-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WGx+C7R63XLJcP02vXUu0bgkMcCV350sXvfIu9brd4ENc6V0C9WECLjNPiySJuhj dpxtRQKkiPIp8GFm6kmrXg== 0000355429-01-000008.txt : 20010328 0000355429-01-000008.hdr.sgml : 20010328 ACCESSION NUMBER: 0000355429-01-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTECTIVE LIFE CORP CENTRAL INDEX KEY: 0000355429 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 952492236 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12332 FILM NUMBER: 1580318 BUSINESS ADDRESS: STREET 1: 2801 HGWY 280 S CITY: BIRMINGHAM STATE: AL ZIP: 35223 BUSINESS PHONE: 2058799230 MAIL ADDRESS: STREET 1: PO BOX 2606 CITY: BIRMINGHAM STATE: AL ZIP: 35202 10-K 1 0001.htm 10K
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549
_____________

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2000 Commission File Number 1-12332

Protective Life Corporation

(Exact name of Registrant as specified in its charter)



2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223

(Address of principal executive offices, including zip code)

DELAWARE 95-2492236
(State or other jurisdiction (IRS Employer
incorporation or organization) Identificiation No.




Registrant's telephone number, including area code (205) 879-9230


_____________


Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.50 Par Value
Series A Junior Participating Cumulative Preferred Stock, $1.00 Par Value
PLC Capital Trust I 8.25% Trust Originated Preferred Securities
FELINE PRIDE Units
Guarantees Issued for the Benefit of Holders of:
PLC Capital Trust I 8.25% Trust Originated Preferred Securities

(Title of Class)


Name of each exchange
on which registered
New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act: None


Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No[ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in the definitive proxy statement or information statements or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Aggregate market value of voting stock held by nonaffiliates of the Registrant as of March 9, 2001: $2,030,904,516
Number of shares of Common Stock, $0.50 Par Value, outstanding as of March 9, 2001: 68,528,795

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's 2000 Annual Report To Share Owners (the "2000 Annual Report To Share Owners") are incorporated by reference into Parts I, II, and IV of this Report.

Portion of the Registrant's Proxy Statement dated March 30, 2001, are incorporated by reference into Part III of this Report.

_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________





PROTECTIVE LIFE CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR FISCAL YEAR ENDED DECEMBER 31, 2000

TABLE OF CONTENTS


                                                       PART I
                                                                                Page

Item 1.       Business..........................................................

Item 2.       Properties........................................................

Item 3.       Legal Proceedings.................................................

Item 4.       Submission of Matters to a Vote of Security Holders...............


                                                       PART II

Item 5.       Market for the Registrant's Common Equity and
                Related Share-Owner Matters.....................................

Item 6.       Selected Financial Data...........................................

Item 7.       Management's Discussion and Analysis of Financial
                Condition and Results of Operations.............................

Item 7a.      Quantitative and Qualitative Disclosure About Market Risk.........

Item 8.       Financial Statements and Supplementary Data.......................

Item 9.       Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure.............................


                                                      PART III

Item 10.      Directors and Executive Officers of the Registrant................

Item 11.      Executive Compensation............................................

Item 12.      Security Ownership of Certain Beneficial Owners and
                Management......................................................

Item 13.      Certain Relationships and Related Transactions....................

                                                       PART IV

Item 14.      Exhibits, Financial Statement Schedules, and Reports
                on Form 8-K.....................................................





PART I

Item 1. Business

        Protective Life Corporation is a holding company, whose subsidiaries provide financial services through the production, distribution, and administration of insurance and investment products. Founded in 1907, Protective Life Insurance Company is the Company’s principal operating subsidiary. Unless the context otherwise requires, the “Company” refers to the consolidated group of Protective Life Corporation and its subsidiaries.

        Copies of the Company’s Proxy Statement and 2000 Annual Report to Share Owners will be furnished to anyone who requests such documents from the Company. Requests for copies should be directed to: Share-Owner Relations, Protective Life Corporation, P. O. Box 2606, Birmingham, Alabama 35202, Telephone (205) 868-3573, FAX (205) 868-3541. Copies may also be requested through the Internet from the Company’s Worldwide Web Site (www.protective.com). The information incorporated herein by reference is also electronically accessible through the Internet from the “EDGAR Database of Corporate Information” on the Securities and Exchange Commission’s World Wide Web site (www.sec.gov).

        The Company operates seven divisions each having a strategic focus which can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products.

        The following table shows the percentages of pretax operating income represented by each of the strategic focuses and the Corporate and Other segment. 


                                                                              RETIREMENT
                                                       SPECIALTY              SAVINGS AND             CORPORATE
       YEAR ENDED                 LIFE                 INSURANCE              INVESTMENT                 AND
      DECEMBER 31               INSURANCE              PRODUCTS                PRODUCTS                 OTHER
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------

          1996                     50.1%                  11.0%                   37.3%                   1.6%
          1997                     49.8                   18.0                    23.3                    8.9
          1998                     50.9                   19.7                    21.7                    7.7
          1999                     50.4                   25.4                    17.3                    6.9
          2000                     52.4                   26.1                    18.8                    2.7

        Additional information concerning the Company's divisions may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations" and Note 10 to Consolidated Financial Statements in the Company's 2000 Annual Report to Share Owners, which are incorporated herein by reference.

        In the following paragraphs, the Company reports its divisional sales, new capital invested, members, and annualized premium. These statistics are used by the Company to measure the relative progress of its marketing and acquisition efforts. These statistics were derived from the Company’s various sales tracking and administrative systems and were not derived from the Company’s financial reporting systems or financial statements. These statistics attempt to measure only one of many factors that may affect future divisional profitability, and therefore are not intended to be predictive of future profitability.






LIFE INSURANCE

        A strategic focus of the Company is to expand its life insurance operations through internal growth and acquisitions. The Individual Life, West Coast and Acquisitions Divisions support this strategy.

Individual Life Division

        The Individual Life Division markets level premium term and term-like insurance, universal life and variable universal life products on a national basis primarily through networks of independent insurance agents. The Division is also developing other distribution channels. These include marketing life insurance products through regional stockbrokers and banks, and through direct response and worksite arrangements.

        The Division has two primary agent networks. The first is based on experienced independent personal producing general agents who are recruited by regional sales managers. At December 31, 2000, Protective Life Insurance Company had 70 regional sales managers located throughout the United States. Approximately 45.9% of the Division’s 2000 sales came from this distribution system.

        The Division also distributes insurance products in the life insurance brokerage market through another wholly-owned subsidiary, Empire General Life Assurance Corporation, representing approximately 36.6% of sales.

        For the entire Division, sales through stockbrokers and banks represented 12.4% of sales, and direct response represented 5.1%.

        The following table shows the Individual Life Division’s sales measured by new premium. 


              YEAR ENDED
              DECEMBER 31                                SALES
- ---------------------------------------- -----------------------------------
                                                 (dollars in millions)

                 1996                                   $45.4
                 1997                                    48.7
                 1998                                    71.2
                 1999                                    80.4
                 2000                                    92.8

        In 1999, the Company acquired a non-controlling equity interest in Matrix Direct, Inc. (Matrix), located in San Diego. Matrix is a leading direct marketer of life and other insurance products. Matrix offers a full complement of direct marketing services, including market research, media buying, fulfillment, a nationally-licensed sales group and new business processing. The Company believes that the Matrix fulfillment and processing platform has significant potential for serving Internet marketers, banks, brokerage firms and innovative life agents who desire to participate in direct marketing or lead generation ventures with Matrix. The Company expects to acquire all of the equity of Matrix in 2001.

        The Division includes ProEquities, Inc. (ProEquities), a full-service securities broker-dealer. ProEquities primarily recruits financial planners. ProEquities makes available variable insurance products, mutual funds, and other investment products to its licensed representatives to offer to their clients and customers.






West Coast Division

        In 1997, the Company acquired West Coast Life Insurance Company (West Coast). West Coast sells universal life and level premium term and term-like insurance products in the life insurance brokerage market and in the “bank owned life insurance” (BOLI) market. Headquartered in San Francisco, the Division also has regional offices in Atlanta and Detroit.

        The Division primarily utilizes a distribution system comprised of brokerage general agencies (BGAs) who recruit a network of independent life agents. At December 31, 2000, the Division worked with approximately 379 BGAs located throughout the United States. This distribution system represented approximately 87.0% of the Division’s 2000 sales.

        The Division also offers corporate owned life insurance products to the BOLI market through an independent marketing organization which specializes in this market. The products are sold to smaller and regional banks, and represent approximately 13.0% of the Division’s sales.

        The following table shows the West Coast Division’s sales measured by new premium including sales prior to the Company’s acquisition of West Coast for comparison purposes. 


        YEAR ENDED                   BGA                     BOLI                    TOTAL
        DECEMBER 31                 SALES                    SALES                   SALES
- --------------------------- ----------------------- ------------------------ ----------------------
                                                    (dollars in millions)
           1996                      $10.3                     $4.6                    $14.9
           1997                       19.5                     10.3                     29.8
           1998                       22.1                     18.5                     40.6
           1999                       39.0                     19.8                     58.8
           2000                       60.0                      9.0                     69.0

Acquisitions Division

        The Acquisitions Division focuses on acquiring, converting, and servicing policies acquired from other companies. The Division's primary focus is on life insurance policies sold to individuals. These acquisitions may be accomplished through acquisitions of companies or through the reinsurance of blocks of policies from other insurers. Forty transactions have been closed by the Division since 1970, including 13 since 1989. Policies acquired through the Division are usually administered as "closed" blocks; i.e., no new policies are being marketed. Therefore, the amount of insurance in force for a particular acquisition is expected to decline with time due to lapses and deaths of the insureds.

        Most acquisitions closed by the Division do not include the acquisition of an active sales force. In transactions where some marketing capacity was included, the Division generally either ceased future marketing efforts or redirected those efforts to another Division of the Company. However, in the case of the acquisition of West Coast which was closed by the Acquisitions Division, the Company elected to continue the marketing of new policies and operate West Coast as a separate division of the Company.

        The Division believes that its focused and disciplined approach to the acquisition process and its experience in the assimilation, conservation, and servicing of acquired policies give it a significant competitive advantage over many other companies that attempt to make similar acquisitions. The Division expects acquisition opportunities to continue to be available as the life insurance industry continues to consolidate; however, management believes that the Company may face increased competition for future acquisitions.






        Total revenues and income before income tax from the Acquisitions Division are expected to decline with time unless new acquisitions are made. Therefore, the Division’s revenues and earnings may fluctuate from year to year depending upon the level of acquisition activity.

        The following table shows the number of transactions closed by the Acquisitions Division and the approximate amount of (statutory) capital invested for each year in which an acquisition was made. 


                                  NUMBER
       YEAR ENDED                   OF                       CAPITAL
      DECEMBER 31              TRANSACTIONS                  INVESTED
- ------------------------- ------------------------ --------------------------
                                                       (dollars in millions)

          1996                       3                        $ 47.1
          1997                       1 (1)                     116.8 (1)
          1998                       1                          77.8
___________
(1) West Coast

        Although acquisition opportunities were pursued, no transactions were completed in 1999 or 2000. In January 2001, the Division coinsured a block of individual life policies from Standard Insurance Company representing approximately $115 million of capital invested.

        From time to time other of the Company’s Divisions have acquired companies and blocks of policies which are included in their respective results.

SPECIALTY INSURANCE PRODUCTS

        A second strategic focus of the Company is to participate in specialized segments of the insurance industry that offer attractive growth opportunities. The Dental Benefits and Financial Institutions Divisions support this strategy.

Dental Benefits Division

        In 1997, the Division substantially exited from the group major medical business, fulfilling the Division’s strategy to focus primarily on dental insurance and related products.

        The Division’s primary strategic emphasis is on indemnity and prepaid dental products. The Division was a pioneer in developing indemnity dental products for the voluntary payroll deduction market. In 1995, the Division entered the prepaid dental market when it acquired DentiCare of Florida, Inc. The Division’s strategy is to promote a “dual choice” option by offering prepaid dental products through the Division’s indemnity dental distribution channels.

        The Division has significantly grown its prepaid dental business through acquisitions. The Division acquired two small prepaid dental plans in 1996, and three small plans in 1997. In 1998, the Division acquired United Dental Care, Inc. (United Dental Care). With the United Dental Care acquisition, the Division became a leading provider of prepaid dental coverages.






        The following table shows the Division's approximate annualized dental premium in-force.



       YEAR             INDEMNITY             PREPAID             TOTAL
      ENDED             ANNUALIZED           ANNUALIZED         ANNUALIZED
   DECEMBER 31           PREMIUM              PREMIUM            PREMIUM
- ------------------- -------------------- ------------------ -----------------
                                        (dollars in millions)
       1996             $  67.0              $  34.2              $101.2
       1997                98.3                 47.8               146.1
       1998               113.4                203.8               317.2
       1999               149.3                163.7               313.0
       2000               171.8                143.6               315.4

        Prepaid annualized premium declined in 1999 and 2000 due to the Division’s exit from unprofitable lines of business within United Dental Care and higher than expected lapses.

        The Division offers a variety of discounted fee-for-service, club-based programs to individual consumers and groups through its Protective Consumer Direct where enrolled consumers have access to a network of providers who have agreed to a discounted fee

        The Division also has group life and group disability coverages.

Financial Institutions Division

        The Financial Institutions Division markets credit life and disability insurance products through banks, consumer finance companies and automobile dealers. The Division also markets vehicle and recreational marine extended service contracts.

        In 1997, the Division acquired the Western Diversified Group. The Western Diversified Group markets credit insurance and related products through automobile dealers primarily in the midwestern United States. The Western Diversified Group included a property and casualty insurer that offers automobile extended service contracts.

        In January 2000, the Company acquired Lyndon Insurance Group (Lyndon). Lyndon markets a variety of specialty insurance products, including credit insurance and vehicle and marine extended service contracts. Lyndon distributes products on a national basis through financial institutions and automobile dealers.

        The Division markets through employee field representatives, independent brokers and wholly-owned subsidiaries. The Division is one of the largest independent writers of credit insurance in the United States. The majority of these policies cover consumer loans made by financial institutions located primarily in the southeastern United States and automobile dealers throughout the United States. The Company believes it has been a beneficiary of a "flight to quality," as financial institutions and automobile dealers increasingly prefer to do business with insurers having quality products, strong balance sheets and high-quality training and service capabilities.

        The demand for the Division’s credit insurance and extended service contracts is related to the general level of automobile sales and consumer loans. In 2000, approximately 65% of the Division’s sales were from automobile dealers, and approximately 33% of sales were extended service contracts.






        The following table shows the Financial Institutions Division’s sales measured by new premium including the sales of Western Diversified and Lyndon since the date of acquisition.

              YEAR ENDED
              DECEMBER 31                             SALES
- -------------------------------------- ----------------------------------
                                             (dollars in millions)

                1996                                 $147.2
                1997                                  189.3
                1998                                  273.5
                1999                                  283.4
                2000                                  523.6

        A portion of the Division's sales are reinsured with producer-owned reinsurers.

        The Division has also coinsured closed blocks of credit policies in 1996 and 1997, and in 1999 the Division recaptured a closed block of credit policies that it had previously ceded to another insurer.

RETIREMENT SAVINGS AND INVESTMENT PRODUCTS

        A third strategic focus of the Company is to offer products that respond to the shift in consumer preference to savings products brought about by demographic trends as “baby-boomers” move into the saving stage of their life cycle. The two Divisions that support this strategy are the Stable Value Products and Investment Products Divisions.

Stable Value Products Division

        The Stable Value Products Division markets guaranteed investment contracts (GICs) to 401(k) and other qualified retirement savings plans. GICs are generally contracts which specify a return on deposits for a specified period and often provide flexibility for withdrawals at book value in keeping with the benefits provided by the plan. The demand for GICs is related to the relative attractiveness of the “fixed rate” investment option in a 401(k) plan compared to the equity-based investment options available to plan participants. The Division also markets fixed and floating rate funding agreements to the trustees of municipal bond proceeds, institutional investors, bank trust departments and money market funds, and long-term annuity contracts.

        The Division’s emphasis is on a consistent and disciplined approach to product pricing and asset/liability management, careful underwriting of early withdrawal risks and maintaining low distribution and administration costs. Most GIC contracts and funding agreements written by the Division have maturities of three to five years. At December 31, 2000, the Division had approximately $1.2 billion of contracts that pay a floating rate of interest, and had $30 million, $50 million, and $76 million of contracts which may be terminated upon seven, thirty, and ninety days notice, respectively.






        The following table shows the Stable Value Products Division’s sales.

       YEAR ENDED                             FUNDING          LONG-TERM
      DECEMBER 31              GICS          AGREEMENTS        ANNUITIES         TOTAL
- ------------------------- ---------------- ---------------- ---------------- -------------
                                               (dollars in millions)

         1996                   $318             $290             $78            $ 686
         1997                    203              461              32              696
         1998                    488              336               3              827
         1999                    584              386                              970
         2000                    418              801                            1,219

        The following table shows the Division’s account balances (consisting of Stable Value Contract and certain annuity account balances). 


       YEAR ENDED                              FUNDING         LONG-TERM
      DECEMBER 31              GICS          AGREEMENTS        ANNUITIES        TOTAL
- ------------------------- ---------------- ---------------- ---------------  ----------
                                               (dollars in millions)

         1996                 $2,013            $ 462            $152          $2,627
         1997                  1,806              883             180           2,869
         1998                  1,699            1,007             173           2,879
         1999                  1,780              903             167           2,850
         2000                  1,813            1,365             162           3,340

        The rate of growth in the Division's account balances is affected by the amount of maturing contracts relative to the amount of sales.

Investment Products Division

        The Investment Products Division manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers and ProEquities, but are also sold through financial institutions and the Individual Life Division’s sales force.

        The Division offers modified guaranteed annuities which guarantee an interest rate for a fixed period. Because contract values are “market-value adjusted” upon surrender prior to maturity, these products afford the Company a measure of protection from the effects of changes in interest rates. The Division also offers variable annuities which offer the policyholder the opportunity to invest in various investment accounts.

        The following table shows the Investment Products Division’s sales. The demand for annuity products is related to the general level of interest rates and performance of the equity markets. 


       YEAR ENDED                 FIXED                   VARIABLE                    TOTAL
       DECEMBER 31              ANNUITIES                 ANNUITIES                 ANNUITIES
- -------------------------- --------------------- --------------------------- -------------------------
                                                   (dollars in millions)

          1996                     $199                      $169                      $368
          1997                      180                       324                       504
          1998                       97                       472                       569
          1999                      350                       361                       711
          2000                      635                       257                       892





        The following table shows the Investment Products account balances.

       YEAR ENDED                 FIXED                   VARIABLE                     TOTAL
       DECEMBER 31              ANNUITIES                 ANNUITIES                  ANNUITIES
- -------------------------- --------------------- ---------------------------- ------------------------
                                                    (dollars in millions)

          1996                      $1,192                   $625                       $1,817
          1997                       1,229                  1,057                        2,286
          1998                       1,105                  1,555                        2,660
          1999                       1,269                  2,085                        3,354
          2000                       1,735                  2,044                        3,779

Corporate and Other

        The Company has an additional business segment referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the Divisions described above (including net investment income on unallocated capital and interest on substantially all debt). This segment also includes earnings from several lines of business which the Company is not actively marketing (mostly health insurance), various investment-related transactions, and the operations of several small subsidiaries. The earnings of this segment may fluctuate from year to year.

        In March 2000, the Company sold its participation in a joint venture which owned a small life insurance company in Hong Kong.

Investments

        The types of assets in which the Company may invest are influenced by various state laws which prescribe qualified investment assets. Within the parameters of these laws, the Company invests its assets giving consideration to such factors as liquidity needs, investment quality, investment return, matching of assets and liabilities, and the overall composition of the investment portfolio by asset type and credit exposure.

        A significant portion of the Company’s bond portfolio is invested in mortgage-backed securities. Mortgage-backed securities are constructed from pools of residential mortgages, and may have cash flow volatility as a result of changes in the rate at which prepayments of principal occur with respect to the underlying loans. Prepayments of principal on the underlying residential loans can be expected to accelerate with decreases in interest rates and diminish with increases in interest rates. Due to the potential cash flow volatility of mortgage-backed securities, the Company has focused on sequential, planned amortization class (PAC), targeted amortization class (TAC) securities, and Non-Accelerated Securities (NAS). These types have less cash flow volatility than other types of mortgage-backed securities. The Company has not invested in the higher risk tranches of mortgage-backed securities (except mortgage-backed securities issued in securitization transactions sponsored by the Company). In addition, the Company has entered into hedging transactions to reduce the volatility in market value of its mortgage-backed securities.

        The table below shows a breakdown of the Company’s mortgage-backed securities portfolio by type at December 31, 2000. PACs pay down according to a schedule. TACs pay down in amounts approximating a targeted schedule. NAS receive no principal payments in the first five years, after which NAS receive an increasing percentage of pro rata principal payments until the tenth year, after which NAS receive principal as principal of the underlying mortgages is received. All of these types of structured mortgage-backed securities give the Company some measure of protection against both prepayment and extension risk.






        Accretion directed securities have a stated maturity but may repay more quickly. Sequentials receive scheduled payments with any “excess” cash flow going to repay the earliest maturing tranches first. Pass through securities receive principal as principal of the underlying mortgages is received. Support tranches are designed to receive cash after the more stable tranches (i.e., PACs and TACs) are satisfied. The CMBS are commercial mortgage-backed securities issued in securitization transactions sponsored by the Company, in which the Company securitized portions of its mortgage loan portfolio. 

                                                PERCENTAGE OF
                                               MORTGAGE-BACKED
     TYPE                                        SECURITIES
- --------------------------------- -----------------------------------------

     PAC                                             11.6%
     TAC                                              7.3
     NAS                                             13.6
     Accretion Directed                               6.4
     Sequential                                      41.4
     Pass Through                                     7.0
     Support                                          1.3
     CMBS                                            11.4
                                                    -----
                                                    100.0%
                                                    =====

        The Company obtains ratings of its fixed maturities from Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Corporation (S&P). If a bond is not rated by Moody’s or S&P, the Company uses ratings from the Securities Valuation Office of the National Association of Insurance Commissioners (NAIC), or the Company rates the bond based upon a comparison of the unrated issue to rated issues of the same issuer or rated issues of other issuers with similar risk characteristics. At December 31, 2000, approximately 99.6% of bonds were rated by Moody’s, S&P, or the NAIC.

        The approximate percentage distribution of the Company’s fixed maturity investments by quality rating at December 31, 2000, is as follows: 


RATING                                            2000
- ---------------------------------------------- ------------
AAA                                                37.1%
AA                                                  7.0
A                                                  25.1
BBB                                                27.3
BB or less                                          3.4
Redeemable preferred stocks                         0.1
                                                  -----
                                                  100.0%
                                                  =====

        At December 31, 2000, approximately $7,161.5 million of the Company’s $7,414.0 million bond portfolio was invested in U.S. Government or agency-backed securities or investment grade bonds and approximately $252.5 million of its bond portfolio was rated less than investment grade, of which $70.1 million were securities issued in Company-sponsored commercial mortgage loan securitizations.

        Risks associated with investments in less than investment grade debt obligations may be significantly higher than risks associated with investments in debt securities rated investment grade. Risk of loss upon default by the borrower is significantly greater with respect to such debt obligations than with other debt securities because these obligations may be unsecured or subordinated to other creditors. Additionally, there is often a thinly traded market for such securities and current market quotations are frequently not available for some of these securities. Issuers of less than investment grade debt obligations usually have higher levels of indebtedness and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment-grade issuers.






        The Company also invests a significant portion of its portfolio in mortgage loans. Results for these investments have been excellent due to careful management and a focus on a specialized segment of the market. The Company generally does not lend on speculative properties and has specialized in making loans on either credit-oriented commercial properties or credit-anchored strip shopping centers. The average size of loans made during 2000 was $4.0 million. The average size mortgage loan in the Company’s portfolio is approximately $2.3 million. The largest single loan amount is $19.0 million.

        The following table shows a breakdown of the Company’s mortgage loan portfolio by property type at December 31, 2000: 


                                                  PERCENTAGE OF
                                                  MORTGAGE LOANS
     PROPERTY TYPE                                ON REAL ESTATE
- --------------------------------- --------------------------------------

     Retail                                          76.1%
     Apartments                                      11.4
     Office Buildings                                 6.4
     Warehouses                                       5.3
     Other                                            0.8
                                                    -----
     Total                                          100.0%
                                                    =====

        Retail loans are generally on strip shopping centers located in smaller towns and anchored by one or more regional or national retail stores. The anchor tenants enter into long-term leases with the Company’s borrowers. These centers provide the basic necessities of life, such as food, pharmaceuticals, and clothing, and have been relatively insensitive to changes in economic conditions. The following are the largest anchor tenants (measured by the Company’s exposure) at December 31, 2000: 

                                                 PERCENTAGE OF
                                                 MORTGAGE LOANS
     ANCHOR TENANTS                              ON REAL ESTATE
- ----------------------------------- -----------------------------------------

     Food Lion, Inc.                                    4%
     Winn Dixie Stores, Inc.                            4
     Wal-Mart Stores, Inc.                              3
     Rite-Aid Corporation                               2
     Walgreen Corporation                               2

        The Company’s mortgage lending criteria generally require that the loan-to-value ratio on each mortgage be at or under 75% at the time of origination. Projected rental payments from credit anchors (i.e., excluding rental payments from smaller local tenants) generally exceed 70% of the property's projected operating expenses and debt service.

        For several years the Company has offered a commercial loan product under which the Company will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. Approximately $572.2 million of the Company’s mortgage loans have this participation feature.






        Many of the Company’s mortgage loans have call or interest rate reset provisions between 3 and 10 years. However, if interest rates were to significantly increase, the Company may be unable to call the loans or increase the interest rates on its existing mortgage loans commensurate with the significantly increased market rates.

        At December 31, 2000, $20.6 million or 0.9% of the mortgage loan portfolio was nonperforming. It is the Company’s policy to cease to carry accrued interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is the Company’s general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place.

        In 1996, the Company sold approximately $554 million of its mortgage loans in a securitization transaction. In 1997, the Company sold approximately $445 million of its loans in a second securitization transaction. In 1998 the Company securitized $146 million of its mortgage loans and in 1999 the Company securitized $263 million. The securitizations’ senior tranches were sold, and the Company retained the junior tranches. The Company continues to service the securitized mortgage loans.

        As a general rule, the Company does not invest directly in real estate. The investment real estate held by the Company consists largely of properties obtained through foreclosures or the acquisition of other insurance companies. In the Company’s experience, the appraised value of a foreclosed property often approximates the mortgage loan balance on the property plus costs of foreclosure. Also, foreclosed properties often generate a positive cash flow enabling the Company to hold and manage the property until the property can be profitably sold.

        The Company has an allowance for uncollectible amounts on investments. This allowance was  $21.8 million at December 31, 2000.

        The following table shows the investment results of the Company for the years 1996 through 2000: 

                          CASH, ACCRUED
                        INVESTMENT INCOME,                            PERCENTAGE EARNED ON       REALIZED
    YEAR ENDED          AND INVESTMENT AT                              AVERAGE OF CASH AND       INVESTMENT
    DECEMBER 31            DECEMBER 31        NET INVESTMENT INCOME        INVESTMENTS         GAINS (LOSSES)
- -----------------------------------------------------------------------------------------------------------------
                                              (dollars in thousands)

       1996               $ 6,743,770                 $517,483                  8.1%              $ 5,510
       1997                 8,192,538                  591,376                  8.0                   830
       1998                 8,718,455                  636,396                  7.7                 3,121
       1999                 8,877,038                  676,401                  7.6                (1,057)
       2000                10,419,217                  737,284                  7.6                (7,043)

        For further information regarding the Company’s investments, the maturity of and the concentration of risk among the Company’s invested assets, derivative financial instruments, and liquidity, see Notes 1 and 2 to the Consolidated Financial Statements, and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2000 Annual Report to Share Owners.






Insurance in Force

        The Company’s total consolidated life insurance in force at December 31, 2000 was $170.4 billion. The following table shows sales by face amount and insurance in force for the Company’s divisions. 


