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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 March 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 April 26, 2021:  5,000,000


Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTERLY PERIOD ENDED MARCH 31, 2021
TABLE OF CONTENTS
  Page
 PART I 
   
Item 1.Financial Statements (unaudited): 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
   
  
   
Item 1A.
Item 6.
 

1
Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Revenues 
Gross premiums and policy fees$1,095 $896 
Reinsurance ceded(317)(36)
Net premiums and policy fees778 860 
Net investment income720 754 
Realized gains (losses) 127 (301)
Other income88 128 
Total revenues1,713 1,441 
Benefits and expenses 
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 acquired105 54 
Other operating expenses, net of reinsurance ceded: (2021 - $53; 2020 - $60)
176 195 
Total benefits and expenses1,586 1,600 
Income (loss) before income tax127 (159)
Income tax expense (benefit)25 (30)
Net income (loss)$102 $(129)

See Notes to Consolidated Condensed Financial Statements
2
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PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited) 
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 - $—; 2020 - $—)
— 1 
Total other comprehensive loss(1,787)(1,478)
Total comprehensive loss$(1,685)$(1,607)

See Notes to Consolidated Condensed Financial Statements
3
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PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
As of
March 31, 2021December 31, 2020
(Unaudited)
 (Dollars In Millions)
Assets  
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)
741 667 
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 depreciation 10 10 
Policy loans1,576 1,593 
Other long-term investments3,223 3,241 
Short-term investments661 462 
Total investments86,207 88,574 
Cash565 656 
Accrued investment income723 707 
Accounts and premiums receivable156 127 
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 acquired3,707 3,420 
Goodwill826 826 
Other intangibles, net of accumulated amortization (2021 - $326; 2020 - $312)
530 540 
Property and equipment, net of accumulated depreciation (2021 - $66; 2020 - $61)
201 204 
Other assets176 270 
Assets related to separate accounts  
Variable annuity12,699 12,378 
Variable universal life1,646 1,287 
Reinsurance assumed13,444 13,325 
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
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 
Debt— 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 11
Shareowner’s equity  
Preferred Stock; $1 par value, shares authorized: 2,000; Liquidation preference: $2,000
— — 
Common Stock, $1 par value, shares authorized and issued: 2021 and 2020 - 5,000,000
5 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
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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 Millions)
Balance, December 31, 2020$— $5 $8,525 $1,547 $3,548 $13,625 
Net income    102  102 
Other comprehensive loss   (1,787)(1,787)
Comprehensive loss(1,685)
Balance, March 31, 2021$— $5 $8,525 $1,649 $1,761 $11,940 
Preferred
Stock		Common
Stock		Additional
Paid-In-Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareowner’s
Equity
(Dollars In Millions)
Balance, December 31, 2019$— $5 $8,405 $1,451 $1,413 $11,274 
Net income(129)(129)
Other comprehensive loss(1,478)(1,478)
Comprehensive loss(1,607)
Capital contributions20 20 
Cumulative effect adjustments(138)(138)
Balance, March 30, 2020$— $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 CASH FLOWS
(Unaudited)
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
7
Table of Contents
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
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 parent— 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
8
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”). 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 months ended March 31, 2021, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 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, 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.
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. The Company accounted for the transaction pursuant to Accounting Standards Codification (“ASC”) 805-50 “Transactions between Entities under Common Control”. The transferred assets and liabilities of Shades Creek were recorded by the Company at their carrying value at the date of transfer. In accordance with ASC 805-50, all prior financial information has been recast to reflect this transaction as of the earliest period presented under common control, January 1, 2020.
Beginning in the first quarter of 2020, the outbreak of COVID-19 created significant economic and social disruption and impacted various operational and financial aspects of the Company’s business. Since the initial declines at the beginning of the pandemic, equity markets have largely recovered. However, the pandemic continues to impact the Company’s earnings based on, amongst other factors, the volume and severity of claims related to 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, 2020. There were no significant changes to the Company’s accounting policies during the three months ended March 31, 2021.
9
Table of Contents
Accounting Pronouncements Recently Adopted
Accounting Standards Update (“ASU” or “Update”) 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. The adoption of this Update did not have a material impact on the Company’s operations and 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 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.

