Protective Life (PL) Shelf on Review for Upgrade - Moody's

Moody's Investors Service has assigned a (P)Baa2 (senior debt) shelf rating to Protective Life Corporation's (NYSE: PL)(senior debt at Baa2/ratings on review for upgrade) new shelf registration, which was filed on July 8, 2014. All the shelf ratings are on review for upgrade. The new shelf registration replaces one that expired on June 28, 2014. The company did not indicate there are any near-term plans to issue securities off the shelf.

RATINGS RATIONALE

The multi-security shelf registration allows Protective to issue senior unsecured debt, subordinated debt, and preferred stock. The shelf registration also allows for the issuance of preferred securities by PLC Capital Trusts VI, VII, and VIII, which are statutory business trusts established by the company solely for the purpose of raising financing for Protective. Preferred securities issued by the PLC Capital Trusts will be irrevocably and unconditionally guaranteed by Protective and will rank pari passu with the company's subordinated debt.

Moody's noted that Protective's ratings reflect the group's diverse revenue and earnings sources, a high proportion of earnings deriving from the life insurance business, multiple distribution channels, manageable cash outflows at the holding company, and an established core competency in acquiring other companies and blocks of business. The rating agency added that Protective's credit challenges include its growing variable annuity business and significant credit exposure to reinsurers.

The rating agency said that Protective's holding company ratings were placed on review for upgrade following its announced acquisition by Dai-ichi Life Insurance Company (Dai-ichi, insurance financial strength (IFS) at A1/ stable outlook). The review for upgrade is driven by the acquirer being a much higher rated company (i.e., Dai-ichi's A1 IFS and A3 (hyb) subordinated debt ratings relative to Protective's Baa2 senior debt rating) and Moody's expectation that Dai-ichi would likely provide some level of support to Protective's holding company creditors.

RATING DRIVERS

According to Moody's, the following could place upward pressure on Protective's ratings: 1) sustained earnings growth in excess of 10% annually and sustained returns on capital of over 10%; 2) adjusted financial leverage maintained in the mid 20% range; 3) sustained annual cash flow interest coverage of above 6 times and earnings coverage of at least 8 times; and 4) company action level NAIC Risk-Based Capital (RBC) ratio at Protective Life Insurance Company (PLIC) consistently over 400%. In addition, upon the closing of the acquisition by Dai-ichi, Moody's expects to upgrade Protective's debt ratings by one notch to reflect the expectation of support of holding company creditors. Conversely, the following could place downward pressure on the company's ratings: 1) adjusted financial leverage rises above 30%; 2) annual cash flow interest coverage falls below 4 times; and 3) company action level NAIC RBC ratio at PLIC falls below 350%.

Moody's assigned the following provisional ratings and placed the ratings on review for upgrade:

Protective Life Corporation: senior unsecured debt at (P)Baa2, subordinated debt at (P)Baa3, preferred stock at (P)Ba1, junior preferred stock at (P)Ba1;

PLC Capital Trust VI, VII, and VIII: preferred stock at (P)Baa3.

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