                                                                                 Year Ended December 31
                                          --------------- --------------- --------------- -------------- ---------------
                                               2000            1999            1998           1997            1996
                                          --------------- --------------- --------------- -------------- ---------------
                                                                     (dollars in thousands)
New Business Written
     Individual Life...................   $ 22,429,530      $ 16,305,923    $ 16,188,344    $10,588,594    $ 9,245,002
     West Coast........................     23,488,843        10,612,852       5,050,309      1,984,928
     Dental Benefits...................        143,192           123,648         113,056        124,230        115,748
     Financial Institutions............      7,052,106         6,665,219       5,257,957      4,183,216      3,956,581
                                            ----------        ----------      ----------     ----------     ----------
        Total..........................   $ 53,113,671      $ 33,707,642    $ 26,609,666    $16,880,968    $13,317,331
                                            ==========        ==========      ==========     ==========     ==========
Business Acquired
     West Coast........................                                                     $10,237,731
     Acquisitions......................                                    $   7,787,284                   $ 1,286,673
     Financial Institutions............    $ 2,457,296      $    620,000                      3,364,617      1,607,463
                                             ---------           -------       ---------     ----------      ---------
         Total.........................    $ 2,457,296      $    620,000   $   7,787,284    $13,602,348    $ 2,894,136
                                             =========           =======       =========     ==========      =========
Insurance in Force at End of Year(1)
     Individual Life...................   $ 83,523,420      $ 67,026,950    $ 50,587,419    $39,715,608    $35,765,841
     West Coast........................     45,978,885        24,600,268      15,498,799     12,004,967
     Acquisitions......................     20,133,370        22,054,734      27,606,592     20,955,836     20,037,857
     Dental Benefits...................      7,348,195         6,065,604       6,665,815      6,393,076      6,054,947
     Financial Institutions............     13,438,226        10,069,030       9,632,466     10,183,997      7,468,761
                                           -----------       -----------     -----------     ----------     ----------
         Total.........................   $170,422,096      $129,816,586    $109,991,091    $89,253,484    $69,327,406
                                           ===========       ===========     ===========     ==========     ==========

(1)     Reinsurance   assumed   has   been   included;   reinsurance   ceded   (2000-$128,374,583;1999-$92,566,755;   1998-$64,846,246;
        1997-$34,139,554; 1996-$18,840,221) has not been deducted.

        The ratio of voluntary terminations of individual life insurance to mean individual life insurance in force, which is determined by dividing the amount of insurance terminated due to lapses during the year by the mean of the insurance in force at the beginning and end of the year, adjusted for the timing of major acquisitions and assumptions was: 

                                              RATIO OF
YEAR ENDED                                   VOLUNTARY
DECEMBER 31                                 TERMINATION
- --------------------------------------- ---------------------

     1996.........................              6.4%
     1997.........................              6.9
     1998.........................              6.4
     1999.........................              6.0
     2000.........................              5.8

        Net terminations reflect voluntary lapses, some of which may be due to the replacement of the Company's products with competitors' products. Also, a higher percentage of voluntary lapses typically occurs in the first 15 months of a policy, and accordingly, lapses will tend to increase or decrease in proportion to the change in the amount of new insurance written during the immediately preceding periods.






        The amount of investment products in force is measured by account balances. The following table shows guaranteed investment contract and annuity account balances. Most of the variable annuity account balances are reported in the Company’s financial statements as liabilities related to separate accounts. 


                               GUARANTEED               MODIFIED
       YEAR ENDED              INVESTMENT              GUARANTEED                FIXED                VARIABLE
      DECEMBER 31               CONTRACTS              ANNUITIES               ANNUITIES              ANNUITIES
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
                                                            (dollars in thousands)

          1996                   $2,474,728           $  862,747                $390,461             $   624,714
          1997                    2,684,676              926,071                 453,418               1,057,186
          1998                    2,691,697              818,566                 432,237               1,554,969
          1999                    2,680,009              941,692                 391,085               2,085,072
          2000                    3,177,863            1,384,027                 331,937               2,043,878

Underwriting

        The underwriting policies of the Company’s insurance subsidiaries are established by management. With respect to individual insurance, the subsidiaries use information from the application and, in some cases, inspection reports, attending physician statements, or medical examinations to determine whether a policy should be issued as applied for, rated, or rejected. Medical examinations of applicants are required for individual life insurance in excess of certain prescribed amounts (which vary based on the type of insurance) and for most individual insurance applied for by applicants over age 50. In the case of “simplified issue” policies, which are issued primarily through the Financial Institutions Division and the Individual Life Division in the payroll deduction market, coverage is rejected if the responses to certain health questions contained in the application indicate adverse health of the applicant. For other than “simplified issue” policies, medical examinations are requested of any applicant, regardless of age and amount of requested coverage, if an examination is deemed necessary to underwrite the risk. Substandard risks may be referred to reinsurers for full or partial reinsurance of the substandard risk.

        The Company’s insurance subsidiaries require blood samples to be drawn with individual insurance applications for coverage at age 16 and above except in the payroll deduction market where the face amount must be $100,000 or more before blood testing is required. Blood samples are tested for a wide range of chemical values and are screened for antibodies to the HIV virus. Applications also contain questions permitted by law regarding the HIV virus which must be answered by the proposed insureds.

        Group insurance underwriting policies are administered by experienced group underwriters. The underwriting policies are designed for single employer groups. Initial premium rates are based on prior claim experience and manual premium rates with relative weights depending on the size of the group and the nature of the benefits.

Indemnity Reinsurance

        The Company’s insurance subsidiaries cede insurance to other insurance companies. The ceding insurance company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it. The Company sets a limit on the amount of insurance retained on the life of any one person. In the individual lines it will not retain more than $500,000, including accidental death benefits, on any one life; for group insurance, the maximum amount retained on any one life is $100,000. In many cases the retention is less. At December 31, 2000, the Company had insurance in force of $170.4 billion of which approximately $128.4 billion was ceded to reinsurers.






        Over the past several years, the Company’s reinsurers have reduced the net cost of reinsurance to the Company. Consequently, the Company has increased the amount of reinsurance which it cedes on newly-written individual life insurance policies, and has also ceded a portion of the mortality risk of existing business of the Individual Life, West Coast, and Acquisitions Divisions.

Policy Liabilities and Accruals

        The applicable insurance laws under which the Company’s insurance subsidiaries operate require that each insurance company report policy liabilities to meet future obligations on the outstanding policies. These liabilities are the amounts which, with the additional premiums to be received and interest thereon compounded annually at certain assumed rates, are calculated in accordance with applicable law to be sufficient to meet the various policy and contract obligations as they mature. These laws specify that the liabilities shall not be less than liabilities calculated using certain named mortality tables and interest rates.

        The policy liabilities and accruals carried in the Company’s financial reports (presented on the basis of accounting principles generally accepted in the United States of America – “GAAP”) differ from those specified by the laws of the various states and carried in the insurance subsidiaries’ statutory financial statements (presented on the basis of statutory accounting principles mandated by state insurance regulations). For policy liabilities other than those for universal life policies, annuity contracts, GICs, and funding agreements, these differences arise from the use of mortality and morbidity tables and interest rate assumptions which are deemed under GAAP to be more appropriate for financial reporting purposes than those required for statutory accounting purposes; from the introduction of lapse assumptions into the calculation; and from the use of the net level premium method on all business. Policy liabilities for universal life policies, annuity contracts, GICs, and funding agreements are carried in the Company’s financial reports at the account value of the policy or contract.

Federal Income Tax Consequences

        Existing federal laws and regulations affect the taxation of the Company’s products. Income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. Congress has from time to time considered proposals that, if enacted, would have had an adverse impact on the federal income tax treatment of such products, or would increase the tax-deferred status of competing products. In addition, life insurance products are often used to fund estate tax obligations. If the estate tax were eliminated, the demand for certain insurance products would be adversely affected.

        The Company’s insurance subsidiaries are taxed by the federal government in a manner similar to companies in other industries. However, certain restrictions on consolidating recently acquired life insurance companies and on consolidating life insurance company income with non-insurance income are applicable to the Company; thus, the Company is not able to consolidate all of the operating results of its subsidiaries for federal income tax purposes.

        Under pre-1984 tax law, certain income of the Company was not taxed currently, but was accumulated in a memorandum account designated as “Policyholders’ Surplus” to be taxed only when such income was distributed to share owners or when certain limits on accumulated amounts were exceeded. Consistent with current tax law, amounts accumulated in Policyholders’ Surplus have been carried forward, although no accumulated income may be added to these accounts. As of December 31, 2000, the aggregate accumulation in the Policyholders’ Surplus account was $70.5 million. Under current income tax laws, the Company does not anticipate paying income tax on amounts in the Policyholders’ Surplus accounts.






Competition

        Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry. The Company encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than the Company, as well as competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products.

        The insurance industry is consolidating, with larger, potentially more efficient organizations emerging from consolidation. Also, some mutual insurance companies are converting to stock ownership which will give them greater access to capital markets. Additionally, commercial banks, insurance companies, and investment banks may now combine, provided certain requirements are satisfied.

        The Company’s ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong ratings from rating agencies. However, irrational competition from other insurers could adversely affect the Company’s competitive position.

Regulation

        The Company’s insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with many aspects of the insurance business, which may include premium rates, marketing practices, advertising, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than share owners.

        A life insurance company’s statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners (NAIC) as modified by the insurance company’s state of domicile. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs and more conservative computations of policy liabilities. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. These requirements are intended to allow insurance regulators to identify inadequately capitalized insurance companies based upon the types and mixtures of risks inherent in the insurer’s operations. The formula includes components for asset risk, liability risk, interest rate exposure, and other factors. Based upon the December 31, 2000 statutory financial reports, the Company’s insurance subsidiaries are adequately capitalized under the formula.

        The Company’s insurance subsidiaries are required to file detailed annual reports with the supervisory agencies in each of the jurisdictions in which they do business and their business and accounts are subject to examination by such agencies at any time. Under the rules of the NAIC, insurance companies are examined periodically (generally every five years) by one or more of the supervisory agencies on behalf of the states in which they do business. To date, no such insurance department examinations have produced any significant adverse findings regarding any insurance company subsidiary of the Company.

        Under insurance guaranty fund laws in most states, insurance companies doing business in such a state can be assessed up to prescribed limits for policyholder losses incurred by insolvent or failed insurance companies. Although the Company cannot predict the amount of any future assessments, most insurance guaranty fund laws currently provide that an assessment may be excused or deferred if it would threaten an insurer’s financial strength. The Company’s insurance subsidiaries were assessed immaterial amounts in 2000, which will be partially offset by credits against future state premium taxes.






        In addition, many states, including the states in which the Company’s insurance subsidiaries are domiciled, have enacted legislation or adopted regulations regarding insurance holding company systems. These laws require registration of and periodic reporting by insurance companies domiciled within the jurisdiction which control or are controlled by other corporations or persons so as to constitute an insurance holding company system. These laws also affect the acquisition of control of insurance companies as well as transactions between insurance companies and companies controlling them. Most states, including Tennessee, where Protective Life Insurance Company (Protective Life) is domiciled, require administrative approval of the acquisition of control of an insurance company domiciled in the state or the acquisition of control of an insurance holding company whose insurance subsidiary is incorporated in the state. In Tennessee, the acquisition of 10% of the voting securities of an entity is generally deemed to be the acquisition of control for the purpose of the insurance holding company statute and requires not only the filing of detailed information concerning the acquiring parties and the plan of acquisition, but also administrative approval prior to the acquisition.

        The Company’s insurance subsidiaries are subject to various state statutory and regulatory restrictions on the insurance subsidiaries’ ability to pay dividends to Protective Life Corporation. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval. Dividends in larger amounts are subject to approval by the insurance commissioner of the state of domicile. The maximum amount that would qualify as ordinary dividends to the Company by Protective Life in 2001 is estimated to be $83.6 million. No assurance can be given that more stringent restrictions will not be adopted from time to time by states in which the Company’s insurance subsidiaries are domiciled, which restrictions could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to the Company by such subsidiaries without affirmative prior approval by state regulatory authorities.

        The Company’s insurance subsidiaries may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). Severe penalties are imposed for breach of duties under ERISA.

        Certain policies, contracts and annuities offered by the Company’s insurance subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative and private remedial provisions.

        Additional issues related to regulation of the Company and its insurance subsidiaries are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2000 Annual Report to Share Owners.

Recent Developments

        The NAIC has adopted the Codification of Statutory Accounting Principles (Codification). Codification changes current statutory accounting rules in several areas and is effective January 1, 2001. Although the Company has not estimated the potential effect, it does not believe Codification will have a material effect on the financial position, results of operation, or liquidity of the Company.

        The NAIC has adopted a model regulation, commonly referred to as “Triple X” (i.e., Roman numeral XXX), for universal life and level premium term and term-like insurance products. Triple X potentially increases the amount of required regulatory policy liabilities and thus the capital employed in the sale of these products. Thirty-five jurisdictions have adopted Triple X. Insurers have reacted to Triple X by changing product features and/or premium rates. The Company assessed the probable impact of Triple X on its products and has introduced new products in response to Triple X. The Company cannot predict what effect Triple X may have on its life insurance sales or how its response to Triple X will affect its competitive position. In the first six months of 2000, the Company issued a significant number of policies which had been applied for prior to January 1, 2000.



        On January 19, 2001, the Company completed the acquisition, through a coinsurance transaction, of a block of approximately 70,000 individual life insurance policies from Standard Insurance Company. The transaction represents approximately $80 million of annual premiums and $725 million of policy liabilities.

        On February 16, 2001, the Company issued approximately 3.9 million shares of common stock in settlement of stock purchase contracts under its 6.5% FELINE PRIDES. In the transaction, substantially all of the 6.5% Trust Originated Preferred Securities, comprising part of the FELINE PRIDES, and the underlying subordinated debt, were redeemed.

        On February 28, 2001, the Company issued $100 million of Floating Rate Senior Notes.

Employees

        At December 31, 2000 the Company had approximately 2,834 authorized positions, including approximately 1,634 in Birmingham, Alabama. Most employees are covered by contributory major medical, dental, group life, and long-term disability insurance plans. The cost of these benefits to the Company in 2000 was approximately $7.2 million. In addition, substantially all of the employees are covered by a pension plan. The Company also matches employee contributions to its 401(k) Plan and makes discretionary profit sharing contributions for employees not otherwise covered by a bonus or sales incentive plan. See Note 11 to Consolidated Financial Statements.

Item 2. Properties

        The Company’s Home Office is located at 2801 Highway 280 South, Birmingham, Alabama. This campus includes the original 142,000 square-foot building which was completed in 1976 and a second contiguous 220,000 square-foot building which was completed in 1985. In addition, parking is provided for approximately 1,200 vehicles. During 2000, the Company began construction of a third contiguous building which will have approximately 315,000 square feet and parking for approximately 1,560 vehicles.

        The Company leases administrative and marketing office space in approximately 53 cities including approximately 143,034 square feet in Birmingham, with most leases being for periods of three to five years. The aggregate annualized rent is approximately $8.7 million.

Item 3. Legal Proceedings

        There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company, to which the Company or any of its subsidiaries is a party or of which any of the Company’s properties is the subject. For additional information regarding legal proceedings see "Known Trends and Uncertainties" in the Company's 2000 Annual Report to Share Owners.

Item 4. Submission of Matters to a Vote of Security Holders

        No matter was submitted during the fourth quarter of 2000 to a vote of security holders of the Company.






PART II

Item 5. Market for the Registrant's Common Equity and Related Share-Owner Matters

        The Company’s Common Stock is listed and principally traded on the New York Stock Exchange (NYSE symbol: PL). The following table sets forth the highest and lowest closing prices of the Company’s Common Stock, $0.50 par value, as reported by the New York Stock Exchange during the periods indicated, along with the dividends paid per share of Common Stock during the same periods. 


                                                      Range            Dividends
                                                -----------------      ---------
                                                High         Low
1999                                            ----        -----
  First Quarter............................    $39.81      $32.75        $.11
  Second Quarter...........................     40.00       34.00         .12
  Third Quarter............................     39.44       28.50         .12
  Fourth Quarter...........................     36.50       28.63         .12
2000
  First Quarter............................    $31.75      $20.81        $.12
  Second Quarter...........................     30.75       21.25         .13
  Third Quarter............................     32.06       25.75         .13
  Fourth Quarter...........................     32.25       22.00         .13

        On March 9, 2001, there were approximately 2,700 owners of record of Company Common Stock.

        The Company (or its predecessor) has paid cash dividends each year since 1926 and each quarter since 1934. The Company expects to continue to pay cash dividends, subject to the earnings and financial condition of the Company and other relevant factors. The ability of the Company to pay cash dividends is dependent in part on cash dividends received by the Company from its life insurance subsidiaries. See Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Liquidity and Capital Resources” in the Company’s 2000 Annual Report to Share Owners. Such subsidiary dividends are restricted by the various insurance laws of the states in which the subsidiaries are incorporated. See Item 1 – “Business – Regulation”.






Item 6. Selected Financial Data

                                                                     YEAR ENDED DECEMBER 31
                                           ----------------------------------------------------------------------------
                                               2000            1999           1998           1997            1996
                                           -------------- --------------- -------------- -------------- ---------------
                                                        (dollars in thousands, except per share amounts)
INCOME STATEMENT DATA

Premium and policy fees                    $ 1,656,108    $  1,299,317   $  1,122,010   $     856,549   $    802,327
Reinsurance ceded                             (822,450)       (538,033)      (459,215)       (334,214)      (308,174)
                                             ---------        ---------      ---------      ---------      ---------
    Net of reinsurance ceded                   833,658         761,284        662,795         522,335        494,153
Net investment income..................        737,284         676,401        636,396         591,376        517,483
Realized investment gains (losses).....         (7,043)         (1,057)         3,121             830          5,510
Other income...........................        170,068          97,254         64,103          32,784         20,857
                                             ---------       ---------      ---------       ---------      ---------
    Total revenues.....................      1,733,967       1,533,882      1,366,415       1,147,325      1,038,003
Benefits and expenses..................      1,480,172       1,278,107      1,145,691         967,952        898,262
                                             ---------       ---------      ---------       ---------      ---------
Income tax expense.....................         90,858          92,079         77,845          60,987         47,512
Minority interest......................          9,461          10,606         12,098           6,393          3,217
Extraordinary loss(1)                                            1,763
                                             ---------       ---------      ---------       ---------      ---------
Net income.............................    $   153,476    $    151,327    $   130,781    $    111,993   $     89,012
                                             =========       =========      =========       =========      =========
PER SHARE DATA(2)
Income before extraordinary
    loss – basic.......................    $        2.33  $        2.34   $       2.06   $       1.79   $       1.47
Net income per share – basic...........    $        2.33  $        2.31   $       2.06   $       1.79   $       1.47
Average shares outstanding – basic.....       65,832,349     65,604,311     63,521,587     62,429,250     60,570,782
Operating income per share – diluted(3)
Income before extraordinary                $        2.39  $        2.34   $       2.02   $       1.78   $       1.44
    loss – diluted.....................
Net income per share – diluted.........    $        2.32  $        2.32   $       2.04   $       1.78   $       1.46
Average shares                             $        2.32  $        2.29   $       2.04   $       1.78   $       1.46
    outstanding – diluted..............
Cash dividends.........................       66,281,128     66,161,367     64,087,744     62,849,618     60,969,664
Share-owners’ equity...................    $         .51  $         .47   $        .43   $        .39   $        .35
Share-owners’ equity excluding net         $       17.26  $       13.41   $      14.65   $      12.30   $       9.99
    unrealized gains and losses
    on investments.....................
                                           $       18.05  $       15.68   $      13.80   $      11.30   $       9.88

                                                                           DECEMBER 31
                                           ----------------------------------------------------------------------------
                                               2000            1999           1998           1997            1996
                                           -------------- --------------- -------------- -------------- ---------------
                                                                     (dollars in thousands)
BALANCE SHEET DATA
Total assets...........................    $ 15,145,633   $  12,994,164   $  11,989,495  $  10,511,635  $  8,263,205
Long-term debt.........................    $    306,125   $     181,023   $     152,286  $     120,000  $    168,200
Total debt.............................    $    306,125   $     236,023   $     172,035  $     120,000  $    181,000
9% Cumulative Monthly Income
    Preferred Securities, Series A                                        $      55,000  $      55,000  $     55,000
8.25% Trust Originated Preferred
    Securities                             $     75,000   $      75,000   $      75,000  $      75,000
6.5% FELINE PRIDES                         $    115,000   $     115,000   $     115,000  $     115,000
Share-owners’ equity                       $  1,114,058   $     865,223   $     944,194  $     758,197  $    615,316
Share-owners’ equity excluding net
    unrealized gains and losses
    on investments                         $  1,165,431   $   1,011,304   $     889,137  $     696,470  $    608,628

(1)   Due to early extinguishments of debt, net of income tax.
(2)   Prior periods have been restated to reflect a two-for-one stock split on April 1, 1998.
(3)   Net income excluding realized gains and losses and related amortization and extraordinary loss.





Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

        Information regarding the Company’s financial condition and results of operations is included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2000 Annual Report to Share Owners and is incorporated herein by reference.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

        The information required by this item is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Consolidated Financial Statements” in the Company’s 2000 Annual Report to Share Owners and is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

        The financial statements and supplementary data for the Company and its subsidiaries, which are included under the caption “Consolidated Financial Statements” in the Company’s 2000 Annual Report to Share Owners, are incorporated herein by reference.






REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Share Owners of
Protective Life Corporation

Our audits of the consolidated financial statements referred to in our report dated March 1, 2001 appearing in the Annual Report to Share Owners of Protective Life Corporation and subsidiaries (which report and consolidated financial statements are incorporated by reference on this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 14 (a) (2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP

Birmingham, Alabama
March 1, 2001






SCHEDULE II - CONDENSED FINANCIAL INFORMATION

OF REGISTRANT

STATEMENTS OF INCOME

PROTECTIVE LIFE CORPORATION (Parent Company)

Years Ended December 31, 2000, 1999, and 1998

(in thousands)



                                                                        2000               1999               1998
                                                                        ----               ----               ----
REVENUES
       Dividends from subsidiaries*                                $   27,362        $   18,980          $   77,639
       Service fees from subsidiaries*                                 78,999            82,559              56,683
       Net investment income                                            7,173            10,506               9,295
       Realized investment gains (losses)                               6,856            (5,817)                985
       Other income (loss) (2000 sale of affiliate)                    24,856             1,327                (406)
                                                                      -------           -------             -------
                                                                      145,246           107,555             144,196
                                                                      -------           -------             -------
EXPENSES
       Operating and administrative                                    50,600            44,074              36,737
       Interest - subsidiaries*                                        14,085            17,217              20,351
       Interest - others                                               18,082            12,215               3,541
                                                                       ------            ------              ------
                                                                       82,767            73,506              60,629
                                                                       ------            ------              ------
INCOME BEFORE FEDERAL INCOME
       TAX AND OTHER ITEMS BELOW                                       62,479            34,049              83,567

INCOME TAX EXPENSE                                                     16,468            11,136               9,843
                                                                       ------            ------              ------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
       INCOME OF SUBSIDIARIES                                          46,011            22,913              73,724

EQUITY IN UNDISTRIBUTED INCOME OF
       SUBSIDIARIES*                                                  107,465           130,177              57,057
                                                                      -------           -------             -------
INCOME BEFORE EXTRAORDINARY LOSS                                      153,476           153,090             130,781

EXTRAORDINARY LOSS ON EARLY
       EXTINGUISHMENT OF DEBT                                                             1,763
                                                                      -------           -------             -------
NET INCOME                                                           $153,476          $151,327            $130,781
                                                                      =======           =======             =======

- -----------------------------
*Eliminated in consolidation.
See notes to condensed financial statements.





SCHEDULE II - CONDENSED FINANCIAL INFORMATION

OF REGISTRANT

BALANCE SHEETS

PROTECTIVE LIFE CORPORATION (Parent Company)

(in thousands)

                                                                                            DECEMBER 31
                                                                                -----------------------------------
                                                                                   2000                    1999
ASSETS                                                                             ----                    ----
     Investments:
         Fixed maturities                                                      $     24,511           $     20,791
         Other long-term investments                                                 18,027                 17,616
         Short-term investments                                                       4,000                  2,000
         Investments in subsidiaries (equity method)*                             1,594,462              1,323,233
                                                                                  ---------              ---------
                                                                                  1,641,000              1,363,640

     Cash                                                                             2,958                  1,623
     Accrued investment income                                                          247                  2,160
     Receivables from subsidiaries*                                                  14,348                 27,324
     Property and equipment, net                                                        513                    741
     Other                                                                           19,880                  8,571
                                                                                  ---------              ---------
                                                                                 $1,678,946             $1,404,059
                                                                                  =========              =========
LIABILITIES
     Accrued expenses and other liabilities                                    $     42,750           $     69,690
     Accrued income taxes                                                           (32,264)                10,816
     Deferred income taxes                                                           54,716                 28,769
     Debt:
         Notes payable to banks                                                                            114,000
         Senior and Medium-Term Notes                                               303,810                119,685
         Subsidiaries*                                                              195,876                195,876
                                                                                    -------                -------
                                                                                    564,888                538,836
SHARE-OWNERS' EQUITY                                                                -------                -------
     Preferred Stock
     Junior Participating Cumulative
         Preferred Stock
     Common Stock                                                                    34,667                 34,667
     Additional paid-in capital                                                     289,819                256,057
     Treasury stock                                                                 (12,812)               (12,960)
     Stock Held in Trust                                                             (1,318)                  (621)
     Unallocated stock in Employee Stock Ownership Plan                              (3,686)                (4,043)
     Retained earnings (including undistributed
         income of subsidiaries: 2000 - $922,405; 1999 - $814,940)                  858,761                738,204
     Accumulated other comprehensive income
         Net unrealized gains (losses) on
         investments (all from subsidiaries, net
         of income tax: 2000 - $(27,662); 1999 - $(78,659))                         (51,373)              (146,081)
                                                                                  ---------                -------

                                                                                  1,114,058                865,223
                                                                                  ---------              ---------
                                                                                 $1,678,946             $1,404,059
                                                                                  =========              =========

- ----------------------------
*Eliminated in consolidation.
See notes to condensed financial statements.





SCHEDULE II - CONDENSED FINANCIAL INFORMATION

OF REGISTRANT

STATEMENTS OF CASH FLOWS

PROTECTIVE LIFE CORPORATION (Parent Company)

Years Ended December 31, 2000, 1999, and 1998

(in thousands)

                                                              2000                1999                1998
                                                                   ----                ----                ----
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                 $ 153,476            $ 151,327           $ 130,781
     Adjustments to reconcile net income
        to net cash provided by operating
        activities:
             Realized investment (gains) losses                    (6,856)               5,817                (985)
             Equity in undistributed net income
                 of subsidiaries*                                (107,465)            (130,177)            (57,057)
             Deferred income taxes                                 25,947                7,935              15,446
             Accrued income taxes                                 (43,080)              19,666              (8,850)
             Accrued expenses                                       6,822                4,380              14,507
             Accrued investment income                              1,913               (2,160)
             Receivables from subsidiaries                          8,976               (8,746)             (7,342)
             Other (net)                                          (11,255)               5,884                 361
                                                                  -------              -------              ------
     Net cash provided by operating activities                     28,478               53,926              86,861
                                                                  -------              -------              ------
CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of and/or additional investments
        in subsidiaries*                                         (102,987)             (28,638)           (115,960)
     Return of capital from subsidiaries                           34,288               14,621
     Principal payments received on loan
        to subsidiary*                                              4,000                4,000               2,000
     Change in fixed maturities and long-term
        investments                                                 3,047               (5,516)             (1,257)
     Change in short-term investments                              (2,000)              (2,000)              7,000
                                                                  -------               ------             -------
     Net cash used in investing activities                        (63,652)             (17,533)           (108,217)
                                                                  -------               ------             -------
CASH FLOWS FROM FINANCING ACTIVITIES
     Borrowings under line of
        credit arrangements and long-term debt                    237,104              106,800              52,000
     Principal payments on line of credit
        arrangements and debt                                    (166,979)             (41,538)             (3,577)
     Repayment of subsidiary debt                                                      (69,621)
     Purchase of Common Stock                                        (697)                (621)
     Dividends to Share Owners                                    (32,919)             (30,305)            (26,857)
                                                                  -------              -------              ------
     Net cash provided by (used in) financing
        activities                                                 36,509              (35,285)             21,566
                                                                  -------              -------              ------

INCREASE (DECREASE) IN CASH                                         1,335                1,108                 210
CASH AT BEGINNING OF YEAR                                           1,623                  515                 305
                                                                    -----                -----                 ---
CASH AT END OF YEAR                                           $     2,958          $     1,623        $        515
                                                                    =====                =====                 ===

- -----------------------------
*Eliminated in consolidation.
See notes to condensed financial statements.