3.    INVESTMENT OPERATIONS
Net realized gains (losses) are summarized as follows:
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 investments— (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 are as follows:
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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 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
March 31,
20212020
 (Dollars In Millions)
Securities in an unrealized gain position:
Fair value proceeds$1,090 $506 
Gains realized$31 $40 
Securities in an unrealized loss position:
Fair value proceeds$8 $— 
Losses realized$(1)$(1)
The chart below summarizes the realized gains (losses) on equity securities sold during the period and equity securities still held at the reporting date.
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Net gains (losses) recognized during the period on equity securities still held$(8)$(43)
Net gains (losses) recognized on equity securities sold during the period— — 
Net gains (losses) recognized during the period on equity securities$(8)$(43)
The amortized cost, gross unrealized gains, losses, allowance for expected credit losses, and fair value of the Company’s investments classified as available-for-sale are as follows:
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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 $(58)$— $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)— 960 
Other government-related securities591 54 (3)— 642 
States, municipals, and political subdivisions3,821 301 (3)— 4,119 
Corporate securities47,342 3,364 (348)(1)50,357 
Redeemable preferred stocks213 4 (1)— 216 
 63,670 3,957 (465)(4)67,158 
Short-term investments552 — — — 552 
 $64,222 $3,957 $(465)$(4)$67,710 
As of December 31, 2020Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance
for Expected
Credit Losses		Fair
Value
(Dollars In Millions)
Fixed maturities:
Residential mortgage-backed securities$6,510 $159 $(1)$— $6,668 
Commercial mortgage-backed securities2,429 128 (19)(4)2,534 
Other asset-backed securities1,546 40 (7)(1)1,578 
U.S. government-related securities1,492 26 (3)— 1,515 
Other government-related securities622 96 (1)— 717 
States, municipals, and political subdivisions3,902 519 (1)— 4,420 
Corporate securities46,150 6,074 (99)(18)52,107 
Redeemable preferred stocks183 11 — — 194 
62,834 7,053 (131)(23)69,733 
Short-term investments386 — — — 386 
$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:
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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 fixed maturities as of 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-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 March 31,
20212020
Corporate
Securities		CMBSABSTotalCorporate
Securities		ABSTotal
 (Dollars In Millions)
Beginning Balance$18 $4 $1 $23 $— $— $— 
Additions for securities for which allowance was not previously recorded— — — — 52 — 52 
Adjustments on previously recorded allowances due to change in expected cash flows(1)(2)— (3)— — — 
Reductions on previously recorded allowances due to disposal of security in the current period— — — — — — — 
Write-offs of previously recorded allowances due to intent or requirement to sell(16)— — (16)— — — 
Ending Balance$1 $2 $1 $4 $52 $— $52 
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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 March 31, 2021:
 Less Than 12 Months12 Months or MoreTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
 (Dollars In Millions)
Residential mortgage-backed securities$2,586 $(58)$12 $— $2,598 $(58)
Commercial mortgage-backed securities247 (9)29 (2)276 (11)
Other asset-backed securities182 (3)137 (1)319 (4)
U.S. government-related securities438 (37)— — 438 (37)
Other government-related securities65 (3)— — 65 (3)
States, municipals, and political subdivisions78 (3)4 — 82 (3)
Corporate securities7,213 (280)702 (68)7,915 (348)
Redeemable preferred stocks14 (1)— — 14 (1)
 $10,823 $(394)$884 $(71)$11,707 $(465)
Commercial mortgage-backed securities (“CMBS”) had gross unrealized losses greater than twelve months of $2 million as of 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 $1 million as of March 31, 2021. This category predominately includes student loan backed auction rate securities (“ARS”) whose underlying collateral is at least 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 corporate securities category had gross unrealized losses greater than twelve months of $68 million as of March 31, 2021, excluding losses of $1 million that were considered credit related. These losses are deemed temporary due to the delayed uneven recoveries from the COVID-19 pandemic, and the recent increase in treasury rates as of March 31, 2021.
As of March 31, 2021, the Company had a total of 845 positions that were in an unrealized loss position, including 6 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.

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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, 2020:
 Less Than 12 Months12 Months or MoreTotal
Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
 (Dollars In Millions)
Residential mortgage-backed securities$386 $(1)$9 $— $395 $(1)
Commercial mortgage-backed securities263 (16)30 (4)293 (20)
Other asset-backed securities146 (2)326 (5)472 (7)
U.S. government-related securities311 (3)1 — 312 (3)
Other government-related securities19 — 7 (1)26 (1)
States, municipals, and political subdivisions34 (1)5 — 39 (1)
Corporate securities1,063 (33)728 (66)1,791 (99)
Redeemable preferred stocks— — — — — — 
 $2,222 $(56)$1,106 $(76)$3,328 $(132)
As of March 31, 2021, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $3 billion and had an amortized cost of $3 billion. In addition, included in the Company’s trading portfolio, the Company held $134 million of securities which were rated below investment grade. The Company held $508 million of below investment grade securities that were not publicly traded.
The change in unrealized gains (losses), excluding the allowance for expected credit losses, net of income tax, on fixed maturities, classified as available-for-sale is summarized as follows:
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Fixed maturities$(2,710)$3,276 

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.
15

 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.


