Table of Contents


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q
 
☒  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2020March 31, 2021
 
or
 
☐  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from              to             
 
Commission File Number 001-31901
 
PROTECTIVE LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Tennessee63-0169720
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
 
2801 Highway 280 South
Birmingham, Alabama 35223
(Address of principal executive offices and zip code)
 
(205) 268-1000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
N/AN/AN/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐ Accelerated Filer☐
  
Non-accelerated filer☒Smaller Reporting Company☐
Emerging Growth Company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒
 
Number of shares of Common Stock, $1.00 Par Value, outstanding as of OctoberApril 26, 2020:2021:  5,000,000


Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020MARCH 31, 2021
TABLE OF CONTENTS
  Page
 PART I 
   
Item 1.Financial Statements (unaudited): 
 
2
 
3
 
4
 
6
 
87
 
109
Item 2.
6647
Item 3.
11791
Item 4.
11791
   
 
PART II
 
   
Item 1A.
11892
Item 6.
12596
 
12697

1
Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)

For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,		For The
Three Months Ended
March 31,
202020192020201920212020
(Dollars In Thousands) (Dollars In Millions)
RevenuesRevenues  Revenues 
Premiums and policy fees$1,045,148 $1,021,152 $2,950,425 $2,883,935 
Gross premiums and policy feesGross premiums and policy fees$1,095 $896 
Reinsurance cededReinsurance ceded(303,732)(330,201)(733,623)(1,014,633)Reinsurance ceded(317)(36)
Net of reinsurance ceded741,416 690,951 2,216,802 1,869,302 
Net premiums and policy feesNet premiums and policy fees778 860 
Net investment incomeNet investment income738,171 739,711 2,231,586 2,066,327 Net investment income720 754 
Realized gains (losses) - investments/derivatives38,156 119,685 20,147 216,308 
Realized gains (losses)Realized gains (losses)127 (301)
Other incomeOther income115,484 115,679 354,018 297,987 Other income88 128 
Total revenuesTotal revenues1,633,227 1,666,026 4,822,553 4,449,924 Total revenues1,713 1,441 
Benefits and expensesBenefits and expenses  Benefits and expenses 
Benefits and settlement expenses, net of reinsurance ceded: (three and nine months 2020 - $245,983 and $565,374; three and nine months 2019 - $224,619 and $733,970)1,258,824 1,171,034 3,735,160 3,147,641 
Benefits and settlement expenses, net of reinsurance ceded: (2021 - $368; 2020 - $(31))Benefits and settlement expenses, net of reinsurance ceded: (2021 - $368; 2020 - $(31))1,305 1,351 
Amortization of deferred policy acquisition costs and value of business acquiredAmortization of deferred policy acquisition costs and value of business acquired109,141 61,350 144,596 125,560 Amortization of deferred policy acquisition costs and value of business acquired105 54 
Other operating expenses, net of reinsurance ceded: (three and nine months 2020 - $52,457 and $170,994; three and nine months 2019 - $59,692 and $168,566)192,650 193,801 572,871 574,432 
Other operating expenses, net of reinsurance ceded: (2021 - $53; 2020 - $60)Other operating expenses, net of reinsurance ceded: (2021 - $53; 2020 - $60)176 195 
Total benefits and expensesTotal benefits and expenses1,560,615 1,426,185 4,452,627 3,847,633 Total benefits and expenses1,586 1,600 
Income before income tax72,612 239,841 369,926 602,291 
Income tax expense12,850 49,417 71,094 115,355 
Net income$59,762 $190,424 $298,832 $486,936 
Income (loss) before income taxIncome (loss) before income tax127 (159)
Income tax expense (benefit)Income tax expense (benefit)25 (30)
Net income (loss)Net income (loss)$102 $(129)

See Notes to Consolidated Condensed Financial Statements
2
Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOMELOSS
(Unaudited) 

For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2020201920202019
 (Dollars In Thousands)
Net income$59,762 $190,424 $298,832 $486,936 
Other comprehensive income (loss):  
Change in net unrealized gains (losses) on investments, net of income tax: (three and nine months 2020 - $127,602 and $334,656; three and nine months 2019 - $226,235 and $789,876)480,024 851,075 1,258,943 2,971,442 
Reclassification adjustment for investment amounts included in net income, net of income tax: (three and nine months 2020 - $7,513 and $16,011; three and nine months 2019 - $(1,022) and $(1,517))28,265 (3,846)60,231 (5,710)
Change in net unrealized gains (losses) for which a credit loss has been recognized in operations, net of income tax: (three and nine months 2020 - $7,290 and $6,821)27,426 0 25,659 0 
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (three and nine months 2019 - $(5,318) and $1,146)0 (20,008)0 4,308 
Change in accumulated (loss) gain - derivatives, net of income tax: (three and nine months 2020 - $405 and $(233); three and nine months 2019 - $(893) and $(2,157))1,524 (3,362)(877)(8,116)
Reclassification adjustment for derivative amounts included in net income, net of income tax: (three and nine months 2020 - $84 and $645; three and nine months 2019 - $157 and $285)317 589 2,427 1,075 
Total other comprehensive income537,556 824,448 1,346,383 2,962,999 
Total comprehensive income$597,318 $1,014,872 $1,645,215 $3,449,935 
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Net income (loss)$102 $(129)
Other comprehensive income (loss): 
Change in net unrealized gains (losses) on investments, net of income tax: 2021 - $(469); 2020 - $(392))(1,767)(1,477)
Reclassification adjustment for investment amounts included in net income, net of income tax: (2021 - $(7); 2020 - $3)(27)10 
Change in net expected credit losses, net of income tax: (2021 - $1; 2020 -$(2))5 (7)
Change in accumulated (loss) gain - derivatives, net of income tax: (2021 - $1; 2020 - $(1))2 (5)
Reclassification adjustment for derivative amounts included in net income, net of income tax: (2021 - $0; 2020 - $0)0 1 
Total other comprehensive loss(1,787)(1,478)
Total comprehensive loss$(1,685)$(1,607)

See Notes to Consolidated Condensed Financial Statements
3
Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS

As ofAs of
September 30, 2020December 31, 2019March 31, 2021December 31, 2020
(Unaudited)(Unaudited)
(Dollars In Thousands) (Dollars In Millions)
AssetsAssets  Assets  
Fixed maturities, at fair value (amortized cost: 2020 - $64,620,056; 2019 - $63,268,660; allowance for credit losses: 2020 - $19,399)$70,095,244 $66,043,992 
Fixed maturities, at amortized cost (fair value: 2020 - $2,990,170; 2019 - $3,025,790)2,680,324 2,823,881 
Equity securities, at fair value (cost: 2020 - $519,972; 2019 - $534,463)538,385 553,720 
Commercial mortgage loans, net of allowance for credit losses (allowance for credit losses: 2020 - $175,050; 2019 - $4,884)9,765,312 9,379,401 
Investment real estate, net of accumulated depreciation (2020 - $329; 2019 - $203)10,195 10,321 
Fixed maturities, at fair value (amortized cost: 2021 - $66,371; 2020 - $65,696; allowance for credit losses: 2021 - $4; 2020 - $23)Fixed maturities, at fair value (amortized cost: 2021 - $66,371; 2020 - $65,696; allowance for credit losses: 2021 - $4; 2020 - $23)$69,859 $72,595 
Equity securities, at fair value (cost: 2021 - $717; 2020 - $635)Equity securities, at fair value (cost: 2021 - $717; 2020 - $635)741 667 
Commercial mortgage loans, net of allowance for credit losses (allowance for credit losses: 2021 - $171; 2020 - $222)Commercial mortgage loans, net of allowance for credit losses (allowance for credit losses: 2021 - $171; 2020 - $222)10,137 10,006 
Investment real estate, net of accumulated depreciationInvestment real estate, net of accumulated depreciation10 10 
Policy loansPolicy loans1,640,147 1,675,121 Policy loans1,576 1,593 
Other long-term investmentsOther long-term investments2,955,438 2,479,520 Other long-term investments3,223 3,241 
Short-term investmentsShort-term investments1,239,028 1,320,864 Short-term investments661 462 
Total investmentsTotal investments88,924,073 84,286,820 Total investments86,207 88,574 
CashCash381,753 171,752 Cash565 656 
Accrued investment incomeAccrued investment income723,028 715,388 Accrued investment income723 707 
Accounts and premiums receivableAccounts and premiums receivable161,658 174,202 Accounts and premiums receivable156 127 
Reinsurance receivables, net of allowances for credit losses (allowances for credit losses: 2020 - $107,472; 2019 - $0)4,679,727 4,371,865 
Reinsurance receivables, net of allowance for credit losses (allowance for credit losses: 2021 - $90; 2020 - $94)Reinsurance receivables, net of allowance for credit losses (allowance for credit losses: 2021 - $90; 2020 - $94)4,649 4,596 
Deferred policy acquisition costs and value of business acquiredDeferred policy acquisition costs and value of business acquired3,461,920 3,519,555 Deferred policy acquisition costs and value of business acquired3,707 3,420 
GoodwillGoodwill825,511 825,511 Goodwill826 826 
Other intangibles, net of accumulated amortization (2020 - $297,439; 2019 - $253,759)553,084 583,426 
Property and equipment, net of accumulated depreciation (2020 - $53,527; 2019 - $49,357)209,554 211,745 
Other intangibles, net of accumulated amortization (2021 - $326; 2020 - $312)Other intangibles, net of accumulated amortization (2021 - $326; 2020 - $312)530 540 
Property and equipment, net of accumulated depreciation (2021 - $66; 2020 - $61)Property and equipment, net of accumulated depreciation (2021 - $66; 2020 - $61)201 204 
Other assetsOther assets293,875 308,544 Other assets176 270 
Assets related to separate accountsAssets related to separate accounts  Assets related to separate accounts  
Variable annuityVariable annuity11,487,408 12,730,090 Variable annuity12,699 12,378 
Variable universal lifeVariable universal life1,144,474 1,135,666 Variable universal life1,646 1,287 
Reinsurance assumedReinsurance assumed12,091,466 11,443,105 Reinsurance assumed13,444 13,325 
Total assetsTotal assets$124,937,531 $120,477,669 Total assets$125,529 $126,910 

See Notes to Consolidated Condensed Financial Statements
4
Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(continued)
As of
September 30, 2020December 31, 2019
(Unaudited)
 (Dollars In Thousands)
Liabilities  
Future policy benefits and claims$54,074,073 $53,943,962 
Unearned premiums781,403 794,832 
Total policy liabilities and accruals54,855,476 54,738,794 
Stable value product account balances6,017,259 5,443,752 
Annuity account balances15,213,466 14,289,907 
Other policyholders’ funds1,715,231 1,576,856 
Other liabilities4,654,669 2,977,278 
Income tax payable41,135 34,224 
Deferred income taxes1,717,358 1,371,970 
Debt696 968 
Subordinated debt110,000 110,000 
Non-recourse funding obligations2,942,126 3,082,753 
Secured financing liabilities232,826 335,480 
Liabilities related to separate accounts  
Variable annuity11,487,408 12,730,090 
Variable universal life1,144,474 1,135,666 
Reinsurance assumed12,091,466 11,443,105 
Total liabilities112,223,590 109,270,843 
Commitments and contingencies - Note 11
Shareowner’s equity  
Preferred Stock; $1 par value, shares authorized: 2,000; Liquidation preference: $22 2 
Common Stock, $1 par value, shares authorized and issued: 2020 and 2019 - 5,000,0005,000 5,000 
Additional paid-in-capital8,260,537 8,260,537 
Retained earnings1,694,377 1,533,645 
Accumulated other comprehensive income (loss):  
Net unrealized gains (losses) on investments, net of income tax: (2020 - $733,977; 2019 - $383,311)2,761,152 1,441,978 
Net unrealized losses on investments for which a credit loss has been recognized in operations, net of income tax: (2020 - $(183))(688)— 
Net unrealized losses relating to other-than-temporary impaired investments for which a portion has been recognized in operations, net of income tax: (2019 - $(7,004))— (26,347)
Accumulated gain (loss) - derivatives, net of income tax: (2020 - $(1,710); 2019 - $(2,123))(6,439)(7,989)
Total shareowner’s equity12,713,941 11,206,826 
Total liabilities and shareowner’s equity$124,937,531 $120,477,669 
As of
March 31, 2021December 31, 2020
(Unaudited)
 (Dollars In Millions)
Liabilities  
Future policy benefits and claims$53,619 $54,107 
Unearned premiums798 782 
Total policy liabilities and accruals54,417 54,889 
Stable value product account balances6,655 6,056 
Annuity account balances15,679 15,478 
Other policyholders’ funds1,515 1,865 
Other liabilities5,023 5,536 
Income tax payable112 85 
Deferred income taxes1,302 1,779 
Debt0 1 
Subordinated debt110 110 
Secured financing liabilities987 496 
Liabilities related to separate accounts  
Variable annuity12,699 12,378 
Variable universal life1,646 1,287 
Reinsurance assumed13,444 13,325 
Total liabilities113,589 113,285 
Commitments and contingencies - Note 1100
Shareowner’s equity  
Preferred Stock; $1 par value, shares authorized: 2,000; Liquidation preference: $2,0000 0 
Common Stock, $1 par value, shares authorized and issued: 2021 and 2020 - 5,000,0005 5 
Additional paid-in-capital8,525 8,525 
Retained earnings1,649 1,547 
Accumulated other comprehensive income (loss):  
Net unrealized gains (losses) on investments, net of income tax: (2021 - $469; 2020 - $946)1,764 3,558 
Net unrealized gains (losses) on investments with an allowance for credit losses, net of income tax: (2021 - $1; 2020 - $(1))3 (2)
Accumulated gain (loss) - derivatives, net of income tax: (2021 - $(2); 2020 - $(2))(6)(8)
Total shareowner’s equity11,940 13,625 
Total liabilities and shareowner’s equity$125,529 $126,910 

See Notes to Consolidated Condensed Financial Statements
5
Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNER’S EQUITY
(Unaudited)

Preferred
Stock		Common
Stock		Additional
Paid-In-Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareowner’s
Equity
 (Dollars In Thousands)
Balance, June 30, 2020$2 $5,000 $8,260,537 $1,634,615 $2,216,469 $12,116,623 
Net income59,762 59,762 
Other comprehensive income537,556 537,556 
Comprehensive income597,318 
Balance, September 30, 2020$2 $5,000 $8,260,537 $1,694,377 $2,754,025 $12,713,941 
Preferred
Stock		Common
Stock		Additional
Paid-In-Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareowner’s
Equity
(Dollars In Thousands)
Balance, December 31, 2019$2 $5,000 $8,260,537 $1,533,645 $1,407,642 $11,206,826 
Net income298,832 298,832 
Other comprehensive income1,346,383 1,346,383 
Comprehensive income1,645,215 
Cumulative effect adjustments(138,100)(138,100)
Balance, September 30, 2020$2 $5,000 $8,260,537 $1,694,377 $2,754,025 $12,713,941 

Preferred
Stock		Common
Stock		Additional
Paid-In-Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareowner’s
Equity
 (Dollars In Millions)
Balance, December 31, 2020$0 $5 $8,525 $1,547 $3,548 $13,625 
Net income   102  102 
Other comprehensive loss   (1,787)(1,787)
Comprehensive loss(1,685)
Balance, March 31, 2021$0 $5 $8,525 $1,649 $1,761 $11,940 
Preferred
Stock		Common
Stock		Additional
Paid-In-Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareowner’s
Equity
(Dollars In Millions)
Balance, December 31, 2019$0 $5 $8,405 $1,451 $1,413 $11,274 
Net income(129)(129)
Other comprehensive loss(1,478)(1,478)
Comprehensive loss(1,607)
Capital contributions20 20 
Cumulative effect adjustments(138)(138)
Balance, March 30, 2020$0 $5 $8,425 $1,184 $(65)$9,549 

See Notes to Consolidated Condensed Financial Statements
6
Table of Contents

PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNER’S EQUITY
(Unaudited)
(continued)

Preferred
Stock		Common
Stock		Additional
Paid-In-Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareowner’s
Equity
 (Dollars In Thousands)
Balance, June 30, 2019$2 $5,000 $8,260,537 $1,277,173 $734,335 $10,277,047 
Net income190,424 190,424 
Other comprehensive income824,448 824,448 
Comprehensive income1,014,872 
Balance, September 30, 2019$2 $5,000 $8,260,537 $1,467,597 $1,558,783 $11,291,919 
Preferred
Stock		Common
Stock		Additional
Paid-In-Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareowner’s
Equity
(Dollars In Thousands)
Balance, December 31, 2018$2 $5,000 $7,410,537 $1,031,465 $(1,404,216)$7,042,788 
Net income486,936 486,936 
Other comprehensive income2,962,999 2,962,999 
Comprehensive income3,449,935 
Cumulative effect adjustments(50,804)(50,804)
Capital contributions from parent850,000 850,000 
Balance, September 30, 2019$2 $5,000 $8,260,537 $1,467,597 $1,558,783 $11,291,919 

See Notes to Consolidated Condensed Financial Statements
7
Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For The
Nine Months Ended
September 30,
20202019
 (Dollars In Thousands)
Cash flows from operating activities 
Net income$298,832 $486,936 
Adjustments to reconcile net income to net cash used in operating activities:  
Realized (gains) losses - investments/derivatives(20,147)(216,308)
Amortization of DAC and VOBA144,596 125,560 
Capitalization of DAC(354,315)(341,481)
Depreciation and amortization expense57,381 55,415 
Deferred income tax26,061 (189,599)
Accrued income tax6,911 (63,824)
Interest credited to universal life and investment products1,155,732 954,213 
Policy fees assessed on universal life and investment products(1,338,402)(1,269,614)
Change in reinsurance receivables42,910 292,029 
Change in accrued investment income and other receivables25,972 (14,148)
Change in policy liabilities and other policyholders’ funds of traditional life and health products(747,627)(545,930)
Trading securities:  
Maturities and principal reductions of investments69,276 82,603 
Sale of investments493,059 327,852 
Cost of investments acquired(719,682)(270,800)
Other net change in trading securities19,577 (57,240)
Amortization of premiums and accretion of discounts on investments and commercial mortgage loans235,331 238,086 
Change in other liabilities423,942 551,569 
Other, net26,210 (159,074)
Net cash used in operating activities$(154,383)$(13,755)
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Cash flows from operating activities 
Net income (loss)$102 $(129)
Adjustments to reconcile net income (loss) to net cash used in operating activities:  
Realized (gains) losses(127)301 
Amortization of DAC and VOBA105 54 
Capitalization of DAC(139)(107)
Depreciation and amortization expense20 19 
Deferred income tax(17)65 
Accrued income tax43 (93)
Interest credited to universal life and investment products390 411 
Policy fees assessed on universal life and investment products(453)(448)
Change in reinsurance receivables(53)(149)
Change in accrued investment income and other receivables(40)14 
Change in policy liabilities and other policyholders’ funds of traditional life and health products(69)(211)
Trading securities:  
Maturities and principal reductions of investments31 26 
Sale of investments144 123 
Cost of investments acquired(151)(179)
Other net change in trading securities(32)2 
Amortization of premiums and accretion of discounts on investments and commercial mortgage loans68 84 
Change in other liabilities(139)353 
Other, net24 28 
Net cash (used in) provided by operating activities$(293)$164 

See Notes to Consolidated Condensed Financial Statements
87
Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
For The
Nine Months Ended
September 30,
20202019
 (Dollars In Thousands)
Cash flows from investing activities  
Maturities and principal reductions of investments, available-for-sale$3,157,821 $1,339,764 
Sale of investments, available-for-sale2,507,683 3,149,829 
Cost of investments acquired, available-for-sale(7,000,496)(4,827,926)
Commercial mortgage loans:  
New lendings(1,053,802)(968,656)
Repayments484,313 723,325 
Change in investment real estate, net126 (319)
Change in policy loans, net34,974 53,056 
Change in other long-term investments, net200,905 83,286 
Change in short-term investments, net67,941 (310,120)
Net unsettled security transactions105,366 (154,791)
Purchase of property, equipment, and intangibles(25,137)(22,425)
Payment for business acquisition, net of cash acquired0 (777,807)
Net cash used in investing activities$(1,520,306)$(1,712,784)
Cash flows from financing activities  
Secured financing liabilities(102,655)(142,575)
Capital contributions from parent0 850,000 
Deposits to universal life and investment contracts5,040,986 4,258,248 
Withdrawals from universal life and investment contracts(3,053,347)(3,166,505)
Other financing activities, net(294)(729)
Net cash provided by financing activities$1,884,690 $1,798,439 
Change in cash210,001 71,900 
Cash at beginning of period171,752 151,400 
Cash at end of period$381,753 $223,300 
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Cash flows from investing activities  
Maturities and principal reductions of investments, available-for-sale$2,197 $820 
Sale of investments, available-for-sale1,513 967 
Cost of investments acquired, available-for-sale(4,669)(2,587)
Commercial mortgage loans:  
New lendings(358)(355)
Repayments268 226 
Change in policy loans, net17 18 
Change in other long-term investments, net(206)302 
Change in short-term investments, net(164)321 
Net unsettled security transactions100 (151)
Purchase of property, equipment, and intangibles(7)(9)
Net cash used in investing activities$(1,309)$(448)
Cash flows from financing activities  
Secured financing liabilities491 (268)
Capital contributions from parent0 20 
Deposits to universal life and investment contracts1,865 1,549 
Withdrawals from universal life and investment contracts(843)(786)
Other financing activities, net(2)(1)
Net cash provided by financing activities$1,511 $514 
Change in cash(91)230 
Cash at beginning of period656 213 
Cash at end of period$565 $443 

See Notes to Consolidated Condensed Financial Statements
98
Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.    BASIS OF PRESENTATION
Basis of Presentation
Protective Life Insurance Company (the “Company”), a stock life insurance company, was founded in 1907. The Company is a wholly owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company. On February 1, 2015, PLC became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”), when DL Investment (Delaware), Inc., a wholly owned subsidiary of Dai-ichi Life, merged with and into PLC (the “Merger”). Prior to February 1, 2015, PLC’s stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger, PLC remained an SEC registrant within the United States until January 23, 2020, when it suspended its reporting obligations with the SEC under the Securities Exchange Act of 1934. The Company has continued to be an SEC registrant for financial reporting purposes in the United States. The Company markets individual life insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. The Company also maintains a separate segment devoted to the acquisition of insurance policies from other companies. PLC is a holding company with subsidiaries that provide financial services through the production, distribution, and administration of insurance and investment products.
These consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for the interim periods presented herein. In the opinion of management, the accompanying consolidated condensed financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair presentation of the results for the interim periods presented. Operating results for the three and nine months ended September 30, 2020,March 31, 2021, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.2021. The year-end consolidated condensed financial data included herein was derived from audited financial statements but this report does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, persistency, and other factors.
During the third quarterShades Creek Captive Insurance Company (“Shades Creek”) was a direct wholly owned insurance subsidiary of 2020,PLC through December 31, 2020. On January 1, 2021, Shades Creek was merged with and into the Company, recorded certain adjustments related to prior periods to correct errors pertaining towith the calculation of policyholder reserves and ceded reinsurance premiums. These adjustments resulted in a decrease to policy liabilities and benefit and settlement expenses of $18.1 million; an increase to deferred policy acquisition costs amortization expense of $6.1 million; and a decrease to ceded premiums and other ceded operating expenses of $10.2 million and $3.2 million, respectively inCompany being the consolidated financial statements.surviving entity. The result of these adjustments, in total, was to increase income before income taxes by $19.0 million and $9.4 millionCompany accounted for the three monthstransaction pursuant to Accounting Standards Codification (“ASC”) 805-50 “Transactions between Entities under Common Control”. The transferred assets and nine months ended September 30, 2020, respectively. The Company concluded that the adjustments were not quantitatively or qualitatively material to previously reported periods or the 2020 estimated income or earnings trends. As a result, the adjustmentsliabilities of Shades Creek were recorded by the Company withinat their carrying value at the consolidated condenseddate of transfer. In accordance with ASC 805-50, all prior financial statementsinformation has been recast to reflect this transaction as of and for the three month and nine month periods ended September 30,earliest period presented under common control, January 1, 2020.

During the nine months ended September 30, 2020, the Company identified certain reclassifications needed to appropriately present amounts related to reinsured vehicle service contracts. Also during the first half of 2020, the Company identified certain cash flows presented in its investing and financing activities that were determined to be non-cash items. The Company determined that the reclassifications were not material to the financial statements for any period. These amounts have been corrected in the consolidated condensed balance sheets, statements of income, and statements of cash flows for the three and nine months ended September 30, 2019.
Beginning in the first quarter of 2020, the uncontained outbreak of the novel coronavirus, which causes the disease termed COVID-19 created significant economic and social disruption and impacted various operational and financial aspects of the Company’s business. While not allSince the initial declines at the beginning of the impacts of COVID-19 are identifiable or quantifiable, duringpandemic, equity markets have largely recovered. However, the nine months ended September 30, 2020, there has been deterioration in actual and forecasted macroeconomic variables that has adversely impacted the fair values of certain ofpandemic continues to impact the Company’s investmentsearnings based on, amongst other factors, the volume and its allowance for credit losses on commercial mortgage loans. The Company has also recorded an increase associated with guaranteed benefits on certainseverity of its variable annuity contracts, while realizing gains from derivatives heldclaims related to hedge these guaranteed benefits. Additionally, there has been an increase in life insurance claims attributed to COVID-19.
10
Table of Contents
COVID-19 and the financial disruption caused by the pandemic, which could impact the Company’s investment portfolio.
Entities Included
The consolidated condensed financial statements in this report include the accounts of Protective Life Insurance Company and affiliate companies in which the Company holds a majority voting or economic interest. Intercompany balances and transactions have been eliminated.
2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
For a full description of the Company's significant accounting policies, refer to Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. There were no significant changes to the Company’s accounting policies during the ninethree months ended September 30, 2020, except the items noted below.
Allowance for Credit Losses - Fixed Maturity and Structured Investments
Each quarter the Company reviews investments with unrealized losses to determine whether such impairments are the result of credit losses. The Company analyzes various factors to make such determination including, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) an assessment of the Company’s intent to sell the security (including a more likely than not assessment of whether the Company will be required to sell the security) before recovering the security’s amortized cost, 5) an economic analysis of the issuer’s industry, and 6) the financial strength, liquidity, and recoverability of the issuer. Management performs a security by security review each quarter to evaluate whether a credit loss has occurred.
For securities which the Company does not intend to sell and does not expect to be required to sell before recovering the security’s amortized cost basis, analysis of expected cash flows is used to measure the amount of the credit loss. To the extent the amortized cost basis of the security exceeds the present value of future cash flows expected to be collected, this difference represents a credit loss. Beginning on January 1, 2020, credit losses are recorded in realized gains (losses) - investments/derivatives with a corresponding adjustment to the allowance for credit losses, except that the credit loss recognized cannot exceed the difference between the book value and fair value of the security as of the date of the analysis. In future periods, recoveries in the present value of expected cash flows are recorded as a reversal of the previously recognized allowance for credit losses with an offsetting adjustment to realized gains (losses) - investments/derivatives. See, “Accounting Pronouncements Recently Adopted” below for additional information. The Company considers contractual cash flows and all known market data related to cash flows when developing its estimates of expected cash flows. The Company uses the effective interest rate implicit in the security at the date of acquisition to discount expected cash flows. For floating rate securities, the Company’s policy is to lock in the interest rate at the first instance of an impairment. Estimates of expected cash flows are not probability-weighted but reflect the Company’s best estimate based on past events, current conditions, and reasonable and supportable forecasts of future events. Debt securities that the Company intends to sell or expects to be required to sell before recovery are written down to fair value with the change recognized in realized gains (losses) - investments/derivatives.
The Company presents accrued interest receivable separately from other components of the amortized cost basis of its fixed maturity and structured investments and has made an accounting policy election not to measure an allowance for credit losses for accrued interest receivable. The Company’s policy is to write off uncollectible accrued interest receivables through a reversal of interest income in the period in which a credit loss is identified.
Allowance for Credit Losses - Commercial Mortgage Loans and Unfunded Commitments
The Company’s commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of the allowance for credit losses (“ACL”). Beginning January 1, 2020, the ACL represents the Company’s best estimate of expected credit losses over the contractual term of the loans. The allowance for credit losses for unfunded loan commitments is recognized as a component of other liabilities on the consolidated condensed balance sheet. Changes in the allowance for credit losses for both funded and unfunded commercial mortgage loans are recognized in realized gains (losses) - investments/derivatives.
The Company uses a loan-level probability of default (“PD”) and loss given default (“LGD”) model to calculate the allowance for credit losses for substantially all of its commercial mortgage loans and unfunded loan commitments. Guidance in Accounting Standards Codification (“ASC”) Topic 326-20 - Credit Losses requires collective assessment of financial assets with similar risk characteristics. Consistent with this guidance, the model used by the Company (the “CML Model”) incorporates historical default data for a large number of loans with similar characteristics to the Company’s commercial mortgage loans in the measurement of the allowance for credit losses. Relevant risk characteristics include debt service coverage ratio (“DSCR”), loan-to-value ratio (“LTV”), geographic location, and property type. This historical default data is applied through the CML Model to forecast loan-level risk parameters including PD and LGD which provide the basis for theMarch 31, 2021.
119
Table of Contents
determination of expected losses.
The CML Model incorporates both current conditions and reasonable and supportable forecasts when estimating the PD and LGD values that are used as the basis for calculating expected losses. Current conditions are incorporated by considering market-specific information, such as vacancy rates and property prices, to reflect the current position in the market cycle. To incorporate reasonable and supportable forecasts, loan-level risk parameters produced by the CML Model are conditioned by multiple probability-weighted macroeconomic forecast scenarios. CML Model results are also subject to adjustments based on other qualitative considerations to reflect management’s best estimate of the impact of future events and circumstances on the allowance for credit losses.
PDs and LGDs are forecasted over a reasonable and supportable forecast period, which is reassessed on a quarterly basis. After the reasonable and supportable forecast period, the CML Model reverts to the Company’s own historical loss history at a portfolio segment level. The historical loss data used for reversion will be assessed annually in the third quarter, along with certain other model inputs and assumptions.
All or a portion of a loan may be written off at such point that a) the Company no longer expects to receive cash payments, b) the present value of future expected payments of a renegotiated loan is less than the current principal balance, or c) at such time that the Company is party to foreclosure or bankruptcy proceedings associated with the borrower and does not expect to recover the principal balance of the loan. A write-off is recorded by eliminating the allowance against the commercial mortgage loan and recording the renegotiated loan or the collateral property related to the loan as investment real estate on the balance sheet, which is carried at the lower of the appraised fair value of the property or the unpaid principal balance of the loan, less estimated selling costs associated with the property.
Certain loans which meet the definition of collateral dependent (as outlined in the Financial Accounting Standards Board “FASB” ASC Topic 326-20) are identified as part of the Company’s ongoing loan surveillance process. Loans are considered to be collateral dependent if foreclosure is deemed probable, or if a borrower is in financial difficulty and repayment is expected to be provided substantially through the operation or sale of the underlying collateral. The allowance for credit losses for loans identified as collateral dependent is measured based on the fair value of the underlying collateral, less costs to sell.
The Company presents accrued interest receivable separately from other components of the amortized cost basis of its commercial mortgage loans and has made an accounting policy election not to measure an allowance for credit losses for accrued interest receivable. It is the Company’s policy to cease to carry accrued interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. In each scenario, accrued income is reversed through investment income. See Note 9, Commercial Mortgage Loans, for additional information.
Allowance for Credit Losses - Reinsurance Receivables
Beginning January 1, 2020, in accordance with FASB ASC Topic 326-20, the Company establishes an allowance for credit losses related to amounts receivable from reinsurers (the “Reinsurance ACL”). Changes in the Reinsurance ACL are recognized as a component of benefits and settlement expenses. The Reinsurance ACL is remeasured on a quarterly basis using an internally developed PD and LGD model. Key inputs to the calculation are a conditional probability of insurer liquidation by issuer credit rating and exposure at default derived from a runoff projection of ceded reserves by reinsurer to forecast future loss amounts. Management’s position is that the rate of return implicit in the financial asset (i.e. the ceded reserves) is associated with the discount rate used to value the underlying insurance reserves; that is, the rate of return on the asset portfolio(s) supporting the reserves. For reinsurance receivable exposures that do not share similar risk characteristics with other receivables, including those associated with counterparties that have experienced significant credit deterioration, the Company measures the allowance for credit losses individually, based on facts and circumstances associated with the specific reinsurer or transaction.
The Reinsurance ACL was $96.0 million as of January 1, 2020 upon adoption of ASU No. 2016-13 - Credit Losses. During the nine months ended September 30, 2020, the Reinsurance ACL increased slightly to $107.5 million. There were 0 write-offs or recoveries during the nine months ended September 30, 2020.

12
Table of Contents
The Company had total reinsurance receivables of $4.7 billion as of September 30, 2020, which includes both ceded policy benefit reserves and receivables for claims. Receivables for claims represented approximately 11% of total reinsurance receivables as of September 30, 2020. Receivables for claims are short-term in nature, and generally carry minimal credit risk. Of reserves ceded as of September 30, 2020, approximately 65% were receivables from reinsurers rated by A.M. Best Company. Of the total rated by A.M. Best, 74% were rated A+ or better, 16% were rated A, and 10% were rated A- or lower. The Company monitors the concentration of credit risk the Company has with any reinsurer, as well as the financial condition of its reinsurers, on an ongoing basis. Certain of the Company’s reinsurance receivables are supported by letters of credit, funds held or trust agreements.
Accounting Pronouncements Recently Adopted
Accounting Standards Update (“ASU” or “Update”) No. 2016-13 - Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments.2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this Update introduce a new current expected credit loss (“CECL”) model forremove certain financial assets, including commercial mortgage loans and reinsurance receivables. For assets within the scope of the new model, an entity will recognize as an allowance against earnings its estimate of the contractual cash flows not expected to be collected on day one of the asset’s acquisition. The allowance may be reversed through earnings if a security recovers in value. This differs from the current impairment model, which requires recognition of credit losses when they have been incurred and recognizes a security’s subsequent recovery in value in other comprehensive income. The Update also makes targeted changesexceptions to the current impairment model for available-for-sale (“AFS”) debt securities, which comprise the majoritygeneral principles in Topic 740 related to intraperiod tax allocations, interim tax calculations, and outside basis differences. The amendments also clarify and amend guidance in certain other areas of the Company’s invested assets. SimilarTopic 740 in order to the CECL model, credit loss impairments will be recordedeliminate diversity in an allowance against earnings that may be reversed for subsequent recoveries in value.practice. The amendments in this Update along with related amendments in ASU No. 2018-19, ASU No. 2019-04, and ASU No. 2019-11 - Codification Improvements to Topic 326, Financial Instruments-Credit Losses, wereare effective for annual and interim periodspublic business entities in fiscal years beginning after December 15, 20192020, and interim periods within those fiscal years. The adoption of this Update did not have a material impact on a modified retrospective basis. A vendor-provided credit loss model is utilized to measure the allowance for the majority of the Company’s commercial mortgage loansoperations and unfunded commercial mortgage loan commitments, and the Company utilizes use an internally-developed model to measure the allowance for amounts recoverable from reinsurers. The Company applied the revisions in the Update through a cumulative effect adjustment to retained earnings as of January 1, 2020. The cumulative effect adjustment resulted in a decrease in retained earnings of $138.1 million, net of the impact to deferred taxes, deferred acquisition costs (“DAC”), value of business acquired (“VOBA”) and other items. The Company continues to apply the previous guidance to 2019 and prior periods.financial results.
Accounting Pronouncements Not Yet Adopted

ASU No. 2018-12 - Financial Services - Insurance (Topic 944): Targeted Improvements to Accounting for Long-Duration Contracts. The amendments in this Update are designed to make improvements to the existing recognition, measurement, presentation, and disclosure requirements for certain long-duration contracts issued by an insurance company. The new amendments require insurance entities to provide a more current measure of the liability for future policy benefits for traditional and limited-payment contracts by regularly refining the liability for actual past experience and updated future assumptions. This differs from current requirements where assumptions are locked-in at contract issuance for these contract types. In addition, the updated liability will be discounted using an upper-medium grade (low-credit-risk) fixed income instrument yield that reflects the characteristics of the liability which differs from currently used rates based on the invested assets supporting the liability. In addition, the amendments introduce new requirements to assess market-based insurance contract options and guarantees for Market Risk Benefits and measure them at fair value. This Update also requires insurance entities to amortize deferred acquisition costs on a constant-level basis over the expected life of the contract. Finally, this Update requires new disclosures including liability rollforwards and information about significant inputs, judgments, assumptions, and methods used in the measurement. In November 2020, FASB issued ASU No. 2020-11 - Financial Services - Insurance (Topic 944); Effective Date and Early Application which deferred the effective date to periods beginning after December 31,15, 2022. The Company is currently reviewing its policies, processes, and applicable systems to determine the impact this standard will have on its operations and financial results.

ASU No. 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this Update remove certain exceptions to the general principles in Topic 740 related to intraperiod tax allocations, interim tax calculations, and outside basis differences. The amendments also clarify and amend guidance in certain other areas of Topic 740 in order to eliminate diversity in practice. The amendments in this Update are effective for public business entities in fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This Update is not expected to have a material impact on the Company’s operations and financial results.

13
Table of Contents
3.SIGNIFICANT TRANSACTIONS
Great-West Life & Annuity Insurance Company

On January 23, 2019, the Company entered into a Master Transaction Agreement (the “GWL&A Master Transaction Agreement”) with Great-West Life & Annuity Insurance Company (“GWL&A”), Great-West Life & Annuity Insurance Company of New York (“GWL&A of NY”), The Canada Life Assurance Company (“CLAC”) and The Great-West Life Assurance Company (“GWL” and, together with GWL&A, GWL&A of NY and CLAC, the “Sellers”), pursuant to which the Company will acquire via reinsurance (the “Transaction”) substantially all of the Sellers’ individual life insurance and annuity business (the “GW Individual Life Business”).
On June 3, 2019, the Company and PLAIC completed the Transaction (the “GWL&A Closing”). Pursuant to the GWL&A Master Transaction Agreement, the Company and PLAIC entered into reinsurance agreements (the “GWL&A Reinsurance Agreements”) and related ancillary documents at the GWL&A Closing. On the terms and subject to the conditions of the GWL&A Reinsurance Agreements, the Sellers ceded to the Company and PLAIC, effective as of the date of the GWL&A Closing, substantially all of the insurance policies related to the Individual Life Business on a 100% indemnity basis net of reinsurance recoveries. The aggregate ceding commission for the reinsurance of the Individual Life Business paid at the GWL&A Closing was $765.7 million. All policies issued in states other than New York were ceded to the Company under reinsurance agreements between the applicable Seller and the Company, and all policies issued in New York were ceded to PLAIC under a reinsurance agreement between GWL&A of NY and PLAIC. In addition, there were certain pending items related to the Master Transaction Agreement, which remained subject to negotiation as of September 30, 2020. On October 30, 2020, the Company reached a final settlement on all of the remaining pending items. As the one year purchase price measurement period had concluded, the Company will recognize approximately $90 million in income before income tax during the quarter ended December 31, 2020 related to the final settlement. To support its obligations under the GWL&A Reinsurance Agreements, the Company established trust accounts for the benefit of GWL&A, CLAC and GWL, and PLAIC established a trust account for the benefit of GWL&A of NY. The Sellers retained a block of participating policies, which are administered by the Company.
The GWL&A Master Transaction Agreement and other transaction documents contain certain customary representations and warranties made by each of the parties, and certain customary covenants regarding the Sellers and the Individual Life Business, and provide for indemnification, among other things, for breaches of those representations, warranties, and covenants. The terms of the GWL&A Reinsurance Agreements resulted in an acquisition of the Individual Life Business by the Company in accordance with ASC Topic 805, Business Combinations.


14
Table of Contents
The following table details the final allocation of assets acquired and liabilities assumed from the Individual Life Business reinsurance transaction as of the date of the GWL&A Closing:

Fair Value
as of
June 1, 2019
(Dollars In Thousands)
ASSETS
Fixed maturities$8,697,966 
Commercial mortgage loans1,386,228 
Policy loans44,002 
Other long-term investments1,521,965 
Total investments11,650,161 
Cash34,835 
Accrued investment income101,452 
Reinsurance receivables62 
Accounts and premiums receivable1,642 
Value of business acquired535,421 
Other intangibles21,300 
Other assets5,525 
Assets related to separate accounts9,583,217 
Total assets21,933,615 
LIABILITIES
Future policy benefits and claims$11,022,177 
Annuity account balances220,064 
Other policyholders’ funds220,147 
Other liabilities75,367 
Liabilities related to separate accounts9,583,217 
Total liabilities21,120,972 
NET ASSETS ACQUIRED$812,643 

Assets related to separate accounts and liabilities related to separate accounts represent amounts receivable and payable for variable annuity and variable universal life products reinsured on a modified co-insurance basis.    

The following unaudited pro forma condensed consolidated results of operations assumes that the aforementioned transactions of the Individual Life Business were completed as of January 1, 2019. The unaudited pro forma condensed results of operations are presented solely for informational purposes and are not necessarily indicative of the consolidated condensed results of operations that might have been achieved had the transaction been completed as of the date indicated:
UnauditedUnaudited
For The
Three Months Ended
September 30, 2019		For The
Nine Months Ended
September 30, 2019
(Dollars In Thousands)
Revenue$1,681,993 $4,868,168 
Net income$190,424 $504,031 


15
Table of Contents
4.MONY CLOSED BLOCK OF BUSINESS
In 1998, MONY Life Insurance Company (“MONY”) converted from a mutual insurance company to a stock corporation (“demutualization”). In connection with its demutualization, an accounting mechanism known as a closed block (the “Closed Block”) was established for certain individuals’ participating policies in force as of the date of demutualization. Assets, liabilities, and earnings of the Closed Block are specifically identified to support its participating policyholders. The Company acquired the Closed Block in conjunction with the acquisition of MONY in 2013.
Assets allocated to the Closed Block inure solely to the benefit of the Closed Block’s policyholders and will not revert to the benefit of MONY or the Company. No reallocation, transfer, borrowing or lending of assets can be made between the Closed Block and other portions of MONY’s general account, any of MONY’s separate accounts or any affiliate of MONY without the approval of the Superintendent of The New York State Department of Financial Services (the “Superintendent”). Closed Block assets and liabilities are carried on the same basis as similar assets and liabilities held in the general account.
Summarized financial information for the Closed Block as of September 30, 2020 and December 31, 2019 is as follows:
As of
September 30, 2020December 31, 2019
 (Dollars In Thousands)
Closed block liabilities  
Future policy benefits, policyholders’ account balances and other policyholder liabilities$5,458,772 $5,836,815 
Policyholder dividend obligation473,380 278,505 
Other liabilities8,328 11,247 
Total closed block liabilities5,940,480 6,126,567 
Closed block assets  
Fixed maturities, available-for-sale, at fair value$4,827,002 $4,682,731 
Commercial mortgage loans69,422 72,829 
Policy loans633,609 640,134 
Cash and other invested assets24,614 44,877 
Other assets96,865 107,177 
Total closed block assets5,651,512 5,547,748 
Excess of reported closed block liabilities over closed block assets288,968 578,819 
Portion of above representing accumulated other comprehensive income:  
Net unrealized gains (losses) - investments/derivatives net of policyholder dividend obligation: 2020 - $383,309 and 2019 - $167,285; and net of income tax: 2020 - $(80,495) and 2019 - $(35,130)0 0 
Future earnings to be recognized from closed block assets and closed block liabilities$288,968 $578,819 
Reconciliation of the policyholder dividend obligation is as follows:
For The
Nine Months Ended
September 30,
20202019
 (Dollars In Thousands)
Policyholder dividend obligation, beginning balance$278,505 $0 
Applicable to net revenue (losses)(21,150)(19,548)
Change in net unrealized gains (losses) - investments/derivatives allocated to the policyholder dividend obligation216,025 339,413 
Policyholder dividend obligation, ending balance$473,380 $319,865 
16
Table of Contents
Closed Block revenues and expenses were as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2020201920202019
 (Dollars In Thousands)
Revenues  
Premiums and other income$36,394 $37,652 $109,656 $115,202 
Net investment income50,557 52,018 152,609 154,808 
Net gains (losses) - investments/derivatives(499)1,104 (1,284)693 
Total revenues86,452 90,774 260,981 270,703 
Benefits and other deductions  
Benefits and settlement expenses80,797 84,531 242,474 250,410 
Other operating expenses284 229 877 836 
Total benefits and other deductions81,081 84,760 243,351 251,246 
Net revenues before income taxes5,371 6,014 17,630 19,457 
Income tax expense1,242 1,263 3,396 4,086 
Net revenues$4,129 $4,751 $14,234 $15,371 

5.    INVESTMENT OPERATIONS
Realized gains (losses) - investments includes realized gains and losses from the sale of investments, changes in fair value of equity securities, net credit losses, and trading securities. Realized gains and losses on investments are calculated on the basis of specific identification on the trade date. Realized gains (losses) - derivatives includes certain derivative and embedded derivative gains and losses and gains and losses on reinsurance-related embedded derivatives
Net realized gains (losses) - investments/derivatives are summarized as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2020201920202019
 (Dollars In Thousands)
Fixed maturities$2,681 $15,686 $44,298 $21,885 
Equity securities16,918 6,117 (652)44,292 
Modco trading portfolios44,918 67,674 108,223 252,147 
Net credit losses recognized in operations (1)
(38,459)— (120,540)— 
Net impairment losses recognized in operations (2)
— (10,818)— (14,658)
Commercial mortgage loans(2,174)(1,575)(101,256)(1,435)
Other investments(1,065)315 (2,825)365 
Realized gains (losses) - investments22,819 77,399 (72,752)302,596 
Realized gains (losses) - derivatives(3)
15,337 42,286 92,899 (86,288)
Realized gains (losses) - investments/derivatives$38,156 $119,685 $20,147 $216,308 
(1) Represents credit losses recognized under FASB ASC 326
(2) Represents other-than-temporary impairment losses recognized under FASB ASC 320
(3) See Note 7, Derivative Financial Instruments
17
Table of Contents
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Fixed maturities$30 $39 
Equity securities(8)(43)
Modco trading portfolios(137)(124)
Change in net expected credit losses - fixed maturities5 (52)
Commercial mortgage loans56 (95)
Other investments0 (1)
Realized gains (losses) - investments(54)(276)
Realized gains (losses) - derivatives(1)
181 (25)
Realized gains (losses)$127 $(301)
(1) See Note 5, Derivative Financial Instruments
Gross realized gains and gross realized losses on investments available-for-sale (fixed maturities and short-term investments) are as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2020201920202019
 (Dollars In Thousands)
Gross realized gains$2,750 $20,155 $49,189 $34,801 
Gross realized losses:
Credit losses(1)
$(38,459)$— $(120,540)$— 
Impairment losses(2)
$— $(10,818)$— $(14,658)
Other realized losses$(69)$(4,469)$(4,891)$(12,916)
(1) Represents credit losses recognized under FASB ASC 326
(2) Represents other-than-temporary impairment losses recognized in prior periods under FASB ASC 320
10
Table of Contents
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Gross realized gains$31 $40 
Gross realized losses:
Change in net expected credit losses - fixed maturities$5 $(52)
Other realized losses$(1)$(1)
The chart below summarizes the fair value (proceeds)proceeds and the gains (losses) realized on securities the Company sold that were in an unrealized gain position and an unrealized loss position.
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,		For The
Three Months Ended
March 31,
202020192020201920212020
(Dollars In Thousands) (Dollars In Millions)
Securities in an unrealized gain position:Securities in an unrealized gain position:Securities in an unrealized gain position:
Fair value proceedsFair value proceeds$415,440 $679,514 $1,351,653 $1,812,992 Fair value proceeds$1,090 $506 
Gains realizedGains realized$2,750 $20,155 $49,189 $34,801 Gains realized$31 $40 
Securities in an unrealized loss position:Securities in an unrealized loss position:Securities in an unrealized loss position:
Fair value proceedsFair value proceeds$8,228 $37,488 $33,062 $368,416 Fair value proceeds$8 $0 
Losses realizedLosses realized$(69)$(4,469)$(4,891)$(12,916)Losses realized$(1)$(1)
The chart below summarizes the realized gains (losses) on equity securities sold during the period and equity securities still held at the reporting date.
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2020201920202019
 (Dollars In Thousands)
Gains (losses) recognized during the period on equity securities still held$16,846 $6,765 $(844)$44,687 
Net gains (losses) recognized on equity securities sold during the period72 (648)192 (395)
Net gains (losses) recognized during the period on equity securities$16,918 $6,117 $(652)$44,292 


18
Table of Contents
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Net gains (losses) recognized during the period on equity securities still held$(8)$(43)
Net gains (losses) recognized on equity securities sold during the period0 0 
Net gains (losses) recognized during the period on equity securities$(8)$(43)
The amortized cost, gross unrealized gains, and losses, allowance for expected credit losses, and fair value of the Company’s investments classified as available-for-sale are as follows:
As of September 30, 2020Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance
for Expected
Credit Losses		Fair
Value
 (Dollars In Thousands)
Fixed maturities:    
Residential mortgage-backed securities$6,636,849 $211,313 $(889)$0 $6,847,273 
Commercial mortgage-backed securities2,464,104 120,335 (27,437)0 2,557,002 
Other asset-backed securities1,562,104 40,536 (17,756)(645)1,584,239 
U.S. government-related securities1,054,690 28,822 (3,219)0 1,080,293 
Other government-related securities566,924 73,814 (2,662)0 638,076 
States, municipals, and political subdivisions4,051,031 505,479 (2,881)0 4,553,629 
Corporate securities45,435,036 4,857,669 (289,933)(18,754)49,984,018 
Redeemable preferred stocks65,933 1,396 0 0 67,329 
 61,836,671 5,839,364 (344,777)(19,399)67,311,859 
Short-term investments1,161,706 0 0 0 1,161,706 
 $62,998,377 $5,839,364 $(344,777)$(19,399)$68,473,565 
11
Table of Contents

As of March 31, 2021Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance
for Expected
Credit Losses		Fair
Value
 (Dollars In Millions)
Fixed maturities:    
Residential mortgage-backed securities$6,872 $89 $(58)$0 $6,903 
Commercial mortgage-backed securities2,346 92 (11)(2)2,425 
Other asset-backed securities1,505 36 (4)(1)1,536 
U.S. government-related securities980 17 (37)0 960 
Other government-related securities591 54 (3)0 642 
States, municipals, and political subdivisions3,821 301 (3)0 4,119 
Corporate securities47,342 3,364 (348)(1)50,357 
Redeemable preferred stocks213 4 (1)0 216 
 63,670 3,957 (465)(4)67,158 
Short-term investments552 0 0 0 552 
 $64,222 $3,957 $(465)$(4)$67,710 
As of December 31, 2019Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
As of December 31, 2020As of December 31, 2020Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance
for Expected
Credit Losses		Fair
Value
(Dollars In Thousands)(Dollars In Millions)
Fixed maturities:Fixed maturities:Fixed maturities:
Residential mortgage-backed securitiesResidential mortgage-backed securities$5,812,170 $125,493 $(6,322)$5,931,341 Residential mortgage-backed securities$6,510 $159 $(1)$0 $6,668 
Commercial mortgage-backed securitiesCommercial mortgage-backed securities2,588,575 54,385 (3,292)2,639,668 Commercial mortgage-backed securities2,429 128 (19)(4)2,534 
Other asset-backed securitiesOther asset-backed securities1,764,120 32,041 (14,926)1,781,235 Other asset-backed securities1,546 40 (7)(1)1,578 
U.S. government-related securitiesU.S. government-related securities1,032,048 5,664 (5,316)1,032,396 U.S. government-related securities1,492 26 (3)0 1,515 
Other government-related securitiesOther government-related securities548,136 51,024 (1,991)597,169 Other government-related securities622 96 (1)0 717 
States, municipals, and political subdivisionsStates, municipals, and political subdivisions4,415,008 225,072 (1,230)4,638,850 States, municipals, and political subdivisions3,902 519 (1)0 4,420 
Corporate securitiesCorporate securities44,493,799 2,603,636 (288,334)46,809,101 Corporate securities46,150 6,074 (99)(18)52,107 
Redeemable preferred stocksRedeemable preferred stocks87,237 3,677 (4,249)86,665 Redeemable preferred stocks183 11 0 0 194 
60,741,093 3,100,992 (325,660)63,516,425 62,834 7,053 (131)(23)69,733 
Short-term investmentsShort-term investments1,229,651 0 0 1,229,651 Short-term investments386 0 0 0 386 
$61,970,744 $3,100,992 $(325,660)$64,746,076 $63,220 $7,053 $(131)$(23)$70,119 
The Company holds certain investments pursuant to certain modified coinsurance (“Modco”) arrangements. The fixed maturities, equity securities, and short-term investments held as part of these arrangements are classified as trading securities. The fair value of the investments held pursuant to these Modco arrangements are as follows:
1912
Table of Contents
As of
September 30, 2020December 31, 2019
 (Dollars In Thousands)
Fixed maturities:  
Residential mortgage-backed securities$207,507 $209,521 
Commercial mortgage-backed securities208,036 201,284 
Other asset-backed securities150,290 143,361 
U.S. government-related securities36,991 47,067 
Other government-related securities29,571 28,775 
States, municipals, and political subdivisions288,085 293,791 
Corporate securities1,850,471 1,590,936 
Redeemable preferred stocks12,434 12,832 
 2,783,385 2,527,567 
Equity securities16,742 6,656 
Short-term investments77,322 91,213 
 $2,877,449 $2,625,436 

As of
March 31, 2021December 31, 2020
 (Dollars In Millions)
Fixed maturities:  
Residential mortgage-backed securities$181 $209 
Commercial mortgage-backed securities213 214 
Other asset-backed securities175 163 
U.S. government-related securities35 91 
Other government-related securities32 30 
States, municipals, and political subdivisions282 282 
Corporate securities1,772 1,860 
Redeemable preferred stocks11 13 
 2,701 2,862 
Equity securities23 20 
Short-term investments109 76 
 $2,833 $2,958 
The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of September 30, 2020,March 31, 2021, by expected maturity, are shown below. Expected maturities of securities without a single maturity date are allocated based on estimated rates of prepayment that may differ from actual rates of prepayment.
 Available-for-SaleHeld-to-Maturity
Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
 (Dollars In Thousands)
Due in one year or less$2,067,896 $2,077,964 $0 $0 
Due after one year through five years11,455,625 11,970,027 0 0 
Due after five years through ten years14,897,323 16,103,285 0 0 
Due after ten years33,415,827 37,160,583 2,680,324 2,990,170 
 $61,836,671 $67,311,859 $2,680,324 $2,990,170 

 Available-for-Sale
Amortized
Cost		Fair
Value
 (Dollars In Millions)
Due in one year or less$1,626 $1,642 
Due after one year through five years12,386 12,921 
Due after five years through ten years13,803 14,580 
Due after ten years35,855 38,015 
 $63,670 $67,158 
The following chart is a rollforward of the available-for-sale allowance for expected credit losses on fixed maturities held by the Company:
For The
Three Months Ended
September 30, 2020		For The
Nine Months Ended
September 30, 2020
Corporate
Securities		Other Asset-Backed SecuritiesTotalCorporate
Securities		Other Asset-Backed SecuritiesTotal
 (Dollars In Thousands)
Beginning Balance$81,426 $655 $82,081 $0 $0 $0 
Additions for securities for which allowance was not previously recorded0 0 0 62,442 658 63,100 
Adjustments on previously recorded allowances due to change in expected cash flows945 0 945 19,929 — 19,929 
Reductions on previously recorded allowances due to disposal of security in the current period0 (10)(10)0 (13)(13)
Write-offs of previously recorded allowances due to intent or requirement to sell(63,617)0 (63,617)(63,617)$0 (63,617)
Ending Balance$18,754 $645 $19,399 $18,754 $645 $19,399 

For The Three Months Ended March 31,
20212020
Corporate
Securities		CMBSABSTotalCorporate
Securities		ABSTotal
 (Dollars In Millions)
Beginning Balance$18 $4 $1 $23 $0 $0 $0 
Additions for securities for which allowance was not previously recorded0 0 0 0 52 0 52 
Adjustments on previously recorded allowances due to change in expected cash flows(1)(2)0 (3)0 0 0 
Reductions on previously recorded allowances due to disposal of security in the current period0 0 0 0 0 0 0 
Write-offs of previously recorded allowances due to intent or requirement to sell(16)0 0 (16)0 0 0 
Ending Balance$1 $2 $1 $4 $52 $0 $52 
2013
Table of Contents

The following table includes the gross unrealized losses, for which an allowance for credit losses has not been recorded, and fair value of the Company’s AFS fixed maturities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2020:March 31, 2021:
Less Than 12 Months12 Months or MoreTotal Less Than 12 Months12 Months or MoreTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
(Dollars In Thousands) (Dollars In Millions)
Residential mortgage-backed securitiesResidential mortgage-backed securities$176,534 $(653)$6,895 $(236)$183,429 $(889)Residential mortgage-backed securities$2,586 $(58)$12 $0 $2,598 $(58)
Commercial mortgage-backed securitiesCommercial mortgage-backed securities354,926 (21,686)28,103 (5,751)383,029 (27,437)Commercial mortgage-backed securities247 (9)29 (2)276 (11)
Other asset-backed securitiesOther asset-backed securities379,311 (6,209)312,368 (11,547)691,679 (17,756)Other asset-backed securities182 (3)137 (1)319 (4)
U.S. government-related securitiesU.S. government-related securities251,534 (3,193)787 (26)252,321 (3,219)U.S. government-related securities438 (37)0 0 438 (37)
Other government-related securitiesOther government-related securities23,328 (1,900)6,776 (762)30,104 (2,662)Other government-related securities65 (3)0 0 65 (3)
States, municipals, and political subdivisionsStates, municipals, and political subdivisions105,894 (2,829)4,895 (52)110,789 (2,881)States, municipals, and political subdivisions78 (3)4 0 82 (3)
Corporate securitiesCorporate securities2,847,045 (152,100)1,076,575 (137,833)3,923,620 (289,933)Corporate securities7,213 (280)702 (68)7,915 (348)
Redeemable preferred stocksRedeemable preferred stocks0 0 0 0 0 0 Redeemable preferred stocks14 (1)0 0 14 (1)
$4,138,572 $(188,570)$1,436,399 $(156,207)$5,574,971 $(344,777) $10,823 $(394)$884 $(71)$11,707 $(465)
Commercial mortgage-backed securities (“CMBS”) had gross unrealized losses greater than twelve months $5.8of $2 million as of September 30, 2020.March 31, 2021. Factors such as the credit enhancement within the deal structure, the average life of the securities, and the performance of the underlying collateral support the recoverability of these investments.
The other asset-backed securities have a gross unrealized loss greater than twelve months of $11.5$1 million as of September 30, 2020, excluding losses of $0.6 million that were considered credit related.March 31, 2021. This category predominately includes student loan backed auction rate securities (“ARS”) whose underlying collateral is at leastleast 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.
The other government-related securities had gross unrealized losses greater than twelve months of $0.8 million as of September 30, 2020. These declines were related to changes in interest rates.
The corporate securities category had gross unrealized losses greater than twelve months of $137.8$68 million as of September 30, 2020,March 31, 2021, excluding losses of $18.7$1 million that were considered credit related. The overall deteriorationThese losses are deemed temporary due to the delayed uneven recoveries from the COVID-19 pandemic, and the recent increase in the macroeconomic environmenttreasury rates as a result of the impact of COVID-19 as well as the continued pressure on commodity prices has negatively affected the values of certain of our investments. The largest impacts have been in the oil & gas, real estate, and consumer and retail industries. For the nine months ended September 30, 2020, we have recognized $120.5 million of impairments for the Company which primarily reflect declines in the value of certain oil and gas securities.March 31, 2021.
As of September 30, 2020,March 31, 2021, the Company had a total of 645845 positions that were in an unrealized loss position, including 56 positions for which an allowance for credit losses was established. For unrealized losses for which an allowance for credit losses was not established, the Company does not consider these unrealized loss positions to be credit-related. This is based on the aggregate factors discussed previously and because the Company has the ability and intent to hold these investments until the fair values recover. The Company does not intend to sell or expect to be required to sell the securities before recovering the Company’s amortized cost of the securities.