SCHEDULE II - CONDENSED FINANCIAL INFORMATION

OF REGISTRANT

PROTECTIVE LIFE CORPORATION (Parent Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

The Company publishes consolidated financial statements that are its primary financial statements. Therefore, these parent company condensed financial statements are not intended to be the primary financial statements of the Company, and should be read in conjunction with the consolidated financial statements and notes thereto of Protective Life Corporation and subsidiaries.

NOTE 1 - DEBT

At December 31, 2000, the Company had no borrowings under its $125.0 million line of credit arrangements. $118.6 million of subordinated debentures due 2003, $75.0 million of Senior Notes due 2004, $49.9 million of Senior Notes due 2010, $44.2 million of Medium-Term Notes due 2011, $39.9 million of Senior Notes due 2015, $60.0 million of Senior Notes due 2016, $77.3 million of subordinated debentures due 2027, and $34.8 million of Senior Notes due 2030 were outstanding at December 31, 2000. The subordinated debentures were issued to affiliates in connection with the issuance by such affiliates of Trust Originated Preferred Securities (TOPrS) and FELINE PRIDES.

On February 16, 2001, the Company issued approximately 3.9 million shares of common stock in settlement of stock purchase contracts under the FELINE PRIDES. In the transaction, substantially all of the TOPrS comprising part of the FELINE PRIDES, and the underlying subordinated debt, were redeemed. On February 28, 2001, the Company issued $100.0 million of Floating Rate Senior Notes due 2003.

NOTE 2 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION


                                                                         2000              1999              1998
                                                                        -------------------------------------------
CASH PAID (RECEIVED) DURING THE YEAR FOR:

       Interest Paid to Non-Affiliates                                  $14,696           $ 12,215         $  9,285

       Interest Paid to Subsidiary*                                      14,085             17,218           20,351
                                                                         ------             ------           ------
                                                                        $28,781           $ 29,433          $29,636
                                                                         ======             ======           ======
       Income Taxes (reduced by amounts received
          from affiliates under a tax sharing agreement)                $32,039           $(18,584)       $    (464)
                                                                         ======             ======              ===
NONCASH INVESTING AND FINANCING ACTIVITIES

       Reissuance of Treasury Stock to ESOP                           $     255          $     440        $     205
                                                                            ===                ===              ===

       Change in unallocated Stock in ESOP                            $     357          $     234        $     315
                                                                            ===                ===              ===

       Stock-based Compensation                                         $33,655           $  1,092         $  3,097
                                                                         ======              =====            =====

       Issuance of Common Stock                                                                             $85,126
                                                                                                             ======




- ----------------------
*Eliminated in consolidation.





NOTE 3 - SUBSIDIARY SURPLUS DEBENTURES

Protective Life Insurance Company (Protective Life) has issued surplus debentures to the Company in order to finance acquisitions and growth. At December 31, 2000, the balance of the surplus debentures was $10.0 million. The surplus debentures are included in receivables from subsidiaries. Protective Life must obtain the approval of the Tennessee Commissioner of Insurance before it may pay interest or repay principal on the surplus debentures.

NOTE 4 - SALE OF AFFILIATE

On March 23, 2000, the Company completed the sale of its Hong Kong affiliate. Included as a component of other income is $24.8 million relating to the transaction. 







                                                                     SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
                                                                        PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
                                                                                       (in thousands)

            COL. A                   COL. B           COL. C          COL. D          COL. E           COL. F          COL. G          COL. H           COL. I          COL. J
            ------                   ------           ------          ------          ------           ------          ------          ------           ------          ------
                                                                                   GIC, ANNUITY                                                      AMORTIZATION
                                    DEFERRED                                       DEPOSITS AND                                                       OF DEFERRED
                                     POLICY       FUTURE POLICY                        OTHER        NET PREMIUMS        NET         BENEFITS AND        POLICY           OTHER
                                   ACQUISITION     BENEFITS AND      UNEARNED     POLICYHOLDERS’     AND POLICY      INVESTMENT      SETTLEMENT      ACQUISITIONS      OPERATING
            SEGMENT                   COSTS           CLAIMS         PREMIUMS          FUNDS            FEES         INCOME(1)        EXPENSES           COSTS        EXPENSES(1)
- -------------------------------- ---------------- --------------- --------------- ---------------- --------------- --------------- ---------------- ---------------- --------------
Year Ended
  December 31, 2000:
      Individual Life              $  354,320       $1,222,673     $       315      $     14,878      $  73,826       $  60,823       $  70,365        $  33,767      $  59,882
      West Coast                      276,518        1,499,174               0            86,227         25,987          91,688          79,065           15,003        (12,760)
      Acquisitions                    223,430        1,364,830             484           238,466        102,997         116,940         125,151           17,081         24,939
      Dental Benefits                  11,788           96,049           2,721            63,530        325,797          11,193         216,557            6,386         99,261
      Financial Institutions          112,135          292,634         931,735             3,963        220,421          47,029         135,494           50,132         90,958
      Stable Value Products             2,144          162,236               0         3,177,863              0         243,132         207,143              900          3,881
      Investment Products             127,334          306,021               0         1,633,203         30,127         132,314         109,607           24,156         25,403
      Corporate and Other              81,711           88,340           2,261             2,160         54,503          34,165          46,183            2,149         49,469
                                    ---------        ---------         -------         ---------        -------         -------         -------          -------        -------
      TOTAL                        $1,189,380       $5,031,957        $937,516        $5,220,290       $833,658        $737,284        $989,565         $149,574       $341,033
                                    =========        =========         =======         =========        =======         =======         =======          =======        =======
Year Ended
  December 31, 1999:
      Individual Life             $   372,359       $1,210,187     $       338      $     17,159      $  92,506      $   60,070       $  74,455        $  23,434      $  68,923
      West Coast                      200,605        1,279,554               0            74,831         23,207          78,128          73,176            6,047         (2,649)
      Acquisitions                    235,903        1,374,445             558           260,267        114,866         129,806         129,581           19,444         31,967
      Dental Benefits                  25,819          130,463           3,076            79,032        327,464          14,172         213,005            8,218         91,468
      Financial Institutions           51,339          149,746         504,965             9,045        107,969          24,506          55,899           24,718         57,382
      Stable Value Products             1,156          167,415               0         2,680,009              0         210,208         175,290              744          4,709
      Investment Products             124,335          254,492               0         1,320,453         24,248         106,645          88,642           19,820         21,014
      Corporate and Other                   8            2,852              34                88         71,024          52,866          54,534            2,487         35,799
                                    ---------        ---------         -------         ---------        -------         -------         -------          -------        -------
      TOTAL                        $1,011,524       $4,569,154        $508,971        $4,440,884       $761,284       $ 676,401        $864,582         $104,912       $308,613
                                    =========        =========         =======         =========        =======         =======         =======          =======        =======
Year Ended
  December 31, 1998:
      Individual Life             $   301,941       $1,054,253     $       355      $     10,802       $126,166       $  55,903        $106,306        $  30,543      $  48,231
      West Coast                      144,455        1,006,280               0            77,254         22,380          63,492          54,617            4,924          5,354
      Acquisitions                    255,347        1,383,759             553           233,846         96,735         112,154         112,051           18,894         28,194
      Dental Benefits                  23,836          114,693           5,728            81,572        227,692          11,916         156,857            6,859         60,038
      Financial Institutions           39,212          215,451         385,006           105,434        112,272          25,313          52,629           28,526         55,197
      Stable Value Products             1,448          172,674               0         2,691,697              0         213,136         178,745              735          2,876
      Investment Products              75,177          194,726               0         1,233,528         18,809         105,890          85,045           17,213         19,637
      Corporate and Other                   9              944              39                88         58,741          48,592          39,515            3,494         29,211
                                      -------        ---------         -------         ---------        -------        --------         -------          -------        -------
TOTAL                             $   841,425       $4,142,780        $391,681        $4,434,221       $662,795       $ 636,396        $785,765         $111,188       $248,738
                                      =======        =========         =======         =========        =======         =======         =======          =======        =======
(1)      Allocations  of Net Investment  Income and Other  Operating  Expenses are based on a number of  assumptions  and estimates and
         results would change if different methods were applied.








                                                  SCHEDULE IV - REINSURANCE
                                        PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
                                                   (dollars in thousands)

            COL. A                    COL. B            COL. C           COL. D            COL. E           COL. F
            ------                    ------            ------           ------            ------           ------
                                                                                                         PERCENTAGE OF
                                                    CEDED TO OTHER    ASSUMED FROM                      AMOUNT ASSUMED
                                   GROSS AMOUNT       COMPANIES      OTHER COMPANIES     NET AMOUNT         TO NET
                                 ----------------- ----------------- ---------------- ----------------- ----------------
Year Ended
    December 31, 2000:
       Life insurance
       in force                   $153,371,754     $128,374,583      $ 17,050,342     $ 42,047,513           40.6%
                                   ===========      ===========        ==========       ==========           ====
       Premiums and
       policy fees:
       Life insurance             $    691,153    $     496,715      $    112,669      $   307,107           36.7%
       Accident/health
          insurance                    655,370          261,940            24,393          417,823            5.8%
       Property and liability
          insurance                    159,355           63,795            13,168          108,728           12.1%
                                     ---------          -------           -------          -------
       TOTAL                      $  1,505,878    $     822,450      $    150,230   $      833,658
                                     =========          =======           =======          =======
Year Ended
    December 31, 1999:
       Life insurance
       in force                   $112,726,959     $ 92,566,755     $  17,089,627   $   37,249,831           45.9%
                                   ===========       ==========        ==========       ==========           ====
       Premiums and
       policy fees:
       Life insurance             $    540,430     $    364,680    $      131,856  $       307,606           42.9%
       Accident/health
          insurance                    565,545          172,852            27,266          419,959            6.5%
       Property and liability
          insurance                     34,110              501               110           33,719            0.3%
                                     ---------          -------           -------          -------
       TOTAL                      $  1,140,085     $    538,033     $     159,232   $      761,284
                                     =========          =======           =======          =======
Year Ended
    December 31, 1998:
       Life insurance
       in force                  $  91,980,657     $ 64,846,246     $  18,010,434   $   45,144,845           39.9%
                                    ==========       ==========        ==========       ==========           ====
       Premiums and
       policy fees:
       Life insurance            $     537,000     $    294,363     $      87,964   $      330,601           26.6%
       Accident/health
          insurance                    456,378          164,852            14,279          305,805            4.7%
       Property and liability
          insurance                     26,389                0                 0           26,389            0.0%
                                     ---------          -------           -------          -------
       TOTAL                     $   1,019,767     $    459,215     $     102,243   $      662,795
                                     =========          =======           =======          =======





Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None

PART III

Item 10. Directors and Executive Officers of the Registrant

        Except for the information concerning executive officers of the Company set forth below, the information called for by this Item 10 is incorporated herein by reference to the section entitled “Election of Directors and Information about Nominees” in the Company’s definitive proxy statement for the Annual Meeting of Share Owners, May 7, 2001, to be filed with the Securities and Exchange Commission by the Company pursuant to Regulation 14A within 120 days after the end of its 2000 fiscal year.

        The executive officers of the Company are as follows: 

         Name                                 Age                               Position
         ----                                 ---                               --------
Drayton Nabers, Jr.                           60                  Chairman of the Board and
                                                                  Chief Executive Officer and Director

John D. Johns                                 49                  President, Chief Operating Officer
                                                                  and Director

R. Stephen Briggs                             51                  Executive Vice President

Jim E. Massengale                             58                  Executive Vice President,
                                                                  Acquisitions

A. S. Williams III                            64                  Executive Vice President,
                                                                  Investments and Treasurer

Richard J. Bielen                             40                  Senior Vice President, Investments

Chris Calos                                   39                  Senior Vice President, Dental Benefits

Thomas Davis Keyes                            48                  Senior Vice President, Information Services

Carolyn King                                  50                  Senior Vice President,
                                                                  Investment Products

Deborah J. Long                               47                  Senior Vice President, Secretary and
                                                                  General Counsel

Steven A. Schultz                             47                  Senior Vice President,
                                                                  Financial Institutions

Wayne E. Stuenkel                             47                  Senior Vice President
                                                                  and Chief Actuary

Judy Wilson                                   43                  Senior Vice President,
                                                                  Stable Value Products

Jerry W. DeFoor                               48                  Vice President and Controller,
                                                                  and Chief Accounting Officer

J. William Hamer, Jr.                         56                  Vice President, Human Resources






        All executive officers are elected annually and serve at the pleasure of the Board of Directors. None of the executive officers is related to any director of the Company or to any other executive officer.

        Mr. Nabers has been Chairman of the Board and Chief Executive Officer and a Director of the Company since August 1996. From May 1994 to August 1996, Mr. Nabers was Chairman of the Board, President and Chief Executive Officer and a Director of the Company. Mr. Nabers has served in various capacities with the Company and its subsidiaries since 1979 and has served as a member of the Board since August 1982. He is also a director of Energen Corporation, National Bank of Commerce of Birmingham, and Alabama National Bancorporation.

        Mr. Johns has been President and Chief Operating Officer of the Company since August 1996 and a Director of the Company since May 1997. He was Executive Vice President and Chief Financial Officer of the Company from October 1993 to August 1996. He is also a director of Alabama National Bancorporation and John H. Harland Company.

        Mr. Briggs has been Executive Vice President of the Company since October 1993 and has responsibility for the Individual Life Division. Mr. Briggs has been associated with the Company and its subsidiaries since 1971.

        Mr. Massengale has been Executive Vice President, Acquisitions of the Company since August 1996 and also has responsibility for the West Coast Division. He was Senior Vice President of the Company from May 1992 to August 1996. Mr. Massengale has been employed by the Company and its subsidiaries since 1983.

        Mr. Williams has been Executive Vice President, Investments and Treasurer of the Company since August 1996. He was Senior Vice President, Investments and Treasurer of the Company from July 1981 to August 1996. Mr. Williams has been employed by the Company and its subsidiaries since 1964.

        Mr. Bielen has been Senior Vice President, Investments of the Company since August 1996. From August 1991 to August 1996, he served as Vice President, Investments of Protective Life.

        Mr. Calos has been Senior Vice President, Dental Benefits of the Company since January 2001. From November 1989 to January 2001, he was Vice President, Dental and Consumer Benefits of Protective Life Insurance Company. Mr. Calos has been employed by the Company and its subsidiaries since 1987.

        Mr. Keyes has been Senior Vice President, Information Services of the Company since April 1999. He was Vice President, Information Services of the Company from May 1993 to April 1999. Mr. Keyes has been employed by the Company and its subsidiaries since 1982.

        Ms. King has been Senior Vice President, Investment Products of the Company since April 1995.

        Ms. Long has been Senior Vice President, Secretary and General Counsel of the Company since November 1996. She was Senior Vice President and General Counsel of the Company from February 1994 to November 1996. Ms. Long has been employed by the Company and its subsidiaries since 1993.

        Mr. Schultz has been Senior Vice President, Financial Institutions of the Company since March 1993. Mr. Schultz has been employed by the Company and its subsidiaries since 1989.

        Mr. Stuenkel has been Senior Vice President and Chief Actuary of the Company since March 1987. Mr. Stuenkel is a Fellow of the Society of Actuaries and has been employed by the Company and its subsidiaries since 1978.






        Ms. Wilson has been Senior Vice President, Stable Value Products of the Company since January 1995. Ms. Wilson has been employed by the Company and its subsidiaries since 1991.

        Mr. DeFoor has been Vice President and Controller, and Chief Accounting Officer of the Company since April 1989. Mr. DeFoor is a certified public accountant and has been employed by the Company and its subsidiaries since 1982.

        Mr. Hamer has been Vice President, Human Resources of the Company since 1981.

        These executive officers also serve as executive officers and/or directors of various other Company subsidiaries.

Section 16(a) Beneficial Ownership Reporting Compliance

        Directors and executive officers of the Company are required to file reports with the Securities and Exchange Commission showing changes in their beneficial ownership of the Company’s Common Stock. The Company has reviewed copies of these reports and written representations from the individuals who are required to file reports. Based on this review, we believe that each of the Company’s directors and executive officers has complied with the reporting requirements in 2000, with one exception. One report for Mr. Keyes for the acquisition of 237 shares of Common Stock issued to him pursuant to the Protective Life Corporation 1992 Performance Share Plan was inadvertently filed late.

Item 11. Executive Compensation

        The information called for by this Item is incorporated herein by reference from the Company’s definitive proxy statement for the Annual Meeting of Share Owners, May 7, 2001.

Item 12. Security Ownership of Certain Beneficial Owners and Management

        The information called for by this Item is incorporated herein by reference from the Company’s definitive proxy statement for the Annual Meeting of Share Owners, May 7, 2001.

Item 13. Certain Relationships and Related Transactions

        None.






PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K


          (a)     The following documents are filed as part of this report:

           1.     Financial Statements:

                  The following financial  statements set forth in the Company's 2000 Annual Report to Share Owners as indicated in the
                  following table are incorporated by reference (see Exhibit 13).
                                                                                                             Page
                  Consolidated Statements of Income for the years
                    ended December 31, 2000, 1999, and 1998...............................................
                  Consolidated Balance Sheets as of December 31,
                    2000 and 1999 ........................................................................
                  Consolidated Statements of Share-Owners' Equity
                    for the years ended December 31, 2000, 1999, and 1998.................................
                  Consolidated Statements of Cash Flows
                    for the years ended December 31, 2000, 1999, and 1998.................................
                  Notes to Consolidated Financial Statements..............................................
                  Report of Independent Accountants.......................................................

          2.      Financial Statement Schedules:

                  The Report of  Independent  Accountants  which covers the financial  statement  schedules  appears on page 23 of this
                  report.  The following schedules are located in this report on the pages indicated.

                                                                                                             Page
                  Schedule II - Condensed Financial Information
                    of Registrant.........................................................................
                  Schedule III - Supplementary Insurance Information......................................
                  Schedule IV - Reinsurance...............................................................

                  All other  schedules  to the  consolidated  financial  statements  required by Article 7  of  Regulation  S-X are not
                  required under the related instructions or are inapplicable and therefore have been omitted.

          3.      Exhibits:

                  Included as exhibits are the items listed below.  The Company will furnish a copy of any of the exhibits  listed upon
                  the payment of $5.00 per exhibit to cover the cost of the Company in furnishing the exhibit.

                  ITEM NUMBER                       DOCUMENT
                  -----------                       --------
                  *3(a)                 1998 Restated  Certificate of Incorporation of the Company filed with the Secretary of State of
                                        Delaware on November 12, 1998,  filed as Exhibit 3(a) to the  Company’s  Annual  Report on Form
                                        10-K/A for the year ended December 31, 1998.



- --------------------------
*incorporated by reference





                  *3(b)                 1998 Restated By-laws of the Company  effective  November 2, 1998, filed as Exhibit 3(b) to the
                                        Company’s Annual Report on Form 10-K for the year ended December 31, 1998.

                  4(a)                  Reference is made to Exhibit 3(a) above.

                  4(b)                  Reference is made to Exhibit 3(b) above.

                  *4(c)                 Rights Agreement,  dated as of August 7, 1995,  between the Company and The Bank of New York as
                                        successor to AmSouth Bank (formerly,  AmSouth Bank N.A.), as Rights Agent filed as Exhibit 2 to
                                        the  Company’s  Form 8-K  Current  Report  filed  August 7, 1995 and filed as  Exhibit 1 to the
                                        Company’s Form 8-A Registration Statement filed August 7, 1995.

                  *4(d)                 Rights Certificate filed as Exhibit 1 to the Company’s Form 8-A filed August 7, 1995.

                  *4(e)                 Certificate  of  Trust  of PLC  Capital  Trust  I  filed  as  Exhibit  4(a)  to  the  Company’s
                                        Registration Statement on Form S-3 filed April 11, 1997 (No. 333-25027).

                  *4(f)                 Declaration  of  Trust  of PLC  Capital  Trust  I  filed  as  Exhibit  4(b)  to  the  Company’s
                                        Registration Statement on Form S-3 filed April 11, 1997 (No. 333-25027).

                  *4(g)                 Form of Amended and  Restated  Declaration  of Trust for PLC  Capital  Trust I filed as Exhibit
                                        4(c) to Amendment No. 1, filed April 21, 1997, to the Company’s  Registration Statement on Form
                                        S-3 (No. 33-25027).

                  *4(h)                 Form of  Preferred  Security  Certificate  for PLC Capital  Trust I (included as Exhibit A-1 of
                                        Exhibit 4(f)).

                  *4(i)                 Form of Guarantee with respect to Preferred  Securities of PLC Capital Trust I filed as Exhibit
                                        4(i) to the Company’s Registration Statement on Form S-3 filed April 11, 1997 (No. 333-25027).

                  *4(j)                 Certificate  of  Trust  of PLC  Capital  Trust II  filed  as  Exhibit  4(aa)  to the  Company’s
                                        Registration Statement on Form S-3 filed July 8, 1997 (No. 333-30905).

                  *4(k)                 Declaration  of  Trust  of PLC  Capital  Trust II  filed  as  Exhibit  4(dd)  to the  Company’s
                                        Registration Statement on Form S-3 filed July 8, 1997 (No. 333-30905).

                  *4(l)                 Form of Amended and Restated  Declaration  of Trust of PLC Capital II filed as Exhibit 4(gg) to
                                        the Company’s Registration Statement on Form S-3 filed July 8, 1997 (No. 333-30905).

                  *4(m)                 Form of Preferred Security Certificate for PLC Capital Trust II (included in Exhibit 4(l)).





- --------------------------
*incorporated by reference

                  *4(n)                 Form of Guarantee  Agreement  with respect to Preferred  Securities to be issued by PLC Capital
                                        Trust II filed as Exhibit 4(v) to the Company’s  Registration  Statement on Form S-3 filed July
                                        8, 1997 (No. 333-30905).

                  *10(a)†               The Company’s  Annual  Incentive Plan (effective as of January 1,  1997) filed as Exhibit 10(b)
                                        to the Company’s Form 10-Q Quarterly Report filed May 14, 1997.

                  *10(b)†               The Company’s 1997 Long-Term  Incentive Plan  (formerly,  the “1997  Performance  Share Plan”),
                                        filed as Exhibit 10(a) to the Company’s Form 10-Q Quarterly Report filed May 15, 1998.

                   10(c)†               Excess Benefit Plan amended and restated as of January 1, 2000.

                  *10(d)†               Form of Indemnity  Agreement  for Directors  filed as Exhibit 19.1 to the  Company's  Form 10-Q
                                        Quarterly Report filed August 14, 1986.

                  *10(d)(1)†            Form of Indemnity  Agreement for Officers  filed as Exhibit  10(d)(1) to the  Company’s  Annual
                                        Report on Form 10-K for the year ended December 31, 1996.

                  *10(e)†               Form  of the  Company’s  Employment  Continuation  Agreement  filed  as  Exhibit  10(a)  to the
                                        Company’s Form 10-Q Quarterly Report filed September 30, 1997.

                  *10(f)†               The Company’s Deferred  Compensation Plan for Directors Who Are Not Employees of the Company as
                                        amended  through  March 3,  1997,  filed as Exhibit 10(e) to the Company’s  Form 10-Q Quarterly
                                        Report filed May 14, 1997.

                  *10(g)†               The Company’s  Deferred  Compensation Plan for Officers as amended through March 3, 1997, filed
                                        as Exhibit 10(d) to the Company’s Form 10-Q Quarterly Report filed May 14, 1997.

                  *10(h)†               The Company’s  1996 Stock  Incentive  Plan as amended  through March 3, 1997,  filed as Exhibit
                                        10(c) to the Company’s Form 10-Q Quarterly Report filed May 14, 1997.

                  *10(h)(1)†            The Company’s  specimen letter confirming grants under the Company’s 1996 Stock Incentive Plan,
                                        filed as Exhibit 10(2) to the Company’s Form 10-Q Quarterly Report filed November 13, 1996.

                  13                    Selected  portions of the 2000 Annual Report To Share Owners which are  incorporated  herein by
                                        reference.

                  21                    Organization Chart of the Company and Affiliates.

                  23                    Consent of PricewaterhouseCoopers LLP.

                  24                    Powers of Attorney.

                  99                    Safe Harbor for Forward-Looking Statements.


- --------------------------
*incorporated by reference
†Management contract or compensatory plan or arrangement















         (b)   Current Reports on Form 8-K:

               (1)                      Form 8-K, dated October 26, 2000
                                        - Item 5
                                        - Item 7

               (2)                      Form 8-K, dated December 21, 2000
                                        - Item 5
                                        - Item 7





SIGNATURES

        Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PROTECTIVE LIFE CORPORATION
BY/s/Drayton Nabers, Jr.
Drayton Nabers, Jr.
Chairman of the Board and
Chief Executive Officer

Dated:   March 27, 2001


        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.


              SIGNATURE                      CAPACITY IN WHICH SIGNED                               DATE


/s/Drayton Nabers, Jr.                       Chairman of the Board and                        March 27, 2001
- ----------------------                       Chief Executive Officer
DRAYTON NABERS, JR.                          (Principal Executive Officer)
                                             and Director


/s/John D. Johns                             President and Chief Operating Officer            March 27, 2001
- -----------------------                      and Director
JOHN D. JOHNS (Principal Financial Officer)



/s/Jerry W. DeFoor                           Vice President and Controller,                   March 27, 2001
- -----------------------                      and Chief Accounting Officer
JERRY W. DEFOOR                              (Principal Accounting Officer)



                   *                         Director                                         March 27, 2001
- -----------------------
WILLIAM J. CABANISS, JR.



                    *                        Director                                         March 27, 2001
- ----------------------
JOHN J. MCMAHON, JR.


                    *                        Director                                         March 27, 2001
- ----------------------
A. W. DAHLBERG


                    *                        Director                                         March 27, 2001
- ----------------------
RONALD L. KUEHN, JR.



                    *                        Director                                         March 27, 2001
- ----------------------
JAMES S. M. FRENCH


                    *                        Director                                         March 27, 2001
- ----------------------
ROBERT A. YELLOWLEES


                    *                        Director                                         March 27, 2001
- ----------------------
DONALD M. JAMES


                    *                        Director                                         March 27, 2001
- ----------------------
J. GARY COOPER


                    *                        Director                                         March 27, 2001
- ----------------------
H. CORBIN DAY



- ---------------------

        *Drayton Nabers, Jr., by signing his name hereto, does sign this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission.

BY/s/Drayton Nabers, Jr.
DRAYTON NABERS, JR.
Attorney-in-fact
EX-10 2 0002.htm Exhibit 10(c)

Exhibit 10(c)

Amended and Restated

Protective Life Corporation

Excess Benefit Plan

        This Excess Benefit Plan was adopted by the Company for the purpose of providing benefits to certain employees of the Company and its subsidiaries in excess of the limitations imposed by Section 415 of the Code on the funded Pension Plan which the Company maintains.

        1.   Definitions. Each of the following words and phrases as used herein shall have the meanings set forth in this Section 1. Any term which is not defined in this Section 1 but which is used in the Plan and which is defined in the Pension Plan shall have the meaning set forth therein. Where necessary or appropriate to the meaning hereof, the singular to include the plural, and the plural to include the singular.