16

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of March 31, 2021:
 Measurement
Category		Level 1Level 2Level 3Total
 (Dollars In Millions)
Assets:    
Fixed maturity securities - AFS    
Residential mortgage-backed securities4$— $6,903 $— $6,903 
Commercial mortgage-backed securities4— 2,393 32 2,425 
Other asset-backed securities4— 1,096 440 1,536 
U.S. government-related securities4483 477 — 960 
State, municipals, and political subdivisions4— 4,119 — 4,119 
Other government-related securities4— 642 — 642 
Corporate securities4— 48,951 1,406 50,357 
Redeemable preferred stocks4150 66 — 216 
Total fixed maturity securities - AFS633 64,647 1,878 67,158 
Fixed maturity securities - trading    
Residential mortgage-backed securities3— 181 — 181 
Commercial mortgage-backed securities3— 213 — 213 
Other asset-backed securities3— 74 101 175 
U.S. government-related securities328 7 — 35 
State, municipals, and political subdivisions3— 282 — 282 
Other government-related securities3— 16 16 32 
Corporate securities3— 1,761 11 1,772 
Redeemable preferred stocks311 — — 11 
Total fixed maturity securities - trading39 2,534 128 2,701 
Total fixed maturity securities672 67,181 2,006 69,859 
Equity securities3618 123 741 
Other long-term investments(1)
3 & 464 1,271 289 1,624 
Short-term investments3484 177 — 661 
Total investments1,838 68,629 2,418 72,885 
Cash3565 — — 565 
Assets related to separate accounts    
Variable annuity312,699 — — 12,699 
Variable universal life31,646 — — 1,646 
Total assets measured at fair value on a recurring basis$16,748 $68,629 $2,418 $87,795 
Liabilities:    
Annuity account balances(2)
3$— $— $66 $66 
Other liabilities(1)
3 & 426 939 1,686 2,651 
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).
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
17

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, 2020:
 Measurement
Category		Level 1Level 2Level 3Total
 (Dollars In Millions)
Assets:    
Fixed maturity securities - AFS    
Residential mortgage-backed securities4$— $6,668 $— $6,668 
Commercial mortgage-backed securities4— 2,502 32 2,534 
Other asset-backed securities4— 1,143 435 1,578 
U.S. government-related securities41,015 500 — 1,515 
State, municipals, and political subdivisions4— 4,420 — 4,420 
Other government-related securities4— 717 — 717 
Corporate securities4— 50,675 1,432 52,107 
Redeemable preferred stocks4125 69 — 194 
Total fixed maturity securities - AFS1,140 66,694 1,899 69,733 
Fixed maturity securities - trading    
Residential mortgage-backed securities3— 209 — 209 
Commercial mortgage-backed securities3— 214 — 214 
Other asset-backed securities3— 91 72 163 
U.S. government-related securities379 12 — 91 
State, municipals, and political subdivisions3— 282 — 282 
Other government-related securities3— 30 — 30 
Corporate securities3— 1,843 17 1,860 
Redeemable preferred stocks313 — — 13 
Total fixed maturity securities - trading92 2,681 89 2,862 
Total fixed maturity securities1,232 69,375 1,988 72,595 
Equity securities3566 — 101 667 
Other long-term investments(1)
3 & 452 1,285 299 1,636 
Short-term investments3403 59 — 462 
Total investments2,253 70,719 2,388 75,360 
Cash3656 — — 656 
Assets related to separate accounts    
Variable annuity312,378 — — 12,378 
Variable universal life31,287 — — 1,287 
Total assets measured at fair value on a recurring basis$16,574 $70,719 $2,388 $89,681 
Liabilities:    
Annuity account balances(2)
3$— $— $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.



18

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.
For a full description of the Company’s fair value calculations and accounting policies, refer to Note 5 in the Company’s Form 10-K for the year ended December 31, 2020.
Valuation of Level 3 Financial Instruments
The following tables 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 March 31, 2021 and December 31, 2020:

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 treasury
1.87% - 2.10% (2.02%)
Other asset-backed securities440 Liquidation Liquidation value
$96.50 - $98.38 ($97.17)
Discounted cash flowLiquidity premium
0.64% - 2.29% (1.66%)
Paydown rate
8.88% - 12.47% (11.40%)
Corporate securities1,406 Discounted cash flowSpread over treasury
0.00% - 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 risk
0.20% - 0.85%
Embedded derivative - FIA583 Actuarial cash flow modelExpenses
$207 per policy
   Withdrawal rate
0.4% - 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.
   Mortality
88% to 100% of Ruark 2015 ALB table
   Lapse
0.2% - 50.0%, depending on duration/surrender charge period
Dynamically adjusted for WB moneyness and projected market rates vs credited rates
   Nonperformance risk
0.20% - 0.85%
Embedded derivative - IUL179 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
   Lapse
0.375% - 10%, depending on
duration/distribution channel
and smoking class
   Nonperformance risk
0.20% - 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 treasury
2.78% - 2.92% (2.87%)
Other asset-backed securities435 Liquidation Liquidation value
$95 - $97 ($96.19)
Discounted cash flowLiquidity premium
0.54% - 2.3% (1.63%)
Paydown Rate
8.79% - 12.49% (11.39%)
Corporate securities1,432 Discounted cash flowSpread over treasury
0.00% - 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 risk
0.19% - 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
   Mortality
88% to 100% or Ruark 2015 ALB table
   Lapse
0.2% - 50.0%, depending on duration/surrender charge period
   Nonperformance risk
0.19% - 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
   Lapse
0.375% - 10%, depending on duration/distribution channel and smoking class
   Nonperformance risk
0.19% - 0.81%
(1) Excludes modified coinsurance arrangements.
(2) Fair value is presented as a net liability.
The charts above exclude 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 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 $125 million and $116 million of financial instruments being classified as Level 3 as of March 31, 2021 and December 31, 2020, of which $109 million and $88 million were other asset-backed securities, $10 million and $17 million were corporate securities and $6 million and $11 million were equity securities, respectively.
In certain cases the Company has determined that book value materially approximates fair value. As of March 31, 2021 and December 31, 2020, the Company held $117 million and $90 million of financial instruments, respectively, where book value approximates fair value which was predominantly FHLB stock.

