Protective Reports Fourth Quarter and Full-Year 2012 Financial Results

  Protective Reports Fourth Quarter and Full-Year 2012 Financial Results

  *Record operating earnings for the year of $313 million
  *2012 operating earnings per share of $3.78, up 15% from 2011
  *Operating earnings of $0.98 per share in 4Q12
  *Dividends per share increased 13% over 2011
  *54% of 2012 earnings returned to shareowners through dividends and share
    repurchase

Business Wire

BIRMINGHAM, Ala. -- February 6, 2013

Protective Life Corporation (NYSE: PL) (“PLC” or “the Company”) today reported
results for the fourth quarter of 2012. Net income available to PLC’s common
shareowners for the fourth quarter of 2012 was $66.8 million or $0.82 per
average diluted share, compared to $86.0 million or $1.02 per average diluted
share in the fourth quarter of 2011. After-tax operating income was $79.7
million or $0.98 per average diluted share, compared to $81.8 million or $0.97
per average diluted share in the fourth quarter of 2011.

Net income available to PLC’s common shareowners for the twelve months ended
December 31, 2012 was $302.5 million or $3.66 per average diluted share,
compared to $315.4 million or $3.65 per average diluted share for the twelve
months ended December 31, 2011. After-tax operating income was $312.7 million
or $3.78 per average diluted share, compared to $283.8 million or $3.28 per
average diluted share for the twelve months ended December 31, 2011.

“We are delighted to report excellent results for the quarter and the year,”
said John D. Johns, Chairman, President and CEO. “Notwithstanding the
headwinds presented by low interest rates and a challenging competitive
environment, we delivered record operating earnings and an increase in our
operating return on equity. Across the board, our team rose to the challenges
and efficiently executed our business plans for the year. We believe that we
are very well positioned to continue our strong earnings momentum and
operating fundamentals in 2013.”

Business Segment Results

The table below sets forth business segment operating income before income tax
for the periods shown:


Operating Income Before Income Tax
($ in thousands)
                     For the                     For the
                       three months ended            twelve months ended
                       December 31,                  December 31,
                       2012        2011            2012          2011
Life Marketing         $ 15,642      $ 33,810        $ 105,032       $ 96,123
Acquisitions             42,191        41,545          171,060         157,393
Annuities                45,348        24,230          119,092         80,224
Stable Value             18,675        14,226          60,329          56,780
Products
Asset Protection         859           6,706           16,454          25,407
Corporate & Other       928          (4,416  )      (3,203  )      5,767
                       $ 123,643     $ 116,101      $ 468,764      $ 421,694
                                                                       

The following table reconciles segment operating income to consolidated net
income available to PLC’s common shareowners:


                     For the                     For the
                       three months ended            twelve months ended
($ in thousands)       December 31,                  December 31,
                       2012          2011          2012          2011
Operating income       $ 123,643       $ 116,101     $ 468,764       $ 421,694
before income tax
Realized
investment gains         (25,613 )       7,558         (29,830 )       54,103
(losses)
Less:
Related
amortization of
deferred policy          (5,689  )       1,022         (14,037 )       5,566
acquisition costs
and value of
business acquired
Income tax expense      36,923        36,603       150,519       154,839
Net income
available to PLC’s     $ 66,796       $ 86,034      $ 302,452      $ 315,392
common shareowners
                                                                       

Sales

The Company uses sales statistics to measure the relative progress of its
marketing efforts. The Company derives these statistics from various sales
tracking and administrative systems and not from its financial reporting
systems or financial statements. These statistics measure only one of many
factors that may affect future profitability of the business segments and
therefore are not intended to be predictive of future profitability.

The table below sets forth business segment sales for the periods shown:


                        For the               For the
                          three months ended      twelve months ended
($ in millions)           December 31,            December 31,
                         2012      2011        2012        2011
Life Marketing            $ 41.9      $ 25.2      $ 121.5       $ 133.2
Annuities                   863.9       689.5       3,326.7       3,381.2
Stable Value Products       272.2       32.9        621.6         798.7
Asset Protection            104.9       105.9       451.3         415.6
                                                                  

Review of Business Segment Results

Life Marketing

Life Marketing segment pre-tax operating income was $15.6 million in the
fourth quarter of 2012, representing a decrease of $18.2 million from the
three months ended December 31, 2011. Some items contributing to the decrease
were a $5.5 million decrease in earnings related to closing a reserve
financing transaction and the related transfer of investment income to the
Corporate & Other segment, unfavorable mortality experience, and higher
operating expenses as a result of higher sales. Traditional life mortality was
92% of expected in the fourth quarter of 2012 compared to 86% of expected in
the fourth quarter of 2011, resulting in an unfavorable change of $3.4
million. Universal life mortality experience was also unfavorable compared to
the prior year’s fourth quarter.

