Fitch Downgrades the Ratings of Protective Life Corp. and Subsidiaries

2008-11-09 06:28:02 -

- Fitch Ratings has downgraded the Issuer Default Rating (IDR) of Protective Life Corp. (NYSE:PL) to 'A-' from 'A' and its senior debt ratings to 'BBB+' from 'A-'. 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 'AA-'. The Rating Outlook is Negative.

This rating action reflects Fitch's view that the risk-based capital level of PL's primary life insurance subsidiaries has deteriorated in 2008 and will continue to be pressured over the near term due to investment losses and reserve strain associated with the company's term life insurance business. The ongoing turmoil in the credit markets has limited PL's financial flexibility and put pressure on its ability to access funding to improve its capital position.

While Fitch believes that PL's exposure to investment losses is not out of line with the industry, the company went into 2008 with a capital position that was considered adequate but without a significant capital cushion. As a result, PL is less able to absorb investment losses relative to many peers that were in an excess capital position going into 2008.

The company's statutory capital has benefited in recent years from capital market solutions, particularly non-recourse securitizations, to fund excess statutory reserve requirements through captives. The securitization market has shut down in 2008 and is not expected to be a viable option in the near term. PL is exploring other options to strengthen capital, but they are likely to limit the company's near-term growth opportunities.

Importantly, Fitch 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. Further, PL has below-average equity market exposure given the company's relatively modest variable annuity business and negligible exposure to unaffiliated common stock. Equity-adjusted leverage remains within expectations, and interest coverage, while down from prior quarters, is reasonable.

Fitch downgrades the following ratings with a Negative Outlook:

Protective Life Corporation:

--Issuer Default Rating (IDR) to 'A-' from 'A';

--$10 million in senior notes due 2011 to 'BBB+' from 'A-';

--$250 million in senior notes due 2013 to 'BBB+' from 'A-';

--$150 million in senior notes due 2014 to 'BBB+' from 'A-';

--$150 million in senior notes due 2018 to 'BBB+' from 'A-';

--$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

--Insurance Financial Strength (IFS) to 'A+' from 'AA-';

Protective Life Secured Trust

--Medium-term notes to 'A+' from 'AA-'.

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.

Fitch Ratings
Cynthia Crosson, 212-908-0863, New York
Douglas Meyer, CFA, 312-368-2061, Chicago
or
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Email: tyrene.frederick-mack@fitchratings.com