21

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended 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
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 Millions)
Assets:             
Fixed maturity securities AFS             
Commercial mortgage-backed securities$32 $— $— $— $— $— $— $— $— $— $— $32 $— 
Other asset-backed securities435 — 5 — — — — — — — — 440 — 
Corporate securities1,432 — 1 — (46)10 (32)— — 41 — 1,406 — 
Total fixed maturity securities - available-for-sale1,899 — 6 — (46)10 (32)— — 41 — 1,878 — 
Fixed maturity securities - trading             
Other asset-backed securities71 2 — (1)— 9 — — — 20 — 101 1 
Other government-related securities— — — — — — — — — 16 — 16 — 
Corporate securities18 — — (1)— — (1)— — (5)— 11 — 
Total fixed maturity securities - trading89 2 — (2)— 9 (1)— — 31 — 128 1 
Total fixed maturity securities1,988 2 6 (2)(46)19 (33)— — 72 — 2,006 1 
Equity securities101 — — — — 33 (6)— — (5)— 123 — 
Other long-term investments(1)
298 36 — (45)— — — — — — — 289 (9)
Total investments2,387 38 6 (47)(46)52 (39)— — 67 — 2,418 (8)
Total assets measured at fair value on a recurring basis$2,387 $38 $6 $(47)$(46)$52 $(39)$— $— $67 $— $2,418 $(8)
Liabilities:             
Annuity account balances(2)
$67 $— $— $(1)$— $— $— $— $2 $— $— $66 $— 
Other liabilities(1)
$2,239 $571 $— $(18)$— $— $— $— $— $— $— 1,686 553 
Total liabilities measured at fair value on a recurring basis$2,306 $571 $— $(19)$— $— $— $— $2 $— $— $1,752 $553 
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the three months ended March 31, 2021, there were $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 March 31, 2021.
For the three months ended March 31, 2021, there were $12 million of securities transferred into Level 2 from Level 3.

22

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended 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
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 Millions)
Assets:             
Fixed maturity securities AFS             
Commercial mortgage-backed securities$10 $— $1 $— $(1)$— $— $— $— $— $— $10 $— 
Other asset-backed securities421 — — — (7)— — — — 22 — 436 — 
Corporate securities1,374 — 2 — (76)24 (50)— — 7 (1)1,280 — 
Total fixed maturity securities - available-for-sale1,805 — 3 — (84)24 (50)— — 29 (1)1,726 — 
Fixed maturity securities - trading             
Other asset-backed securities65 — — (2)— 2 — — — — — 65 (2)
Corporate securities11 — — — — 2 — — — — — 13 — 
Total fixed maturity securities - trading76 — — (2)— 4 — — — — — 78 (2)
Total fixed maturity securities1,881 — 3 (2)(84)28 (50)— — 29 (1)1,804 (2)
Equity securities73 — — — — — — — — — — 73 — 
Other long-term investments(1)
210 14 — (57)— — — — (4)— — 163 (48)
Total investments2,164 14 3 (59)(84)28 (50)— (4)29 (1)2,040 (50)
Total assets measured at fair value on a recurring basis$2,164 $14 $3 $(59)$(84)$28 $(50)$— $(4)$29 $(1)$2,040 $(50)
Liabilities:             
Annuity account balances(2)
$70 $— $— $(1)$— $— $— $— $2 $— $— $69 $— 
Other liabilities(1)
1,018 189 — (433)— — — — — — — 1,262 (244)
Total liabilities measured at fair value on a recurring basis$1,088 $189 $— $(434)$— $— $— $— $2 $— $— $1,331 $(244)
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the three months ended March 31, 2020, there were $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 March 31, 2020.
For the three months ended March 31, 2020, there were no securities transferred into Level 2 from Level 3.
Total realized and unrealized gains (losses) on Level 3 assets and liabilities are reported in either realized gains (losses) within the consolidated condensed statements of income or 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.
23

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
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 obligations
3$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.
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.
For a full description of the Company’s derivatives instruments and accounting policies, refer to Note 6 in the Company’s Form 10-K for the 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) during the period of change.
The following table sets forth realized gains (losses) - derivatives for the periods shown:
Realized gains (losses) - derivative financial instruments
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 futures 6 12 
Equity options (46)280 
Interest rate swaps (297)409 
Total return swaps (69)140 
Embedded derivative - GLWB405 (935)
Total derivatives related to VA contracts— (62)
Derivatives related to FIA contracts: 
Embedded derivative3 39 
Funds withheld derivative(3)— 
Equity futures 1 (8)
Equity options23 (60)
Other derivatives(1)— 
Total derivatives related to FIA contracts23 (29)
Derivatives related to IUL contracts: 
Embedded derivative 21 — 
Equity futures — (2)
Equity options3 (14)
Total derivatives related to IUL contracts24 (16)
Embedded derivative - Modco reinsurance treaties127 75 
Derivatives with PLC(1)
— (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.
 