Sales were $41.9 million for the quarter, up 66% compared to $25.2 million in
the fourth quarter of 2011.

Acquisitions

Acquisitions segment pre-tax operating income was $42.2 million in the fourth
quarter of 2012 compared to $41.5 million in the same quarter last year. The
increase was primarily due to favorable mortality and lower transition
expenses related to the United Investors Life Insurance Company (“United
Investors”) and the Liberty Life Insurance Company (“Liberty Life”) blocks as
compared to the fourth quarter of 2011. This favorable increase was partially
offset by expected runoff.

Annuities

Annuities segment pre-tax operating income was a record $45.3 million in the
fourth quarter of 2012 compared to $24.2 million in the fourth quarter of
2011.

Fixed annuity operating income was $26.4 million, compared to $11.0 million in
the prior year. This increase was primarily due to a favorable change of $7.0
million in the single premium immediate annuity (“SPIA”) mortality variance
and higher spreads, which included a $5.6 million impact from participating
mortgage income for the three months ended December 31, 2012.

Variable annuity operating income was $18.9 million, compared to $13.2 million
in the fourth quarter of 2011. The increase included a favorable change of
$17.6 million in revenue driven by higher policy fees associated with the
growth in account balances. Offsetting this was a $5.9 million increase in
non-deferred expenses primarily resulting from higher marketing and
maintenance expenses due to growth in this product line as compared to the
fourth quarter of 2011.

Net cash flows for the segment remained positive during the quarter. Annuity
account balances were $17.5 billion as of December 31, 2012, an increase of
18% over the past twelve months. Sales in the fourth quarter of 2012 were
$863.9 million compared to $689.5 million in the fourth quarter of 2011.
Variable annuity sales were $733.2 million compared to $498.6 million in the
fourth quarter of 2011. Fixed annuity sales were $130.7 million compared to
$190.9 million in the prior year’s fourth quarter.

Stable Value Products

Stable Value Products segment pre-tax operating income was $18.7 million in
the fourth quarter of 2012 compared to $14.2 million in the fourth quarter of
2011. Included in the fourth quarter of 2012 results is $2.8 million of
participating mortgage income compared to $0.1 million in the fourth quarter
of 2011. In addition, the segment experienced a 60 basis point increase in the
adjusted operating spread, which excludes participating income, due to a
decline in credited interest. These favorable items were partially offset by
lower average account balances.

Account balances as of December 31, 2012 totaled $2.5 billion. Sales were
$272.2 million for the three months ended December 31, 2012, compared to $32.9
million in the fourth quarter of 2011.

Asset Protection

Asset Protection segment pre-tax operating income was $0.9 million in the
fourth quarter of 2012 compared to $6.7 million in the fourth quarter of 2011.
The decrease was primarily due to a $4.1 million write-off of previously
capitalized software development costs recorded within the service contract
product line. Excluding the software write-off, service contract earnings
decreased $1.2 million compared to the prior year’s fourth quarter primarily
due to higher operating expenses.

Sales were $104.9 million for the three months ended December 31, 2012,
compared to $105.9 million in the fourth quarter of 2011. Service contract
sales were $83.8 million compared to $80.5 million in the fourth quarter of
2011. Credit insurance sales were $6.9 million compared to $8.4 million in the
fourth quarter of 2011. Sales of the GAP product were $14.1 million compared
to $17.0 million in the prior year’s fourth quarter.

Corporate & Other

Corporate & Other segment pre-tax operating income was $0.9 million in the
fourth quarter of 2012 compared to an operating loss of $4.4 million in the
fourth quarter of 2011. The increase was primarily due to an $8.9 million
increase in investment income related to a transfer from the Life Marketing
segment and higher mortgage loan prepayment fee income compared to the fourth
quarter of 2011. For the fourth quarter of 2012, $3.0 million of pre-tax gains
were generated from the repurchase on non-recourse funding obligations
compared to $3.1 million of pre-tax gains during the fourth quarter of 2011.

