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S&P Affirms Protective Life Insurance and Related Units Ratings.

NEW YORK, Jan. 25 /PRNewswire/ -- Standard & Poor's today affirmed its double-'A'/'A-1'-plus counterparty credit and financial strength ratings on Protective Life Insurance Co. (Protective). At the same time, Standard & Poor's affirmed its double-'A' financial strength ratings on Empire General Life Assurance Corp., Protective Life and Annuity Insurance Co., and West Coast Life Insurance Co., which are Protective's explicitly supported subsidiaries. In addition, Standard & Poor's affirmed its single-'A' senior unsecured debt and triple-'B'-plus preferred stock ratings on Protective's parent, Protective Life Corp. The outlook is stable.

The affirmations reflect Protective's very strong and well-diversified business position, extremely strong capitalization, very strong earnings and liquidity, strong investment portfolio with minimal credit risk, and adequate financial flexibility. Partially offsetting these positive factors is Protective's heavy reliance on reinsurance, which might restrict its pricing flexibility, and its above-average exposure to interest rate risk from its large proportion of MBS (24% of invested assets). Standard & Poor's does not expect any impact on the rating because of the recent change of chief executive officer.

Major Rating Factors:

-- Protective has a very strong and diversified business profile, with a solid position in the individual life, annuity, guaranteed investment contract (GIC), and credit life markets. A profitable acquisition line of business that acquires in-force blocks of policies and small insurance companies complements these businesses. Most of the growth has been in product lines that are considered commodity-like products--such as term life insurance and fixed annuities--or from opportunistic line of business, such as stable-value products or acquisitions of life insurance blocks.

-- Operating performance is considered very strong based on a Standard & Poor's consolidated GAAP earnings adequacy ratio of 292%. The group demonstrated a track record of positive net income growth in the last four years because of careful expense management, tight underwriting, and above- average investment return. On the other hand, ROE has declined to 12% as of Sept. 30, 2001, compared with 17% in 1997. In addition, the company has well- diversified returns but is also very reliant on reinsurance. Standard & Poor's expects earnings to grow about 10% in 2002 because of the new acquisitions, the exit of the dental business, and improvement in the diversification of earnings. ROE is expected to be in the 12%-13% range as the company spends more capital in acquisitions.

-- Capitalization is extremely strong and enhanced by Protective's access to the capital markets. On a consolidated basis, the group's capital adequacy ratio, based on Standard & Poor's model, was 232% at year-end 2000 and is expected to remain stable in 2001 despite the use of outside capital to make three acquisitions: Standard Life Insurance Co., Inter-State Insurance Co., and First Variable Life Insurance Co. As of Sept. 30, 2001, the company reported a debt-plus-preferred to capital ratio of 30% and interest coverage of 7.7 times (x), which are acceptable for the current rating level.

-- Liquidity is very strong, with a Standard & Poor's liquidity ratio of 237% at year-end 2000. Liquidity is enhanced by the company's stringent asset/liability management and product characteristics that deter early withdrawal.

-- Protective's investment portfolio is viewed as strong. Investment performance is above average, and invested assets are of high quality, with an adequate duration match between its asset and liability. Protective has some exposure to interest rate risk, as a substantial proportion of assets are invested in MBS (24% of invested assets) and commercial real estate, with 23% of its assets in commercial mortgages. The company reduces this exposure somewhat through diversification, excellent risk management, and the implementation of a hedging program. As a result, Protective has very little exposure to the Enron Corp. and Kmart Corp. bankruptcies.

Protective Life Insurance Co. Empire General Life Assurance Corp., Protective Life and Annuity Insurance Co., and West Coast Life Insurance Co. are Security Circle insurers, which means that they voluntarily underwent Standard & Poor's most comprehensive analysis and were assigned ratings in one of the top four categories for financial security.

OUTLOOK: STABLE

In the next few years, Standard & Poor's expects capitalization to remain very strong, with a Standard & Poor's capital adequacy ratio of at least 170%. Sales in all the divisions are expected to increase 10% or more annually as the company continues to growth in its nontraditional distribution channels. GAAP ROA is expected to be in excess of 200 basis points as the new acquisition start to contribute to the bottom line and the company exits the less-profitable business. In addition, liquidity is expected to remain very strong. Financial leverage ratios are expected to remain appropriate for the company's rating category, with interest coverage of 7x-10x and debt-plus-preferred leverage of about 30%.

Contact: Jose Siberon, FSA of Standard & Poor's Ratings Services, +1-212-438-7239

Website: http://www.standardandpoors.com/ratings
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Geographic Code:1USA
Date:Jan 25, 2002
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