25
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) - derivatives
 (Dollars In Millions)
For The Three Months Ended March 31, 2021   
Foreign currency swaps$2 $— $— 
Total$2 $— $— 
For The Three Months Ended March 31, 2020   
Foreign currency swaps$(5)$— $— 
Interest rate swaps(1)(1)— 
Total$(6)$(1)$— 
Based on expected cash flows of the underlying hedged items, the Company expects to reclassify $1 million out of accumulated other comprehensive income (loss) into realized gains (losses) during the next twelve months.

26
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 of
 March 31, 2021December 31, 2020
Notional
Amount		Fair
Value		Notional
Amount		Fair
Value
 (Dollars In Millions)
Other long-term investments    
Derivatives not designated as hedging instruments:    
Interest rate swaps$1,448 $104 $1,478 $185 
Total return swaps
361 8 158 2 
Derivatives with PLC(1)
4,272 — 4,076 — 
Embedded derivative - Modco reinsurance treaties1,478 68 1,249 101 
Embedded derivative - GLWB3,073 161 2,067 138 
Embedded derivative - FIA355 60 335 60 
Interest rate futures990 20 690 4 
Equity futures146 2 203 4 
Currency futures200 3 — — 
Equity options7,887 1,198 7,208 1,142 
 $20,210 $1,624 $17,464 $1,636 
Other liabilities    
Cash flow hedges:
Foreign currency swaps$117 $7 $117 $10 
Derivatives not designated as hedging instruments:    
Interest rate swaps1,384 — 1,354 — 
Total return swaps926 13 1,003 15 
Embedded derivative - Modco reinsurance treaties2,691 229 2,911 389 
Funds withheld derivative770 12 661 10 
Embedded derivative - GLWB6,744 579 7,749 960 
Embedded derivative - FIA4,084 643 3,889 633 
Embedded derivative - IUL379 179 357 201 
Interest rate futures383 15 415 3 
Equity futures106 2 190 5 
Currency futures— — 264 4 
Equity options6,107 916 5,499 834 
Other338 56 304 55 
 $24,029 $2,651 $24,713 $3,119 
(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.

27
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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. There was no fair value of non-cash collateral received as of March 31, 2021 or as of December 31, 2020.
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The tables below present the derivative instruments by assets and liabilities for the Company as of 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
Financial
Instruments		Collateral
Received		Net Amount
 (Dollars In Millions)
Offsetting of Assets      
Derivatives:      
Free-Standing derivatives$1,335 $— $1,335 $950 $316 $69 
Total derivatives, subject to a master netting arrangement or similar arrangement1,335 — 1,335 950 316 69 
Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties68 — 68 — — 68 
Embedded derivative - GLWB161 — 161 — — 161 
Embedded derivative - FIA60 — 60 — — 60 
Total derivatives, not subject to a master netting arrangement or similar arrangement289 — 289 — — 289 
Total derivatives1,624 — 1,624 950 316 358 
Total Assets$1,624 $— $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 $— $953 $950 $3 
Total derivatives, subject to a master netting arrangement or similar arrangement953 — 953 950 — 3 
Derivatives, not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties229 — 229 — — 229 
Funds withheld derivative12 — 12 — — 12 
Embedded derivative - GLWB579 — 579 — — 579 
Embedded derivative - FIA643 — 643 — — 643 
Embedded derivative - IUL179 — 179 — — 179 
Other56 — 56 — — 56 
Total derivatives, not subject to a master netting arrangement or similar arrangement1,698 — 1,698 — — 1,698 
Total derivatives2,651 — 2,651 950 — 1,701 
Repurchase agreements(1)
854 — 854 — — 854 
Total Liabilities$3,505 $— $3,505 $950 $— $2,555 
(1) Borrowings under repurchase agreements are for a term less than 90 days.
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The tables below present the derivative instruments by assets and liabilities for the Company as of December 31, 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 Millions)
Offsetting of Assets      
Derivatives:      
Free-Standing derivatives$1,337 $— $1,337 $865 $290 $182 
Total derivatives, subject to a master netting arrangement or similar arrangement1,337 — 1,337 865 290 182 
Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties101 — 101 — — 101 
Embedded derivative - GLWB138 — 138 — — 138 
Embedded derivative - FIA60 — 60 — — 60 
Total derivatives, not subject to a master netting arrangement or similar arrangement299 — 299 — — 299 
Total derivatives1,636 — 1,636 865 290 481 
Total Assets$1,636 $— $1,636 $865 $290 $481 
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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$871 $— $871 $865 $4 $2 
Total derivatives, subject to a master netting arrangement or similar arrangement871 — 871 865 4 2 
Derivatives not subject to a master netting arrangement or similar arrangement      
Embedded derivative - Modco reinsurance treaties389 — 389 — — 389 
Funds withheld derivative10 — 10 — — 10 
Embedded derivative - GLWB960 — 960 — — 960 
Embedded derivative - FIA633 — 633 — — 633 
Embedded derivative - IUL201 — 201 — — 201 
Other55 — 55 — — 55 
Total derivatives, not subject to a master netting arrangement or similar arrangement2,248 — 2,248 — — 2,248 
Total derivatives3,119 — 3,119 865 4 2,250 
Repurchase agreements(1)
— — — — — — 
Total Liabilities$3,119 $— $3,119 $865 $4 $2,250 
(1) Borrowings under repurchase agreements are for a term less than 90 days.