(a) The “Code” means the Internal Revenue Code of 1986, as amended from time to time. Reference to any provision of the Code shall include such provision and any comparable provision or provisions of any legislation that amends or supersedes such provision.

(b) The “Company” means Protective Life Corporation, a Delaware corporation.

(c) The “Committee” means the Compensation Committee of the Company's Board of Directors.

(d) “ERISA” means the Employee Retirement Income Security Act of 1974.

(e) The “Limitations” mean the limitations set forth in Section 415 of the Code with respect to benefits payable under the Pension Plan and Section 401 (a)(17) of the Code with respect to compensation included for purposes of benefit determination under the Pension Plan. References to the Limitations include any cost of living adjustments made by the Secretary of the Treasury pursuant to Sections 415(d) and 401(a)(17) of the Code.

(f) An "Excess Benefit" means a benefit provided under the Plan to a Participant or his or her Beneficiary.

(g) A “Participant” under this Plan means an employee of the Company or its subsidiaries who is a participant in the Pension Plan and whose benefits under the Pension Plan are reduced by application of the Limitations, provided, however that with respect to a participant in the Pension Plan who retired or whose employment with the Company or its subsidiaries otherwise terminated prior to January 1, 2000, a participant shall be limited to a participant in the Pension Plan who has been notified in writing by the Committee that he or she is covered under this Plan.

(h) The “Plan” means the Excess Benefit Plan established by the Company effective September 1, 1984, and amended and restated as of January 1, 1987 and further amended and restated as of January 1, 1989 and March 6, 2000.

(i) The “Pension Plan” means the Protective Life Corporation Pension Plan, as amended from time to time.





        2.   Purpose. The Plan is intended to be an “excess benefit plan” within the meaning of Section 3(36) of ERISA, and any regulations issued thereunder, and to pay Excess Benefits to Participants. The Plan also is intended to be “unfunded” within the meaning of Section 4(b)(5) of ERISA, and any regulations issued thereunder. Thus, Excess Benefits will not and may not be funded in any respect, and the payment thereof shall be made at the appropriate time or times from the general assets of the Company. Should any provision of the Plan be inconsistent with the Code or any regulations issued thereunder, or with any provision of law, regulation, ruling or decision governing the status of the Plan or the Pension Plan, the Company shall take whatever steps are necessary to conform it to the applicable authority.

        3.   Normal Retirement. If a Participant retires at or after his or her Normal Retirement Date in accordance with the Pension Plan, he or she shall be entitled to an Excess Benefit equal to (i) the amount of his or her normal retirement benefit under the Pension Plan, based upon the Participant’s election as to the form of benefit payment, without regard to the Limitations, reduced by (ii) the amount of the normal retirement benefit which the Participant is entitled to received under the Pension Plan, based upon the Participant’s election as to the form of benefit payment, after application of the Limitations.

        4.   Early Retirement. If a participant retires prior to his or her Normal Retirement Date in accordance with the provisions of the Pension Plan, the Participant shall be entitled to an Excess Benefit equal to (i) the amount of his or her early retirement benefit under the Pension Plan, based upon the Participant’s election as to the form of benefit payment, without regard to the Limitations, reduced by (ii) the amount of the early retirement benefit which the Participant is entitled to receive under the Pension Plan, based upon the Participant’s election as to the form of benefit payment, after application of the Limitations.

        5.   Disability Retirement. If a Participant becomes totally and permanently disabled in accordance with the Pension Plan, he or she shall be entitled to an Excess Benefit equal to (i) the amount of his or her disability benefit under the Pension Plan without regard to the Limitations, reduced by (ii) the amount of the disability benefit which the Participant is entitled to received under the Pension Plan, after application of the Limitations.

        6.   Death. If a Participant’s surviving spouse becomes eligible at any time to receive a death benefit payable prior to the commencement of the Participant’s retirement benefit under the Pension Plan, the surviving spouse shall be entitled to an Excess Benefit equal to (i) the amount of the death benefit which the surviving spouse is entitled to receive under the Pension Plan without regard to the Limitations, reduced by (ii) the amount of the death benefit which the surviving spouse is entitled to receive under the Pension Plan, after application of the Limitations.

        7.   Termination of Employment. If a Participant is eligible to receive a deferred vested retirement benefit under the Pension Plan, he or she shall be entitled to an Excess Benefit equal to (i) the amount of his or her deferred vested retirement benefit under the Pension Plan, based upon the Participant’s election as to the form of benefit payment without regard to the Limitations, reduced by (ii) the amount of the deferred vested retirement benefit which the Participant is entitled to receive under the Pension Plan, based upon the Participant’s election as to the form of benefit payment, after application of the Limitations.

        8.   Benefit Payments. Except as otherwise specifically provided herein, the payment of a benefit to which a Participant or Beneficiary shall be entitled under this Plan shall be made in the same manner and subject to the same conditions as is the benefit under the Pension Plan.






        9.   Single Sum Provisions. Notwithstanding any other provision of the Plan to the contrary, in the event a Participant’s employment terminated for any reason, including Normal Retirement, and the present value of the Excess Benefit payable to the Participant or the Participant’s spouse under this Plan is less than $50,000, the Company may, in its sole discretion, elect to distribute the present value of the Excess Benefit in a single sum payment. In the event the Company elects to distribute the Excess Benefit in a single sum payment such payment shall be made as soon as practicable following the Participant’s termination of employment (or where the Participant has died, the date on which the Company received written notice of the Participant’s death). Any such payment shall be in full satisfaction of the Company’s obligations under the Plan.

        10.   Administration. Notwithstanding the incorporation of various provision of the Pension Plan into this Plan, all matters pertaining to benefit payments, options and elections hereunder shall be administered by the Committee, which shall have the sole authority to interpret and act on behalf of the Company hereunder.

        11.   Amendment or Termination. The Plan may be amended or terminated at any time by the Company with respect to any or all Participants by written instrument executed with the same formality as the Plan, provided that no such amendment or termination shall impair the benefits a Participant has accrued under the Plan prior to such amendment or termination.

        12.   Governing Law. Except as provided under federal law, the provisions of the Plan shall be governed by and construed in accordance with the laws of the State of Alabama.

        13.   Non-Alienation of Benefits. Except as provided by law, no benefit which shall be payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, garnishment, encumbrance or charge by a Participant or his Beneficiary or anyone claiming under or through either of them.

        IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute this Amended and Restated Protective Life Corporation Excess Benefit Plan this 6th day of March, 2000, to be effective as of January 1, 2000.

ATTEST: PROTECTIVE LIFE CORPORATION
/s/Deborah J. Long /s/Drayton Nabers, Jr.
Its Secretary Its Chairman and CEO
EX-13 3 0003.htm Exhibit 13

Exhibit 13

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

This report includes “forward-looking statements” which express expectations of future events and/or results. The words “believe,” “expect,” “anticipate,” and similar expressions identify forward-looking statements which are based on future expectations rather than on historical facts and are therefore subject to a number of risks and uncertainties, and the Company cannot give assurance that such statements will prove to be correct. Please refer to “Known Trends and Uncertainties” and “Other Developments” herein for more information about factors which could affect future results.

Results of Operations

The Company operates seven divisions each having a strategic focus which can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. The Company’s Divisions are: Individual Life, West Coast, Acquisitions, Dental Benefits, Financial Institutions, Stable Value Products, and Investment Products. The Company also has an additional business segment referred to as Corporate and Other.

Premiums and Policy Fees

The following table sets forth for the periods shown the amount of premiums and policy fees, net of reinsurance (premiums and policy fees), and the percentage change from the prior period: 


     YEAR ENDED              AMOUNT                    PERCENTAGE
     DECEMBER 31         (IN THOUSANDS)                 INCREASE
     -----------         --------------                ----------
       1998                 $662,795                      26.9%
       1999                  761,284                      14.9
       2000                  833,658                       9.5

        In 1999, premiums and policy fees increased $98.5 million or 14.9% over 1998. Premiums and policy fees in the Individual Life Division decreased $33.7 million due to a higher amount of reinsurance ceded. Premiums and policy fees from the West Coast Division increased $0.8 million. The West Coast Division has also increased its use of reinsurance. The full year effect of the October 1998 coinsurance of a block of policies from Lincoln National Corporation (Lincoln National) was a $29.0 million increase in premiums and policy fees in the Acquisitions Division, whereas decreases in older acquired blocks resulted in a $10.9 million decrease in premiums and policy fees. The full year effect of the September 1998 acquisition of United Dental Care resulted in a $69.0 million increase in premiums and policy fees in the Dental Benefits Division. Premiums and policy fees related to the Dental Benefits Division’s other businesses increased $30.8 million. Premiums and policy fees from the Financial Institutions Division decreased $4.3 million of which $11.0 million related to the normal decrease in premiums on closed blocks of policies acquired in prior years. Premiums and policy fees related to the Financial Institutions Division’s other businesses increased $6.7 million. The increase in premiums and policy fees from the Investment Products Division was $5.4 million. Premiums and policy fees relating to various health insurance lines in the Corporate and Other segment increased $12.3 million.

        In 2000, premiums and policy fees increased $72.4 million or 9.5% over 1999. The Individual Life Division’s premiums and policy fees decreased $18.7 million due to a higher amount of reinsurance ceded. The West Coast Division’s premiums and policy fees increased $2.8 million. Premiums and policy fees in the Acquisitions Division are expected to decline with time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made. No acquisitions were completed in this Division in 1999 or 2000, resulting in a decrease of $11.9 million in premiums and policy fees in 2000. Premiums and policy fees in the Dental Benefits Division decreased $1.7 million. In January 2000, the Financial Institutions Division acquired the Lyndon Insurance Group (Lyndon), which resulted in a $97.1 million increase in premiums and policy fees. Premiums and policy fees related to the Financial Institutions Division’s other businesses increased $15.4 million. The increase in premiums and policy fees from the Investment Products Division was $5.9 million. Premiums and policy fees relating to various health insurance lines in the Corporate and Other segment decreased $16.5 million.

Net Investment Income

The following table sets forth for the periods shown the amount of net investment income, the percentage change from the prior period, and the percentage earned on average cash and investments: 

                                                                PERCENTAGE
                                                                  EARNED
   YEAR ENDED             AMOUNT            PERCENTAGE        ON AVERAGE CASH
   DECEMBER 31        (IN THOUSANDS)         INCREASE         AND INVESTMENTS
   -----------        --------------        ----------        ---------------
     1998               $636,396              7.6%                 7.7%
     1999                676,401              6.3                  7.6
     2000                737,284              9.0                  7.6

        Net investment income in 1999 increased $40.0 million or 6.3% over 1998, and in 2000 increased $60.9 million or 9.0% over 1999, primarily due to increases in the average amount of invested assets. Invested assets have increased primarily due to acquisitions, receiving stable value and annuity deposits, and the asset growth that results from the sale of various insurance products. The full year effect of the Lincoln National acquisition and the September 1999 recapture of a block of credit policies increased 1999 net investment income $18.8 million. The January 2000 Lyndon acquisition increased net investment income $21.8 million.

        The percentage earned on average cash and investments was 7.6% in both 1999 and 2000.

Realized Investment Gains (Losses)

The Company generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. The sales of investments that have occurred generally result from portfolio management decisions to maintain proper matching of assets and liabilities. The following table sets forth realized investment gains (losses) for the periods shown: 


              YEAR ENDED                         AMOUNT
              DECEMBER 31                    (IN THOUSANDS)
              -----------                    --------------
                 1998                            $3,121
                 1999                            (1,057)
                 2000                            (7,043)

        The Company has an allowance for uncollectible amounts on investments. The allowance totaled $21.8 million at both December 31, 1999 and 2000.

        Realized investment losses in 1999 of $56.2 million were largely offset by realized investment gains of $55.1 million. Realized investment losses do not include $3.7 million of credit losses charged against the allowance for uncollectible amounts on investments.

        Realized investment losses in 2000 of $42.3 million were largely offset by realized investment gains of $35.3 million.

Other Income

        The following table sets forth other income for the periods shown:


               YEAR ENDED                          AMOUNT
               DECEMBER 31                     (IN THOUSANDS)
               -----------                      ------------
                  1998                            $64,103
                  1999                             97,254
                  2000                            170,068

        Other income consists primarily of revenues of the Company’s broker-dealer subsidiary, direct response businesses, and service contract businesses, fees from variable insurance products, and revenues of the Company’s noninsurance subsidiaries.

        In 1999, revenues from the Company’s broker-dealer subsidiary, direct response businesses, and service contract businesses increased $14.3 million, $5.9 million, and $9.3 million, respectively. Other income from all other sources increased $3.7 million. In 2000, revenues from the Company’s broker-dealer subsidiary, direct response businesses, and service contract businesses increased $14.9 million, $15.0 million, and $15.7 million, respectively. In March 2000, the Company completed the sale of its Hong Kong affiliate, resulting in $24.8 million of other income. Other income from all other sources increased $2.4 million.

Income Before Income Tax

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


                                                                              YEAR ENDED DECEMBER 31
Amount (in thousands)                                              1998                 1999                2000
- -----------------------------------------------------------------------------------------------------------------
Operating Income(1),(2),(3)
Life Insurance
Individual Life(2)                                              $29,230              $32,125             $40,230
West Coast                                                       20,983               26,063              36,367
Acquisitions                                                     51,463               63,671              52,762
Specialty Insurance Products
Dental Benefits                                                  20,721               39,644              32,293
Financial Institutions                                           18,738               21,932              32,191
Retirement Savings and Investment Products
Stable Value Products                                            30,780               29,465              31,208
Investment Products                                              12,567               12,491              15,171
Corporate and Other(3)                                           15,399               16,632               6,624
- ------------------------------------------------------------------------------------------------------------------
Total operating income                                          199,881              242,023             246,846
==================================================================================================================
Realized Investment Gains (Losses)
Stable Value Products                                             1,609                 (549)             (6,556)
Investment Products                                               1,318                1,446                 410
Unallocated Realized Investment Gains (Losses)                      194               (1,954)               (897)
Related Amortization of Deferred Policy Acquisition Costs
Investment Products                                                (890)              (1,446)               (410)
- ------------------------------------------------------------------------------------------------------------------
Total net                                                         2,231               (2,503)             (7,453)
==================================================================================================================
Income Before Income Tax(2),(3)
Life Insurance
Individual Life(2)                                               29,230               32,125              40,230
West Coast                                                       20,983               26,063              36,367
Acquisitions                                                     51,463               63,671              52,762
Specialty Insurance Products
Dental Benefits                                                  20,721               39,644              32,293
Financial Institutions                                           18,738               21,932              32,191
Retirement Savings and Investment Products
Stable Value Products                                            32,389               28,916              24,652
Investment Products                                              12,995               12,491              15,171
Corporate and Other(3)                                           15,399               16,632               6,624
Unallocated Realized Investment Gains (Losses)                      194               (1,954)               (897)
- ------------------------------------------------------------------------------------------------------------------
Total income before income tax                                 $202,112             $239,520            $239,393
==================================================================================================================
(1) Income before income tax excluding  realized  investment  gains and losses and related  amortization of deferred  policy  acquisition
costs.
(2) Operating  income and income before income tax for the  Individual  Life  Division have been reduced by pretax  minority  interest in
income of consolidated subsidiaries of $117 in 1999 and $740 in 2000.
(3) Operating  income and income before income tax for the Corporate and Other segment have been reduced by pretax  minority  interest in
income of  consolidated  subsidiaries  of $18,612 in 1998;  $16,138 in 1999;  and $13,662 in 2000.  Such minority  interest  relates to
payments made on the Company's MIPSSM, TOPrSSM, and FELINE PRIDESSM.

        The Individual Life Division’s 1999 pretax operating income was $32.1 million, $2.9 million above 1998. The Division’s mortality experience was $1.3 million more favorable in 1999 as compared to 1998. The Individual Life Division’s 2000 pretax operating income was $40.2 million, $8.1 million above 1999. The Division has grown through sales. The Division’s mortality experience was approximately $0.8 million better than expected in 2000 as compared to being approximately $1.8 million better than expected in 1999. The Division’s results include expenses to develop new distribution channels.

        In 1999, the West Coast Division had pretax operating income of $26.1 million, $5.1 million above 1998. In 2000, the Division had pretax operating income of $36.4 million, $10.3 million above 1999. The Division has grown through sales.

        In the ordinary course of business, the Acquisitions Division regularly considers acquisitions of blocks of policies or smaller insurance companies. Policies acquired through the Division are usually administered as “closed” blocks; i.e., no new policies are being marketed. Therefore, earnings from the Acquisitions Division are normally expected to decline over time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made. The Division did not make an acquisition in 1999 or 2000.

        The Acquisitions Division’s 1999 pretax operating income was $63.7 million, $12.2 million above 1998. The full year effect of the October 1998 coinsurance of a block of policies from Lincoln National increased earnings $7.7 million in 1999. The Division’s mortality experience was approximately $8.9 million more favorable in 1999 than in 1998. In 2000, the Division’s pretax operating income was $52.8 million, $10.9 million below 1999. The Division’s mortality was approximately $5.8 million better than expected in 2000 as compared to being approximately $8.9 million better than expected in 1999. Additionally, in the fourth quarter of 1999, adjustments were made to the Division’s investment portfolio which had the effect of transferring approximately $10 million of investment income to the Corporate and Other segment during 2000.

        The Dental Benefits Division’s 1999 pretax operating income was $39.6 million, $18.9 million above 1998. United Dental Care represented $13.8 million of the increase. The Division’s other dental businesses increased $4.5 million. The Division’s 2000 pretax operating income was $32.3 million, $7.3 million below 1999. Dental earnings decreased due to lower prepaid dental revenue and higher expenses associated with the integration of United Dental Care.

        The Financial Institutions Division’s 1999 pretax operating income increased $3.2 million to $21.9 million. In September 1999, the Company recaptured a block of credit life and disability policies that it had previously ceded resulting in $2.7 million of earnings in 1999. The Division’s other lines of business improved $0.5 million in 1999. The Division’s 2000 pretax operating income increased $10.3 million to $32.2 million. Included in the Division’s 2000 results were $16.9 million from the Lyndon acquisition. Earnings of the Division’s other businesses were lower than expected due to higher than expected claims.

        The Stable Value Products Division’s 1999 pretax operating income decreased $1.3 million to $29.5 million. This decrease was primarily due to lower interest rate spreads. The Division had 2000 pretax operating income of $31.2 million, $1.7 million above 1999. The increase was due to higher account balances which was partially offset by lower interest rate spreads. Operating spreads in 2000 were compressed due to higher interest rates and an inverted yield curve. Realized investment losses associated with this Division in 1999 were $0.6 million as compared to $6.5 million in 2000. As a result, total pretax income was $28.9 million in 1999 and $24.7 million in 2000.

        The Investment Products Division’s 1999 pretax operating income was $12.5 million, slightly below 1998. The Division’s 2000 pretax operating income increased $2.7 million to $15.2 million. The increase reflects the Division’s growth through sales. The Division had no realized investment gains or losses (net of related amortization of deferred policy acquisition costs) in 1999 and 2000.

        The Corporate and Other segment consists primarily of net investment income on unallocated capital, interest expense on substantially all debt, several lines of business which the Company is not actively marketing (mostly health insurance), earnings from various investment-related transactions, and the operations of several small subsidiaries. The segment’s 1999 pretax operating income increased to $16.6 million primarily due to growth in net investment income on capital. The segment’s 2000 pretax operating income was $6.6 million. The segment’s 2000 results include $24.8 million of income from the sale of the Company’s Hong Kong affiliate. Earnings from health insurance lines decreased $7.0 million. The segment also had $18.6 million less net investment income as compared to 1999. In 2000, higher short-term interest rates and an inverted yield curve reduced investment income and increased interest expense.

Income Tax Expense

The following table sets forth the effective income tax rates for the periods shown:


      YEAR ENDED DECEMBER 31            EFFECTIVE INCOME TAX RATES
      ----------------------            --------------------------
             1998                                 35.3%
             1999                                 36.0
             2000                                 35.8

        Management’s current estimate of the effective income tax rate for 2001 is approximately 35.2%.

Extraordinary Loss

On June 30, 1999, the Company caused PLC Capital L.L.C. (PLC Capital), a special purpose finance subsidiary, to redeem its $55 million of 9% Cumulative Monthly Income Preferred Securities, Series A (MIPS). In a related transaction, the Company redeemed its $69.6 million of Subordinated Debentures which were held by PLC Capital. The redemption resulted in an extraordinary loss of $1.8 million or $0.03 per share on both a basic and diluted basis. The extraordinary loss was comprised primarily of unamortized deferred debt issue costs and losses related to the termination of related interest rate swap agreements, net of an income tax benefit of $0.9 million.

Net Income

The following table sets forth net income and net income per share for the periods shown:

                                                  PER
  YEAR ENDED              AMOUNT                 SHARE            PERCENTAGE
  DECEMBER 31         (IN THOUSANDS)            DILUTED            INCREASE
  -----------         --------------            -------           ---------
     1998                $130,781               $2.04               14.6%
     1999                 151,327                2.29               12.3
     2000                 153,476                2.32                1.3

        Net income per share diluted in 1999 increased 12.3% over 1998, reflecting improved operating earnings in the Individual Life, West Coast, Acquisitions, Dental Benefits, Financial Institutions, and Investment Products Divisions, which were partially offset by lower operating earnings in the Stable Value Products Division and the Corporate and Other segment, and realized investment losses (net of related amortization of deferred policy acquisition costs). Net income per share diluted in 2000 increased 1.3% over 1999, reflecting improved operating earnings in the Individual Life, West Coast, Financial Institutions, Stable Value Products, and Investment Products Divisions, which were partially offset by lower operating earnings in the Acquisitions and Dental Benefits Divisions and the Corporate and Other segment, and higher realized investment losses.

Known Trends and Uncertainties

The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and the known trends and uncertainties which are discussed more fully below. Please also refer to Other Developments herein.

o We are exposed to many types of risks that could negatively affect our business. There are many types of risks that all companies are exposed to in their businesses. For example, companies are exposed to the risks of natural disasters, malicious acts, computer viruses, and other perils. While the Company has obtained insurance, implemented risk management and contingency plans, and taken preventive measures and other precautions, no assurance can be given that there are not scenarios that could have an adverse effect on the Company.

o We operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry. Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry. The Company encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than the Company as well as competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products.

        The insurance industry is consolidating, with larger, potentially more efficient organizations emerging from consolidation. Also, some mutual insurance companies are converting to stock ownership, which will give them greater access to capital markets. Additionally, commercial banks, insurance companies, and investment banks may now combine, provided certain requirements are satisfied.

        The Company’s ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong ratings from rating agencies. However, irrational competition from other insurers could adversely affect the Company’s competitive position.

o A ratings downgrade could adversely affect our ability to compete. Ratings are an important factor in the Company’s competitive position. Rating organizations periodically review the financial performance and condition of insurers, including the Company’s subsidiaries. A downgrade in the ratings of the Company’s subsidiaries could adversely affect the Company’s ability to sell its products, retain existing business, and compete for attractive acquisition opportunities.

        For the past several years, rating downgrades in the industry have exceeded upgrades. Rating organizations assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating organization, general economic conditions, and circumstances outside the rated company’s control. The Company cannot predict what actions the rating organizations may take, or what actions the Company may be required to take in response to the actions of the rating organizations, which could adversely affect the Company.

o Our policy claims fluctuate from year to year. The Company’s results may fluctuate from year to year due to fluctuations in policy claims received by the Company. Certain of the Company’s businesses may experience higher claims if the economy is growing slowly or in recession.

o We could be forced to sell investments at a loss to cover policyholder withdrawals. Many of the products offered by the Company’s insurance subsidiaries allow policyholders and contract holders to withdraw their funds under defined circumstances. The subsidiaries manage their liabilities and configure their investment portfolios so as to provide and maintain sufficient liquidity to support anticipated withdrawal demands and contract benefits and maturities. While the Company’s life insurance subsidiaries own a significant amount of liquid assets, a certain portion of their assets are relatively illiquid. Unanticipated withdrawal or surrender activity could, under some circumstances, compel the Company’s insurance subsidiaries to dispose of assets on unfavorable terms, which could have an adverse effect on the Company.

o Interest-rate fluctuations could negatively affect our spread income or otherwise impact our business. Significant changes in interest rates expose insurance companies to the risk of not earning anticipated spreads between the interest rate earned on investments and the credited interest rates paid on outstanding policies. Both rising and declining interest rates can negatively affect the Company’s spread income. While the Company develops and maintains asset/liability management programs and procedures designed to preserve spread income in rising or falling interest rate environments, no assurance can be given that changes in interest rates will not affect such spreads.

        Changes in interest rates may also impact our business in other ways. Lower interest rates may result in lower sales of certain of the Company’s insurance and investment products. In addition, certain of the Company’s insurance and investment products guarantee a minimum credited interest rate.

        Higher interest rates may create a less favorable environment for the origination of mortgage loans and decrease the investment income we receive in the form of prepayment fees, make-whole payments, and mortgage participation income. Higher interest rates may also increase the cost of debt and other obligations having floating rate or rate reset provisions, and may result in lower sales of variable products. Also, the amount of policy fees received from variable products is affected by the performance of the equity markets.

        Additionally, the Company’s asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, and other factors. The effectiveness of the Company’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from these assumptions.

o Insurance companies are highly regulated. The Company’s insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with many aspects of the insurance business, which may include premium rates, marketing practices, advertising, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than share owners. The Company cannot predict what regulatory initiatives may be enacted which could adversely affect the Company.

        The Company’s insurance subsidiaries may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employment Retirement Income Security Act (ERISA). Severe penalties are imposed for breach of duties under ERISA.

        Certain policies, contracts, and annuities offered by the Company’s insurance subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions.

o Tax law changes could adversely affect our ability to compete with non-insurance products or reduce the demand for certain insurance products. Under the Internal Revenue Code of 1986, as amended, income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of the Company’s products a competitive advantage over other non-insurance products. To the extent that the Internal Revenue Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies, including the Company’s subsidiaries, would be adversely affected with respect to their ability to sell such products, and, depending upon grandfathering provisions, the surrenders of existing annuity contracts and life insurance policies. In addition, life insurance products are often used to fund estate tax obligations. If the estate tax was reduced or eliminated, the demand for certain life insurance products could be adversely affected. The Company cannot predict what tax initiatives may be enacted which could adversely affect the Company.

o Financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments. A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive damages. In some states, including Alabama (where the Company maintains its headquarters), juries have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments in any given lawsuit. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, like other financial services companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. The Company cannot predict the outcome of any such litigation or arbitration.

o A decrease in sales or persistency could negatively affect our results. The Company’s ability to maintain low unit costs is dependent upon the level of sales and persistency. A decrease in sales or persistency without a corresponding reduction in expenses may result in higher unit costs.

        Additionally, a decrease in persistency may result in higher amortization of deferred policy acquisition costs. Although many of the Company’s products contain surrender charges, the charges decrease over time and may not be sufficient to cover the unamortized deferred policy acquisition costs with respect to the insurance policy or annuity contract being surrendered.

o Our investments are subject to risks. The Company’s invested assets and derivative financial instruments are subject to customary risks of credit defaults and changes in market values. The value of the Company’s commercial mortgage loan portfolio depends in part on the financial condition of the tenants occupying the properties which the Company has financed. Factors that may affect the overall default rate on, and market value of, the Company’s invested assets, derivative financial instruments, and mortgage loans include interest rate levels, financial market performance, and general economic conditions as well as particular circumstances affecting the businesses of individual borrowers and tenants.

o Our growth from acquisitions involves risks. The Company’s acquisitions have increased its earnings in part by allowing the Company to enter new markets and to position itself to realize certain operating efficiencies. There can be no assurance, however, that the Company will realize the anticipated financial results from its acquisitions, or that suitable acquisitions, presenting opportunities for continued growth and operating efficiencies, or capital to fund acquisitions will continue to be available to the Company.

o We are dependent on the performance of others. The Company’s results may be affected by the performance of others because the Company has entered into various arrangements involving other parties. Examples include, but are not limited to, the following: many of the Company’s products are sold through independent distribution channels; the Investment Products Division’s variable annuity deposits are invested in funds managed by third parties; prepaid dental services are performed by a contracted network of independent dentists; and a portion of the sales in the Individual Life and West Coast Divisions comes from arrangements with unrelated marketing organizations. The Company may also use third-party administrators to collect premiums, pay claims, and/or perform customer service functions. Additionally, the Company’s operations are dependent on various technologies some of which are provided and/or maintained by other parties.

