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On May 22, we upgraded our recommendation on the shares of Protective Life Corp. (PL - Analyst Report) to Outperform from Neutral to reflect our optimism regarding the announced acquisition of MONY Life insurance Company and efforts to enhance shareholders value.

Why the Upgrade?

Mid April, Protective Life Insurance Company announced a deal to acquire MONY Life insurance Company ("MONY") and reinsure an in-force book of life insurance policies of MONY Life Insurance Company of America ("MLOA"). The acquisition is expected to be accretive to Protective’s earnings in the upcoming period. It is expected to aid earnings by 10 to 15 cents per share in 2013, 55 to 65 cents per share in 2014 and to a further 65 to 75 cents per share in 2015 excluding, integration and transition costs

Protective has a long history of successfully acquiring both closed blocks of business and small companies. It has been traditionally successful in generating operating efficiencies and at the same time increasing business scale via these acquisitions. Going forward we expect more such deals to be sealed by the company, given sufficient cash in hand.

Protective has been changing its sales mix to improve life insurance margins and reduce interest rate exposure. It has therefore significantly increased its business in short-guarantee universal life products. These products are less costly to underwrite and more mortality driven, which is why management expects short-guarantee universal life to be a higher proportion of life sales going forward.

Despite increasing competition, we expect Protective to benefit from the changing demographic pattern of America where a large population is aging and thus generating greater demand for retirement savings products.  We expect this trend will drive strong earnings growth in this business, given that the company is already witnessing strong variable annuity sales and increased premium.

Also, to share more profits with shareholders, the Board of Directors of Protective Life announced an 11% increase in its quarterly dividend to 20 cents. Its dividend yield of 2.1% compares favorably with industry average of 1.5%

Other Insurers That Warrant a Look

Other stocks in the insurance sector that are worth considering include StanCorp Financial Group Inc. (SFG - Analyst Report) with Zacks Rank #1 Strong Buy) and China Life Insurance Co. Ltd. (LFC - Analyst Report) and  Prudential Financial Inc. (PRU - Analyst Report) with Zacks Rank #2 (Buy).

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