coverage is reasonable.
PL maintains a good competitive position in the individual life insurance market. Fitch notes that the company is increasing its focus on the sale of universal life insurance products, and deemphasizing the sale of capital intensive term life insurance products. Fitch believes that the company's strategic repositioning may have a negative impact on sales over the short-term.
Fitch downgrades the following ratings:
Protective Life Corporation
--IDR to 'BBB+' from 'A-';
--$10 million in medium-term notes due 2011 to 'BBB' from 'BBB+';
--$250 million in senior notes due 2013 to 'BBB' from 'BBB+';
--$150 million in senior notes due 2014 to 'BBB' from 'BBB+';
--$150 million in senior notes due 2018 to 'BBB' from 'BBB+';
--$103 million trust preferred issued through PLC Capital
Trust III due 2031 to 'BBB-' from 'BBB';
--$119 million trust preferred issued through PLC Capital
IV due 2032 to 'BBB-' from 'BBB';
--$103 million trust preferred issued through PLC Capital
Trust V due 2034 to 'BBB-' from 'BBB';
--$200 million class D junior subordinated notes due 2066 to 'BBB-' from 'BBB'.
Protective Life Insurance Company
Protective Life and Annuity Insurance Company
West Coast Life Insurance Company
--IFS to 'A' from 'A+'.
Protective Life Secured Trust
--Medium-term notes to 'A' from 'A+'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
