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Stable Value Sales Boom At Protective

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Protective Life Corp. quadrupled sales of stable value products in the second quarter, but changes in the value of the derivatives used in a risk-control program dinged its profits.[@@]

Protective, Birmingham, Ala., is reporting $48 million in net income for the latest quarter on $486 million in revenue, compared with $62 million in net income on $482 million in revenue for the second quarter of 2004.

Protective uses derivatives contracts to hedge mortgage loan commitments. Low interest rates forced Protective to cut the estimated value of the contracts by $26 million, and that cut hurt net income by reducing revenue by about $26 million. During the second quarter of 2004, an increase in the estimated value of the contracts added $8.7 million to Protective’s revenue, the company says.

Annuity sales were down, but life marketing sales were up, and sales of the company’s relatively new stable value products jumped to $452 million, from $108 million.

Stable value products are products that offer retirement plan members a relatively high, guaranteed rate of return without tight restrictions on liquidity.

Although Protective is reporting strong stable value product sales, pretax operating profits edged down to $13.5 million, from $13.9 million, and the spread between the interest rates Protective earns on the assets backing the products and the rates it has guaranteed to customers narrowed to 0.95 percentage points, from 1.13 percentage points in the second quarter of 2004, Protective says.