21
14
Table of Contents
The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2019:2020:
Less Than 12 Months12 Months or MoreTotal Less Than 12 Months12 Months or MoreTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
(Dollars In Thousands) (Dollars In Millions)
Residential mortgage-backed securitiesResidential mortgage-backed securities$851,333 $(4,231)$220,843 $(2,091)$1,072,176 $(6,322)Residential mortgage-backed securities$386 $(1)$9 $0 $395 $(1)
Commercial mortgage-backed securitiesCommercial mortgage-backed securities371,945 (1,721)115,566 (1,571)487,511 (3,292)Commercial mortgage-backed securities263 (16)30 (4)293 (20)
Other asset-backed securitiesOther asset-backed securities482,547 (6,516)214,058 (8,410)696,605 (14,926)Other asset-backed securities146 (2)326 (5)472 (7)
U.S. government-related securitiesU.S. government-related securities383,451 (3,373)353,517 (1,943)736,968 (5,316)U.S. government-related securities311 (3)1 0 312 (3)
Other government-related securitiesOther government-related securities22,962 (669)6,230 (1,322)29,192 (1,991)Other government-related securities19 0 7 (1)26 (1)
States, municipals, and political subdivisionsStates, municipals, and political subdivisions56,470 (1,001)12,907 (229)69,377 (1,230)States, municipals, and political subdivisions34 (1)5 0 39 (1)
Corporate securitiesCorporate securities3,176,489 (68,289)2,886,648 (220,045)6,063,137 (288,334)Corporate securities1,063 (33)728 (66)1,791 (99)
Redeemable preferred stocksRedeemable preferred stocks0 0 16,689 (4,249)16,689 (4,249)Redeemable preferred stocks0 0 0 0 0 0 
$5,345,197 $(85,800)$3,826,458 $(239,860)$9,171,655 $(325,660) $2,222 $(56)$1,106 $(76)$3,328 $(132)
As of September 30, 2020,March 31, 2021, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $2.3$3 billion and had an amortized cost of $2.4$3 billion. Approximately $381.8 million of below investment grade securities held by the Company were not publicly traded. In addition, included in the Company’s trading portfolio, the Company held $125.0$134 million of securities which were rated below investment grade. The Company held $508 million of below investment grade securities that were not publicly traded.
The change in unrealized gains (losses), excluding the allowance for expected credit losses, net of income tax, on fixed maturities, classified as available-for-sale is summarized as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2020201920202019
 (Dollars In Thousands)
Fixed maturities$785,093 $1,308,054 $2,148,211 $4,396,173 
22
Table of Contents
The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of September 30, 2020 and December 31, 2019, are as follows:
As of September 30, 2020Amortized
Cost		Gross
Unrecognized
Holding
Gains		Gross
Unrecognized
Holding
Losses		Fair
Value
 (Dollars In Thousands)
Fixed maturities:    
Securities issued by affiliates:
Red Mountain, LLC$822,324 $140,435 $0 $962,759 
Steel City, LLC1,858,000 169,411 0 2,027,411 
 $2,680,324 $309,846 $0 $2,990,170 
As of December 31, 2019Amortized
Cost		Gross
Unrecognized
Holding
Gains		Gross
Unrecognized
Holding
Losses		Fair
Value
(Dollars In Thousands)
Fixed maturities:    
Securities issued by affiliates:
Red Mountain, LLC$795,881 $81,022 $0 $876,903 
Steel City, LLC2,028,000 120,887 0 2,148,887 
 $2,823,881 $201,909 $0 $3,025,790 
During the three and nine months ended September 30, 2020 and 2019, the Company recorded 0 credit losses on held-to-maturity securities.
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Fixed maturities$(2,710)$3,276 
The Company’s held-to-maturity securities are issued by affiliates of the Company which are considered variable interest entities. The Company is not the primary beneficiary of these entities and thus the securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are affiliates of the Company. See Note 15, Subsequent Events for additional information on Red Mountain, LLC and Steel City, LLC.
6.4.    FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determined the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosures Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company has adopted the provisions from the FASB guidance that is referenced in the Fair Value Measurements and Disclosures Topic for non-financial assets and liabilities (such as property and equipment, goodwill, and other intangible assets) that are required to be measured at fair value on a periodic basis. The effect on the Company’s periodic fair value measurements for non-financial assets and liabilities was not material.
The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.
2315

 Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized as follows:
•Level 1: Unadjusted quoted prices for identical assets or liabilities in an active market.

•Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:
 
a)    Quoted prices for similar assets or liabilities in active markets;
b)    Quoted prices for identical or similar assets or liabilities in non-active markets;
c)    Inputs other than quoted market prices that are observable; and
d)    Inputs that are derived principally from or corroborated by observable market data through correlation or other means.
 
•Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own estimates about the assumptions a market participant would use in pricing the asset or liability.


24
16

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of September 30, 2020:March 31, 2021:
Measurement
Category		Level 1Level 2Level 3Total Measurement
Category		Level 1Level 2Level 3Total
(Dollars In Thousands) (Dollars In Millions)
Assets:Assets:    Assets:    
Fixed maturity securities - available-for-sale    
Fixed maturity securities - AFSFixed maturity securities - AFS    
Residential mortgage-backed securitiesResidential mortgage-backed securities4$0 $6,847,273 $0 $6,847,273 Residential mortgage-backed securities4$0 $6,903 $0 $6,903 
Commercial mortgage-backed securitiesCommercial mortgage-backed securities40 2,546,317 10,685 2,557,002 Commercial mortgage-backed securities40 2,393 32 2,425 
Other asset-backed securitiesOther asset-backed securities40 1,149,743 434,496 1,584,239 Other asset-backed securities40 1,096 440 1,536 
U.S. government-related securitiesU.S. government-related securities4578,554 501,739 0 1,080,293 U.S. government-related securities4483 477 0 960 
State, municipals, and political subdivisionsState, municipals, and political subdivisions40 4,553,629 0 4,553,629 State, municipals, and political subdivisions40 4,119 0 4,119 
Other government-related securitiesOther government-related securities40 638,076 0 638,076 Other government-related securities40 642 0 642 
Corporate securitiesCorporate securities40 48,626,474 1,357,544 49,984,018 Corporate securities40 48,951 1,406 50,357 
Redeemable preferred stocksRedeemable preferred stocks467,329 0 0 67,329 Redeemable preferred stocks4150 66 0 216 
Total fixed maturity securities - available-for-sale645,883 64,863,251 1,802,725 67,311,859 
Total fixed maturity securities - AFSTotal fixed maturity securities - AFS633 64,647 1,878 67,158 
Fixed maturity securities - tradingFixed maturity securities - trading    Fixed maturity securities - trading    
Residential mortgage-backed securitiesResidential mortgage-backed securities30 207,507 0 207,507 Residential mortgage-backed securities30 181 0 181 
Commercial mortgage-backed securitiesCommercial mortgage-backed securities30 208,036 0 208,036 Commercial mortgage-backed securities30 213 0 213 
Other asset-backed securitiesOther asset-backed securities30 87,848 62,442 150,290 Other asset-backed securities30 74 101 175 
U.S. government-related securitiesU.S. government-related securities321,761 15,230 0 36,991 U.S. government-related securities328 7 0 35 
State, municipals, and political subdivisionsState, municipals, and political subdivisions30 288,085 0 288,085 State, municipals, and political subdivisions30 282 0 282 
Other government-related securitiesOther government-related securities30 29,571 0 29,571 Other government-related securities30 16 16 32 
Corporate securitiesCorporate securities30 1,832,592 17,879 1,850,471 Corporate securities30 1,761 11 1,772 
Redeemable preferred stocksRedeemable preferred stocks312,434 0 0 12,434 Redeemable preferred stocks311 0 0 11 
Total fixed maturity securities - tradingTotal fixed maturity securities - trading34,195 2,668,869 80,321 2,783,385 Total fixed maturity securities - trading39 2,534 128 2,701 
Total fixed maturity securitiesTotal fixed maturity securities680,078 67,532,120 1,883,046 70,095,244 Total fixed maturity securities672 67,181 2,006 69,859 
Equity securitiesEquity securities3452,042 0 86,343 538,385 Equity securities3618 0123 741 
Other long-term investments(1)
Other long-term investments(1)
3 & 473,934 1,013,846 319,994 1,407,774 
Other long-term investments(1)
3 & 464 1,271 289 1,624 
Short-term investmentsShort-term investments31,156,203 82,825 0 1,239,028 Short-term investments3484 177 0 661 
Total investmentsTotal investments2,362,257 68,628,791 2,289,383 73,280,431 Total investments1,838 68,629 2,418 72,885 
CashCash3381,753 0 0 381,753 Cash3565 0 0 565 
Assets related to separate accountsAssets related to separate accounts    Assets related to separate accounts    
Variable annuityVariable annuity311,487,408 0 0 11,487,408 Variable annuity312,699 0 0 12,699 
Variable universal lifeVariable universal life31,144,474 0 0 1,144,474 Variable universal life31,646 0 0 1,646 
Total assets measured at fair value on a recurring basisTotal assets measured at fair value on a recurring basis$15,375,892 $68,628,791 $2,289,383 $86,294,066 Total assets measured at fair value on a recurring basis$16,748 $68,629 $2,418 $87,795 
Liabilities:Liabilities:    Liabilities:    
Annuity account balances(2)
Annuity account balances(2)
3$0 $0 $67,591 $67,591 
Annuity account balances(2)
3$0 $0 $66 $66 
Other liabilities(1)
Other liabilities(1)
3 & 49,480 675,209 1,718,905 2,403,594 
Other liabilities(1)
3 & 426 939 1,686 2,651 
Total liabilities measured at fair value on a recurring basisTotal liabilities measured at fair value on a recurring basis$9,480 $675,209 $1,786,496 $2,471,185 Total liabilities measured at fair value on a recurring basis$26 $939 $1,752 $2,717 
Measurement category 3 represents fair value through net income (loss) and 4 represents fair value through other comprehensive income (loss).Measurement category 3 represents fair value through net income (loss) and 4 represents fair value through other comprehensive income (loss).
(1) Includes certain freestanding and embedded derivatives.(2) Represents liabilities related to fixed indexed annuities.
(3) Fair Value through Net Income
(4) Fair Value through Other Comprehensive Income (Loss)
2517

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2019:2020:
 Measurement
Category		Level 1Level 2Level 3Total
 (Dollars In Millions)
Assets:    
Fixed maturity securities - AFS    
Residential mortgage-backed securities4$0 $6,668 $0 $6,668 
Commercial mortgage-backed securities40 2,502 32 2,534 
Other asset-backed securities40 1,143 435 1,578 
U.S. government-related securities41,015 500 0 1,515 
State, municipals, and political subdivisions40 4,420 0 4,420 
Other government-related securities40 717 0 717 
Corporate securities40 50,675 1,432 52,107 
Redeemable preferred stocks4125 69 0 194 
Total fixed maturity securities - AFS1,140 66,694 1,899 69,733 
Fixed maturity securities - trading    
Residential mortgage-backed securities30 209 0 209 
Commercial mortgage-backed securities30 214 0 214 
Other asset-backed securities30 91 72 163 
U.S. government-related securities379 12 0 91 
State, municipals, and political subdivisions30 282 0 282 
Other government-related securities30 30 0 30 
Corporate securities30 1,843 17 1,860 
Redeemable preferred stocks313 0 0 13 
Total fixed maturity securities - trading92 2,681 89 2,862 
Total fixed maturity securities1,232 69,375 1,988 72,595 
Equity securities3566 0 101 667 
Other long-term investments(1)
3 & 452 1,285 299 1,636 
Short-term investments3403 59 0 462 
Total investments2,253 70,719 2,388 75,360 
Cash3656 0 0 656 
Assets related to separate accounts    
Variable annuity312,378 0 0 12,378 
Variable universal life31,287 0 0 1,287 
Total assets measured at fair value on a recurring basis$16,574 $70,719 $2,388 $89,681 
Liabilities:    
Annuity account balances(2)
3$0 $0 $67 $67 
Other liabilities(1)
3 & 414 867 2,238 3,119 
Total liabilities measured at fair value on a recurring basis$14 $867 $2,305 $3,186 
Measurement category 3 represents fair value through net income (loss) and 4 represents fair value through other comprehensive income (loss).
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
 Measurement
Category		Level 1Level 2Level 3Total
 (Dollars In Thousands)
Assets:    
Fixed maturity securities - available-for-sale    
Residential mortgage-backed securities4$0 $5,931,341 $0 $5,931,341 
Commercial mortgage-backed securities40 2,629,639 10,029 2,639,668 
Other asset-backed securities40 1,360,016 421,219 1,781,235 
U.S. government-related securities4662,581 369,815 0 1,032,396 
State, municipals, and political subdivisions40 4,638,850 0 4,638,850 
Other government-related securities40 597,169 0 597,169 
Corporate securities40 45,435,387 1,373,714 46,809,101 
Redeemable preferred stocks469,976 16,689 0 86,665 
Total fixed maturity securities - available-for-sale732,557 60,978,906 1,804,962 63,516,425 
Fixed maturity securities - trading    
Residential mortgage-backed securities30 209,521 0 209,521 
Commercial mortgage-backed securities30 201,284 0 201,284 
Other asset-backed securities30 77,954 65,407 143,361 
U.S. government-related securities324,810 22,257 0 47,067 
State, municipals, and political subdivisions30 293,791 0 293,791 
Other government-related securities30 28,775 0 28,775 
Corporate securities30 1,579,565 11,371 1,590,936 
Redeemable preferred stocks312,832 0 0 12,832 
Total fixed maturity securities - trading37,642 2,413,147 76,778 2,527,567 
Total fixed maturity securities770,199 63,392,053 1,881,740 66,043,992 
Equity securities3480,750 0 72,970 553,720 
Other long-term investments(1)
3 & 452,225 733,425 209,843 995,493 
Short-term investments31,255,384 65,480 0 1,320,864 
Total investments2,558,558 64,190,958 2,164,553 68,914,069 
Cash3171,752 0 0 171,752 
Assets related to separate accounts    
Variable annuity312,730,090 0 0 12,730,090 
Variable universal life31,135,666 0 0 1,135,666 
Total assets measured at fair value on a recurring basis$16,596,066 $64,190,958 $2,164,553 $82,951,577 
Liabilities:    
Annuity account balances(2)
3$0 $0 $69,728 $69,728 
Other liabilities(1)
3 & 419,561 509,645 1,017,972 1,547,178 
Total liabilities measured at fair value on a recurring basis$19,561 $509,645 $1,087,700 $1,616,906 
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
(3) Fair Value through Net Income
(4) Fair Value through Other Comprehensive Income (Loss)



2618


Determination of Fair Values
The valuation methodologies used to determine the fair values of assets and liabilities reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices, where available. The Company also determines certain fair values based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s credit standing, liquidity, and where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments as listed in the above table.
The fair value of fixed maturity, short-term, and equity securities is determined by management after considering 1 of 3 primary sources of information: third party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied usingFor a “waterfall” approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for non-binding prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these 3 pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. Third party pricing services price 92.6%full description of the Company’s available-for-sale and trading fixed maturity securities. Based on the typical trading volumes and the lack of quoted market prices for available-for-sale and trading fixed maturities, third party pricing services derive the majority of security prices from observable market inputs such as recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information outlined above. If there are no recent reported trades, the third party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Certain securities are priced via independent non-binding broker quotations. When using non-binding independent broker quotations, when available the Company obtains 2 quotes per security. Where multiple broker quotes are obtained, the Company reviews the quotes and selects the quote that provides the best estimate of the price a market participant would pay for these specific assets in an arm’s length transaction. A pricing matrix is used to price securities for which the Company is unable to obtain or effectively rely on either a price from a third party pricing service or an independent broker quotation.
The pricing matrix used by the Company begins with current spread levels to determine the market price for the security. The credit spreads, assigned by brokers, incorporate the issuer’s credit rating, liquidity discounts, weighted-average of contracted cash flows, risk premium, if warranted, due to the issuer’s industry, and the security’s time to maturity. The Company uses credit ratings provided by nationally recognized rating agencies.
For securities that are priced via non-binding independent broker quotations, the Company assesses whether prices received from independent brokers represent a reasonable estimate of fair value. The Company’s assessment incorporates various metrics (yield curves, credit spreads, prepayment rates, etc.) along with other information available to the Company from both internal and external sources to determine the valuation of such holdings. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly. The Company did not adjust any quotes or prices received from brokers during the nine months ended September 30, 2020.

The Company has analyzed the third party pricing services’ valuation methodologiescalculations and related inputs and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs that is in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. Based on this evaluation and investment class analysis, each price was classified into Level 1, 2, or 3. Most prices provided by third party pricing services are classified into Level 2 because the significant inputs used in pricing the securities are market observable and the observable inputs are corroborated by the Company. Since the matrix pricing of certain debt securities includes significant non-observable inputs, they are classified as Level 3.
27

Asset-Backed Securities
This category mainly consists of residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). As of September 30, 2020, the Company held $11.0 billion of ABS classified as Level 2. These securities are priced from information provided by a third party pricing service and independent broker quotes. The third party pricing services and brokers mainly value securities using both a market and income approach to valuation. As part of this valuation process they consider the following characteristics of the item being measured to be relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, and 7) credit ratings of the securities.
After reviewing these characteristics of the ABS, the third party pricing service and brokers use certain inputs to determine the value of the security. For ABS classified as Level 2, the valuation would consist of predominantly market observable inputs such as, but not limited to: 1) monthly principal and interest payments on the underlying assets, 2) average life of the security, 3) prepayment speeds, 4) credit spreads, 5) treasury and swap yield curves, and 6) discount margin. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.
As of September 30, 2020, the Company held $507.6 million of Level 3 ABS, which included $445.2 million of other asset-backed securities classified as available-for-sale and $62.4 million of other asset-backed securities classified as trading. These securities are predominantly ARS whose underlying collateral is at least 97% guaranteed by the FFELP. The Company prices its ARS using an income approach valuation model. As part of the valuation process the Company reviews the following characteristics of the ARS in determining the relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, 7) credit ratings of the securities, 8) liquidity premium, and 9) paydown rate. In periods where market activity increases and there are transactions at a price that is not the result of a distressed or forced sale we consider those prices as part of our valuation. If the market activity during a period is solely the result of the issuer redeeming positions we consider those transactions in our valuation, but still consider them to be Level 3 measurements due to the nature of the transaction.
Corporate Securities, Redeemable Preferred Stocks, U.S. Government-Related Securities, States, Municipals, and Political Subdivisions, and Other Government-Related Securities
As of September 30, 2020, the Company classified approximately $56.5 billion of corporate securities, redeemable preferred stocks, U.S. government-related securities, states, municipals, and political subdivisions, and other government-related securities as Level 2. The fair value of the Level 2 securities is predominantly priced by broker quotes and a third party pricing service. The Company has reviewed the valuation techniques of the brokers and third party pricing service and has determined that such techniques used Level 2 market observable inputs. The following characteristics of the securities are considered to be the primary relevant inputs to the valuation: 1) weighted- average coupon rate, 2) weighted-average years to maturity, 3) seniority, and 4) credit ratings. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.
The brokers and third party pricing service utilize valuation models that consist of a hybrid methodology that utilizes a cash flow analysis and market approach to valuation. The pricing models utilize the following inputs: 1) principal and interest payments, 2) treasury yield curve, 3) credit spreads from new issue and secondary trading markets, 4) dealer quotes with adjustments for issues with early redemption features, 5) liquidity premiums present on private placements, and 6) discount margins from dealers in the new issue market.
As of September 30, 2020, the Company classified approximately $1.4 billion of securities as Level 3 valuations. Level 3 securities primarily represent investments in illiquid bonds for which no price is readily available. To determine a price, the Company uses a discounted cash flow model with both observable and unobservable inputs. These inputs are entered into an industry standard pricing model to determine the final price of the security. These inputs include: 1) principal and interest payments, 2) coupon rate, 3) sector and issuer level spread over treasury, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.
Equities
As of September 30, 2020, the Company held approximately $86.3 million of equity securities classified as Level 3. Of this total, $80.3 million represents Federal Home Loan Bank (“FHLB”) stock. The Company believes that the cost of the FHLB stock approximates fair value.
28

Other Long-Term Investments and Other Liabilities
Derivative Financial Instruments
Other long-term investments and other liabilities include free-standing and embedded derivative financial instruments. Refer to Note 7, Derivative Financial Instruments for additional information related to derivatives. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of September 30, 2020, 87.4% of derivatives based upon notional values were priced using exchange prices or independent broker quotations. The remaining derivatives were priced by pricing valuation models, which utilize observable market data inputs to the extent they are available. Inputs used to value derivatives include, but are not limited to, interest swap rates, credit spreads, interest rate and equity market volatility indices, equity index levels, and treasury rates. The Company performs monthly analysis on derivative valuations that includes both quantitative and qualitative analyses.
Derivative instruments classified as Level 1 generally include futures and options, which are traded on active exchange markets.
Derivative instruments classified as Level 2 primarily include swaps, options, and swaptions, which are traded over-the-counter. Level 2 also includes certain centrally cleared derivatives. These derivative valuations are determined using independent broker quotations, which are corroborated with observable market inputs.
Derivative instruments classified as Level 3 were embedded derivatives and include at least one significant non-observable input. A derivative instrument containing Level 1 and Level 2 inputs will be classified as a Level 3 financial instrument in its entirety if it has at least one significant Level 3 input.
The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the changes in fair value on derivatives reported in Level 3 may not reflect the offsetting impact of the changes in fair value of the associated assets and liabilities.
Embedded derivatives are carried at fair value in other long-term investments and other liabilities on the Company’s consolidated condensed balance sheet. The changes in fair value of embedded derivatives are recorded as realized gains (losses) - investments/derivatives. Refer to Note 7, Derivative Financial Instruments for more information.

The fair value of the guaranteed living withdrawal benefits (“GLWB”) embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using multiple risk neutral stochastic equity scenarios and policyholder behavior assumptions. The risk neutral scenarios are generated using the current swap curve and projected equity volatilities and correlations. The projected equity volatilities are based on a blend of historical volatility and near-term equity market implied volatilities. The equity correlations are based on historical price observations. For policyholder behavior assumptions, expected lapse and utilization assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the Ruark 2015 ALB table, with attained age factors varying from 88.0% - 100.0% based on company experience. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR plus a credit spread (to represent the Company’s non-performance risk). For expected lapse and utilization, assumptions are used and updated for actual experience, as necessary, using an internal predictive model developed by the Company. As a result of using significant unobservable inputs, the GLWB embedded derivative is categorized as Level 3. Policyholder assumptions are reviewed on an annual basis.
The balance of the fixed indexed annuity (“FIA”) embedded derivative is impacted by policyholder cash flows associated with the FIA product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the FIA embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior, assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the 2015 Ruark ALB mortality table with attained age factors varying from 88.0% - 100.0% based on company experience. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the FIA embedded derivative is categorized as Level 3.
29

The balance of the indexed universal life (“IUL”) embedded derivative is impacted by policyholder cash flows associated with the IUL product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the IUL embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the SOA 2015 VBT Primary Tables, with attained age factors varying from 36.0% - 161.0% based on company experience. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the IUL embedded derivative is categorized as Level 3.
The Company has assumed and ceded certain blocks ofaccounting policies, under modified coinsurance agreements in which the investment results of the underlying portfolios inure directly to the reinsurers. Funds withheld arrangements related to such agreements contain embedded derivatives that are reported at fair value. Changes in their fair value are reported in realized gains (losses) - investments/derivatives. The fair value of embedded derivatives related to funds withheld under modified coinsurance agreements are a function of the unrealized gains or losses on the underlying assets and are calculated in a manner consistent with the terms of the agreements. The investments supporting certain of these agreements are designated as “trading securities”; therefore changes in their fair value are also reported in realized gains (losses) - investments/derivatives. The fair value of embedded derivatives is estimated based on market standard valuation methodology and is considered a Level 3 valuation.
The Company and certain of its subsidiaries have entered into interest support, yearly renewable term (“YRT”) premium support, and portfolio maintenance agreements with PLC. These agreements meet the definition of a derivative and are accounted for at fair value and are considered Level 3 valuations. The fair value of these derivatives as of September 30, 2020 was $133.5 million and is included in other long-term investments. For information regarding realized gains on these derivatives please refer to Note 7, Derivative Financial Instruments.
The Interest Support Agreement provides that PLC will make payments to Golden Gate II Captive Insurance Company (“Golden Gate II”), a wholly owned subsidiary of the Company, if actual investment income on certain of Golden Gate II’s asset portfolios falls below a calculated investment income amount as defined5 in the Interest Support Agreement. The calculated investment income amount is a level of investment income deemed to be sufficient to support certain of Golden Gate II’s obligations under a reinsurance agreement with the Company, dated July 1, 2007. The derivative is valued using an internal valuation model that assumes a conservative projection of investment income under an adverse interest rate scenario and the probability that the expectation falls below the calculated investment income amount. This derivative had a fair value of $78.6 million as of September 30, 2020. Golden Gate II recognized $2.4 million in gains related to payments made under this agreementCompany’s Form 10-K for the nine monthsyear ended September 30,December 31, 2020. As of September 30, 2020, certain interest support agreement obligations to Golden Gate II of approximately $5.5 million have been collateralized by PLC. Re-evaluation and, if necessary, adjustments of any support agreement collateralization amounts occur annually during the first quarter pursuant to the terms of the support agreement.
The YRT premium support agreements provide that PLC will make payments to Golden Gate Captive Insurance Company (“Golden Gate”), a wholly owned subsidiary of the Company, and Golden Gate II in the event that YRT premium rates increase. The derivatives are valued using an internal valuation model. The valuation model is a probability weighted discounted cash flow model. The value is primarily a function of the likelihood and severity of future YRT premium increases. The fair value of these derivatives as of September 30, 2020 was $53.2 million. Golden Gate II recognized $1.6 million in gains related to payments made under this agreement for the nine months ended September 30, 2020.
The portfolio maintenance agreements provide that PLC will make payments to Golden Gate, Golden Gate V, and West Coast Life Insurance Company (“WCL”), a wholly owned subsidiary of the Company, in the event of other-than-temporary impairments on investments, measured in accordance with Statutory Accounting Principles, that exceed defined thresholds. The derivatives are valued using an internal discounted cash flow model. The significant unobservable inputs are the projected probability and severity of credit losses used to project future cash flows on the investment portfolios. The fair value of the portfolio maintenance agreements as of September 30, 2020, was $1.7 million. As of September 30, 2020, 0 payments have been made under these agreements.
30

The Funds Withheld derivative results from reinsurance agreements with subsidiaries of PLC, where the economic performance of certain hedging instruments held by the Company are ceded to the subsidiaries. The value of the Funds Withheld derivative is directly tied to the value of the hedging instruments held in the funds withheld account. The hedging instruments predominantly consist of derivative instruments the fair values of which are classified as a Level 2 measurement; as such, the fair value of the Funds Withheld derivative has been classified as a Level 2 measurement. The fair value of the Funds Withheld derivative as of September 30, 2020, was a liability of $145.0 million.
Annuity Account Balances
The Company records a certain legacy block of FIA reserves at fair value. Based on the characteristics of these reserves, the Company believes that the fund value approximates fair value. The fair value measurement of these reserves is considered a Level 3 valuation due to the unobservable nature of the fund values.
Separate Accounts
Separate account assets are invested in open-ended mutual funds and are included in Level 1.
31

Valuation of Level 3 Financial Instruments
The following table presentstables present the valuation method for material AFS fixed maturity securities and embedded derivative financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments as of September 30,March 31, 2021 and December 31, 2020:
Fair ValueValuation
Technique		Unobservable
Input		Range
(Weighted Average)
 (Dollars In Thousands)   
Assets:    
Commercial mortgage-backed securities$10,685 Discounted cash flowSpread over treasury2.78%
Other asset-backed securities434,496 LiquidationLiquidation value$95.75 - $97.00 ($96.40)
Discounted cash flowLiquidity premium0.51% - 2.33% (1.61%)
Paydown rate8.75% - 12.55% (11.38%)
Corporate securities1,357,544 Discounted cash flowSpread over treasury0.60% - 4.75% (2.24%)
Liabilities:(1)
    
Embedded derivatives - GLWB(2)
518,246 Actuarial cash flow modelMortality
88% to 100% of
Ruark 2015 ALB Table

   LapsePL-RBA Predictive Model
   UtilizationPL-RBA Predictive Model
   Nonperformance risk0.22% - 0.88%
Embedded derivative - FIA531,814 Actuarial cash flow modelExpenses$207 per policy
   Withdrawal rate0.4% - 2.4% prior to age 70, 100% of the RMD for ages 70+ or WB withdrawal rate. Assume underutilized RMD for non-WB policies ages 70-81.
   Mortality88% to 100% of Ruark 2015 ALB table
   Lapse0.2% - 50.0%, depending on duration/surrender charge period
Dynamically adjusted for WB moneyness and projected market rates vs credited rates
   Nonperformance risk0.22% - 0.88%
Embedded derivative - IUL194,228 Actuarial cash flow modelMortality37% - 161% of 2015
VBT Primary Tables
94% - 248% of duration 8 point in scale 2015 VBT Primary Tables, depending on type of business
   Lapse0.4% - 10%, depending on
duration/distribution channel
and smoking class
   Nonperformance risk0.22% - 0.88%
(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.

19

March 31, 2021
Fair Value		Valuation
Technique		Unobservable
Input		Range
(Weighted Average)
(Dollars In Millions)
Assets:
Commercial mortgage-backed securities$32 Discounted cash flowSpread over treasury1.87% - 2.10% (2.02%)
Other asset-backed securities440 LiquidationLiquidation value$96.50 - $98.38 ($97.17)
Discounted cash flowLiquidity premium0.64% - 2.29% (1.66%)
Paydown rate8.88% - 12.47% (11.40%)
Corporate securities1,406 Discounted cash flowSpread over treasury0.00% - 4.50% (1.79%)
Liabilities:(1)
Embedded derivatives - GLWB(2)
$418 Actuarial cash flow modelMortality
88% to 100% of
Ruark 2015 ALB Table

LapsePL-RBA Predictive Model
UtilizationPL-RBA Predictive Model
Nonperformance risk0.20% - 0.85%
Embedded derivative - FIA583 Actuarial cash flow modelExpenses$207 per policy
Withdrawal rate0.4% - 2.4% prior to age 70, 100% of the RMD for ages 70+ or WB withdrawal rate. Assume underutilized RMD for non-WB policies ages 70-81.
Mortality88% to 100% of Ruark 2015 ALB table
Lapse0.2% - 50.0%, depending on duration/surrender charge period
Dynamically adjusted for WB moneyness and projected market rates vs credited rates
Nonperformance risk0.20% - 0.85%
Embedded derivative - IUL179 Actuarial cash flow modelMortality36% - 161% of 2015
VBT Primary Tables
94% - 248% of duration 8 point in scale 2015 VBT Primary Tables, depending on type of business
Lapse0.375% - 10%, depending on
duration/distribution channel
and smoking class
Nonperformance risk0.20% - 0.85%
(1) Excludes modified coinsurance arrangements.
(2) Fair value is presented as a net liability.
20

December 31, 2020Fair ValueValuation
Technique		Unobservable
Input		Range
(Weighted Average)
(Dollars In Millions)
Assets:
Commercial mortgage-backed securities$32 Discounted cash flowSpread over treasury2.78% - 2.92% (2.87%)
Other asset-backed securities435 LiquidationLiquidation value$95 - $97 ($96.19)
Discounted cash flowLiquidity premium0.54% - 2.3% (1.63%)
Paydown Rate8.79% - 12.49% (11.39%)
Corporate securities1,432 Discounted cash flowSpread over treasury0.00% - 4.75% (1.89%)
Liabilities:(1)
Embedded derivatives - GLWB(2)
$822 Actuarial cash flow modelMortality
88% to 100% of
Ruark 2015 ALB Table
LapsePL-RBA Predictive Model
UtilizationPL-RBA Predictive Model
Nonperformance risk0.19% - 0.81%
Embedded derivative - FIA573 Actuarial cash flow modelExpenses$207 per policy
Withdrawal rate
0.4% - 2.4% prior to age 70 RMD for
ages 70+
or WB withdrawal rate
Assume underutilized RMD
for non-WB policies age 72-88
Mortality88% to 100% or Ruark 2015 ALB table
Lapse0.2% - 50.0%, depending on duration/surrender charge period
Nonperformance risk0.19% - 0.81%
Embedded derivative - IUL201 Actuarial cash flow modelMortality
36% - 161% of 2015
VBT Primary Tables
94% - 248% of duration
8 point in scale 2015
VBT Primary Tables,
depending on type of business
Lapse0.375% - 10%, depending on duration/distribution channel and smoking class
Nonperformance risk0.19% - 0.81%
(1) Excludes modified coinsurance arrangements.
(2) Fair value is presented as a net liability.
The chartcharts above excludesexclude Level 3 financial instruments that are valued using broker quotes and for which book value approximates fair value. Unobservable inputs were weighted by the relative fair value of instruments, except for other asset-backed securities which were weighted by the relative par amounts.
The Company has considered all reasonably available quantitative inputs as of September 30,March 31, 2021 and December 31, 2020, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $98.1$125 million and $116 million of financial instruments being classified as Level 3 as of September 30,March 31, 2021 and December 31, 2020, of which $79.3$109 million areand $88 million were other asset-backed securities, $12.8$10 million areand $17 million were corporate securities and $6.0$6 million areand $11 million were equity securities.securities, respectively.
In certain cases the Company has determined that book value materially approximates fair value. As of September 30,March 31, 2021 and December 31, 2020, the Company held $80.3$117 million and $90 million of financial instruments, respectively, where book value approximates fair value which was predominantly FHLB stock.
32

The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments as of December 31, 2019:
Fair ValueValuation
Technique		Unobservable
Input		Range
(Weighted Average)
 (Dollars In Thousands)   
Assets:    
Commercial mortgage-backed securities$10,029 Discounted cash flowSpread over treasury2.5%
Other asset-backed securities421,219 LiquidationLiquidation value$95.39 - $99.99 ($97.95)
Discounted cash flowLiquidity premium0.34% - 2.28% (1.44%)
Paydown Rate8.99% - 12.45% (11.28%)
Corporate securities1,373,714 Discounted cash flowSpread over treasury0.00% - 4.03% (1.60%)
Liabilities:(1)
    
Embedded derivatives - GLWB(2)
$186,038 Actuarial cash flow modelMortality
87% to 100% of
Ruark 2015 ALB Table
   LapseRuark Predictive Model
   Utilization99%. 10% of policies have a one-time over-utilization of 400%
   Nonperformance risk0.12% - 0.82%
Embedded derivative - FIA336,826 Actuarial cash flow modelExpenses$195 per policy
   Withdrawal rate
0.4% - 1.2% prior to age 70 RMD for
ages 70+
or WB withdrawal rate
Assume underutilized RMD
for non-WB policies age 70-81
   Mortality87% to 100% or Ruark 2015 ALB table
   Lapse0.5% - 50.0%, depending on duration/surrender charge period
   Nonperformance risk0.12% - 0.82%
Embedded derivative - IUL151,765 Actuarial cash flow modelMortality
37% - 156% of 2015
VBT Primary Tables
94% - 248% of duration
8 point in scale 2015
VBT Primary Tables,
depending on type of business
   Lapse0.5% - 10%, depending on duration/distribution channel and smoking class
   Nonperformance risk0.12% - 0.82%
(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.
The chart above excludes Level 3 financial instruments that are valued using broker quotes and for which book value approximates fair value.
The Company had considered all reasonably available quantitative inputs as of December 31, 2019, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $76.8 million of financial instruments being classified as Level 3 as of December 31, 2019, of which $65.4 million are other asset backed securities and $11.4 million are corporate securities.
In certain cases the Company has determined that book value materially approximates fair value. As of December 31, 2019, the Company held $73.0 million of financial instruments where book value approximates fair value which was predominantly FHLB stock.
33

The asset-backed securities classified as Level 3 are predominantly ARS. A change in the paydown rate (the projected annual rate of principal reduction) of the ARS can significantly impact the fair value of these securities. A decrease in the paydown rate would increase the projected weighted average life of the ARS and increase the sensitivity of the ARS’s fair value to changes in interest rates. An increase in the liquidity premium would result in a decrease in the fair value of the securities, while a decrease in the liquidity premium would increase the fair value of these securities. The liquidation values for these securities are sensitive to the issuer’s available cash flows and ability to redeem the securities, as well as the current holders’ willingness to liquidate at the specified price.
The fair value of corporate bonds classified as Level 3 is sensitive to changes in the interest rate spread over the corresponding U.S. Treasury rate. This spread represents a risk premium that is impacted by company-specific and market factors. An increase in the spread can be caused by a perceived increase in credit risk of a specific issuer and/or an increase in the overall market risk premium associated with similar securities. The fair values of corporate bonds are sensitive to changes in spread. When holding the treasury rate constant, the fair value of corporate bonds increases when spreads decrease and decreases when spreads increase.
The fair value of the GLWB embedded derivative is sensitive to changes in the discount rate which includes the Company’s nonperformance risk, volatility, lapse, and mortality assumptions. The volatility assumption is an observable input as it is based on market inputs. The Company’s nonperformance risk, lapse, and mortality are unobservable. An increase in the three unobservable assumptions would result in a decrease in the fair value of the liability and conversely, if there is a decrease in the assumptions the fair value would increase. The fair value is also dependent on the assumed policyholder utilization of the GLWB where an increase in assumed utilization would result in an increase in the fair value of the liability and conversely, if there is a decrease in the assumption, the fair value would decrease.
The fair value of the FIA and IUL embedded derivatives are predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the FIA and IUL embedded derivatives are sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and nonperformance risk. The value of the liability increases with increases in equity returns and the value of the liability decreases with a decrease in equity returns.


3421

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended September 30, 2020,March 31, 2021, for which the Company has used significant unobservable inputs (Level 3):
Total
Realized and Unrealized
Gains		Total
Realized and Unrealized
Losses		Total Gains (losses) included in Operations related to Instruments still held at
the 
Reporting
Date		Total
Realized and Unrealized
Gains		Total
Realized and Unrealized
Losses		Total Gains (losses) included in Operations related to Instruments still held at
the 
Reporting
Date
Beginning
Balance		Included
in
Operations		Included
in
Other
Comprehensive
Income (Loss)		Included
in
Operations		Included
in
Other
Comprehensive
Income (Loss)		PurchasesSalesIssuancesSettlementsTransfers
in/out of
Level 3		OtherEnding
Balance		Beginning
Balance		Included
in
Operations		Included
in
Other
Comprehensive
Income (Loss)		Included
in
Operations		Included
in
Other
Comprehensive
Income (Loss)		PurchasesSalesIssuancesSettlementsTransfers
in/out of
Level 3		OtherEnding
Balance
(Dollars In Thousands) (Dollars In Millions)
Assets:Assets:             Assets:             
Fixed maturity securities available-for-sale             
Residential mortgage-backed securities$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 
Fixed maturity securities AFSFixed maturity securities AFS             
Commercial mortgage-backed securitiesCommercial mortgage-backed securities9,971 0 740 0 1 0 (21)0 0 0 (6)10,685 0 Commercial mortgage-backed securities$32 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $32 $0 
Other asset-backed securitiesOther asset-backed securities430,964 0 4,383 (12)(525)0 (517)0 0 0 203 434,496 0 Other asset-backed securities435 0 5 0 0 0 0 0 0 0 0 440 0 
Corporate securitiesCorporate securities1,365,963 0 27,591 0 (2,937)62,185 (125,885)0 0 31,172 (545)1,357,544 0 Corporate securities1,432 0 1 0 (46)10 (32)0 0 41 0 1,406 0 
Total fixed maturity securities - available-for-saleTotal fixed maturity securities - available-for-sale1,806,898 0 32,714 (12)(3,461)62,185 (126,423)0 0 31,172 (348)1,802,725 0 Total fixed maturity securities - available-for-sale1,899 0 6 0 (46)10 (32)0 0 41 0 1,878 0 
Fixed maturity securities - tradingFixed maturity securities - trading             Fixed maturity securities - trading             
Other asset-backed securitiesOther asset-backed securities60,622 2,706 0 (382)0 1,031 (1,571)0 0 0 36 62,442 2,681 Other asset-backed securities71 2 0 (1)0 9 0 0 0 20 0 101 1 
Other government-related securitiesOther government-related securities0 0 0 0 0 0 0 0 0 16 0 16 0 
Corporate securitiesCorporate securities12,158 286 0 (12)0 5,477 0 0 0 0 (30)17,879 273 Corporate securities18 0 0 (1)0 0 (1)0 0 (5)0 11 0 
Total fixed maturity securities - tradingTotal fixed maturity securities - trading72,780 2,992 0 (394)0 6,508 (1,571)0 0 0 6 80,321 2,954 Total fixed maturity securities - trading89 2 0 (2)0 9 (1)0 0 31 0 128 1 
Total fixed maturity securitiesTotal fixed maturity securities1,879,678 2,992 32,714 (406)(3,461)68,693 (127,994)0 0 31,172 (342)1,883,046 2,954 Total fixed maturity securities1,988 2 6 (2)(46)19 (33)0 0 72 0 2,006 1 
Equity securitiesEquity securities78,613 780 0 0 0 6,950 0 0 0 0 0 86,343 780 Equity securities101 0 0 0 0 33 (6)0 0 (5)0 123 0 
Other long-term investments(1)
Other long-term investments(1)
275,907 78,164 0 (34,077)0 0 0 0 0 0 0 319,994 44,087 
Other long-term investments(1)
298 36 0 (45)0 0 0 0 0 0 0 289 (9)
Total investmentsTotal investments2,234,198 81,936 32,714 (34,483)(3,461)75,643 (127,994)0 0 31,172 (342)2,289,383 47,821 Total investments2,387 38 6 (47)(46)52 (39)0 0 67 0 2,418 (8)
Total assets measured at fair value on a recurring basisTotal assets measured at fair value on a recurring basis$2,234,198 $81,936 $32,714 $(34,483)$(3,461)$75,643 $(127,994)$0 $0 $31,172 $(342)$2,289,383 $47,821 Total assets measured at fair value on a recurring basis$2,387 $38 $6 $(47)$(46)$52 $(39)$0 $0 $67 $0 $2,418 $(8)
Liabilities:Liabilities:             Liabilities:             
Annuity account balances(2)
Annuity account balances(2)
$68,064 $0 $0 $(744)$0 $0 $0 $37 $1,254 $0 $0 $67,591 $0 
Annuity account balances(2)
$67 $0 $0 $(1)$0 $0 $0 $0 $2 $0 $0 $66 $0 
Other liabilities(1)
Other liabilities(1)
1,664,251 130,913 0 (185,567)0 0 0 0 0 0 0 1,718,905 (54,654)
Other liabilities(1)
$2,239 $571 $0 $(18)$0 $0 $0 $0 $0 $0 $0 1,686 553 
Total liabilities measured at fair value on a recurring basisTotal liabilities measured at fair value on a recurring basis$1,732,315 $130,913 $0 $(186,311)$0 $0 $0 $37 $1,254 $0 $0 $1,786,496 $(54,654)Total liabilities measured at fair value on a recurring basis$2,306 $571 $0 $(19)$0 $0 $0 $0 $2 $0 $0 $1,752 $553 
(1) Represents certain freestanding and embedded derivatives.(1) Represents certain freestanding and embedded derivatives.(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.(2) Represents liabilities related to fixed indexed annuities.(2) Represents liabilities related to fixed indexed annuities.
For the three months ended September 30, 2020,March 31, 2021, there were $31.2$79 million of securities transferred into Level 3 from Level 2. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods but were priced internally using significant unobservable inputs where market observable inputs were not available as of September 30, 2020.

35

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the nine months ended September 30, 2020, for which the Company has used significant unobservable inputs (Level 3):
Total Realized and Unrealized GainsTotal Realized and Unrealized LossesTotal Gains (losses) included in Operations related to Instruments still held at the Reporting Date
Beginning BalanceIncluded in OperationsIncluded in Other Comprehensive Income (Loss)Included in OperationsIncluded in Other Comprehensive Income (Loss)PurchasesSalesIssuancesSettlementsTransfers in/out of Level 3OtherEnding Balance
(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Commercial mortgage-backed securities$10,029 $0 $1,520 $0 $(784)$0 $(62)$0 $0 $0 $(18)$10,685 $0 
Other asset-backed securities421,219 0 4,495 (33)(12,978)0 (1,034)0 0 22,187 640 434,496 0 
Corporate securities1,373,714 0 112,592 0 (82,132)365,449 (497,587)0 0 88,107 (2,599)1,357,544 0 
Total fixed maturity securities - available-for-sale1,804,962 0 118,607 (33)(95,894)365,449 (498,683)0 0 110,294 (1,977)1,802,725 0 
Fixed maturity securities - trading
Residential mortgage-backed securities0 0 0 0 0 0 0 0 0 0 0 0 0 
Other asset-backed securities65,407 4,174 0 (8,696)0 4,250 (2,023)0 0 (766)96 62,442 2,681 
Corporate securities11,371 773 0 (427)0 8,798 (2,141)0 0 (408)(87)17,879 273 
Total fixed maturity securities - trading76,778 4,947 0 (9,123)0 13,048 (4,164)0 0 (1,174)9 80,321 2,954 
Total fixed maturity securities1,881,740 4,947 118,607 (9,156)(95,894)378,497 (502,847)0 0 109,120 (1,968)1,883,046 2,954 
Equity securities72,970 781 0 (1)0 7,373 0 0 0 5,220 0 86,343 780 
Other long-term investments(1)209,843 171,097 0 (97,705)0 40,831 0 0 (4,072)0 0 319,994 69,320 
Short-term investments0 0 0 0 0 0 0 0 0 0 0 0 0 
Total investments2,164,553 176,825 118,607 (106,862)(95,894)426,701 (502,847)0 (4,072)114,340 (1,968)2,289,383 73,054 
Total assets measured at fair value on a recurring basis$2,164,553 $176,825 $118,607 $(106,862)$(95,894)$426,701 $(502,847)$0 $(4,072)$114,340 $(1,968)$2,289,383 $73,054 
Liabilities:
Annuity account balances(2)$69,728 $0 $0 $(1,811)$0 $0 $0 $366 $4,314 $0 $0 $67,591 $0 
Other liabilities(1)1,017,972 387,386 0 (1,088,319)0 0 0 0 0 0 0 1,718,905 (700,933)
Total liabilities measured at fair value on a recurring basis$1,087,700 $387,386 $0 $(1,090,130)$0 $0 $0 $366 $4,314 $0 $0 $1,786,496 $(700,933)
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the nine months ended September 30, 2020, there were $115.5 million of securities transferred into Level 3. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods but were priced internally using significant unobservable inputs where market observable inputs were not available as of September 30, 2020.March 31, 2021.
For the ninethree months ended September 30, 2020,March 31, 2021, there were $1.2$12 million of securities transferred into Level 2 from Level 3.