Share Repurchase Program

During the fourth quarter of 2012, the Company repurchased 1,047,084 shares at
a total cost of approximately $27.4 million. For the twelve months ended
December 31, 2012, the Company repurchased 3,923,336 shares at a total cost of
approximately $106 million. The Company has $170 million of remaining capacity
under its existing share repurchase program, which extends through December
31, 2014.

Future repurchase activity will depend on many factors, including capital
levels, liquidity needs, rating agency expectations, and the relative
attractiveness of alternative uses for capital.

Investments

  *The net unrealized gain position on investments was $1.8 billion, after
    tax and DAC offsets, an improvement of $754 million compared to December
    31, 2011.
  *Total cash and investments were $37.3 billion as of December 31, 2012.
    This includes $0.6 billion of cash and short-term investments.
  *During the fourth quarter of 2012, the Company had $18.0 million of
    pre-tax other-than-temporary impairment losses recognized in earnings.
  *Nonperforming mortgage loans equaled $23.9 million as of December 31,
    2012, representing 0.5% of the commercial mortgage loan portfolio.

                                                         
Net Realized Investment/Derivative Activity
($ per average diluted share)                   4Q12          2012
                                                              
Net realized gain on securities                 $ 0.07        $ 0.53
Modco net realized gain                           0.06          0.37
Impairments                                       (0.14 )       (0.46 )
Derivatives related to VA contracts               (0.13 )       (0.38 )
Mortgage/real estate losses                       (0.01 )       (0.11 )
All other                                        (0.01 )      (0.07 )
Total                                           $ (0.16 )     $ (0.12 )
                                                              

Operating income differs from the GAAP measure, net income, in that it
excludes realized investment gains (losses) and related amortization. The
tables below reconcile operating income to net income available to PLC’s
common shareowners:

Fourth Quarter and Full-Year Consolidated Results

                                                          
                    For the                       For the
                    three months ended            twelve months ended
                    December 31,                  December 31,
($ in
thousands; net      2012           2011           2012             2011
of income tax)
                                                                   
After-tax
operating           $ 79,746       $ 81,786       $ 312,716        $ 283,844
income
Realized
investment
gains (losses)
and related
amortization
Investments           (3,320 )       6,377          121,022          118,239
Derivatives          (9,630 )      (2,129 )      (131,286 )      (86,691 )
Net income
available to        $ 66,796      $ 86,034      $ 302,452       $ 315,392 
PLC’s common
shareowners
                                                                   
                                                                   
                    For the                       For the
                    three months ended            twelve months ended
                    December 31,                  December 31,
($ per average
diluted share;      2012           2011           2012             2011
net of income
tax)
                                                                   
After-tax
operating           $ 0.98         $ 0.97         $ 3.78           $ 3.28
income
Realized
investment
gains (losses)
and related
amortization
Investments           (0.04  )       0.08           1.47             1.37
Derivatives          (0.12  )      (0.03  )      (1.59    )      (1.00   )
Net income
available to        $ 0.82        $ 1.02        $ 3.66          $ 3.65    
PLC’s common
shareowners
                                                                   

For information relating to non-GAAP measures (operating income and PLC’s
shareowners’ equity per share excluding other comprehensive income (loss)) in
this press release, please refer to the disclosure at the end of this press
release and to the Company’s Supplemental Financial Information located on the
Company’s website at www.protective.com. All per share results in this press
release are presented on a diluted basis, unless otherwise noted.

                                                             
Reconciliation of PLC’s Shareowners’ Equity, Excluding Accumulated Other
Comprehensive Income
                                                                  
($ in millions)                                 December 31,      December 31,
                                                2012              2011
PLC’s shareowners’ equity                       $     4,615       $    3,711
Less: Accumulated other comprehensive                1,737           985
income
PLC’s shareowners’ equity, excluding            $     2,878       $    2,726
accumulated other comprehensive income
                                                                  
                                                                  
                                                                  
                                                                  
Reconciliation of PLC’s Shareowners’ Equity per share, Excluding Accumulated
Other Comprehensive Income per share
                                                                  
($ per common share outstanding)                December 31,      December 31,
                                                2012              2011
PLC’s shareowners’ equity                       $     59.06       $    45.45
Less: Accumulated other comprehensive                22.22           12.07
income
PLC’s shareowners’ equity excluding             $     36.84       $    33.38
accumulated other comprehensive income
                                                                       

Accounting Changes

Results for the current and all prior periods reflect the adoption and the
Company’s retrospective application of Accounting Standards Update 2010-26,
effective January 1, 2012, which modifies the accounting guidance for deferred
acquisition costs.