7.    COMMERCIAL MORTGAGE LOANS
The Company invests a portion of its investment portfolio in commercial mortgage loans. As of March 31, 2021, the Company’s commercial mortgage loan holdings were $10.3 billion, or $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 types associated with the necessities of life (retail, multi-family, senior living, professional office buildings, and warehouses). The Company believes that these asset types tend to weather economic downturns better than other commercial 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 loans 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. 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 9 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 March 31, 2021, assuming the loans are called at their next call dates, $168 million of principal would become due for the remainder of 2021, $538 million in 2022 through 2026 and $10 million in 2027 through 2029.
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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 March 31, 2021 and December 31, 2020, $774 million and $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 months ended March 31, 2021 and 2020, the Company recognized $7 million and $16 million, respectively, of participation commercial mortgage loan income.
As of March 31, 2021 and December 31, 2020, $1 million and $3 million, respectively, of invested assets consisted of 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 liquidity or ability to maintain proper matching of assets and liabilities. For all commercial mortgage loans, the impact of troubled debt restructurings is reflected in our investment balance and in the allowance for commercial mortgage loan credit losses.
During the three months ended March 31, 2021 and 2020, the Company did not recognize any troubled debt restructurings transactions, respectively, as a result of granting concessions to borrowers which included loan terms unavailable from other lenders. The Company did not identify any loans whose principal was permanently impaired during the three months ended March 31, 2021 or during the three months ended March 31, 2020.
The Company provides certain relief under the Coronavirus Aid Relief, and Economic Security Act (“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 March 31, 2021, since the inception of the CARES Act, there were 295 total loans modified under the Loan Modification Program, representing $2.2 billion in unpaid principal balance. At March 31, 2021, $1.7 billion of these loans have resumed regular principal and interest payments in accordance with the 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.
The 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-performing— — — — — 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-performing1 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”):
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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.


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The ACL decreased by $58 million during the three months ended March 31, 2021, primarily as a result of improvement in the macroeconomic forecasts, as a result of COVID-19, used in the measurement of the ACL since the initial allowance was established.
As of and For The
Three Months Ended
March 31, 2021		As of and For The
Year Ended
December 31, 2020
(Dollars In Millions)
Allowance for Funded Commercial Mortgage Loan Credit Losses
Beginning balance$222 $5 
Cumulative effect adjustment— 80 
Charge offs— — 
Recoveries(5)(3)
Provision(46)140 
Ending balance$171 $222 
Allowance for Unfunded Commercial Mortgage Loan Commitments Credit Losses
Beginning balance$22 $— 
Cumulative effect adjustment— 10 
Charge offs— — 
Recoveries— — 
Provision(7)12 
Ending balance$15 $22 
As of March 31, 2021, the Company had a total of one loan of $1 million that was 90 days and greater delinquent. As of December 31, 2020, the Company had a total of one 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 based upon a consideration of the estimated fair value of 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 three months ended March 31, 2021, an immaterial amount of accrued interest was excluded from the amortized cost basis pursuant to the Company's nonaccrual policy.
As of March 31, 2021, the Company had one loan in a nonaccrual status with an allowance recorded. The recorded investment, unpaid principal balance, and average recorded investment was $1 million. As of December 31, 2020, the Company had one loan in 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 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 

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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, 2020 is as follows:
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 loans 65 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)
— — 
Future earnings to be recognized from closed block assets and closed block liabilities$276 $289 
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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 income 48 51 
Net realized gains (losses) 23 — 
Total revenues105 86 
Benefits and other deductions 
Benefits and settlement expenses89 78 
Other operating expenses— — 
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 no write-offs or recoveries during the three months ended March 31, 2021 and 2020.


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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 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 $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 March 31, 2021. PLC had an outstanding balance of $385 million, as of March 31, 2021. PLC had a $190 million outstanding balance as of December 31, 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 March 31, 2021, the fair value of securities pledged under the repurchase program was $917 million, and the repurchase obligation of $854 million was included in the Company’s consolidated condensed balance sheets (at an average borrowing rate of 15 basis points). During the three months ended March 31, 2021, the maximum balance outstanding at any one point in time related to 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 the Company’s consolidated condensed balance sheets (at an average borrowing rate of 15 basis points). During 2020, the maximum balance outstanding at any one point in time related to these programs was $825 million. The average daily balance was $143 million (at an average borrowing rate of 33 basis points) during the year ended December 31, 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 March 31, 2021 and December 31, 2020, securities with a fair value of $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 March 31, 2021 and December 31, 2020, the fair value of the collateral related to this
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program was $133 million and $59 million and the Company has an obligation to return $133 million and $59 million of collateral to the securities borrowers, respectively.

