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Fitch Affirms Protective Life's Rating; Outlook Negative
December 7, 2016 / 4:41 PM / a year ago

Fitch Affirms Protective Life's Rating; Outlook Negative

(The following statement was released by the rating agency) CHICAGO, December 07 (Fitch) Fitch Ratings has affirmed the Insurer Financial Strength (IFS) ratings of Protective Life Corporation's (PL) primary life insurance subsidiaries at 'A+'. The Rating Outlook on the IFS rating is Negative. Fitch has also affirmed PL's Issuer Default Rating (IDR) at 'A-' and senior debt ratings at 'BBB+'. The Rating Outlook on the IDR is Stable. A full ratings list follows at the end of this release. KEY RATING DRIVERS PL's ratings and Rating Outlook reflect its status as a wholly-owned subsidiary of Japan-based Dai-ichi Life Insurance Company, Ltd. (Dai-ichi Life: IFS 'A+'/Outlook Negative). Based on Fitch's criteria, PL's strategic importance within the Dai-ichi Life enterprise is considered 'Very Important' and, as such, it has been assigned the group rating. The Negative Outlook reflects Dai-ichi Life's exposure to Japan sovereign risk. Fitch views PL's standalone credit profile as in line with an 'A' IFS rating, which reflects the company's strong operating profile and financial performance, solid debt service capability and relatively low investment risk. The ratings also reflect strong balance sheet fundamentals based on PL's solid risk-based capitalization and above-average total leverage driven by reserve funding arrangements. Fitch views PL's underlying profitability as solid and consistent with rating expectations. The company reported a net operating return on equity of 6% for the first nine months of 2016 compared with double-digit levels in historical periods. The significant decline compared with prior levels reflects purchase GAAP adjustments related to its acquisition by Dai-ichi Life in February 2015. The company continues to experience unfavorable mortality, which is consistent with industry results and is offset by strong participating mortgage income. Fitch views PL's capitalization as solid based on its primary operating subsidiary's RBC ratio of 562% at Dec. 31, 2015, which Fitch expects to be managed at very strong levels. PL's RBC ratio benefits from its extensive use of captive reinsurance arrangements. The reserve credit recognized by PL's insurance subsidiaries for amounts ceded to special purpose captive reinsurers is approximately $7.2 billion, or 152% of the companies' total adjusted capital (TAC), which is among the highest in Fitch's rated universe. Also supporting Fitch's view of PL's capitalization is its Prism capital model score of 'Very Strong' at year-end 2015. Fitch views PL's financial leverage ratio of 23% and its total financing and commitments ratio (TFC) of 1.2x, the latter of which accounts for operating leverage including reserve funding arrangements, as being at the high end of its rating range. Both leverage metrics have been reduced by purchase accounting adjustments following PL's acquisition by Dai-ichi Life. Fitch views PL's asset quality as relatively high, based on its below-average risky asset ratio of 42% at year-end 2015 compared with approximately 80% for the industry. While PL's exposure to below-investment-grade bonds has increased during the first nine months of 2016, it remains below average for the life insurance industry. Fitch views PL's acquisition of United States Warranty Corp. as in line with its strategy and neutral to the rating. The transaction enhances PL's Asset Protection segment. RATING SENSITIVITIES Protective Life's IFS ratings will be downgraded if Dai-ichi Life's ratings are downgraded based on a negative rating action on Japan's sovereign rating or deterioration in its credit profile. PL's holding company ratings would likely be affirmed if Dai-ichi Life's ratings are downgraded by one notch based on a negative rating action on Japan's sovereign rating. Given that Dai-ichi Life's ratings have a Negative Outlook, an upgrade of PL is unlikely in the near term. Fitch has affirmed the following ratings with a Stable Outlook: Protective Life Corporation --IDR at 'A-'; --$150 million of 6.40% 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+'; --$288 million of 6.25% subordinated debt due 2042 at 'BBB-'; --$150 million of 6.00% subordinated debt due 2042 at 'BBB-'. Fitch has affirmed the following ratings with a Negative Outlook: Protective Life Insurance Company Protective Life and Annuity Insurance Company West Coast Life Insurance Company MONY Life Insurance Co. --IFS at 'A+'. Contact: Primary Analyst Dafina M. Dunmore, CFA Director +1-312-368-3136 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Douglas L. Meyer, CFA Managing Director +1-312-368-2061 Committee Chairperson Keith M. Buckley, CFA Managing Director +1-312-368-3211 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016031 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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