        As with all financial services companies, our ability to conduct business is dependent upon consumer confidence in the industry and its products. Actions of competitors, and financial difficulties of other companies in the industry, could undermine consumer confidence and adversely affect the Company.

o Our reinsurance program involves risks. The Company’s insurance subsidiaries cede insurance to other insurance companies through reinsurance. However, the Company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it.

        The cost of reinsurance is, in some cases, reflected in the premium rates charged by the Company. Under certain reinsurance agreements, the reinsurer may increase the rate it charges the Company for the reinsurance, though the Company does not anticipate increases to occur. Therefore, if the cost of reinsurance were to increase or if reinsurance were to become unavailable, the Company could be adversely affected.

        Additionally, the Company assumes policies of other insurers. Any regulatory or other adverse development affecting the ceding insurer could also have an adverse effect on the Company.

Recently Issued Accounting Standards

The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Effective January 1, 2001, SFAS No. 133 (as amended by SFAS Nos. 137 and 138) requires the Company to record derivative financial instruments, including certain derivative instruments embedded in other contracts, on its balance sheet and to carry such derivatives at fair value. Derivatives that are not designated to be part of a qualifying hedging relationship must be adjusted to fair value each period through net income. If the derivative is a hedge, its change in fair value is either offset against the change in fair value of the hedged item through net income or recorded in share-owners’ equity until the hedged item is recognized in net income. The fair value of derivatives increases or decreases as interest rates and general economic conditions change. The adoption of SFAS No. 133 on January 1, 2001, will result in a cumulative after-tax charge to net income of approximately $7.6 million and a cumulative after-tax increase to other comprehensive income of approximately $4.0 million in the first quarter of fiscal 2001. The adoption will also impact assets and liabilities recorded on the balance sheet. Prospectively, the adoption may introduce volatility into the Company’s reported net income and other comprehensive income depending on future market conditions and the Company’s hedging activities.

        In September 2000, the FASB issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of SFAS No. 125.” SFAS No. 140 revises the standards of accounting for securitizations and other transfers of financial assets. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001.

Liquidity and Capital Resources

The Company’s operations usually produce a positive cash flow. This cash flow is used to fund an investment portfolio to finance future benefit payments. Since future benefit payments largely represent medium- and long-term obligations reserved using certain assumed interest rates, the Company’s investments are predominantly in medium- and long-term, fixed-rate investments such as bonds and mortgage loans.

Investments

The Company generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, the Company may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, the Company has classified its fixed maturities and certain other securities as “available for sale.”

        The Company’s investments in debt and equity securities are reported at market value, and investments in mortgage loans are reported at amortized cost. At December 31, 2000, the Company’s fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $7,415.8 million, which is 1.0% below amortized cost (less allowances for uncollectible amounts on investments) of $7,489.4 million. The Company had $2,268.2 million in mortgage loans at December 31, 2000. While the Company’s mortgage loans do not have quoted market values, at December 31, 2000, the Company estimates the market value of its mortgage loans to be $2,385.2 million (using discounted cash flows from the next call date), which is 5.2% above amortized cost. Most of the Company’s mortgage loans have significant prepayment penalties. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market fluctuations are not expected to adversely affect liquidity.

        At December 31, 1999, the Company’s fixed maturity investments had a market value of $6,340.8 million, which was 3.7% below amortized cost of $6,583.0 million. The Company estimated the market value of its mortgage loans to be $1,909.0 million at December 31, 1999, which was 1.9% below amortized cost of $1,946.0 million.

        The following table sets forth the estimated market values of the Company’s fixed maturity investments and mortgage loans resulting from a hypothetical immediate 1 percentage point increase in interest rates from levels prevailing at December 31, and the percent change in market value the following estimated market values would represent. 


                              AMOUNT                        PERCENT
AT DECEMBER 31             (IN MILLIONS)                    CHANGE
- ----------------------------------------------------------------------
1999
- ----------------------------------------------------------------------
Fixed maturities              $6,053.0                      (4.1)%
Mortgage loans                 1,825.0                      (4.4)
======================================================================
2000
- ----------------------------------------------------------------------
Fixed maturities              $7,156.3                      (3.5)%
Mortgage loans                 2,277.9                      (4.5)
======================================================================

        Estimated market values were derived from the durations of the Company’s fixed maturities and mortgage loans. Duration measures the relationship between changes in market value to changes in interest rates. While these estimated market values generally provide an indication of how sensitive the market values of the Company’s fixed maturities and mortgage loans are to changes in interest rates, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.

        For several years the Company has offered a type of commercial mortgage loan under which the Company will permit a slightly higher loan-to-value ratio in exchange for a participating interest in the cash flows from the underlying real estate. As of December 31, 2000, approximately $572.2 million of the Company’s mortgage loans have this participation feature.

        At December 31, 2000, delinquent mortgage loans and foreclosed properties were 0.6% of invested assets. Bonds rated less than investment grade were 2.5% of invested assets. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. The Company’s allowance for uncollectible amounts on investments was $21.8 million at December 31, 2000.

        Policy loans at December 31, 2000, were $230.5 million, a decrease of $1.6 million from December 31, 1999. Policy loan rates are generally in the 4.0% to 8.0% range. Such rates at least equal the assumed interest rates used for future policy benefits.

        In the ordinary course of its commercial mortgage lending operations, the Company will commit to provide a mortgage loan before the property to be mortgaged has been built or acquired. The mortgage loan commitment is a contractual obligation to fund a mortgage loan when called upon by the borrower. The commitment is not recognized in the Company’s financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest which may be less than prevailing interest rates.

        At December 31, 2000, the Company had outstanding mortgage loan commitments of $308.4 million with an estimated fair value of $319.0 million (using discounted cash flows from the first call date). At December 31, 1999, the Company had outstanding commitments of $552.6 million with an estimated fair value of $531.0 million. The following table sets forth the estimated fair value of the Company’s mortgage loan commitments resulting from a hypothetical immediate 1 percentage point increase in interest rate levels prevailing at December 31, and the percent change in fair value the following estimated fair values would represent. 

                                AMOUNT                     PERCENT
AT DECEMBER 31               (IN MILLIONS)                 CHANGE
- --------------------------------------------------------------------
1999                            $503.4                      (5.2)%
2000                             305.0                      (4.4)
====================================================================

        The estimated fair values were derived from the durations of the Company’s outstanding mortgage loan commitments. While these estimated fair values generally provide an indication of how sensitive the fair value of the Company’s outstanding commitments are to changes in interest rates, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.

Liabilities

Many of the Company’s products contain surrender charges and other features that reward persistency and penalize the early withdrawal of funds. Certain stable value and annuity contracts have market-value adjustments that protect the Company against investment losses if interest rates are higher at the time of surrender than at the time of issue.

        At December 31, 2000, the Company had policy liabilities and accruals of $5,969.5 million. The Company’s life insurance products have a weighted average minimum credited interest rate of approximately 4.4%.

        At December 31, 2000, the Company had $3,177.9 million of stable value account balances with an estimated fair value of $3,251.0 million (using discounted cash flows), and $1,916.9 million of annuity account balances with an estimated fair value of $1,893.7 million (using surrender values).

        At December 31, 1999, the Company had $2,680.0 million of stable value account balances with an estimated fair value of $2,649.6 million, and $1,639.2 million of annuity account balances with an estimated fair value of $1,599.0 million.

        The following table sets forth the estimated fair values of the Company’s stable value and annuity account balances resulting from a hypothetical immediate 1 percentage point decrease in interest rates from levels prevailing at December 31, and the percent change in fair value the following estimated fair values would represent. 

                                                AMOUNT                  PERCENT
AT DECEMBER 31                               (IN MILLIONS)              CHANGE
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Stable value account balances                  $2,692.0                   1.6%
Annuity account balances                        1,658.2                   3.7
================================================================================

2000
- --------------------------------------------------------------------------------
Stable value account balances                  $3,299.8                   1.5%
Annuity account balances                        1,975.1                   4.3
================================================================================

        Estimated fair values were derived from the durations of the Company's stable value and annuity account balances. While these estimated fair values generally provide an indication of how sensitive the fair values of the Company's stable value and annuity account balances are to changes in interest rates, they do not represent management's view of future market changes, and actual market results may differ from these estimates.

        Approximately one-fourth of the company’s liabilities relate to products (primarily whole life insurance), the profitability of which could be affected by changes in interest rates. The effect of such changes in any one year is not expected to be material.

Derivative Financial Instruments

Combinations of interest rate swap contracts, options, and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments and certain investment securities. No realized gains or losses were deferred in 2000 or 1999.

        The Company uses interest rate swap contracts, swaptions (options to enter into interest rate swap contracts), caps, and floors to convert certain investments and liabilities from a variable rate of interest to a fixed rate of interest, and from a fixed rate to a variable rate of interest, and to convert a portion of its Senior Notes, Medium-Term Notes, and 8.25% Trust Originated Preferred Securities from a fixed rate to a variable rate of interest. Swap contracts are also used to alter the effective durations of assets and liabilities. The Company uses foreign currency swaps in connection with certain stable value contracts denominated in foreign currencies. In September 2000, the Company entered into a total return swap with an unrelated party relating to a portfolio of investments being managed by the Company for the unrelated party.

        At December 31, 2000, contracts with a notional amount of $3,134.2 million were in a $12.3 million net unrealized loss position. At December 31, 1999, contracts with a notional amount of $1,598.9 million were in a $3.7 million net unrealized loss position. The Company recognized $9.3 million of realized investment gains and $3.8 million of realized investment losses related to derivative financial instruments in 2000 and 1999, respectively.

        The following table sets forth the notional amount and net unrealized gains and losses of the company’s derivative financial instruments at December 31, and the estimated net unrealized gains and losses resulting from a hypothetical immediate plus and minus 1 percentage point change in interest rates from levels prevailing at December 31. 


                                                         NET UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------------------------
                                                                               RESULTING FROM
                                                                              AN IMMEDIATE +/-1
                                                                                 PERCENTAGE
                                                                                POINT CHANGE
                               NOTIONAL                   AT                  IN INTEREST RATES
(IN MILLIONS)                   AMOUNT                DECEMBER 31            +1%             -1%
- --------------------------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------------------------
Options
     Calls                      $450.0                 $(1.4)                $(1.5)       $(1.2)
Fixed to floating
     Swaps                       400.0                  (2.6)                 (4.5)        (1.3)
     Swaptions                    35.0                   0.5                  (0.2)         0.8
     Caps                         95.0                   0.2                   0.7          0.1
     Floors                       35.0                  (0.1)                  0.0         (0.2)
Floating to fixed
     Swaps                       583.9                  (0.3)                (28.7)        30.5
- -------------------------------------------------------------------------------------------------
                              $1,598.9                 $(3.7)               $(34.2)       $28.7
=================================================================================================
2000
- -------------------------------------------------------------------------------------------------
Options
     Puts                        $50.0                  $0.0                  $0.2         $0.0
Futures                          100.8                  (2.8)                  4.0         (9.0)
Fixed to floating
     Swaps                     1,249.3                  (4.7)                (42.1)        27.9
     Swaptions                   310.0                   0.4                   0.7          8.3
     Caps                        295.0                   0.0                   0.3          0.0
     Floors                      120.0                  (0.3)                  0.0         (0.8)
Floating to fixed
     Swaps                       160.0                  (2.5)                  4.5         (9.4)
     Caps                        300.0                   0.0                   0.6          0.0
     Floors                      300.0                  (1.1)                  0.0         (3.1)
- -------------------------------------------------------------------------------------------------
                              $2,885.1                $(11.0)               $(31.8)       $ 13.9
=================================================================================================

        The Company is also subject to foreign exchange risk arising from stable value contracts denominated in foreign currencies and related foreign currency swaps. At December 31, 2000, stable value contracts of $249.2 million had a foreign exchange loss of approximately $4.0 million. At December 31, 2000, the related foreign currency swaps had a net unrealized loss of approximately $1.3 million.

        The following table sets forth the notional amount and net unrealized gains and losses of the funding agreements and related foreign currency swaps at December 31, 2000, and the estimated net unrealized gains and losses resulting from a hypothetical 10% change in quoted foreign currency exchange rates from levels prevailing at December 31, 2000. 

                                                          NET UNREALIZED GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------
                                                                              RESULTING FROM
                                                                           AN IMMEDIATE +/-10%
                                                                             CHANGE IN FOREIGN
                                                                             CURRENCY EXCHANGE
                             NOTIONAL                    AT                        RATES
(IN MILLIONS)                 AMOUNT                 DECEMBER 31             +10%            -10%
- ----------------------------------------------------------------------------------------------------
2000
- ----------------------------------------------------------------------------------------------------
Stable Value
     Contracts                  $249.2                 $(4.0)               $(29.3)      $ 21.3
Foreign Currency
     Swaps                       249.2                  (1.3)                 23.7        (26.4)
- ----------------------------------------------------------------------------------------------------
                                $498.4                 $(5.3)                $(5.6)       $(5.1)
====================================================================================================

        Estimated unrealized gains and losses were derived using pricing models specific to derivative financial instruments. While these estimated unrealized gains and losses generally provide an indication of how sensitive the Company’s derivative financial instruments are to changes in interest rates, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.

        The Company is exploring other uses of derivative financial instruments.

Asset/Liability Management

The Company’s asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to yield, risk, and cash flow characteristics. It is the Company’s policy to generally maintain asset and liability durations within one-half year of one another, although, from time to time, a broader interval may be allowed.

        The Company believes its asset/liability management programs and procedures and certain product features provide protection for the Company against the effects of changes in interest rates. Additionally, the Company believes its asset/liability management programs and procedures provide sufficient liquidity to enable it to fulfill its obligation to pay benefits under its various insurance and deposit contracts. However, the Company’s asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity and other factors. The effectiveness of the Company’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from those assumptions. During 2000, market conditions and an inverted yield curve limited the Company’s ability to offset the effects of rising short-term interest rates.

        Cash outflows related to stable value contracts (primarily maturing contracts, scheduled interest payments, and expected withdrawals) were approximately $874 million during 2000. Cash outflows related to stable value contracts are estimated to be approximately $801 million in 2001. At December 31, 2000, the Company had $30.0 million, $50.0 million, and $76.0 million of stable value contracts which may be terminated by the contract holder upon seven, thirty, and ninety days notice, respectively. The Company’s asset/liability management programs and procedures take into account maturing contracts and expected withdrawals. Accordingly, the Company does not expect stable value contract related cash outflows to have an unusual effect on the future operations and liquidity of the Company.

        The life insurance subsidiaries were committed at December 31, 2000, to fund mortgage loans in the amount of $308.4 million. The Company’s subsidiaries held $237.7 million in cash and short-term investments at December 31, 2000. Protective Life Corporation had an additional $7.0 million in cash and short-term investments available for general corporate purposes.

        While the Company generally anticipates that the cash flow of its subsidiaries will be sufficient to meet their investment commitments and operating cash needs, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has arranged sources of credit for its insurance subsidiaries to use when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Additionally, the Company may, from time to time, sell short-duration stable value products to complement its cash management practices.

        The Company has also used securitization transactions to increase its liquidity. In 1998, the Company sold $146 million of its commercial mortgage loans in a securitization transaction. Proceeds from the sale consisted of cash of $104 million, net of expenses, and securities issued in the securitization transaction of approximately $42 million. In 1999, the Company sold $263 million of loans, receiving cash of $220 million and securities of approximately $43 million.

Capital

At December 31, 2000, Protective Life Corporation had no borrowings outstanding under its $125 million revolving lines of credit.

        Protective Life Corporation’s cash flow is dependent on cash dividends and payments on surplus notes from its subsidiaries; revenues from investment, data processing, legal and management services rendered to subsidiaries; and investment income. At December 31, 2000, approximately $463.5 million of consolidated share-owners’ equity, excluding net unrealized investment gains and losses, represented net assets of the Company’s insurance subsidiaries that cannot be transferred to Protective Life Corporation. In addition, the states in which the Company’s insurance subsidiaries are domiciled impose certain restrictions on the insurance subsidiaries’ ability to pay dividends to Protective Life Corporation.

        The Company plans to retain substantial portions of the earnings of its insurance subsidiaries in those companies primarily to support their future growth. Protective Life Corporation’s cash disbursements have, from time to time, exceeded its cash receipts, and these shortfalls have been funded through various external financings. Therefore, Protective Life Corporation may, from time to time, require additional external financing.

        To give the Company flexibility in connection with future acquisitions and other growth opportunities, the Company has registered debt securities, preferred and common stock, and stock purchase contracts of Protective Life Corporation, and additional preferred securities of special purpose finance subsidiaries under the Securities Act of 1933 on a delayed (or shelf) basis.

        On March 20, 2000, the Company issued Senior Notes totaling $125 million with 10, 15, and 30 year maturities. Interest rates range from 8.00% to 8.25%. The proceeds were used to repay bank borrowings of which $55 million had been used to redeem the Monthly Income Preferred Securities in 1999.

        On December 14, 2000, the Company issued $60 million of 7.5% Senior Notes, with a 15 year maturity. The proceeds were used to repay bank borrowings and to partially fund the acquisition, through a coinsurance transaction, of a block of approximately 70,000 individual life insurance policies from Standard Insurance Company (Standard). The transaction represents approximately $80 million of annual premiums and $725 million of policy liabilities. The transaction was completed in January 2001.

        On February 16, 2001, the Company issued 3.9 million shares of its Common Stock under stock purchase contracts relating to its 6.5% FELINE PRIDES. In the transaction, substantially all of the preferred securities comprising part of the FELINE PRIDES, and the underlying subordinated debt, were redeemed.

        On February 28, 2001, the Company issued $100 million of Floating Rate Senior Notes. The proceeds were used to invest in the Company’s insurance subsidiaries, which includes completing the funding of the Standard transaction, and for general corporate purposes.

        A life insurance company’s statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners (NAIC), as modified by the insurance company’s state of domicile. Statutory accounting rules are different from generally accepted accounting principles and are intended to reflect a more conservative view by, for example, requiring immediate expensing of policy acquisition costs. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of the Company’s insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or equity contributions by the Company.

Other Developments

The NAIC has adopted the Codification of Statutory Accounting Principles (Codification). Codification changes current statutory accounting rules in several areas and is effective January 1, 2001. Although the Company has not estimated the potential effect the Codification may have on the statutory capital of the Company’s insurance subsidiaries, the Company does not believe the Codification will have a material effect on the financial position, results of operation, or liquidity of the Company.

        The NAIC has adopted a model regulation, commonly referred to as “Triple X” (i.e., Roman numeral XXX), for universal life and level premium term and term-like insurance products. Triple X potentially increases the amount of regulatory liabilities and thus the capital employed in the sale of these products. Thirty-five jurisdictions have adopted Triple X. Insurers have reacted to Triple X by changing product features and/or premium rates. The Company assessed the probable impact of Triple X on its products and introduced new products in 2000 in response to Triple X. The Company cannot predict what effect Triple X may have or how its response to Triple X will affect its competitive position. In the first half of 2000, the Company issued a significant number of policies which had been applied for prior to January 1, 2000.

        During 1999 and 2000, most financial services companies, including the Company, experienced a decrease in the market price of their common stock. Although the Company believes it has sufficient capital to fund its immediate growth and capital needs, a lower stock price may limit the Company’s ability to raise capital to fund other growth opportunities and acquisitions.

Impact of Inflation

Inflation increases the need for life insurance. Many policyholders who once had adequate insurance programs may increase their life insurance coverage to provide the same relative financial benefit and protection. Higher interest rates may result in higher sales of certain of the Company’s investment products.

        The higher interest rates that have traditionally accompanied inflation could also affect the Company’s operations. Policy loans increase as policy loan interest rates become relatively more attractive. As interest rates increase, disintermediation of stable value and annuity account balances and individual life policy cash values may increase. The market value of the Company’s fixed-rate, long-term investments may decrease, the Company may be unable to implement fully the interest rate reset and call provisions of its mortgage loans, and the Company’s ability to make attractive mortgage loans, including participating mortgage loans, may decrease. In addition, participating mortgage loan income may decrease. The difference between the interest rate earned on investments and the interest rate credited to life insurance and investment products may also be adversely affected by rising interest rates.

        Inflation also increases the level of claims of the Company’s dental and cancer insurance products.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Share Owners of Protective Life Corporation

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, share-owners’ equity and of cash flows present fairly, in all material respects, the financial position of Protective Life Corporation and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/S/PRICEWATERHOUSECOOPERS LLP
- ------------------------------------------------------
PricewaterhouseCoopers LLP
Birmingham, Alabama
March 1, 2001 


Year Ended December 31

(Dollars in thousands except per share amounts)                   2000                1999               1998
- -------------------------------------------------------------------------------------------------------------------
Revenues
Premiums and policy fees                                       $1,656,108          $1,299,317         $1,122,010
Reinsurance ceded                                                (822,450)           (538,033)          (459,215)
- -------------------------------------------------------------------------------------------------------------------
     Net of reinsurance ceded                                     833,658             761,284            662,795
Net investment income                                             737,284             676,401            636,396
Realized investment gains (losses)                                 (7,043)             (1,057)             3,121
Other income                                                      170,068              97,254             64,103
- -------------------------------------------------------------------------------------------------------------------
     Total revenues                                             1,733,967           1,533,882          1,366,415
- -------------------------------------------------------------------------------------------------------------------
Benefits and expenses
Benefits and settlement expenses (net of reinsurance ceded:
     2000 - $538,291; 1999 - $344,474; 1998 - $330,494)           989,565             864,582            785,765
Amortization of deferred policy acquisition costs                 149,574             104,912            111,188
Amortization of goodwill                                            8,525               5,584              2,778
Other operating expenses (net of reinsurance ceded:
     2000 - $223,498; 1999 - $150,570; 1998 - $166,375)           332,508             303,029            245,960
- -------------------------------------------------------------------------------------------------------------------
     Total benefits and expenses                                1,480,172           1,278,107          1,145,691
- -------------------------------------------------------------------------------------------------------------------
Income before income tax                                          253,795             255,775            220,724
- -------------------------------------------------------------------------------------------------------------------
Income tax expense
Current                                                            21,001              56,949             48,807
Deferred                                                           69,857              35,130             29,038
- -------------------------------------------------------------------------------------------------------------------
     Total income tax expense                                      90,858              92,079             77,845
- -------------------------------------------------------------------------------------------------------------------
Income before minority interest                                   162,937             163,696            142,879
Minority interest in income of consolidated subsidiaries            9,461              10,606             12,098
- -------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss                                  153,476             153,090            130,781
Extraordinary loss on early extinguishment of debt,
     net of income tax                                                                  1,763
- -------------------------------------------------------------------------------------------------------------------
Net income                                                    $   153,476         $   151,327        $   130,781
===================================================================================================================
Income before extraordinary loss per share - basic         $         2.33      $         2.34     $         2.06
Net income per share - basic                               $         2.33      $         2.31     $         2.06
Income before extraordinary loss per share - diluted       $         2.32      $         2.32     $         2.04
Net income per share - diluted                             $         2.32      $         2.29     $         2.04
- -------------------------------------------------------------------------------------------------------------------
Cash dividends paid per share                             $           .51     $           .47    $           .43
===================================================================================================================
See Notes to Consolidated Financial Statements.

December 31
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)                                                                        2000           1999
- -------------------------------------------------------------------------------------------------------------------------
Assets
Investments:
     Fixed maturities, at market (amortized cost: 2000 -  $7,489,361; 1999 -  $6,583,016)  $  7,415,769   $  6,340,769
     Equity securities, at market (cost: 2000 -  $61,358; 1999 - $37,842)                        58,700         36,446
     Mortgage loans                                                                           2,268,224      1,945,990
     Investment real estate, net of accumulated depreciation (2000 -  $1,226; 1999 - $1,014)     12,566         15,582
     Policy loans                                                                               230,527        232,126
     Other long-term investments                                                                 66,462         37,439
     Short-term investments                                                                     189,161        113,657
- ------------------------------------------------------------------------------------------------------------------------
     Total investments                                                                       10,241,409      8,722,009
Cash                                                                                             55,494         51,642
Accrued investment income                                                                       122,314        103,387
Accounts and premiums receivable, net of allowance for uncollectible amounts
     (2000 -  $2,195; 1999 - $2,540)                                                             85,223         80,130
Reinsurance receivables                                                                       1,100,131        860,122
Deferred policy acquisition costs                                                             1,189,380      1,011,524
Goodwill                                                                                        250,321        218,483
Property and equipment                                                                           54,253         57,489
Other assets                                                                                    138,419         66,950
Assets related to separate accounts
     Variable annuity                                                                         1,841,439      1,778,618
     Variable universal life                                                                     63,504         40,293
     Other                                                                                        3,746          3,517
- ------------------------------------------------------------------------------------------------------------------------




                                                                                            $15,145,633    $12,994,164
========================================================================================================================
See Notes to Consolidated Financial Statements.