36
22

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended September 30, 2019,March 31, 2020, for which the Company has used significant unobservable inputs (Level 3):
Total
Realized and Unrealized
Gains		Total
Realized and Unrealized
Losses		Total Gains (losses) included in Operations related to Instruments still held at
the 
Reporting
Date		Total
Realized and Unrealized
Gains		Total
Realized and Unrealized
Losses		Total Gains (losses) included in Operations related to Instruments still held at
the 
Reporting
Date
Beginning
Balance		Included
 in
Operations		Included 
in
Other
Comprehensive
Income (Loss)		Included 
in
Operations		Included 
in
Other
Comprehensive
Income (Loss)		PurchasesSalesIssuancesSettlementsTransfers
in/out of
Level 3		OtherEnding
Balance		Beginning
Balance		Included
 in
Operations		Included 
in
Other
Comprehensive
Income (Loss)		Included 
in
Operations		Included 
in
Other
Comprehensive
Income (Loss)		PurchasesSalesIssuancesSettlementsTransfers
in/out of
Level 3		OtherEnding
Balance
(Dollars In Thousands) (Dollars In Millions)
Assets:Assets:             Assets:             
Fixed maturity securities available-for-sale             
Residential mortgage-backed securities$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 
Fixed maturity securities AFSFixed maturity securities AFS             
Commercial mortgage-backed securitiesCommercial mortgage-backed securities9,366 0 294 0 0 0 (19)0 0 0 (6)9,635 0 Commercial mortgage-backed securities$10 $0 $1 $0 $(1)$0 $0 $0 $0 $0 $0 $10 $0 
Other asset-backed securitiesOther asset-backed securities418,310 0 865 (14)(3,276)0 (8)0 0 0 185 416,062 0 Other asset-backed securities421 0 0 0 (7)0 0 0 0 22 0 436 0 
Corporate securitiesCorporate securities1,328,491 0 22,910 0 (3,408)9,150 (72,215)0 0 41,319 (1,135)1,325,112 0 Corporate securities1,374 0 2 0 (76)24 (50)0 0 7 (1)1,280 0 
Total fixed maturity securities - available-for-saleTotal fixed maturity securities - available-for-sale1,756,167 0 24,069 (14)(6,684)9,150 (72,242)0 0 41,319 (956)1,750,809 0 Total fixed maturity securities - available-for-sale1,805 0 3 0 (84)24 (50)0 0 29 (1)1,726 0 
Fixed maturity securities - tradingFixed maturity securities - trading             Fixed maturity securities - trading             
Other asset-backed securitiesOther asset-backed securities62,180 294 0 (34)0 0 (879)0 0 0 (34)61,527 274 Other asset-backed securities65 0 0 (2)0 2 0 0 0 0 0 65 (2)
Corporate securitiesCorporate securities5,294 67 0 0 0 1,700 0 0 0 0 (25)7,036 6,906 Corporate securities11 0 0 0 0 2 0 0 0 0 0 13 0 
Total fixed maturity securities - tradingTotal fixed maturity securities - trading67,474 361 0 (34)0 1,700 (879)0 0 0 (59)68,563 7,180 Total fixed maturity securities - trading76 0 0 (2)0 4 0 0 0 0 0 78 (2)
Total fixed maturity securitiesTotal fixed maturity securities1,823,641 361 24,069 (48)(6,684)10,850 (73,121)0 0 41,319 (1,015)1,819,372 7,180 Total fixed maturity securities1,881 0 3 (2)(84)28 (50)0 0 29 (1)1,804 (2)
Equity securitiesEquity securities68,486 0 0 (2)0 0 0 0 0 0 0 68,484 191 Equity securities73 0 0 0 0 0 0 0 0 0 0 73 0 
Other long-term investments(1)
Other long-term investments(1)
143,583 49,457 0 0 0 0 0 0 0 0 0 193,040 49,457 
Other long-term investments(1)
210 14 0 (57)0 0 0 0 (4)0 0 163 (48)
Total investmentsTotal investments2,035,710 49,818 24,069 (50)(6,684)10,850 (73,121)0 0 41,319 (1,015)2,080,896 56,828 Total investments2,164 14 3 (59)(84)28 (50)0 (4)29 (1)2,040 (50)
Total assets measured at fair value on a recurring basisTotal assets measured at fair value on a recurring basis$2,035,710 $49,818 $24,069 $(50)$(6,684)$10,850 $(73,121)$0 $0 $41,319 $(1,015)$2,080,896 $56,828 Total assets measured at fair value on a recurring basis$2,164 $14 $3 $(59)$(84)$28 $(50)$0 $(4)$29 $(1)$2,040 $(50)
Liabilities:Liabilities:             Liabilities:             
Annuity account balances(2)
Annuity account balances(2)
$72,585 $0 $0 $(523)$0 $0 $0 $91 $1,379 $0 $0 $71,820 $0 
Annuity account balances(2)
$70 $0 $0 $(1)$0 $0 $0 $0 $2 $0 $0 $69 $0 
Other liabilities(1)
Other liabilities(1)
842,035 0 0 (191,572)0 33,684 0 0 0 0 0 1,067,291 (191,572)
Other liabilities(1)
1,018 189 0 (433)0 0 0 0 0 0 0 1,262 (244)
Total liabilities measured at fair value on a recurring basisTotal liabilities measured at fair value on a recurring basis$914,620 $0 $0 $(192,095)$0 $33,684 $0 $91 $1,379 $0 $0 $1,139,111 $(191,572)Total liabilities measured at fair value on a recurring basis$1,088 $189 $0 $(434)$0 $0 $0 $0 $2 $0 $0 $1,331 $(244)
(1) Represents certain freestanding and embedded derivatives.(1) Represents certain freestanding and embedded derivatives.(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.(2) Represents liabilities related to fixed indexed annuities.(2) Represents liabilities related to fixed indexed annuities.
For the three months ended September 30, 2019,March 31, 2020, there were $52.1$30 million of securities transferred into Level 3. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods but were priced internally using significant unobservable inputs where market observable inputs were not available as of September 30, 2019.March 31, 2020.
For the three months ended September 30, 2019,March 31, 2020, there were $10.8 million of0 securities transferred into Level 2 from Level 3.

37

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the nine months ended September 30, 2019, for which the Company has used significant unobservable inputs (Level 3):
Total Realized and Unrealized GainsTotal Realized and Unrealized LossesTotal Gains (losses) included in Operations related to Instruments still held at the Reporting Date
Beginning BalanceIncluded in OperationsIncluded in Other Comprehensive Income (Loss)Included in OperationsIncluded in Other Comprehensive Income (Loss)PurchasesSalesIssuancesSettlementsTransfers in/out of Level 3OtherEnding Balance
(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Commercial mortgage-backed securities$0 $0 $310 $0 $0 $9,359 $(26)$0 $0 $0 $(8)$9,635 $0 
Other asset-backed securities421,642 446 11,525 (71)(8,075)0 (10,023)0 0 0 618 416,062 0 
Corporate securities638,276 82 66,866 0 (6,917)704,777 (157,171)0 0 80,574 (1,375)1,325,112 0 
Total fixed maturity securities - available-for-sale1,059,918 528 78,701 (71)(14,992)714,136 (167,220)0 0 80,574 (765)1,750,809 0 
Fixed maturity securities - trading
Other asset-backed securities26,056 4,300 0 (3,618)0 15,463 (6,771)0 0 26,267 (170)61,527 (2,442)
Corporate securities6,242 236 0 (31)0 1,700 (1,035)0 0 0 (76)7,036 5,274 
Total fixed maturity securities - trading32,298 4,536 0 (3,649)0 17,163 (7,806)0 0 26,267 (246)68,563 2,832 
Total fixed maturity securities1,092,216 5,064 78,701 (3,720)(14,992)731,299 (175,026)0 0 106,841 (1,011)1,819,372 2,832 
Equity securities63,421 1 0 (17)0 5,079 0 0 0 0 0 68,484 345 
Other long-term investments(1)151,342 73,246 0 (31,419)0 1,579 0 0 (1,708)0 0 193,040 40,119 
Short-term investments0 0 0 0 0 0 0 0 0 0 0 0 0 
Total investments$1,306,979 $78,311 $78,701 $(35,156)$(14,992)$737,957 $(175,026)$0 $(1,708)$106,841 $(1,011)$2,080,896 $43,296 
Total assets measured at fair value on a recurring basis1,306,979 78,311 78,701 (35,156)(14,992)737,957 (175,026)0 (1,708)106,841 (1,011)2,080,896 43,296 
Liabilities:
Annuity account balances(2)$76,119 $0 $0 $(1,675)$0 $0 $0 $158 $6,132 $0 $0 $71,820 $0 
Other liabilities(1)438,127 830 0 (559,106)0 70,888 0 0 0 0 0 1,067,291 (558,276)
Total liabilities measured at fair value on a recurring basis$514,246 $830 $0 $(560,781)$0 $70,888 $0 $158 $6,132 $0 $0 $1,139,111 $(558,276)
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the nine months ended September 30, 2019, there were $138.2 million of securities transferred into Level 3.
For the nine months ended September 30, 2019, there were $31.4 million of securities transferred into Level 2 from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of September 30, 2019.
Total realized and unrealized gains (losses) on Level 3 assets and liabilities are reported in either realized gains (losses) - investments/derivativeswithin the consolidated condensed statements of income or in change in net unrealized gains (losses) on investments within the consolidated condensed statements of other comprehensive income (loss) within shareowner’s equity based on the appropriate accounting treatment for the item.
Purchases, sales, issuances, and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily relates to purchases and sales of fixed maturity securities and issuances and settlements of fixed indexed annuities.
The amount of total gains (losses) for assets and liabilities still held as of the reporting date primarily represents changes in fair value of trading securities and certain derivatives that exist as of the reporting date and the change in fair value of fixed indexed annuities.
3823

Estimated Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company’s financial instruments as of the periods shown below are as follows:
As of
September 30, 2020December 31, 2019
Fair Value
Level		Carrying
Amounts		Fair ValuesCarrying
Amounts		Fair Values
  (Dollars In Thousands)
Assets:     
Commercial mortgage loans(1)
3$9,765,312 $10,522,036 $9,379,401 $9,584,487 
Policy loans31,640,147 1,640,147 1,675,121 1,675,121 
Fixed maturities, held-to-maturity(2)
32,680,324 2,990,170 2,823,881 3,025,790 
  Other long-term investments(3)
21,286,291 1,206,966 1,216,996 1,246,889 
Liabilities:     
Stable value product account balances3$6,017,259 $6,180,630 $5,443,752 $5,551,195 
Future policy benefits and claims(4)
31,604,174 1,615,924 1,701,324 1,705,235 
Other policyholders’ funds(5)
3103,280 107,319 127,084 130,259 
Debt:(6)
     
Non-recourse funding obligations(7)
3$2,942,126 $3,296,873 $3,082,753 $3,298,580 
Subordinated funding obligations3110,000 117,216 110,000 113,286 
Except as noted below, fair values were estimated using quoted market prices.
(1) The carrying amount is net of allowance for credit losses.
(2) Securities purchased from unconsolidated affiliates, Red Mountain, LLC and Steel City, LLC.
(3) Other long-term investments represents a Modco receivable, which is related to invested assets such as fixed income and structured securities, which are legally owned by the ceding company. The fair value is determined in a manner consistent with other similar invested assets held by the Company.
(4) Single premium immediate annuity without life contingencies.
(5) Supplementary contracts without life contingencies.
(6) Excludes capital lease obligations of $0.7 million and $1.0 million as of September 30, 2020 and December 31, 2019, respectively.
(7) As of September 30, 2020, carrying amount of $2.7 billion and a fair value of $3.0 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V. As of December 31, 2019, carrying amount of $2.8 billion and a fair value of $3.0 billion related to non-recourse funding obligations issued by Golden Gate and Golden Gate V.
Fair Value Measurements
Commercial mortgage loans
The Company estimates the fair value of commercial mortgage loans using an internally developed model. This model includes inputs derived by the Company based on assumed discount rates relative to the Company’s current commercial mortgage loan lending rate and an expected cash flow analysis based on a review of the commercial mortgage loan terms. The model also contains the Company’s determined representative risk adjustment assumptions related to credit and liquidity risks.
Policy loans
The Company believes the fair value of policy loans approximates book value. Policy loans are funds provided to policyholders in return for a claim on the policy. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of repayments, the Company believes the carrying value of policy loans approximates fair value.
Fixed maturities, held-to-maturity
The Company estimates the fair value of its fixed maturity, held-to-maturity securities using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.
39

Other long-term investments
In addition to free standing and embedded derivative financial instruments discussed above, other long-term investments includes approximately $1.3 billion of amounts receivable under certain modified coinsurance agreements as of September 30, 2020 and December 31, 2019. These amounts represent funds withheld in connection with certain reinsurance agreements in which the Company acts as the reinsurer. Under the terms of these agreements, assets equal to statutory reserves are withheld and legally owned by the ceding company, and any excess or shortfall is settled periodically. In some cases, these modified coinsurance agreements contain embedded derivatives which are discussed in more detail above. The fair value of amounts receivable under modified coinsurance agreements, including the embedded derivative component, correspond to the fair value of the underlying assets withheld.
Stable value product and other investment contract balances
The Company estimates the fair value of stable value product account balances and other investment contract balances (included in Future policy benefits and claims as well as Other policyholders’ funds line items on our consolidated condensed balance sheet) using models based on discounted expected cash flows. The discount rates used in the models are based on a current market rate for similar financial instruments.
Funding obligations
The Company estimates the fair value of its subordinated and non-recourse funding obligations using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.

As of
March 31, 2021December 31, 2020
Fair Value
Level		Carrying
Amounts		Fair ValuesCarrying
Amounts		Fair Values
  (Dollars In Millions)
Assets:     
Commercial mortgage loans(1)
3$10,137 $10,862 $10,006 $10,788 
Policy loans31,576 1,576 1,593 1,593 
  Other long-term investments(2)
21,190 1,251 1,186 1,283 
Liabilities:     
Stable value product account balances3$6,655 $6,762 $6,056 $6,231 
Future policy benefits and claims(3)
31,545 1,567 1,580 1,603 
Other policyholders’ funds(4)
3105 112 102 108 
Debt:(5)
     
Subordinated funding obligations3$110 $112 $110 $121 
Except as noted below, fair values were estimated using quoted market prices.
(1) The carrying amount is net of allowance for credit losses.
(2) Other long-term investments represents a Modco receivable, which is related to invested assets such as fixed income and structured securities, which are legally owned by the ceding company. The fair value is determined in a manner consistent with other similar invested assets held by the Company.
(3) Single premium immediate annuity without life contingencies.
(4) Supplementary contracts without life contingencies.
(5) Excludes immaterial capital lease obligations.
7.5.    DERIVATIVE FINANCIAL INSTRUMENTS
Types of Derivative Instruments and Derivative Strategies
The Company utilizes a risk management strategy that incorporates the use of derivative financial instruments to reduce exposure to certain risks, including but not limited to, interest rate risk, currency exchange risk, volatility risk, and equity market risk. These strategies are developed through the Company’s analysis of data from financial simulation models and other internal and industry sources, and are then incorporated into the Company’s risk management program.
Derivative instruments expose the Company to credit and market risk and could result in material changes from period to period. The Company attempts to minimize its credit in connection with its overall asset/liability management programs and risk management strategies. In addition, all derivative programs are monitored by our risk management department.
Derivatives Related to Interest Rate Risk Management
Derivative instruments that are used as partFor a full description of the Company’s interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate caps,derivatives instruments and interest rate swaptions.
Derivatives Relatedaccounting policies, refer to Foreign Currency Exchange Risk Management
Derivative instruments that are used as part ofNote 6 in the Company’s foreign currency exchange risk management strategy include foreign currency swaps, foreign currency futures, foreign equity futures, and foreign equity options.
Derivatives Related to Risk Mitigation of Certain Annuity Contracts
The Company may useForm 10-K for the following types of derivative contracts to mitigate its exposure to certain guaranteed benefits related to variable annuity (“VA”) contracts, fixed indexed annuities, and indexed universal life contracts:
•Foreign Currency Futures
•Variance Swaps
•Interest Rate Futures
•Equity Options
•Equity Futures
•Credit Derivatives
•Interest Rate Swaps
•Interest Rate Swaptions
•Volatility Futures
•Volatility Options
40
Table of Contents
•Funds Withheld Agreements
•Total Return Swaps
•Foreign Currency Options
Other Derivatives
The Company and certain of its subsidiaries have derivatives with PLC. These derivatives consist of an interest support agreement, YRT premium support agreements, and portfolio maintenance agreements with PLC.
The Company has a funds withheld account that consists of various derivative instruments held by the Company that are used to hedge the GLWB and GMDB riders and the fixed indexed annuity products. The economic performance of derivatives in the funds withheld account is ceded to subsidiaries of PLC. The funds withheld account is accounted for as a derivative financial instrument.
Accounting for Derivative Instruments
GAAP requires that all derivative instruments be recognized in the balance sheet at fair value. The Company records its derivative financial instruments in the consolidated condensed balance sheet in other long-term investments and other liabilities. The change in the fair value of derivative financial instruments is reported either in the statement of income or in other comprehensive income (loss), depending upon whether it qualified for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists.
It is the Company's policy not to offset assets and liabilities associated with open derivative contracts. However, the Chicago Mercantile Exchange (“CME”) rules characterize variation margin transfers as settlement payments, as opposed to adjustments to collateral. As a result, derivative assets and liabilities associated with centrally cleared derivatives for which the CME serves as the central clearing party are presented as if these derivatives had been settled as of the reporting date.
For a derivative financial instrument to be accounted for as an accounting hedge, it must be identified and documented as such on the date of designation. For cash flow hedges, the effective portion of their realized gain or loss is reported as a component of other comprehensive income (loss) and reclassified into operations in the same period during which the hedged item impacts operations. Any remaining gain or loss, the ineffective portion, is recognized in current operations. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain attributable to the hedged risk of the hedged item is recognized in current operations. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis.
The Company reports changes in fair values of derivatives that are not part of a qualifying hedge relationship through operations in the period of change. Changes in the fair value of these derivatives are recognized in realized gains (losses) - investments/derivatives in the consolidated condensed statements of income.year ended December 31, 2020.
Derivative Instruments Designated and Qualifying as Hedging Instruments
Cash-Flow Hedges
•To hedge a fixed rate note denominated in a foreign currency, the Company entered into a fixed-to-fixed foreign currency swap in order to hedge the foreign currency exchange risk associated with the note. The cash flows received on the swap are identical to the cash flows paid on the note.
•To hedge a floating rate note, the Company entered into an interest rate swap to exchange the floating rate on the note for a fixed rate in order to hedge the interest rate risk associated with the note. The cash flows received on the swap are identical to the cash flow variability paid on the note.
24
Table of Contents
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments
The Company uses various other derivative instruments for risk management purposes that do not qualify for hedge accounting treatment. Changes in the fair value of these derivatives are recognized in realized gains (losses) - investments/derivatives induring the consolidated condensed statementsperiod of income.change.
Derivatives Related to Variable Annuity Contracts
•The Company uses equity futures, equity options, total return swaps, interest rate futures, interest rate swaps, interest rate swaptions, currency futures, currency options, volatility futures, volatility options, and variance swaps to mitigate the risk related to certain guaranteed minimum benefits, including GLWB, within its VA products. In general, the cost of such benefits varies with the level of equity and interest rate markets, foreign currency levels, and overall volatility.
41
Table of Contents
•The Company markets certain VA products with a GLWB rider. The GLWB component is considered an embedded derivative, not considered to be clearly and closely related to the host contract.
•The Company has a funds withheld account that consists of various derivative instruments held by the Company that are used to hedge the GLWB and GMDB riders. The economic performance of derivatives in the funds withheld account is ceded to Shades Creek Captive Insurance Company (“Shades Creek”), a direct wholly owned subsidiary of PLC. The funds withheld account is accounted for as a derivative financial instrument.
Derivatives Related to Fixed Annuity Contracts
•The Company uses equity futures and options to mitigate the risk within its fixed indexed annuity products. In general, the cost of such benefits varies with the level of equity and overall volatility.
•The Company markets certain fixed indexed annuity products. The FIA component is considered an embedded derivative as it is not considered to be clearly and closely related to the host contract.
•The Company has a funds withheld account that consists of various derivative instruments held by the Company that are used to hedge the fixed indexed annuity products. The economic performance of derivatives in the funds withheld account is ceded to Protective Life Reinsurance Bermuda Ltd. The funds withheld account is accounted for as a derivative financial instrument.
Derivatives Related to Indexed Universal Life Contracts
•The Company uses equity futures and options to mitigate the risk within its indexed universal life products. In general, the cost of such benefits varies with the level of equity markets.
•The Company markets certain IUL products. The IUL component is considered an embedded derivative as it is not considered to be clearly and closely related to the host contract.
Other Derivatives
•The Company and certain of its subsidiaries have an interest support agreement, YRT premium support agreements, and portfolio maintenance agreements with PLC. See Note 15, Subsequent Events for additional information on these agreements.
•The Company uses various swaps and other types of derivatives to manage risk related to other exposures.
•The Company is involved in various modified coinsurance and funds withheld arrangements which contain embedded derivatives. Changes in their fair value are recorded in realized gains (losses) - investments/derivatives in the consolidated condensed statements of income. The investment portfolios that support the related modified coinsurance reserves and funds withheld arrangements had fair value changes which substantially offset the gains or losses on these embedded derivatives. 
42
Table of Contents
The following table sets forth realized gains (losses) - derivatives for the periods shown:
Realized gains (losses) - derivative financial instruments
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2020201920202019
 (Dollars In Thousands)
Derivatives related to VA contracts:  
Interest rate futures$2,257 $727 $(3,565)$(16,575)
Equity futures(1,187)5,220 131,912 37,517 
Currency futures(9,536)9,181 1,438 11,028 
Equity options(41,584)(3,957)66,647 (97,354)
Interest rate swaps(57,657)149,766 363,644 342,561 
Total return swaps(31,465)(1,950)30,680 (50,522)
Embedded derivative - GLWB72,519 (86,635)(332,202)(189,624)
Funds withheld derivative45,787 (350)(103,494)80,198 
Total derivatives related to VA contracts(20,866)72,002 155,060 117,229 
Derivatives related to FIA contracts:  
Embedded derivative(8,642)(4,335)(38,065)(67,968)
Funds withheld derivative(2,804)0 (9,586)0 
Equity futures518 962 (6,550)964 
Equity options24,870 4,785 15,031 60,026 
Other derivatives483 0 258 0 
Total derivatives related to FIA contracts14,425 1,412 (38,912)(6,978)
Derivatives related to IUL contracts:  
Embedded derivative15,648 6,261 1,409 (18,395)
Equity futures(230)91 (2,374)347 
Equity options6,535 586 583 9,372 
Total derivatives related to IUL contracts21,953 6,938 (382)(8,676)
Embedded derivative - Modco reinsurance treaties(25,438)(44,027)(55,864)(199,704)
Derivatives with PLC(1)
19,833 7,583 22,179 14,852 
Other derivatives5,430 (1,622)10,818 (3,011)
Total realized gains (losses) - derivatives$15,337 $42,286 $92,899 $(86,288)
(1) These derivatives include the Interest Support, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Derivatives related to VA contracts: 
Interest rate futures$9 $1 
Equity futures(8)31 
Currency futures6 12 
Equity options(46)280 
Interest rate swaps(297)409 
Total return swaps(69)140 
Embedded derivative - GLWB405 (935)
Total derivatives related to VA contracts0 (62)
Derivatives related to FIA contracts: 
Embedded derivative3 39 
Funds withheld derivative(3)0 
Equity futures1 (8)
Equity options23 (60)
Other derivatives(1)0 
Total derivatives related to FIA contracts23 (29)
Derivatives related to IUL contracts: 
Embedded derivative21 0 
Equity futures0 (2)
Equity options3 (14)
Total derivatives related to IUL contracts24 (16)
Embedded derivative - Modco reinsurance treaties127 75 
Derivatives with PLC(1)
0 (2)
Other derivatives7 9 
Total realized gains (losses) - derivatives$181 $(25)
(1) The Company and certain of its subsidiaries had an interest support agreement, YRT premium support agreements, and portfolio maintenance agreements with PLC through October 1, 2020. These agreements were terminated and a new portfolio maintenance agreement was entered into with PLC on that date.
 

4325
Table of Contents
The following table presents the components of the gain or loss on derivatives that qualify as a cash flow hedging relationship.
Gain (Loss) on Derivatives in Cash Flow Hedging Relationship
Amount of Gains (Losses)
Deferred in
Accumulated Other
Comprehensive Income
(Loss) on Derivatives		Amount and Location of
Gains (Losses)
Reclassified from
Accumulated Other
Comprehensive Income
(Loss) into Income (Loss)		Amount and Location of
Gains (Losses) Recognized in
Income (Loss) on
Derivatives
 (Effective Portion)(Effective Portion)(Ineffective Portion)
Benefits and settlement
expenses		Realized gains (losses) - investments/derivatives
 (Dollars In Thousands)
For The Three Months Ended September 30, 2020   
Foreign currency swaps$808 $(224)$0 
Interest rate swaps1,121 (177)0 
Total$1,929 $(401)$0 
For The Nine Months Ended September 30, 2020   
Foreign currency swaps$(1,316)$(841)$0 
Interest rate swaps206 (2,231)0 
Total$(1,110)$(3,072)$0 
For The Three Months Ended September 30, 2019   
Foreign currency swaps$(4,163)$(373)$0 
Interest rate swaps(93)(373)0 
Total$(4,256)$(746)$0 
For The Nine Months Ended September 30, 2019   
Foreign currency swaps$(7,789)$(767)$0 
Interest rate swaps(2,484)(593)0 
Total$(10,273)$(1,360)$0 
Amount of Gains (Losses)
Deferred in
Accumulated Other
Comprehensive Income
(Loss) on Derivatives		Amount and Location of
Gains (Losses)
Reclassified from
Accumulated Other
Comprehensive Income
(Loss) into Income (Loss)		Amount and Location of
Gains (Losses) Recognized in
Income (Loss) on
Derivatives
 (Effective Portion)(Effective Portion)(Ineffective Portion)
Benefits and settlement
expenses		Realized gains (losses) - derivatives
 (Dollars In Millions)
For The Three Months Ended March 31, 2021   
Foreign currency swaps$2 $0 $0 
Total$2 $0 $0 
For The Three Months Ended March 31, 2020   
Foreign currency swaps$(5)$0 $0 
Interest rate swaps(1)(1)0 
Total$(6)$(1)$0 
Based on expected cash flows of the underlying hedged items, the Company expects to reclassify $1.0$1 million out of accumulated other comprehensive income (loss) into realized gains (losses) - investments/derivatives in the consolidated condensed statements of income during the next twelve months.

4426
Table of Contents
The table below presents information about the nature and accounting treatment of the Company’s primary derivative financial instruments and the location in and effect on the consolidated condensed financial statements for the periods presented below:
As ofAs of
September 30, 2020December 31, 2019 March 31, 2021December 31, 2020
Notional
Amount		Fair
Value		Notional
Amount		Fair
Value		Notional
Amount		Fair
Value		Notional
Amount		Fair
Value
(Dollars In Thousands) (Dollars In Millions)
Other long-term investmentsOther long-term investments    Other long-term investments    
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:    Derivatives not designated as hedging instruments:    
Interest rate swapsInterest rate swaps$1,628,000 $210,420 $2,228,000 $98,655 Interest rate swaps$1,448 $104 $1,478 $185 
Total return swapsTotal return swaps433,231 7,018 269,772 941 Total return swaps361 8 158 2 
Derivatives with PLC(1)
Derivatives with PLC(1)
2,618,962 133,486 2,830,889 115,379 
Derivatives with PLC(1)
4,272 0 4,076 0 
Embedded derivative - Modco reinsurance treatiesEmbedded derivative - Modco reinsurance treaties1,269,954 83,379 1,280,189 31,926 Embedded derivative - Modco reinsurance treaties1,478 68 1,249 101 
Embedded derivative - GLWBEmbedded derivative - GLWB610,426 48,091 1,147,436 62,538 Embedded derivative - GLWB3,073 161 2,067 138 
Embedded derivative - FIAEmbedded derivative - FIA310,468 55,038 0 0 Embedded derivative - FIA355 60 335 60 
Interest rate futuresInterest rate futures700,637 4,818 896,073 7,557 Interest rate futures990 20 690 4 
Equity futuresEquity futures156,317 2,063 159,901 2,109 Equity futures146 2 203 4 
Currency futuresCurrency futures161,793 1,750 72,593 131 Currency futures200 3 0 0 
Equity optionsEquity options7,740,526 861,711 6,685,670 676,257 Equity options7,887 1,198 7,208 1,142 
$15,630,314 $1,407,774 $15,570,523 $995,493  $20,210 $1,624 $17,464 $1,636 
Other liabilitiesOther liabilities    Other liabilities    
Cash flow hedges:Cash flow hedges:Cash flow hedges:
Interest rate swaps$0 $0 $350,000 $0 
Foreign currency swapsForeign currency swaps117,178 18,727 117,178 11,373 Foreign currency swaps$117 $7 $117 $10 
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:    Derivatives not designated as hedging instruments:    
Interest rate swapsInterest rate swaps1,194,000 0 50,000 0 Interest rate swaps1,384 0 1,354 0 
Total return swapsTotal return swaps418,088 7,112 579,675 3,229 Total return swaps926 13 1,003 15 
Embedded derivative - Modco reinsurance treatiesEmbedded derivative - Modco reinsurance treaties2,892,930 331,836 2,263,685 231,516 Embedded derivative - Modco reinsurance treaties2,691 229 2,911 389 
Funds withheld derivativeFunds withheld derivative3,810,657 145,030 1,845,649 70,583 Funds withheld derivative770 12 661 10 
Embedded derivative - GLWBEmbedded derivative - GLWB3,359,799 566,337 2,892,926 248,577 Embedded derivative - GLWB6,744 579 7,749 960 
Embedded derivative - FIAEmbedded derivative - FIA3,656,227 580,268 2,892,803 332,869 Embedded derivative - FIA4,084 643 3,889 633 
Embedded derivative - IULEmbedded derivative - IUL339,564 194,228 301,598 151,765 Embedded derivative - IUL379 179 357 201 
Interest rate futuresInterest rate futures421,631 1,825 669,223 10,375 Interest rate futures383 15 415 3 
Equity futuresEquity futures162,260 3,571 174,743 2,376 Equity futures106 2 190 5 
Currency futuresCurrency futures128,613 1,016 192,306 1,836 Currency futures0 0 264 4 
Equity optionsEquity options5,465,007 507,408 4,827,714 429,434 Equity options6,107 916 5,499 834 
OtherOther268,436 46,236 199,387 53,245 Other338 56 304 55 
$22,234,390 $2,403,594 $17,356,887 $1,547,178  $24,029 $2,651 $24,713 $3,119 
(1) These derivatives include the Interest, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.
(1) The Company and certain of its subsidiaries had an interest support agreement, YRT premium support agreements, and portfolio maintenance agreements with PLC through October 1, 2020. These agreements were terminated and a new portfolio maintenance agreement was entered into with PLC on that date.(1) The Company and certain of its subsidiaries had an interest support agreement, YRT premium support agreements, and portfolio maintenance agreements with PLC through October 1, 2020. These agreements were terminated and a new portfolio maintenance agreement was entered into with PLC on that date.

4527
Table of Contents
8.6.    OFFSETTING OF ASSETS AND LIABILITIES
Certain of the Company’s derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Company and a counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements associated with each master netting arrangement provide that the Company will receive or pledge financial collateral in the event either minimum thresholds, or in certain cases ratings levels, have been reached. Additionally, certain of the Company’s repurchase agreements provide for net settlement on termination of the agreement. Refer to Note 10, Debt and Other Obligations for details of the Company’s repurchase agreement programs. 
Collateral received includes both cash and non-cash collateral. Cash collateral received by the Company is recorded on the consolidated condensed balance sheet as “cash”, with a corresponding amount recorded in “other liabilities” to represent the Company’s obligation to return the collateral. Non-cash collateral received by the Company is not recognized on the consolidated condensed balance sheet unless the Company exercises its right to sell or re-pledge the underlying asset. As of September 30, 2020 and December 31, 2019, theThere was no fair value of non-cash collateral received was $29.5 million and $21.3 million, respectively.as of March 31, 2021 or as of December 31, 2020.
28
Table of Contents
The tables below present the derivative instruments by assets and liabilities for the Company as of September 30, 2020.March 31, 2021:
Gross
Amounts of
Recognized
Assets		Gross
Amounts
Offset in the
Balance Sheets		Net Amounts
of Assets
Presented in
the
Balance Sheets		Gross Amounts Not Offset
in the 
Balance Sheets		Gross
Amounts of
Recognized
Assets		Gross
Amounts
Offset in the
Balance Sheets		Net Amounts
of Assets
Presented in
the
Balance Sheets		Gross Amounts Not Offset
in the 
Balance Sheets
Financial
Instruments		Collateral
Received		Net AmountFinancial
Instruments		Collateral
Received		Net Amount
(Dollars In Thousands) (Dollars In Millions)
Offsetting of AssetsOffsetting of Assets      Offsetting of Assets      
Derivatives:Derivatives:      Derivatives:      
Free-Standing derivativesFree-Standing derivatives$1,087,780 $0 $1,087,780 $537,340 $391,941 $158,499 Free-Standing derivatives$1,335 $0 $1,335 $950 $316 $69 
Total derivatives, subject to a master netting arrangement or similar arrangementTotal derivatives, subject to a master netting arrangement or similar arrangement1,087,780 0 1,087,780 537,340 391,941 158,499 Total derivatives, subject to a master netting arrangement or similar arrangement1,335 0 1,335 950 316 69 
Derivatives not subject to a master netting arrangement or similar arrangementDerivatives not subject to a master netting arrangement or similar arrangement      Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treatiesEmbedded derivative - Modco reinsurance treaties83,379 0 83,379 0 0 83,379 Embedded derivative - Modco reinsurance treaties68 0 68 0 0 68 
Embedded derivative - GLWBEmbedded derivative - GLWB48,091 0 48,091 0 0 48,091 Embedded derivative - GLWB161 0 161 0 0 161 
Derivatives with PLC133,486 0 133,486 0 0 133,486 
Other55,038 0 55,038 0 0 55,038 
Embedded derivative - FIAEmbedded derivative - FIA60 0 60 0 0 60 
Total derivatives, not subject to a master netting arrangement or similar arrangementTotal derivatives, not subject to a master netting arrangement or similar arrangement319,994 0 319,994 0 0 319,994 Total derivatives, not subject to a master netting arrangement or similar arrangement289 0 289 0 0 289 
Total derivativesTotal derivatives1,407,774 0 1,407,774 537,340 391,941 478,493 Total derivatives1,624 0 1,624 950 316 358 
Total AssetsTotal Assets$1,407,774 $0 $1,407,774 $537,340 $391,941 $478,493 Total Assets$1,624 $0 $1,624 $950 $316 $358 

Gross
Amounts of
Recognized
Liabilities		Gross
Amounts
Offset in the
Balance Sheets		Net Amounts
of Liabilities
Presented in
the
Balance Sheets		Gross Amounts Not Offset
in the 
Balance Sheets
Financial
Instruments		Collateral
Posted		Net Amount
 (Dollars In Millions)
Offsetting of Liabilities      
Derivatives:      
Free-Standing derivatives$953 $0 $953 $950 0$3 
Total derivatives, subject to a master netting arrangement or similar arrangement953 0 953 950 0 3 
Derivatives, not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties229 0 229 0 0 229 
Funds withheld derivative12 0 12 0 0 12 
Embedded derivative - GLWB579 0 579 0 0 579 
Embedded derivative - FIA643 0 643 0 0 643 
Embedded derivative - IUL179 0 179 0 0 179 
Other56 0 56 0 0 56 
Total derivatives, not subject to a master netting arrangement or similar arrangement1,698 0 1,698 0 0 1,698 
Total derivatives2,651 0 2,651 950 0 1,701 
Repurchase agreements(1)
854 0 854 0 0 854 
Total Liabilities$3,505 $0 $3,505 $950 $0 $2,555 
(1) Borrowings under repurchase agreements are for a term less than 90 days.
46
Table of Contents
Gross
Amounts of
Recognized
Liabilities		Gross
Amounts
Offset in the
Balance Sheets		Net Amounts
of Liabilities
Presented in
the
Balance Sheets		Gross Amounts Not Offset
in the 
Balance Sheets
Financial
Instruments		Collateral
Posted		Net Amount
 (Dollars In Thousands)
Offsetting of Liabilities      
Derivatives:      
Free-Standing derivatives$539,659 $0 $539,659 $537,340 $2,319 $0 
Total derivatives, subject to a master netting arrangement or similar arrangement539,659 0 539,659 537,340 2,319 0 
Derivatives, not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties331,836 0 331,836 0 0 331,836 
Funds withheld derivative145,030 0 145,030 0 0 145,030 
Embedded derivative - GLWB566,337 0 566,337 0 0 566,337 
Embedded derivative - FIA580,268 0 580,268 0 0 580,268 
Embedded derivative - IUL194,228 0 194,228 0 0 194,228 
Other46,236 0 46,236 0 0 46,236 
Total derivatives, not subject to a master netting arrangement or similar arrangement1,863,935 0 1,863,935 0 0 1,863,935 
Total derivatives2,403,594 0 2,403,594 537,340 2,319 1,863,935 
Repurchase agreements(1)
150,000 0 150,000 0 0 150,000 
Total Liabilities$2,553,594 $0 $2,553,594 $537,340 $2,319 $2,013,935 
(1) Borrowings under repurchase agreements are for a term less than 90 days.
4729
Table of Contents
The tables below present the derivative instruments by assets and liabilities for the Company as of December 31, 2019.2020.
Gross
Amounts of
Recognized
Assets		Gross
Amounts
Offset in the
Balance Sheets		Net Amounts
of Assets
Presented in
the
Balance Sheets		Gross Amounts Not Offset
in the Balance Sheets
Financial
Instruments		Collateral
Received		Net Amount
 (Dollars In Thousands)
Offsetting of Assets      
Derivatives:      
Free-Standing derivatives$785,650 $0 $785,650 $452,562 $215,587 $117,501 
Total derivatives, subject to a master netting arrangement or similar arrangement785,650 0 785,650 452,562 215,587 117,501 
Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties31,926 0 31,926 0 0 31,926 
Embedded derivative - GLWB62,538 0 62,538 0 0 62,538 
Derivatives with PLC115,379 0 115,379 0 0 115,379 
Other0 0 0 0 0 0 
Total derivatives, not subject to a master netting arrangement or similar arrangement209,843 0 209,843 0 0 209,843 
Total derivatives995,493 0 995,493 452,562 215,587 327,344 
Total Assets$995,493 $0 $995,493 $452,562 $215,587 $327,344 

Gross
Amounts of
Recognized
Assets		Gross
Amounts
Offset in the
Balance Sheets		Net Amounts
of Assets
Presented in
the
Balance Sheets		Gross Amounts Not Offset
in the Balance Sheets
Financial
Instruments		Collateral
Received		Net Amount
 (Dollars In Millions)
Offsetting of Assets      
Derivatives:      
Free-Standing derivatives$1,337 $0 $1,337 $865 $290 $182 
Total derivatives, subject to a master netting arrangement or similar arrangement1,337 0 1,337 865 290 182 
Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties101 0 101 0 0 101 
Embedded derivative - GLWB138 0 138 0 0 138 
Embedded derivative - FIA60 0 60 0 0 60 
Total derivatives, not subject to a master netting arrangement or similar arrangement299 0 299 0 0 299 
Total derivatives1,636 0 1,636 865 290 481 
Total Assets$1,636 $0 $1,636 $865 $290 $481 
4830
Table of Contents
Gross
Amounts of
Recognized
Liabilities		Gross
Amounts
Offset in the
Balance Sheets		Net Amounts
of Liabilities
Presented in
the
Balance Sheets		Gross Amounts Not Offset
in the
Balance Sheets		Gross
Amounts of
Recognized
Liabilities		Gross
Amounts
Offset in the
Balance Sheets		Net Amounts
of Liabilities
Presented in
the
Balance Sheets		Gross Amounts Not Offset
in the
Balance Sheets
Financial
Instruments		Collateral
Posted		Net AmountFinancial
Instruments		Collateral
Posted		Net Amount
(Dollars In Thousands) (Dollars In Millions)
Offsetting of LiabilitiesOffsetting of Liabilities      Offsetting of Liabilities      
Derivatives:Derivatives:      Derivatives:      
Free-Standing derivativesFree-Standing derivatives$458,623 $0 $458,623 $452,562 $4,791 $1,270 Free-Standing derivatives$871 $0 $871 $865 $4 $2 
Total derivatives, subject to a master netting arrangement or similar arrangementTotal derivatives, subject to a master netting arrangement or similar arrangement458,623 0 458,623 452,562 4,791 1,270 Total derivatives, subject to a master netting arrangement or similar arrangement871 0 871 865 4 2 
Derivatives not subject to a master netting arrangement or similar arrangementDerivatives not subject to a master netting arrangement or similar arrangement      Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treatiesEmbedded derivative - Modco reinsurance treaties231,516 0 231,516 0 0 231,516 Embedded derivative - Modco reinsurance treaties389 0 389 0 0 389 
Funds withheld derivativeFunds withheld derivative70,583 0 70,583 0 0 70,583 Funds withheld derivative10 0 10 0 0 10 
Embedded derivative - GLWBEmbedded derivative - GLWB248,577 0 248,577 0 0 248,577 Embedded derivative - GLWB960 0 960 0 0 960 
Embedded derivative - FIAEmbedded derivative - FIA332,869 0 332,869 0 0 332,869 Embedded derivative - FIA633 0 633 0 0 633 
Embedded derivative - IULEmbedded derivative - IUL151,765 0 151,765 0 0 151,765 Embedded derivative - IUL201 0 201 0 0 201 
OtherOther53,245 0 53,245 0 0 53,245 Other55 0 55 0 0 55 
Total derivatives, not subject to a master netting arrangement or similar arrangementTotal derivatives, not subject to a master netting arrangement or similar arrangement1,088,555 0 1,088,555 0 0 1,088,555 Total derivatives, not subject to a master netting arrangement or similar arrangement2,248 0 2,248 0 0 2,248 
Total derivativesTotal derivatives1,547,178 0 1,547,178 452,562 4,791 1,089,825 Total derivatives3,119 0 3,119 865 4 2,250 
Repurchase agreements(1)
Repurchase agreements(1)
270,000 0 270,000 0 0 270,000 
Repurchase agreements(1)
0 0 0 0 0 0 
Total LiabilitiesTotal Liabilities$1,817,178 $0 $1,817,178 $452,562 $4,791 $1,359,825 Total Liabilities$3,119 $0 $3,119 $865 $4 $2,250 
(1) Borrowings under repurchase agreements are for a term less than 90 days.

9.7.    COMMERCIAL MORTGAGE LOANS
Commercial Mortgage Loans
The Company invests a portion of its investment portfolio in commercial mortgage loans. As of September 30, 2020,March 31, 2021, the Company’s commercial mortgage loan holdings were approximately $9.9$10.3 billion, and $9.8or $10.1 billion net of allowance for credit losses. The Company has specialized in making loans on credit-oriented commercial properties, credit-anchored strip shopping centers, senior living facilities, and apartments. The Company’s underwriting procedures relative to its commercial mortgage loan portfolio are based, in the Company’s view, on a conservative and disciplined approach. The Company concentrates on a small number of commercial real estate asset classes (retail, industrial, senior living, office, and multi-family). With respect to retail, the Company’s focus is ontypes associated with the necessities of life sector.(retail, multi-family, senior living, professional office buildings, and warehouses). The Company believes that this retail focus, along with the other preferredthese asset classestypes tend to weather economic downturns better than other commercial real estate asset classes in which it has chosen not to participate. The Company believes this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout its history. The majority of the Company’s commercial mortgage loanloans portfolio was underwritten by the Company. From time to time, the Company may acquire loans in conjunction with an acquisition.
The Company’s commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of the allowance for credit losses. See Note 2, Summary of Significant Accounting Policies, for a detailed discussion of the Company’s policies with respect to the measurement of the allowance for credit losses. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts and prepayment fees are reported in net investment income.
49
Table of Contents
Certain of the commercial mortgage loans have call options that occur within the next 109 years. However, if interest rates were to significantly increase, the Company may be unable to exercise the call options on its existing commercial mortgage loans commensurate with the significantly increased market rates. As of September 30, 2020,March 31, 2021, assuming the loans are called at their next call dates, approximately $8.1$168 million of principal would become due for the remainder of 2020, $763.72021, $538 million in 20212022 through 20252026 and $56.7$10 million in 20262027 through 2029.
31
Table of Contents
The Company offers a type of commercial mortgage loan under which the Company will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. As of September 30, 2020March 31, 2021 and December 31, 2019, approximately $805.22020, $774 million and $717.0$806 million, respectively, of the Company’s total commercial mortgage loans principal balance have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. During the three and nine months ended September 30,March 31, 2021 and 2020, and 2019, the Company recognized $0.9 million, $3.8 million, $17.3$7 million and $18.0$16 million, respectively, of participation commercial mortgage loan income.
As of September 30,March 31, 2021 and December 31, 2020, the Company had $1.2$1 million and $3 million, respectively, of invested assets that consisted of nonperforming commercial mortgage loans, restructured commercial mortgage loans, or commercial mortgage loans that were nonperforming, restructured or foreclosed and were converted to real estate properties. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. Non-performingFor all commercial mortgage loans, include loans that are greater than 90 days delinquent, or otherwise deemed uncollectible. the impact of troubled debt restructurings is reflected in our investment balance and in the allowance for commercial mortgage loan credit losses.
During the ninethree months ended September 30,March 31, 2021 and 2020, the Company recognized 2did not recognize any troubled debt restructurings transactions, respectively, as a result of granting concessions to borrowers which included loan terms unavailable from other lenders. During the three and nine months ended September 30, 2020, the Company did not have any commercial mortgage loans that were foreclosed and were converted to real estate properties. It is the Company’s policy to write off loan amounts that are deemed uncollectible. NaN amounts were written off during the three and nine months ended September 30, 2020.
As of September 30, 2019, $3.2 million of the Company’s invested assets consisted of nonperforming commercial mortgage loans, restructured commercial mortgage loans, or commercial mortgage loans that were foreclosed and were converted to real estate properties. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. Non-performing commercial mortgage loans include loans that are greater than 90 days delinquent, or otherwise deemed uncollectible. During the nine months ended September 30, 2019, the Company recognized 4 troubled debt restructurings as a result of granting concessions to borrowers which included loan terms unavailable from other lenders. During the three and nine months ended September 30, 2019, the Company did not have any commercial mortgage loans that were foreclosed and were converted to real estate properties. The Company did not identify any loans whose principal was permanently impaired during the three and nine months ended September 30, 2019.March 31, 2021 or during the three months ended March 31, 2020.
On March 27, 2020, H.R. 748,The Company provides certain relief under the Coronavirus Aid Relief, and Economic Security Act (“the CARES Act”) was signed into legislation. Section 4013 of the CARES Act provides additional relief for certain loan modifications made as a result of the COVID-19 pandemic. Specifically, the CARES Act specifies that a financial institution may suspend the requirements under GAAP with respect to troubled debt restructuring classification and reporting for loan modifications made in response to the COVID-19 pandemic which meet the following criteria: 1) the borrower was not more than 30 days past due as of December 31, 2019 and 2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan. The relief provided by the CARES Act terminates on the earlier of December 31, 2020 or 60 days after the end of the national emergency declared on March 13, 2020. Accordingly, the Company provided certain relief under the CARES Act under its COVID-19 Commercial Mortgage Loan Program (the “Loan Modification Program”). During the three months ended March 31, 2021, the Company modified 7 loans under the Loan Modification Program, representing $143 million in unpaid principal balance. As of September 30, 2020,March 31, 2021, since the Company had ainception of the CARES Act, there were 295 total of 308 loans withmodified under the Loan Modification Program, representing $2.2 billion in unpaid principal balance underbalance. At March 31, 2021, $1.7 billion of these loans have resumed regular principal and interest payments in accordance with the Loan Modification Program.terms of the modification agreements. The modifications under this program include agreements to defer principal payments only and/or to defer principal and interest payments for a specified period of time. None of these modifications were considered troubled debt restructurings.
As of September 30, 2020, theThe amortized cost basis of the Company's commercial mortgage loan receivables by origination year, net of the allowance, for credit losses is as follows:

Term Loans Amortized Cost Basis by Origination Year
20212020201920182017PriorTotal
(Dollars In Millions)
As of March 31, 2021
Commercial mortgage loans:
Performing$314 $1,443 $2,391 $1,560 $1,344 $3,255 $10,307 
Non-performing0 0 0 0 0 1 1 
Amortized cost$314 $1,443 $2,391 $1,560 $1,344 $3,256 $10,308 
 Allowance for credit losses(2)(18)(35)(34)(31)(51)(171)
Total commercial mortgage loans$312 $1,425 $2,356 $1,526 $1,313 $3,205 $10,137 
Term Loans Amortized Cost Basis by Origination Year
20202019201820172016PriorTotal
(Dollars In Millions)
As of December 31, 2020
Commercial mortgage loans:
Performing$1,463 $2,442 $1,577 $1,344 $943 $2,458 $10,227 
Non-performing000001 1 
Amortized cost$1,463 $2,442 $1,577 $1,344 $943 $2,459 $10,228 
 Allowance for credit losses(21)(46)(55)(37)(25)(38)(222)
Total commercial mortgage loans$1,442 $2,396 $1,522 $1,307 $918 $2,421 $10,006 
The following tables provide a comparative view of the key credit quality indicators of the Loan-to-Value and Debt Service Coverage Ratio (“DSCR”):
5032
Table of Contents
Term Loans Amortized Cost Basis by Origination Year
20202019201820172016PriorTotal
(Dollars In Thousands)
As of September 30, 2020
Commercial mortgage loans:
Performing$937,464 $2,528,592 $1,606,876 $1,361,092 $956,593 $2,549,745 $9,940,362 
Non-performing0 0 0 0 0 0 0 
Amortized cost$937,464 $2,528,592 $1,606,876 $1,361,092 $956,593 $2,549,745 $9,940,362 
 Allowance for credit losses(11,139)(39,465)(43,172)(30,722)(15,789)(34,763)(175,050)
Total commercial mortgage loans$926,325 $2,489,127 $1,563,704 $1,330,370 $940,804 $2,514,982 $9,765,312 
As of March 31, 2021As of December 31, 2020
Amortized
Cost		% of Total
DSCR (2)
Amortized
Cost		% of Total
DSCR (2)
(Dollars In Millions)
Loan-to-Value(1)
Greater than 75%$393 4 %0.05$399 4 %0.05
50% - 75%6,504 63 %1.026,557 64 %1.04
Less than 50%3,411 33 %0.673,272 32 %0.63
Total commercial mortgage loans$10,308 100 %1.74$10,228 100 %1.72
(1) The loan-to-value ratio compares the current unpaid principal of the loan to the estimated fair value of the underlying property collateralizing the loan. Our weighted average loan-to-value ratio was 54% at March 31, 2021 and 54% at December 31, 2020.
(2) The debt service coverage ratio compares a property’s net operating income to its debt service payments, including principal and interest. Our weighted average debt service coverage ratio for March 31, 2021 and December 31, 2020 was 1.74x and 1.72x, respectively.
The following table presents loan-to-value ratios for commercial mortgages by year of vintage:
Loan-to-Value Ratios for Commercial Mortgages by Year of Vintage
20202019201820172016PriorTotal
(Dollars In Thousands)
As of September 30, 2020
Commercial mortgage loans:
  Greater than 75%$37,291 $105,608 $104,885 $51,973 $6,605 $6,122 $312,484 
50% - 75%688,487 1,589,323 1,017,753 1,027,418 778,876 1,368,660 6,470,517 
  Less than 50%211,686 833,661 484,238 281,701 171,112 1,174,963 3,157,361 
Amortized Cost937,464 2,528,592 $1,606,876 $1,361,092 $956,593 $2,549,745 $9,940,362 
  Allowance for credit losses(11,139)(39,465)(43,172)(30,722)(15,789)(34,763)(175,050)
Total commercial mortgage loans$926,325 $2,489,127 $1,563,704 $1,330,370 $940,804 $2,514,982 $9,765,312 
(1) The loan-to-value ratio compares the current unpaid principal of the loan to the estimated fair value of the underlying property collateralizing the loan. Our weighted average loan-to-value ratio was 54% at both September 30, 2020 and December 31, 2019.
The following table presents debt service coverage ratios for commercial mortgages by year of vintage:
Debt Service Coverage Ratios for Commercial Mortgages by Year of Vintage
20202019201820172016PriorTotal
(Dollars In Thousands)
As of September 30, 2020
Commercial mortgage loans:
  >1.20x$900,073 $2,073,671 $1,202,174 $1,059,070 $725,071 $1,943,864 $7,903,923 
  1.00x - 1.20x37,391 354,960 330,495 237,527 143,886 360,784 1,465,043 
  <1.00x0 99,961 74,207 64,495 87,636 245,097 571,396 
Amortized Cost937,464 2,528,592 1,606,876 1,361,092 956,593 2,549,745 9,940,362 
Allowance for credit losses(11,139)(39,465)(43,172)(30,722)(15,789)(34,763)(175,050)
Total commercial mortgage loans$926,325 $2,489,127 $1,563,704 $1,330,370 $940,804 $2,514,982 $9,765,312 
(1) The debt service coverage ratio compares a property’s net operating income to its debt service payments, including principal and interest. Our weighted average debt service coverage ratio was 1.74x at September 30, 2020 and 1.73x at December 31, 2019.