Current and prior period operating income results within the Annuities segment
have been updated to reflect the Company’s revised definition of operating
income (loss) as it relates to embedded derivatives on our variable annuity
contracts and related hedging activities. This change was incorporated in the
first quarter of 2012 and did not impact its comparable GAAP measure income
before income tax.

See information relating to non-GAAP measures at the end of this press
release.

Conference Call

There will be a conference call for management to discuss the quarterly
results with analysts and professional investors on February 7, 2013 at 10:00
a.m. Eastern. Analysts and professional investors may access this call by
dialing 1-866-800-8651 (international callers 1-617-614-2704) and entering the
conference passcode: 13471518. A recording of the call will be available from
12:00 p.m. Eastern February 7,2013 until midnight February 21, 2013. The
recording may be accessed by calling 1-888-286-8010 (international callers
1-617-801-6888) and entering the passcode: 91637929.

The public may access a live webcast of the call, along with a call
presentation, in the Investor Relations section of the Company’s website at
www.protective.com. The call presentation will be available on the website
beginning approximately 30 minutes prior to the conference call.

Supplemental financial information is available on the Company’s website at
www.protective.com in the Investor Relations section.

Information Relating to Non-GAAP Measures

Throughout this press release, GAAP refers to accounting principles generally
accepted in the United States of America. Segment operating income (loss) is
income before income tax, excluding net realized investment gains and losses
(excluding periodic settlements of derivatives associated with debt and
certain investments) net of the related amortization of deferred acquisition
costs (“DAC”) and value of business acquired (“VOBA”). Operating earnings
exclude changes in the guaranteed minimum withdrawal benefits (“GMWB”)
embedded derivatives (excluding the portion attributed to economic cost),
realized and unrealized gains (losses) on derivatives used to hedge the VA
product, actual GMWB incurred claims and net of the related amortization of
DAC attributed to each of these items.

In the first quarter of 2012, management revised the definition of operating
income (loss) as it relates to certain features of our variable annuity
contracts and related hedging activities, to better reflect the basis on which
the performance of its business is internally assessed. Under the revised
definition, the following items will be excluded from operating income:

  *Changes in GMWB embedded derivatives related to this rider feature of
    certain variable annuity products (excluding the portion attributed to
    economic costs). Economic cost is the long-term expected average cost of
    providing the product benefit over the life of the policy based on product
    pricing assumptions. These include assumptions about the economic/market
    environment, and elective and non-elective policy owner behavior (e.g.
    lapses, withdrawal timing, mortality, etc.). These features are considered
    embedded derivatives under ASC 815.
  *Changes in value of certain derivative instruments used to mitigate the
    risk related to variable annuity contracts.
  *That portion of the change in balance sheet components amortized over
    estimated gross profit that is attributed to the embedded GMWB derivative
    and related economic hedges (e.g. DAC amortization).

Prior period operating income has been updated to reflect the revised
definition.

Management believes that consolidated and segment operating income (loss)
provides relevant and useful information to investors, as it represents the
basis on which the performance of the Company’s business is internally
assessed. Although the items excluded from consolidated and segment operating
income (loss) may be significant components in understanding and assessing the
Company’s overall financial performance, management believes that consolidated
and segment operating income (loss) enhances an investor’s understanding of
the Company’s results of operations by highlighting the income (loss)
attributable to the normal, recurring operations of the Company’s business. As
prescribed by GAAP, certain investments are recorded at their fair values with
the resulting unrealized gains (losses) affected by a related adjustment to
DAC and VOBA, net of income tax, reported as a component of total Protective
Life Corporation’s shareowners’ equity. The fair value of fixed maturities
generally increase or decrease as interest rates change. The Company believes
that an insurance company’s shareowners’ equity per share may be difficult to
analyze without disclosing the effects of recording accumulated other
comprehensive income (loss), including unrealized gains (losses) on
investments.