December 31
(Dollars in thousands)                                                                           2000         1999
- -------------------------------------------------------------------------------------------------------------------------
Liabilities
Policy liabilities and accruals
     Future policy benefits and claims                                                      $  5,031,957 $  4,569,154
     Unearned premiums                                                                           937,516      508,971
- --------------------------------------------------------------------------------------------------------------------------
     Total policy liabilities and accruals                                                     5,969,473    5,078,125
Stable value contract account balances                                                         3,177,863    2,680,009
Annuity account balances                                                                       1,916,894    1,639,231
Other policyholders’ funds                                                                       125,533      121,644
Other liabilities                                                                                393,262      405,010
Accrued income taxes                                                                             (35,330)      (5,701)
Deferred income taxes                                                                             79,066      (37,828)
Short-term debt                                                                                                55,000
Long-term debt                                                                                   306,125      181,023
Liabilities related to separate accounts
     Variable annuity                                                                          1,841,439    1,778,618
     Variable universal life                                                                      63,504       40,293
     Other                                                                                         3,746        3,517
- ------------------------------------------------------------------------------------------------------------------------
     Total liabilities                                                                        13,841,575   11,938,941
========================================================================================================================
Commitments and contingent liabilities - Note 6
- ------------------------------------------------------------------------------------------------------------------------
Guaranteed Preferred Beneficial Interests in Company’s Subordinated Debentures
8.25% Trust Originated Preferred Securities                                                       75,000       75,000
6.5% FELINE PRIDES                                                                               115,000      115,000
- ------------------------------------------------------------------------------------------------------------------------
     Total guaranteed preferred beneficial interests                                             190,000      190,000
- ------------------------------------------------------------------------------------------------------------------------
Share-owners’ equity
Preferred Stock, $1 par value
     Shares authorized:  3,600,000
     Issued: none
Junior Participating Cumulative
     Preferred Stock, $1 par value
     Shares authorized: 400,000
     Issued: none
Common Stock, $.50 par value
     Shares authorized: 2000 and 1999 - 160,000,000
     Issued: 2000 and 1999 - 69,333,117                                                           34,667       34,667
Additional paid-in capital                                                                       289,819      256,057
Treasury stock, at cost (2000 - 4,775,550 shares; 1999 - 4,831,025 shares)                       (12,812)     (12,960)
Stock held in trust (2000 - 36,210 shares; 1999 - 18,681 shares)                                  (1,318)        (621)
Unallocated stock in Employee Stock Ownership Plan (2000 - 1,112,668 shares;
     1999 - 1,220,534 shares)                                                                     (3,686)      (4,043)
Retained earnings                                                                                858,761      738,204
Accumulated other comprehensive income
     Net unrealized gains (losses) on investments
          (net of income tax: 2000 - $(27,662); 1999 - $(78,659))                                (51,373)    (146,081)
- -----------------------------------------------------------------------------------------------------------------------
     Total share-owners’ equity                                                           1,114,058      865,223
- -----------------------------------------------------------------------------------------------------------------------



                                                                                             $15,145,633  $12,994,164
=======================================================================================================================

                                            ADDITIONAL            STOCK  UNALLOCATED          NET UNREALIZED    TOTAL
                                  COMMON     PAID-IN   TREASURY  HELD IN  STOCK IN   RETAINED  GAINS(LOSSES) SHARE-OWNERS'
(DOLLARS IN THOUSANDS)             STOCK     CAPITAL     STOCK    TRUST     ESOP     EARNINGS ON INVESTMENTS    EQUITY
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997       $33,336   $167,923   $(13,455)            $(4,592)   $513,258  $  61,727  $   758,197
                                                                                                               -------
   Net income for 1998                                                                 130,781                 130,781
   Decrease in net unrealized
     gains on investments
     (net of income tax - $(2,499))                                                                (4,641)      (4,641)
   Reclassification adjustment for
     amounts included in net income
     (net of income tax - $(1,092))                                                                (2,029)      (2,029)
                                                                                                               -------
   Comprehensive income for 1998                                                                               124,111
                                                                                                               -------
   Cash dividends                                                                      (26,857)                (26,857)
   Issuance of common stock        1,331     83,795                                                             85,126
   Stock-based compensation                   2,797        300                                                   3,097
   Reissuance of treasury stock
     to ESOP                                    190         15                (205)                                  0
   Allocation of stock to employee
     accounts                                                                  520                                 520
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998        34,667    254,705    (13,140)             (4,277)    617,182     55,057      944,194
                                                                                                               -------
   Net income for 1999                                                                 151,327                 151,327
   Decrease in net unrealized
     gains on investments
     (net of income tax - $(108,675))                                                            (201,825)    (201,825)
   Reclassification adjustment for
     amounts included in net income
     (net of income tax - $370)                                                                       687          687
                                                                                                               -------
   Comprehensive loss for 1999                                                                                 (49,811)
                                                                                                               -------
   Cash dividends                                                                      (30,305)                (30,305)
   Purchase of common stock                                         (621)                                         (621)
   Stock-based compensation                     947        145                                                   1,092
   Reissuance of treasury stock
     to ESOP                                    405         35                (440)                                  0
   Allocation of stock to employee
     accounts                                                                  674                                 674
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999        34,667    256,057    (12,960)     (621)   (4,043)    738,204   (146,081)     865,223
                                                                                                               -------
   Net income for 2000                                                                 153,476                 153,476
   Decrease in net unrealized
     losses on investments
     (net of income tax - $48,532)                                                                 90,130       90,130
   Reclassification adjustment for
     amounts included in net income
     (net of income tax - $2,465)                                                                   4,578        4,578
                                                                                                               -------
   Comprehensive income for 2000                                                                               248,184
                                                                                                               -------
   Cash dividends                                                                      (32,919)                (32,919)
   Purchase of common stock                                         (697)                                         (697)
   Stock-based compensation                  33,535        120                                                  33,655
   Reissuance of treasury stock
     to ESOP                                    227         28                (255)                                  0
   Allocation of stock to employee
     accounts                                                                  612                                 612
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000
- - Note 7                         $34,667   $289,819   $(12,812)  $(1,318)  $(3,686)   $858,761   $(51,373)  $1,114,058
=========================================================================================================================

See Notes to Consolidated Financial Statements.

Year Ended December 31
(Dollars in thousands)                                                             2000          1999         1998
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income                                                                $      153,476    $   151,327 $     130,781
   Adjustments to reconcile net income to net cash provided by operating activities:
   Realized investment (gains) losses                                              7,043          1,057        (3,121)
   Extraordinary loss on early extinguishment of debt                                             1,763
   Amortization of deferred policy acquisition costs                             149,574        104,912       111,188
   Capitalization of deferred policy acquisition costs                          (338,685)      (239,482)     (215,359)
   Depreciation expense                                                           10,421         12,030         7,251
   Deferred income taxes                                                          67,949         25,841         5,671
   Accrued income taxes                                                          (30,813)         9,499       (20,107)
   Amortization of goodwill                                                        8,525          5,584         2,778
   Interest credited to universal life and investment products                   766,004        331,746       352,721
   Policy fees assessed on universal life and investment products               (197,581)      (165,818)     (139,689)
   Change in accrued investment income and other receivables                    (149,778)      (131,614)     (152,672)
   Change in policy liabilities and other policyholders' funds of traditional
      life and health products                                                   500,254        215,556       317,292
   Change in other liabilities                                                   (38,674)        77,902           (90)
Other, net                                                                       (31,056)       (10,729)      (20,879)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                        876,659        389,574       375,765
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Maturities and principal reductions of investments:
   Investments available for sale                                             13,037,876     10,167,542    10,663,499
   Other                                                                         135,058        243,280       198,559
Sale of investments:
   Investments available for sale                                                810,716        537,343     1,082,765
   Other                                                                           5,222        267,892       155,906
Cost of investments acquired:
   Investments available for sale                                            (14,523,312)   (10,816,652)  (11,854,401)
   Other                                                                        (464,779)      (864,100)     (662,350)
Acquisitions and bulk reinsurance assumptions                                   (162,413)        46,508       (76,896)
Purchase of property and equipment                                                (5,861)       (18,741)       (7,878)
Sale of property and equipment                                                                      417
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                         (1,167,493)      (436,511)     (500,796)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Borrowings under line of credit arrangements and long-term debt                2,434,879      4,516,977     2,029,049
Principal payments on line of credit arrangements and long-term debt          (2,364,779)    (4,451,790)   (1,977,014)
Payment of guaranteed preferred beneficial interests                                            (55,000)
Dividends to share owners                                                        (32,919)       (30,305)      (26,857)
Issuance of common stock                                                                                       85,126
Purchase of common stock held in trust                                              (697)          (621)
Investment product deposits and change in universal life deposits              1,811,484      1,300,736     1,014,135
Investment product withdrawals                                                (1,553,282)    (1,190,904)   (1,037,424)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                        294,686         89,093        87,015
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash                                                        3,852         42,156       (38,016)
Cash at beginning of year                                                         51,642          9,486        47,502
- ------------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                          $    55,494      $  51,642      $  9,486
========================================================================================================================
Supplemental disclosures of cash flow information
Cash paid during the year:
   Interest on debt                                                          $    23,414      $  19,118      $ 15,923
   Income taxes                                                              $    55,798      $  42,367      $ 62,588
========================================================================================================================
Supplemental schedule of noncash investing and financing activities
Reissuance of treasury stock to ESOP                                         $       255      $     440      $    205
Change in unallocated stock in ESOP                                          $       357      $     234      $    315
Stock-based compensation                                                     $    33,655      $   1,092      $  3,097
Acquisitions and related reinsurance transactions:
   Assets acquired                                                           $   533,869      $  12,502      $446,570
   Liabilities assumed                                                          (371,456)       (12,502)     (380,630)
   Issuance of common stock                                                                                   (85,126)
   Reissuance of treasury stock                                                                                (3,005)
- ------------------------------------------------------------------------------------------------------------------------
Net                                                                          $   162,413      $       0      $(22,191)
========================================================================================================================
See Notes to Consolidated Financial Statements.

(Except where otherwise indicated, dollars in thousands except per share amounts)

Notes to Consolidated Financial Statements

1 Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements of Protective Life Corporation and subsidiaries (the Company) are prepared on the basis of accounting principles generally accepted in the United States of America. Such accounting principles differ from statutory reporting practices used by insurance companies in reporting to state regulatory authorities. (See also Note 9.)

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make various estimates that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, as well as the reported amounts of revenues and expenses. Actual results could differ from these estimates.

Entities Included

The consolidated financial statements include the accounts, after intercompany eliminations, of Protective Life Corporation and its wholly-owned and majority-owned subsidiaries. The ownership interest of the other share owners of majority-owned subsidiaries is reported as a liability of the Company and as an adjustment to income. (See also Note 4.)

Nature of Operations

Protective Life Corporation is a holding company whose subsidiaries provide financial services through the production, distribution, and administration of insurance and investment products. The Company markets individual life insurance, indemnity and prepaid dental products, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. The Company also maintains a separate division devoted to the acquisition of insurance policies from other companies. Founded in 1907, Protective Life Insurance Company (Protective Life) is the Company’s principal operating subsidiary.

        The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, persistency, and other factors.

Recently Issued Accounting Standards

In 1999, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 134, “Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,” and Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” and Statement of Position 97-3, “Accounting by Insurance and Other Enterprises for Insurance Related Assessments” issued by the American Institute of Certified Public Accountants. The adoption of these accounting standards did not have a material effect on the Company’s financial statements.

        The Financial Accounting Standards Board (FASB) has issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Effective January 1, 2001, SFAS No. 133 (as amended by SFAS Nos. 137 and 138) requires the Company to record derivative financial instruments, including certain derivative instruments embedded in other contracts, on its balance sheet and to carry such derivatives at fair value. Derivatives that are not designated to be part of a qualifying hedging relationship must be adjusted to fair value each period through net income. If the derivative is a hedge, its change in fair value is either offset against the change in fair value of the hedged item through net income or recorded in share-owners’ equity until the hedged item is recognized in net income. The fair value of derivatives increase or decrease as interest rates and general economic conditions change. The adoption of SFAS No. 133 on January 1, 2001, will result in a cumulative after-tax charge to net income of approximately $7.6 million and a cumulative after-tax increase to other comprehensive income of approximately $4.0 million in the first quarter of fiscal 2001. The adoption will also impact assets and liabilities recorded on the balance sheet. Prospectively, the adoption may introduce volatility into the Company’s reported net income and other comprehensive income depending on future market conditions and the Company’s hedging activities.

        In September 2000, the FASB issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of SFAS No. 125.” SFAS No. 140 revises the standards of accounting for securitizations and other transfers of financial assets. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001.

Investments

The Company has classified all of its investments in fixed maturities, equity securities, and short-term investments as “available for sale.”


        Investments are reported on the following bases less allowances for uncollectible amounts on investments, if applicable:
o Fixed maturities (bonds and redeemable preferred stocks) - at current market value. Where market values are unavailable, the Company obtains estimates from independent pricing services or estimates market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics.
o Equity securities (common and nonredeemable preferred stocks) - at current market value.
o Mortgage loans - at unpaid balances, adjusted for loan origination costs, net of fees, and amortization of premium or discount.
o Investment real estate - at cost, less allowances for depreciation computed on the straight-line method. With respect to real estate acquired through foreclosure, cost is the lesser of the loan balance plus foreclosure costs or appraised value.
o Policy loans - at unpaid balances.
o Other long-term investments - at a variety of methods similar to those listed above, as deemed appropriate for the specific investment.
o Short-term investments - at cost, which approximates current market value.

        Substantially all short-term investments have maturities of three months or less at the time of acquisition and include approximately $0.6 million in bank deposits voluntarily restricted as to withdrawal.

        As prescribed by SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” certain investments are recorded at their market values with the resulting unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, reported as a component of share-owners’ equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the application of SFAS No. 115 does not affect the Company’s operations, its reported share-owners’ equity will fluctuate significantly as interest rates change.

        The Company’s balance sheets at December 31, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows: 


                                         2000                    1999
- ------------------------------------------------------------------------------
Total investments                    $10,317,657              $8,965,673
Deferred policy acquisition costs      1,192,696                 992,518
All other assets                       3,714,844               3,260,631
- ------------------------------------------------------------------------------
                                     $15,225,197             $13,218,822
==============================================================================
Deferred income taxes                   $107,257                 $40,749
All other liabilities                 13,762,509              11,976,769
- ------------------------------------------------------------------------------
                                      13,869,766              12,017,518
==============================================================================
Guaranteed preferred beneficial
   interests in Company's
   subordinated debentures               190,000                 190,000
- ------------------------------------------------------------------------------
Share-owners' equity                   1,165,431               1,011,304
- ------------------------------------------------------------------------------
                                      15,225,197             $13,218,822
==============================================================================

        Realized gains and losses on sales of investments are recognized in net income using the specific identification basis.

Derivative Financial Instruments

Combinations of interest rate swap contracts, options, and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments, mortgage loans, and mortgage-backed securities, and liabilities arising from interest-sensitive products. Realized gains and losses on certain contracts are deferred and amortized over the life of the hedged asset or liability, and such amortization is recorded in investment income or interest expense. Any unamortized gain or loss is recorded as a realized investment gain or loss upon the early termination of a hedged asset or liability, or when the anticipated transaction is no longer likely to occur. No realized gains or losses were deferred in 2000 and 1999.

        The Company accounts for certain interest rate swaps designated as hedges of available-for-sale securities on a mark-to-market basis. The accrual of interest payable or receivable on these interest rate swaps is reported in investment income. Changes in the market values of these interest rate swaps, exclusive of net interest accruals, are reported in other comprehensive income on a net-of-tax basis.

        The Company uses interest rate swap contracts, swaptions (options to enter into interest rate swap contracts), caps, and floors to convert certain investments from a variable to a fixed rate of interest and from a fixed rate to a variable rate of interest, and to convert a portion of its debt and preferred securities from a fixed rate to a variable rate of interest. Swap contracts are also used to alter the effective durations of assets and liabilities. Amounts paid or received related to the initiation of certain interest rate swap contracts, swaptions, caps, and floors are deferred and amortized over the life of the related financial instrument, and subsequent periodic settlements are recorded in investment income or interest expense. Gains or losses on contracts terminated upon the early termination of the related financial instrument are recorded as realized investment gains or losses, except in the case of an early extinguishment of debt, in which case, gains or losses are recorded as extraordinary gains or losses. Amounts paid and received related to the initiation of interest rate swap contracts, swaptions, caps, and floors were $1.3 million and $2.8 million, respectively, in 2000. Amounts paid were $1.4 million and $1.0 million in 1999 and 1998, respectively. No amounts were received in 1999 or 1998.

        The Company utilizes foreign currency swaps as hedges of the foreign currency exchange risk associated with its obligations under certain stable value contracts denominated in foreign currencies. Gains and losses are recognized on the currency swaps to the extent of changes in spot exchange rates since inception of the contracts.

        At December 31, 2000, contracts with a notional amount of $3,134.2 million were in a $12.3 million net unrealized loss position. At December 31, 1999, contracts with a notional amount of $1,598.9 million were in a $3.7 million net unrealized gain position. The Company recognized $9.3 million in realized investment gains and $3.8 million in realized investment losses related to derivative financial instruments in 2000 and 1999, respectively.

        The Company’s derivative financial instruments are with highly rated counterparties.

Cash

Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. The Company has deposits with certain financial institutions which exceed federally insured limits. The Company has reviewed the credit worthiness of these financial institutions and believes there is minimal risk of a material loss.

Deferred Policy Acquisition Costs

Commissions and other costs of acquiring traditional life and health insurance, credit insurance, universal life insurance, and investment products that vary with and are primarily related to the production of new business, have been deferred. Traditional life and health insurance acquisition costs are amortized over the premium-payment period of the related policies in proportion to the ratio of annual premium income to the present value of the total anticipated premium income. Credit insurance acquisition costs are being amortized in proportion to earned premium. Acquisition costs for universal life and investment products are amortized over the lives of the policies in relation to the present value of estimated gross profits before amortization. Under SFAS No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments,” the Company makes certain assumptions regarding the mortality, persistency, expenses, and interest rates it expects to experience in future periods. These assumptions are to be best estimates and are to be periodically updated whenever actual experience and/or expectations for the future change from that assumed. Additionally, relating to SFAS No. 115, these costs have been adjusted by an amount equal to the amortization that would have been recorded if unrealized gains or losses on investments associated with the Company’s universal life and investment products had been realized.

        The cost to acquire blocks of insurance representing the present value of future profits from such blocks of insurance is also included in deferred policy acquisition costs. The Company amortizes the present value of future profits over the premium payment period, including accrued interest of up to approximately 8%. The unamortized present value of future profits for all acquisitions was approximately $343.6 million and $340.6 million at December 31, 2000 and 1999, respectively. During 2000, $47.3 million of present value of future profits was capitalized (relating to acquisitions made during the year) and $44.3 million was amortized. During 1999, $13.3 million of present value of future profits was capitalized, and $37.1 million was amortized.

Goodwill

Goodwill is being amortized straight-line over periods ranging from 10 to 40 years. Goodwill at December 31 is as follows: 


                                         2000                 1999
- -----------------------------------------------------------------------------
Goodwill                                $270,250             $229,887
Accumulated amortization                  19,929               11,404
- -----------------------------------------------------------------------------
                                        $250,321             $218,483
=============================================================================

        The Company periodically evaluates the recoverability of its goodwill by comparing expected future cash flows to the amount of unamortized goodwill. If this evaluation were to indicate the unamortized goodwill is impaired, the goodwill would be reduced to an amount representing the present value of applicable estimated future cash flows.

Property and Equipment

Property and equipment are reported at cost. The Company primarily uses the straight-line method of depreciation based upon the estimated useful lives of the assets. Major repairs or improvements are capitalized and depreciated over the estimated useful lives of the assets. Other repairs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or retired are removed from the accounts, and resulting gains or losses are included in income.

Property and equipment consisted of the following at December 31:


                                           2000                     1999
- -----------------------------------------------------------------------------
Home Office building                   $  41,184                  $  40,524
Data processing equipment                 34,626                     30,246
Other, principally furniture
   and equipment                          38,573                     35,991
- -----------------------------------------------------------------------------
                                         114,383                    106,761
Accumulated depreciation                  60,130                     49,272
- -----------------------------------------------------------------------------
                                       $  54,253                  $  57,489
=============================================================================

Separate Accounts

The assets and liabilities related to separate accounts in which the Company does not bear the investment risk are valued at market and reported separately as assets and liabilities related to separate accounts in the accompanying consolidated financial statements.

Revenues and Benefits Expense

o Traditional Life, Health, and Credit Insurance Products. Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits, and include whole life insurance policies, term and term-like life insurance policies, limited payment life insurance policies, and certain annuities with life contingencies. Life insurance and immediate annuity premiums are recognized as revenue when due. Health and credit insurance premiums are recognized as revenue over the terms of the policies. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contracts. This is accomplished by means of the provision for liabilities for future policy benefits and the amortization of deferred policy acquisition costs.

        Liabilities for future policy benefits on traditional life insurance products have been computed using a net level method including assumptions as to investment yields, mortality, persistency, and other assumptions based on the Company’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Reserve investment yield assumptions are graded and range from 2.5% to 7.0%. The liability for future policy benefits and claims on traditional life, health, and credit insurance products includes estimated unpaid claims that have been reported to the Company and claims incurred but not yet reported. Policy claims are charged to expense in the period in which the claims are incurred.

        Activity in the liability for unpaid claims is summarized as follows: 


                                     2000             1999              1998
- -------------------------------------------------------------------------------
Balance beginning of year          $122,346         $  93,966         $106,121
   Less reinsurance                  47,661            20,019           18,673
- -------------------------------------------------------------------------------
Net balance beginning of year        74,685            73,947           87,448
- -------------------------------------------------------------------------------
Incurred related to:
Current year                        323,222           331,380          317,447
Prior year                           (4,880)           (4,997)         (11,211)
- -------------------------------------------------------------------------------
Total incurred                      318,342           326,383          306,236
- -------------------------------------------------------------------------------
Paid related to:
Current year                        252,209           283,219          261,837
Prior year                           61,925            44,093           62,679
- -------------------------------------------------------------------------------
Total paid                          314,134           327,312          324,516
- -------------------------------------------------------------------------------
Other changes:
Acquisitions and reserve
   transfers                          5,341             1,667            4,779
- -------------------------------------------------------------------------------
Net balance end of year              84,234            74,685           73,947
   Plus reinsurance                  25,830            47,661           20,019
- -------------------------------------------------------------------------------
Balance end of year                $110,064          $122,346        $  93,966
===============================================================================

o Universal Life and Investment Products. Universal life and investment products include universal life insurance, guaranteed investment contracts, deferred annuities, and annuities without life contingencies. Premiums and policy fees for universal life and investment products consist of fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest rates credited to universal life and investment products ranged from 3.6% to 9.4% in 2000.

        The Company’s accounting policies with respect to variable universal life and variable annuities are identical except that policy account balances (excluding account balances that earn a fixed rate) are valued at market and reported as components of assets and liabilities related to separate accounts.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Income tax provisions are generally based on income reported for financial statement purposes. Deferred federal income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the deferral of policy acquisition costs and the provision for future policy benefits and expenses.

Net Income Per Share

Net income per share - basic is net income divided by the average number of shares of Common Stock outstanding including shares that are issuable under various deferred compensation plans.

        Net income per share - diluted is adjusted net income divided by the average number of shares outstanding including all diluted, potentially issuable shares that are issuable under various stock-based compensation plans and stock purchase contracts.

        A reconciliation of net income and adjusted net income, and basic and diluted average shares outstanding for the years ended December 31 is summarized as follows: 


                                     2000             1999              1998
- -------------------------------------------------------------------------------
Net income                        $153,476           $151,327         $130,781
Dividends on
    FELINE PRIDES                      __1                __1              __1
- -------------------------------------------------------------------------------
Adjusted net income               $153,476           $151,327         $130,781
===============================================================================
Average shares issued
    and outstanding             64,544,140         64,481,997       62,553,803
Stock held in trust                (41,797)           (13,030)
Issuable under
    various deferred
    compensation plans           1,330,006          1,135,344          967,784
- -------------------------------------------------------------------------------
Average shares
    outstanding - basic         65,832,349         65,604,311       63,521,587
Stock held in trust                 41,797             13,030
Stock appreciation rights          131,443            183,996          167,981
Issuable under various
    other stock-based
    compensation plans             275,539            360,030          398,176
FELINE PRIDES stock
    purchase contracts                 __1                __1              __1
- -------------------------------------------------------------------------------
Average shares
    outstanding - diluted       66,281,128         66,161,367       64,087,744
===============================================================================
1 Excluded because the effect is anti-dilutive.

Reclassifications

Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets, or share-owners’ equity.

2 Investment Operations

Major categories of net investment income for the years ended December 31 are summarized as follows: 

                                               2000             1999              1998
- -----------------------------------------------------------------------------------------
Fixed maturities                             $540,726          $478,151         $474,200
Equity securities                               2,955             1,949            2,832
Mortgage loans                                177,917           172,027          158,461
Investment real estate                          3,132             2,655            1,274
Policy loans                                   14,977            15,994           12,345
Other, principally
    short-term
    investments                                15,072            21,501           15,123
- -----------------------------------------------------------------------------------------
                                              754,779           692,277          664,235
Investment expenses                            17,495            15,876           27,839
- -----------------------------------------------------------------------------------------
                                             $737,284          $676,401         $636,396
=========================================================================================

Realized investment gains (losses) for the years ended December 31 are summarized as follows:

                                                2000             1999              1998
- -----------------------------------------------------------------------------------------
Fixed maturities                              $(8,041)          $ 7,233          $ 4,374
Equity securities                               1,685            (3,371)          (4,465)
Mortgage loans and
    other investments                            (687)           (4,919)           3,212
- -----------------------------------------------------------------------------------------
                                              $(7,043)          $(1,057)         $ 3,121
=========================================================================================

        The Company recognizes certain permanent impairments through charges to an allowance for uncollectible amounts on investments. The allowance totaled $21.8 million at December 31, 2000 and 1999. Additions and reductions to the allowance are included in realized investment gains (losses). Without such additions/reductions, the Company had net realized investment losses of $7.0 million in 2000, net realized investment losses of $4.8 million in 1999, and net realized investment gains of $4.2 million in 1998.

In 2000, gross gains on the sale of investments available for sale (fixed maturities, equity securities, and short-term investments) were $28.0 million, and gross losses were $34.4 million. In 1999, gross gains were $48.8 million, and gross losses were $39.4 million. In 1998, gross gains were $33.3 million, and gross losses were $32.5 million.

The amortized cost and estimated market value of the Company’s investments classified as available for sale at December 31 are as follows: 


                                                           AMORTIZED  GROSS UNREALIZED  GROSS UNREALIZED   ESTIMATED
                                                             COST           GAINS            LOSSES      MARKET VALUE
2000
- ------------------------------------------------------------------------------------------------------------------------
Fixed maturities:
     Bonds:
        Mortgage-backed securities                          $2,915,836     $  49,373     $  33,197      $2,932,012
        United States Government and authorities                95,567         2,662             0          98,229
        States, municipalities, and political subdivisions      88,223         3,407             0          91,630
        Public utilities                                       631,703         7,804         5,596         633,911
        Convertibles and bonds with warrants                    69,014        11,277        12,145          68,146
        All other corporate bonds                            3,687,250        49,533       146,704       3,590,079
     Redeemable preferred stocks                                 1,768             0             6           1,762
- ------------------------------------------------------------------------------------------------------------------------
                                                             7,489,361       124,056       197,648       7,415,769
Equity securities                                               61,358         2,761         5,419          58,700
Short-term investments                                         189,161             0             0         189,161
- ------------------------------------------------------------------------------------------------------------------------
                                                            $7,739,880      $126,817      $203,067      $7,663,630
========================================================================================================================
1999
- -------------------------------------------------------------------------------------------------------------------------
Fixed maturities:
     Bonds:
        Mortgage-backed securities                          $2,619,957     $  18,491      $101,189      $2,537,259
        United States Government and authorities               154,957           138         1,260         153,835
        States, municipalities, and political subdivisions      27,254             7           295          26,966
        Public utilities                                       537,842           301        14,697         523,446
        Convertibles and bonds with warrants                       693             0           155             538
        All other corporate bonds                            3,241,131         5,938       149,545       3,097,524
     Redeemable preferred stocks                                 1,182            19             0           1,201
- ------------------------------------------------------------------------------------------------------------------------
                                                             6,583,016        24,894       267,141       6,340,769
Equity securities                                               37,842           644         2,040          36,446
Short-term investments                                         113,657             0             0         113,657
- ------------------------------------------------------------------------------------------------------------------------
                                                            $6,734,515     $  25,538      $269,181      $6,490,872
========================================================================================================================

        The amortized cost and estimated market value of fixed maturities at December 31, by expected maturity, are shown as follows. Expected maturities are derived from rates of prepayment that may differ from actual rates of prepayment. 


                                                                  ESTIMATED
                                          AMORTIZED                 MARKET
                                            COST                    VALUE
2000
- ----------------------------------------------------------------------------
Due in one year or less                    $508,601               $505,061
Due after one year
  through five years                      3,946,036              3,929,965
Due after five years
  through ten years                       2,125,738              2,108,184
Due after ten years                         908,986                872,559
- ----------------------------------------------------------------------------
                                         $7,489,361             $7,415,769
============================================================================
1999
- ----------------------------------------------------------------------------
Due in one year or less                    $323,088               $322,604
Due after one year
  through five years                      2,931,163              2,881,760
Due after five years
  through ten years                       2,165,075              2,062,282
Due after ten years                       1,163,690              1,074,123
- ----------------------------------------------------------------------------
                                         $6,583,016             $6,340,769
============================================================================

        At December 31, 2000 and 1999, the Company had bonds which were rated less than investment grade of $252.5 million and $269.6 million, respectively, having an amortized cost of $332.0 million and $319.1 million, respectively. At December 31, 2000, approximately $70.1 million of the bonds rated less than investment grade were securities issued in Company-sponsored commercial mortgage loan securitizations. Approximately $1,186.5 million of bonds are not publicly traded.

        The change in unrealized gains (losses), net of income tax, on fixed maturity and equity securities for the years ended December 31 is summarized as follows: 

                                2000              1999             1998
- -------------------------------------------------------------------------
Fixed maturities             $109,626         $(227,568)        $(12,041)
Equity securities                (820)              973            4,605
=========================================================================

        At December 31, 2000, all of the Company’s mortgage loans were commercial loans of which 76% were retail, 11% were apartments, 6% were office buildings, 5% were warehouses, and 2% other. The Company specializes in making mortgage loans on either credit-oriented or credit-anchored commercial properties, most of which are strip shopping centers in smaller towns and cities. No single tenant’s leased space represents more than 5% of mortgage loans. Approximately 75% of the mortgage loans are on properties located in the following states listed in decreasing order of significance: Texas, Tennessee, Georgia, Florida, Alabama, South Carolina, Virginia, North Carolina, Mississippi, Washington, Ohio, and Kentucky.