5133
Table of Contents
The ACL increaseddecreased by $99.1$58 million during the ninethree months ended September 30, 2020,March 31, 2021, primarily as a result of deteriorationimprovement in the macroeconomic forecasts, as a result of COVID-19, used in the measurement of the ACL since the initial allowance was established.
For The
Three Months Ended
September 30, 2020		For The
Nine Months Ended
September 30, 2020		As of and For The
Three Months Ended
March 31, 2021		As of and For The
Year Ended
December 31, 2020
(Dollars In Thousands)(Dollars In Millions)
Allowance for Funded Commercial Mortgage Loan Credit LossesAllowance for Funded Commercial Mortgage Loan Credit LossesAllowance for Funded Commercial Mortgage Loan Credit Losses
Beginning balanceBeginning balance$173,186 $4,884 Beginning balance$222 $5 
Cumulative effect adjustmentCumulative effect adjustment0 80,239 Cumulative effect adjustment0 80 
Charge offsCharge offs0 0 Charge offs0 0 
RecoveriesRecoveries0 (1,839)Recoveries(5)(3)
ProvisionProvision1,864 91,766 Provision(46)140 
Ending balanceEnding balance$175,050 $175,050 Ending balance$171 $222 
Allowance for Unfunded Commercial Mortgage Loan Commitments Credit LossesAllowance for Unfunded Commercial Mortgage Loan Commitments Credit LossesAllowance for Unfunded Commercial Mortgage Loan Commitments Credit Losses
Beginning balanceBeginning balance$19,550 $0 Beginning balance$22 $0 
Cumulative effect adjustmentCumulative effect adjustment0 10,610 Cumulative effect adjustment0 10 
Charge offsCharge offs0 0 Charge offs0 0 
RecoveriesRecoveries0 0 Recoveries0 0 
ProvisionProvision247 9,187 Provision(7)12 
Ending balanceEnding balance$19,797 $19,797 Ending balance$15 $22 
An analysisAs of delinquentMarch 31, 2021, the Company had a total of 1 loan of $1 million that was 90 days and greater delinquent. As of December 31, 2020, the Company had a total of 1 loan of $1 million that was 60-89 days delinquent.
The Company’s commercial mortgage loan portfolio consists of commercial mortgage loans that are collateralized by real estate. Due to the collateralized nature of the loans, any assessment of impairment and ultimate loss given a default on the loans is shown inbased upon a consideration of the following chart:
   Greater 
30-59 Days60-89 Daysthan 90 DaysTotal
As of September 30, 2020DelinquentDelinquentDelinquentDelinquent
 (Dollars In Thousands)
Commercial mortgage loans$0 $0 $0 $0 
Number of delinquent commercial mortgage loans0 0 0 0 
    
As of December 31, 2019    
Commercial mortgage loans$6,455 $0 $710 $7,165 
Number of delinquent commercial mortgage loans2 0 3 5 
52
Tableestimated fair value of Contents
the real estate.
The Company limits accrued interest income on loans to ninety days of interest. For loans in nonaccrual status, interest income is recognized on a cash basis. For the ninethree months ended September 30, 2020,March 31, 2021, an immaterial amount of accrued interest was excluded from the amortized cost basis pursuant to the Company's nonaccrual policy.
An analysisAs of loansMarch 31, 2021, the Company had 1 loan in a nonaccrual status is shownwith an allowance recorded. The recorded investment, unpaid principal balance, and average recorded investment was $1 million. As of December 31, 2020, the Company had 1 loan in the following chart:
Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment		Interest
Income
Recognized		Cash Basis
Interest
Income
(Dollars In Thousands)
As of September 30, 2020
Commercial mortgage loans:      
With no related allowance recorded$0 $0 $— $0 $0 $0 
With an allowance recorded$0 $0 $0 $0 $0 $0 
As of December 31, 2019
Commercial mortgage loans:      
With no related allowance recorded$710 $702 $— $237 $20 $28 
With an allowance recorded$16,209 $16,102 $4,884 $3,242 $841 $838 
a nonaccrual status with no related allowance recorded. The recorded investment, unpaid principal balance, and average recorded investment was $1 million.
Commercial mortgage loans that were modified in a troubled debt restructuring as of September 30,December 31, 2020 is shown below. The Company did not have any commercial mortgage loans that were modified in a troubled debt restructuring as of March 31, 2021.
Number of
Contracts		Pre-Modification
Outstanding
Recorded
Investment		Post-Modification
Outstanding
Recorded
Investment
 (Dollars In Millions)
As of December 31, 2020
Troubled debt restructuring:
Commercial mortgage loans2$2 $2 

34
Table of Contents
8.MONY CLOSED BLOCK OF BUSINESS
In 1998, MONY Life Insurance Company (“MONY”) converted from a mutual insurance company to a stock corporation (“demutualization”). In connection with its demutualization, an accounting mechanism known as a closed block (the “Closed Block”) was established for certain individuals’ participating policies in force as of the date of demutualization. Assets, liabilities, and earnings of the Closed Block are specifically identified to support its participating policyholders. The Company acquired the Closed Block in conjunction with the acquisition of MONY in 2013.
Assets allocated to the Closed Block inure solely to the benefit of the Closed Block’s policyholders and will not revert to the benefit of MONY or the Company. No reallocation, transfer, borrowing or lending of assets can be made between the Closed Block and other portions of MONY’s general account, any of MONY’s separate accounts or any affiliate of MONY without the approval of the Superintendent of The New York State Department of Financial Services (the “Superintendent”). Closed Block assets and liabilities are carried on the same basis as similar assets and liabilities held in the general account.
Summarized financial information for the Closed Block as of March 31, 2021 and December 31, 2019 are shown below.2020 is as follows:
Number of
Contracts		Pre-Modification
Outstanding
Recorded
Investment		Post-Modification
Outstanding
Recorded
Investment
 (Dollars In Thousands)
As of September 30, 2020
Troubled debt restructuring:
Commercial mortgage loans1 $1,237 $1,237 
As of December 31, 2019
Troubled debt restructuring:
Commercial mortgage loans2$3,771 $3,771 
As of
March 31, 2021December 31, 2020
 (Dollars In Millions)
Closed block liabilities  
Future policy benefits, policyholders’ account balances and other policyholder liabilities$5,377 $5,406 
Policyholder dividend obligation234 580 
Other liabilities23 7 
Total closed block liabilities5,634 5,993 
Closed block assets  
Fixed maturities, available-for-sale, at fair value4,530 4,903 
Commercial mortgage loans65 68 
Policy loans587 596 
Cash and other invested assets80 46 
Other assets96 91 
Total closed block assets5,358 5,704 
Excess of reported closed block liabilities over closed block assets276 289 
Portion of above representing accumulated other comprehensive income:  
Net unrealized gains (losses) - net of policyholder dividend obligation: 2021 - $147 and 2020- $493; and net of income tax: 2021 - $(31) and 2020 - $(104)0 0 
Future earnings to be recognized from closed block assets and closed block liabilities$276 $289 
35
Table of Contents
Reconciliation of the policyholder dividend obligation is as follows:
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Policyholder dividend obligation, beginning balance$580 $279 
Applicable to net revenue (losses)1 (7)
Change in net unrealized gains (losses) - allocated to the policyholder dividend obligation(347)(198)
Policyholder dividend obligation, ending balance$234 $74 
Closed Block revenues and expenses were as follows:
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Revenues 
Premiums and other income$34 $35 
Net investment income48 51 
Net realized gains (losses)23 0 
Total revenues105 86 
Benefits and other deductions 
Benefits and settlement expenses89 78 
Other operating expenses0 0 
Total benefits and other deductions89 78 
Net revenues before income taxes16 8 
Income tax expense3 2 
Net revenues$13 $6 

9.REINSURANCE
Allowance for Credit Losses – Reinsurance Receivables

The Company establishes an allowance for current expected credit losses related to amounts receivable from reinsurers (the “Reinsurance ACL”). Changes in the Reinsurance ACL are recognized as a component of benefits and settlement expenses. The Reinsurance ACL is remeasured on a quarterly basis using an internally developed probability of default (“PD”) and loss given default (“LGD”) model. Key inputs to the calculation are a conditional probability of insurer liquidation by issuer credit rating and exposure at default derived from a runoff projection of ceded reserves by reinsurer to forecast future loss amounts. Management’s position is that the rate of return implicit in the financial asset (i.e. the ceded reserves) is associated with the discount rate used to value the underlying insurance reserves; that is, the rate of return on the asset portfolio(s) supporting the reserves. For reinsurance receivable exposures that do not share similar risk characteristics with other receivables, including those associated with counterparties that have experienced significant credit deterioration, the Company measures the allowance for credit losses individually, based on facts and circumstances associated with the specific reinsurer or transaction.
As of March 31, 2021 and December 31, 2020, the Reinsurance ACL was $90 million and $94 million respectively. There were 0 write-offs or recoveries during the three months ended March 31, 2021 and 2020.


36
Table of Contents
The Company had total reinsurance receivables of $4.6 billion as of March 31, 2021, which includes both ceded policy benefit reserves and receivables for claims. Receivables for claims represented 13% of total reinsurance receivables as of March 31, 2021. Receivables for claims are short-term in nature, and generally carry minimal credit risk. Of reserves ceded as of March 31, 2021, 76% were receivables from reinsurers rated by A.M. Best Company. Of the total rated by A.M. Best, 75% were rated A+ or better, 13% were rated A, and 11% were rated A- or lower. The Company monitors the concentration of credit risk the Company has with any reinsurer, as well as the financial condition of its reinsurers, on an ongoing basis. Certain of the Company’s reinsurance receivables are supported by letters of credit, funds held or trust agreements.
10.    DEBT AND OTHER OBLIGATIONS
Under a revolving line of credit arrangement (the “Credit Facility”), the Company has the ability to borrow on an unsecured basis up to an aggregate principal amount of $1.0$1 billion. The Company has the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.5$2 billion. Balances outstanding under the Credit Facility accrue interest at a rate equal to, at the option of the Borrowers, (i) LIBOR plus a spread based on the ratings of PLC’s Senior Debt, or (ii) the sum of (A) a rate equal to the highest of (x) the Administrative Agent’s Prime rate, (y) 0.50% above the Funds Rate, or (z) the one-month LIBOR plus 1.00% and (B) a spread based on the ratings of PLC’s Senior Debt. The Credit Facility also provided for a facility fee at a rate that varies with the ratings of PLC’s Senior Debt and that is calculated on the aggregate amount of commitments under the Credit Facility, whether used or unused. The annual facility fee rate is 0.125% of the aggregate principal amount. The Credit Facility provides that PLC is liable for the full amount of any obligations for borrowings or letters of credit, including those of the Company, under the Credit Facility. The maturity date of the Credit Facility is May 3, 2023. The Company is not aware of any non-compliance with the financial debt covenants of the Credit Facility as of September 30, 2020.March 31, 2021. PLC had an outstanding balance of $385 million, as of March 31, 2021. PLC had a combined outstanding balance of $255.0$190 million with $215.0 million bearing an interest at a rate of LIBOR plus 1.00%, and $40 million bearing an interest rate of Prime as of September 30, 2020. PLC did not have an outstanding balance as of December 31, 2019.
53
Table of Contents
Non-RecourseFunding Obligations
Non-recourse funding obligations outstanding as of September 30, 2020, on a consolidated basis, are shown in the following table. See Note 15, Subsequent Events for additional information on the Company’s non-recourse funding obligations.
IssuerOutstanding Principal
Carrying Value(1)
Maturity
Year		Year-to-Date
Weighted-Avg
Interest Rate
 (Dollars In Thousands)  
Golden Gate Captive Insurance Company(2)(3)
$1,858,000 $1,858,000 20394.70 %
Golden Gate II Captive Insurance Company329,949 275,895 20523.91 %
Golden Gate V Vermont Captive Insurance Company(2)(3)
750,000 806,015 20375.12 %
MONY Life Insurance Company(3)
1,885 2,216 20246.19 %
Total$2,939,834 $2,942,126   
(1) Carrying values include premiums and discounts and do not represent unpaid principal balances.
(2) Obligations are issued to non-consolidated subsidiaries of PLC. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of the Company. Changes in Golden Gate and Golden Gate V are non-cash items.
(3) Fixed rate obligations.
Non-recourse funding obligations outstanding as of December 31, 2019, on a consolidated basis, are shown in the following table:
IssuerOutstanding Principal
Carrying Value(1)
Maturity
Year		Year-to-Date
Weighted-Avg
Interest Rate
 (Dollars In Thousands)  
Golden Gate Captive Insurance Company(2)(3)
$2,028,000 $2,028,000 20394.70 %
Golden Gate II Captive Insurance Company329,949 274,955 20525.06 %
Golden Gate V Vermont Captive Insurance Company(2)(3)
720,000 777,527 20375.12 %
MONY Life Insurance Company(3)
1,885 2,271 20246.19 %
Total$3,079,834 $3,082,753   
(1) Carrying values include premiums and discounts and do not represent unpaid principal balances.
(2) Obligations are issued to non-consolidated subsidiaries of PLC. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of the Company. Changes in Golden Gate and Golden Gate V are non-cash items.
(3) Fixed rate obligations.
54
Table of Contents
2020.
Secured Financing Transactions
Repurchase Program Borrowings
While the Company anticipates that the cash flows of its operating subsidiaries will be sufficient to meet its investment commitments and operating cash needs in a normal credit market environment, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has established repurchase agreement programs for certain of its insurance subsidiaries to provide liquidity when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Under this program, the Company may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. These borrowings are typically for a term less than 90 days. The market value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities, and the agreements provide for net settlement in the event of default or on termination of the agreements. As of September 30, 2020,March 31, 2021, the fair value of securities pledged under the repurchase program was $153.7$917 million, and the repurchase obligation of $150.0$854 million was included in the Company’s consolidated condensed balance sheets (at an average borrowing rate of 1415 basis points). During the ninethree months ended September 30, 2020,March 31, 2021, the maximum balance outstanding at any one point in time related to these programs was $565.0$1,077 million. The average daily balance was $94.4$347 million (at an average borrowing rate of 5017 basis points) during the ninethree months ended September 30, 2020.March 31, 2021. As of December 31, 2019,2020, the fair value of securities pledged under the repurchase program was $282.2$452 million, and the repurchase obligation of $270.0$437 million was included in the Company’s consolidated condensed balance sheets (at an average borrowing rate of 16315 basis points). During 2019,2020, the maximum balance outstanding at any one point in time related to these programs was $900.0$825 million. The average daily balance was $212.2$143 million (at an average borrowing rate of 21433 basis points) during the year ended December 31, 2019.2020.
Securities Lending
The Company participates in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned out to third parties for short periods of time. The Company requires collateral at least equal to 102% of the fair value of the loaned securities to be separately maintained. The loaned securities’ fair value is monitored on a daily basis and collateral is adjusted accordingly. The Company maintains ownership of the securities at all times and is entitled to receive from the borrower any payments for interest received on such securities during the loan term. Securities lending transactions are accounted for as secured borrowings. As of September 30,March 31, 2021 and December 31, 2020, securities with a fair value of $80.2$129 million and $57 million, respectively, were loaned under this program. As collateral for the loaned securities, the Company receives cash which is primarily reinvested in short-term repurchase agreements, which are also collateralized by U.S. Government or U.S. Government Agency securities, and government money market funds. These investments are recorded in short-term investments with a corresponding liability recorded in secured financing liabilities to account for its obligation to return the collateral. As of September 30,March 31, 2021 and December 31, 2020, the fair value of the collateral related to this
37
Table of Contents
program was $82.8$133 million and $59 million and the Company has an obligation to return $82.8$133 million and $59 million of collateral to the securities borrowers.borrowers, respectively.

The following table provides the fair value of collateral pledged for repurchase agreements, grouped by asset class as of September 30, 2020March 31, 2021 and December 31, 20192020:

Repurchase Agreements, Securities Lending Transactions, and Repurchase-to-Maturity Transactions
Accounted for as Secured Borrowings
 Remaining Contractual Maturity of the Agreements
 As of March 31, 2021
 (Dollars In Millions)
Overnight and
Continuous		Up to 30 days30-90 daysGreater Than
90 days		Total
Repurchase agreements and repurchase-to-maturity transactions     
U.S. Treasury and agency securities$843 $74 $0 $0 $917 
Total repurchase agreements and repurchase-to-maturity transactions843 74 0 0 917 
Securities lending transactions
Corporate securities123 0 0 0 123 
Equity securities5 0 0 0 5 
Redeemable preferred stocks1 0 0 0 1 
Total securities lending transactions129 0 0 0 129 
Total securities$972 $74 $0 $0 $1,046 
55
Table of Contents
 Remaining Contractual Maturity of the Agreements
 As of September 30, 2020
 (Dollars In Thousands)
Overnight and
Continuous		Up to 30 days30-90 daysGreater Than
90 days		Total
Repurchase agreements and repurchase-to-maturity transactions     
U.S. Treasury and agency securities$153,681 $0 $0 $0 $153,681 
Total repurchase agreements and repurchase-to-maturity transactions153,681 0 0 0 153,681 
Securities lending transactions
Corporate securities60,358 0 0 0 60,358 
Equity securities17,282 0 0 0 17,282 
Other government related securities2,554 0 0 0 2,554 
Total securities lending transactions80,194 0 0 0 80,194 
Total securities$233,875 $0 $0 $0 $233,875 
Repurchase Agreements, Securities Lending Transactions, and Repurchase-to-Maturity Transactions
Accounted for as Secured Borrowings
 Remaining Contractual Maturity of the Agreements
 As of December 31, 2020
 (Dollars In Millions)
Overnight and
Continuous		Up to 30 days30-90 daysGreater Than
90 days		Total
Repurchase agreements and repurchase-to-maturity transactions     
U.S. Treasury and agency securities$366 $86 $0 $0 $452 
Total repurchase agreements and repurchase-to-maturity transactions366 86 0 0 452 
Securities lending transactions
Fixed maturity securities49 0 0 0 49 
Equity securities7 0 0 0 7 
Redeemable preferred stocks1 0 0 0 1 
Total securities lending transactions57 0 0 0 57 
Total securities$423 $86 $0 $0 $509 
 Remaining Contractual Maturity of the Agreements
 As of December 31, 2019
 (Dollars In Thousands)
Overnight and
Continuous		Up to 30 days30-90 daysGreater Than
90 days		Total
Repurchase agreements and repurchase-to-maturity transactions     
U.S. Treasury and agency securities$282,198 $0 $0 $0 $282,198 
Total repurchase agreements and repurchase-to-maturity transactions282,198 0 0 0 282,198 
Securities lending transactions
Fixed maturity securities55,720 0 0 0 55,720 
Equity securities7,120 0 0 0 7,120 
Total securities lending transactions62,840 0 0 0 62,840 
Total securities$345,038 $0 $0 $0 $345,038 

Golden Gate Captive Insurance Company

On October 1, 2020, Golden Gate Captive Insurance Company (“Golden Gate”), a Vermont special purpose financial insurance company and a wholly owned subsidiary of PLICO, entered into a transaction with a term of 20 years, that may be extended to a maximum of 25 years, to finance up to $5 billion of “XXX” and “AXXX” reserves related to the term life insurance business and universal life insurance with secondary guarantee business that is reinsured to Golden Gate by PLICO and West Coast Life Insurance Company, an indirect wholly owned subsidiary, pursuant to an Excess of Loss Reinsurance Agreement (the “XOL Agreement”) with Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and RGA Reinsurance Company (Barbados) Ltd. (collectively, the “Retrocessionaires”). The transaction is “non-recourse” to the Company, WCL, and PLICO, meaning that none of these companies are liable to reimburse the Retrocessionaires for any XOL payments required to be made. As of March 31, 2021, the XOL Asset backing the difference in statutory and economic reserve liabilities was $4.492 billion.
38
Table of Contents

11.    COMMITMENTS AND CONTINGENCIES
The Company has entered into indemnity agreements with each of its current directors other than those that are employees of Dai-ichi Life that provide, among other things and subject to certain limitations, a contractual right to indemnification to the fullest extent permissible under the law. The Company has agreements with certain of its officers providing up to $10 million in indemnification. These obligations are in addition to the customary obligation to indemnify officers and directors contained in the Company’s governance documents.

The Company leases administrative and marketing office space as well as various office equipment. Most leases have terms ranging from two years to twenty-five years. Leases with an initial term of 12 months or less are not recorded on the consolidated condensed balance sheet. The Company accounts for lease components separately from non-lease components (e.g., common area maintenance). Certain of the Company’s lease agreements include options to renew at the Company’s discretion. Management has concluded that the Company is not reasonably certain to elect any of these renewal options. The Company will use the interest rates received on its funding agreement backed notes as the collateralized discount rate when calculating the present value of remaining lease payments when the rate implicit in the lease is unavailable.

Under the insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. From time to time, companies may be asked to contribute amounts beyond prescribed limits. It is possible that the Company could be assessed with respect to product lines not offered by the Company. In addition, legislation may be introduced in various states with respect to guaranty fund assessment laws related to insurance products, including long term care insurance and other specialty products, that increases the cost of future assessments or alters future premium tax offsets received in connection with guaranty fund assessments. The Company cannot predict the amount, nature or timing of any future assessments or legislation, any of which could have a material and adverse impact on the Company’s financial condition or results of operations.

56
Table of Contents
A number of civil jury verdicts have been returned against insurers, broker-dealers, and other providers of financial services involving sales, refund or claims practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or persons with whom the insurer does business, and other matters. Often these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The financial services and insurance industries in particular are also sometimes the target of law enforcement and regulatory investigations relating to the numerous laws and regulations that govern such companies. Some companies have been the subject of law enforcement or regulatory actions or other actions resulting from such investigations. The Company, in the ordinary course of business, is involved in such matters.

The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established. For such matters, the Company may provide an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis and updates its established liabilities, disclosures, and estimates of reasonably possible losses or range of loss based on such reviews.
Certain of the Company’s insurance subsidiaries, as well as certain other insurance companies for which the Company has coinsured blocks of life insurance and annuity policies, are under audit for compliance with the unclaimed property laws of a number of states. The audits are being conducted on behalf of the treasury departments or unclaimed property administrators in such states. The focus of the audits is on whether there have been unreported deaths, maturities, or policies that have exceeded limiting age with respect to which death benefits or other payments under life insurance or annuity policies should be treated as unclaimed property that should be escheated to the state. The Company is presently unable to estimate the reasonably possible loss or range of loss that may result from the audits due to a number of factors, including the early stages of the audits being conducted, and uncertainty as to whether the Company or other companies are responsible for the liabilities, if any, arising in connection with certain co-insured policies. The Company will continue to monitor the matter for any developments that would make the loss contingency associated with the audits reasonably estimable.
39
Table of Contents
Advance Trust & Life Escrow Services, LTA, as Securities Intermediary of Life Partners Position Holder Trust v. Protective Life Insurance Company, Case No. 2:18-CV-01290, is a putative class action that was filed on August 13, 2018 in the United States District Court for the Northern District of Alabama. Plaintiff alleges that the Company required policyholders to pay unlawful and excessive cost of insurance charges. Plaintiff seeks to represent all owners of universal life and variable universal life policies issued or administered by the Company or its predecessors that provide that cost of insurance rates are to be determined based on expectations of future mortality experience. The plaintiff seeks class certification, compensatory damages, pre-judgment and post-judgment interest, costs, and other unspecified relief. The Company is vigorously defending this matter and cannot predict the outcome of or reasonably estimate the possible loss or range of loss that might result from this litigation.

Scottish Re (U.S.), Inc. ("SRUS") was placed in rehabilitation on March 6, 2019 by the State of Delaware. Under the related order, the Insurance Commissioner of the State of Delaware has been appointed the receiver of SRUS (the “Receiver”) and provided with authority to conduct and continue the business of SRUS in the interest of its cedents, creditors, and stockholder. The order was accompanied by an injunction requiring the continued payment of reinsurance premiums to SRUS and temporarily prohibiting cedents, including the Company, from offsetting premiums payable against receivables from SRUS. On June 20, 2019, the Delaware Court of Chancery (the “Court”) entered an order approving a Revised Offset Plan, which allows cedents, including the Company, to offset premiums under certain circumstances.

A proposed Rehabilitation Plan (“Rehabilitation Plan”) was filed by the receiver of SRUSReceiver on June 30, 2020. The Rehabilitation Plan presents the following two options to each cedent: 1)(1) remain in business with SRUS and be governed by the Rehabilitation Plan, or 2)(2) recapture business ceded to SRUS. Due to SRUS’s financial status, neither option payswould pay 100% of outstanding claims. Certain financial terms and conditions will be imposed on the cedents based on the election made, the type of business ceded, the manner in which the business is collateralized, and the amount of losses sustained by a cedent. The Company is currently working to evaluate the impact of both options and to provide feedback/objections to the Receiver on the Rehabilitation Plan. On October 9, 2020, the Receiver filed a proposed order setting forth a schedule to present the Rehabilitation Plan for Court approval, which order contemplatescontemplated possible modifications to the Rehabilitation Plan to be filed with the Court by March 16, 2021.
57
Table On January 15, 2021, the Receiver circulated a draft Amended Rehabilitation Plan (“Amended Plan”) with interested parties. The majority of Contents
the substance and form of the original Rehabilitation Plan, including its two option structure described above, remained in place. On March 16, 2021, the Receiver filed a draft Amended Plan, which contains the same proposed revisions as the draft he previously circulated on January 15, 2021. Later on March 19, 2021, the Receiver filed a proposed order asking the Court to revise the schedule to push back dates, including the deadline that the Receiver must file any modifications to the Amended Plan to May 3, 2021. A group of interested parties separately filed a Motion to Appoint a Special Master, and at the hearing on the Motion, held on March 26, 2021, the Court suspended all deadlines in the case to allow the Receiver and interested parties to meet and confer on a number of topics for 30 days. A joint status report was filed with the Court on May 7, 2021. It is anticipated that a new scheduling order will be entered in the near future.

The Company continues to monitor SRUS and the actions of the Receiverreceiver through discussions with legal counsel and review of publicly available information. An allowance for credit losses related to SRUS is included in the overall reinsurance allowance for credit losses. See Note 2, Summary of Significant Accounting Policies. As of September 30, 2020,March 31, 2021, management does not believe that the ultimate outcome of the rehabilitation process will have a material impact on the Company’sour financial position or results of operations. 

40
Table of Contents
12.    ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) (“AOCI”) as of September 30, 2020March 31, 2021 and December 31, 2019.2020.
Changes in Accumulated Other Comprehensive Income (Loss) by Component 
Unrealized
Gains and Losses
on Investments(2)
Accumulated
Gain and Loss
Derivatives		Total
Accumulated
Other
Comprehensive
Income (Loss)
 (Dollars In Thousands, Net of Tax)
Balance, December 31, 2018$(1,404,209)$(7)$(1,404,216)
Other comprehensive income (loss) before reclassifications2,833,888 (9,781)2,824,107 
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings(3,574)0 (3,574)
Amounts reclassified from accumulated other comprehensive income (loss)(1)
(10,474)1,799 (8,675)
Balance, December 31, 2019$1,415,631 $(7,989)$1,407,642 
Other comprehensive income (loss) before reclassifications1,258,943 (877)1,258,066 
Other comprehensive income (loss) on investments for which a credit loss has been recognized in earnings25,659 0 25,659 
Amounts reclassified from accumulated other comprehensive income (loss)(1)
60,231 2,427 62,658 
Balance, September 30, 2020$2,760,464 $(6,439)$2,754,025 
(1)  See Reclassifications Out of Accumulated Other Comprehensive Income (Loss) table below for details.
(2)  As of September 30, 2020 and December 31, 2019, net unrealized gains reported in AOCI were offset by $(1.6) billion and $(776.9) million, respectively, due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.
58
Table of Contents
Unrealized
Gains and Losses
on Investments(2)
Accumulated
Gain and Loss on
Derivatives		Total
Accumulated
Other
Comprehensive
Income (Loss)
 (Dollars In Millions, Net of Tax)
Balance, December 31, 2019$1,421 $(8)$1,413 
Other comprehensive income (loss) before reclassifications2,048 (2)2,046 
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings24 0 24 
Amounts reclassified from accumulated other comprehensive income (loss)(1)
63 2 65 
Balance, December 31, 20203,556 (8)3,548 
Other comprehensive income (loss) before reclassifications(1,767)2 (1,765)
Other comprehensive income (loss) on investments in net expected credit losses5 0 5 
Amounts reclassified from accumulated other comprehensive income (loss)(1)
(27)0 (27)
Balance, March 31, 2021$1,767 $(6)$1,761 
(1)  See Reclassifications Out of Accumulated Other Comprehensive Income (Loss) table below for details.
(2)  As of March 31, 2021 and December 31, 2020, net unrealized gains reported in AOCI were offset by $(1.0) billion and $(2.0) billion, respectively, due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.
The following tables summarize the reclassifications amounts out of AOCI for the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
Gains (losses) in net income:Affected Line Item in the
Consolidated Condensed Statements of Income		2020201920202019
(Dollars In Thousands)
Derivative instruments
Benefits and settlement expenses, net of reinsurance ceded(1)
$(401)$(746)$(3,072)$(1,360)
Tax (expense) benefit84 157 645 285 
$(317)$(589)$(2,427)$(1,075)
    
Unrealized gains and losses on available-for-sale securitiesRealized gains (losses) - investments$2,681 $15,686 $44,298 $21,885 
Net credit losses recognized in operations(38,459)— (120,540)— 
Net impairment losses recognized in operations— (10,818)— (14,658)
 Tax (expense) benefit7,513 (1,022)16,011 (1,517)
 $(28,265)$3,846 $(60,231)$5,710 
(1) See Note 7, Derivative Financial Instruments for additional information

13.INCOME TAXES
The Company used its respective estimates for its annual 2020 and 2019 income in computing its effective income tax rates for the three and nine months ended September 30, 2020 and 2019. The effective tax rates for the three and nine months ended September 30, 2020 and 2019, were 17.7%, 19.2% 20.6%, and 19.2% respectively.
The CARES Act, as described in Note 9, CommercialMortgage Loans, includes tax provisions relevant to businesses. The Company was required to recognize the effect on the consolidated financial statements in the period the law was enacted, which was in the period ended March 31, 2020. For the period ended March 31, 2020, the CARES Act was not material to the Company's consolidated financial statements; however, if we were to have a taxable loss for the year ended December 31, 2020, we would be able to carryback those losses to prior periods. At this time, the Company does not expect the impact of the CARES Act to be material to the Company's consolidated financial statements for the year ended December 31, 2020.
In April 2019, the IRS proposed favorable and unfavorable adjustments to the Company’s 2014 through 2016 reported taxable income. The Company agreed to these adjustments. The resulting taxes have been settled, other than interest; the settlement of interest will not materially impact the Company or its effective tax rate.
In general, the Company is no longer subject to income tax examinations by taxing authorities for tax years that began before 2017.
Due to the aforementioned IRS adjustments to the Company's pre-2017 taxable income, the Company has amended certain of its 2014 through 2016 state income tax returns. Such amendments will cause such years to remain open, pending the states' acceptances of the returns.
There have been no changes to the balance of unrecognized tax benefits during the three and nine months ended September 30, 2020. The Company believes that in the next twelve months, none of the unrecognized tax benefits will be reduced.
For The
Three Months Ended
March 31,
Gains (losses) in net income:Affected Line Item in the
Consolidated Condensed Statements of Income		20212020
(Dollars In Millions)
Derivative instruments
Benefits and settlement expenses, net of reinsurance ceded(1)
$0 $(1)
Tax (expense) benefit0 0 
$0 $(1)
   
Unrealized gains and losses on available-for-sale securitiesRealized gains (losses) - investments$30 $39 
Change in net expected credit losses - fixed maturities5 (52)
 Tax (expense) benefit(8)3 
 $27 $(10)
(1) See Note 5, Derivative Financial Instruments for additional information

5941
Table of Contents
14.13.    OPERATING SEGMENTS
The Company has several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. The Company periodically evaluates its operating segments and makes adjustments to its segment reporting as needed. A brief description of each segment follows.

In the first quarter of 2020, as a result of changes in the way the chief operating decision maker makes decisions about the allocation of resources and assesses the performance of the business, the Company combined two of its former 6 segments into one segment, Retail Life and Annuity. These changes enable the Company to better serve the needs of its customer and to help achieve the goals of the organization.

Prior period amounts were adjusted retrospectively to reflect the change in the Company’s reportable segments.

•The Retail Life and Annuity segment primarily markets fixed universal life (“UL”), indexed universal life (“IUL”), variable universal life (“VUL”), level premium term insurance (“traditional”), bank-owned life insurance (“BOLI”), corporate-owned life insurance (“COLI”), fixed annuity, and variable annuity (“VA”) products on a national basis primarily through networks of independent insurance agents and brokers, broker-dealers, financial institutions, independent marketing organizations, and affinity groups.

•The Acquisitions segment focuses on acquiring, converting, and servicing policies and contracts acquired from other companies. The segment’s primary focus is on life insurance policies and annuity products that were sold to individuals. Additionally, this segment recently increased its focus on identifying transactions which present ongoing retail opportunities. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisitions segment are typically blocks of business where no new policies are being marketed, however, some recent acquisitions have included ongoing new business activities. Ongoing new product sales written by the Company from these acquisitions are included in the Retail Life and Annuity segment. As a result, earnings and account values are expected to decline as the result of lapses, deaths, and other terminations of coverage unless new acquisitions are made.

•The Stable Value Products segment sells fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. This segment also issues funding agreements to the FHLB, and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. The Company also has an unregistered funding agreement-backed notes program which provides for offers of notes to both domestic and international institutional investors.

•The Asset Protection segment markets extended service contracts, GAP products, credit life and disability insurance, and other specialized ancillary products to protect consumers’ investments in automobiles and recreational vehicles. GAP products are designed to cover the difference between the scheduled loan pay-off amount and an asset’s actual cash value in the case of a total loss. Each type of specialized ancillary product protects against damage or other loss to a particular aspect of the underlying asset.

•The Corporate and Other segment primarily consists of net investment income on assets supporting our equity capital, unallocated corporate overhead and expenses not attributable to the segments above. This segment includes earnings from several non-strategic or runoff lines of business, various financing and investment-related transactions, and the operations of several small subsidiaries.
 The Company’s management and Board of Directors analyzes and assesses the operating performance of each segment using pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss). Consistent with GAAP accounting guidance for segment reporting, pre-tax adjusted operating income (loss) is the Company’s measure of segment performance. Pre-tax adjusted operating income (loss) is calculated by adjusting income (loss) before income tax, by excluding the following items:
•realized gains and losses on investments and derivatives,
•changes in the GLWB embedded derivatives exclusive of the portion attributable to the economic cost of the GLWB,
•actual GLWB incurred claims, and
60
Table•immediate impacts from changes in current market conditions on estimates of Contentsfuture profitability on variable annuity and variable universal life products, including impacts on deferred acquisition cost (“DAC”), value of business acquired (“VOBA”), reserves and other items, and
•the amortization of DAC, VOBA, and certain policy liabilities that is impacted by the exclusion of these items.
The items excluded from adjusted operating income (loss) are important to understanding the overall results
42
Table of operations. Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) are not substitutes for income before income taxes or net income (loss), respectively. These measures may not be comparable to similarly titled measures reported by other companies. The Company believes that pre-tax and after-tax adjusted operating income (loss) enhances management’s and the Board of Directors’ understanding of the ongoing operations, the underlying profitability of each segment, and helps facilitate the allocation of resources.Contents
After-tax adjusted operating income (loss) is derived from pre-tax adjusted operating income (loss) with the inclusion of income tax expense or benefits associated with pre-tax adjusted operating income. Income tax expense or benefits is allocated to the items excluded from pre-tax adjusted operating income (loss) at the statutory federal income tax rate for the associated period. Income tax expense or benefits allocated to after-tax adjusted operating income (loss) can vary period to period based on changes in the Company’s effective income tax rate.
Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) presented below are non-GAAP financial measures. The items excluded from adjusted operating income (loss) are important to understanding the overall results of operations. During the period ended March 31, 2021, the Company began excluding from pre-tax and after-tax adjusted operating income (loss) the impacts on DAC, VOBA, reserves and other items due to changes in estimated profitability of variable annuity and variable universal life products as a result of changes in current market conditions. Management believes this change enhances the understanding of the underlying performance trends of these products. Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) are not substitutes for income before income taxes or net income (loss), respectively. These measures may not be comparable to similarly titled measures reported by other companies. The Company believes that pre-tax and after-tax adjusted operating income (loss) enhances management’s and the Board of Directors’ understanding of the ongoing operations, the underlying profitability of each segment, and helps facilitate the allocation of resources.
In determining the components of the pre-tax adjusted operating income (loss) for each segment, premiums and policy fees, other income, benefits and settlement expenses, and amortization of DAC and VOBA are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized gains (losses) - investments/derivatives and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on statutory policy liabilities net of associated statutory policy assets, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.
As of April 1, 2020, the Company refined its method of allocating the realized gains and losses associated with its derivative portfolios to the Acquisitions and Retail Life and Annuity operating segments. The impact of the change in allocation was not considered material to the operation segment results for the three and nine months ended September 30, 2019.
There were no significant intersegment transactions during the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.
The following tables present a summary of results and reconciles pre-tax adjusted operating income (loss) to consolidated income before income tax and net income: 

6143
Table of Contents
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
2020201920202019
 (Dollars In Thousands)
Revenues  
Retail Life and Annuity$664,525 $651,222 $1,995,041 $1,817,232 
Acquisitions802,200 859,524 2,399,362 2,136,497 
Stable Value Products48,081 59,954 137,222 187,118 
Asset Protection68,198 72,729 209,790 218,995 
Corporate and Other50,223 22,597 81,138 90,082 
Total revenues$1,633,227 $1,666,026 $4,822,553 $4,449,924 
Pre-tax Adjusted Operating Income (Loss)  
Retail Life and Annuity$14,927 3,015 22,642 $87,405 
Acquisitions64,999 103,210 238,121 247,932 
Stable Value Products20,129 20,863 62,119 71,208 
Asset Protection9,484 9,637 32,851 26,945 
Corporate and Other(32,125)(36,563)(103,897)(119,675)
Pre-tax adjusted operating income77,414 100,162 251,836 313,815 
Realized gains (losses) and adjustments(4,802)139,679 118,090 288,476 
Income before income tax72,612 239,841 369,926 602,291 
Income tax expense(12,850)(49,417)(71,094)(115,355)
Net income$59,762 $190,424 $298,832 $486,936 
Pre-tax adjusted operating income$77,414 $100,162 $251,836 $313,815 
Adjusted operating income tax expense(13,859)(20,085)(46,295)(54,775)
After-tax adjusted operating income63,555 80,077 205,541 259,040 
Realized gains (losses) and adjustments(4,802)139,679 118,090 288,476 
Income tax (expense) benefit on adjustments1,009 (29,332)(24,799)(60,580)
Net income$59,762 $190,424 $298,832 $486,936 
Realized gains (losses) and adjustments:
Derivative financial instruments$15,337 $42,286 $92,899 $(86,288)
Investments22,819 77,399 (72,752)302,596 
Less: related amortization(1)
56,313 (6,205)(58,065)(37,406)
Less: VA GLWB economic cost(13,355)(13,789)(39,878)(34,762)
Total realized gains (losses) and adjustments$(4,802)$139,679 $118,090 $288,476 
(1)  Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).

For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Revenues 
Retail Life and Annuity$773 $532 
Acquisitions789 799 
Stable Value Products81 37 
Asset Protection71 74 
Corporate and Other(1)(1)
Total revenues$1,713 $1,441 
Pre-tax Adjusted Operating Income (Loss) s
Retail Life and Annuity$(17)$(11)
Acquisitions77 75 
Stable Value Products31 25 
Asset Protection14 12 
Corporate and Other(51)(41)
Pre-tax adjusted operating income54 60 
Non-operating income (loss)73 (219)
Income before income tax127 (159)
Income tax expense(25)30 
Net income$102 $(129)
Pre-tax adjusted operating income$54 $60 
Adjusted operating income tax expense(9)(16)
After-tax adjusted operating income45 44 
Non-operating income (loss)73 (219)
Income tax (expense) benefit on adjustments(16)46 
Net income$102 $(129)
Non-operating income (loss)
Derivative gains (losses)$181 $(25)
Investment gains (losses)(54)(276)
VA/VUL market impacts(1)
8 0 
Less: related amortization(2)
87 (59)
Less: VA GLWB economic cost(25)(23)
Total non-operating income (loss)$73 $(219)
(1)  Represents the immediate impacts on DAC, VOBA, reserves, and other non-cash items in current period results due to changes in current market conditions on estimates of profitability, which are excluded from pre-tax and after-tax adjusted operating income (loss) beginning in Q1 of 2021.
(2)  Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).
6244
Table of Contents
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,		For The
Three Months Ended
March 31,
202020192020201920212020
(Dollars In Thousands) (Dollars In Millions)
Net investment incomeNet investment incomeNet investment income
Retail Life and AnnuityRetail Life and Annuity$249,122 $235,318 $748,470 $697,786 Retail Life and Annuity$266 $253 
AcquisitionsAcquisitions405,458 426,510 1,235,231 1,106,782 Acquisitions399 416 
Stable Value ProductsStable Value Products54,210 59,707 169,279 184,450 Stable Value Products63 63 
Asset ProtectionAsset Protection5,438 7,164 19,144 21,015 Asset Protection6 8 
Corporate and OtherCorporate and Other23,943 11,012 59,462 56,294 Corporate and Other(14)14 
Total net investment incomeTotal net investment income$738,171 $739,711 $2,231,586 $2,066,327 Total net investment income$720 $754 
Amortization of DAC and VOBAAmortization of DAC and VOBA  Amortization of DAC and VOBA 
Retail Life and AnnuityRetail Life and Annuity$76,982 37,277 69,978 $57,471 Retail Life and Annuity$87 $(14)
AcquisitionsAcquisitions14,114 7,388 23,720 18,349 Acquisitions2 52 
Stable Value ProductsStable Value Products872 857 2,439 2,584 Stable Value Products1 1 
Asset ProtectionAsset Protection17,173 15,828 48,459 47,156 Asset Protection15 15 
Corporate and OtherCorporate and Other0 0 0 0 Corporate and Other0 0 
Total amortization of DAC and VOBATotal amortization of DAC and VOBA$109,141 $61,350 $144,596 125,560 Total amortization of DAC and VOBA$105 $54 

Operating Segment Assets
As of March 31, 2021
 (Dollars In Millions)
Retail Life & AnnuityAcquisitionsStable Value
Products
Investments and other assets$41,555 $54,851 $6,525 
DAC and VOBA2,635 892 10 
Other intangibles359 32 6 
Goodwill559 24 114 
Total assets$45,108 $55,799 $6,655 
Operating Segment Assets
As of September 30, 2020
(Dollars In Thousands)
Retail Life & AnnuityAcquisitionsStable Value
Products		Asset
Protection		Corporate
and Other		Total
Consolidated
Investments and other assetsInvestments and other assets$39,070,453 $54,395,295 $5,889,432 Investments and other assets$906 $16,629 $120,466 
DAC and VOBADAC and VOBA2,476,357 808,377 7,681 DAC and VOBA170 0 3,707 
Other intangiblesOther intangibles375,851 33,831 6,222 Other intangibles98 35 530 
GoodwillGoodwill558,501 23,862 113,924 Goodwill129 0 826 
Total assetsTotal assets$42,481,162 $55,261,365 $6,017,259 Total assets$1,303 $16,664 $125,529 

Asset
Protection		Corporate
and Other		Total
Consolidated
Investments and other assets$869,456 $19,872,380 $120,097,016 
DAC and VOBA169,505 0 3,461,920 
Other intangibles104,019 33,161 553,084 
Goodwill129,224 0 825,511 
Total assets$1,272,204 $19,905,541 $124,937,531 

Operating Segment Assets
As of December 31, 2020
 (Dollars In Millions)
Retail Life & AnnuityAcquisitionsStable Value
Products
Investments and other assets$39,874 $55,628 $5,928 
DAC and VOBA2,480 762 8 
Other intangibles367 33 6 
Goodwill559 24 114 
Total assets$43,280 $56,447 $6,056 
6345
Table of Contents
Operating Segment Assets
As of December 31, 2019
 (Dollars In Thousands)
Retail Life & AnnuityAcquisitionsStable Value
Products
Investments and other assets$37,448,239 $54,074,450 $5,317,885 
DAC and VOBA2,416,616 924,090 5,221 
Other intangibles401,178 36,321 6,722 
Goodwill558,501 23,862 113,924 
Total assets$40,824,534 $55,058,723 $5,443,752 

Asset
Protection		Corporate
and Other		Total
Consolidated		Asset
Protection		Corporate
and Other		Total
Consolidated
Investments and other assetsInvestments and other assets$878,386 $17,830,217 $115,549,177 Investments and other assets$881 $19,813 $122,124 
DAC and VOBADAC and VOBA173,628 0 3,519,555 DAC and VOBA170 0 3,420 
Other intangiblesOther intangibles112,032 27,173 583,426 Other intangibles101 33 540 
GoodwillGoodwill129,224 0 825,511 Goodwill129 0 826 
Total assetsTotal assets$1,293,270 $17,857,390 $120,477,669 Total assets$1,281 $19,846 $126,910 

15.14.    SUBSEQUENT EVENTS
The Company has evaluated the effects of events subsequent to September 30, 2020,March 31, 2021, and through through May 14, 2021, the date the Company filed its consolidated condensed financial statements with the United States Securities and Exchange Commission. All accounting and disclosure requirements related to subsequent events are included in the Company's consolidated condensed financial statements.

On October 1, 2020, as part of a corporate initiative to consolidate and simplify PLC’s reserve financing structures and reduce related financial and operational costs, Golden Gate II Captive Insurance Company, Golden Gate III Vermont Captive Insurance Company, Golden Gate IV Vermont Captive Insurance Company, and Golden Gate V Vermont Captive Insurance Company, all of which are wholly owned captive insurance company subsidiaries of the Company (collectively “the Captives”) merged with and into (the “Captive Merger”) Golden Gate Captive Insurance Company (“Golden Gate”), a Vermont special purpose financial insurance company and a wholly owned subsidiary of the Company.

In conjunction with the Captive Merger, Golden Gate and Steel City, LLC (“Steel City”), a wholly owned subsidiary of PLC, terminated the financing facility into which Golden Gate and Steel City had entered in 2016. This termination included redeeming the fixed maturity securities issued by Steel City to Golden Gate and the surplus note issued by Golden Gate to Steel City.

In conjunction with the Captive Merger, Golden Gate II redeemed the full outstanding principal amount of floating rate non-recourse funding obligations due July 15, 2052.These non-recourse funding obligations were previously marked to fair value in conjunction with the February 1, 2015 acquisition of the Company by The Dai-ichi Life Insurance Company (now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”). The redemption required the acceleration of the accretion of the discount associated with the non-recourse funding obligation. The estimated impact of this non-cash acceleration is a $54 million reduction to income before income taxes for the year ended December 31, 2020.

Also in conjunction with the Captive Merger, Golden Gate V and Red Mountain, LLC (“Red Mountain”), a wholly owned subsidiary of PLC, terminated the financing facility into which Golden Gate V and Red Mountain had entered into in 2012. This termination included redeeming the fixed maturity securities issued by Red Mountain to Golden Gate V and the non-recourse funding obligation issued by Golden Gate V to Red Mountain. As a result of these redemptions, the amortization and accretion of premiums and discounts recorded against the fixed maturities and non-recourse funding obligations which were previously marked to fair value in conjunction with the February 1, 2015 acquisition of the Company by Dai-ichi Life was accelerated. The estimated net impact of this non-cash acceleration is a $16 million reduction to income before income taxes for the year ended December 31, 2020.


64
Table of Contents
Also, in connection with the Captive Merger, the interest support and YRT premium support agreements that were entered into with PLC were terminated. As discussed in Note 6, Fair Value of Financial Instruments, these agreements met the definition of a derivative financial instrument and were accounted for at fair value in the consolidated financial statements. PLC intends to settle its obligations under these agreements during the fourth quarter of 2020.

On October 1, 2020, immediately following the Captive Merger, Golden Gate entered into a transaction with a term of 20 years, that may be extended to up to a maximum term of 25 years, to finance up to a maximum term of $5 billion of “XXX” and “AXXX” reserves related to the term life insurance business and universal life insurance with secondary guarantee business that is reinsured to Golden Gate by PLICO and West Coast pursuant to an Excess of Loss Reinsurance Agreement (the “XOL Agreement”) with Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and RGA Reinsurance Company (Barbados) Ltd. (collectively, the “Retrocessionaires”). Pursuant to the XOL Agreement, in exchange for periodic fees, the Retrocessionaires assume, on an excess of loss basis, the obligation to pay (the “XOL Payments”) each quarter the lessor of a) the greater of (i) statutory reserves in excess of economic reserves and (ii) the financed amount and b) if total claims for such quarter exceed the available assets (as set forth in the XOL Agreement) of Golden Gate, the amount of such excess. The transaction is “non-recourse” to the Company, WCL, and PLICO, meaning that none of these companies are liable to reimburse the Retrocessionaires for any XOL payments required to be made.
6546
Table of Contents
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q and our audited consolidated financial statements for the year ended December 31, 2019,2020, included in our most recent Annual Report on Form 10-K.
For a more complete understanding of our business and current period results, please read the following MD&A in conjunction with our latest Annual Report on Form 10-K and other filings with the United States Securities and Exchange Commission (the “SEC”).
FORWARD-LOOKING STATEMENTS — CAUTIONARY LANGUAGE
This report reviews our financial condition and results of operations, including our liquidity and capital resources. Historical information is presented and discussed, and where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate, or imply future results, performance, or achievements instead of historical facts and may contain words like “believe,” “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “plan,” “will,” “shall,” “may,”“believe”, “expect”, “estimate”, “project”, “budget”, “forecast”, “anticipate”, “plan”, “will”, “shall”, “may”, and other words, phrases, or expressions with similar meaning. Forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from the results contained in the forward-looking statements, and we cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including:
GeneralCOVID-19 Pandemic
•the impact of the novel coronavirus (COVID-19) global pandemic has adversely impacted our business, and the ultimate effect on our business, results of operations, and financial condition will depend on future developments that are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic;
•exposure to risks related to natural and man-made disasters and catastrophes, such as diseases, epidemics, pandemics (including the novel coronavirus COVID-19), malicious acts, cyber attacks, terrorist acts, and climate change, which could adversely affect our operations and results;
•a disruption or cyber attack affecting the electronic, communication and information technology systems or other technologies of the Company or those on whom the Company relies could adversely affect our business, financial condition, and results of operations;
•confidential information maintained in the systems of the Company or other parties upon which we rely could be compromised or misappropriated as a result of security breaches or other related lapses or incidents, damaging our business and reputation and adversely affecting our financial condition and results of operations;
•our results and financial condition may be negatively affected should actual experience differ from management’s models, assumptions, or estimates;
•compliance with existing and emerging privacy regulations could result in increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of consumer information could adversely affect our reputation and have a material adverse effect on our business, financial condition, and results of operations;
•we may not realize our anticipated financial results from our acquisitions strategy;
•we may experience competition in our Acquisition segment;
•assets allocated to the MONY Closed Block benefit only the holders of certain policies; adverse performance of Closed Block assets or adverse experience of Closed Block liabilities may negatively affect us;
•we are dependent on the performance of others;
•our risk management policies, practices, and procedures could leave us exposed to unidentified or unanticipated risks, which could negatively affect our business or result in losses;
•our strategies for mitigating risks arising from our day-to-day operations may prove ineffective resulting in a material adverse effect on our results of operations and financial condition;
•events that damage our reputation or the reputation of our industry could adversely impact our business, results of operations, or financial condition;
•we may not be able to protect our intellectual property and may be subject to infringement claims;
•developments in technology may impact our business;
Financial Environment
•interest rate fluctuations and sustained periods of low or high interest rates could negatively affect our interest earnings and spread income, or otherwise impact our business;
66
Table of Contents
•our investments are subject to market and credit risks, which could be heightened during periods of extreme volatility or disruption in financial and credit markets;
•climate change may adversely affect our investment portfolio;
•elimination of London Inter-Bank Offered Rate (“LIBOR”) may adversely affect the interest rates on and value of certain derivatives and floating rate securities we hold and floating rate securities we have issued, the value and profitability of certain real estate lending and other activities we conduct, and any other assets or liabilities whose value is tied to LIBOR;
•credit market volatility or disruption could adversely impact the Company’sour financial condition or results from operations;
•disruption of the capital and credit markets could negatively affect the Company’sour ability to meet itsour liquidity and financial needs;
•equity market volatility could negatively impact our business;
•our use of derivative financial instruments within our risk management strategy may not be effective or sufficient;
•our ability to grow depends in large part upon the continued availability of capital;
•we could be forced to sell investments at a loss to cover policyholder withdrawals;
•difficult general economic conditions could materially adversely affect our business and results of operations;
•we may be required to establish a valuation allowance against our deferred tax assets, which could have a material adverse effect on our results of operations, financial condition, and capital position;
•we could be adversely affected by an inability to access our credit facility;facility or FHLB lending;
•the amount of statutory capital or risk-based capital that we have and the amount of statutory capital or risk-based capital that we must hold to maintain our financial strength and credit ratings and meet other requirements can vary significantly from time to time and is sensitive to a number of factors outside of our control;
•we could be adversely affected by a ratings downgrade or other negative action by a rating organization;
•we operate as a holding company and depend on the ability of our subsidiaries to transfer funds to us to meet our obligations;
•we could be adversely affected by an inability to access FHLB lending;
•our securities lending program may subject us to liquidity and other risks;
•our financial condition or results of operations could be adversely impacted if our assumptions regarding the fair value and future performance of our investments differ from actual experience;
•adverse actions of certain funds or their advisers could have a detrimental impact on our ability to sell our variable life and annuity products, or maintain current levels of assets in those products;
47
Table of Contents
Industry and Regulation
•the business of our company is highly regulated and is subject to routine audits, examinations, and actions by regulators, law enforcement agencies, and self-regulatory organizations;
•we may be subject to regulations of, or regulations influenced by, international regulatory authorities or initiatives;
•NAICthe National Association of Insurance Commissioners (“NAIC”) actions, pronouncements and initiatives may affect our product profitability, reserve and capital requirements, financial condition or results of operations;
•our use of affiliate and captive reinsurance companies to finance statutory reserves related to our term and universal life products and to reduce volatility affecting our variable annuity products, may be limited or adversely affected by regulatory action, pronouncements and interpretations;
•laws, regulations and initiatives related to unreported deaths and unclaimed property and death benefits may result in operational burdens, fines, unexpected payments or escheatments;
•we are subject to insurance guaranty fund laws, rules and regulations that could adversely affect our financial condition or results of operations;
•we are subject to insurable interest laws, rules and regulations that could adversely affect our financial condition or results of operations;
•the Healthcare Act and related regulations could adversely affect our results of operations or financial condition;
•laws, rules and regulations promulgated in connection with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) may adversely affect our results of operations or financial condition;
•new and amended regulations regarding the standard of care or standard of conduct applicable to investment professionals, insurance agencies, and financial institutions that recommend or sell annuities or life insurance products may have a material adverse impact on our ability to sell annuities and other products and to retain in-force business and on our financial condition or results of operations;
67
Table of Contents
•we may be subject to regulation, investigations, enforcement actions, fines and penalties imposed by the SEC, FINRAthe Financial Industry Regulatory Authority (“FINRA”) and other federal and international regulators in connection with our business operations;
•changes to tax law, or interpretations of existing tax law could adversely affect our ability to compete with non-insurance products or reduce the demand for certain insurance products;
•financial services companies and their subsidiaries are frequently the targets of legal proceedings and increased regulatory scrutiny, including class action litigation, which could result in substantial judgments;
•the financial servicesjudgments, and insurance industries are sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny;
•new accounting rules, changes to existing accounting rules, or the granting of permitted accounting practices to competitors could negatively impact us;investigations;
•if our business does not perform well, we may be required to recognize an impairment of our goodwill and indefinite lived intangible assets which could adversely affect our results of operations or financial condition;
•use of reinsurance introduces variability in our statements of income;
•our reinsurers could fail to meet assumed obligations, increase rates, terminate agreements or be subject to adverse developments that could affect us;
•our policy claims fluctuate from period to period resulting in earnings volatility;
•we operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry and negatively affect profitability;
•developments in technology may impact our business; and
•our ability to maintain competitive unit costs is dependent upon the level of new sales and persistency of existing business.business;
Privacy and Cyber Security
•a disruption or cyberattack affecting the electronic, communication and information technology systems or other technologies of the Company or those on whom the Company relies could adversely affect the Company’s business, financial condition, and results of operations;
•confidential information maintained in the systems of the Company or other parties upon which the Company relies could be compromised or misappropriated as a result of security breaches or other related lapses or incidents, damaging the Company’s business and reputation and adversely affecting its financial condition and results of operations;
•compliance with existing and emerging privacy regulations could result in increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of consumer information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations;
Acquisitions, Dispositions or Other Corporate Structural Matters
•we may not realize our anticipated financial results from our acquisitions strategy;
•assets allocated to the MONY Closed Block benefit only the holders of certain policies; and adverse performance of Closed Block assets or adverse experience of Closed Block liabilities may negatively affect us;
•we depend on the ability of our subsidiaries to transfer funds to us to meet our obligations;
48
Table of Contents
•our use of affiliate and captive reinsurance companies to finance statutory reserves related to our fixed annuity and term and universal life products and to reduce volatility affecting our variable annuity products may be limited or adversely affected by regulatory action, pronouncements, and interpretations;
General
•exposure to risks related to natural and man-made disasters and catastrophes, such as diseases, epidemics, pandemics (including the novel coronavirus, COVID-19), malicious acts, cyberattacks, terrorist acts, and climate change, could adversely affect our operations and results;
•our results and financial condition may be negatively affected should actual experience differ from management’s models, assumptions, or estimates;
•we are dependent on the performance of others;
•our risk management policies, practices, and procedures could leave us exposed to unidentified or unanticipated risks, which could negatively affect our business or result in losses;
•our strategies for mitigating risks arising from our day-to-day operations may prove ineffective resulting in a material adverse effect on our results of operations and financial condition;
•events that damage our reputation or the reputation of our industry could adversely impact our business, results of operations, or financial condition;
•we may not be able to protect our intellectual property and may be subject to infringement claims;
•we may be required to establish a valuation allowance against our deferred tax assets, which could have a material adverse effect on our results of operations, financial condition, and capital position; and
•new accounting rules, changes to existing accounting rules, or the granting of permitted accounting practices to competitors could negatively impact the Company.
For more information about the risks, uncertainties, and other factors that could affect our future results, please see Part II, Item 1A, Risk Factors, of this report and Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise.report.
IMPORTANT INVESTOR INFORMATION
We file reports with the SEC,United States Securities and Exchange Commission (the “SEC”), including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other reports as required. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC maintains an internet site at http://www.sec.gov that contains our annual, quarterly, and currentthese reports and other information filed electronically by the Company.
us. We make available through PLC’s website, http:https://www.protective.com,investor.protective.com, our Annual Reportsannual reports on Form 10-K, Quarterly Reportsquarterly reports on Form 10-Q, Current Reportscurrent reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC. The information found on PLC’s website is not part of this or any other report filed with or furnished to the SEC. We will furnish such documents to anyone who requests such copies in writing. Requests for copies should be directed to: Financial Information, Protective Life Corporation, P. O. Box 2606, Birmingham, Alabama 35202, Telephone (205) 268-3912, Fax (205) 268-3642.
We also make available to the public current information, including financial information, regarding the Company and our affiliates on the Financial Information page of PLC’s website, www.protective.com.https://investor.protective.com. We encourage investors, the media and others interested in us and our affiliates to review the information we post on PLC’sour website. The information found on PLC’sour website is not part of this or any other report filed with or furnished to the SEC.
OVERVIEW
Our Business
We are a wholly owned subsidiary of Protective Life Corporation (“PLC”). Founded in 1907, we are the largest operating subsidiary of PLC. On February 1, 2015, PLC became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”), when DL Investment (Delaware), Inc., a wholly owned subsidiary of Dai-ichi Life, merged with and into PLC. Prior to February 1, 2015, PLC’s stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger, PLC remained an SEC registrant within the United States until January 23, 2020, when PLC suspended its reporting obligations with the SEC under the Securities Exchange Act of 1934. Subsequent to the Merger, the Company has continued to be an SEC registrant for financial reporting purposes in the United States. We provide financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires, the “Company,” “we,” “us,” or “our” refers to the consolidated group of Protective Life Insurance Company and our subsidiaries.
68
Table of Contents
We have several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. We periodically evaluate our operating segments and make adjustments to our segment reporting as needed.