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

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 $— $— $917 
Total repurchase agreements and repurchase-to-maturity transactions843 74 — — 917 
Securities lending transactions
Corporate securities123 — — — 123 
Equity securities5 — — — 5 
Redeemable preferred stocks1 — — — 1 
Total securities lending transactions129 — — — 129 
Total securities$972 $74 $— $— $1,046 

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 $— $— $452 
Total repurchase agreements and repurchase-to-maturity transactions366 86 — — 452 
Securities lending transactions
Fixed maturity securities49 — — — 49 
Equity securities7 — — — 7 
Redeemable preferred stocks1 — — — 1 
Total securities lending transactions57 — — — 57 
Total securities$423 $86 $— $— $509 

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.
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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.

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.
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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 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 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 on June 30, 2020. The Rehabilitation Plan presents the following two options to each cedent: (1) remain in business with SRUS and be governed by the Rehabilitation Plan, or (2) recapture business ceded to SRUS. Due to SRUS’s financial status, neither option would 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. On October 9, 2020, the Receiver filed a proposed order setting forth a schedule to present the Rehabilitation Plan for Court approval, which order contemplated 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. As of March 31, 2021, management does not believe that the ultimate outcome of the rehabilitation process will have a material impact on our financial position or results of operations. 

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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 March 31, 2021 and December 31, 2020.
Changes in Accumulated Other Comprehensive Income (Loss) by Component 
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 — 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 — 5 
Amounts reclassified from accumulated other comprehensive income (loss)(1)
(27)— (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 months ended March 31, 2021 and 2020.
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
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)
$— $(1)
Tax (expense) benefit— — 
$— $(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

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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.

•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’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,
•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 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.
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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) 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.
There were no significant intersegment transactions during the three months ended March 31, 2021 and 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: 
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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 — 
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).
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For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Net investment income
Retail Life and Annuity$266 $253 
Acquisitions399 416 
Stable Value Products63 63 
Asset Protection6 8 
Corporate and Other(14)14 
Total net investment income$720 $754 
Amortization of DAC and VOBA 
Retail Life and Annuity$87 $(14)
Acquisitions2 52 
Stable Value Products1 1 
Asset Protection15 15 
Corporate and Other— — 
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 
Asset
Protection		Corporate
and Other		Total
Consolidated
Investments and other assets$906 $16,629 $120,466 
DAC and VOBA170 — 3,707 
Other intangibles98 35 530 
Goodwill129 — 826 
Total assets$1,303 $16,664 $125,529 
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 
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Asset
Protection		Corporate
and Other		Total
Consolidated
Investments and other assets$881 $19,813 $122,124 
DAC and VOBA170 — 3,420 
Other intangibles101 33 540 
Goodwill129 — 826 
Total assets$1,281 $19,846 $126,910 

14.    SUBSEQUENT EVENTS
The Company has evaluated the effects of events subsequent to March 31, 2021, and 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.
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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, 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”, 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:
COVID-19 Pandemic
•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;
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;
•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 our financial condition or results from operations;
•disruption of the capital and credit markets could negatively affect our ability to meet our 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 could be adversely affected by an inability to access our credit 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;
•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;
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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;
•the 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;
•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;
•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;
•we may be subject to regulation, investigations, enforcement actions, fines and penalties imposed by the SEC, the 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, and law enforcement 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;
•our ability to maintain competitive unit costs is dependent upon the level of new sales and persistency of existing 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;
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•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.
IMPORTANT INVESTOR INFORMATION
We file reports with the 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 www.sec.gov that contains these reports and other information filed electronically by us. We make available through PLC’s website, https://investor.protective.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current 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.
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, https://investor.protective.com. We encourage investors, the media and others interested in us and our affiliates to review the information we post on our website. The information found on our 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. 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.
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.
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.
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•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. 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.
Impact of COVID-19

Beginning in the first quarter of 2020, the outbreak of COVID-19 created significant economic and social disruption in the global economy and financial markets. These events impacted various operational and financial 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 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 impacted by the effects of the COVID-19 pandemic on mortality during the three months ended March 31, 2021. The COVID-19 pandemic has resulted in an increase in claims in the traditional life and universal life blocks. Throughout 2020, equity market volatility also resulted in significant earnings volatility due to the impact on variable product account values. Since the initial declines at the beginning of the pandemic, equity markets have largely recovered and variable account values have increased. The pandemic will continue to impact earnings based on, amongst other factors, the volume and severity of claims related to 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. The primary impacts from COVID-19 on the Asset Protection segment during 2020 included a negative impact on sales due to lower sales in the auto industry, a reduction in vehicle 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 2021 results, including a potential negative impact on sales if a resurgence in COVID-19 cases result in increased
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shut downs of economic activity or prolonged supply chain issues such as part and chip shortages continue to cause a reduction in auto production and inventories.