        Many of the mortgage loans have call provisions between 3 and 10 years. Assuming the loans are called at their next call dates, approximately $121.3 million would become due in 2001, $595.5 million in 2002 to 2005, $282.6 million in 2006 to 2010, and $21.4 million thereafter.

        At December 31, 2000, the average mortgage loan was $2.3 million, and the weighted average interest rate was 7.8%. The largest single mortgage loan was $19.0 million.

        At December 31, 2000 and 1999, the Company’s problem mortgage loans (over ninety days past due) and foreclosed properties totaled $20.6 million and $22.9 million, respectively. Since the Company’s mortgage loans are collateralized by real estate, any assessment of impairment is based upon the estimated fair value of the real estate. Based on the Company’s evaluation of its mortgage loan portfolio, the Company does not expect any material losses on its mortgage loans.

        Certain investments with a carrying value of $4.7 million, were non-income producing for the twelve months ended December 31, 2000.

        Policy loan interest rates generally range from 4.0% to 8.0%.

3 Federal Income Taxes

The Company’s effective income tax rate varied from the maximum federal income tax rate as follows: 


                                       2000               1999             1998
- -------------------------------------------------------------------------------
Statutory federal income
    tax rate applied to pretax
    income                             35.0%             35.0%            35.0%
Amortization of
    nondeductible goodwill              0.7               0.8              0.3
State income taxes                      0.6               0.4              0.3
Dividends received
    deduction and
    tax-exempt interest                (0.4)                              (0.1)
Low-income housing credit              (0.3)             (0.3)            (0.4)
Other                                   0.2               0.1              0.2
- -------------------------------------------------------------------------------
                                       35.8%             36.0%            35.3%
===============================================================================

        The provision for federal income tax differs from amounts currently payable due to certain items reported for financial statement purposes in periods which differ from those in which they are reported for income tax purposes.

        Details of the deferred income tax provision for the years ended December 31 are as follows: 


                                  2000            1999               1998
- -----------------------------------------------------------------------------
Deferred policy
    acquisition
    costs                      $37,733         $  52,831         $ 60,855
Benefit and other
    policy liability
    changes                     34,986           (22,660)         (26,221)
Temporary
    differences of
    investment income           (2,590)            6,655           (3,491)
Other items                       (272)           (1,696)          (2,105)
- -----------------------------------------------------------------------------
                               $69,857         $  35,130         $ 29,038
=============================================================================

        The components of the Company’s net deferred income tax liability as of December 31 were as follows:

                                              2000              1999
- -----------------------------------------------------------------------------
Deferred income tax assets:
   Policy and policyholder
         liability reserves                 $195,767           $226,134
   Other                                       6,442              6,170
- -----------------------------------------------------------------------------
                                             202,209            232,304
=============================================================================
Deferred income tax liabilities:
     Deferred policy acquisition costs       302,629            264,896
     Unrealized gains (losses) on
         investments                         (21,354)           (70,420)
- -----------------------------------------------------------------------------
                                             281,275            194,476
- -----------------------------------------------------------------------------
Net deferred income tax liability          $  79,066           $(37,828)
=============================================================================

        Under pre-1984 life insurance company income tax laws, a portion of the Company’s gain from operations which was not subject to current income taxation was accumulated for income tax purposes in a memorandum account designated as Policyholders’ Surplus. The aggregate accumulation in this account at December 31, 2000, was approximately $70.5 million. Should the accumulation in the Policyholders’ Surplus account of the life insurance subsidiaries exceed certain stated maximums, or should distributions including cash dividends be made to Protective Life Corporation in excess of approximately $882 million, such excess would be subject to federal income taxes at rates then effective. Deferred income taxes have not been provided on amounts designated as Policyholders’ Surplus. Under current income tax laws, the Company does not anticipate paying income tax on amounts in the Policyholders’ Surplus accounts.

4 Debt and Guaranteed Preferred Beneficial Interests

        Short-term and long-term debt at December 31 is summarized as follows:


                                                    2000                 1999
- -------------------------------------------------------------------------------
Short-term debt:
     Notes payable to banks                                            $55,000
===============================================================================
Long-term debt (year of issue):
     Notes payable to banks                                            $59,000
     7.95% Senior Notes (1994),
        due 2004                                  $75,000               75,000
     7.45% Medium-Term Notes
        (1996), due 2011                            9,938                9,968
     7.45% Medium-Term Notes
        (1996), due 2011, callable 2001             9,867                9,950
     7.10% Medium-Term Notes
        (1996), due 2011, callable 2001            12,238               12,423
     7.00% Medium-Term Notes
        (1996), due 2011, callable 2001            12,182               12,344
     8.00% Senior Notes (2000),
        due 2010, callable 2003                    49,905
     8.10% Senior Notes (2000),
        due 2015, callable 2003                    39,890
     8.25% Senior Notes (2000),
        due 2030, callable 2005                    34,790
     7.50% Senior Notes (2000),
        due 2016, callable 2004                    60,000
Mortgage note on
     investment real estate                         2,315                2,338
- -------------------------------------------------------------------------------
                                                 $306,125             $181,023
===============================================================================

        Under revolving line of credit arrangements with several banks, the Company can borrow up to $125 million on an unsecured basis. No compensating balances are required to maintain the line of credit. At December 31, 2000, the Company had no borrowings outstanding under these credit arrangements. At December 31, 1999, the Company had $59.0 million outstanding under these credit arrangements at an interest rate of 6.6%. In addition, the Company had borrowed $55.0 million at an interest rate of 6.7%.

        The aforementioned revolving line of credit arrangements contain, among other provisions, requirements for maintaining certain financial ratios and restrictions on indebtedness incurred by the Company and its subsidiaries. Additionally, the Company, on a consolidated basis, cannot incur debt in excess of 50% of its total capital.

        Except for the 7.95% Senior Notes, limited amounts of the Senior and Medium-Term Notes may be redeemed upon the death of the beneficial owner of the notes.

        At December 31, 2000, future maturities of long-term debt are $75.0 million in 2004 and $231.1 million in years after 2005. In 1994, a special purpose finance subsidiary of the Company, PLC Capital L.L.C. (PLC Capital), issued $55 million of 9% Cumulative Monthly Income Preferred Securities, Series A (MIPSSM). In 1999, the Company caused PLC Capital to redeem the MIPS. In a related transaction the Company redeemed its subordinated debentures which were held by PLC Capital. The redemption of the subordinated debentures resulted in an extraordinary loss of $1.8 million. The extraordinary loss was comprised primarily of unamortized deferred debt issue costs and losses related to the termination of related interest rate swap agreements, net of an income tax benefit of $0.9 million.

        In 1997, another special purpose finance subsidiary, PLC Capital Trust I, issued $75 million of 8.25% Trust Originated Preferred Securities (TOPrSSM). The 8.25% TOPrS are guaranteed on a subordinated basis by the Company. This guarantee, considered together with the other obligations of the Company with respect to the 8.25% TOPrS, constitutes a full and unconditional guarantee by the Company of PLC Capital Trust I’s obligations with respect to the 8.25% TOPrS.

        PLC Capital Trust I was formed solely to issue securities and use the proceeds thereof to purchase subordinated debentures of the Company. The sole assets of PLC Capital Trust I are $77.3 million of Protective Life Corporation 8.25% Subordinated Debentures due 2027, Series B. The Company has the right under the subordinated debentures to extend interest payment periods up to five consecutive years, and, as a consequence, dividends on the 8.25% TOPrS may be deferred (but will continue to accumulate, together with additional dividends on any accumulated but unpaid dividends at the dividend rate) by PLC Capital Trust I during any such extended interest payment period. The 8.25% TOPrS are redeemable by PLC Capital Trust I at any time on or after April 29, 2002.

        In 1997, another special purpose finance subsidiary, PLC Capital Trust II, issued $115 million of FELINE PRIDESSM which were comprised of a stock purchase contract and a beneficial ownership of 6.5% TOPrS. The sole assets of PLC Capital Trust II were $118.6 million of Protective Life Corporation 6.5% Subordinated Debentures due 2003, Series C. On February 16, 2001, the Company issued 3.9 million shares of its Common Stock under the stock purchase contracts. In the transaction, substantially all of the 6.5% TOPrS and the underlying subordinated debt were redeemed. The dividend rate on the TOPrS that remained outstanding after February 16, 2001, was reset to 6.77% under a formula specified in the agreement.

        The MIPS, 8.25% TOPrS, and FELINE PRIDES (collectively, “preferred securities”) are reported in the accompanying balance sheets as “guaranteed preferred beneficial interests in Company’s subordinated debentures,” and the related dividends are reported net of income tax in the accompanying statements of income as “minority interest in net income of consolidated subsidiaries.”

        The Company uses interest rate swap agreements to convert a portion of its debt and preferred securities from a fixed interest or dividend rate to a floating rate. Interest expense on all debt, including the effect of interest rate swap agreements, totaled $20.5 million, $16.0 million, and $13.5 million in 2000, 1999, and 1998, respectively. Dividends, net of income tax, on the preferred securities totaled $8.9 million, $10.5 million, and $12.1 million in 2000, 1999, and 1998, respectively.

5 Recent Acquisitions

In September 1998, the Company acquired United Dental Care, Inc. In October 1998, the Company coinsured a block of life insurance policies from Lincoln National Corporation. In September 1999, the Company recaptured a block of credit life and disability policies which it had previously ceded.

In January 2000, the Company acquired the Lyndon Insurance Group (Lyndon). The assets acquired included $47.3 million of present value of future profits and $41.4 million of goodwill.

These transactions have been accounted for as purchases, and the results of the transactions have been included in the accompanying financial statements since their respective effective dates.

Summarized below are the consolidated results of operations for 1999, on an unaudited pro forma basis, as if the Lyndon acquisition had occurred as of January 1, 1999. The pro forma information is based on the Company’s consolidated results of operations for 1999, and on data provided by Lyndon, after giving effect to certain pro forma adjustments. The pro forma financial information does not purport to be indicative of results of operations that would have occurred had the transaction occurred on the basis assumed above nor are they indicative of results of the future operations of the combined enterprises. 

                                                      1999
- ----------------------------------------------------------------------------
                                                   (UNAUDITED)
Total revenues                                      $1,633,416
Net income                                            $159,992
Net income per share-basic                               $2.44
Net income per share-diluted                             $2.42
============================================================================

        On January 19, 2001, the Company coinsured a block of individual life insurance policies with approximately $80 million of annual premium and $725 million of policy liabilities.

6 Commitments and Contingent Liabilities

The Company is contingently liable to obtain a $20 million letter of credit under indemnity agreements with its directors. Such agreements provide insurance protection in excess of the directors’ and officers’ liability insurance in force at the time up to $20 million. Should certain events occur constituting a change in control of the Company, the Company must obtain the letter of credit upon which directors may draw for defense or settlement of any claim relating to performance of their duties as directors. The Company has similar agreements with certain of its officers providing up to $10 million in indemnification which are not secured by the obligation to obtain a letter of credit.

        The Company leases administrative and marketing office space in approximately 53 cities including Birmingham, with most leases being for periods of three to five years. The aggregate annualized rent is approximately $8.7 million.

        Under insurance guaranty fund laws, in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer’s own financial strength.

        A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive damages. In some states, including Alabama (where the Company maintains its headquarters), juries have substantial discretion in awarding punitive and non-economic compensatory damages which creates the potential for unpredictable material adverse judgments in any given lawsuit. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, like other financial service companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, the Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

7 Share-Owners' Equity and Restrictions

Activity in the Company's issued and outstanding common stock is summarized as follows:


                                    ISSUED        TREASURY          OUTSTANDING
                                    SHARES         SHARES              SHARES
- --------------------------------------------------------------------------------
Balance, December 31, 1997        66,672,924      5,030,640          61,642,284
Issuance of common stock           2,660,193             28           2,660,165
Reissuance of treasury stock                       (132,568)            132,568
- --------------------------------------------------------------------------------
Balance, December 31, 1998        69,333,117      4,898,100          64,435,017
Reissuance of treasury stock                        (67,075)             67,075
- --------------------------------------------------------------------------------
Balance, December 31, 1999        69,333,117      4,831,025          64,502,092
Reissuance of treasury stock                        (55,475)             55,475
- --------------------------------------------------------------------------------
Balance, December 31, 2000        69,333,117      4,775,550          64,557,567
================================================================================

        The Company has a Rights Agreement that provides rights to owners of the Company’s Common Stock to purchase Series A Junior Participating Cumulative Preferred Stock, or in certain circumstances, either Common Stock or common stock of an acquiring company at one half the market price of such Common Stock or common stock, as the case may be. The rights will become exercisable if certain events occur with respect to the Company, including the acquisition by a person or group of 15% or more of the Company’s Common Stock. The Company can redeem the rights at $.01 per right in certain circumstances, including redemption until ten business days following a public announcement that 15% or more of the Company’s Common Stock has been acquired by a person or group.

        Share owners have authorized 4,000,000 shares of Preferred Stock, $1.00 par value. Other terms, including preferences, voting, and conversion rights, may be established by the Board of Directors. In connection with the Rights Agreement, 400,000 of these shares have been designated as Series A Junior Participating Cumulative Preferred Stock, $1.00 par value, and were unissued at December 31, 2000. The remaining 3,600,000 shares of Preferred Stock, $1.00 par value, were also unissued at December 31, 2000.

        The Company sponsors a deferred compensation plan for certain of its agents. A trust was established to aid the Company in meeting its obligations under the plan. Company Common Stock owned by the trust is accounted for as treasury stock.

        The Company has an Employee Stock Ownership Plan (ESOP). The stock is used to match employee contributions to the Company’s 401(k) and Stock Ownership Plan (401(k) Plan) and to provide other employee benefits. The stock held by the ESOP that has not yet been used is the unallocated stock shown as a reduction to share-owners’ equity. The ESOP shares are dividend-paying and are considered outstanding for earnings per share calculations. Dividends on the shares are used to pay the ESOP’s note to Protective Life. If certain events associated with a change in control of the Company occur, any unallocated shares held by the ESOP will become allocable to employee 401(k) accounts.

        The Company may, from time to time, reissue treasury shares or buy in the open market additional shares of Common Stock to complete its 401(k) obligations. Accordingly, in 1999, the Company reissued from treasury 12,979 shares of Common Stock to the 401(k) Plan and reissued from treasury another 14,126 shares during 2000.

        Since 1973, the Company has had stock-based incentive plans to motivate management to focus on the Company’s long-range performance through the awarding of stock-based compensation. Under plans approved by share owners in 1997 and 1998, up to 5,000,000 shares may be issued in payment of awards.

        The criteria for payment of performance awards is based upon a comparison of the Company’s average return on average equity and total rate of return over a four year award period (earlier upon the death, disability, or retirement of the executive, or in certain circumstances, of a change in control of the Company) to that of a comparison group of publicly held life and multiline insurance companies. If the Company’s results are below the median of the comparison group, no portion of the award is earned. If the Company’s results are at or above the 90th percentile, the award maximum is earned.

        In 1998 and 1999, 71,340 and 99,380 performance shares were awarded, respectively, having an estimated fair value on the grant date of $2.3 million and $3.4 million, respectively. In 2000, 3,330 performance shares and 513,618 stock appreciation rights (SARs) were awarded, having a combined estimated fair value on the grant date of $3.7 million. The SARs, if earned, expire after ten years.

        A performance share is equivalent in value to one share of Company Common Stock. With respect to SARs, the Company will pay an amount equal to the difference between the specified base price of the Company’s Common Stock and the market value at the exercise date. Awards are paid in shares of Company Common Stock. At December 31, 2000, outstanding awards measured at maximum payouts were 398,878 performance shares and 793,236 SARs.

        During 1996 and 2000, SARs were granted to certain officers of the Company to provide long-term incentive compensation based solely on the performance of the Company’s Common Stock. The SARs are exercisable after five years (earlier upon the death, disability, or retirement of the officer, or in certain circumstances, of a change in control of the Company) and expire after ten years or upon termination of employment. In 2000, 217,500 SARs were awarded, having an estimated fair value on the grant date of $1.5 million. The number of SARs granted in 1996 and 2000 outstanding at December 31, 2000, was 660,000 and 215,000, respectively.

        The 1996 SARs have a base price of $17.4375. The 2000 SARs have a base price of $22.31. The fair value of the 2000 SARs was estimated using a Black-Sholes option pricing model. Assumptions used in the model were as follows: expected volatility of 23.65% (approximately equal to that of the S&P Life Insurance Index), a risk-free interest rate of 6.5%, a dividend rate of 2.15%, and an expected exercise date of March 7, 2007.

        The expense recorded by the Company for its stock-based compensation plans was $4.1 million, $4.0 million, and $3.3 million in 2000, 1999, and 1998, respectively.

        The Company’s obligations of its stock-based compensation plans that are expected to be settled in shares of the Company’s Common Stock are reported as a component of share-owners’ equity.

        The Company has established deferred compensation plans for directors, officers, and others. Compensation deferred is credited to the participants in cash, Common Stock equivalents, or a combination thereof. The Company may, from time to time, reissue treasury shares or buy in the open market shares of Common Stock to fulfill its obligation under the plans. At December 31, 2000, the plans had 1,420,246 shares of Common Stock equivalents credited to participants.

        At December 31, 2000, approximately $463.5 million of consolidated share-owners’ equity, excluding net unrealized gains on investments, represented net assets of the Company’s insurance subsidiaries that cannot be transferred to Protective Life Corporation. In addition, the Company’s insurance subsidiaries are subject to various state statutory and regulatory restrictions on the insurance subsidiaries’ ability to pay dividends to Protective Life Corporation. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as ordinary dividends to the Company by its insurance subsidiaries in 2001 is estimated to be $83.6 million.

8 Related Party Matters

Certain corporations with which the Company’s directors were affiliated paid the Company premiums and policy fees or other amounts for various types of insurance and investment products. Such premiums, policy fees, and other amounts totaled $50.9 million, $70.3 million, and $28.6 million in 2000, 1999, and 1998, respectively. The Company paid commissions, interest on debt and investment products, and fees to these same corporations totaling $28.2 million, $16.7 million, and $7.3 million in 2000, 1999, and 1998, respectively. In addition, the Company has a swap contract with a related party having a notional amount of $498.4 million, which to the Company was in a $14.1 unrealized gain position at December 31, 2000.

9 Reconciliation with Statutory Reporting Practices and Other Regulatory Matters

Financial statements prepared in conformity with accounting principles generally accepted in the United States of America differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. The most significant differences are as follows: (a) acquisition costs of obtaining new business are deferred and amortized over the approximate life of the policies rather than charged to operations as incurred; (b) benefit liabilities are computed using a net level method and are based on realistic estimates of expected mortality, interest, and withdrawals as adjusted to provide for possible unfavorable deviation from such assumptions; (c) deferred income taxes are provided for temporary differences between financial and taxable earnings; (d) the Asset Valuation Reserve and Interest Maintenance Reserve are restored to share-owners’ equity; (e) furniture and equipment, agents’ debit balances, and prepaid expenses are reported as assets rather than being charged directly to surplus (referred to as nonadmitted assets); (f) certain items of interest income, such as mortgage and bond discounts, are amortized differently; and (g) bonds are recorded at their market values instead of amortized cost.

        The reconciliations of net income and share-owners’ equity prepared in conformity with statutory reporting practices to that reported in the accompanying consolidated financial statements are as follows: 


                                                  NET INCOME                          SHARE-OWNERS’ EQUITY
                                        2000         1999        1998            2000         1999          1998
- -----------------------------------------------------------------------------------------------------------------
In conformity with statutory
    reporting practices(1)             $ 69,927     $ 83,656     $158,902      $628,274     $598,655    $567,125
Additions (deductions)
    by adjustment:
Deferred policy acquisition
    costs, net of amortization          157,617      120,644       68,155     1,189,380    1,011,524     841,425
Deferred income tax                     (69,857)     (35,130)     (29,038)      (79,066)      37,828     (44,636)
Asset Valuation Reserve                                                         103,853       41,104      66,922
Interest Maintenance Reserve             (3,540)        (226)      (1,355)        9,715       19,328      15,507
Nonadmitted items                                                                97,447       51,350      42,835
Noninsurance affiliates                  28,100        2,584        8,612       790,975      904,762     956,928
Minority interest in
    consolidated subsidiaries            (9,461)     (10,606)     (12,098)
Consolidation elimination                                                    (1,859,279)  (1,411,392) (1,334,183)
Other valuation and timing differences  (19,310)      (9,595)     (62,397)      232,759     (387,936)   (167,729)
- -----------------------------------------------------------------------------------------------------------------
In conformity with generally
    accepted accounting principles     $153,476     $151,327     $130,781    $1,114,058     $865,223    $944,194
=================================================================================================================
(1) Consolidated

        As of December 31, 2000, the Company’s insurance subsidiaries had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $83.6 million.

        The National Association of Insurance Commissioners has adopted the Codification of Statutory Accounting Principles (Codification). Codification changes current statutory accounting rules in several areas and is effective January 1, 2001. Although the Company has not estimated the potential effect, it does not believe Codification will have a material effect on the financial position, results of operations, or liquidity of the Company.

10 Operating Segments

The Company operates seven divisions each having a strategic focus which can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. Each division has a senior officer of the Company responsible for its operations. A division is generally distinguished by products and/or channels of distribution. A brief description of each division follows.

Life Insurance

o The Individual Life Division markets level premium term and term-like insurance, universal life, and variable universal life products on a national basis primarily through networks of independent insurance agents.
o The West Coast Division sells universal life and level premium term and term-like insurance products in the life insurance brokerage market and in the “bank owned life insurance” market.
o The Acquisitions Division focuses on acquiring, converting, and servicing policies acquired from other companies. The Division’s primary focus is on life insurance policies sold to individuals.

Specialty Insurance Products

o The Dental Benefits Division’s primary focus is on indemnity and prepaid dental products.
o The Financial Institutions Division specializes in marketing credit life and disability insurance products through banks, consumer finance companies, and automobile dealers. The Division also offers automobile and recreational marine extended service contracts.

Retirement Savings and Investment Products

o The Stable Value Products Division markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans. The Division also markets fixed and floating rate funding agreements (to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds) and long-term annuity contracts.
o The Investment Products Division manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and the Individual Life Division’s sales force.

Corporate and Other

The Company has an additional business segment herein referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the Divisions above (including net investment income on unallocated capital and interest on substantially all debt). This segment also includes earnings from several lines of business which the Company is not actively marketing (mostly health insurance), various investment-related transactions, and the operations of several small subsidiaries.

        The Company uses the same accounting policies and procedures to measure operating segment income and assets as it uses to measure its consolidated net income and assets. Operating segment income is generally income before income tax, adjusted to exclude any pretax minority interest in income of consolidated subsidiaries. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of deferred policy acquisition costs are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner which most appropriately reflects the operations of that segment. Unallocated realized investment gains (losses) are deemed not to be associated with any specific segment.

        Assets are allocated based on policy liabilities and deferred policy acquisition costs directly attributable to each segment.

        There are no significant intersegment transactions.

        The following table sets forth total operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses), the reclassification and tax effecting of pretax minority interest, and the recognition of income tax expense. There are no asset adjustments.

        In the first quarter of 2000, certain health insurance lines were transferred from the Dental Benefits Division to the Corporate and Other segment in order to reflect management’s current focus. Prior period segment results have been restated to reflect the change. 

                                                                                  LIFE INSURANCE
                                                                    INDIVIDUAL
OPERATING SEGMENT INCOME                                              LIFE          WEST COAST      ACQUISITIONS
===================================================================================================================
2000
Premiums and policy fees                                            $340,238          $147,482        $134,099
Reinsurance ceded                                                   (266,412)         (121,495)        (31,102)
- -------------------------------------------------------------------------------------------------------------------
    Net of reinsurance ceded                                          73,826            25,987         102,997
Net investment income                                                 60,823            91,688         116,940
Realized investment gains (losses)
Other income                                                          70,335                                (4)
- -------------------------------------------------------------------------------------------------------------------
    Total revenues                                                   204,984           117,675         219,933
- -------------------------------------------------------------------------------------------------------------------
Benefits and settlement expenses                                      70,365            79,065         125,151
Amortization of deferred policy acquisition costs and goodwill        34,108            15,003          17,081
Other operating expenses                                              60,281           (12,760)         24,939
- -------------------------------------------------------------------------------------------------------------------
    Total benefits and expenses                                      164,754            81,308         167,171
- -------------------------------------------------------------------------------------------------------------------
Income before income tax                                              40,230            36,367          52,762
Income tax expense
Minority interest
- -------------------------------------------------------------------------------------------------------------------
Net income
===================================================================================================================
1999
Premiums and policy fees                                            $274,598           $87,226        $148,620
Reinsurance ceded                                                   (182,092)          (64,019)        (33,754)
- -------------------------------------------------------------------------------------------------------------------
    Net of reinsurance ceded                                          92,506            23,207         114,866
Net investment income                                                 60,070            78,128         129,806
Realized investment gains (losses)
Other income                                                          46,478             1,302              (9)
- -------------------------------------------------------------------------------------------------------------------
    Total revenues                                                   199,054           102,637         244,663
- -------------------------------------------------------------------------------------------------------------------
Benefits and settlement expenses                                      74,455            73,176         129,581
Amortization of deferred policy acquisition costs and goodwill        23,491             6,047          19,444
Other operating expenses                                              68,983            (2,649)         31,967
- -------------------------------------------------------------------------------------------------------------------
    Total benefits and expenses                                      166,929            76,574         180,992
- -------------------------------------------------------------------------------------------------------------------
Income before income tax                                              32,125            26,063          63,671
Income tax expense
Minority interest
Extraordinary loss
- -------------------------------------------------------------------------------------------------------------------
Net income
===================================================================================================================
1998
Premiums and policy fees                                           $ 228,699           $75,757        $125,329
Reinsurance ceded                                                   (102,533)          (53,377)        (28,594)
- -------------------------------------------------------------------------------------------------------------------
    Net of reinsurance ceded                                         126,166            22,380          96,735
Net investment income                                                 55,903            63,492         112,154
Realized investment gains (losses)
Other income                                                          32,241                 6           1,713
- -------------------------------------------------------------------------------------------------------------------
    Total revenues                                                   214,310            85,878         210,602
- -------------------------------------------------------------------------------------------------------------------
Benefits and settlement expenses                                     106,306            54,617         112,051
Amortization of deferred policy acquisition costs and goodwill        30,543             4,924          18,894
Other operating expenses                                              48,231             5,354          28,194
- -------------------------------------------------------------------------------------------------------------------
    Total benefits and expenses                                      185,080            64,895         159,139
Income before income tax                                              29,230            20,983          51,463
Income tax expense
Minority interest
- -------------------------------------------------------------------------------------------------------------------
Net income
===================================================================================================================
Operating Segment Assets
2000
Investments and other assets                                      $1,249,462        $1,576,577      $1,604,853
Deferred policy acquisition costs and goodwill                       354,320           276,518         223,430
- -------------------------------------------------------------------------------------------------------------------
Total assets                                                      $1,603,782        $1,853,095      $1,828,283
===================================================================================================================
1999
Investments and other assets                                      $1,214,428        $1,343,517      $1,553,954
Deferred policy acquisition costs and goodwill                       379,117           200,605         235,903
- -------------------------------------------------------------------------------------------------------------------
Total assets                                                      $1,593,545        $1,544,122      $1,789,857
===================================================================================================================
1998
Investments and other assets                                      $1,083,388        $1,149,642      $1,600,123
Deferred policy acquisition costs and goodwill                       301,941           144,455         255,347
- -------------------------------------------------------------------------------------------------------------------
Total assets                                                      $1,385,329        $1,294,097      $1,855,470
===================================================================================================================
(1)Adjustments  represent the inclusion of unallocated  realized  investment gains (losses),  the  reclassification  and tax effecting of
pretax  minority  interest in the Individual  Life Division and Corporate and Other segment,  and the recognition of income tax expense
and extraordinary loss. There are no asset adjustments.