In the first quarter of 2020, as a result of changes in the way the chief operating decision maker makes decisions about the allocation of resources and assesses the performance of the business, the Company combined two of its former six segments into one segment, Retail Life and Annuity. These changes enable the Company to better serve the needs of its customers and to help achieve the goals of the organization.

Prior period amounts were adjusted retrospectively to reflect the change in our reportable segments.
Our operating segments are Retail Life and Annuity, Acquisitions, Stable Value Products, and Asset Protection. We have an additional reporting segment referred to as Corporate and Other.
49
Table of Contents
•Retail Life and Annuity - We primarily market fixed universal life (“UL”), indexed universal life (“IUL”), variable universal life (“VUL”), level premium term insurance (“traditional”), bank-owned life insurance (“BOLI”), corporate-owned life insurance (“COLI”), fixed annuity, and variable annuity (“VA”) products on a national basis primarily through networks of independent insurance agents and brokers, broker-dealers, financial institutions, independent distribution organizations, and affinity groups.
•Acquisitions - We focus on acquiring, converting, and/or servicing policies and contracts from other companies. This segment’s primary focus is on life insurance policies and annuity products that were sold to individuals. Additionally, this segment recently increased its focus on identifying transactions which present ongoing retail opportunities. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisitions segment are typically blocks of business where no new policies are being marketed, however, some recent acquisitions have included ongoing new business activities. Ongoing new product sales written by the Company from these acquisitions are included in the Retail Life and Annuity segment. As a result, earnings and account values are expected to decline as the result of lapses, deaths, and other terminations of coverage unless new acquisitions are made.
•Stable Value Products - We sell fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. We also have an unregistered funding agreement-backed notes program which provides for offers of notes to both domestic and international institutional investors.
•Asset Protection - We market extended service contracts, guaranteed asset protection (“GAP”) products, credit life and disability insurance, and other specialized ancillary products to protect consumers’ investments in automobiles and recreational vehicles. GAP products are designed to cover the difference between the scheduled loan pay-off amount and an asset’s actual cash value in the case of a total loss. Each type of specialized ancillary product protects against damage or other loss to a particular aspect of the underlying asset.
•Corporate and Other - This segment primarily consists of net investment income on assets supporting our equity capital, unallocated corporate overhead, and expenses not attributable to the segments above. This segment includes earnings from several non-strategic or runoff lines of business, financing and investment-related transactions, and the operations of several small subsidiaries.
69
Table of Contents
Impact of COVID-19

In December 2019, a novel strainBeginning in the first quarter of coronavirus (COVID-19) was reported in Wuhan, China. COVID-19 has since spread, and infections have been found around the world, including the United States. On March 11, 2020, the World Health Organization declared the outbreak to constitute a pandemic based onof COVID-19 created significant economic and social disruption in the global spread of the disease, the severity of illnesses it causes,economy and its effects on society. The extent of the impact of COVID-19 on ourfinancial markets. These events impacted various operational and financial performance will depend on certain developments, including the duration and continued spread of the outbreak, current and future regulatory and private sector responses, which may be precautionary, and the impact on our customers, workforce, and vendors, all of which are uncertain and cannot be predicted. The COVID-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries, and it could materially adversely impact the mortality, morbidity, or other experience of the Company or its reinsurers or have a material adverse effect on lapses and surrenders of existing policies, as well as sales of new policies. The continued macroeconomic effects of the COVID-19 outbreak could also materially adversely affect the Company’s asset portfolio, as well as many other aspects of the Company’s business in 2020 and have and may continue to impact earnings throughout 2021 based on, amongst other factors, the volume and severity of claims related to COVID-19 and the financial condition, and results of operations.disruption caused by the pandemic, which could impact the Company’s investment portfolio.

Retail Life and Annuity segment and Acquisitions segment. The pre-tax adjusted operating income in the Retail Life and Annuity segment and the Acquisitions segment were affected primarilyimpacted by the effecteffects of the COVID-19 pandemic on mortality and equity markets.during the three months ended March 31, 2021. The COVID-19 pandemic has resulted in an increase in claims in the traditional life insurance block. Further, the pandemic hasand universal life blocks. Throughout 2020, equity market volatility also resulted in significant earnings volatility in equity markets which has impacteddue to the impact on variable product account values. Declining variable product account values acceleratedSince the amortizationinitial declines at the beginning of deferred policy acquisition costs (“DAC”) and value of business acquired (“VOBA”). Lower account values also resulted in higher annuity guaranteed benefit and other reserves and lower fee income during the three months ended March 31, 2020. An improvement inpandemic, equity markets since that time has resulted in an increase in account values, which resulted in the slowing of DAChave largely recovered and VOBA amortization and a decrease in guaranteed benefit reserves. Lower fee income is expected to continue until variable account values increase with further increases in the equity markets. As variable account values increase, our exposure to claims related to guaranteed benefits will decline which in turn will result in lowering the required reserves associated with these guaranteed benefits. Additionally, thehave increased. The pandemic will continue to impact earnings based on, amongst other factors, the volume and severity of claims in the life insurance blocks related to COVID-19.COVID-19 and the financial disruption caused by the pandemic, which could impact the Company’s investment portfolio. The pandemic has also affected the manner in which our Acquisitions segment conducts due diligence, negotiates transactions, works with counterparties and integrates acquisitions, in each case adapting processes and procedures to reflect the increased reliance on technology and remote interactions as a result of COVID-19.

Asset Protection segment.segment. The primary impacts from COVID-19 on the Asset Protection segment during the third quarter of 2020 included a positivenegative impact on sales due to pent up demand fromlower sales in the second quarterauto industry, a reduction in industry auto salesvehicle service and GAP claims as a result of the effect of less miles driven and lower general and administrative expenses, especially with respect to travel costs. While current trends remain positive, there remains uncertainty around the potential effect of the COVID-19 pandemic on the segment’s fourth quarter 20202021 results, including a potential negative impact on sales if increaseda resurgence in COVID-19 cases result in increased
50
Table of Contents
shut downs of economic activity.

Corporate Securities. The overall deteriorationactivity or prolonged supply chain issues such as part and chip shortages continue to cause a reduction in the macroeconomic environment as a result of the impact of COVID-19 as well as the continued pressure on commodity prices has negatively affected the values of certain of our investments. The largest impacts have been in the oil & gas, real estate,auto production and consumer and retail industries. For the nine months ended September 30, 2020, we have recognized $120.5 million of impairments primarily reflecting declines in the value of certain oil and gas securities.inventories.

Commercial Mortgage Loans.Loans. We On March 27, 2020, H.R. 748,provide certain relief under the Coronavirus Aid Relief, and Economic Security Act (“the CARES Act”) was signed into legislation. Section 4013 of the CARES Act provides additional relief for certain loan modifications made as a result of the COVID-19 pandemic. Specifically, the CARES Act specifies that a financial institution may suspend the requirements under GAAP with respect to troubled debt restructuring classification and reporting for loan modifications made in response to the COVID-19 pandemic which meet the following criteria: 1) the borrower was not more than 30 days past due as of December 31, 2019 and 2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan. The relief provided by the CARES Act terminates on the earlier of December 31, 2020 or 60 days after the end of the national emergency declared on March 13, 2020. Accordingly, we provided certain relief under the CARES Act under its COVID-19 Commercial Mortgage Loan Program (the “Loan Modification Program”). During the three months ended March 31, 2021, we modified 7 loans under the Loan Modification Program, representing $143 million in unpaid principal balance. As of September 30, 2020, we had aMarch 31, 2021, since the inception of the CARES Act, there were 295 total of 308 loans withmodified under the Loan Modification Program, representing $2.2 billion in unpaid principal balance underbalance. At March 31, 2021, $1.7 billion of these loans have resumed regular principal and interest payments in accordance with the Loan Modification Program.terms of the modification agreements. The modifications under this program include agreements to defer principal payments only and/or to defer principal and interest payments for a specified period of time. None of these modifications were considered troubled debt restructurings.
70
Table of Contents
RECENT DEVELOPMENTS
Reserve Financing Restructuring

As discussed in Note 15, restructuringsSubsequent Events, to the consolidated condensed financial statements contained in this report, on October 1, 2020, as part of a corporate initiative to consolidate and simplify PLC’s reserve financing structures and reduce related financial and operational costs, Golden Gate II Captive Insurance Company, Golden Gate III Vermont Captive Insurance Company, Golden Gate IV Vermont Captive Insurance Company, and Golden Gate V Vermont Captive Insurance Company (“Captive Merger”), all of which were wholly owned captive insurance company subsidiaries of the Company (collectively “the Captives”) merged with and into Golden Gate Captive Insurance Company (“Golden Gate”), a Vermont special purpose financial insurance company and a wholly owned subsidiary of the Company.

The Captive Merger will impact the Company through termination of the interest support and YRT premium support agreements that were entered into with PLC. As discussed in Note 6, Fair Value of Financial Instruments, to the consolidated condensed financial statements contained in this report, these agreements met the definition of a derivative financial instrument and were accounted for at fair value in the consolidated financial statements. PLC intends to settle its obligations under these agreements during the fourth quarter of 2020.

On October 1, 2020, immediately following the Captive Merger, Golden Gate entered into a transaction with a term of 20 years, that may be extended to up to a maximum term of 25 years, to finance up to $5 billion of “XXX” and “AXXX” reserves related to the term life insurance business and universal life insurance with secondary guarantee business that is reinsured to Golden Gate by PLICO and West Coast pursuant to an Excess of Loss Reinsurance Agreement (the “XOL Agreement”) with Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and RGA Reinsurance Company (Barbados) Ltd. (collectively, the “Retrocessionaires”). Pursuant to the XOL Agreement, in exchange for periodic fees, the Retrocessionaires assume, on an excess of loss basis, the obligation to pay (“XOL Payments”) each quarter the lessor of a) the greater of (i) statutory reserves in excess of economic reserves and (ii) the financed amount and b) if total claims for such quarter exceed the available assets (as set forth in the XOL Agreement) of Golden Gate, the amount of such excess.

The transaction is “non-recourse” to the Company, WCL, and the Company, meaning that none of these companies are liable to reimburse the Retrocessionaires for any XOL Payments required to be made. The estimated average annual expense of the facility is approximately $4.2 million over the expected life of the XOL Agreement and approximately $7.0 million during the first five years (representing average savings when compared to the prior reserve financings of approximately $7.9 million per year over the life of the financing and approximately $16.2 million per year during the first five years of the financing), in each case presented on an after-tax basis and calculated in accordance with GAAP.
RECENT SIGNIFICANT TRANSACTIONS
Great-West Life & Annuity Insurance Company
On January 23, 2019, we entered into a Master Transaction Agreement (the “GWL&A Master Transaction Agreement”) with Great-West Life & Annuity Insurance Company (“GWL&A”), Great-West Life & Annuity Insurance Company of New York (“GWL&A of NY”), The Canada Life Assurance Company (“CLAC”), and The Great-West Life Assurance Company (“GWL” and, together with GWL&A, GWL&A of NY, and CLAC, the “Sellers”), pursuant to which we acquired via reinsurance (the “Transaction”) substantially all of the Sellers’ individual life insurance and annuity business (the “Individual Life Business”).
71
Table of Contents
On June 3, 2019, the Company and PLAIC completed the Transaction (the “GWL&A Closing”). Pursuant to the GWL&A Master Transaction Agreement, the Company and PLAIC entered into reinsurance agreements (the “GWL&A Reinsurance Agreements”) and related ancillary documents at the GWL&A Closing. On the terms and subject to the conditions of the GWL&A Reinsurance Agreements, the Sellers ceded to the Company and PLAIC, effective as of the date of the GWL&A Closing, substantially all of the insurance policies related to the Individual Life Business on a 100% indemnity basis net of reinsurance recoveries. The aggregate ceding commission for the reinsurance of the Individual Life Business paid at the GWL&A Closing was $765.7 million. All policies issued in states other than New York were ceded to the Company under reinsurance agreements between the applicable Seller and the Company, and all policies issued in New York were ceded to PLAIC under a reinsurance agreement between GWL&A of NY and PLAIC. In addition, there were certain pending items which remained subject to adjustment in accordance with the Master Transaction Agreement as of September 30, 2020. On October 30, 2020, the Company reached a final settlement on all of the remaining pending items. As a result of these adjustments, the Company will recognize approximately $90 million in income before income tax during the quarter ended December 31, 2020. To support its obligations under the GWL&A Reinsurance Agreements, the Company established trust accounts for the benefit of GWL&A, CLAC and GWL, and PLAIC established a trust account for the benefit of GWL&A of NY. The Sellers retained a block of participating policies, which are administered by the Company.

The GWL&A Master Transaction Agreement and other transaction documents contain certain customary representations and warranties made by each of the parties, and certain customary covenants regarding the Sellers and the Individual Life Business, and provide for indemnification, among other things, for breaches of those representations, warranties, and covenants.

CRITICAL ACCOUNTING POLICIES
Our accounting policies require the use of judgments relating to a variety of assumptions and estimates, including, but not limited to expectations of current and future mortality, morbidity, persistency, expenses, and interest rates, as well as expectations around the valuations of securities. Because of the inherent uncertainty when using the assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could be materially different from those reported in the consolidated condensed financial statements. For a complete listing of our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
RESULTS OF OPERATIONS
Our management and Board of Directors analyze and assess the operating performance of each segment using pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss). Consistent with GAAP accounting guidance for segment reporting, pre-tax adjusted operating income (loss) is our measure of segment performance. Pre-tax adjusted operating income (loss) is calculated by adjusting income (loss) before income tax, by excluding the following items:
•realized gains and losses on investments and derivatives,
•changes in the guaranteed living withdrawal benefits (“GLWB”) embedded derivatives exclusive of the portion attributable to the economic cost of the GLWB,
•actual GLWB incurred claims,
•immediate impacts from changes in current market conditions on estimates of future profitability on variable annuity and variable universal life products, including impacts on deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), reserves and other items, and
•the amortization of DAC, VOBA, and certain policy liabilities that is impacted by the exclusion of these items.

After-tax adjusted operating income (loss) is derived from pre-tax adjusted operating income (loss) with the inclusion of income tax expense or benefits associated with pre-tax adjusted operating income. Income tax expense or benefits is allocated to the items excluded from pre-tax adjusted operating income (loss) at the statutory federal income tax rate for the associated period. Income tax expense or benefits allocated to after-tax adjusted operating income (loss) can vary period to period based on changes in our effective income tax rate.
Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) presented below are non-GAAP financial measures. The items excluded from adjusted operating income (loss) are important to understanding the overall results of operations. During the period ended March 31, 2021, the Company began excluding from pre-tax and after-tax adjusted operating income (loss) the impacts on DAC, VOBA, reserves and other items due to changes in estimated profitability of variable annuity and variable universal life products as a result of changes in current market conditions. Management believes this change enhances the understanding of the underlying performance trends of these products. Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) are not substitutes for income before income taxes or net income (loss), respectively. These measures may not be comparable to similarly titled measures reported by other companies. Our belief is that pre-tax and after-tax adjusted operating income (loss) enhances management’s and the Board of Directors’ understanding of the ongoing operations, the underlying profitability of each segment, and helps facilitate the allocation of resources.
7251
Table of Contents
In determining the components of the pre-tax adjusted operating income (loss) for each segment, premiums and policy fees, other income, benefits and settlement expenses, and amortization of DAC and VOBA are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized gains (losses) - investments/derivatives and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on policy liabilities net of associated policy assets, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.
We periodically review and update as appropriate our key assumptions used to measure certain balances related to insurance products, including future mortality, expenses, lapses, premium persistency, benefit utilization, investment yields, interest rates, and separate account fund returns. Changes to these assumptions result in adjustments which increase or decrease DAC and VOBA amortization and/or benefits and expenses. Assumptions may be updated as part of our annual assumption review process, as well as during our quarterly update of historical business activity. This periodic review and updating of assumptions is collectively referred to as “unlocking”. When referring to unlocking the reference is to changes in all balance sheet components associated with these changes. The adjustments associated with unlocking can create significant variability from period to period in the profitability of certain of the Company’s operating segments.

Level term policies are policies in which premium rate remains the same for our established level term period (e.g. 20 years). At the end of the level term period, premium rates typically increase significantly and policyholder lapse rates are typically high. Since most of our reinsurance premiums are paid on an annual in advance basis, at each period end, we establish an accrual to adjust for the income effect of policies expected to lapse in the next period. Premiums paid to and refunded by reinsurers is included in reinsurance ceded, while adjustments from the accrual for post level policy lapses is included in the benefits and settlement expenses line in the statements of income (loss). As a result, over time there can be significant volatility in these individual line items due to the impact of business entering the post level period.

As of April 1, 2020, the Company refined its method of allocating the realized gains and losses associated with its derivative portfolios to the Acquisitions and Retail Life and Annuity operating segments. The impact of the change in allocation was not considered material to the operating segment results for the three and nine months ended September 30, 2019.


7352
Table of Contents
The following table presents a summary of results and reconciles pre-tax adjusted operating income (loss) to consolidated income before income tax benefit (expense) and net income:income (loss):
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
20202019Change20202019Change
 (Dollars In Thousands)(Dollars In Thousands)
Pre-tax Adjusted Operating Income (Loss)  
Retail Life & Annuity$14,927 $3,015 n/m$22,642 $87,405 (74.1)%
Acquisitions64,999 103,210 (37.0)238,121 247,932 (4.0)
Stable Value Products20,129 20,863 (3.5)62,119 71,208 (12.8)
Asset Protection9,484 9,637 (1.6)32,851 26,945 21.9
Corporate and Other(32,125)(36,563)(12.1)(103,897)(119,675)(13.2)
Pre-tax adjusted operating income77,414 100,162 (22.7)251,836 313,815 (19.8)
Realized gains (losses) and adjustments(4,802)139,679 n/m118,090 288,476 (59.1)
Income before income tax72,612 239,841 (69.7)369,926 602,291 (38.6)
Income tax expense(12,850)(49,417)(74.0)(71,094)(115,355)(38.4)
Net income$59,762 $190,424 (68.6)%$298,832 $486,936 (38.6)%
Pre-tax adjusted operating income$77,414 $100,162 (22.7)%$251,836 $313,815 (19.8)%
Adjusted operating income tax expense(13,859)(20,085)(31.0)(46,295)(54,775)(15.5)
After-tax adjusted operating income63,555 80,077 (20.6)205,541 259,040 (20.7)
Realized gains (losses) and adjustments(4,802)139,679 n/m118,090 288,476 (59.1)
Income tax expense on adjustments1,009 (29,332)n/m(24,799)(60,580)(59.1)
Net income$59,762 $190,424 (68.6)%$298,832 $486,936 (38.6)%
Realized gains (losses) and adjustments:
Derivative financial instruments$15,337 $42,286 (63.7)$92,899 $(86,288)n/m
Investments22,819 77,399 (70.5)(72,752)302,596 n/m
Less: related amortization(1)
56,313 (6,205)n/m(58,065)(37,406)55.2
Less: VA GLWB economic cost(13,355)(13,789)(3.1)(39,878)(34,762)14.7
Total realized gains (losses) and adjustments$(4,802)$139,679 n/m$118,090 $288,476 (59.1)%
(1)  Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The Three Months Ended September 30, 2020 as compared to The Three Months Ended September 30, 2019

Net income for the three months ended September 30, 2020 included a $22.7 million decrease in pre-tax adjusted operating income. The decrease consisted of a $38.2 million decrease in the Acquisition segment, a $0.2 million decrease in the Asset Protection segment, and a $0.7 million decrease in the Stable Value Products. These decreases were partially offset by a $11.9 million increase in the Retail Life and Annuity segment and a $4.4 million improvement in the Corporate and Other segment.

For The
Three Months Ended
March 31,		Percent
20212020Change
 (Dollars In Millions)
Pre-tax Adjusted Operating Income (Loss) 
Retail Life & Annuity$(17)$(11)54.5%
Acquisitions77 75 2.7%
Stable Value Products31 25 24.0%
Asset Protection14 12 16.7%
Corporate and Other(51)(41)24.4%
Pre-tax adjusted operating income54 60 (10.0)%
Non-operating income (loss)73 (219)n/m
Income (loss) before income tax127 (159)n/m
Income tax (expense) benefit(25)30 n/m
Net income (loss)$102 $(129)n/m
Pre-tax adjusted operating income$54 $60 (10.0)%
Adjusted operating income tax expense(9)(16)(43.8)%
After-tax adjusted operating income45 44 2.3%
Non-operating income (loss)73 (219)n/m
Income tax expense on adjustments(16)46 n/m
Net income (loss)$102 $(129)n/m
Non-operating income (loss)
Derivative gains (losses)$181 $(25)n/m
Investment gains (losses)(54)(276)(80.4)%
VA/VUL market impacts(1)
8 — n/m
Less: related amortization(2)
87 (59)n/m
Less: VA GLWB economic cost(25)(23)8.7%
Total non-operating income (loss)$73 $(219)n/m
(1)  Represents the immediate impacts on DAC, VOBA, reserves and other non-cash items in current period results due to changes in current market conditions on estimates of profitability, which are excluded from pre-tax and after-tax adjusted operating income (loss) beginning in Q1 of 2021.
(2)  Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
74
Table of Contents
For The Nine Months Ended September 30, 2020 as compared to The Nine Months Ended September 30, 2019

Net income for the nine months ended September 30, 2020 included a $62.0 million decrease in pre-tax adjusted operating income. The decrease consisted of a $64.8 million decrease in the Retail Life and Annuity segment, a $9.8 million decrease in the Acquisition segment, and a $9.1 million decrease in the Stable Value Products segment which was partially offset by a $15.8 million improvement in the Corporate and Other segment and a $5.9 million increase in the Asset Protection segment.


7553
Table of Contents
Retail Life and Annuity
Segment Results of Operations
Segment results were as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
20202019Change20202019Change
 (Dollars In Thousands)(Dollars In Thousands)
REVENUES  
Gross premiums and policy fees$564,377 $530,490 6.4%$1,560,111 $1,579,452 (1.2)%
Reinsurance ceded(192,980)(220,770)(12.6)(432,597)(686,127)(37.0)
Net premiums and policy fees371,397 309,720 19.91,127,514 893,325 26.2
Net investment income249,122 235,318 5.9748,470 697,786 7.3
Realized gains (losses) - investments/derivatives(10,477)(10,489)(0.1)(31,269)(31,462)(0.6)
Other income40,689 41,850 (2.8)121,208 122,084 (0.7)
Total operating revenues650,731 576,399 12.91,965,923 1,681,733 16.9
Realized gains (losses) - investments/derivatives13,794 74,823 (81.6)29,118 135,499 (78.5)
Total revenues664,525 651,222 2.01,995,041 1,817,232 9.8
BENEFITS AND EXPENSES    
Benefits and settlement expenses546,076 463,200 17.91,660,292 1,323,786 25.4
Amortization of DAC/VOBA39,149 57,625 (32.1)137,212 113,373 21.0
Other operating expenses50,579 52,559 (3.8)145,777 157,169 (7.2)
Operating benefits and settlement expenses635,804 573,384 10.91,943,281 1,594,328 21.9
Benefits and settlement expenses related to realized gains (losses)9,847 7,961 23.7(10,763)7,418 n/m
Amortization of DAC/VOBA related to realized gains (losses)37,833 (20,348)n/m(67,234)(55,902)20.3
Total benefits and expenses683,484 560,997 21.81,865,284 1,545,844 20.7
INCOME BEFORE INCOME TAX(18,959)90,225 n/m129,757 271,388 (52.2)
Less: realized gains (losses) - investments/derivatives13,794 74,823 (81.6)29,118 135,499 (78.5)
Less: related benefits and settlement expenses(9,847)(7,961)23.710,763 (7,418)n/m
Less: related amortization of DAC/VOBA(37,833)20,348 n/m67,234 55,902 20.3
PRE-TAX ADJUSTED OPERATING INCOME$14,927 $3,015 n/m$22,642 $87,405 (74.1)%
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The
Three Months Ended
March 31,		Percent
20212020Change
 (Dollars In Millions)
REVENUES 
Gross premiums and policy fees$576 $437 31.8%
Reinsurance ceded(205)33 n/m
Net premiums and policy fees371 470 (21.1)%
Net investment income266 253 5.1%
Realized gains (losses)(22)(20)10.0%
Other income44 41 7.3%
Total operating revenues659 744 (11.4)%
BENEFITS AND EXPENSES  
Benefits and settlement expenses573 638 (10.2)%
Amortization of DAC/VOBA48 68 (29.4)%
Other operating expenses55 49 12.2%
Operating benefits and settlement expenses676 755 (10.5)%
PRE-TAX ADJUSTED OPERATING INCOME (LOSS)(17)(11)54.5%
Non-operating income (loss):
Realized gains (losses)114 (212)n/m
Related benefits and settlement expenses(12)24 n/m
Related amortization of DAC/VOBA(43)82 n/m
VA/VUL market impacts(1)
5 — n/m
Total non-operating income (loss)64 (106)n/m
INCOME (LOSS) BEFORE INCOME TAX$47 $(117)n/m
(1)  Represents the immediate impacts on DAC, VOBA, reserves and other non-cash items in current period results due to changes in current market conditions on estimates of profitability, which are excluded from pre-tax and after-tax adjusted operating income (loss) beginning in Q1 of 2021.
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
7654
Table of Contents
The following table summarizes key data for the Retail Life and Annuity segment:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
20202019Change20202019Change
 (Dollars In Thousands)(Dollars In Thousands)
Sales By Product 
Traditional life(1)
$74,041 $59,982 23.4%$191,457 $174,869 9.5%
Universal life(1)
9,420 18,009 (47.7)32,284 63,053 (48.8)
Fixed annuity(2)
793,145 433,850 82.81,803,630 1,392,044 29.6
Variable annuity(2)
80,310 53,832 49.2173,790 163,179 6.5
 $956,916 $565,673 69.2%$2,201,161 $1,793,145 22.8%
Average Account Values
Universal life$7,655,550 $7,803,697 (1.9)%$7,697,595 $7,793,225 (1.2)%
Variable universal life(6)
848,166 824,761 2.8820,726 795,211 3.2
Fixed annuity(3)
11,098,627 9,970,444 11.310,759,010 9,737,304 10.5
Variable annuity10,797,645 12,053,880 (10.4)10,748,731 12,069,246 (10.9)
$30,399,988 $30,652,782 (0.8)%$30,026,062 $30,394,986 (1.2)%
Average Life Insurance In-force(4)
    
Traditional$382,628,724 $360,112,093 6.3%$374,968,167 $358,590,816 4.6%
Universal life288,154,312 288,396,760 (0.1)288,522,395 286,909,706 0.6
 $670,783,036 $648,508,853 3.4%$663,490,562 $645,500,522 2.8%
Interest Spread - Fixed Annuities(5)
    
Net investment income yield3.43 %3.59 %3.68 %3.65 %
Interest credited to policyholders2.50 %2.62 %2.50 %2.54 %
Interest spread0.93 %0.97 %1.18 %1.11 %
As of
September 30, 2020December 31, 2019
(Dollars In Thousands)
VA GLWB Benefit Base$9,649,358 $9,850,644 
Account value subject to GLWB rider$7,482,140 $8,403,428 
(1)  Sales data for traditional life insurance, other than Single Premium Whole Life (“SPWL”) insurance, is based on annualized premiums. SPWL insurance sales are based on total single premium dollars received in the period. Universal life sales are based on annualized planned premiums, or “target” premiums if lesser, plus 6% of amounts received in excess of target premiums and 10% of single premiums. “Target” premiums for universal life are those premiums upon which full first year commissions are paid.
(2)  Sales are measured based on the amount of purchase payments received less surrenders occurring within twelve months of the purchase payments.
(3)  Includes general account balances held within VA products. Fixed annuity account value is net of non-affiliate reinsurance ceded.
(4)  Amounts are not adjusted for reinsurance ceded.
(5)  Interest spread on average general account values.
(6)  Includes general account balances held within VUL products.
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
77
Table of Contents
For The
Three Months Ended
March 31,		Percent
20212020Change
 (Dollars In Millions)
Sales By Product
Traditional life(1)
$62 $70 (11.4)%
Universal life(1)
16 11 n/m
BOLI/COLI(2)
421 — n/m
Fixed annuity(3)
443 613 (27.7)%
Variable annuity(3)
219 55 n/m
 $1,161 $749 55.0%
Average Account Values
Universal life$7,698 $7,740 (0.5)%
Variable universal life(4)
1,147 852 34.6%
Fixed annuity(5)
11,818 10,464 12.9%
Variable annuity11,929 11,094 7.5%
$32,592 $30,150 8.1%
Average Life Insurance In-force(6)
  
Traditional$404,683 $367,308 10.2%
Universal life288,623 288,890 (0.1)%
 $693,306 $656,198 5.7%
Interest Spread - Fixed Annuities(7)
  
Net investment income yield3.51 %3.92 %
Interest credited to policyholders2.41 %2.45 %
Interest spread1.10 %1.47 %
As of
March 31, 2021December 31, 2020Percent
Change
(Dollars In Millions)
VA GLWB Benefit Base$9,822 $9,817 0.1%
Account value subject to GLWB rider$8,177 $8,035 1.8%
(1)  Sales data for traditional life insurance, other than Single Premium Whole Life (“SPWL”) insurance, is based on annualized premiums. SPWL insurance sales are based on total single premium dollars received in the period. Universal life sales are based on annualized planned premiums, or “target” premiums if lesser, plus 6% of amounts received in excess of target premiums and 10% of single premiums. “Target” premiums for universal life are those premiums upon which full first year commissions are paid.
(2)  BOLI sales are measured based on total premiums received. COLI sales represent expected premium within one year of policy issue date.
(3)  Sales are measured based on the amount of purchase payments received less surrenders occurring within twelve months of the purchase payments.
(4)  Includes general account balances held within VUL products.
(5)  Includes general account balances held within VA products. Fixed annuity account value is net of non-affiliate reinsurance ceded.
(6)  Amounts are not adjusted for reinsurance ceded.
(7)  Interest spread on average general account values.
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The Three Months Ended September 30, 2020March 31, 2021, as compared to The Three Months Ended September 30, 2019March 31, 2020
Pre-tax adjusted operating income
Pre-tax adjusted operating incomeloss increased $11.9$6 million which was driven byprimarily due to unfavorable mortality experience of approximately $60 million, lower annuity investment spread of $8 million, and higher net premiums in the traditional life block, higher annuity interest spread and investment income, lower expenses and a favorable change in unlocking. These increases wereof $5 million, partially offset by higher claimsinvestment income on the life blocks of $17 million, favorable change in the traditional lifeguaranteed benefit reserve of $13 million, and universal life blocks and lower variable annuity (“VA”) fee income. Segment results were negatively impacted by $20.6a net favorable change in unlocking of $33 million of unfavorable unlocking for the three months ended September 30, 2020, as compared to $34.4 millionprior year.
55
Table of unfavorable unlocking for the three months ended September 30, 2019.Contents

Operating revenues

Total operating revenues increased $74.3 million which was driven by an increase in traditional life and universal life net premiums and higher investment income partially offset by lower VA fee income.

Net premiums and policy fees

Net premiums and policy fees increaseddecreased by $61.7$99 million driven by an increase inhigher traditional life and universal life net premiums partially offset by lower VA fee income.during the first quarter of 2020 primarily due to fluctuations in the number of policies entering their post level period at the end of 2019. These policies cause fluctuations in reinsurance premiums between periods for those contracts that enter the grace period and subsequently lapse.
Net investment income
Net investment income in the segment increased $13.8$13 million driven by higher fixed annuity account value andliability balances in the universal life block, higher yields, partially offset by lower investment income in the universal life and traditional life blocks.block.

Other income

Other income decreased $1.2increased $3 million due to lower VAhigher fixed annuity fee income.

Benefits and settlement expenses

Benefits and settlement expenses increaseddecreased by $82.9$65 million driven by highera $100 million decrease in reserves changes in the traditional life and universal life claims, an unfavorableblock due to fluctuations in the number of policies entering their post level period at the end of 2019, a net favorable change in unlocking of $2 million, and a decrease in the universal life block, a net unfavorable changefixed annuity guaranteed benefit reserves, offset in reservespart by higher mortality experience of approximately $60 million and higher annuity credited interest. Segment results were negatively impacted by $22.6 millionThe net favorable change in unlocking is comprised of unfavorable unlocking of $7 million for 2021, as compared to $11.8 million of unfavorable unlocking in 2019.of $9 million for the prior year.

Amortization of DAC/VOBA

DAC/VOBA amortization decreased $18.5$20 million primarily due to a favorable change in unlocking, offset in thepart by other unfavorable changes in universal life block, partially offset by higherand annuity DAC/VOBA amortization related to changes in the traditional life block and an unfavorable change in annuity unlocking.product cash flows. Segment results were positivelynegatively impacted by $2.0 million of favorable unlocking as compared to $22.6$13 million of unfavorable unlocking in 2019.2021, as compared to $44 million of unfavorable unlocking in the prior year.
Other operating expenses
Other operating expenses decreased $2.0 million which was driven by lower acquisition expense, maintenance and overhead expense, and lower commissions, partially offset by a decrease in reinsurance allowances.

Sales

Sales increased $391.2$6 million primarily due to an increase in fixed annuity sales.

For The Nine Months Ended September 30, 2020, as compared to The Nine Months Ended September 30, 2019
Pre-tax adjusted operating income
Pre-tax adjusted operating income decreased $64.8 million primarily driven by higher claims in the universal lifepolicy acquisition expense, higher ceding allowances, higher maintenance and traditional life blocks, unfavorable unlocking, an unfavorable change in guaranteed benefit reserves, and lower fee income offset byoverhead expenses, higher net premiums in the traditional life block, higher investment income, lower expenses, and a favorable change in SPIA mortality compared to prior year.Segment results were negatively impacted by $68.2 million of unfavorable unlocking, as compared to $25.3 million of unfavorable unlocking for 2019.
78
Table of Contents

Operating revenues

Total operating revenues increased $284.2 million, which was driven by a $246.8 million increase in net traditional life premiums due to post level activitytaxes, and higher investment income,commission expense, partially offset by a decreasefavorable changes in universal life net policy fees and lower VA fee income.

Net premiums and policy fees

Net premiums and policy fees increased by $234.2 million, driven by a favorable impact of post level activity inlegal expense accruals during the traditional life block partially offset by a decrease in policy fees in the universal life block and lower VA fee income.
Net investment income
Net investment income in the segment increased $50.7 million, driven by higher liability balances.

Other income

Other income decreased $0.9 million, which was due to lower VA fee income partially offset by higher fee income on fixed annuity products.

Benefits and settlement expenses

Benefits and settlement expenses increased by $336.5 million, driven by $199.7 million unfavorable change in reserves in the traditional life block due to post level impacts, as well as higher traditional life and universal life claims, unfavorable unlocking in the universal life block, higher annuity credited interest, and an unfavorable change in annuity guaranteed benefit reserve partially offset by a favorable change in reserves in the universal life block and favorable SPIA mortality.Segment results were negatively impacted by $37.7 million of unfavorable unlocking, as compared to $13.3 million of unfavorable unlocking for 2019.

Amortization of DAC/VOBA

DAC/VOBA amortization increased $23.8 million, primarily due to an unfavorable change in unlocking in the variable universal life and variable annuity blocks partially offset by a favorable change in unlocking in the universal life block.DAC and VOBA unlocking was $30.4 million unfavorable as compared to $12.1 million unfavorable for the nine months ended September 30, 2019.
Other operating expenses
Other operating expenses decreased $11.4 million which was due to higher ceding allowance and lower commissions.

Sales

Sales for the segment increased $408.0 million which was primarily due to an increase in fixed annuity sales.period.

Reinsurance
Currently, the Retail Life and Annuity segment reinsures significant amounts of its life insurance in-force. Pursuant to the underlying reinsurance contracts, reinsurers pay allowances to the segment as a percentage of both first year and renewal premiums. Reinsurance allowances represent the amount the reinsurer is willing to pay for reimbursement of acquisition costs incurred by the direct writer of the business. A portion of reinsurance allowances received is deferred as part of DAC and a portion is recognized immediately as a reduction of other operating expenses. As the non-deferred portion of allowances reduces operating expenses in the period received, these amounts represent a net increase to adjusted operating income during that period.
79
Table of Contents
Reinsurance allowances do not affect the methodology used to amortize DAC or the period over which such DAC is amortized. However, they do affect the amounts recognized as DAC amortization. DAC on universal life-type, limited-payment long duration, and investment contracts business is amortized based on the estimated gross profits of the policies in-force. Reinsurance allowances are considered in the determination of estimated gross profits, and therefore, impact DAC amortization on these lines of business. Deferred reinsurance allowances on level term business are recorded as ceded DAC, which is amortized over the estimated ceded premiums of the policies in-force. Thus, deferred reinsurance allowances may impact DAC amortization.
Impact of reinsurance
56
Table of Contents
Reinsurance impacted the Retail Life and Annuity segment line items as shown in the following table:
Retail Life and Annuity Segment
Line Item Impact of Reinsurance

For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,		For The
Three Months Ended
March 30,		Percent
20202019Change20202019Change20212020Change
(Dollars In Thousands)(Dollars In Thousands) (Dollars In Millions)
REVENUESREVENUES  REVENUES 
Reinsurance cededReinsurance ceded$(192,980)$(220,770)(12.6)%$(432,597)$(686,127)(37.0)%Reinsurance ceded$(205)$33 n/m
Realized gains (losses) - derivatives9,979 10,336 (3.5)29,999 31,458 (4.6)
Other incomeOther income(1,212)— n/m(2,414)— n/mOther income(1)— n/m
Total operating revenuesTotal operating revenues(184,213)(210,434)(12.5)(405,012)(654,669)(38.1)Total operating revenues(206)33 n/m
Realized gains (losses) - derivatives, net of economic cost(82,161)126,771 n/m214,374 237,527 (9.7)
Realized gains (losses)Realized gains (losses)(4)— n/m
Total revenuesTotal revenues(266,374)(83,663)n/m(190,638)(417,142)(54.3)Total revenues(210)33 n/m
BENEFITS AND EXPENSESBENEFITS AND EXPENSESBENEFITS AND EXPENSES
Benefits and settlement expensesBenefits and settlement expenses(153,768)(142,187)8.1(334,649)(483,900)(30.8)Benefits and settlement expenses(263)76 n/m
Amortization of DAC/VOBAAmortization of DAC/VOBA(1,114)(1,613)(30.9)(3,109)(3,841)(19.1)Amortization of DAC/VOBA(1)(1)—%
Other operating expenses(1)
Other operating expenses(1)
(44,855)(50,574)(11.3)(146,124)(141,530)3.2
Other operating expenses(1)
(45)(51)(11.8)%
Operating benefits and expensesOperating benefits and expenses(199,737)(194,374)2.8(483,882)(629,271)(23.1)Operating benefits and expenses(309)24 n/m
Benefits and settlement expenses related to realized gains (losses)Benefits and settlement expenses related to realized gains (losses)774 132 n/m(1,172)(118)n/mBenefits and settlement expenses related to realized gains (losses)1 (2)n/m
Amortization of DAC/VOBA related to realized gains (losses)Amortization of DAC/VOBA related to realized gains (losses)1,702 728 n/m5,116 2,266 n/mAmortization of DAC/VOBA related to realized gains (losses)(1)5 n/m
Total benefits and expensesTotal benefits and expenses(197,261)(193,514)1.9(479,938)(627,123)(23.5)Total benefits and expenses(309)27 n/m
NET IMPACT OF REINSURANCENET IMPACT OF REINSURANCE$(69,113)$109,851 n/m$289,300 $209,981 37.8NET IMPACT OF REINSURANCE$99 $6 n/m
(1) Other operating expenses ceded per the income statement are equal to reinsurance allowances recognized after capitalization.(1) Other operating expenses ceded per the income statement are equal to reinsurance allowances recognized after capitalization.(1) Other operating expenses ceded per the income statement are equal to reinsurance allowances recognized after capitalization.
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.N/M - we define n/m as not meaningful for increases or decreases greater than 100%.N/M - we define n/m as not meaningful for increases or decreases greater than 100%.

The table above does not reflect the impact of reinsurance on our net investment income. By ceding business to the assuming companies, we forgo investment income on the reserves ceded. Conversely, the assuming companies will receive investment income on the reserves assumed, which will increase the assuming companies’ profitability on the business that we cede. The net investment income impact to us and the assuming companies has not been quantified. The impact of including foregone investment income would be to substantially reduce the favorable net impact of reinsurance reflected above. The Retail Life and Annuity segment’s reinsurance programs do not materially impact the other income line of our income statement.

For The Three Months Ended September 30, 2020,March 31, 2021, as compared to The Three Months Ended September 30, 2019March 31, 2020

The lowerhigher ceded premiumpremiums and policy fees for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, was driven by lowerhigher ceded premiums in the traditional life block.block due to fluctuations in the number of policies entering their post level period at the end of 2019. These policies cause fluctuations in reinsurance premiums between periods for those contracts that enter the grace period and subsequently lapse.

80
Table of Contents
Ceded benefits and settlement expenses were higher for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, due to higher ceded claimsmortality experience in the universal life blockand traditional life blocks and higher ceded reserves in the traditional life block offset by lower ceded reservesdue to fluctuations in the universal life block and lower claims innumber of policies entering their post level period at the traditional life block.end of 2019.

Ceded other operating expenses decreased for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, due to higherlower ceding allowances on the universal life and traditional life blocks.Ceded other operating expenses reflect the impact of reinsurance allowances, net of amounts deferred.
For The Nine Months Ended September 30, 2020, as compared to The Nine Months Ended September 30, 2019

The lower ceded premium and policy fees was caused primarily by lower ceded traditional life premiums of $266.8 million, primarily due to fluctuations in the number of policies entering their post level period during the fourth quarter of 2019.

Ceded benefits and settlement expenses were lower due to lower ceded reserves in the traditional life block due to fluctuations the number of policies entering their post level period and lower ceded universal life reserves, partially offset by higher universal life ceded claims.
8157
Table of Contents
Acquisitions
Segment Results of Operations
Segment results were as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
20202019Change20202019Change
 (Dollars In Thousands)(Dollars In Thousands)
REVENUES  
Gross premiums and policy fees$404,641 $413,045 (2.0)%$1,160,335 $1,069,932 8.4%
Reinsurance ceded(63,223)(63,778)(0.9)(162,126)(193,999)(16.4)
Net premiums and policy fees341,418 349,267 (2.2)998,209 875,933 14.0
Net investment income405,458 426,510 (4.9)1,235,231 1,106,782 11.6
Realized gains (losses) - investments/derivatives(2,878)(3,300)(12.8)(8,609)(3,300)n/m
Other income37,572 37,317 0.7123,964 68,997 79.7
Total operating revenues781,570 809,794 (3.5)2,348,795 2,048,412 14.7
Realized gains (losses) - investments/derivatives20,630 49,730 (58.5)50,567 88,085 (42.6)
Total revenues802,200 859,524 (6.7)2,399,362 2,136,497 12.3
BENEFITS AND EXPENSES    
Benefits and settlement expenses644,515 629,922 2.31,904,913 1,615,121 17.9
Amortization of VOBA6,643 6,133 8.312,829 16,641 (22.9)
Other operating expenses65,413 70,529 (7.3)192,932 168,718 14.4
Operating benefits and expenses716,571 706,584 1.42,110,674 1,800,480 17.2
Benefits and settlement expenses related to realized gains (losses)1,162 4,927 (76.4)9,041 9,370 (3.5)
Amortization of VOBA related to realized gains (losses)7,471 1,255 n/m10,891 1,708 n/m
Total benefits and expenses725,204 712,766 1.72,130,606 1,811,558 17.6
INCOME BEFORE INCOME TAX76,996 146,758 (47.5)268,756 324,939 (17.3)
Less: realized gains (losses) - investments/derivatives20,630 49,730 (58.5)50,567 88,085 (42.6)
Less: related benefits and settlement expenses(1,162)(4,927)(76.4)(9,041)(9,370)(3.5)
Less: related amortization of VOBA(7,471)(1,255)n/m(10,891)(1,708)n/m
PRE-TAX ADJUSTED OPERATING INCOME$64,999 $103,210 (37.0)%$238,121 $247,932 (4.0)%
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The
Three Months Ended
March 31,		Percent
20212020Change
 (Dollars In Millions)
REVENUES 
Gross premiums and policy fees$442 $381 16.0%
Reinsurance ceded(66)(23)n/m
Net premiums and policy fees376 358 5.0%
Net investment income399 416 (4.1)%
Realized gains (losses)(3)(3)—%
Other income7 50 (86.0)%
Total operating revenues779 821 (5.1)%
BENEFITS AND EXPENSES  
Benefits and settlement expenses644 671 (4.0)%
Amortization of VOBA(2)11 n/m
Other operating expenses60 64 (6.3)%
Operating benefits and expenses702 746 (5.9)%
PRE-TAX ADJUSTED OPERATING INCOME77 75 2.7%
Non-operating income (loss)
Realized gains (losses)10 (22)n/m
Related benefits and settlement expenses(27)(6)n/m
Related amortization of VOBA(5)(41)n/m
VA/VUL market impacts(1)
3 — n/m
Total non-operating income (loss)(19)(69)n/m
INCOME BEFORE INCOME TAX$58 $6 n/m
(1)  Represents the immediate impacts on DAC, VOBA, reserves and other non-cash items in current period results due to changes in current market conditions on estimates of profitability, which are excluded from pre-tax and after-tax adjusted operating income (loss) beginning in Q1 of 2021.
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
8258
Table of Contents
The following table summarizes key data for the Acquisitions segment:
For The
Three Months Ended
March 31,		Percent
20212020Change
 (Dollars In Millions)
Average Life Insurance In-Force(1)
 
Traditional$232,140 $250,648 (7.4)%
Universal life68,163 67,618 0.8%
 $300,303 $318,266 (5.6)%
Average Account Values  
Universal life(2)
$15,424 $15,549 (0.8)%
Variable universal life8,887 7,280 22.1%
Fixed annuity(2)
9,711 10,494 (7.5)%
Variable annuity5,462 4,532 20.5%
 $39,484 $37,855 4.3%
Interest Spread - Fixed Annuities  
Net investment income yield3.98 %3.95 %
Interest credited to policyholders3.47 %3.28 %
Interest spread(3)
0.51 %0.67 %
(1)  Amounts are not adjusted for reinsurance ceded.
(2)  Includes general account balances held within variable products and is net of reinsurance ceded. Excludes structured annuity products.
(3)  Interest spread on average general account values
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
20202019Change20202019Change
 (Dollars In Thousands)(Dollars In Thousands)
Average Life Insurance In-Force(1)
  
Traditional$242,435,281 $264,696,924 (8.4)%$247,093,302 $243,981,484 1.3%
Universal life67,637,900 68,517,839 (1.3)67,952,648 50,120,940 35.6
 $310,073,181 $333,214,763 (6.9)%$315,045,950 $294,102,424 7.1%
Average Account Values    
Universal life(2)
$15,570,550 $15,648,232 (0.5)%$15,611,623 $11,259,707 38.7%
Variable universal life7,868,732 7,106,265 10.77,701,859 3,957,165 94.6
Fixed annuity(2)
10,219,132 10,832,914 (5.7)10,316,521 10,434,832 (1.1)
Variable annuity4,858,864 4,669,422 4.14,946,172 2,794,917 77.0
 $38,517,278 $38,256,833 0.7%$38,576,175 $28,446,621 35.6%
Interest Spread - Fixed Annuities    
Net investment income yield3.91 %4.00 %3.96 %3.96 %
Interest credited to policyholders3.35 %3.20 %3.15 %3.17 %
Interest spread(3)
0.56 %0.80 %0.81 %0.79 %
(1)  Amounts are not adjusted for reinsurance ceded.
(2)  Includes general account balances held within variable products and is net of reinsurance ceded. Excludes structured annuity products.
(3)  Interest spread on average general account values
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.

