Fitch Rates Protective Life Corporation Debt & Affirms Ratings; Outlook Stable

Fitch Ratings has assigned a 'BB+' rating to Protective Life Corp.'s (PL) new issuance of subordinated debt. At the same time, Fitch has affirmed the 'BBB+' Issuer Default Rating (IDR) rating of PL, the 'A' insurer financial strength (IFS) rating of Protective Life Insurance Co. and all other PL ratings. The Outlook for all ratings is Stable. A complete list of ratings follows at the end of this release.

Proceeds from the new debt issuance will be used to refinance the company's outstanding trust preferreds, so Fitch does not view this as an increase in overall leverage. The new unsecured subordinated debt, which will be due in 2042, will rank in priority of payment the same as the trust preferreds being refinanced. They also include an option to defer interest payments and are therefore notched one level below straight subordinated debt.

The affirmation is based on Fitch's view that PL's year-end and first quarter results are in line with expectations. The company's operating earnings continue to strengthen, and coverage of adjusted interest expense is over 10x at the end of the first quarter. All segments contributed to improved earnings in the first quarter.

The group's stated NAIC risk-based capital ratio was strong at 433% of the company action level as of year-end 2011, and is estimated at well above 400% at the end of the first quarter. It is expected to remain in the same range for the full-year 2012.

Fitch continues to view PL as having above average leverage due mainly to the financing of XXX and AXXX statutory reserve requirements. The financial leverage ratio (FLR), which excludes the funding requirements, was 31% as of March 31, 2012. While this is up from 28% at the end of 2011, the increase is due to the implementation in the first quarter of new DAC accounting rules, which resulted in a $509 million reduction in equity. The ratio would have been 27% without the DAC change. The total financing and commitments ratio (TFC), which includes the reserve financing, was very high at 1.9x as of March 31, 2012.

PL's liquidity position is good, with $70 million at the holding company and manageable debt maturities over the next two years.

Key concerns include macroeconomic headwinds in the form of low interest rates, high financial market volatility and the risk of contagion from the Eurozone debt crisis. These conditions are expected to constrain PL's ability to improve earnings over the near term and could have a material negative effect on the company's earnings and capital in a severe, albeit unexpected, scenario.

The key rating triggers that could result in an upgrade include continued recovery in earnings combined with growth in equity and surplus (particularly if accomplished through earnings). Ratings could be upgraded if financial leverage remains below 25% and TFC leverage falls into the 0.8x to 1.0x range. Ratings could also be positively affected if EBIT-based interest coverage rose above 9x.

The key rating triggers that could result in a downgrade include material declines in GAAP equity (that would drive financial leverage above 30%) or statutory capital (that would drive reported RBC below 300%), a downturn or weak growth in earnings, or a material reinsurance loss. Ratings could also be pressured if interest coverage fell below 5x.

Fitch assigns a 'BB+' rating to the following:

Protective Life Corp.'s

--$250 million 6.25% subordinated notes due 2042.

Fitch Affirms the following ratings with a Stable Outlook:

Protective Life Corporation

--IDR at 'BBB+';

--$250 million in senior notes due 2013 at 'BBB';

--$150 million in senior notes due 2014 at 'BBB';

--$150 million in senior notes due 2018 at 'BBB';

--$400 million of 7.38% senior notes due 2019 at 'BBB';

--$300 million of 8.45% senior notes due 2039 at 'BBB';

--$100 million of 8.00% senior retail notes due 2024 at 'BBB';

--$103 million trust preferred issued through PLC Capital Trust III due 2031 at 'BB+';

--$119 million trust preferred issued through PLC Capital IV due 2032 at 'BB+';

--$103 million trust preferred issued through PLC Capital Trust V due 2034 at 'BB+';

--$200 million class D junior subordinated notes due 2066 at 'BB+'.

Protective Life Insurance Company

Protective Life and Annuity Insurance Company

West Coast Life Insurance Company

--IFS at 'A'.

Protective Life Secured Trust

--Notes at 'A';

--Medium-term notes at 'A'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

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