Fitch Affirms Ratings of Protective Life Corp. and Subsidiaries

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Protective Life Corp. (NYSE:PL) at 'A' and its senior debt ratings at 'A-'. In addition, Fitch has affirmed PL's trust preferred ratings at 'BBB+' and the insurer financial strength (IFS) at 'AA-' and other ratings of PL's life insurance subsidiaries. See a complete list of ratings at the end of this release. The Outlook is Stable.

The ratings of PL and its life insurance subsidiaries reflect the group's moderate financial leverage, good interest coverage and historically stable core operating earnings, as well as PL's scale in the term life market, strong operating efficiencies and relatively low exposure to disintermediation risk and equity market volatility.

Fitch's concerns include the potential impact on Protective's franchise and operating results of the change in the company's strategic emphasis, which is expected to accelerate in 2008, from term life, historically its core life insurance product, toward universal life and retail annuities. This change in emphasis is in response to external regulatory, reinsurance, capital market, and competitive pressures affecting PL and the industry as a whole. Fitch believes the impact of these pressures on Protective is magnified by the company's past above-average reliance on reinsurance.

PL's 2007 earnings performance was in line with Fitch's expectation. GAAP operating earnings increased 16% over the prior year, with the company's two primary segments--Life Marketing and Acquisitions--accounting for about 74% of the total. Earnings in the Life Marketing segment were up 9% due primarily to a gain on the sale to AIG of the company's direct marketing subsidiary, Matrix Direct, and favorable mortality, offset by higher amortization of deferred acquisition costs related to the company's 2006 acquisition of the Chase Insurance Group. Earnings in the Acquisitions segment grew 24%, benefiting from the Chase acquisition.

Fitch views PL's capital as adequate for the rating level but notes the company's reliance on capital markets solutions, particularly non-recourse securitizations through affiliated captives, to fund excess life reserves and maintain its risk-based capital level. The group's combined risk-based capital ratio was 325% in 2007, up from 295% in 2006. A key driver of the increase was the company's securitizations of 'redundant' XXX and AXXX statutory reserves, which has had a total surplus effect of $1.07 billion between 2005 and 2007 cumulatively.

Fitch notes that credit market turmoil has delayed Protective's plans to refinance existing XXX surplus notes and add another $700 million in capacity through issuance of securitized notes into the public markets. This has increased funding costs. Fitch believes management is taking appropriate actions but is concerned that there could be a negative impact on the company's competitive position longer term if the company is not able to finance future increases in 'redundant' statutory reserves.

Looking ahead, Fitch expects PL to maintain equity-adjusted financial leverage at generally current levels--19% at year-end 2007--through 2008 and have interest coverage in the 6 times (x)-7x range. The ratings also reflect Fitch's expectation that the risk-based capital levels of PL's life insurance subsidiaries will remain in the 'AA' range based on Prism, Fitch's economic capital model.

Fitch affirms the following ratings with a Stable Outlook:

Protective Life Corporation:

--Issuer Default Rating (IDR) at 'A';

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

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

--$150 million in senior notes due 2018 at A-;

--$103 million trust preferred issued through PLC Capital

Trust III due 2031 at 'BBB+';

--$119 million trust preferred issued through PLC Capital

IV due 2032 at 'BBB+';

--$103 million trust preferred issued through PLC Capital

Trust V due 2034 at 'BBB+';

--$200 million Class D Junior Subordinated notes due 2066

at 'BBB+'.

Protective Life Insurance Company

Protective Life and Annuity Insurance Company

West Coast Life Insurance Company

--Insurance Financial Strength (IFS) at 'AA-';

Protective Life Secured Trust

--Medium-Term Notes at 'AA-'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.