For The Three Months Ended September 30, 2020March 31, 2021 as compared to The Three Months Ended September 30, 2019March 31, 2020

Pre-tax adjusted operating income

Pre-tax adjusted operating income was $77 million, an increase of $2 million which was primarily driven by favorable unlocking, favorable mortality on payout annuities, and decreased $38.2 million, primarily due to theexpenses, partially offset by increased traditional life and universal life claims and expected runoff of the in-force blocks of business.

Operating revenues

Net premiums and policy fees decreased $7.8increased $18 million, and net investment income decreased $21.1 million primarily due to a change in the classification of certain policy fees, partially offset by lower traditional life net premiums during the first quarter of 2020 due to fluctuations in the number of policies entering their post level period at the end of 2019 and expected runoff of the in-force blocks of business.

Total benefitsNet investment income decreased $17 million due to expected runoff of the in-force blocks of business. Also, other income decreased $43 million due to a change in the classification of certain policy fees and a $15 million one-time gain in the prior year.

Operating expenses

Total benefitsBenefits and settlement expenses decreased $27 million, due to a decrease in reserve changes in the traditional life block due to fluctuations in the number of policies entering their post level period at the end of 2019, a decrease in payout annuity reserves due to increased $12.4 million whichdeaths, a favorable change in unlocking, and expected runoff of the in-force blocks of business. This decrease was drivenpartly offset by higher traditional life and universal life claims a net unfavorable change in reserves and higher annuity credited interest.
For The Nine Months Ended September 30, 2020 as compared to The Nine Months Ended September 30, 2019

Pre-tax adjusted operating income

Pre-tax adjusted operating incomeVOBA amortization decreased $9.8$13 million primarily due to expected run off in the in-force blocks of business partly offsetfavorable unlocking. Segment results were negatively impacted by the favorable impact of the GWL&A reinsurance transaction, which added $50.5$1 million of pre-tax operating incomeunfavorable unlocking in 2020, an increase2021, as compared to $12 million of $24.6 million compared tounfavorable unlocking in the prior year.

83
59
Table of Contents
Operating revenues

Net premiums and policy fees increased $122.3Other operating expenses decreased $4 million primarily due to the premiums associated with the GWL&A reinsurance transaction more than offsetting the expected runoff of the in-force blocks of business. Net investment income increased $128.4 million primarily due to the $172.9 million impact of the GWL&A reinsurance transaction, partly offset by the expected runoff of the other in-force blocks of business.

Total benefitslower acquisition expense, lower maintenance and overhead expenses,

Total benefits lower taxes, and expenses increased $319.1 million primarily due to the GWL&A reinsurance transaction, which increased benefits and expenses $358.7 million.lower interest expense. This decrease was partly offset by expected runoff ofhigher commission expense during the in-force blocks of business.current period.

Reinsurance

The Acquisitions segment currently reinsures portions of both its life and annuity in-force. The cost of reinsurance to the segment is reflected in the chart shown below. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.

Impact of reinsurance

Reinsurance impacted the Acquisitions segment line items as shown in the following table:

Acquisitions Segment
Line Item Impact of Reinsurance
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,		For The
Three Months Ended
March 31,		Percent
20202019Change20202019Change20212020Change
(Dollars In Thousands)(Dollars In Thousands) (Dollars In Millions)
REVENUESREVENUES  REVENUES 
Reinsurance cededReinsurance ceded$(63,223)$(63,778)(0.9)%$(162,126)$(193,999)(16.4)%Reinsurance ceded$(66)$(23)n/m
BENEFITS AND EXPENSESBENEFITS AND EXPENSESBENEFITS AND EXPENSES
Benefits and settlement expensesBenefits and settlement expenses(64,817)(54,216)19.6(147,810)(170,467)(13.3)Benefits and settlement expenses(80)(10)n/m
Amortization of VOBA(134)(494)(72.9)(482)(763)(36.8)
Other operating expensesOther operating expenses(6,573)(8,143)(19.3)(21,405)(23,892)(10.4)Other operating expenses(7)(7)—%
Total benefits and expensesTotal benefits and expenses(71,524)(62,853)13.8(169,697)(195,122)(13.0)Total benefits and expenses(87)(17)n/m
NET IMPACT OF REINSURANCE(1)
NET IMPACT OF REINSURANCE(1)
$8,301 $(925)n/m$7,571 $1,123 n/m
NET IMPACT OF REINSURANCE(1)
$21 $(6)n/m
(1) Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.(1) Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.(1) Assumes no investment income on reinsurance. Foregone investment income would substantially reduce the favorable impact of reinsurance.
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.N/M - we define n/m as not meaningful for increases or decreases greater than 100%.N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
The segment’s reinsurance programs do not materially impact the other income line of our income statement. In addition, net investment income generally has no direct impact on reinsurance cost. However, by ceding business to the assuming companies, we forgo investment income on the reserves ceded to the assuming companies. Conversely, the assuming companies will receive investment income on the reserves assumed which will increase the assuming companies’ profitability on business assumed from the Company. For business ceded under modified coinsurance arrangements, the amount of investment income attributable to the assuming company is included as part of the overall change in policy reserves and, as such, is reflected in benefit and settlement expenses. The net investment income impact to us and the assuming companies has not been quantified as it is not fully reflected in our consolidated financial statements.
84
Table of Contents
For The Three Months Ended September 30, 2020,March 31, 2021, as compared to The Three Months Ended September 30, 2019March 31, 2020
The net impact of reinsurance was more favorable by $9.2$27 million primarily due to higher ceded benefitbenefits and settlement expenses of $10.6 million.
For The Nine Months Ended September 30, 2020, as compared to The Nine Months Ended September 30, 2019
The net impact of reinsurance was more favorable by $6.4$70 million primarily due to lowerhigher ceded revenueclaims in the universal life and traditional life blocks and higher ceded reserves in the traditional life block due to post level activity, which was partly offset by lowerhigher ceded benefit and settlement expensesrevenue of $43 million in the traditional life block due to fluctuations in the number of policies inentering their post level period.period at the end of 2019. These policies cause fluctuations in reinsurance premiums between periods for those contracts that enter the grace period and subsequently lapse.

8560
Table of Contents
Stable Value Products
Segment Results of Operations
Segment results were as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
20202019Change20202019Change
 (Dollars In Thousands)(Dollars In Thousands)
REVENUES  
Net investment income$54,210 $59,707 (9.2)%$169,279 $184,450 (8.2)%
Other income— 5 n/m— 10 n/m
Total operating revenues54,210 59,712 (9.2)169,279 184,460 (8.2)
Realized gains (losses) - investments/derivatives(6,129)242 n/m(32,057)2,658 n/m
Total revenues48,081 59,954 (19.8)137,222 187,118 (26.7)
BENEFITS AND EXPENSES   
Benefits and settlement expenses32,408 37,471 (13.5)102,341 108,532 (5.7)
Amortization of DAC872 857 1.82,439 2,584 (5.6)
Other operating expenses801 521 53.72,380 2,136 11.4
Total benefits and expenses34,081 38,849 (12.3)107,160 113,252 (5.4)
INCOME BEFORE INCOME TAX14,000 21,105 (33.7)30,062 73,866 (59.3)
Less: realized gains (losses)(6,129)242 n/m(32,057)2,658 n/m
PRE-TAX ADJUSTED OPERATING INCOME$20,129 $20,863 (3.5)%$62,119 $71,208 (12.8)%
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
86
Table of Contents

For The
Three Months Ended
March 31,		Percent
20212020Change
 (Dollars In Millions)
REVENUES 
Net investment income$63 $63 —%
Other income— — —%
Total operating revenues63 63 —%
BENEFITS AND EXPENSES 
Benefits and settlement expenses30 36 (16.7)%
Amortization of DAC1 1 —%
Other operating expenses1 1 —%
Total benefits and expenses32 38 (15.8)%
PRE-TAX ADJUSTED OPERATING INCOME31 25 24.0%
Add: realized gains (losses)18 (26)n/m
INCOME (LOSS) BEFORE INCOME TAX$49 $(1)n/m
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
The following table summarizes key data for the Stable Value Products segment: 
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,		For The
Three Months Ended
March 31,		Percent
20202019Change20202019Change20212020Change
(Dollars In Thousands)(Dollars In Thousands) (Dollars In Millions)
Sales(1)
Sales(1)
  
Sales(1)
 
GICGIC$75,387 $— —%$78,387 $— n/mGIC$— $3 n/m
GFAGFA750,000 — n/m1,750,000 1,350,000 29.6%GFA875 500 75.0%
$825,387 $— n/m$1,828,387 $1,350,000 35.4% $875 $503 74.0%
Average Account ValuesAverage Account Values$6,073,850 $5,754,449 5.6%$5,807,089 $5,663,201 2.5%Average Account Values$6,624 $5,670 16.8%
Ending Account ValuesEnding Account Values$6,017,259 $5,450,981 10.4%$6,017,259 $5,450,981 10.4%Ending Account Values$6,655 $5,886 13.1%
Operating SpreadOperating Spread   Operating Spread 
Net investment income yieldNet investment income yield3.56 %4.15 %3.89 %4.34 %Net investment income yield3.83 %4.42 %
Interest creditedInterest credited2.13 2.60 2.35 2.55 Interest credited1.81 2.53 
Operating expensesOperating expenses0.11 0.10 0.11 0.11 Operating expenses0.10 0.10 
Operating spreadOperating spread1.32 %1.45 %1.43 %1.68 %Operating spread1.92 %1.79 %
Adjusted operating spread(2)
Adjusted operating spread(2)
1.31 %1.19 %1.25 %1.32 %
Adjusted operating spread(2)
1.65 %1.28 %
(1) Sales are measured at the time the purchase payments are received.(1) Sales are measured at the time the purchase payments are received.(1) Sales are measured at the time the purchase payments are received.
(2) Excludes participation commercial mortgage loan income.(2) Excludes participation commercial mortgage loan income.(2) Excludes participation commercial mortgage loan income.
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.N/M - we define n/m as not meaningful for increases or decreases greater than 100%.N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The Three Months Ended September 30, 2020,March 31, 2021, as compared to The Three Months Ended September 30, 2019March 31, 2020
Pre-tax adjusted operating income
61
Table of Contents
Pre-tax adjusted operating income decreased $0.7increased $6 million which primarily resulted from lower participation commercial mortgage loan income, partially offset by an increase in adjusted operating spread and higher average account values.values, partially offset by a decrease in participation commercial mortgage loan income. Participation commercial mortgage loan income for the three months ended September 30, 2020,March 31, 2021, was $0.3$4 million as compared to $3.7$7 million for the three months ended September 30, 2019.March 31, 2020. The adjusted operating spread, which excludes participation commercial mortgage loan income, increased by 1237 basis points for the three months ended September 30, 2020,March 31, 2021, from the prior year, due primarily to a decrease in credited interest, partially offset by a decrease in average yields on investments.

For The Nine Months Ended September 30, 2020, as compared to The Nine Months Ended September 30, 2019
Pre-tax adjusted operating income
Pre-tax adjusted operating income decreased $9.1 million which primarily resulted from lower participating mortgage loan income and a decrease in adjusted operating spread, partially offset by higher average account values. Participation commercial mortgage loan income for the nine months ended September 30, 2020, was $7.5 million as compared to $15.2 million for the nine months ended September 30, 2019. The adjusted operating spread, which excludes participation commercial mortgage loan income, decreased by 7 basis points for the nine months ended September 30, 2020, from the prior year, due primarily to a decrease in average yields on investments, partially offset by a decrease in credited interest.
8762
Table of Contents
Asset Protection
Segment Results of Operations
Segment results were as follows: 
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,		For The
Three Months Ended
March 31,		Percent
20202019Change20202019Change20212020Change
(Dollars In Thousands)(Dollars In Thousands) (Dollars In Millions)
REVENUESREVENUES REVENUES 
Gross premiums and policy feesGross premiums and policy fees$73,592 $74,824 (1.6)%$221,795 $225,698 (1.7)%Gross premiums and policy fees$74 $75 (1.3)%
Reinsurance cededReinsurance ceded(47,529)(45,650)4.1(138,900)(134,367)3.4Reinsurance ceded(46)(46)—%
Net premiums and policy feesNet premiums and policy fees26,063 29,174 (10.7)82,895 91,331 (9.2)Net premiums and policy fees28 29 (3.4)%
Net investment incomeNet investment income5,438 7,164 (24.1)19,144 21,015 (8.9)Net investment income6 8 (25.0)%
Other incomeOther income36,697 36,391 0.8107,751 106,649 1.0Other income37 37 —%
Total operating revenuesTotal operating revenues68,198 72,729 (6.2)209,790 218,995 (4.2)Total operating revenues71 74 (4.1)%
BENEFITS AND EXPENSESBENEFITS AND EXPENSES  BENEFITS AND EXPENSES  
Benefits and settlement expensesBenefits and settlement expenses20,315 23,324 (12.9)59,232 70,945 (16.5)Benefits and settlement expenses17 21 (19.0)%
Amortization of DAC/VOBAAmortization of DAC/VOBA17,173 15,828 8.548,459 47,156 2.8Amortization of DAC/VOBA15 15 —%
Other operating expensesOther operating expenses21,226 23,940 (11.3)69,248 73,949 (6.4)Other operating expenses25 26 (3.8)%
Total benefits and expensesTotal benefits and expenses58,714 63,092 (6.9)176,939 192,050 (7.9)Total benefits and expenses57 62 (8.1)%
INCOME BEFORE INCOME TAXINCOME BEFORE INCOME TAX9,484 9,637 (1.6)32,851 26,945 21.9INCOME BEFORE INCOME TAX14 12 16.7%
PRE-TAX ADJUSTED OPERATING INCOMEPRE-TAX ADJUSTED OPERATING INCOME$9,484 $9,637 (1.6)%$32,851 $26,945 21.9%PRE-TAX ADJUSTED OPERATING INCOME$14 $12 16.7%
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.N/M - we define n/m as not meaningful for increases or decreases greater than 100%.N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
The following table summarizes key data for the Asset Protection segment:
For The
Three Months Ended
March 31,		Percent
20212020Change
 (Dollars In Millions)
Sales(1)
 
Credit insurance$— $2 n/m
Service contracts106 95 11.6 %
GAP20 18 11.1 %
 $126 $115 9.6 %
Loss Ratios(2)
  
Credit insurance15.2 %45.1 %
Service contracts59.3 59.2 
GAP98.5 121.0 
(1) Sales are based on the amount of single premiums and fees received
(2) Incurred claims as a percentage of earned premiums
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
20202019Change20202019Change
 (Dollars In Thousands)(Dollars In Thousands)
Sales(1)
  
Credit insurance$1,504 $2,177 (30.9)%$4,392 $6,800 (35.4)%
Service contracts114,131 107,498 6.2 293,529 297,928 (1.5)
GAP21,465 21,726 (1.2)56,930 58,691 (3.0)
 $137,100 $131,401 4.3 %$354,851 $363,419 (2.4)%
Loss Ratios(2)
    
Credit insurance37.0 %11.3 %32.1 %19.5 %
Service contracts65.9 69.5 62.0 65.2 
GAP132.1 129.0 114.3 126.8 
(1) Sales are based on the amount of single premiums and fees received
(2) Incurred claims as a percentage of earned premiums
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.

8863
Table of Contents
For The Three Months Ended September 30, 2020,March 31, 2021, as compared to The Three Months Ended September 30, 2019March 31, 2020
Pre-tax adjusted operating income
Pre-tax adjusted operating income decreased $0.2increased $2 million due to a decreasean increase in the GAP product line of $0.4 milliondue to lower loss ratios, offset by a decrease in the service contract earnings due to lower investment income and higher expenses and a decrease of $0.4 million in the credit insurance product line due to higher loss ratios and lower volume. These decreases were offset by the service contract earnings that increased $0.6 million primarily due to lower loss ratios and lower expenses, somewhat offset by lower investment income.expenses.

Net premiums and policy fees

Net premiums and policy fees decreased $3.1$1 million due to a decrease of $1.3 million in service contract premiums primarily due to higher ceded premiums and a decrease in GAP premiums decreased $1.4 million and credit insurance premiums decreased $0.4 million as a result of lower sales in prior periods and the related impact to earned premiums.
Benefits and settlement expenses
Benefits and settlement expenses decreased $3.0$4 million due to a decrease in GAP claims decreasing $1.6 million and service contract claims decreasing $1.6 million due to lower loss ratios. Credit insurance claims increased $0.2 million, primarily due to higher loss ratios.of $3 million.

Sales

Total segment sales increased $5.7$11 million, due primarily to an increase of $6.6 million of service contract sales, a decrease of $0.7 million of credit insurance sales and a decrease of $0.2 million of GAP sales.

For The Nine Months Ended September 30, 2020, as compared to The Nine Months Ended September 30, 2019

Pre-tax adjusted operating income

Pre-tax adjusted operating income increased $5.9 million primarily due to a $4.9 million increase in service contract earnings primarily due to lower loss ratios and lower expenses. GAP product line earnings increased $2.0 million due to lower loss ratios, somewhat offset by higher expenses. Earnings from the credit insurance product line decreased $1.0 million primarily due to lower volume.

Net premiums and policy fees

Net premiums and policy fees decreased $8.4 million due to decreases in all product lines. GAP premiums decreased $5.1 million, credit insurance premiums decreased $1.3 million and service contract premiums decreased $2.0 million as a resultsales of higher ceded premiums and as a result of lower sales in prior periods and the related impact to earned premiums.
Benefits and settlement expenses
Benefits and settlement expenses decreased $11.7 million primarily due to a decrease in GAP and service contract claims of $8.6 million and $3.3 million, respectively due to lower loss ratios. Credit insurance claims increased $0.2. million due to higher loss ratios.

Sales

Total segment sales decreased $8.6 million due to a decrease in all product lines. Service contract sales decreased $4.4 million, credit insurance sales decreased $2.4$11 million and GAP sales of $2 million mostly due to the positive impact of increased auto sales. Credit sales decreased $1.8 million.$2 million due to discontinuing the product line.

89
Table of Contents
Reinsurance

The majority of the Asset Protection segment’s reinsurance activity relates to the cession of single premium credit life and credit accident and health insurance, vehicle service contracts, and guaranteed asset protection insurance to producer affiliated reinsurance companies (“PARCs”). These arrangements are coinsurance contracts ceding the business on a first dollar quota share basis at 100% to limit the segment’s exposure and allow the PARCs to share in the underwriting income of the product. Reinsurance contracts do not relieve the Asset Protection segment from obligations to policyholders. A more detailed discussion of the components of reinsurance can be found in the Reinsurance section of Note 2, Summary of Significant Accounting Policies, to the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.
Impact of Reinsurance
Reinsurance impacted the Asset Protection segment line items as shown in the following table:
Asset Protection Segment
Line Item Impact of Reinsurance
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
20202019Change20202019Change
 (Dollars In Thousands)(Dollars In Thousands)
REVENUES  
Reinsurance ceded$(47,529)$(45,650)4.1%$(138,900)$(134,367)3.4%
BENEFITS AND EXPENSES
Benefits and settlement expenses(21,656)(21,233)2.0(62,885)(60,778)3.5
Amortization of DAC/VOBA(1,148)(969)18.5(3,249)(2,634)23.3
Other operating expenses(1,028)(979)5.0(3,464)(3,119)11.1
Total benefits and expenses(23,832)(23,181)2.8(69,598)(66,531)4.6
NET IMPACT OF REINSURANCE(1)
$(23,697)$(22,469)5.5$(69,302)$(67,836)2.2
(1)  Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The
Three Months Ended
March 31,		Percent
20212020Change
 (Dollars In Millions)
REVENUES 
Reinsurance ceded$(46)$(46)—%
BENEFITS AND EXPENSES
Benefits and settlement expenses(19)(21)(9.5)%
Amortization of DAC/VOBA(1)(1)—%
Other operating expenses(1)(1)—%
Total benefits and expenses(21)(23)(8.7)%
NET IMPACT OF REINSURANCE(1)
$(25)$(23)8.7%
(1)  Assumes no investment income on reinsurance. Foregone investment income would substantially change the impact of reinsurance.
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The Three Months Ended September 30, 2020,March 31, 2021, as compared to The Three Months Ended September 30, 2019March 31, 2020
Reinsurance premiums ceded increased $1.9 millionremained flat primarily due to an increase in ceded service contract premiums related to higher service contract premium volume, somewhat offset by a decrease in ceded credit insurance premiums.
64

Table of Contents
Benefits and settlement expenses ceded increased $0.4 million primarily due to higher ceded losses in the credit product line.

Amortization of DAC and VOBA ceded increased $0.2 million as the result of changes in ceded activity in the GAP product line. Other operating expenses ceded increased $0.1 million, which was primarily due to an increase in ceded GAP operating expenses, somewhat offset by a decrease in ceded credit operating expenses.
For The Nine Months Ended September 30, 2020, as compared to The Nine Months Ended September 30, 2019
Reinsurance premiums ceded increased $4.5 million which was primarily due to an increase in ceded service contract premiums, somewhat offset by a decrease in ceded credit insurance premiums.

Benefits and settlement expenses ceded increased $2.1decreased $2 million which was primarily due to higherlower ceded losses in the service contractGAP product line.

Amortization of DAC and VOBA ceded increased $0.6 million as the result of changes in ceded activity in the GAP product line. Other operating expenses ceded increased $0.3 million as the result of changes in ceded activity in all product lines.
9065
Table of Contents
Corporate and Other
Segment Results of Operations
Segment results were as follows:
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,
20202019Change20202019Change
 (Dollars In Thousands)(Dollars In Thousands)
REVENUES  
Gross premiums and policy fees$2,538 $2,793 (9.1)%$8,184 $8,853 (7.6)%
Reinsurance ceded— (3)n/m— (139)n/m
Net premiums and policy fees2,538 2,790 (9.0)8,184 8,714 (6.1)
Net investment income23,943 11,012 n/m59,462 56,294 5.6
Other income526 116 n/m1,095 247 n/m
Total operating revenues27,007 13,918 94.068,741 65,255 5.3
Realized gains (losses) - investments/derivatives23,216 8,679 n/m12,397 24,827 (50.1)
Total revenues50,223 22,597 n/m81,138 90,082 (9.9)
BENEFITS AND EXPENSES    
Benefits and settlement expenses4,501 4,229 6.410,104 12,469 (19.0)
Amortization of DAC/VOBA— — n/m— — n/m
Other operating expenses54,631 46,252 18.1162,534 172,461 (5.8)
Total benefits and expenses59,132 50,481 17.1172,638 184,930 (6.6)
INCOME (LOSS) BEFORE INCOME TAX(8,909)(27,884)(68.0)(91,500)(94,848)(3.5)
Less: realized gains (losses) - investments/derivatives23,216 8,679 n/m12,397 24,827 (50.1)
PRE-TAX ADJUSTED OPERATING INCOME (LOSS)$(32,125)$(36,563)(12.1)%$(103,897)$(119,675)(13.2)%
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The
Three Months Ended
March 31,		Percent
20212020Change
 (Dollars In Millions)
REVENUES 
Gross premiums and policy fees$3 $3 —%
Reinsurance ceded— — —%
Net premiums and policy fees3 3 —
Net investment income(14)14 n/m
Other income— — —%
Total operating revenues(11)17 n/m
BENEFITS AND EXPENSES  
Benefits and settlement expenses5 3 66.7%
Amortization of DAC/VOBA— — —%
Other operating expenses35 55 (36.4)%
Total benefits and expenses40 58 (31.0)%
PRE-TAX ADJUSTED OPERATING INCOME (LOSS)(51)(41)24.4%
Add: realized gains (losses)10 (18)n/m
INCOME (LOSS) BEFORE INCOME TAX$(41)$(59)(30.5)%
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The Three Months Ended September 30, 2020March 31, 2021 as compared to The Three Months Ended September 30, 2019March 31, 2020
Pre-tax adjusted operating income (loss)
Pre-tax adjusted operating loss was $32.1$51 million for the three months ended September 30, 2020,March 31, 2021, as compared to a pre-tax adjusted operating loss of $36.6$41 million for the three months ended September 30, 2019.March 31, 2020. The decreasedincreased operating loss was primarily due to an increasea decrease in investment income, due to increased invested asset balances, partially offset by increaseddecreased operating expenses.
Operating revenues
Net investment income for the segment increased $12.9decreased $28 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The increasean expense of $14 million, which was primarily dueattributable to an increasedecreased held-to-maturity income related to investments extinguished in invested assets.

Total benefits and2020. The held-to-maturity income previously offset the investment expenses

Total benefits and expenses increased $8.7 million for the three months ended September 30, 2020, as compared that are not allocated to the three months ended September 30, 2019, primarily due to an increase in corporate overhead expenses, partially offset by a decrease in interest expense.

91
Table of Contents
For The Nine Months Ended September 30, 2020 as compared to The Nine Months Ended September 30, 2019
Pre-tax adjusted operating income (loss)
Pre-tax adjusted operating loss was $103.9 million for the nine months ended September 30, 2020, as compared to a pre-tax adjusted operating loss of $119.7 million for the nine months ended September 30, 2019. The decreased operating loss was primarily due to a decrease in operating expenses and an increase in investment income.
Operating revenues
Net investment income for the segment increased $3.2 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The increase was primarily due to an increase in invested asset balances.other segments.

Total benefits and expenses

Total benefits and expenses decreased $12.3$18 million, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, primarily due to decreases in corporate overhead expenses and benefit and settlement expenses related to blocks in runoff, partially offset by an increase inreduced interest expense.expense as the non-recourse funding obligations were redeemed October 1, 2020.

9266
Table of Contents
CONSOLIDATED INVESTMENTS
As of September 30, 2020,March 31, 2021, our investment portfolio was approximately $88.9$86.2 billion. The types of assets in which we may invest are influenced by various state insurance laws which prescribe qualified investment assets. Within the parameters of these laws, we invest in assets giving consideration to such factors as liquidity and capital needs, investment quality, investment return, matching of assets and liabilities, and the overall composition of the investment portfolio by asset type and credit exposure.
Within our fixed maturity investments, we maintain portfolios classified as “available-for-sale”, and “trading”, and “held-to-maturity”. We purchase our available-for-sale investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, we may sell any of our available-for-sale and trading investments to maintain proper matching of assets and liabilities. Accordingly, we classified $67.3$67.2 billion, or 92.5%96.0%, of our fixed maturities as “available-for-sale” as of September 30, 2020.March 31, 2021. These securities are carried at fair value on our consolidated condensed balance sheets. Changes in fair value for our available-for-sale portfolio, net of tax and the related impact on certain insurance assets and liabilities, are recorded directly to shareowner’s equity. Declines in fair value that are due to credit losses are recorded as realized lossesgains (losses) in the consolidated condensed statements of income, net of any applicable non-credit componentincome. Credit losses are recorded in realized gains (losses) with a corresponding adjustment to the allowance for credit losses, except that the credit losses recognized cannot exceed the difference between the book value and fair value of the loss, which issecurity as of the date of the analysis. In future periods, recoveries in the present value of expected cash flows are recorded as a reversal of the previously recognized allowance for credit losses with an offsetting adjustment to other comprehensive income (loss) realized gains (losses).
Trading securities are carried at fair value and changes in fair value are recorded on the income statement as they occur. Our trading portfolio accounted for $2.8$2.7 billion, or 3.7%3.9%, of our fixed maturities and $77.3$109 million of short-term investments as of September 30, 2020.March 31, 2021. Changes in fair value on the Modco trading portfolios, including gains and losses from sales, are passed to third party reinsurers through the contractual terms of the related reinsurance arrangements. Partially offsetting these amounts are corresponding changes in the fair value of the embedded derivative associated with the underlying reinsurance arrangement.
Fixed maturities with respect to which we have both the positive intent and ability to hold to maturity are classified as “held-to-maturity”. We classified $2.7 billion, or 3.8%, of our fixed maturities as “held-to-maturity” as of September 30, 2020. These securities are carried at amortized cost on our consolidated condensed balance sheets.
Fair values for private, non-traded securities are determined as follows: 1) we obtain estimates from independent pricing services and 2) we estimate fair value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics. We analyze the independent pricing services valuation methodologies and related inputs, including an assessment of the observability of market inputs. Upon obtaining this information related to fair value, management makes a determination as to the appropriate valuation amount. For more information about the fair values of our investments please refer to Note 6,4, Fair Value of Financial Instruments, to the financial statements.
The following table presents the reported values of our invested assets:
As of
September 30, 2020December 31, 2019
 (Dollars In Thousands)
Publicly issued bonds (amortized cost: 2020 - $42,959,814; 2019 - $42,681,872)$47,139,761 53.0 %$44,737,950 53.1 %
Privately issued bonds (amortized cost: 2020 - $24,262,200; 2019 - $23,310,601)25,556,044 28.7 24,030,426 28.5 
Redeemable preferred stocks (amortized cost: 2020 - $78,366; 2019 - $100,068)
79,763 0.1 99,497 0.1 
Fixed maturities72,775,568 81.8 %68,867,873 81.7 %
Equity securities (cost: 2020 - $519,972; 2019 - $534,463)538,385 0.6 553,720 0.7 
Commercial mortgage loans9,765,312 11.0 9,379,401 11.1 
Investment real estate10,195 — 10,321 — 
Policy loans1,640,147 1.8 1,675,121 2.0 
Other long-term investments2,955,438 3.4 2,479,520 2.9 
Short-term investments1,239,028 1.4 1,320,864 1.6 
Total investments$88,924,073 100.0 %$84,286,820 100.0 %
93
Table of Contents
As of
March 31, 2021December 31, 2020
 (Dollars In Millions)
Publicly issued bonds (amortized cost: 2021 - $44,098; 2020 - $44,169)$46,884 54.4 %$49,571 56.0 %
Privately issued bonds (amortized cost: 2021 - $22,049; 2020 - $21,332)22,748 26.4 22,817 25.8 
Redeemable preferred stocks (amortized cost: 2021 - $224; 2020 - $196)
227 0.3 207 0.2 
Fixed maturities69,859 81.1 %72,595 82.0 %
Equity securities (cost: 2021 - $717; 2020 - $635)741 0.9 667 0.8 
Commercial mortgage loans10,137 11.7 10,006 11.3 
Investment real estate10 — 10 — 
Policy loans1,576 1.8 1,593 1.8 
Other long-term investments3,223 3.7 3,241 3.7 
Short-term investments661 0.8 462 0.4 
Total investments$86,207 100.0 %$88,574 100.0 %
Included in the preceding table are $2.8$2.7 billion and $2.5$2.9 billion of fixed maturities and $77.3$109 million and $91.2$76 million of short-term investments classified as trading securities as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. All of the fixed maturities in the trading portfolio are invested assets that are held pursuant to Modco arrangements under which the economic risks and benefits of the investments are passed to third party reinsurers.
67
Table of Contents
Fixed Maturity Investments
As of September 30, 2020,March 31, 2021, our fixed maturity investment holdings were approximately $72.8$69.9 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:
As of As of
RatingRatingSeptember 30, 2020December 31, 2019RatingMarch 31, 2021December 31, 2020
(Dollars In Thousands)(Dollars In Millions)
AAAAAA$9,891,346 13.6 %$9,371,614 13.6 %AAA$9,236 13.2 %$9,497 13.1 %
AAAA7,347,385 10.1 7,587,879 11.0 AA6,926 9.9 7,337 10.1 
AA23,754,083 32.6 22,861,846 33.2 A22,427 32.0 24,372 33.6 
BBBBBB26,694,019 36.7 24,484,792 35.6 BBB28,600 41.0 28,654 39.5 
Below investment gradeBelow investment grade2,408,411 3.3 1,737,861 2.5 Below investment grade2,670 3.9 2,735 3.7 
Not rated(1)
2,680,324 3.7 2,823,881 4.1 
$72,775,568 100.0 %$68,867,873 100.0 % $69,859 100.0 %$72,595 100.0 %
(1) Our “not rated” securities are $2.7 billion or 3.7% of our fixed maturity investments, and are held-to-maturity securities issued by affiliates of the Company which are considered variable interest entities (“VIEs”) and are discussed in Note 5, Investment Operations, to the consolidated condensed financial statements. We are not the primary beneficiary of these entities and thus these securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are wholly owned subsidiaries of the Company.
We use various Nationally Recognized Statistical Rating Organizations’ (“NRSRO”) ratings when classifying securities by quality ratings. When the various NRSRO ratings are not consistent for a security, we use the second-highest convention in assigning the rating. When there are no such published ratings, we assign a rating based on the statutory accounting rating system if such ratings are available.
The distribution of our fixed maturity investments by type is as follows: 
As of As of
TypeTypeSeptember 30, 2020December 31, 2019TypeMarch 31, 2021December 31, 2020
(Dollars In Thousands) (Dollars In Millions)
Corporate securitiesCorporate securities$51,834,489 71.2 %$48,400,037 70.3 %Corporate securities$52,130 74.6 %$53,967 74.3 %
Residential mortgage-backed securitiesResidential mortgage-backed securities7,054,780 9.7 6,140,862 8.9 Residential mortgage-backed securities7,084 10.1 6,877 9.5 
Commercial mortgage-backed securitiesCommercial mortgage-backed securities2,765,038 3.8 2,840,952 4.1 Commercial mortgage-backed securities2,638 3.8 2,748 3.8 
Other asset-backed securitiesOther asset-backed securities1,734,529 2.4 1,924,596 2.8 Other asset-backed securities1,710 2.4 1,741 2.4 
U.S. government-related securitiesU.S. government-related securities1,117,284 1.5 1,079,463 1.6 U.S. government-related securities995 1.4 1,606 2.2 
Other government-related securitiesOther government-related securities667,647 0.9 625,944 0.9 Other government-related securities674 1.0 747 1.0 
States, municipals, and political subdivisionsStates, municipals, and political subdivisions4,841,714 6.7 4,932,641 7.2 States, municipals, and political subdivisions4,401 6.3 4,702 6.5 
Redeemable preferred stocksRedeemable preferred stocks79,763 0.1 99,497 0.1 Redeemable preferred stocks227 0.4 207 0.3 
Securities issued by affiliates2,680,324 3.7 2,823,881 4.1 
Total fixed income portfolioTotal fixed income portfolio$72,775,568 100.0 %$68,867,873 100.0 %Total fixed income portfolio$69,859 100.0 %$72,595 100.0 %
9468
Table of Contents
The industry segment composition of our fixed maturity securities is presented in the following table:
As of
September 30, 2020		% Fair
Value		As of
December 31, 2019		% Fair
Value
 (Dollars In Thousands)
Banking$7,276,936 10.1 %$6,403,157 9.3 %
Other finance965,036 1.3 969,368 1.4 
Electric utility5,726,127 7.9 5,447,830 7.9 
Energy4,514,484 6.2 4,939,246 7.2 
Natural gas1,257,863 1.7 1,120,052 1.6 
Insurance5,703,945 7.8 4,969,799 7.2 
Communications2,806,052 3.9 2,654,395 3.9 
Basic industrial2,360,460 3.2 2,176,559 3.2 
Consumer noncyclical7,066,824 9.7 6,492,483 9.4 
Consumer cyclical2,728,797 3.7 2,597,772 3.8 
Finance companies296,143 0.4 228,037 0.3 
Capital goods3,545,812 4.9 3,425,996 5.0 
Transportation2,199,879 3.0 2,128,364 3.1 
Other industrial692,870 1.0 646,210 0.9 
Brokerage1,654,022 2.3 1,347,694 2.0 
Technology2,496,321 3.4 2,383,634 3.5 
Real estate574,532 0.8 531,000 0.8 
Other utility48,149 0.1 37,938 0.1 
Commercial mortgage-backed securities2,765,038 3.8 2,840,952 4.1 
Other asset-backed securities1,734,529 2.4 1,924,596 2.8 
Residential mortgage-backed non-agency securities6,074,638 8.3 5,265,776 7.6 
Residential mortgage-backed agency securities980,142 1.3 875,086 1.3 
U.S. government-related securities1,117,284 1.5 1,079,463 1.6 
Other government-related securities667,647 0.9 625,944 0.9 
State, municipals, and political divisions4,841,714 6.7 4,932,641 7.1 
Securities issued by affiliates2,680,324 3.7 2,823,881 4.0 
Total$72,775,568 100.0 %$68,867,873 100.0 %
As of
March 31, 2021		% Fair
Value		As of
December 31, 2020		% Fair
Value
 (Dollars In Millions)
Banking$7,743 11.1 %$7,752 10.7 %
Other finance992 1.4 959 1.3 
Electric utility5,492 7.9 5,792 8.0 
Energy4,480 6.4 4,756 6.6 
Natural gas1,182 1.7 1,275 1.8 
Insurance5,832 8.3 6,022 8.3 
Communications2,866 4.1 2,967 4.1 
Basic industrial2,444 3.5 2,532 3.5 
Consumer noncyclical6,964 10.0 7,374 10.2 
Consumer cyclical2,684 3.8 2,833 3.9 
Finance companies351 0.5 319 0.4 
Capital goods3,526 5.0 3,648 5.0 
Transportation2,069 3.0 2,236 3.1 
Other industrial678 1.0 691 1.0 
Brokerage1,816 2.6 1,786 2.5 
Technology2,644 3.8 2,596 3.6 
Real estate549 0.8 587 0.8 
Other utility45 0.1 48 — 
Commercial mortgage-backed securities2,638 3.8 2,748 3.8 
Other asset-backed securities1,710 2.4 1,741 2.4 
Residential mortgage-backed non-agency securities5,611 8.0 5,607 7.7 
Residential mortgage-backed agency securities1,473 2.1 1,270 1.8 
U.S. government-related securities995 1.4 1,607 2.0 
Other government-related securities674 1.0 747 1.0 
State, municipals, and political divisions4,401 6.3 4,702 6.5 
Total$69,859 100.0 %$72,595 100.0 %
The total Modco trading portfolio fixed maturities by rating is as follows:
As of As of
RatingRatingSeptember 30, 2020December 31, 2019RatingMarch 31, 2021December 31, 2020
(Dollars In Thousands)(Dollars In Millions)
AAAAAA$297,956 10.7 %$280,067 11.1 %AAA$277 10.3 %$340 11.9 %
AAAA306,099 11.0 309,165 12.2 AA258 9.6 268 9.4 
AA895,147 32.2 834,808 33.0 A845 31.3 909 31.8 
BBBBBB1,159,137 41.6 979,157 38.7 BBB1,187 43.9 1,205 42.1 
Below investment gradeBelow investment grade125,046 4.5 124,370 5.0 Below investment grade134 4.9 140 4.8 
$2,783,385 100.0 %$2,527,567 100.0 % $2,701 100.0 %$2,862 100.0 %
A portion of our bond portfolio is invested in residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). ABS are securities that are backed by a pool of assets. These holdings as of September 30, 2020,March 31, 2021, were approximately $11.6$11.4 billion. Mortgage-backed securities (“MBS”) are constructed from pools of mortgages and may have cash flow volatility as a result of changes in the rate at which prepayments of principal occur with respect to the underlying loans. Excluding limitations on access to lending and other extraordinary economic conditions, prepayments of principal on the underlying loans can be expected to accelerate with decreases in market interest rates and diminish with increases in interest rates.
9569
Table of Contents
The following tables include the percentage of our collateral grouped by rating category and categorizes the estimated fair value by year of security origination for our Prime, Non-Prime, Commercial, and Other asset-backed securities as of September 30, 2020March 31, 2021 and December 31, 20192020.
As of September 30, 2020
Prime(1)
Non-Prime(1)
CommercialOther asset-backedTotal
FairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortized
ValueCostValueCostValueCostValueCostValueCost
(Dollars In Millions)
Rating $
AAA$6,004.8 $5,835.7 $2.5 $2.4 $1,700.7 $1,622.2 $530.7 $515.0 $8,238.7 $7,975.3 
AA0.4 0.4 0.1 0.1 515.5 503.3 274.6 266.5 790.6 770.3 
A977.6 931.2 8.3 7.2 469.2 456.9 770.4 775.2 2,225.5 2,170.5 
BBB4.7 4.7 1.3 1.2 75.0 80.6 130.2 126.7 211.2 213.2 
Below24.3 25.1 30.8 29.1 4.6 10.0 28.6 31.1 88.3 95.3 
$7,011.8 $6,797.1 $43.0 $40.0 $2,765.0 $2,673.0 $1,734.5 $1,714.5 $11,554.3 $11,224.6 
Rating %
AAA85.7 %85.8 %5.7 %6.0 %61.5 %60.7 %30.7 %30.1 %71.3 %71.1 %
AA— — 0.2 0.2 18.6 18.8 15.8 15.5 6.8 6.9 
A13.9 13.7 19.4 18.0 17.0 17.1 44.4 45.2 19.3 19.3 
BBB0.1 0.1 3.0 3.0 2.7 3.0 7.5 7.4 1.8 1.9 
Below0.3 0.4 71.7 72.8 0.2 0.4 1.6 1.8 0.8 0.8 
100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
Estimated Fair Value of Security by Year of Security Origination
2016 and prior$1,952.5 $1,872.4 $40.5 $37.6 $2,267.0 $2,206.5 $1,091.4 $1,068.9 $5,351.4 $5,185.4 
2017776.6 742.7 2.5 2.4 267.1 249.4 397.9 398.8 1,444.1 1,393.3 
20181,172.0 1,126.0 — — 147.3 134.3 145.2 147.8 1,464.5 1,408.1 
20191,305.5 1,273.6 — — 71.9 71.3 87.0 86.9 1,464.4 1,431.8 
20201,805.2 1,782.4 — — 11.7 11.5 13.0 12.1 1,829.9 1,806.0 
Total$7,011.8 $6,797.1 $43.0 $40.0 $2,765.0 $2,673.0 $1,734.5 $1,714.5 $11,554.3 $11,224.6 
(1) Included in Residential Mortgage-Backed securities.

As of March 31, 2021
Prime(1)
Non-Prime(1)
CommercialOther asset-backedTotal
FairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortized
ValueCostValueCostValueCostValueCostValueCost
(Dollars In Millions)
Rating $
AAA$5,549 $5,508 $2 $2 $1,497 $1,439 $530 $515 $7,578 $7,464 
AA1 1 — — 586 570 279 270 866 841 
A1,470 1,478 8 6 438 427 716 711 2,632 2,622 
BBB6 6 1 1 103 101 163 158 273 266 
Below19 20 28 26 14 19 22 25 83 90 
$7,045 $7,013 $39 $35 $2,638 $2,556 $1,710 $1,679 $11,432 $11,283 
Rating %
AAA78.8 %78.5 %4.7 %5.1 %56.7 %56.3 %31.0 %30.7 %66.3 %66.2 %
AA— — 0.2 0.3 22.2 22.3 16.3 16.1 7.6 7.5 
A20.8 21.1 19.7 18.0 16.7 16.7 41.9 42.3 23.0 23.1 
BBB0.1 0.1 3.5 3.7 3.9 4.0 9.5 9.4 2.4 2.4 
Below0.3 0.3 71.9 72.9 0.5 0.7 1.3 1.5 0.7 0.8 
100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
Estimated Fair Value of Security by Year of Security Origination
2017 and prior$2,097 $2,047 $39 $35 $2,402 $2,331 $1,454 $1,426 $5,992 $5,839 
2018762 744 — — 145 135 142 142 1,049 1,021 
2019816 804 — — 73 71 64 63 953 938 
20201,912 1,927 — — 14 15 30 28 1,956 1,970 
20211,458 1,491 — — 4 4 20 20 1,482 1,515 
Total$7,045 $7,013 $39 $35 $2,638 $2,556 $1,710 $1,679 $11,432 $11,283 
(1) Included in Residential Mortgage-Backed securities.
9670
Table of Contents
As of December 31, 2019As of December 31, 2020
Prime(1)
Non-Prime(1)
CommercialOther asset-backedTotal
Prime(1)
Non-Prime(1)
CommercialOther asset-backedTotal
FairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortized
ValueCostValueCostValueCostValueCostValueCostValueCostValueCostValueCostValueCostValueCost
(Dollars In Millions)(Dollars In Millions)
Rating $Rating $Rating $
AAAAAA$5,182.1 $5,080.1 $3.1 $3.1 $1,680.7 $1,650.3 $649.3 $636.6 $7,515.2 $7,370.1 AAA$5,541 $5,420 $2 $2 $1,596 $1,514 $543 $527 $7,682 $7,463 
AAAA1.5 1.5 0.1 0.1 578.1 570.0 250.0 240.5 829.7 812.1 AA— — — — 587 570 277 268 864 838 
AA869.5 851.8 9.9 9.9 503.5 490.7 854.1 860.5 2,237.0 2,212.9 A1,268 1,228 8 7 469 449 731 727 2,476 2,411 
BBBBBB3.8 3.9 1.3 1.3 78.6 78.9 140.3 138.3 224.0 222.4 BBB4 4 1 1 85 86 164 158 254 249 
BelowBelow32.6 33.0 37.0 37.0 — — 30.9 31.5 100.5 101.5 Below24 24 29 27 11 19 26 29 90 99 
$6,089.5 $5,970.3 $51.4 $51.4 $2,840.9 $2,789.9 $1,924.6 $1,907.4 $10,906.4 $10,719.0 $6,837 $6,676 $40 $37 $2,748 $2,638 $1,741 $1,709 $11,366 $11,060 
Rating %Rating %Rating %
AAAAAA85.1 %85.0 %6.0 %6.0 %59.1 %59.2 %33.7 %33.4 %68.9 %68.8 %AAA81.1 %81.2 %5.3 %5.6 %58.1 %57.4 %31.2 %30.8 %67.6 %67.5 %
AAAA— — 0.2 0.2 20.4 20.4 13.0 12.6 7.6 7.6 AA— — 0.2 0.2 21.4 21.6 15.9 15.7 7.6 7.6 
AA14.3 14.3 19.2 19.2 17.7 17.6 44.4 45.1 20.5 20.6 A18.5 18.3 19.7 18.2 17.0 17.0 42.0 42.6 21.8 21.7 
BBBBBB0.1 0.1 2.6 2.6 2.8 2.8 7.3 7.2 2.1 2.1 BBB0.1 0.1 2.8 2.9 3.1 3.3 9.4 9.2 2.2 2.3 
BelowBelow0.5 0.6 72.0 72.0 — — 1.6 1.7 0.9 0.9 Below0.3 0.4 72.0 73.1 0.4 0.7 1.5 1.7 0.8 0.9 
100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %100.0 %
Estimated Fair Value of Security by Year of Security OriginationEstimated Fair Value of Security by Year of Security OriginationEstimated Fair Value of Security by Year of Security Origination
2015 and prior$1,788.0 $1,752.3 $48.3 $48.3 $1,885.6 $1,855.1 $1,032.0 $1,008.3 $4,753.9 $4,664.0 
2016371.6 360.1 — — 492.9 486.3 128.6 130.2 993.1 976.6 
2016 and prior2016 and prior$1,701 $1,647 $38 $35 $2,238 $2,167 $1,069 $1,044 $5,046 $4,893 
20172017843.6 822.8 3.1 3.1 256.9 251.6 481.9 485.6 1,585.5 1,563.1 2017737 711 2 2 270 249 402 397 1,411 1,359 
201820181,374.2 1,332.3 — — 147.1 139.1 198.0 199.1 1,719.3 1,670.5 20181,001 970 — — 151 136 148 148 1,300 1,254 
201920191,712.1 1,702.8 — — 58.4 57.8 84.1 84.2 1,854.6 1,844.8 20191,070 1,045 — — 75 71 92 91 1,237 1,207 
202020202,328 2,303 — — 14 15 30 29 2,372 2,347 
TotalTotal$6,089.5 $5,970.3 $51.4 $51.4 $2,840.9 $2,789.9 $1,924.6 $1,907.4 $10,906.4 $10,719.0 Total$6,837 $6,676 $40 $37 $2,748 $2,638 $1,741 $1,709 $11,366 $11,060 
(1) Included in Residential Mortgage-Backed securities(1) Included in Residential Mortgage-Backed securities(1) Included in Residential Mortgage-Backed securities
The majority of our RMBS holdings as of September 30, 2020,March 31, 2021, were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average life of 1.62.7 years. The following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of September 30, 2020:March 31, 2021:
 Weighted-Average
Non-agency portfolioLife
  
Prime1.642.66
Sub-prime1.072.28

Commercial Mortgage Loans
We invest a portion of our investment portfolio in commercial mortgage loans. As of September 30, 2020March 31, 2021 our commercial mortgage loan holdings were approximately $9.9$10.3 billion, $9.8$10.1 billion net of allowance for credit losses. We have specialized in making loans on either credit-oriented commercial properties, or credit-anchored strip shopping centers, senior living facilities, and apartments. Our underwriting procedures relative to our commercial loan portfolio are based, in our view, on a conservative and disciplined approach. We concentrate on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, senior living, professional office buildings, and warehouses). We believe that these asset types tend to weather economic downturns better than other commercial asset classes in which we have chosen not to participate. We believe this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout our history. The majority of our commercial mortgage loansloan portfolio was underwritten and funded by us. From time to time, we may acquire loans in conjunction with an acquisition.

9771
Table of Contents
Our commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of an allowance for credit losses. See Note 2, Summary of Significant Accounting Policies, for a detailed discussion of the Company’s policies with respect to the measurement of the allowance for credit losses. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts, and prepayment fees are reported in net investment income.

Certain of the commercial mortgage loans have call options that occur within the next 109 years. However, if interest rates were to significantly increase, we may be unable to exercise the call options on our existing commercial mortgage loans commensurate with the significantly increased market rates. As of September 30, 2020,March 31, 2021, assuming the loans are called at their next call dates, approximately $8.1$168 million of principal would become due for the remainder of 2020, $763.72021, $538 million in 20212022 through 2025,2026, and $56.7$10 million in 20262027 through 2029.

We offer a type of commercial mortgage loan under which we will permit a loan-to-value ratio of up to 85% in exchange for a participation interest in the cash flows from the underlying real estate. As of September 30, 2020March 31, 2021 and December 31, 2019, approximately $805.22020, $774 million and $717.0$806 million, respectively, of our total commercial mortgage loans principal balance have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. During the three and nine months ended September 30,March 31, 2021 and 2020, and 2019, wethe Company recognized $0.9$7 million and $3.8 million, and $17.3 million and $18.0$16 million respectively, of participation commercial mortgage loan income.

The following table includes a breakdown of our commercial mortgage loan portfolio:
Commercial Mortgage Loan Portfolio Profile
As of March 31, 2021As of December 31, 2020
(Dollars In Millions)
Total number of loans1,803 1,827 
Total amortized cost$10,308 $10,228 
Total unpaid principal balance$10,237 $10,148 
Allowance for credit losses - funded commercial mortgage loans$(171)$(222)
Average loan size$6 $6 
Weighted-average amortization21.6 years21.4 years
Weighted-average coupon4.29 %4.34 %
Weighted-average LTV54.13 %53.91 %
Weighted-average debt coverage ratio1.74 1.72 
Total number of unfunded commitments122 117 
Total unfunded commitments balance$1,064 $801 
Allowance for credit losses - unfunded commitments$(15)$(22)

Commercial Mortgage Loan Portfolio Profile
As of September 30, 2020As of December 31, 2019
(Dollars In Thousands)
Total number of loans1,819 1,832 
Total amortized cost$9,940,362 $9,379,401 
Total unpaid principal balance$9,852,228 $9,271,041 
Allowance for credit losses - funded commercial mortgage loans$(175,050)$(4,884)
Average loan size$5,465 $5,061 
Weighted-average amortization21.1 years20.6 years
Weighted-average coupon4.40 %4.48 %
Weighted-average LTV53.81 %53.8 %
Weighted-average debt coverage ratio1.74 1.73 
Total number of unfunded commitments134 100 
Total unfunded commitments balance$917,418 $754,418 
Allowance for credit losses - unfunded commitments$(19,797)$— 
We record commercial mortgage loans net of an allowance for credit losses. This allowance is calculated and recorded at a loan level, based on analysis and input data for loans with similar risk characteristics. As of September 30, 2020March 31, 2021 and December 31, 2019,2020, there were allowances for commercial mortgage loan and unfunded commitment credit losses of $194.8$186 million and $4.9$245 million, respectively.

While our commercial mortgage loans do not have quoted market values, as of September 30, 2020March 31, 2021 we estimated the fair value of our commercial mortgage loans to be $10.5$10.9 billion (using an internal fair value model which calculates the value of most loans by using the loan’s discounted cash flows to the loan’s call or maturity date), which was approximately 5.85%5.37% more than the amortized cost, less any related loan loss reserve.

At the time of origination, our commercial mortgage lending criteria targets that the loan-to-value ratio on each commercial mortgage loan is 75% or less. We target projected rental payments from credit anchors (i.e., excluding rental payments from smaller local tenants) of 70% of the property’s projected operating expenses and debt service.

As of March 31, 2021, and December 31, 2020 we had $1 million and $3 million, respectively, of invested assets that consisted of commercial mortgage loans that were commercial mortgage loans that were nonperforming, restructured or foreclosed and converted to real estate properties. The Company does not expect these investments to adversely affect its
98
72
Table of Contents
Asliquidity or ability to maintain proper matching of September 30, 2020, we had $1.2 million of invested assets that consisted of nonperformingand liabilities. For all commercial mortgage loans, restructuredthe impact of troubled debt restructurings is reflected in our investment balance and in the allowance for commercial mortgage loans, or commercial mortgage loans that were foreclosed and were converted to real estate properties. loan credit losses.
During the ninethree months ended September 30, 2020 we recognized twoMarch 31, 2021 the Company did not recognize any troubled debt restructurings transactions. During the year ended December 31, 2020, the Company recognized four troubled debt restructurings transactions as a result of granting concessionconcessions to borrowers which included loan terms unavailable from other lenders. DuringThese concessions were the nine months ended September 30, 2020, we did not recognize any commercial mortgage loans that were foreclosedresult of agreements between the creditor and were converted to real estate properties. Wethe debtor. The Company did not identify any loans whose principal was permanently impaired during the ninethree months ended September 30, 2020. It is our policy to write off loan amounts that are deemed uncollectible. No amounts were written off during the nine months ended September 30, 2020.March 31, 2021.