                SPECIALTY INSURANCE        RETIREMENT SAVINGS AND
                    PRODUCTS                  INVESTMENT PRODUCTS
             DENTAL        FINANCIAL      STABLE VALUE    INVESTMENT      CORPORATE                       TOTAL
            BENEFITS     INSTITUTIONS       PRODUCTS       PRODUCTS       AND OTHER      ADJUSTMENTS1 CONSOLIDATED
====================================================================================================================

            $404,748        $479,352                        $30,127        $120,062                     $1,656,108
             (78,951)       (258,931)                                       (65,559)                      (822,450)
- --------------------------------------------------------------------------------------------------------------------
             325,797         220,421                         30,127          54,503                        833,658
              11,193          47,029       $ 243,132        132,314          34,165                        737,284
                                              (6,556)           410                          $ (897)        (7,043)
              17,507          41,325                         11,486          29,419                        170,068
- --------------------------------------------------------------------------------------------------------------------
             354,497         308,775         236,576        174,337         118,087                      1,733,967
- --------------------------------------------------------------------------------------------------------------------
             216,557         135,494         207,143        109,607          46,183                        989,565
              11,798          52,893             900         24,156           2,160                        158,099
              93,849          88,197           3,881         25,403          63,120         (14,402)       332,508
- --------------------------------------------------------------------------------------------------------------------
             322,204         276,584         211,924        159,166         111,463                      1,480,172
- --------------------------------------------------------------------------------------------------------------------
              32,293          32,191          24,652         15,171           6,624                        253,795
                                                                                             90,858         90,858
                                                                                              9,461          9,461
- --------------------------------------------------------------------------------------------------------------------
                                                                                                          $153,476
====================================================================================================================

            $379,716        $284,897                        $24,248        $100,012                     $1,299,317
             (52,252)       (176,928)                                       (28,988)                      (538,033)
- --------------------------------------------------------------------------------------------------------------------
             327,464         107,969                         24,248          71,024                        761,284
              14,172          24,506        $210,208        106,645          52,866                        676,401
                                                (549)         1,446                        $ (1,954)        (1,057)
              10,698          27,456                          9,628           1,701                         97,254
- --------------------------------------------------------------------------------------------------------------------
             352,334         159,931         209,659        141,967         125,591                      1,533,882
- --------------------------------------------------------------------------------------------------------------------
             213,005          55,899         175,290         88,642          54,534                        864,582
              13,486          24,966             744         19,820           2,498                        110,496
              86,200          57,134           4,709         21,014          51,926         (16,255)       303,029
- --------------------------------------------------------------------------------------------------------------------
             312,691         137,999         180,743        129,476         108,958                      1,278,107
- --------------------------------------------------------------------------------------------------------------------
              39,643          21,932          28,916         12,491          16,633                        255,775
                                                                                             92,079         92,079
                                                                                             10,606         10,606
                                                                                              1,763          1,763
- --------------------------------------------------------------------------------------------------------------------
                                                                                                          $151,327
====================================================================================================================

            $313,445        $301,230                        $18,809        $ 58,741                     $1,122,010
             (85,753)       (188,958)                                                                     (459,215)
- --------------------------------------------------------------------------------------------------------------------
             227,692         112,272                         18,809          58,741                        662,795
              11,916          25,313       $ 213,136        105,890          48,592                        636,396
                                               1,609          1,318                      $      194          3,121
               4,867          17,505                          8,873          (1,102)                        64,103
- --------------------------------------------------------------------------------------------------------------------
             244,475         155,090         214,745        134,890         106,231                      1,366,415
- --------------------------------------------------------------------------------------------------------------------
             156,857          52,629         178,745         85,045          39,515                        785,765
               9,637          28,526             735         17,213           3,494                        113,966
              57,260          55,197           2,876         19,637          47,823         (18,612)       245,960
- --------------------------------------------------------------------------------------------------------------------
             223,754         136,352         182,356        121,895          90,832                      1,145,691
- --------------------------------------------------------------------------------------------------------------------
              20,721          18,738          32,389         12,995          15,399                        220,724
                                                                                             77,845         77,845
                                                                                             12,098         12,098
- --------------------------------------------------------------------------------------------------------------------
                                                                                                          $130,781
====================================================================================================================

            $209,583      $1,382,132      $3,340,099     $3,842,655        $500,570                    $13,705,931
             214,770         152,964           2,144        133,751          81,805                      1,439,702
- --------------------------------------------------------------------------------------------------------------------
            $424,353      $1,535,096      $3,342,243     $3,976,406        $582,375                    $15,145,633
====================================================================================================================

            $283,475        $745,733      $2,766,177     $3,352,911        $503,962                    $11,764,157
             235,213          53,567           1,156        124,335             111                      1,230,007
- --------------------------------------------------------------------------------------------------------------------
            $518,688        $799,300      $2,767,333     $3,477,246        $504,073                    $12,994,164
====================================================================================================================

            $272,586        $655,684      $2,869,304     $2,545,364        $769,364                    $10,945,455
             223,953          41,710           1,448         75,177               9                      1,044,040
- --------------------------------------------------------------------------------------------------------------------
            $496,539        $697,394      $2,870,752     $2,620,541        $769,373                    $11,989,495
====================================================================================================================

11 Employee Benefit Plans

        The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee’s highest thirty-six consecutive months of compensation. The Company’s funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements of ERISA plus such additional amounts as the Company may determine to be appropriate from time to time. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.

        The actuarial present value of benefit obligations and the funded status of the plan at December 31 are as follows: 


                                                                                        2000             1999
- ---------------------------------------------------------------------------------------------------------------
Projected benefit obligation, beginning of the year                                    $36,530         $36,547
Service cost - benefits earned during the year                                           3,338           3,270
Interest cost - on projected benefit obligation                                          3,195           2,779
Actuarial gain (loss)                                                                    1,968          (5,729)
Plan amendment                                                                             833              32
Benefits paid                                                                             (326)           (369)
- ---------------------------------------------------------------------------------------------------------------
Projected benefit obligation, end of the year                                           45,538          36,530
- ---------------------------------------------------------------------------------------------------------------
Fair value of plan assets beginning of the year                                         34,420          25,147
Actual return on plan assets                                                              (148)          2,594
Employer contribution                                                                    6,876           7,048
Benefits paid                                                                             (326)           (369)
- ---------------------------------------------------------------------------------------------------------------
Fair value of plan assets end of the year                                               40,822          34,420
- ---------------------------------------------------------------------------------------------------------------
Plan assets less than the projected benefit obligation                                  (4,716)         (2,110)
Unrecognized net actuarial loss from past experience different from that assumed         7,766           2,601
Unrecognized prior service cost                                                          1,226             569
Unrecognized net transition asset                                                                          (17)
- ---------------------------------------------------------------------------------------------------------------
Net pension asset (liability) recognized in balance sheet                               $4,276          $1,043
===============================================================================================================

Net pension cost of the defined benefit pension plan includes the following components for the years ended December 31:

                                            2000         1999           1998
- ------------------------------------------------------------------------------
Service cost                               $3,338       $3,270         $2,585
Interest cost                               3,195        2,779          2,203
Expected return on plan assets             (3,049)      (2,348)        (1,950)
Amortization of prior service cost            176          115            112
Amortization of transition asset              (17)         (17)           (17)
Recognized net actuarial loss                              494            305
- ------------------------------------------------------------------------------
Net pension cost                           $3,643       $4,293         $3,238
==============================================================================

Assumptions used to determine the benefit obligations as of December 31 were as follows:

                                                2000      1999       1998
- ----------------------------------------------------------------------------
Weighted average discount rate                  7.50%     8.00%      6.75%
Rates of increase in compensation level         5.25%     5.75%      4.75%
Expected long-term rate of return on assets     8.50%     8.50%      8.50%
============================================================================

        At December 31, 2000, approximately $20.9 million of the assets of the pension plan were in a group annuity contract with Protective Life and therefore are included in the general assets of Protective Life. Approximately $19.9 million of the assets of the pension plan are invested in a collective trust managed by Northern Trust Corporation.

        Prior to July 1, 1999, upon retirement, the amount of pension plan assets vested in the retiree were used to purchase a single premium annuity from Protective Life in the retiree’s name. Therefore, amounts presented above as plan assets exclude assets relating to such retirees. Beginning July 1, 1999, retiree obligations are being fulfilled from pension plan assets.

        The Company also sponsors an unfunded excess benefits plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed on qualified plans by federal tax law. At December 31, 2000 and 1999, the projected benefit obligation of this plan totaled $14.3 million and $13.1 million, respectively, of which $10.1 million and $8.3 million, respectively, have been recognized in the Company’s financial statements.

Net pension costs of the excess benefits plan includes the following components for the years ended December 31: 

                                       2000             1999              1998
- --------------------------------------------------------------------------------
Service cost                           $736             $ 695            $ 611
Interest cost                         1,067               887              722
Amortization of prior service cost       19               113              112
Amortization of transition asset         37                37               37
Recognized net actuarial loss           194               265              173
- --------------------------------------------------------------------------------
Net pension cost                     $2,053            $1,997           $1,655
================================================================================

        In addition to pension benefits, the Company provides limited healthcare benefits to eligible retired employees until age 65. The postretirement benefit is provided by an unfunded plan. At December 31, 2000 and 1999, the liability for such benefits was approximately $1.2 million. The expense recorded by the Company was approximately $0.1 million in 2000, 1999, and 1998. The Company’s obligation is not materially affected by a 1% change in the healthcare cost trend assumptions used in the calculation of the obligation.

        Life insurance benefits for retirees are provided through the purchase of life insurance policies upon retirement from $10,000 up to a maximum of $75,000. This plan is partially funded at a maximum of $50,000 face amount of insurance.

        The Company sponsors a defined contribution retirement plan which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code. The Company has established an Employee Stock Ownership Plan (ESOP) to match voluntary employee contributions to the Company’s 401(k) Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees who are not otherwise under a bonus or sales incentive plan. Expense related to the ESOP consists of the cost of the shares allocated to participating employees plus the interest expense on the ESOP’s note payable to the Company less dividends on shares held by the ESOP. All shares held by the ESOP are treated as outstanding for purposes of computing earnings per share. At December 31, 2000, the Company had committed approximately 143,229 shares to be released to fund employee benefits. The expense recorded by the Company for these employee benefits was less than $0.1 million in 2000, 1999, and 1998.

12 Reinsurance

The Company reinsures certain of its risks with, and assumes risks from, other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Under yearly renewable term agreements, the Company generally pays specific premiums to the reinsurer and receives specific amounts from the reinsurer as reimbursement for certain expenses. Coinsurance agreements are accounted for by passing a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate part of the premiums less commissions and is liable for a corresponding part of all benefit payments. Modified coinsurance is accounted for similarly to coinsurance except that the liability for future policy benefits is held by the original company, and settlements are made on a net basis between the companies. A substantial portion of the Company’s new life insurance and credit insurance sales is being reinsured. The Company reviews the financial condition of its reinsurers and monitors the amount of reinsurance it has with its reinsurers.

        The Company has reinsured approximately $126.0 billion, $93.5 billion, and $64.8 billion in face amount of life insurance risks with other insurers representing $496.4 million, $364.7 million, and $294.4 million of premium income for 2000, 1999, and 1998, respectively. The Company has also reinsured accident and health risks representing $262.2 million, $172.8 million, and $164.8 million of premium income for 2000, 1999, and 1998, respectively. In 2000 and 1999, policy and claim reserves relating to insurance ceded of $988.4 million and $739.3 million, respectively, are included in reinsurance receivables. Should any of the reinsurers be unable to meet its obligation at the time of the claim, obligation to pay such claim would remain with the Company. At December 31, 2000 and 1999, the Company had paid $33.5 million and $46.8 million, respectively, of ceded benefits which are recoverable from reinsurers. In addition, at December 31, 2000, the Company had receivables of $78.2 million related to insurance assumed.

13 Estimated Fair Values of Financial Instruments

The carrying amounts and estimated fair values of the Company’s financial instruments at December 31 are as follows: 


                                                      2000                                     1999
- ------------------------------------------------------------------------------------------------------------------
                                                           ESTIMATED                                  ESTIMATED
                                            CARRYING         FAIR                    CARRYING           FAIR
                                             AMOUNTS        VALUES                    AMOUNTS          VALUES
- ------------------------------------------------------------------------------------------------------------------
Assets (see Notes 1 and 2):
Investments:
     Fixed maturities                     $7,415,769       $7,415,769                $6,340,769      $6,340,769
     Equity securities                        58,700           58,700                    36,446          36,446
     Mortgage loans on real estate         2,268,224                                  1,945,990       1,909,026
     Short-term investments                  189,161          189,161                   113,657         113,657
Cash                                          55,494           55,494                    51,642          51,642
Liabilities (see Notes 1 and 4):
Stable value contract account balances     3,177,863        3,250,991                 2,680,009       2,649,616
Annuity account balances                   1,916,894        1,893,749                 1,639,231       1,598,993
Debt:
     Notes payable to banks                                                             114,000         114,000
     Senior and Medium-Term Notes            303,810          305,987                   119,685         118,761
8.25% Trust Originated Preferred Securities   75,000           73,890                    75,000          65,820
6.5% FELINE PRIDES                           115,000          118,450                   115,000         121,624
Other (see Note 1):
Derivative Financial Instruments              (7,334)         (12,296)                       63          (2,282)

        Except as noted below, fair values were estimated using quoted market prices.

        The Company estimates the fair value of its mortgage loans using discounted cash flows from the next call date.

        The Company believes the fair value of its short-term investments and notes payable to banks approximates book value due to being either short-term or having a variable rate of interest.

        The Company estimates the fair value of its guaranteed investment contracts and annuities using discounted cash flows and surrender values, respectively.

        The Company believes it is not practicable to determine the fair value of its policy loans since there is no stated maturity, and policy loans are often repaid by reductions to policy benefits.

        The Company estimates the fair value of its derivative financial instruments using market quotes or derivative pricing models. The fair values represent the net amount of cash the Company would have received (or paid) had the contracts been terminated on December 31.

14 Consolidated Quarterly Results - Unaudited

Protective Life Corporation’s unaudited consolidated quarterly operating data for the years ended December 31, 2000 and 1999, are presented below. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data which follow. It is also management’s opinion, however, that quarterly operating data for insurance enterprises are not indicative of results to be achieved in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in share-owners’ equity, and cash flows for a period of several quarters. 


                                               FIRST QUARTER    SECOND QUARTER      THIRD QUARTER     FOURTH QUARTER
- ---------------------------------------------------------------------------------------------------------------------
2000
Premiums and policy fees                          $384,912         $426,949            $412,221         $432,026
Reinsurance ceded                                 (170,603)        (215,061)           (199,680)        (237,106)
- ---------------------------------------------------------------------------------------------------------------------
     Net of reinsurance ceded                      214,309          211,888             212,541          194,920
Net investment income                              173,213          184,578             187,625          191,868
Realized investment gains (losses)                   2,696           (3,106)             (4,646)          (1,987)
Other income                                        59,059           39,666              35,649           35,694
- ---------------------------------------------------------------------------------------------------------------------
Total revenues                                     449,277          433,026             431,169          420,495
Benefits and expenses                              378,430          368,251             374,569          358,922
- ---------------------------------------------------------------------------------------------------------------------
Income before income tax                            70,847           64,775              56,600           61,573
Income tax expense                                  25,505           23,047              20,263           22,043
Minority interest                                    2,307            2,426               2,358            2,370
- ---------------------------------------------------------------------------------------------------------------------
Net income                                         $43,035          $39,302             $33,979          $37,160
=====================================================================================================================
Net income per share - basic                      $.65              $.60                $.52             $.56
Average shares outstanding - basic              65,717,818       65,761,522          65,912,449       65,935,592
Operating income(1) per share - diluted           $.63              $.62                $.56             $.58
Net income per share - diluted                    $.65              $.59                $.52             $.56
Average shares outstanding - diluted            66,148,004       66,277,100          66,350,622       66,347,295
=====================================================================================================================
1999
Premiums and policy fees                          $315,369         $326,805            $325,654         $331,489
Reinsurance ceded                                 (117,952)        (130,345)           (134,573)        (155,163)
- ---------------------------------------------------------------------------------------------------------------------
     Net of reinsurance ceded                      197,417          196,460             191,081          176,326
Net investment income                              162,435          170,818             170,318          172,831
Realized investment gains (losses)                   1,326             (682)             (3,984)           2,283
Other income                                        18,003           25,244              23,808           30,198
- ---------------------------------------------------------------------------------------------------------------------
Total revenues                                     379,181          391,840             381,223          381,638
Benefits and expenses                              317,232          327,413             319,422          314,040
- ---------------------------------------------------------------------------------------------------------------------
Income before income tax                            61,949           64,427              61,801           67,598
Income tax expense                                  22,301           23,195              22,248           24,335
Minority interest                                    3,025            3,024               2,220            2,337
Extraordinary loss, net of income tax                                 1,763
=====================================================================================================================
Net income                                         $36,623          $36,445             $37,333          $40,926
=====================================================================================================================
Income before extraordinary loss - basic          $.56              $.58                $.57             $.63
Net income per share - basic                      $.56              $.55                $.57             $.63
Average shares outstanding - basic              65,489,805       65,519,483          65,725,022       65,712,537
Operating income(1) per share - diluted           $.55              $.58                $.61             $.60
Income before extraordinary loss - diluted        $.56              $.57                $.57             $.62
Net income per share - diluted                    $.56              $.54                $.57             $.62
Average shares outstanding - diluted            66,075,522       66,189,219          66,180,351       66,198,821
=====================================================================================================================

(1) Net income excluding realized investment gains and losses and related amortization and extraordinary loss.
EX-21 4 0004.htm Exhibit 21

Exhibit 21

to

Form 10-K

of

Protective Life Corporation

for

Fiscal Year

Ended December 31, 2000





The following wholly-owned subsidiary of Protective Life Corporation is organized under the
laws of the State of Tennessee and does business under its corporate name:


Protective Life Insurance Company


The following wholly-owned subsidiary of Protective Life Insurance Company is incorporated
under the laws of the State of California and does business under its corporate name:


West Coast Life Insurance Company
 EX-23 5 0005.htm Exhibit 23

Exhibit 23

Consent of Independent Accountants

        We consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333-86477, 333-80769, 333-39103 and 33-59769) and Form S-8 (File Nos. 333-32420, 33-51887 and 33-61847) of Protective Life Corporation and subsidiaries of our report dated March 1, 2001, relating to the financial statements, which appears in the Annual Report to Share Owners, which is incorporated in the Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated March 1, 2001 relating to the financial statement schedules, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Birmingham, Alabama
March 27, 2001
 EX-24 6 0006.htm Exhibit 24

Exhibit 24

DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long




/s/ William J. Cabaniss, Jr.
William J. Cabaniss, Jr.
Director











DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long




/s/ Drayton Nabers, Jr.
Drayton Nabers, Jr.
Director











DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long




/s/ John J. McMahon, Jr.
John J. McMahon, Jr.
Director











DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long






/s/ A. W. Dahlberg
A. W. Dahlberg
Director











DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long
/s/ Ronald L. Kuehn, Jr.
Ronald L. Kuehn, Jr.
Director











DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long
/s/ James S. M. French
James S. M. French
Director











DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long
/s/ Robert A. Yellowlees
Robert A. Yellowlees
Director











DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long




/s/ John D. Johns
John D. Johns
Director











DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long





/s/ Donald M. James
Donald M. James
Director











DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long





/s/ J. Gary Cooper
J. Gary Cooper
Director











DIRECTOR'S POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and seal this 5th day of February, 2001.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long


/s/ H. Corbin Day
H. Corbin Day
Director
EX-99 7 0007.htm Exhibit 99

Exhibit 99

to

Form 10-K

of

Protective Life Corporation

for

Fiscal Year

Ended December 31, 2000



Safe Harbor for Forward-Looking Statements


The Private Securities Litigation Reform Act of 1995 (the “Act”) encourages companies to make “forward-looking statements” by creating a safe harbor to protect the companies from securities law liability in connection with forward-looking statements. Forward-looking statements can be identified by use of words such as “expect,” “estimate,” “project, ” budget,” “forecast,” “anticipate,” “plan,” and similar expressions. Protective Life Corporation (the “Company”) intends to qualify both its written and oral forward-looking statements for protection under the Act.

        To qualify oral forward-looking statements for protection under the Act, a readily available written document must identify important factors that could cause actual results to differ materially from those in the forward-looking statements. The Company provides the following information to qualify forward-looking statements for the safe harbor protection of the Act.

        The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and the known trends and uncertainties which are discussed more fully below.

We are exposed to many types of risks that could negatively affect our business.

        There are many types of risks that all companies are exposed to in their businesses. For example, companies are exposed to the risks of natural disasters, malicious acts, computer viruses, and other perils. While the Company has obtained insurance, implemented risk management and contingency plans, and taken preventive measures and other precautions, no assurance can be given that there are not scenarios that could have an adverse effect on the Company.

We operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry.

        Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry. The Company encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than the Company as well as competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products.

        The insurance industry is consolidating, with larger, potentially more efficient organizations emerging from consolidation. Also, some mutual insurance companies are converting to stock ownership, which will give them greater access to capital markets. Additionally, commercial banks, insurance companies, and investment banks may now combine, provided certain requirements are satisfied.






        The Company’s ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong ratings from rating agencies. However, irrational competition from other insurers could adversely affect the Company’s competitive position.

A ratings downgrade could adversely affect our ability to compete.

        Ratings are an important factor in the Company’s competitive position. Rating organizations periodically review the financial performance and condition of insurers, including the Company’s subsidiaries. A downgrade in the ratings of the Company’s subsidiaries could adversely affect the Company’s ability to sell its products, retain existing business, and compete for attractive acquisition opportunities.

        For the past several years, rating downgrades in the industry have exceeded upgrades. Rating organizations assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating organization, general economic conditions, and circumstances outside the rated company’s control. The Company cannot predict what actions the rating organizations may take, or what actions the Company may be required to take in response to the actions of the rating organizations, which could adversely affect the Company.

Our policy claims fluctuate from year to year.

        The Company’s results may fluctuate from year to year due to fluctuations in policy claims received by the Company. Certain of the Company’s businesses may experience higher claims if the economy is growing slowly or in recession.

We could be forced to sell investments at a loss to cover policyholder withdrawals.

        Many of the products offered by the Company’s insurance subsidiaries allow policyholders and contract holders to withdraw their funds under defined circumstances. The subsidiaries manage their liabilities and configure their investment portfolios so as to provide and maintain sufficient liquidity to support anticipated withdrawal demands and contract benefits and maturities. While the Company’s life insurance subsidiaries own a significant amount of liquid assets, a certain portion of their assets are relatively illiquid. Unanticipated withdrawal or surrender activity could, under some circumstances, compel the Company’s insurance subsidiaries to dispose of assets on unfavorable terms, which could have an adverse effect on the Company.

Interest-rate fluctuations could negatively affect our spread income or otherwise impact our business.

        Significant changes in interest rates expose insurance companies to the risk of not earning anticipated spreads between the interest rate earned on investments and the credited interest rates paid on outstanding policies. Both rising and declining interest rates can negatively affect the Company’s spread income. While the Company develops and maintains asset/liability management programs and procedures designed to preserve spread income in rising or falling interest rate environments, no assurance can be given that changes in interest rates will not affect such spreads.

        Changes in interest rates may also impact our business in other ways. Lower interest rates may result in lower sales of certain of the Company’s insurance and investment products. In addition, certain of the Company’s insurance and investment products guarantee a minimum credited interest rate.






        Higher interest rates may create a less favorable environment for the origination of mortgage loans and decrease the investment income we receive in the form of prepayment fees, make-whole payments, and mortgage participation income. Higher interest rates may also increase the cost of debt and other obligations having floating rate or rate reset provisions, and may result in lower sales of variable products. Also, the amount of policy fees received from variable products is affected by the performance of the equity markets.

        Additionally, the Company’s asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, and other factors. The effectiveness of the Company’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from these assumptions.

Insurance companies are highly regulated.

        The Company’s insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with many aspects of the insurance business, which may include premium rates, marketing practices, advertising, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than share owners. The Company cannot predict what regulatory initiatives may be enacted which could adversely affect the Company.

        The Company’s insurance subsidiaries may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). Severe penalties are imposed for breach of duties under ERISA.

        Certain policies, contracts, and annuities offered by the Company’s insurance subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions.

Tax law changes could adversely affect our ability to compete with non-insurance products or reduce the demand for certain insurance products.

        Under the Internal Revenue Code of 1986, as amended, income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of the Company’s products a competitive advantage over other non-insurance products. To the extent that the Internal Revenue Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies, including the Company’s subsidiaries, would be adversely affected with respect to their ability to sell such products, and, depending upon grandfathering provisions, the surrenders of existing annuity contracts and life insurance policies. In addition, life insurance products are often used to fund estate tax obligations. If the estate tax was reduced or eliminated, the demand for certain life insurance products could be adversely affected. The Company cannot predict what tax initiatives may be enacted which could adversely affect the Company.

Financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments.

        A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive damages. In some states, including Alabama (where the Company maintains its headquarters), juries have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments in any given lawsuit. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, like other financial services companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. The Company cannot predict the outcome of any such litigation or arbitration.






A decrease in sales or persistency could negatively affect our results.

        The Company’s ability to maintain low unit costs is dependent upon the level of sales and persistency. A decrease in sales or persistency without a corresponding reduction in expenses may result in higher unit costs.

        Additionally, a decrease in persistency may result in higher amortization of deferred policy acquisition costs. Although many of the Company’s products contain surrender charges, the charges decrease over time and may not be sufficient to cover the unamortized deferred policy acquisition costs with respect to the insurance policy or annuity contract being surrendered.

Our investments are subject to risks.

        The Company's invested assets and derivative financial instruments are subject to customary risks of credit defaults and changes in market values. The value of the Company's commercial mortgage loan portfolio depends in part on the financial condition of the tenants occupying the properties which the Company has financed. Factors that may affect the overall default rate on, and market value of, the Company's invested assets, derivative financial instruments, and mortgage loans include interest rate levels, financial market performance, and general economic conditions as well as particular circumstances affecting the businesses of individual borrowers and tenants.

Our growth from acquisitions involves risks.

        The Company’s acquisitions have increased its earnings in part by allowing the Company to enter new markets and to position itself to realize certain operating efficiencies. There can be no assurance, however, that the Company will realize the anticipated financial results from its acquisitions, or that suitable acquisitions, presenting opportunities for continued growth and operating efficiencies, or capital to fund acquisitions will continue to be available to the Company.

We are dependent on the performance of others.

        The Company’s results may be affected by the performance of others because the Company has entered into various arrangements involving other parties. Examples include, but are not limited to, the following: many of the Company’s products are sold through independent distribution channels; the Investment Products Division’s variable annuity deposits are invested in funds managed by third parties; prepaid dental services are performed by a contracted network of independent dentists; and a portion of the sales in the Individual Life and West Coast Divisions comes from arrangements with unrelated marketing organizations. The Company may also use third-party administrators to collect premiums, pay claims, and/or perform customer service functions. Additionally, the Company’s operations are dependent on various technologies some of which are provided and/or maintained by other parties.

        As with all financial services companies, our ability to conduct business is dependent upon consumer confidence in the industry and its products. Actions of competitors, and financial difficulties of other companies in the industry, could undermine consumer confidence and adversely affect the Company.






Our reinsurance program involves risks.

        The Company’s insurance subsidiaries cede insurance to other insurance companies through reinsurance. However, the Company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it.

        The cost of reinsurance is, in some cases, reflected in the premium rates charged by the Company. Under certain reinsurance agreements, the reinsurer may increase the rate it charges the Company for the reinsurance, though the Company does not anticipate increases to occur. Therefore, if the cost of reinsurance were to increase or if reinsurance were to become unavailable, the Company could be adversely affected.

        Additionally, the Company assumes policies of other insurers. Any regulatory or other adverse development affecting the ceding insurer could also have an adverse effect on the Company.

        Forward-looking statements express expectations of future events and/or results. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, investors are urged not to place undue reliance on forward-looking statements. In addition, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to projections over time.

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