A.M. Best Co. has assigned a debt rating of "bbb+" to the 30-year $250 million 6.25% subordinated debentures recently issued by Protective Life Corporation (Protective) (headquartered in Birmingham, AL) [NYSE: PL]. The assigned outlook is stable. All other ratings of Protective and its subsidiaries are unchanged.
A.M. Best expects the proceeds primarily will be used to pay down existing debt. While Protective's shareowners' equity has exhibited favorable trends in recent periods, A.M. Best notes that a retrospective accounting charge to write down a portion of its deferred acquisition cost balance has reduced its total equity from approximately $4.2 billion to $3.7 billion as of March 31, 2012. As a result, Protective's financial leverage ratio has increased and remains somewhat elevated for its current rating at roughly 30%, with adequate interest coverage in the range of four to five times. A.M. Best believes that these factors are mitigated by the company's steady cash flows and access to multiple liquidity sources.
The ratings also reflect Protective's diversified revenue and profit sources, broad distribution capabilities and strong track record of integrating acquired insurance companies and blocks of business. A.M. Best notes that Protective's seasoned block of traditional life insurance provides a predictable and stable source of earnings.
Partially offsetting these factors is near to medium term spread compression in Protective's fixed annuity and interest-sensitive life insurance lines of business, as much of this business is at or near the minimum guaranteed crediting rate. Near-term operating results also may be impacted by declining account balances within the company's stable value segment. Additionally, A.M. Best notes Protective's relatively high level of real estate-related investments in its general account investment portfolio.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.
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