It is our policy to limitcease to carry accrued interest income on loans tothat are over 90 days of interest.delinquent. For loans in nonaccrual status,less than 90 days delinquent, interest income is recognized on a cash basis. Foraccrued unless it is determined that the period ended September 30, 2020, an immaterial amount of accrued interest was excluded fromis not collectible. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the amortized cost basis pursuant to our nonaccrual policy.loan current is in place.

We use the same methodology and assumptions to estimate the allowance for credit losses for unfunded loan commitments as for funded commercial mortgage loan receivables. During the nine months ended September 30, 2020, the allowance for credit losses for unfunded loan commitments was $19.8 million, which was a slight decrease of $0.3 million from Q2 2020.

Unrealized Gains and Losses — Available-for-Sale Securities
The information presented below relates to investments at a certain point in time and is not necessarily indicative of the status of the portfolio at any time after September 30, 2020,March 31, 2021, the balance sheet date. Information about unrealized gains and losses is subject to rapidly changing conditions, including volatility of financial markets and changes in interest rates. Management considers a number of factors in determining if an unrealized loss is related to a credit loss, including the expected cash to be collected and the intent, likelihood, and/or ability to hold the security until recovery. Consistent with our long-standing practice, we do not utilize a “bright line test” to determine whether a credit loss has occurred. On a quarterly basis, we perform an analysis on every security with an unrealized loss to determine whether a credit loss has occurred. This analysis includes reviewing several metrics including collateral, expected cash flows, ratings, and liquidity. Furthermore, since the timing of recognizing realized gains and losses is largely based on management’s decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain/(loss) position of the portfolio. We had an overall net unrealized gain of $5.5$3.5 billion, prior to tax and the related impact of certain insurance assets and liabilities offsets, as of September 30, 2020,March 31, 2021, and an overall net unrealized gain of $2.8$6.9 billion as of December 31, 2019.2020.

9973
Table of Contents
For fixed maturity securities held that are in an unrealized loss position as of September 30, 2020,March 31, 2021, the fair value, amortized cost, unrealized loss, allowance for expected credit losses (“ACL”), and total time period that the security has been in an unrealized loss position are presented in the table below: 
Fair
Value		% 
Fair
Value		Amortized
Cost		% 
Amortized
Cost		ACL% ACLUnrealized
Loss		% 
Unrealized
Loss		Fair
Value		% 
Fair
Value		Amortized
Cost		% 
Amortized
Cost		ACL% ACLUnrealized
Loss		% 
Unrealized
Loss
(Dollars In Thousands) (Dollars In Millions)
<= 90 days<= 90 days$2,154,534 38.7 %$2,191,532 37.0 %$— — %$(36,998)10.7 %<= 90 days$9,879 84.3 %$10,209 83.8 %$— 0.1 %$(330)71.2 %
>90 days but <= 180 days>90 days but <= 180 days1,557,636 27.9 1,676,279 28.2 — — (118,643)34.4 >90 days but <= 180 days338 2.9 362 3.0 — — (24)5.1 
>180 days but <= 270 days>180 days but <= 270 days313,825 5.6 336,370 5.7 (53)0.3 (22,492)6.5 >180 days but <= 270 days200 1.7 217 1.8 — — (17)3.5 
>270 days but <= 1 year>270 days but <= 1 year112,576 2.0 123,013 2.1 — — (10,437)3.0 >270 days but <= 1 year406 3.5 429 3.5 (1)31.1 (22)4.7 
>1 year but <= 2 years>1 year but <= 2 years294,847 5.3 316,804 5.3 — — (21,957)6.4 >1 year but <= 2 years222 1.9 239 2.0 — 3.3 (17)3.7 
>2 years but <= 3 years>2 years but <= 3 years419,003 7.5 465,342 7.8 (1,844)9.5 (44,495)12.9 >2 years but <= 3 years211 1.8 220 1.8 (1)31.9 (8)1.6 
>3 years but <= 4 years>3 years but <= 4 years191,179 3.4 198,627 3.3 — — (7,448)2.2 >3 years but <= 4 years71 0.6 77 0.6 (1)7.7 (5)1.1 
>4 years but <= 5 years>4 years but <= 5 years42,429 0.8 47,615 0.8 — — (5,186)1.5 >4 years but <= 5 years69 0.6 70 0.6 — — (1)0.3 
>5 years>5 years488,942 8.8 583,565 9.8 (17,502)90.2 (77,121)22.4 >5 years311 2.7 353 2.9 (1)25.9 (41)8.8 
TotalTotal$5,574,971 100.0 %$5,939,147 100.0 %$(19,399)100.0 %$(344,777)100.0 %Total$11,707 100.0 %$12,176 100.0 %$(4)100.0 %$(465)100.0 %
The range of maturity dates for securities in an unrealized loss position as of September 30, 2020,March 31, 2021, varies, with 13.8%8.0% maturing in less than 5 years, 19.0%22.5% maturing between 5 and 10 years, and 67.2%69.5% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of September 30, 2020:March 31, 2021:
%%
S&P or EquivalentFair%AmortizedAmortizedUnrealizedUnrealized
DesignationValueFair ValueCostCostACL% ACLLossLoss
 (Dollars In Thousands)
AAA/AA/A$2,282,604 41.0 %$2,356,594 39.7 %$— — %$(73,990)21.5 %
BBB2,075,669 37.2 2,200,190 37.0 — — (124,521)36.1 
Investment grade4,358,273 78.2 %4,556,784 76.7 %— — %(198,511)57.6 %
BB1,057,201 18.9 1,187,016 20.0 — — (129,815)37.7 
B145,192 2.6 161,432 2.7 (645)3.3 (15,595)4.5 
CCC or lower14,305 0.3 33,915 0.6 (18,754)96.7 (856)0.2 
Below investment grade1,216,698 21.8 %1,382,363 23.3 %(19,399)100.0 %(146,266)42.4 %
Total$5,574,971 100.0 %$5,939,147 100.0 %$(19,399)100.0 %$(344,777)100.0 %

%%
S&P or EquivalentFair%AmortizedAmortizedUnrealizedUnrealized
DesignationValueFair ValueCostCostACL% ACLLossLoss
 (Dollars In Millions)
AAA/AA/A$6,599 56.4 %$6,832 56.1 %$— — %$(233)50.3 %
BBB4,406 37.6 4,584 37.6 — — (178)38.0 
Investment grade11,005 94.0 %11,416 93.7 %— — %(411)88.3 %
BB649 5.6 701 5.8 (1)7.8 (51)11.1 
B40 0.3 45 0.4 (2)59.8 (3)0.6 
CCC or lower13 0.1 14 0.1 (1)32.4 — — 
Below investment grade702 6.0 %760 6.3 %(4)100.0 %(54)11.7 %
Total$11,707 100.0 %$12,176 100.0 %$(4)100.0 %$(465)100.0 %
As of September 30, 2020March 31, 2021, the Barclays Investment Grade Index was priced at 12789 bps versus a 10 year average of 133131 bps. Similarly, the Barclays High Yield Index was priced at 547357 bps versus a 10 year average of 509502 bps. As of September 30, 2020March 31, 2021, the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 0.3%0.9%, 0.7%1.7%, and 1.5%2.4%, as compared to 10 year averages of 1.5%, 2.2%2.1%, and 3.0%2.9%, respectively.

As of September 30, 2020March 31, 2021, 57.6%88.3% of the unrealized loss was associated with securities that were rated investment grade. We have examined the performance of the underlying collateral and cash flows and expect that our investments will continue to perform in accordance with their contractual terms. Factors such as credit enhancements within the deal structures and the underlying collateral performance/characteristics support the recoverability of the investments. Based on the factors discussed, we concluded than an allowance for credit losses was not necessary. However, from time to time, we may sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield enhancement, asset/liability management, and liquidity requirements.
10074
Table of Contents
Expectations that investments in mortgage-backed and asset-backed securities will continue to perform in accordance with their contractual terms are based on assumptions that a market participant would use in determining the current fair value. It is reasonably possible that the underlying collateral of these investments will perform worse than current market expectations and that such an event may lead to adverse changes in the cash flows on our holdings of these types of securities. This could lead to potential future write-downs within our portfolio of mortgage-backed and asset-backed securities. Expectations that our investments in corporate securities and/or debt obligations will continue to perform in accordance with their contractual terms are based on evidence gathered through our normal credit surveillance process. Although we do not anticipate such events, it is reasonably possible that issuers of our investments in corporate securities will perform worse than current expectations. Such events may lead us to recognize potential future write-downs within our portfolio of corporate securities. It is also possible that such unanticipated events would lead us to dispose of those certain holdings and recognize the effects of any such market movements in our financial statements.
As of September 30, 2020,March 31, 2021, we held a total of 645845 positions that were in an unrealized loss position. Included in that amount were 12766 positions of below investment grade securities with a fair value of $1.2 billion$702 million that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $146.3$54 million, $82.7$36 million of which had been in an unrealized loss position for more than twelve months. Below investment grade securities in an unrealized loss position were 1.4%0.8% of invested assets.
As of September 30, 2020,March 31, 2021, securities in an unrealized loss position that were rated as below investment grade represented 21.8%6.0% of the total fair value and 42.4%11.7% of the total unrealized loss. We have the ability and intent to hold these securities to maturity. After a review of each security and its expected cash flows, we believe the decline in fair value to be temporary.non-credit related.
The following table includes the fair value, amortized cost, unrealized loss, ACL, and total time period that the security has been in an unrealized loss position for all below investment grade securities as of September 30, 2020:March 31, 2021:
Fair
Value		% 
Fair
Value		Amortized
Cost		% 
Amortized
Cost		ACL% ACLUnrealized
Loss		% 
Unrealized
Loss
 (Dollars In Thousands)
<= 90 days$290,515 23.8 %$302,104 21.9 %$— 0.1 %$(11,589)8.0 %
>90 days but <= 180 days286,613 23.6 321,857 23.3 — — (35,244)24.1 
>180 days but <= 270 days94,086 7.7 105,177 7.6 (53)0.3 (11,038)7.5 
>270 days but <= 1 year16,764 1.4 22,470 1.6 — — (5,706)3.9 
>1 year but <= 2 years50,640 4.2 62,304 4.5 — — (11,664)8.0 
>2 years but <= 3 years200,478 16.5 225,802 16.3 (1,844)9.5 (23,480)16.1 
>3 years but <= 4 years45,978 3.8 48,856 3.5 — — (2,878)2.0 
>4 years but <= 5 years15,681 1.3 17,466 1.3 — — (1,785)1.2 
>5 years215,943 17.7 276,327 20.0 (17,502)90.1 (42,882)29.2 
Total$1,216,698 100.0 %$1,382,363 100.0 %$(19,399)100.0 %$(146,266)100.0 %



101
Table of Contents
Fair
Value		% 
Fair
Value		Amortized
Cost		% 
Amortized
Cost		ACL% ACLUnrealized
Loss		% 
Unrealized
Loss
 (Dollars In Millions)
<= 90 days$291 41.4 %$303 39.8 %$— — %$(12)22.6 %
>90 days but <= 180 days— — — — — — — — 
>180 days but <= 270 days16 2.3 17 2.3 — — (1)2.0 
>270 days but <= 1 year74 10.5 80 10.5 (1)31.0 (5)8.5 
>1 year but <= 2 years87 12.3 98 12.9 — 3.3 (11)21.8 
>2 years but <= 3 years17 2.5 19 2.5 (1)31.9 (1)0.3 
>3 years but <= 4 years59 8.4 65 8.5 (1)7.8 (5)9.4 
>4 years but <= 5 years— — — — — — — — 
>5 years158 22.6 178 23.5 (1)26.0 (19)35.4 
Total$702 100.0 %$760 100.0 %$(4)100.0 %$(54)100.0 %
We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of September 30, 2020,March 31, 2021, is presented in the following table:
Fair
Value		% 
Fair
Value		Amortized
Cost		% 
Amortized
Cost		ACL% ACLUnrealized
Loss		% 
Unrealized
Loss
 (Dollars In Thousands)
Banking$451,395 8.1 %$462,088 7.8 %$— — %$(10,693)3.1 %
Other finance90,930 1.6 100,296 1.7 — — (9,366)2.7 
Electric utility331,698 5.9 347,967 5.9 (53)0.3 (16,216)4.7 
Energy1,137,453 20.4 1,290,200 21.7 (15,504)79.9 (137,243)39.8 
Natural gas21,753 0.4 23,512 0.4 (1,199)6.2 (560)0.2 
Insurance370,301 6.6 393,027 6.6 — — (22,726)6.6 
Communications76,452 1.4 80,000 1.3 (1,998)10.3 (1,550)0.4 
Basic industrial95,299 1.7 97,546 1.6 — — (2,247)0.7 
Consumer noncyclical357,871 6.4 375,314 6.3 — — (17,443)5.1 
Consumer cyclical255,013 4.6 283,955 4.8 — — (28,942)8.4 
Finance companies92,916 1.7 96,627 1.6 — — (3,711)1.1 
Capital goods145,479 2.6 156,164 2.6 — — (10,685)3.1 
Transportation284,877 5.1 306,821 5.2 — — (21,944)6.4 
Other industrial12,851 0.2 13,000 0.2 — — (149)— 
Brokerage83,482 1.5 85,472 1.4 — — (1,990)0.6 
Technology95,057 1.7 99,268 1.7 — — (4,211)1.2 
Real estate20,794 0.4 21,051 0.4 — — (257)0.1 
Other utility— — — — — — — — 
Commercial mortgage-backed securities383,029 6.9 410,466 6.9 — — (27,437)8.0 
Other asset-backed securities691,679 12.4 710,080 12.0 (645)3.3 (17,756)5.1 
Residential mortgage-backed non-agency securities183,063 3.3 183,948 3.1 — — (885)0.3 
Residential mortgage-backed agency securities365 — 369 — — — (4)— 
U.S. government-related securities252,321 4.5 255,540 4.3 — — (3,219)0.9 
Other government-related securities30,104 0.5 32,766 0.6 — — (2,662)0.8 
States, municipals, and political divisions110,789 2.1 113,670 1.9 — — (2,881)0.7 
Total$5,574,971 100.0 %$5,939,147 100.0 %$(19,399)100.0 %$(344,777)100.0 %
10275
Table of Contents
Fair
Value		% 
Fair
Value		Amortized
Cost		% 
Amortized
Cost		ACL% ACLUnrealized
Loss		% 
Unrealized
Loss
 (Dollars In Millions)
Banking$1,112 9.5 %$1,156 9.5 %$— — %$(44)9.5 %
Other finance182 1.6 193 1.6 — — (11)2.4 
Electric utility1,491 12.7 1,542 12.7 — — (51)11.0 
Energy741 6.3 795 6.5 — — (54)11.6 
Natural gas285 2.4 292 2.4 — — (7)1.5 
Insurance774 6.6 806 6.6 — — (32)6.9 
Communications318 2.8 335 2.7 (1)25.0 (16)3.4 
Basic industrial248 2.1 258 2.1 — — (10)2.2 
Consumer noncyclical904 7.7 946 7.8 — — (42)9.0 
Consumer cyclical524 4.5 553 4.5 — — (29)6.2 
Finance companies74 0.6 77 0.6 — — (3)0.6 
Capital goods438 3.7 452 3.7 — — (14)3.0 
Transportation162 1.4 169 1.4 — — (7)1.5 
Other industrial68 0.6 70 0.6 — — (2)0.4 
Brokerage336 2.9 350 2.9 — — (14)3.0 
Technology254 2.2 267 2.2 — — (13)2.8 
Real estate5 — 5 — — — — — 
Other utility13 0.1 13 0.1 — — — — 
Commercial mortgage-backed securities276 2.4 289 2.4 (2)50.0 (11)2.4 
Other asset-backed securities319 2.7 324 2.7 (1)25.0 (4)0.9 
Residential mortgage-backed non-agency securities1,818 15.5 1,843 15.1 — — (25)5.4 
Residential mortgage-backed agency securities780 6.7 813 6.7 — — (33)7.1 
U.S. government-related securities438 3.7 475 3.9 — — (37)8.0 
Other government-related securities65 0.6 68 0.6 — — (3)0.6 
States, municipals, and political divisions82 0.7 85 0.7 — — (3)0.6 
Total$11,707 100.0 %$12,176 100.0 %$(4)100.0 %$(465)100.0 %
We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of December 31, 2019,2020, is presented in the following table:
 Fair
Value		% Fair
Value		Amortized
Cost		% Amortized
Cost		Unrealized
Loss		% Unrealized
Loss
 (Dollars In Thousands)
Banking$343,955 3.8 %$349,861 3.7 %$(5,906)1.8 %
Other finance134,604 1.5 142,979 1.5 (8,375)2.6 
Electric utility1,600,110 17.4 1,661,652 17.5 (61,542)18.9 
Energy747,114 8.1 824,578 8.7 (77,464)23.8 
Natural gas277,024 3.0 283,821 3.0 (6,797)2.1 
Insurance435,074 4.7 453,430 4.8 (18,356)5.6 
Communications265,373 2.9 281,086 3.0 (15,713)4.8 
Basic industrial292,054 3.2 299,647 3.2 (7,593)2.3 
Consumer noncyclical768,446 8.4 814,268 8.6 (45,822)14.1 
Consumer cyclical313,898 3.4 330,322 3.5 (16,424)5.0 
Finance companies23,371 0.3 24,132 0.3 (761)0.2 
Capital goods226,853 2.5 233,706 2.5 (6,853)2.1 
Transportation317,788 3.5 326,209 3.4 (8,421)2.6 
Other industrial112,940 1.2 115,200 1.2 (2,260)0.7 
Brokerage98,572 1.1 101,330 1.1 (2,758)0.8 
Technology116,155 1.3 123,424 1.3 (7,269)2.2 
Real estate— — — — — — 
Other utility6,495 — 6,764 — (269)0.2 
Commercial mortgage-backed securities487,511 5.3 490,803 5.1 (3,292)1.0 
Other asset-backed securities696,605 7.6 711,531 7.5 (14,926)4.6 
Residential mortgage-backed non-agency securities938,299 10.2 943,696 9.9 (5,397)1.7 
Residential mortgage-backed agency securities133,877 1.5 134,802 1.4 (925)0.3 
U.S. government-related securities736,968 8.0 742,284 7.8 (5,316)1.6 
Other government-related securities29,192 0.3 31,183 0.3 (1,991)0.6 
States, municipals, and political divisions69,377 0.8 70,607 0.7 (1,230)0.4 
Total$9,171,655 100.0 %$9,497,315 100.0 %$(325,660)100.0 %
76
Table of Contents
 Fair
Value		% Fair
Value		Amortized
Cost		% Amortized
Cost		ACL% ACLUnrealized
Loss		% Unrealized
Loss
 (Dollars In Millions)
Banking$163 5.1 %$165 5.0 %$— — %$(2)1.2 %
Other finance95 3.0 103 3.1 — — (8)6.3 
Electric utility221 7.0 231 6.9 — 0.6 (10)7.6 
Energy431 13.7 482 14.6 (16)68.2 (35)26.9 
Natural gas14 0.4 14 0.4 — 1.0 — 0.2 
Insurance87 2.8 100 3.1 — — (13)10.0 
Communications54 1.6 56 1.6 (2)8.3 — (0.4)
Basic industrial— — — — — — — — 
Consumer noncyclical188 5.9 193 5.8 — — (5)3.9 
Consumer cyclical243 7.6 256 7.6 — — (13)10.4 
Finance companies1 0.1 2 0.1 — — (1)0.7 
Capital goods32 1.0 33 1.0 — — (1)1.0 
Transportation153 4.8 161 4.8 — — (8)5.1 
Other industrial18 0.6 18 0.5 — — — 0.1 
Brokerage39 1.2 41 1.2 — — (2)1.3 
Technology52 1.6 55 1.6 — — (3)1.9 
Commercial mortgage-backed securities293 9.2 316 9.5 (4)15.7 (19)15.1 
Other asset-backed securities472 14.9 480 14.4 (1)6.2 (7)5.1 
Residential mortgage-backed non-agency securities292 9.2 293 8.8 — — (1)0.9 
Residential mortgage-backed agency securities103 3.2 103 3.1 — — — — 
U.S. government-related securities312 5.1 315 5.0 — — (3)1.3 
Other government-related securities26 0.8 27 0.8 — — (1)0.8 
States, municipals, and political divisions39 1.2 39 1.1 — — — 0.6 
Total$3,328 100.0 %$3,483 100.0 %$(23)100.0 %$(132)100.0 %

10377
Table of Contents
Risk Management and Impairment Review
We monitor the overall credit quality of our portfolio within established guidelines. The following table includes our available-for-sale fixed maturities by credit rating as of September 30, 2020:March 31, 2021: 
 Percent of  Percent of
RatingRatingFair ValueFair ValueRatingFair ValueFair Value
(Dollars In Thousands)  (Dollars In Millions) 
AAAAAA$9,593,390 14.3 %AAA$8,959 13.3 %
AAAA7,041,286 10.5 AA6,668 9.9 
AA22,858,936 34.0 A21,582 32.1 
BBBBBB25,534,882 37.9 BBB27,413 40.9 
Investment gradeInvestment grade65,028,494 96.7 Investment grade64,622 96.2 
BBBB2,039,854 3.0 BB2,376 3.5 
BB220,006 0.3 B129 0.2 
CCC or lowerCCC or lower23,505 — CCC or lower31 0.1 
Below investment gradeBelow investment grade2,283,365 3.3 Below investment grade2,536 3.8 
TotalTotal$67,311,859 100.0 %Total$67,158 100.0 %
Not included in the table above are $2.7$2.6 billion of investment grade and $125.0$134 million of below investment grade fixed maturities classified as trading securities and $2.7 billion of fixed maturities classified as held-to-maturity.securities.
Limiting bond exposure to any creditor group is another way we manage credit risk. We held no credit default swaps on the positions listed below as of September 30, 2020.March 31, 2021. The following table summarizes our ten largest fixed maturity exposures to an individual creditor group as of September 30, 2020:March 31, 2021: 
Fair Value of  Fair Value of 
FundedUnfundedTotal FundedUnfundedTotal
CreditorCreditorSecuritiesExposuresFair ValueCreditorSecuritiesExposuresFair Value
(Dollars In Millions) (Dollars In Millions)
Berkshire Hathaway IncBerkshire Hathaway Inc$303.0 $— $303.0 Berkshire Hathaway Inc$290 $— $290 
JP Morgan Chase & CoJP Morgan Chase & Co296.4 1.9 298.3 JP Morgan Chase & Co281 12 293 
UnitedHealth Group IncUnitedHealth Group Inc289.9 — 289.9 UnitedHealth Group Inc269 — 269 
Raytheon Technologies287.8 — 287.8 
Federal Home Loan BankFederal Home Loan Bank282 — 282 
AT&T IncAT&T Inc286.6 — 286.6 AT&T Inc281 — 281 
Microsoft Corp284.3 — 284.3 
Duke Energy Corp280.3 — 280.3 
Exelon Corp271.3 — 271.3 
Comcast Corp267.8 — 267.8 
Verizon Communications IncVerizon Communications Inc275 — 275 
Wells Fargo & CoWells Fargo & Co272 — 272 
HSBC Holdings PlcHSBC Holdings Plc267 1 268 
TIAA Board of OverseersTIAA Board of Overseers266 — 266 
Apple IncApple Inc266.9 — 266.9 Apple Inc265 — 265 
TotalTotal$2,834.3 $1.9 $2,836.2 Total$2,748 $13 $2,761 
Determining whether a decline in the current fair value of invested assets is a credit loss is both objective and subjective, and can involve a variety of assumptions and estimates, particularly for investments that are not actively traded in established markets. We review our positions on a monthly basis for possible credit concerns and review our current exposure, credit enhancement, and delinquency experience.
Management considers a number of factors when determining the impairment status of individual securities. These include the economic condition of various industry segments and geographic locations and other areas of identified risks. Since it is possible for the impairment of one investment to affect other investments, we engage in ongoing risk management to safeguard against and limit any further risk to our investment portfolio. Special attention is given to correlative risks within specific industries, related parties, and business markets.
10478
Table of Contents
For certain securitized financial assets with contractual cash flows, including RMBS, CMBS, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”), GAAP requires us to periodically update our best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the expected cash flows since the last revised estimate, a credit loss is recognized. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral. In addition, we consider our intent and ability to retain a temporarily depressed security until recovery.

For securities which the Company has the intent and ability to hold the security until the recovery of the amortized cost basis, analysis of expected cash flows is used to measure the amount of the credit loss, if any, and the Company uses the effective interest rate implicit in the security at the date of acquisition to discount expected cash flows. For floating rate securities, the Company’s policy is to lock in the interest rate at the first instance of an impairment. Estimates of expected cash flows are not probability-weighted, but will reflect the Company’s best estimate based on past events, current conditions, and reasonable and supportable forecasts of future events. To the extent the amortized cost basis of the security exceeds the present value of future cash flows expected to be collected, this difference represents a credit loss. Credit losses are recorded in current earnings with a corresponding adjustment to the allowance for credit losses, except that the credit loss recognized cannot exceed the difference between the book value and fair value of the security as of the date of the analysis. In future periods, recoveries in the present value of expected cash flows are recorded in current earnings as a reversal of the previously recognized allowance for credit losses. Based on our analysis, for the three and nine months ended September 30, 2020,March 31, 2021, we recognized approximately $38.5$5 million and $120.5 million, respectively, of credit lossesgains in earnings.
There are certain risks and uncertainties associated with determining whether declines in fair values are the result of credit losses. These include significant changes in general economic conditions and business markets, trends in certain industry segments, interest rate fluctuations, rating agency actions, changes in significant accounting estimates and assumptions, commission of fraud, and legislative actions. We continuously monitor these factors as they relate to the investment portfolio in determining the status of each investment.
We have deposits with certain financial institutions which exceed federally insured limits. We have reviewed the creditworthiness of these financial institutions and believe that there is minimal risk of a material loss.
Certain European countries have experienced varying degrees of financial stress, which could have a detrimental impact on regional or global economic conditions and on sovereign and non-sovereign obligations. The chart shown below includes our non-sovereign fair value exposures in these countries as of September 30, 2020.March 31, 2021. As of September 30, 2020,March 31, 2021, we had no material unfunded exposure and had no material direct sovereign exposure. 
10579
Table of Contents
  Total Gross   Total Gross
Non-sovereign DebtFunded Non-sovereign DebtFunded
Financial Instrument and CountryFinancial Instrument and CountryFinancialNon-financialExposureFinancial Instrument and CountryFinancialNon-financialExposure
(Dollars In Millions) (Dollars In Millions)
Securities:Securities:   Securities:   
United KingdomUnited Kingdom$1,247.0 $1,396.3 $2,643.3 United Kingdom$1,336 $1,354 $2,690 
FranceFrance516.6 523.6 1,040.2 France705 437 1,142 
NetherlandsNetherlands372.7 339.2 711.9 Netherlands375 322 697 
GermanyGermany148.3 718.9 867.2 Germany205 810 1,015 
SwitzerlandSwitzerland354.4 180.1 534.5 Switzerland428 152 580 
SpainSpain140.8 378.8 519.6 Spain190 349 539 
BelgiumBelgium— 202.4 202.4 Belgium— 194 194 
NorwayNorway4.2 167.2 171.4 Norway4 120 124 
FinlandFinland140.6 — 140.6 Finland126 — 126 
IrelandIreland61.6 137.8 199.4 Ireland63 124 187 
ItalyItaly15.4 160.3 175.7 Italy41 153 194 
LuxembourgLuxembourg— 32.4 32.4 Luxembourg— 35 35 
SwedenSweden2.0 53.4 55.4 Sweden— 52 52 
DenmarkDenmark72.7 — 72.7 Denmark71 — 71 
PortugalPortugal— 25.6 25.6 Portugal— 24 24 
Total securitiesTotal securities3,076.3 4,316.0 7,392.3 Total securities3,544 4,126 7,670 
Derivatives:Derivatives:   Derivatives:   
GermanyGermany81.6 — 81.6 Germany39 — 39 
United KingdomUnited Kingdom175.3 — 175.3 United Kingdom214 — 214 
SwitzerlandSwitzerland43.5 — 43.5 Switzerland27 — 27 
FranceFrance19.5 — 19.5 France47 — 47 
Total derivativesTotal derivatives319.9 — 319.9 Total derivatives327 — 327 
Total securitiesTotal securities$3,396.2 $4,316.0 $7,712.2 Total securities$3,871 $4,126 $7,997 

Realized Gains and Losses
The following table sets forth realized gains (losses) - investments/derivatives for the periods shown:
10680
Table of Contents
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,		For The
Three Months Ended
March 31,
202020192020201920212020
(Dollars In Thousands) (Dollars In Millions)
Fixed maturity gains - salesFixed maturity gains - sales$2,750 $20,155 $49,189 $34,801 Fixed maturity gains - sales$31 $40 
Fixed maturity losses - salesFixed maturity losses - sales(69)(4,469)(4,891)(12,916)Fixed maturity losses - sales(1)(1)
Equity gains and lossesEquity gains and losses16,918 6,117 (652)44,292 Equity gains and losses(8)(43)
Net credit losses recognized in operations(38,459)— (120,540)— 
Net impairment losses recognized in operations— (10,818)— (14,658)
Change in net expected credit losses - fixed maturitiesChange in net expected credit losses - fixed maturities5 (52)
Commercial mortgage loansCommercial mortgage loans(2,174)(1,575)(101,256)(1,435)Commercial mortgage loans56 (95)
Modco trading portfolioModco trading portfolio44,918 67,674 108,223 252,147 Modco trading portfolio(137)(124)
Other(1,065)315 (2,825)365 
Other investmentsOther investments— (1)
Total realized gains (losses) - investmentsTotal realized gains (losses) - investments$22,819 $77,399 $(72,752)$302,596 Total realized gains (losses) - investments$(54)$(276)
Derivatives related to VA contracts:Derivatives related to VA contracts:    Derivatives related to VA contracts:  
Interest rate futuresInterest rate futures$2,257 $727 $(3,565)$(16,575)Interest rate futures$9 $1 
Equity futuresEquity futures(1,187)5,220 131,912 37,517 Equity futures(8)31 
Currency futuresCurrency futures(9,536)9,181 1,438 11,028 Currency futures6 12 
Equity optionsEquity options(41,584)(3,957)66,647 (97,354)Equity options(46)280 
Interest rate swapsInterest rate swaps(57,657)149,766 363,644 342,561 Interest rate swaps(297)409 
Total return swapsTotal return swaps(31,465)(1,950)30,680 (50,522)Total return swaps(69)140 
Embedded derivative - GLWBEmbedded derivative - GLWB72,519 (86,635)(332,202)(189,624)Embedded derivative - GLWB405 (935)
Funds withheld derivative45,787 (350)(103,494)80,198 
Total derivatives related to VA contractsTotal derivatives related to VA contracts(20,866)72,002 155,060 117,229 Total derivatives related to VA contracts— (62)
Derivatives related to FIA contracts:Derivatives related to FIA contracts:    Derivatives related to FIA contracts:  
Embedded derivativeEmbedded derivative(8,642)(4,335)(38,065)(67,968)Embedded derivative3 39 
Funds withheld derivativeFunds withheld derivative(2,804)— (9,586)— Funds withheld derivative(3)— 
Equity futuresEquity futures518 962 (6,550)964 Equity futures1 (8)
Equity optionsEquity options24,870 4,785 15,031 60,026 Equity options23 (60)
Other derivativesOther derivatives483 — 258 — Other derivatives(1)— 
Total derivatives related to FIA contractsTotal derivatives related to FIA contracts14,425 1,412 (38,912)(6,978)Total derivatives related to FIA contracts23 (29)
Derivatives related to IUL contracts:Derivatives related to IUL contracts:    Derivatives related to IUL contracts:  
Embedded derivativeEmbedded derivative15,648 6,261 1,409 (18,395)Embedded derivative21 — 
Equity futuresEquity futures(230)91 (2,374)347 Equity futures— (2)
Equity optionsEquity options6,535 586 583 9,372 Equity options3 (14)
Total derivatives related to IUL contractsTotal derivatives related to IUL contracts21,953 6,938 (382)(8,676)Total derivatives related to IUL contracts24 (16)
Embedded derivative - Modco reinsurance treatiesEmbedded derivative - Modco reinsurance treaties(25,438)(44,027)(55,864)(199,704)Embedded derivative - Modco reinsurance treaties127 75 
Derivatives with PLC(1)
Derivatives with PLC(1)
19,833 7,583 22,179 14,852 
Derivatives with PLC(1)
— (2)
Other derivativesOther derivatives5,430 (1,622)10,818 (3,011)Other derivatives7 9 
Total realized gains (losses) - derivativesTotal realized gains (losses) - derivatives15,337 42,286 92,899 (86,288)Total realized gains (losses) - derivatives181 (25)
Total realized gains (losses) - investments/derivatives$38,156 $119,685 $20,147 $216,308 
Total realized gains (losses)Total realized gains (losses)$127 $(301)
(1) These derivatives include the interest support agreement, two yearly renewable term (“YRT”) premium support agreements, and three portfolio maintenance agreements between certain of our subsidiaries and PLC.
(1) The Company and certain of its subsidiaries had an interest support agreement, a yearly renewable term (“YRT”) premium support agreements, and portfolio maintenance agreements PLC through October 1, 2020. These agreements were terminated as part of the Captive Merger and a new portfolio maintenance agreement was entered into with PLC on that date.(1) The Company and certain of its subsidiaries had an interest support agreement, a yearly renewable term (“YRT”) premium support agreements, and portfolio maintenance agreements PLC through October 1, 2020. These agreements were terminated as part of the Captive Merger and a new portfolio maintenance agreement was entered into with PLC on that date.
Realized gains (losses) on investments reflect portfolio management activities designed to maintain proper matching of assets and liabilities and to enhance long-term investment portfolio performance. The change in net realized gains (losses) - investments, excluding changes in the allowance for credit losses and Modco trading portfolio activity during the three and nine months ended September 30, 2020,March 31, 2021, primarily reflects the normal operation of our asset/liability program within the context of the changing interest rate and spread environment.
10781
Table of Contents
Realized losses are comprised of net changes in expected credit losses and actual sales of investments. These credit lossesimpairments resulted from our analysis of circumstances and our belief that credit events, loss severity, changes in credit enhancement, and/or other adverse conditions of the respective issuers have caused, or will lead to, a deficiency in the contractual cash flows related to these investments. These net changes in expected credit losses impairments are presented in the chart below: 
For The
Three Months Ended
September 30,		For The
Nine Months Ended
September 30,		For The
Three Months Ended
March 31,
202020192020201920212020
(Dollars In Thousands) (Dollars In Millions)
Other MBSOther MBS$10 $(13)$(645)$(94)Other MBS$1 $(1)
Corporate securitiesCorporate securities(38,469)(10,805)(119,895)(14,564)Corporate securities2 (51)
CMBSCMBS2 — 
TotalTotal$(38,459)$(10,818)$(120,540)$(14,658)Total$5 $(52)
As previously discussed, management considers several factors when determining whether a credit loss has occurred. Although we purchase securities with the intent to hold them until maturity, we may change our position as a result of a change in circumstances. Any such decision is consistent with our classification of all but a specific portion of our investment portfolio as available-for-sale. For the ninethree months ended September 30, 2020,March 31, 2021, we sold securities in an unrealized loss position with a fair value of $33.1$8 million. For such securities, the proceeds, realized loss, and total time period that the security had been in an unrealized loss position are presented in the table below:
Proceeds% ProceedsRealized Loss% Realized Loss Proceeds% ProceedsRealized Loss% Realized Loss
(Dollars In Thousands) (Dollars In Millions)
<= 90 days<= 90 days$8,520 25.8 %$(21)0.4 %<= 90 days$— — %$— — %
>90 days but <= 180 days>90 days but <= 180 days2,202 6.7 (208)4.2 >90 days but <= 180 days— — — — 
>180 days but <= 270 days>180 days but <= 270 days3,849 11.6 (51)1.0 >180 days but <= 270 days— — — — 
>270 days but <= 1 year>270 days but <= 1 year— — — — >270 days but <= 1 year— — — — 
>1 year>1 year18,491 55.9 (4,611)94.4 >1 year8 100.0 (1)100.0 
TotalTotal$33,062 100.0 %$(4,891)100.0 %Total$8 100.0 %$(1)100.0 %
For the three and nine months ended September 30, 2020,March 31, 2021, we sold securities in an unrealized loss position with a fair value (proceeds) of $8.2 million and $33.1 million, respectively.$8 million. The losses realized on the sale of these securities were $0.1 million and $4.9 million, respectively.$1 million. We made the decision to exit these holdings in conjunction with our overall asset/liability management process.
For the three and nine months ended September 30, 2020,March 31, 2021, we sold securities in an unrealized gain position with a fair value of $415.4 million and $1.4 billion, respectively.$1.1 billion. The gains realized on the sale of these securities were $2.8 million and $49.2 million, respectively.$31 million.
For the three and nine months ended September 30, 2020,March 31, 2021, net gains of $44.9 million and $108.2$137 million related to changes in fair value on our Modco trading portfolios, were included in realized gains (losses) - investments/derivatives.and losses. Of this amount, approximately $30.1$10 million of gains were realized through the sale of certain securities, which will be reimbursed to our reinsurance partners over time through the reinsurance settlement process for this block of business. The Modco embedded derivative, included those associated with the trading portfolios had realized pre-tax lossesgains of $25.4 million and $55.9$127 million during the three and nine months ended September 30, 2020.March 31, 2021. The lossesgains on the embedded derivative were due to lower treasury yields.yields increasing.
We use various derivative instruments to manage risks related to certain life insurance and annuity products. We can use these derivatives as economic hedges against risks inherent in the products. These risks have a direct impact on the cost of these products and are correlated with the equity markets, interest rates, foreign currency levels, and overall volatility. The hedged risks are recorded through the recognition of embedded derivatives associated with the products. These products include the GLWB rider associated with the variable annuity, fixed indexed annuity products as well as indexed universal life products. During the three and nine months ended September 30, 2020,March 31, 2021, we experienced net realizedimmaterial losses of $20.9 million and net realized gains of approximately $155.1 million on derivatives related to VA contracts. These net gains and losses on derivatives related to VA contracts were affected by capital market impacts, changes in ourthe Company’s non-performance risk, unlocking of assumptions, and variations in actual sub-account fund performance from the indices included in our hedging program, as well as updates to certain policyholder assumptions during the three and nine months ended September 30, 2020.
108
Table of Contents
March 31, 2021.
The Funds Withheld derivative associated with Shades Creek had pre-tax realized gains of $45.8 million and pre-tax losses of $103.5 million for the three and nine months ended September 30, 2020, and the Funds Withheld derivative associated with Protective Life Reinsurance Bermuda Ltd. (“PL Re”) had pre-tax realized losses of $2.8 million and $9.6$3 million for the three and nine months ended September 30, 2020.March 31, 2021.
Certain
82
Table of ourContents
On October 1, 2020, Golden Gate II Captive Insurance Company (“Golden Gate II”), Golden Gate III Vermont Captive Insurance Company (“Golden Gate III”), Golden Gate IV Vermont Captive Insurance Company (“Golden Gate IV”), and Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”), all of which were wholly owned captive insurance company subsidiaries have derivativesof the Company (“collectively the “Captives”) merged with PLC. These derivatives consist of anand into (the “Captive Merger”) Golden Gate.
In conjunction with the Captive Merger, the Company terminated its interest support, agreement, two YRTyearly renewable term (“YRT”) premium support, agreements, and three portfolio maintenance agreements with PLC. We
As part of the Captive Merger, Golden Gate entered into a new portfolio maintenance agreement with PLC. The Company recognized a gain of $17.8 million and a gain of $19.4 million related to the interest supportno gains or losses on this agreement for the three and nine months ended September 30, 2020. We recognized gains of $0.8 million and $3.8 million related to the YRT premium support agreements for the three and nine months ended September 30, 2020.
We entered into two separate portfolio maintenance agreements in October 2012 and one portfolio maintenance agreement in January 2016. We recognized a gain of $1.3 million and a loss of $1.0 million for the three and nine months ended September 30, 2020.March 31, 2021.
We also use various swaps and other types of derivatives to mitigate risk related to other exposures. For the three and nine months ended September 30, 2020,March 31, 2021, these contracts generated $5.4 million and $10.8$7 million in gains.
LIQUIDITY AND CAPITAL RESOURCES
The Holding Company
Overview
Our primary sources of funding are from our insurance operations and revenues from investments. These sources of cash support our operations and are used to pay dividends to PLC.
The states in which we and our insurance subsidiaries are domiciled impose certain restrictions on the ability to pay dividends. These restrictions are based in part on the prior year’s statutory income and/or surplus.
Debt and other capital resources
Our primary sources of capital are from retained income from our insurance operations and capital infusions from our parent, PLC. Additionally, we have access to the Credit Facility discussed below.
On May 3, 2018, we amended the Credit Facility (as amended theUnder a revolving line of credit arrangement (the “Credit Facility”). We, we have the ability to borrow under the Credit Facility on an unsecured basis up to an aggregate principal amount of $1.0$1 billion. We have the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.5$2 billion. We are not aware of any non-compliance with the financial debt covenants of the Credit Facility as of September 30, 2020.March 31, 2021. PLC had a combinedan outstanding balance under the Credit Facility of $255$385 million with $215.0 million bearing an interest at a rate of LIBOR plus 1.00%, and $40.0 million bearing an interest rate of Prime as of September 30, 2020March 31, 2021 and no outstanding balance$190.0 million as of December 31, 2019.2020.
Liquidity
Liquidity refers to a company’s ability to generate adequate amounts of cash to meet its needs. We meet our liquidity requirements primarily through positive cash flows from our operating subsidiaries. Primary sources of cash from the operating subsidiaries are premiums, deposits for policyholder accounts, investment sales and maturities, and investment income. Primary uses of cash include benefit payments, withdrawals from policyholder accounts, investment purchases, policy acquisition costs, interest payments, and other operating expenses. We believe that we have sufficient liquidity to fund our cash needs under normal operating scenarios.
In the event of significant unanticipated cash requirements beyond our normal liquidity needs, we have additional sources of liquidity available depending on market conditions and the amount and timing of the liquidity need. These additional sources of liquidity include cash flows from operations, the sale of liquid assets, accessing our credit facility, and other sources described herein. Our decision to sell investment assets could be impacted by accounting rules, including rules relating to the likelihood of a requirement to sell securities before recovery of our cost basis. Under stressful market and economic conditions, liquidity may broadly deteriorate, which could negatively impact our ability to sell investment assets. If we require on short notice significant amounts of cash in excess of normal requirements, we may have difficulty selling investment assets in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both.
109
Table of Contents
The liquidity requirements of our regulated insurance subsidiaries primarily relate to the liabilities associated with their various insurance and investment products, operating expenses, and income taxes. Liabilities arising from insurance and investment products include the payment of policyholder benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans, and obligations to redeem funding agreements.
83
Table of Contents
We maintain investment strategies intended to provide adequate funds to pay benefits and expected surrenders, withdrawals, loans, and redemption obligations without forced sales of investments. In addition, our insurance subsidiaries hold highly liquid, high-quality short-term investment securities and other liquid investment grade fixed maturity securities to fund our expected operating expenses, surrenders, and withdrawals. We were committed as of September 30, 2020March 31, 2021 to fund commercial mortgage loans in the amount of $917.4 million.$1.1 billion.
Our cash flows are used to fund an investment portfolio that provides for future benefit payments. We employ a formal asset/liability program to manage the cash flows of our investment portfolio relative to our long-term benefit obligations. As of September 30, 2020,March 31, 2021, we held cash and short-term investments of approximately $1.6$1.2 billion.

The following chart includes the cash flows provided by or used in operating, investing, and financing activities for the following periods:
For The Nine Months Ended
September 30,		For The Three Months Ended
March 31,
2020201920212020
(Dollars In Thousands) (Dollars In Millions)
Net cash used in operating activities$(154,383)$(13,755)
Net cash (used in) provided by operating activitiesNet cash (used in) provided by operating activities$(293)$164 
Net cash used in investing activitiesNet cash used in investing activities(1,520,306)(1,712,784)Net cash used in investing activities(1,309)(448)
Net cash provided by financing activitiesNet cash provided by financing activities1,884,690 1,798,439 Net cash provided by financing activities1,511 514 
TotalTotal$210,001 $71,900 Total$(91)$230 
For The NineThree Months Ended September 30, 2020March 31, 2021 as compared to the NineThree Months Ended September 30, 2019March 31, 2020
Net cash used in operating activities - Cash flows from operating activities are affected by the timing of premiums received, investment income, and benefits and expenses paid. Principal sources of cash inflows from operating activities include sales of our products and services as well as income from investments. Due to the nature of our business and the fact that many of the products we sell produce financing and investing cash flows it is important to consider cash flows generated by investing and financing activities in conjunction with those generated by operating activities.
Net cash used in investing activities - Changes in cash from investing activities primarily related to our investment portfolio.
Net cash provided by financing activities - Changes in cash from financing activities included $102.7$491 million of outflowsinflows from secured financing liabilities for the ninethree months ended September 30, 2020,March 31, 2021, as compared to the $142.6$268 million of outflows for the ninethree months ended September 30, 2019March 31, 2020 and $2.0$1.0 billion of inflows of investment product and universal life net activity as compared to $1.1 billion$763 million in the prior year. In addition, we did not receive a capital contribution from our parent during 20202021 as compared to a contribution of $850.0$20 million for the ninethree months ended September 30, 2019.March 31, 2020.
ThroughThe Company and certain of our subsidiaries, we are members of the FHLB of Cincinnati, the FHLB of New York, and the FHLB of New York.Atlanta. FHLB advances provide an attractive funding source for short-term borrowing and for the sale of funding agreements. Membership in the FHLB requires that we purchase FHLB capital stock based on a minimum requirement and a percentage of the dollar amount of advances outstanding. Our borrowing capacity is determined by criteria established by each respective bank. In addition, our obligations under the advances must be collateralized. We maintain control over any such pledged assets, including the right of substitution. As of September 30, 2020,March 31, 2021, we had $1.6$1.5 billion of funding agreement-related advances and accrued interest outstanding under the FHLB program.
While we anticipate that the cash flows of our operating subsidiaries will be sufficient to meet our investment commitments and operating cash needs in a normal credit market environment, we recognize that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, we have established repurchase agreement programs for certain of our insurance subsidiaries to provide liquidity when needed. We expect that the rate received on its investments will equal or exceed its borrowing rate. Under this program, we may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. These borrowings are typically for a term less than 90 days. The fair value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities, and the agreements provide for net settlement in the event of default or on termination of the agreements. As of
110
Table of Contents
September 30, 2020, March 31, 2021, the fair value of securities pledged under the repurchase program was $153.7$917 million, and the repurchase obligation of $150.0$854 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 1415 basis points). During the ninethree months ended September 30,March 31, 2021, the maximum balance outstanding at any one point in time related to
84
Table of Contents
these programs was $1,077 million. The average daily balance was $347 million (at an average borrowing rate of 17 basis points) during the three months ended March 31, 2021. As of December 31, 2020, the fair value of securities pledged under the repurchase program was $452 million and the repurchase obligation of $437 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 15 basis points). During the year ended December 31, 2020, the maximum balance outstanding at any one point in time related to these programs was $565.0$825 million. The average daily balance was $94.4$143 million (at an average borrowing rate of 50 basis points) during the nine months ended September 30, 2020. As of December 31, 2019, the fair value of securities pledged under the repurchase program was $282.2 million and the repurchase obligation of $270.0 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 163 basis points). During the year ended December 31, 2019, the maximum balance outstanding at any one point in time related to these programs was $900.0 million. The average daily balance was $212.2 million (at an average borrowing rate of 21433 basis points) during the year ended December 31, 2019.2020.

We participate in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned out to third parties for short periods of time. We require collateral at least equal to 102% of the fair value of the loaned securities to be separately maintained. The loaned securities’ fair value is monitored on a daily basis and collateral is adjusted accordingly. We maintain ownership of the securities at all times and are entitled to receive from the borrower any payments for interest received on such securities during the loan term. Securities lending transactions are accounted for as secured borrowings. As of September 30,March 31, 2021 and December 31, 2020, securities with a fair value of $80.2$129 million and $57 million, respectively, were loaned under this program. As collateral for the loaned securities, we receive cash, which is primarily reinvested in short-term agreements, which are collateralized by U.S. Government or U.S. Government Agency securities, and government money market funds. These investments are recorded in short-term investments with a corresponding liability recorded in secured financing liabilities to account for its obligation to return the collateral. As of September 30,March 31, 2021 and December 31, 2020, the fair value of the collateral related to this program was $82.8$133 million and $59 million and we have an obligation to return $82.8$133 million and $59 million of collateral to the securities borrowers.borrowers, respectively.

Statutory Capital
A life insurance company’s statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners (“NAIC”), as modified by state law. Generally speaking, other states in which a company does business defer to the interpretation of the domiciliary state with respect to NAIC rules, unless inconsistent with the other state’s regulations. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of our insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or our equity contributions. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval of the insurance commissioner of the state of domicile. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as an ordinary dividend to us from our insurance subsidiaries in 20202021 is approximately $138.4$454 million.

State insurance regulators and the NAIC have adopted risk-based capital (“RBC”) requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile. A company’s risk-based statutory surplus is calculated by applying factors and performing calculations relating to various asset, premium, claim, expense, and reserve items. Regulators can then measure the adequacy of a company’s statutory surplus by comparing it to RBC. We manage our capital consumption by using the ratio of our total adjusted capital, as defined by the insurance regulators, to our company action level RBC (known as the RBC ratio), also as defined by insurance regulators.

Statutory reserves established for VA contracts are sensitive to changes in the equity markets and are affected by the level of account values relative to the level of any guarantees and product design. As a result, the relationship between reserve changes and equity market performance may be non-linear during any given reporting period. Market conditions greatly influence the capital required due to their impact on the valuation of reserves and derivative investments mitigating the risk in these reserves. Risk mitigation activities may result in material and sometimes counterintuitive impacts on statutory surplus and RBC ratio. Notably, as changes in these market and non-market factors occur, both our potential obligation and the related statutory reserves and/or required capital can vary at a non-linear rate.

Our statutory surplus is impacted by credit spreads as a result of accounting for the assets and liabilities on our fixed market value adjusted (“MVA”) annuities. Statutory separate account assets supporting the fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities, we are required to use current crediting rates based on U.S. Treasuries. In many capital market scenarios, current crediting rates based on U.S. Treasuries are highly correlated with market rates implicit in the fair value of statutory separate account assets. As a result, the change in the statutory reserve from
111
Table of Contents
period to period will likely substantially offset the change in the fair value of the statutory separate account assets. However, in periods of volatile credit markets, actual credit spreads on investment assets may increase or decrease sharply for certain sub-sectorssub-
85
Table of Contents
sectors of the overall credit market, resulting in statutory separate account asset market value gains or losses. As actual credit spreads are not fully reflected in current crediting rates based on U.S. Treasuries, the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in a change in statutory surplus.
We cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. However, notwithstanding the transfer of related assets, we remain liable with respect to ceded insurance should any reinsurer fail to meet the obligations that it assumed. We evaluate the financial condition of our reinsurers and monitor the associated concentration of credit risk. For the three and nine months ended September 30, 2020,March 31, 2021, we ceded premiums to third party reinsurers amounting to $303.7 million and $733.6$317 million. In addition, we had receivables from reinsurers amounting to $4.7$4.6 billion as of September 30, 2020.March 31, 2021. We review reinsurance receivable amounts for collectability and establish bad debt reserves if deemed appropriate.
Scottish Re (U.S.), Inc. ("SRUS") was placed in rehabilitation on March 6, 2019 by the State of Delaware. Under the related order, the Insurance Commissioner of the State of Delaware has been appointed the receiver of SRUS (the “Receiver”) and provided with authority to conduct and continue the business of SRUS in the interest of its cedents, creditors, and stockholder. The order was accompanied by an injunction requiring the continued payment of reinsurance premiums to SRUS and temporarily prohibiting cedents, including the Company, from offsetting premiums payable against receivables from SRUS. On June 20, 2019, the Delaware Court of Chancery (the “Court”) entered an order approving a Revised Offset Plan, which allows cedents, including the Company, to offset premiums under certain circumstances.
A proposed Rehabilitation Plan (“Rehabilitation Plan”) was filed by the Receiver of SRUS on June 30, 2020. The Rehabilitation Plan presents the following two options to each cedent: 1)(1) remain in business with SRUS and be governed by the Rehabilitation Plan, or 2)(2) recapture business ceded to SRUS. Due to SRUS’s financial status, neither option payswould pay 100% of outstanding claims. Certain financial terms and conditions will be imposed on the cedents based on the election made, the type of business ceded, the manner in which the business is collateralized, and the amount of losses sustained by a cedent. The Company is currently working to evaluate the impact of both options and to provide feedback/objections to the Receiver on the Rehabilitation Plan. On October 9, 2020, the Receiver filed a proposed order setting forth a schedule to present the Rehabilitation Plan for Court approval, which order contemplatescontemplated possible modifications to the Rehabilitation Plan to be filed with the Court by March 16, 2021. On January 15, 2021, the Receiver circulated a draft Amended Rehabilitation Plan (“Amended Plan”) with interested parties. The majority of the substance and form of the original Rehabilitation Plan, including its two option structure described above, remained in place. On March 16, 2021, the Receiver filed a draft Amended Plan, which contains the same proposed revisions as the draft he previously circulated on January 15, 2021. Later on March 19, 2021, the Receiver filed a proposed order asking the Court to revise the schedule to push back dates, including the deadline that the Receiver must file any modifications to the Amended Plan to May 3, 2021. A group of interested parties separately filed a Motion to Appoint a Special Master, and at the hearing on the Motion, held on March 26, 2021, the Court suspended all deadlines in the case to allow the Receiver and interested parties to meet and confer on a number of topics for 30 days. A joint status report was filed with the Court on May 7, 2021. It is anticipated that a new scheduling order will be entered in the near future.

