September 28, 1999
New York, NY

Protective Life Says Moving Quickly is an Advantage
Drayton Nabers, Chairman & CEO

The pace of change in the insurance industry may frighten some insurers, but not Protective Life Corp., Birmingham, Ala. "Change is Protective's friend," said Drayton Nabers, chairman and chief executive officer, at a conference sponsored by CIBC World Markets Tuesday. "We can take advantage of change. We're small enough that we don't need large opportunities, and we can move quickly."

Nabers said change in the industry today in "monumental" as companies merge, acquire, demutualize, expand their distribution outlets and offer a wider variety of products. Protective has a history of seeing such change as opportunity and turning it into a competitive advantage, he said.

Protective has made 30 acquisitions in the past 20 years to pursue its strategy of growth. In 1998, according to A.M. Best Co. data, its leading subsidiary, Protective Life Insurance Co., with a Best's Rating of A+, had $753 million in net premiums written and $589 million in capital and surplus at the end of the year. The corporation has been dominant in guaranteed investment contracts and in making good acquisitions, said Eric Berg, managing director of CIBC Work Markets, but has been "just a participant" in its other business, including individual life insurance and annuities.

Since 1989, Protective Life has achieved a 20.1% compounded annual growth rate in earnings per share. According to Berg, it has had hardly any earnings disappointments over that time. "Management runs its businesses very tightly," he said.

Nabers said the company has been able to achieve higher returns through by identifying and quickly acquiring companies with strong niches. One acquisition that has not yet been profitable has been last year's purchase of United Dental Care Inc., Dallas. Nabers said the acquisition positions Protective as a top player in the prepaid dental industry, but that the company underestimated the problems at United. Protective normally expects to achieve at least a 13% return on new capital deployed, and he expects that United will soon become profitable for the company.

Late last year, Protective entered into a contract with Matrix Direct, an Internet insurance direct-response service. Nabers said the Web site is generating about 300 applications a week, and the company would like it to generate $5 million in paid premium by the end of the year.

In its guaranteed investment contract business, Protective has no exposure of the kind that caused problems at St. Louis-based General American Life Insurance Co. Nabers said General American got into trouble by offering institutional investors short-term puts, thus allowing them to redeem their investments on short notice. In contrast, only 13.8% of Protective's GICs carry discretionary termination provisions of one year or less. Nabers said Protective has the ability to redeem a put with cash flow, so it won't ever have to sell an asset to pay a redemption.