Oct. 15 (Bloomberg) -- Protective Life Corp., the Birmingham, Alabama-based insurer, fell 22 percent after Moody's Investors Service said it may downgrade the company because of declines in holdings tied to mortgages.

Moody's is reviewing the insurer's A3 credit grade because of ``the weakening of Protective's investment portfolio, profitability, and capital adequacy in light of the challenging credit and economic environment,'' the ratings firm said in a statement today.

Protective Life had $227.5 million in holdings of securities in insurer American International Group Inc., investment bank Lehman Brothers Holdings Inc. and mortgage lenders Freddie Mac and Fannie Mae, the firm said in September. Lehman filed for bankruptcy protection, and AIG, Fannie and Freddie were bailed out by the U.S., reducing the value of investors' assets.

Insurance stocks have plummeted this month on concern that losses on corporate debt and mortgage-backed securities will force the companies to raise capital. Insurers had about $2.96 trillion in bonds at the end of 2006, according to Fitch Ratings.

Protective Life has ``a strong capital position,'' which will improve in 2009 through the normal course of business, the insurer said in a statement after the Moody's announcement.

``Our basic businesses -- life insurance, annuities, stable value and extended service agreements -- are sensibly and conservatively managed,'' the insurer said.

Protective Life fell $3.61 to $12.60 at 4:01 p.m. in New York Stock Exchange composite trading. The stock has plunged by two-thirds this year.

The A3 rating is the seventh-highest of 10 investment-level grades given by Moody's.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net; Erik Holm in New York at eholm2@bloomberg.net.

Last Updated: October 15, 2008 16:08 EDT