The Company continues to monitor SRUS and the actions of the receiver through discussions with legal counsel and review of publicly available information. An allowance for credit losses related to SRUS is included in the overall reinsurance allowance for credit losses. See Note 2, Summary of Significant Accounting Policies. As of September 30, 2020,March 31, 2021, management does not believe that the ultimate outcome of the rehabilitation process will have a material impact on the Company’sour financial position or results of operations.
Captive Reinsurance Companies
Our life insuranceThe Company and its subsidiaries are subject to a regulation entitled “Valuation of Life Insurance Policies Model Regulation,” commonly known as “Regulation XXX,” and a supporting guideline entitled “The Application of the Valuation of Life Insurance Policies Model Regulation,” commonly known as “Guideline AXXX”.AXXX.” The regulation and supporting guideline require insurers to establish statutory reserves for term and universal life insurance policies with long-term premium guarantees that are consistent with the statutory reserves required for other individual life insurance policies with similar guarantees. Many market participants believe that these levels of reserves are non-economic. We useutilize a captive reinsurance companiescompany to implement reinsurance and capital management actions to satisfy these reserve requirements by financing the non-economic reserves either through the issuance of non-recourse funding obligations by the captives or obtaining letters of credit from third-party financial institutions.
Our captive reinsurance companies assumeGolden Gate assumes business from affiliates only. Our captives areGolden Gate is capitalized to a level we believe is sufficient to support theits contractual risks and other general obligations of the respective captive entity. All of our captive reinsurance companies areobligations. Golden Gate is a wholly owned subsidiaries of the Company and are located domestically. The captive insurance companies areis subject to regulations in theits domiciliary state of domicile.Vermont.
The
NAIC, through various committees, subgroups and dedicated task forces, is reviewing the use of captives and special purpose vehicles used to transfer insurance risk in relation to existing state laws and regulations, and several committees have adopted or exposed for comment white papers and reports that, if or when implemented, could impose additional requirements on the use of captives and other reinsurers. The Financial Condition (E) Committee of the NAIC established a Variable Annuity
11286
Table of Contents
Issues Working Group to examine company use of variable annuity captives. The Committee has proposed changes in the regulation of variable annuities and variable annuity captives, which could adversely affect our future financial condition and results of operations if adopted.

NAIC has adoptedand state adoption of Actuarial Guideline XLVIII (“AG48”) and the substantially similar “TermTerm and Universal Life Insurance Reserve Financing Model Regulation” (the “Reserve Model”) which establish national standards for new reserve financing arrangements for term life insurance and universal life insurance with secondary guarantees. AG48 andRegulation may make the Reserve Model govern collateral requirements for captive reinsurance arrangements. In order to obtain reserve credit, AG48 and the Reserve Model require a minimum level of funds, consisting of primary and other securities, to be held by or on behalf of ceding insurers as security under each captive life reinsurance treaty. As a result of AG48 and the Reserve Model, the implementationuse of new captive structures in the future may be less capital efficient and/or lead to lower product returns and/or increased product pricing or result in reduced sales of certain products. In some circumstances, AG48terms and the Reserve Model could impact the Company’s ability to engage in certain reinsurance transactions with non-affiliates.
Shades Creek Captive Insurance Company (“Shades Creek”) was a direct wholly owned insurance subsidiary of PLC through December 31, 2020. On January 1, 2021, Shades Creek was merged with and into the Company, with the Company being the surviving entity. We also use a captive reinsurance companyaccounted for the transaction pursuant to reinsure risks associated with GLWBASC 805-50 “Transactions between Entities under Common Control”. The transferred assets and guaranteed minimum death benefits (“GMDB”) riders which helps us to manage those risks on an economic basis. In an effort to mitigate the equity market risks relative to our RBC ratio, we reinsure these risks to Shades Creek. The purposeliabilities of Shades Creek is to reduce the volatility in RBC due to non-economic variables included within the RBC calculation.
During 2012, PLC entered into an intercompany capital support agreement with Shades Creek. The agreement provides through a guarantee that PLC will contribute assets or purchase surplus notes (or cause an affiliate or third party to contribute assets or purchase surplus notes) in amounts necessary for Shades Creek’s regulatory capital levels to equal or exceed minimum thresholds as definedwere recorded by the agreement. AsCompany at their carrying value at the date of September 30, 2020, Shades Creek maintained capital levels in excesstransfer. In accordance with ASC 805-50, all prior financial information has been recast to reflect this transaction as of the required minimum thresholds. The maximum potential future payment amount which could be requiredearliest period presented under the capital support agreement will be dependent on numerous factors, including the performance of equity markets, the level of interest rates, performance of associated hedges, and related policyholder behavior.common control, January 1, 2020.
We use an affiliated Bermuda domiciled reinsurance company, PL Re, to reinsure certain fixed annuity business as a part of our capital management strategy.
See Note 15, Subsequent Events for additional information on our captive reinsurance companies.
Ratings
Various Nationally Recognized Statistical Rating Organizations (“rating organizations”) review the financial performance and condition of insurers, including us and our insurance subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to meet policyholder and contract holder obligations. These ratings are important to maintaining public confidence in an insurer’s products, its ability to market its products and its competitive position. The following table summarizes the current financial strength ratings of our significant member companies from the major independent rating organizations:
      Standard &  
Ratings A.M. Best Fitch Poor’s Moody’s
         
Insurance company financial strength rating:        
Protective Life Insurance Company A+A+AA-A1
West Coast Life Insurance Company A+A+AA-A1
Protective Life and Annuity Insurance Company A+A+AA-—
Protective Property & Casualty Insurance Company A———
MONY Life Insurance Company A+A+A+A1
 Our ratings are subject to review and change by the rating organizations at any time and without notice. A downgrade or other negative action by a rating organization with respect to theour financial strength ratings or those of us and our insurance subsidiaries could adversely affect sales, relationships with distributors, the level of policy surrenders and withdrawals, competitive position in the marketplace, and the cost or availability of reinsurance. The rating agencies may take various actions, positive or negative, with respect to the debt and financial strength ratings of PLC and its subsidiaries, including as a result of PLC’s status as a subsidiary of Dai-ichi Life.
Rating organizations also publish credit ratings for the issuers of debt securities, including PLC. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner. PLC is an important source of funding for the Company, so its credit ratings may affect the Company’s liquidity. These ratings are important in the debt issuer’s overall ability to access credit markets and other types of liquidity. Ratings are not recommendations to buy our securities or products. A downgrade or other negative action by a rating organization with respect to PLC’s credit rating could limit its access to capital markets, increase the cost of issuing debt, and a downgrade of sufficient magnitude, combined with other negative factors, could require PLC to post collateral. The rating agencies may take various actions, positive or negative, with respect to PLC’s debt ratings, including as a result of its status as a subsidiary of Dai-ichi Life.
LIABILITIES
Many of our products contain surrender charges and other features that are designed to reward persistency and penalize the early withdrawal of funds. Certain stable value and annuity contracts have market-value adjustments that protect us against investment losses if interest rates are higher at the time of surrender than at the time of issue.
113
Table of Contents
As of September 30, 2020,March 31, 2021, we had policy liabilities and accruals of approximately $54.9$54.4 billion. Our interest-sensitive life insurance policies have a weighted average minimum credited interest rate of approximately 3.47%.
87
Table of Contents
Contractual Obligations
There have been no material additions or changes outside of the ordinary course of business to our contractual obligations as compared to the amounts disclosed within our 20192020 Annual Report on Form 10-K filed on March 25, 2020.30, 2021. For additional details related to our commitments, see Note 11, Commitments and Contingencies in our unaudited condensed consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
We have entered into operating leases that do not result in an obligation being recorded on the balance sheet. Refer to Note 11, Commitments and Contingencies, of the consolidated condensed financial statements for more information.
The Company uses the same methodology and assumptions to estimate the allowance for credit losses for unfunded loan commitments as for funded commercial mortgage loan receivables. As of September 30, 2020,March 31, 2021, the allowance for credit losses for unfunded loan commitments was $19.8$15 million. AsThe Company had a total of January 1, 2020, the Company established an allowance for credit losses for122 unfunded loan commitments that had a balance of $10.6 million upon adoption of ASU No. 2016-13. During the nine months ended September 30, 2020, the Company established an additional allowance for credit losses of $9.2 million. Refer to Note 9, CommercialMortgage Loans, of the consolidated condensed financial statements for more information.$1.1 billion.
MARKET RISK EXPOSURES

Our financial position and earnings are subject to various market risks including changes in interest rates, the yield curve, spreads between risk-adjusted and risk-free interest rates, foreign currency rates, used vehicle prices, equity price risks and issuer defaults. We analyze and manage the risks arising from market exposures of financial instruments, as well as other risks, through an integrated asset/liability management process. The primary focus of our asset/liability program is the management of interest rate risk within the insurance operations. Our asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to yield, credit and market risk, and cash flow characteristics to maintain an appropriate balance between risk and profitability for each product category, and for us as a whole.

It is our policy to maintain asset and liability durations within one year of one another, although, from time to time, a broader interval may be allowed.

We are exposed to credit risk within our investment portfolio and through derivative counterparties. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. We manage credit risk through established investment policies which attempt to address quality of obligors and counterparties, credit concentration limits, diversification requirements, and acceptable risk levels under expected and stressed scenarios. Derivative counterparty credit risk is measured as the amount owed to us, net of collateral held, based upon current market conditions. In addition, we periodically assess exposure related to potential payment obligations between us and our counterparties. We minimize the credit risk in derivative financial instruments by entering into transactions with high quality counterparties (A-rated or higher at the time we enter into the contract), and we maintain credit support annexes with certain of those counterparties.
We utilize a risk management strategy that incorporates the use of derivative financial instruments to reduce exposure to certain risks, including but not limited to, interest rate risk, currency exchange risk, volatility risk, and equity market risk. These strategies are developed through our analysis of data from financial simulation models and other internal and industry sources, and are then incorporated into our risk management program. See Note 7,5, Derivative Financial Instruments, to the consolidated condensed financial statements included in this report for additional information on our financial instruments.
Derivative instruments expose us to credit and market risk and could result in material changes from period to period. We attempt to minimize our credit risk by entering into transactions with highly rated counterparties. We manage the market risk by establishing and monitoring limits as to the types and degrees of risk that may be undertaken. We monitor our use of derivatives in connection with our overall asset/liability management programs and risk management strategies. In addition, all derivative programs are monitored by our risk management department.
Derivative instruments that are used as part of our interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate caps, and interest rate swaptions.
114
Table of Contents
Derivative instruments that are used as part of the Company’s foreign currency exchange risk management strategy include foreign currency swaps, foreign currency futures, foreign equity futures, and foreign equity options.
We may use the following types of derivative contracts to mitigate our exposure to certain guaranteed benefits related to VA contracts, fixed indexed annuities, and indexed universal life:
88
Table of Contents
•Foreign Currency Futures
•Foreign Currency Options
•Variance Swaps
•Interest Rate Futures
•Equity Options
•Equity Futures
•Credit Derivatives
•Interest Rate Swaps
•Interest Rate Swaptions
•Volatility Futures
•Volatility Options
•Funds Withheld Agreement
•Total Return Swaps
 
Other Derivatives
CertainThe Company and certain of ourits subsidiaries have derivatives with PLC. These derivatives consist ofhad an interest support agreement, YRT premium support arrangements,agreements, and portfolio maintenance agreements with PLC.PLC through October 1, 2020. These agreements were terminated as part of the Captive Merger and a new portfolio maintenance agreement was entered into with PLC on that date.
We have a funds withheld account that consists of various derivative instruments held by us that is used to hedge the GLWB and GMDB riders and fixed indexed annuity products. The economic performance of derivatives in the funds withheld account is ceded to subsidiaries of PLC. The funds withheld account is accounted for as a derivative financial instrument.
We believe that our asset/liability management programs and procedures and certain product features provide protection against the effects of changes in interest rates under various scenarios. Additionally, we believe our asset/liability management programs and procedures provide sufficient liquidity to enable us to fulfill our obligation to pay benefits under our various insurance and deposit contracts. However, our asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, spread movements, implied volatility, policyholder behavior, and other factors, and the effectiveness of our asset/liability management programs and procedures may be negatively affected whenever actual results differ from those assumptions.
In the ordinary course of our commercial mortgage lending operations, we may commit to provide a commercial mortgage loan before the property to be mortgaged has been built or acquired. The commercial mortgage loan commitment is a contractual obligation to fund a commercial mortgage loan when called upon by the borrower. The commitment is not recognized in our financial statements until the commitment is actually funded. The commercial mortgage loan commitment contains terms, including the rate of interest, which may be different than prevailing interest rates. As of September 30, 2020,March 31, 2021, we had outstanding commercial mortgage loan commitments of $917.4 million$1.1 billion at ana weighted average interest rate of 3.91%3.56%.
Impact of Continued Low Interest Rate Environment
Significant changes in interest rates expose us to the risk of not realizing anticipated spreads between the interest rate earned on investments and the interest rate credited to in-force policies and contracts. In addition, certain of our insurance and investment products guarantee a minimum guaranteed interest rate (“MGIR”). In periods of prolonged low interest rates, the interest spread earned may be negatively impacted to the extent our ability to reduce policyholder crediting rates is limited by the guaranteed minimum credited interest rates. Additionally, those policies without account values may exhibit lower profitability in periods of prolonged low interest rates due to reduced investment income.
The tables below present account values by range of current minimum guaranteed interest rates and current crediting rates for our universal life and deferred fixed annuity products as of September 30, 2020March 31, 2021 and December 31, 2019:2020:
Credited Rate Summary
11589
Table of Contents
Credited Rate Summary
As of September 30, 2020
  1-50 bpsMore than 
Minimum Guaranteed Interest RateAtabove50 bps 
Account ValueMGIRMGIRabove MGIRTotal
 (Dollars In Millions)
Universal Life Insurance    
2%$— $114 $2,054 $2,168 
>2% - 3%4,072 1,469 1,290 6,831 
>3% - 4%9,526 475 36 10,037 
>4% - 5%2,285 384 171 2,840 
>5% - 6%318 — — 318 
Subtotal16,201 2,442 3,551 22,194 
Fixed Annuities    
1%$257 $548 $2,035 $2,840 
>1% - 2%523 220 2,189 2,932 
>2% - 3%1,453 65 3 1,521 
>3% - 4%273 — — 273 
>4% - 5%247 — — 247 
>5% - 6%1 — — 1 
Subtotal2,754 833 4,227 7,814 
Total$18,955 $3,275 $7,778 $30,008 
Percentage of Total63 %11 %26 %100 %
March 31, 2021
  1-50 bpsMore than 
Atabove50 bps 
MGIRMGIRabove MGIRTotal
 (Account Value In Millions)
Crediting Rate
Universal Life Insurance    
2%$8 $856 $2,398 $3,262 
>2% - 3%5,567 822 1,127 7,516 
>3% - 4%7,495 400 36 7,931 
>4% - 5%2,235 387 173 2,795 
>5% - 6%315 — — 315 
Subtotal15,620 2,465 3,734 21,819 
Fixed Annuities    
1%$289 $792 $1,892 $2,973 
>1% - 2%511 208 2,181 2,900 
>2% - 3%1,411 50 5 1,466 
>3% - 4%262 — — 262 
>4% - 5%251 — — 251 
>5% - 6%— — — — 
Subtotal2,724 1,050 4,078 7,852 
Total$18,344 $3,515 $7,812 $29,671 
Percentage of Total62 %12 %26 %100 %
Credited Rate Summary
As of December 31, 2019
  1-50 bpsMore than 
Minimum Guaranteed Interest RateAtabove50 bps 
Account ValueMGIRMGIRabove MGIRTotal
 (Dollars In Millions)
Universal Life Insurance    
2%$— $78 $1,735 $1,813 
>2% - 3%4,119 1,401 1,608 7,128 
>3% - 4%9,157 567 507 10,231 
>4% - 5%2,439 443 1 2,883 
>5% - 6%326 — — 326 
Subtotal16,041 2,489 3,851 22,381 
Fixed Annuities    
1%$225 $493 $2,020 $2,738 
>1% - 2%443 227 1,897 2,567 
>2% - 3%1,518 83 2 1,603 
>3% - 4%282 3 — 285 
>4% - 5%251 — — 251 
>5% - 6%2 — — 2 
Subtotal2,721 806 3,919 7,446 
Total$18,762 $3,295 $7,770 $29,827 
Percentage of Total63 %11 %26 %100 %
2020
  1-50 bpsMore than 
Atabove50 bps 
MGIRMGIRabove MGIRTotal
 (Account Value In Millions)
Crediting Rate
Universal Life Insurance    
2%$— $143 $2,176 $2,319 
>2% - 3%4,032 1,482 1,244 6,758 
>3% - 4%9,487 472 36 9,995 
>4% - 5%2,261 386 172 2,819 
>5% - 6%316 — — 316 
Subtotal16,096 2,483 3,628 22,207 
Fixed Annuities    
1%$273 $654 $1,975 $2,902 
>1% - 2%517 215 2,185 2,917 
>2% - 3%1,436 52 4 1,492 
>3% - 4%265 — — 265 
>4% - 5%251 — — 251 
>5% - 6%— — — — 
Subtotal2,742 921 4,164 7,827 
Total$18,838 $3,404 $7,792 $30,034 
Percentage of Total63 %11 %26 %100 %
11690
Table of Contents
We are active in mitigating the impact of a continued low interest rate environment through product design, as well as adjusting crediting rates on current in-force policies and contracts. We also manage interest rate and reinvestment risks through our asset/liability management process. Our asset/liability management programs and procedures involve the monitoring of asset and liability durations; cash flow testing under various interest rate scenarios; and the regular rebalancing of assets and liabilities with respect to yield, credit and market risk, and cash flow characteristics. These programs also incorporate the use of derivative financial instruments primarily to reduce our exposure to interest rate risk, inflation risk, currency exchange risk, volatility risk, and equity market risk.
IMPACT OF INFLATION
Inflation increases the need for life insurance. Many policyholders who once had adequate insurance programs may increase their life insurance coverage to provide the same relative financial benefit and protection. Higher interest rates may result in higher sales of certain of our investment products.
The higher interest rates that have traditionally accompanied inflation could also affect our operations. Policy loans increase as policy loan interest rates become relatively more attractive. As interest rates increase, disintermediation of stable value and annuity account balances and individual life policy cash values may increase. The fair value of our fixed-rate, long-term investments may decrease, we may be unable to implement fully the interest rate reset and call provisions of our commercial mortgage loans, and our ability to make attractive commercial mortgage loans, including participation commercial mortgage loans, may decrease. In addition, participation commercial mortgage loan income may decrease. The difference between the interest rate earned on investments and the interest rate credited to life insurance and investment products may also be adversely affected by rising interest rates. During the periods covered by this report, we believe inflation has not had a material impact on our business.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 2, Summary of Significant Accounting Policies, to the consolidated condensed financial statements for information regarding recently issued accounting standards.
Item 3.    Quantitative and Qualitative Disclosures about Market Risk
See Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Market Risk Exposures”.
Item 4.    Controls and Procedures
(a)    Disclosure controls and procedures
In order to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rule 13a -15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on their evaluation as of March 31, 2021, the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective. effective at the reasonable assurance level.

It should be noted that any system of controls, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of any control system is based in part upon certain judgments, including the costs and benefits of controls and the likelihood of future events. Because of these and other inherent limitations of control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected.

(b)    Changes in internal control over financial reporting
During the second quarter of 2019, the Company began the conversion and integration of administrative processing into its internal control over financial reporting for Great West & Annuity Insurance Company and certain of its affiliates (“GWL&A”) acquired on June 1, 2019. See Note 3, Significant Transactions, for additional information regarding the transaction with GWL&A. The conversion to the Company’s operating environment was still in process, but not yet completed as of September 30, 2020.March 31, 2021. The Company has, therefore, included in its internal controls over financial reporting certain additional controls associated with the GWL&A systems that have not yet been integrated into the Company’s operating environment.
11791
Table of Contents
Other than as describedthe considerations noted in the preceding paragraph above, there were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2020,March 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s internal controls exist within a dynamic environment and the Company continually strives to improve its internal controls and procedures to enhance the quality of its financial reporting.
PART II
Item 1A.  Risk Factors
The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and known trends and uncertainties. In addition to other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, Risk Factors, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019,2020, which could materially affect the Company’s business, financial condition, or future results of operations which are discussed more fully below.

Risks Related to the COVID-19 Pandemic

The novel coronavirus (COVID-19) global pandemic has adversely impacted ourthe Company’s business, and the ultimate effect on ourits business, results of operations, and financial condition will depend on future developments that are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

Beginning in 2020, the global pandemic related to the novel coronavirus, COVID-19, began to impact the worldwide economy and ourthe Company’s results of operations. Because of the size and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and may not emerge for some time. The COVID-19 pandemic has created a higher risk of mortality, negatively impacted the U.S. and global economy, created significant volatility and disruption in capital markets, significantly increased unemployment levels, and fueled concerns that it will lead to a severe global recession. In addition, the pandemic has resulted in temporary closures of many businesses and schools and the imposition of social distancing and sheltering in place requirements in many states and local communities. As a result, ourthe Company’s ability to sell products through ourits regular channels and the demand for ourits products and services could be significantly impacted. The extent to which the COVID-19 pandemic impacts ourcould continue to impact the Company’s business, results of operations, or financial condition will depend on future developments which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the efficacy of mass vaccinations, the impact of COVID-19 variants, and actions taken by governmental authorities and other third parties in response to the pandemic.

Risks presented by the ongoing effects of the COVID-19 pandemic include the following:

•Premiums, Revenues and Policy Fees, and Contractholder LiabilitiesLiabilitie. We expect that thes. The impact of COVID-19 on general economic activity may negatively impact ourthe Company’s premiums, policy fees, other revenues, and ourits liabilities for certain life and annuity policy/contracts. The degree and type of the impact will depend on the extent and duration of the economic contraction, as well as potential equity market and interest rate volatility associated with the economic environment.

•Claims and Claims Expense. As a result of the pandemic and ensuing conditions, we havethe Company has experienced, and weit may continue to experience, an elevated incidence and level of life insurance claims. We expectThe Company expects to incur higher claims expense in our life insurance and deferred annuity businesses, partially offset by lower life contingent payments in ourits payout annuity and structured settlement businesses, as a result of COVID-19 due to increases in mortality. In addition, the anticipated and unknown risks related to COVID-19 may cause additional uncertainty in the process of estimating claims expense reserves. For example, the behavior of claimants and policyholders may change in unexpected ways, and actions taken by governmental bodies, both legislative and regulatory, in reaction to COVID-19 and their related impacts are hard to predict. We areThe Company is also subject to credit risk in our insurance operations (both with respect to policyholder receivables and reinsurance receivables) which may be exacerbated in times of economic distress. A prolonged continuation of the pandemic or a significant and protracted increase in claims could have a material and adverse effect on our business, results of operations, or financial condition.

92
Table of Contents
•Investments.The disruption in the financial markets related to COVID-19 has and may continue to adversely affect ourcertain portions of the Company’s investment portfolio, specifically resulting in lower investment income and returns, and lead to further impairments, credit spread widening, credit quality deterioration, ratings downgrades, equity market declines, and the need to establish additional reserves for potential losses related to ourits commercial mortgage portfolio. Additionally, higher volatility in the equity and credit markets increases hedging costs. There is uncertainty regarding future treasury rates and risk spreads, which may lead to lower investment returns and difficulty forecasting financial results. Disruption in financial markets may also influence overall market liquidity and availability of assets for sale and purchase.
118
Table of Contents

•Legislative and/or Regulatory Action. Federal, state, and local government actions to address and contain the impact of COVID-19 may adversely affect us. Many state insurance departments have required and some are requiring insurers to extend the time allowed for premium payments to avoid the canceling of policies. While many of these consumer accommodations have already expired, they vary in requirements and effective dates, makingwhich make it difficult to anticipate exact financial impacts. If these extensions continue, premium waivers may significantly exceed ourthe Company’s expectations, and ourits earnings may be negatively impacted. If policyholder lapse and surrender rates or premium waivers significantly exceed ourthe Company’s expectations, wethe Company may need to change ourits assumptions, models, or reserves.

•Operational Disruptions and Heightened Cybersecurity Risks. Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our independent distributors, agents, brokers, or service providers are unable to continue to work because of illness, government directives, or otherwise. Currently, approximately 90% of ourthe Company’s employees are working remotely with only a limited number of employees working at certain facilities. The current period of companywideCompanywide remote work arrangements could introduce additional operational risk, including but not limited to cybersecurity risks, and it could impair ourthe Company’s ability to effectively manage ourits business. Additionally, over the course of 2021, the Company plans to transition its workforce from the current period of Companywide remote work arrangements back to site-based, hybrid, and virtual work arrangements, which could create short-term operational pressure during the transition.

In addition, a significant interruption of ourthe Company’s or third-party system capabilities could result in a deterioration of ourits ability to write and process new business, provide customer service, pay claims in a timely manner, or perform other necessary administrative and business functions. Having shifted to remote working arrangements, we arethe Company is more dependent on remote internet and telecommunications services, and weit potentially facefaces a heightened risk of cybersecurity attacks and data security incidents.

•Financial Reporting and Controls. Currently, the Company does not expect COVID-19 to affect its ability to timely and accurately account for the assets and liabilities on its balance sheet; however, this could change in future periods. Market dislocations, decreases in observable market activity, or unavailability of information arising, in each case, from the spread of COVID-19, may restrict ourthe Company’s access to key inputs used to derive certain estimates and assumptions made in connection with financial reporting or otherwise. Restricted access to such inputs may make ourthe Company’s financial statement balances and estimates and assumptions used to run ourits business subject to greater variability and subjectivity. It is possible that the lingering effects of COVID-19 could cause the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause usthe Company to perform an intangible asset impairment test and result in an impairment charge being recorded for that period. Although the Company has not experienced a negative effect on its internal controls over financial reporting due to COVID-19, it may experience a negative effect in the future. Further, as the vast majority of ourthe Company’s employees are expected to workcurrently working from home, new processes, procedures, and controls could be required to respond to changes in ourits business environment. Should any key employees become ill from COVID-19 and unable to work, ourthe Company’s ability to operate ourits internal controls may be adversely affected.

•Reliance on the Performance of Third Parties.We rely The Company relies on outside parties, including independent third-party distribution channels, data processing servicers, and investment fund managers, among others. While wethe Company closely monitormonitors the business continuity activities of these third parties, successful implementation and execution of their business continuity strategies are largely outside of ourits control. If one or more of these third parties experience operational failures as a result of the impacts from the spread of COVID-19 and governmental reactions thereto, or claim that they cannot perform due to a force majeure, ourthe Company’s business, results of operations, or financial condition could be adversely impacted.

Any of the above events could cause, contribute to, or exacerbate the risks and uncertainties enumerated in our Annual Report on Form 10-K or otherwise in this report, and could materially adversely affect ourthe Company’s business, results of operations, or financial condition. We haveThe Company has implemented risk management and business continuity plans, performed stress testing, and taken other precautions with respect to the COVID-19 global pandemic. However, such measures may not adequately protect ourthe Company’s business from the full impacts of the pandemic.

The Company’s risk management policies, practices, and proceduresreinsurers could leave it exposedfail to unidentifiedmeet assumed obligations, attempt to increase rates, or unanticipated risks, which could negatively affect its business or result in losses.

The Company has developed risk management policies and procedures and expects to continue enhancing them in the future. Nonetheless, the Company’s policies and procedures to identify, monitor, and manage both internal and external risks may not predict future exposures, which could be different or significantly greater than expected.

terminate
11993
Table of Contents
These identified risksagreements or be subject to adverse developments that could affect the Company.

The Company and its insurance subsidiaries cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. However, notwithstanding the transfer of related assets or other issues, the Company remains liable with respect to ceded insurance should any reinsurer fail to meet the assumed obligations. Therefore, the failure, insolvency, or inability or unwillingness to pay under the terms of the reinsurance agreement with the Company of one or more of the Company’s reinsurers could negatively impact the Company’s earnings and financial position.

The Company’s results and its ability to compete are affected by the availability and cost of reinsurance. Premium rates charged by the Company are based, in part, on the assumption that reinsurance will be available at a certain cost. Certain reinsurers have attempted to or may attempt to increase the rates they charge the Company for reinsurance, including rates for new policies the Company is issuing and rates related to policies that the Company has already issued. The Company may not be able to increase the only risks facingpremium rates it charges for policies it has already issued, and for competitive reasons it may not be able to raise the Company. Additional risks and uncertaintiespremium rates it charges for new policies to offset the increase in rates charged by reinsurers. If the cost of reinsurance were to increase, if reinsurance were to become unavailable, if alternatives to reinsurance were not currently knownavailable to the Company, or if a reinsurer should fail to meet its obligations, the Company could be adversely affected.

The number of life reinsurers has remained relatively constant in recent years. If the reinsurance market contracts in the future, the Company’s ability to continue to offer its products on terms favorable to it could be adversely impacted.

In addition, reinsurers may face challenges regarding illiquid credit and/or capital markets, investment downgrades, rating agency downgrades, deterioration of general economic conditions, and other factors negatively impacting the financial services industry. If reinsurers, including those with significant exposure to international markets and European Union member states, are unable to meet their obligations, the Company would be adversely impacted.

The Company has implemented a reinsurance program through the use of captive reinsurers. Under these arrangements, a captive owned by the Company serves as the reinsurer, and the consolidated books and tax returns of the Company reflect a liability consisting of the full reserve amount attributable to the reinsured business. The success of the Company’s captive reinsurance program is dependent on a number of factors outside the control of the Company, including, but not limited to, continued access to financial solutions, a favorable regulatory environment, and the overall tax position of the Company. If the captive reinsurance program is not successful, the Company’s financial condition could be adversely impacted

Compliance with existing and emerging privacy regulations could result in increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of consumer information could adversely affect itsour reputation and have a material adverse effect on our business, financial condition and/orand results of operations.

The collection and maintenance of personal data from consumers, beneficiaries, agents, employees, and other consumers, including personally identifiable non-public financial and health information, subjects the Company mayto regulation under various federal and state privacy laws. These laws require that the Company institute certain policies and procedures in its business to safeguard its consumers personal data improper use or disclosure. The laws vary by jurisdiction, and it is expected that additional regulations will continue to be subjectenacted. In November 2020, California passed the California Privacy Rights Act, which will augment and expand the California Consumer Privacy Act. In March 2021, Virginia passed the Consumer Data Protection Act, which will create similar consumer rights and business responsibilities. These laws will become effective in January 2023. Complying with these and other existing, emerging and changing privacy requirements could cause the Company to regulations of,incur substantial costs or regulations influenced by, international regulatory authoritiesrequire it to change its business practices and policies. Non-compliance could result in monetary penalties or initiatives.significant legal liability.

The NAIC andMany of the associates who conduct the Company’s state regulators may be influenced bybusiness have access to, and routinely process, personal information of customers, beneficiaries, agents, employees, and other consumers through a variety of media, including information technology systems. The Company relies on various internal processes and controls to protect the initiativesconfidentiality of international regulatory bodies, and those initiatives may not translate readily into the legal system under which U.S. insurers must operate. Thereconsumer information that is increasing pressureaccessible to, conform to international standards due to the globalization of the business of insurance and the systemic nature of recent financial crises. In addition to developments at the NAIC andor in the United States, the Financial Stability Board (“FSB”), consistingpossession of, representatives of national financial authorities of the G20 nations, and the G20 have issued a series of proposals intended to produce significant changes in how financial companies, particularly companies that are members of large and complex financial groups, should be regulated.

The International Association of Insurance Supervisors (“IAIS”), at the direction of the FSB, has published an evolving method for identifying “global systemically important insurers” (“G-SIIs”) and high-level policy measures that will apply to G-SIIs. The FSB, working with national authorities and the IAIS, has designated insurance groups as G-SIIs in the past. The IAIS is developing the policy measures which include higher capital requirements and enhanced supervision. The FSB has not published a new list of G-SIIs since 2016 because the IAIS has developed a holistic framework for the assessment and mitigation of systemic risk in the insurance sector (the “Holistic Framework”). The Holistic Framework was approved by the IAIS in November 2019 and is expected to be introduced in countries for assessment beginning in 2020. The Holistic Framework proposes enhanced supervisory and corrective measures and disclosures for any build-up of systemic risk in liquidity risk, macroeconomic exposure, counterparty exposure and substitutability. Since the Holistic Framework is expected to produce an improved system for assessing and mitigating systemic risk in the insurance sector, the FSB has decided to suspend G-SII identification until November 2022, at which point it will review whether to resume or discontinue the G-SII designation system. Although none of PLC, the Company, or Dai-ichi Life has been designated as a G-SII, the list of designated insurers may be updated in the future by the FSB.its associates. It is possible that due toan associate could, intentionally or unintentionally, disclose or misappropriate confidential consumer information or Company data could be the size and reachsubject of the combined Dai-ichi Life group, or a change in the method of identifying G-SIIs, the combined group, including PLC andcybersecurity attack. If the Company fails to maintain adequate internal controls or if its associates fail to comply with its policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of consumer information could be designated as a G-SII.

The IAIS has also developed a common framework (“ComFrame”) for the supervision of internationally active insurance groups (“IAIGs”). ComFrame was adopted by the IAIS in November 2019 and is currently in an implementation phase. The IAIS plans to integrate into ComFrame in the future a new global capital measurement standard for insurance groups deemed to be IAIGs thatoccur. Such internal control inadequacies or non-compliance could exceed the sum of state or other local capital requirements and contemplates “group wide supervision” across national boundaries and legal entities, which could require each IAIG to conduct its own risk and solvency assessment to monitor and manage its overall solvency. It is likely that the combined Dai-ichi Life group will be deemed an IAIG, in which case it, and PLC and the Company, may be subject to supervision requirements, capital measurement standards, and enhanced disclosures beyond those applicable to any competitors who are not designated as an IAIG.

PLC’s sole shareowner, Dai-ichi Life, is also subject to regulation by the Japanese Financial Services Authority (“JFSA”). Under applicable laws and regulations, Dai-ichi Life is required to provide notice to or obtain the consent of the JFSA prior to taking certain actions or engaging in certain transactions, either directly or indirectly through its subsidiaries, including PLC, the Company, and its consolidated subsidiaries, which could limit the ability of PLC and the Company to engage in certain transactions or business initiatives.

While it is not yet known how or the extent to which the Company will be impacted by these regulations, the Company may experience increased costs of compliance, increased disclosure, less flexibility in capital management, and more burdensome regulation and capital requirements for specific lines of business. In addition, such regulations could impact the business of the Company and its reserve and capital requirements, financial condition, or results of operations.

120
Table of Contents
The Company’s use of affiliate and captive reinsurance companies to finance statutory reserves related to its fixed annuity and term and universal life products and to reduce volatility affecting its variable annuity products may be limited or adversely affected by regulatory action, pronouncements, and interpretations.

The Company currently uses a captive reinsurance company to finance certain statutory reserves based on a regulation entitled “Valuation of Life Insurance Policies Model Regulation,” commonly known as “Regulation XXX,” and a supporting guideline entitled “The Application of the Valuation of Life Insurance Policies Model Regulation,” commonly known as “Guideline AXXX,” which are associated with term life insurance and universal life insurance with secondary guarantees, respectively, as well as to reduce the volatility in statutory risk-based capital associated with certain guaranteed minimum withdrawal and death benefit riders associated with certain ofmaterially damage the Company’s variable annuity products.

The NAIC has adopted Actuarial Guideline XLVIII (“AG48”) and the substantially similar “Term and Universal Life Insurance Reserve Financing Model Regulation” (the “Reserve Model”) which establish national standards for new reserve financing arrangements for term life insurance and universal life insurance with secondary guarantees. AG48 and the Reserve Model govern collateral requirements for captive reinsurance arrangements. In order to obtain reserve credit, AG48 and the Reserve Model require a minimum level of funds, consisting of primary and other securities, to be held byreputation or on behalf of ceding insurers as security under each captive life reinsurance treaty. As a result of AG48 and the Reserve Model, the implementation of new captive structures in the future may be less capital efficient, lead to lower product returns and/regulatory, civil or increased product pricing, or result in reduced sales of certain products. In some circumstances, AG48criminal investigations and the Reserve Model could impact the Company’s ability to engage in certain reinsurance transactions with non-affiliates.

The NAIC’s 2020 Valuation Manual includes changes to current rules and regulations applicable to the determination of variable annuity reserves and risk-based capital. The changes are intended to decrease incentives for insurers to establish variable annuities captives and will apply to both in-force and new business. The new rules and regulations have a January 1, 2020 effective date and an optional 3- to 7-year transition period from current rules and regulations, which the Company may elect to utilize.

The NAIC adopted revisions to the Part A Laws and Regulations Preamble (the “Preamble”) of the NAIC Financial Regulation Standards and Accreditation Program that includes within the definition of “multi-state insurer” certain insurer-owned captives and special purpose vehicles that are single-state licensed but assume reinsurance from cedants operating in multiple states. The revised definition subjects certain captives, including XXX/AXXX captives, variable annuity and long-term care captives, to all of the accreditation standards applicable to other traditional multi-state insurers, including standards related to capital and surplus requirements, risk-based capital requirements, investment laws, and credit for reinsurance laws. Although we do not expect the revised definition to affect our existing life insurance captives (or our ability to engage in life insurance captive transactions in the future), such application will likely prevent us from engaging in variable annuity captive transactions on the same or a similar basis as in the past and, if applied retroactively, would likely cause PLC to recapture business from and unwind PLC’s existing variable annuity captive (“VA Captive”).

As of April 1, 2020, the Company uses an affiliated Bermuda domiciled reinsurance company, Protective Life Reinsurance Bermuda Ltd. (“PL Re”) to reinsure certain fixed annuity business. PL Re is licensed as a Class C entity for affiliate reinsurance and holds reserves based on Bermuda insurance regulations.penalties.

Any regulatory action or change in interpretation that materially adversely affects the Company’s use or materially increases the Company’s cost of using captives or reinsurers for the affected business, either retroactively or prospectively, could have a material adverse impactThe Company depends on the Company’s financial condition or resultsability of operations. If the Company were requiredits subsidiaries to discontinuetransfer funds to it to meet its use of captives or affiliate reinsurers for intercompany reinsurance transactions on a retroactive basis, adverse impacts would include early termination fees payable to third party finance providers with respect to certain structures, diminished capital position, and higher cost of capital. Additionally, finding alternative means to support policy liabilities efficiently is an unknown factor that would be dependent, in part, on future market conditions and the Company’s ability to obtain requiredobligations.regulatory approvals. On a prospective basis, discontinuation of the use of captives or affiliate reinsurers could impact the types, amounts and pricing of products offered by the Company and its subsidiaries.

Laws, rules, and regulations promulgated in connection with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act may adversely affect the results of operations or financial condition of the Company.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) enacted in July 2010 made sweeping changes to the regulation of financial services entities, products and markets. We cannot predict with certainty how the Dodd-Frank Act will continue to affect the financial markets generally, or impact our business, ratings, results of operations, financial condition or liquidity.
12194
Table of Contents

Among other things, the Dodd-Frank Act imposed a comprehensive new regulatory regime on the over-the-counter (“OTC”) derivatives marketplace and granted new joint regulatory authority to the SEC and the U.S. Commodity Futures Trading Commission (“CFTC”) over OTC derivatives. While the SEC and CFTC continue to promulgate rules required by the Dodd-Frank Act, most rules have been finalized and, as a result, certainThe Company owns insurance companies. A portion of the Company’s derivatives operations are subjectfunding comes from dividends from its operating subsidiaries, revenues from services rendered to among other things, new recordkeeping, reportingsubsidiaries, investment income, and documentation requirements and new clearing requirements for certain swap transactions (currently, certain interest rate swaps and index-based credit default swaps; cleared swaps requireexternal financing. These funding sources support the posting of margin to a clearinghouse via a futures commission merchant and, in some case, toCompany’s general corporate needs including its debt service. If the futures commission merchant as well).

In 2015, U.S. federal banking regulators and the CFTC adopted regulations that require swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants (“Swap Entities”) to post margin to, and collect margin from, their OTC swap counterparties (the “Margin Rules”). Under the Margin Rules,funding the Company receives from its subsidiaries is considered a “financial end-user” that, when facing a Swap Entity, is requiredinsufficient for it to postfund its debt service and collect variation margin for its non-cleared swaps. In addition, depending on its derivatives exposure, the Companyother obligations, it may be required to post and collect initial margin as well. The initial margin requirementsraise funds through the incurrence of debt, or the Margin Rules have been phased-in over a periodsale of five years based on the average aggregate notional amount of the Swap Entity’s (combined with all of its affiliates) and its counterparty’s (combined with all of its affiliates) swap positions. It is anticipated that the Company will not be subject to the initial margin requirements until the “Phase 5” deadline under the Margin Rules, which deadline is currently set for September 1, 2021. The Basel Committee on Banking Supervision (“BCBS”) and the International Organization of Securities Commissions (“IOSCO”) recommended extending this deadline to September 1, 2021, and that extension was approved by the CFTC and US Prudential Regulators during the second quarter. The variation margin requirement took effect on September 1, 2016, for swaps where both the Swap Entity (and its affiliates) and its counterparty (and its affiliates) have an average daily aggregate notional amount of swaps for March, April, and May of 2016 that exceeds $3 trillion. Otherwise, the variation margin requirement, to which we are subject, took effect on March 1, 2017.

Other regulatory requirements relating to derivatives may indirectly impact us. For example, non-U.S. counterparties of the Company may also be subject to non-U.S. regulation of their derivatives transactions with the Company. In addition, counterparties regulated by the Prudential Regulators (which consist of the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit Administration, and the Federal Housing Finance Agency) are subject to liquidity, leverage, and capital requirements that impact their derivatives transactions with the Company. Collectively, these new requirements have increased the direct and indirect costs of our derivatives activities and may further increase them in the future.

Pursuant to the Dodd-Frank Act, in December 2013, the Federal Insurance Office (“FIO”) issued a report on how to modernize and improve the system of insurance regulation in the United States and, in December 2014, the FIO published its report on the breadth and scope of the global reinsurance market. In this reinsurance report, the FIO indicates that reinsurance collateral continues to be at the forefront of its thinking with regard to potential direct federal involvement in insurance regulation. Specifically, the FIO’s reinsurance report argues that federal officials are well-positioned to make determinations regarding whether a foreign jurisdiction has sufficiently effective regulation and, in doing so, consider other prudential issues pending in the U.S. and between the U.S. and affected foreign jurisdictions. The reinsurance report notes that work continues towards initiating negotiations for covered agreements with leading reinsurance jurisdictions that may have the effect of preempting inconsistent state laws. The U.S. entered into such covered agreements with the E.U. in 2017 and with the United Kingdom in 2018. It remains to be seen whether the U.S. will negotiate covered agreements with other major U.S. trading partners. More generally, it remains to be seen whether either of the FIO’s reports will affect the manner in which insurance and reinsurance are regulated in the U.S. and therefore affect the Company’s business.assets.

The Dodd-Frank Act also establishedstates in which the Financial Stability Oversight Council (the “FSOC”), whichCompany’s subsidiaries are domiciled impose certain restrictions on the subsidiaries’ ability to pay dividends and make other payments to the Company. State insurance regulators may prohibit the payment of dividends or other payments to the Company by its subsidiaries if they determine that the payments could be adverse to the insurance subsidiary or its policyholders or contract holders. In addition, the amount of surplus that the Company’s subsidiaries could pay as dividends is authorized to determine whether an insurance company is systematically significant and to recommend that it should be subject to enhanced prudential standards and to supervisionconstrained by the Boardamount of Governorssurplus they hold to maintain their financial strength ratings, to provide an additional layer of the Federal Reserve System. In April 2012, the Financial Stability Oversight Council (the “FSOC”) approved its final rulemargin for designating non-bank financial companies as systemically important financial institutions (“SIFI”). Under the final rule, the Company’s assets, liabilities,risk protection and operations do not currently satisfy the financial thresholds that serve as the first step of the three-stage process to designate a non-bank financial company as a SIFI. In December 2019, the FSOC released final interpretive guidance for designating non-bank SIFIs that incorporates an activities-based approach (“ABA”) and that provides that the FSOC will pursue entity-specific determinations only if a potential risk or threat cannot be addressed through an ABA. While recent developments suggest that it is unlikely that FSOC will be designating additional non-bank financial companies as systematically significant, there can be no assurance of that unless and until FSOC’s authority to do so has been rescinded.future investment in our businesses.


122
Table of Contents
The Consumer Financial Protection Bureau (“CFPB”) has supervisory authority over certain non-banks whose activities or products it determines pose risks to consumers, and has issued regulations under the Home Mortgage Disclosure Act (“HMDA”). Those regulations relate to reporting data relative to Company loans made on multi-family apartments, seniors living housing, manufactured housing communities, and any mixed-use properties which contain a residential component, and could require the Company to, among other things, collect and disclose extensive data related to its lending practices. The CFPB has amended Regulation C of the HMDA, to raise the reporting threshold based on the number of originated loans effective July 1, 2020. At its current volume, the Company expects that it will no longer be subject to the HMDA reporting requirements under the revised threshold. However, the Company may become subject to reporting requirements in the future, and it is unclear how burdensome compliance with the rules under the HMDA may become.

The Company and certain of its subsidiaries sell products that may be regulated by the CFPB. The CFPB continues to bring enforcement actions involving a growing number of issues, including actions brought jointly with state Attorneys General, which could directly or indirectly affect the Company or any of its subsidiaries. The Company is unable at this time to predict the impact of these activities on the Company.

Pursuant to Section 171 of the Dodd-Frank Act, the Board of Governors of the Federal Reserve System (“the Board”) has released a notice of proposed rulemaking that proposes a method, termed the Building Block Approach (the “BBA”), for measuring and prescribing minimum capital for U.S. insurance depository institution holding companies. The Board retains the right to apply the BBA to insurance firms designated by the FSOC as systemically important. The BBA prescribes generally higher minimum levels of group capital than current state-based standards. While it is not currently subject to the BBA, the Company is unable to predict the impact that the BBA may have on competing NAIC and international group capital standards.
Although the full impact of the Dodd-Frank Act cannot be determined until all of the various studies mandated by the law are conducted and all implementing regulations are adopted, many of the legislation’s requirements could have an adverse impact on the financial services and insurance industries. In addition, the Dodd-Frank Act could make it more expensive for us to conduct business, require us to make changes to our business model or satisfy increased capital requirements.

New and amended regulations regarding the standard of care or standard of conduct applicable to investment professionals, insurance agencies, and financial institutions that recommend or sell annuities or life insurance products may have a material adverse impact on our ability to sell annuities and other products and to retain in-force business and on our financial condition or results of operations.

Sales of life insurance policies and annuity contracts offered by the Company are subject to regulations relating to sales practices adopted by a variety of federal and state regulatory authorities. Certain annuities and life insurance policies such as variable annuities and variable universal life insurance are regulated under the federal securities laws administered by the SEC. On June 5, 2019, the SEC adopted a comprehensive package of rulemakings and interpretations relating to the standard of conduct applicable to broker-dealers, investment advisers, and their representatives when making certain recommendations to retail customers. Regulation Best Interest (“Regulation BI”), a new rule establishing a “best interest” standard of conduct for broker-dealers and their natural associated persons applies when making recommendations to retail customers of any securities transaction or investment strategy involving securities or regarding the opening of an account. Specifically, Regulation BI requires a broker-dealer (or associated person) to act in the retail customer’s best interest and not place its (or his or her) own interests ahead of the retail customer’s interests. In addition to Regulation BI, the SEC also adopted a new rule and amended existing rules to require broker-dealers and registered investment advisers to provide a brief relationship summary to retail investors (“Form CRS Rules”). The Form CRS Rules are intended to assist retail investors with their initial selection of, and ongoing decision to maintain an existing relationship with, a financial professional or firm by summarizing in one place certain specified information about the broker-dealer or investment adviser. The obligations under Regulation BI and Form CRS became effective on June 30, 2020. The rulemaking package also included two interpretations: (i) the investment adviser interpretation, which clarifies certain aspects of the standard of conduct applicable to registered investment advisers under section 206 of the Investment Advisers Act of 1940 (“Advisers Act”), and (ii) the “solely incidental” interpretation, which clarifies the broker-dealer exclusion from the definition of “investment adviser” under section 202 of the Advisers Act.

In addition, broker-dealers, insurance agencies and other financial institutions sell the Company’s annuities to employee benefit plans governed by provisions of the Employee Retirement Income Security Act (“ERISA”) and Individual Retirement Accounts (“IRAs”) that are governed by similar provisions under the Internal Revenue Code (the “Code”). Consequently, our activities and those of the firms that sell the Company’s products are subject to restrictions that require ERISA fiduciaries to perform their duties solely in the interests of ERISA plan participants and beneficiaries, and that prohibit ERISA fiduciaries from causing a covered plan or retirement account to engage in certain prohibited transactions absent an exemption. The DOL issued its fiduciary rule package on June 29, 2020 and published in the Federal Register on July 7, 2020.

123
Table of Contents
The NAIC has finalized revisions to the Suitability in Annuity Transactions Model Regulation which is intended to impose a higher standard of care on insurers who sell annuities. NAIC’s work largely mirrors the SEC’s Regulation Best Interest, which also introduces a higher standard of care for broker-dealers. Likewise, several states are considering or have adopted legislation or regulatory measures that would implement new requirements and standards applicable to the sale of annuities and, in some cases, life insurance products. These standards vary widely in scope, applicability, and timing of implementation. The adoption and enactment of these or any revised standards as law or regulation could have a material adverse effect upon the manner in which the Company’s products are sold and impact the overall market for such products.

There remains significant uncertainty surrounding the final form that these regulations may take. Our current distributors may continue to move forward with their plans to limit the number of products they offer, including the types of products offered by the Company. The Company may find it necessary to change sales representative and/or broker compensation, to limit the assistance or advice it can provide to owners of the Company’s annuities, to replace or engage additional distributors, or otherwise change the manner in which it designs, supervises, and supports sales of its annuities and, where applicable, life insurance products. In addition, the Company continues to incur expenses in connection with initial and ongoing compliance obligations with respect to such rules, and in the aggregate these expenses may be significant. Any of the foregoing regulatory, legislative, or judicial measures or the reaction to such activity by consumers or other members of the insurance industry could have a material adverse impact on our ability to sell annuities and other products, to retain in-force business, and on our financial condition or results of operations.

The Company’s ability to maintain competitive unit costs is dependent upon the level of new sales and persistency of existing business.

The Company’s ability to maintain competitive unit costs is dependent upon a number of factors, such as the level of new sales, persistency of existing business, and expense management. A decrease in sales or persistency without a corresponding reduction in expenses may result in higher unit costs. Additionally, a decrease in persistency of existing business may result in fluctuations in the level of DAC or VOBA amortization or higher or more rapid amortization of DAC or VOBA and thus higher unit costs and lower reported earnings. Although many of the Company’s products contain surrender charges, the charges decrease over time and may not be sufficient to cover the unamortized DAC or VOBA with respect to the insurance policy or annuity contract being surrendered. Some of the Company’s products do not contain surrender charge features and such products can be surrendered or exchanged without penalty. A decrease in persistency may also result in higher claims.
12495
Table of Contents
Item 6.    Exhibits
Exhibit  
Number Document
 20112020 Amended and Restated Charter of Protective Life Insurance Company dated as of June 27, 2011, incorporated by reference toDecember 30, 2020, filed as Exhibit 3(a)3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 20112020, filed March 29, 201230, 2021 (No. 001-31901).
 20112020 Amended and Restated By-Laws of Protective Life Insurance Company dated as of June 27, 2011, incorporated by reference toDecember 30, 2020, filed as Exhibit 3(b)3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 20112020, filed March 29, 201230, 2021 (No. 001-31901).
Amended and Restated Protective Life Corporation Annual Incentive Plan, effective January 1, 2021, filed as Exhibit 10.11(e) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
Amended and Restated Protective Life Corporation Long-Term Incentive Plan, amended and restated as of February 25, 2021, filed as Exhibit 10.12(e) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
2021 Parent-Based Award Letter of Protective Life Corporation, filed as Exhibit 10.14(a)(1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
2021 Parent-Based Award Provisions of Protective Life Corporation, filed as Exhibit 10.14(a)(2) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
2021 Performance Units Award Letter (for key officers) of Protective Life Corporation, filed as Exhibit 10.15(a)(1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
2021 Performance Units Award Letter (enhanced) (for key officers) of Protective Life Corporation, filed as Exhibit 10.15(a)(2) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
2021 Performance Units Provision (for key officers) of Protective Life Corporation, filed as Exhibit 10.15(a)(3) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
2021 Restricted Units Award Letter (for key officers) of Protective Life Corporation, filed as Exhibit 10.16(a)(1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
2021 Restricted Units Provisions of Protective Life Corporation, filed as Exhibit 10.16(a)(2) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
2021 Long-Term Incentive Plan Awards Acceptance Form, filed herewith.
 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*Incorporated by Reference.
†Management contract or compensatory plan or arrangement

12596
Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 PROTECTIVE LIFE INSURANCE COMPANY
  
  
Date: November 13, 2020May 14, 2021 By:/s/ PAUL R. WELLS
  Paul R. Wells
  Chief Accounting Officer
  

12697