Unlocking

The Company periodically reviews and updates as appropriate key assumptions on
products using the Accounting Standards Codification (“ASC”) Financial
Services-Insurance Topic, including future mortality, expenses, lapses,
premium persistency, investment yields, interest spreads, and equity market
returns. Changes to these assumptions result in adjustments which increase or
decrease DAC amortization and/or benefits and expenses. The periodic review
and updating of assumptions is referred to as “unlocking”. When referring to
DAC amortization or unlocking on products covered under the ASC Financial
Services-Insurance Topic, the reference is to changes in all balance sheet
components amortized over estimated gross profits.

Forward-Looking Statements

This release includes “forward-looking statements” which express expectations
of future events and/or results. All statements based on future expectations
rather than on historical facts are forward-looking statements that involve a
number of risks and uncertainties, and the Company cannot give assurance that
such statements will prove to be correct. The factors which could affect the
Company’s future results include, but are not limited to, general economic
conditions and the following known risks and uncertainties:  (1) we are
exposed to the risks of natural and man-made catastrophes, pandemics,
malicious acts, terrorist acts, and climate change; (2) our strategies for
mitigating risks arising from our day-to-day operations may prove ineffective;
(3) we operate in a mature, highly competitive industry, which could limit our
ability to gain or maintain our position in the industry and negatively affect
profitability; (4) we operate as a holding company and depend on the ability
of our subsidiaries to transfer funds to us to meet our obligations and pay
dividends; (5) the policy claims of our insurance subsidiaries may fluctuate
from period to period resulting in earnings volatility; (6) we may be
adversely affected by a ratings downgrade or other negative action by a
ratings organization; (7) our results may be negatively affected should actual
experience differ from management’s assumptions and estimates, which by their
nature are imprecise and subject to changes and revisions over time; (8) our
financial condition and results of operations could be adversely affected if
our assumptions regarding the fair value and future performance of our
investments differ from actual experience; (9) our use of reinsurance
introduces variability in our statements of income; (10) we could be forced to
sell investments at a loss to cover policyholder withdrawals; (11) interest
rate fluctuations and sustained periods of low interest rates could negatively
affect our interest earnings and spread income, or otherwise impact our
business; (12) equity market volatility could negatively impact our business;
(13) our use of derivative financial instruments within our risk management
strategy may not be effective or sufficient; (14) we are highly regulated and
subject to numerous legal restrictions; (15) changes in tax law or
interpretations of existing tax law could adversely affect us; (16) we may be
required to establish a valuation allowance against our deferred tax assets;
(17) we, like other financial services companies, in the ordinary course of
business, are frequently the targets of litigation, including class action
litigation, which could result in substantial judgments; (18) we, as a
publicly held company generally, and a participant in the financial services
industry in particular, may be the target of law enforcement investigations
and the focus of increased regulatory scrutiny; (19) our ability to maintain
competitive unit costs is dependent upon the level of new sales and
persistency of existing business; (20) our investments are subject to market
and credit risks and these risks could be heightened during periods of extreme
volatility or disruption in financial and credit markets; (21) we may not
realize our anticipated financial results from our acquisition strategy; (22)
we are dependent upon the performance of others; (23) our risk management
policies, practices, and procedures could leave us exposed to unidentified or
unanticipated risks; (24) our reinsurers could fail to meet assumed
obligations, increase rates, or otherwise be subject to adverse developments;
(25) the occurrence of computer viruses, information security breaches,
disasters, or unanticipated events could affect our data processing systems or
those of our business partners and/or service providers; (26) our ability to
grow depends in large part upon the continued availability of capital; (27)
new accounting rules or changes to existing accounting rules could impact our
reported earnings; (28) credit market volatility or disruption could adversely
impact us; (29) disruption of the capital and credit markets could negatively
affect the Company’s ability to meet its liquidity and financing needs; (30)
difficult general economic conditions could materially adversely affect our
business and results of operations; (31) we may not be able to protect our
intellectual property and may be subject to infringement claims; (32) we could
be adversely affected by an inability to access our credit facility; and (33)
the amount of statutory capital we have and must hold to maintain our
financial strength and credit ratings and meet other requirements can vary
significantly and is sensitive to a number of factors beyond our control.
Please refer to Risk Factors and Cautionary Factors that may Affect Future
Results, which can be found in Part I, Item 1A of the Company’s most recent
report on Form 10-K and Part II, Item 1A of the Company’s most recent report
on Form 10-Q for more information about these factors.

Contact:

Protective Life Corporation
Richard J. Bielen, 205-268-3617
Vice Chairman and Chief Financial Officer
or
Eva T. Robertson, 205-268-3912
Vice President, Investor Relations