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We have initiated our coverage on the shares of Protective Life Corp. (PL - Analyst Report) with a Neutral recommendation.

Protective Life Corp., a diversified insurance company, has an active presence in the U.S. Over the long term, we believe that the company will be able to generate superior returns for its investors, given a proactive approach to managing and mitigating fundamental issues.

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 the short-guarantee universal life products. As these products are less costly to underwrite and more mortality driven, 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 patterns of America, where a large population is aging and thus generating greater demand for retirement savings products.  

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 along with increasing business scale via these acquisitions. Going forward, we expect more such deals to be sealed by the company if there is sufficient cash in hand.

The company also boasts strong financial ratings coupled with a strong balance sheet.

However, the company faces headwinds from low interest rates, which are exerting pressure on investment income.

Also Protective’s Life marketing businesses are expected to remain under pressure throughout 2013, due to headwinds from low interest rates and slow sales growth from the price rise instituted by the company.

Protective Life retains a Zacks Rank #3 (Hold).  Peers carrying a Neutral recommendation are Prudential Financial, Inc. (PRU - Analyst Report) and Sun Life Financial Inc. (SLF - Analyst Report).

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