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We are reiterating our Neutral recommendation on the shares of Protective Life Corp. (PL - Analyst Report). Though the company boasts of strong operating fundamentals and diversified profile, headwinds such as low interest rate, riskier investment portfolio and weakness in life insurance business keeps us on the side lines. The life insurer carries a Zacks Rank #3 (Hold).
 
Why Reiterate?
 
Protective Life has been changing its sales mix to improve life insurance margins and reduce interest rate exposure and reduce earnings volatility.  
 
Despite increasing competition, we expect Protective Life to benefit from changing demographic patterns in America where a large proportion of the population is aging. It thus generates greater demand for retirement savings products.  We expect the trend will drive strong earnings growth in this business, given that the Protective is already witnessing strong variable annuity sales and increased premium.
 
Protective Life has a long history of successfully acquiring both closed blocks of business and small companies. It has been traditionally successful in generating operating efficiencies along with increasing business scale via these acquisitions. Going forward, we expect more such deals to be sealed by the company, given sufficient cash in hand.
 
However, the company’s Life marketing businesses is expected to remain under pressure throughout 2013, due to headwinds from low interest rates and slow sales growth from price rise instituted by the company. Other players that continue to face headwinds from low interest rates include Prudential Financial, Inc. (PRU - Analyst Report) and MetLife, Inc. (MET - Analyst Report). 
 
Moreover, in Protective’s Life insurance segment, marketing margins have steadily compressed over the past few years due to higher reserve funding costs, and we do not foresee material expansion from current levels.
 
Over the past 60 days Protective Life has witnessed an increase in earnings estimates. The Zacks Consensus Estimate for 2013 rose by 0.8% to $3.93 per share as 6 of 9 estimates were pulled up. The estimate also translates to a 3.9% year over year improvement.
 
Other Stocks to Consider
 
Insurer Lincoln National Corp. (LNC - Analyst Report) with Zacks Rank #1 (Strong Buy) is worth investing in.

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