Commercial Mortgage Loans. We provide certain relief under the Coronavirus Aid Relief, and Economic Security Act (“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 March 31, 2021, since the inception of the CARES Act, there were 295 total loans modified under the Loan Modification Program, representing $2.2 billion in unpaid principal balance. At March 31, 2021, $1.7 billion of these loans have resumed regular principal and interest payments in accordance with the 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.
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, 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.
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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) 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.



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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 (loss):
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%.
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Retail Life and Annuity
Segment Results of Operations
Segment results were as follows:
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%.
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The following table summarizes key data for the Retail Life and Annuity segment:
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 March 31, 2021, as compared to The Three Months Ended March 31, 2020
Pre-tax adjusted operating income
Pre-tax adjusted operating loss increased $6 million primarily due to unfavorable mortality experience of approximately $60 million, lower annuity investment spread of $8 million, and higher expenses of $5 million, partially offset by higher investment income on the life blocks of $17 million, favorable change in the guaranteed benefit reserve of $13 million, and a net favorable change in unlocking of $33 million as compared to prior year.
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Net premiums and policy fees

Net premiums and policy fees decreased by $99 million driven by higher traditional life net premiums 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 million driven by higher liability balances in the universal life block, higher yields, partially offset by lower investment income in the traditional life block.

Other income

Other income increased $3 million due to higher fixed annuity fee income.

Benefits and settlement expenses

Benefits and settlement expenses decreased by $65 million driven by a $100 million decrease in reserves 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 net favorable change in unlocking of $2 million, and a decrease in fixed annuity guaranteed benefit reserves, offset in part by higher mortality experience of approximately $60 million and higher annuity credited interest. The net favorable change in unlocking is comprised of unfavorable unlocking of $7 million for 2021, as compared to unfavorable unlocking of $9 million for the prior year.

Amortization of DAC/VOBA

DAC/VOBA amortization decreased $20 million due to a favorable change in unlocking, offset in part by other unfavorable changes in universal life and annuity DAC/VOBA amortization related to changes in product cash flows. Segment results were negatively impacted by $13 million of unfavorable unlocking in 2021, as compared to $44 million of unfavorable unlocking in the prior year.
Other operating expenses
Other operating expenses increased $6 million primarily due to higher policy acquisition expense, higher ceding allowances, higher maintenance and overhead expenses, higher taxes, and higher commission expense, partially offset by favorable changes in legal expense accruals during the 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.
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
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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
March 30,		Percent
20212020Change
 (Dollars In Millions)
REVENUES 
Reinsurance ceded$(205)$33 n/m
Other income(1)— n/m
Total operating revenues(206)33 n/m
Realized gains (losses)(4)— n/m
Total revenues(210)33 n/m
BENEFITS AND EXPENSES
Benefits and settlement expenses(263)76 n/m
Amortization of DAC/VOBA(1)(1)—%
Other operating expenses(1)
(45)(51)(11.8)%
Operating benefits and expenses(309)24 n/m
Benefits and settlement expenses related to realized gains (losses)1 (2)n/m
Amortization of DAC/VOBA related to realized gains (losses)(1)5 n/m
Total benefits and expenses(309)27 n/m
NET IMPACT OF REINSURANCE$99 $6 n/m
(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%.

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 March 31, 2021, as compared to The Three Months Ended March 31, 2020

The higher ceded premiums and policy fees for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, was driven by higher ceded premiums in the traditional life 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.

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 mortality experience in the universal life and traditional life blocks and higher ceded reserves in the traditional life block due to fluctuations in the number of policies entering their post level period at the 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 lower ceding allowances on the universal life and traditional life blocks. Ceded other operating expenses reflect the impact of reinsurance allowances, net of amounts deferred.


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Acquisitions
Segment Results of Operations
Segment results were as follows:
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%.
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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 March 31, 2021 as compared to The Three Months Ended March 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 expenses, 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 increased $18 million, 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.

Net 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

Benefits 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 deaths, a favorable change in unlocking, and expected runoff of the in-force blocks of business. This decrease was partly offset by higher traditional and universal life claims and higher annuity credited interest.

VOBA amortization decreased $13 million primarily due to favorable unlocking. Segment results were negatively impacted by $1 million of unfavorable unlocking in 2021, as compared to $12 million of unfavorable unlocking in the prior year.

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Other operating expenses decreased $4 million primarily due to lower acquisition expense, lower maintenance and overhead expenses, lower taxes, and lower interest expense. This decrease was partly offset by higher commission expense during the 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, 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
March 31,		Percent
20212020Change
 (Dollars In Millions)
REVENUES 
Reinsurance ceded$(66)$(23)n/m
BENEFITS AND EXPENSES
Benefits and settlement expenses(80)(10)n/m
Other operating expenses(7)(7)—%
Total benefits and expenses(87)(17)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.
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.
For The Three Months Ended March 31, 2021, as compared to The Three Months Ended March 31, 2020
The net impact of reinsurance was more favorable by $27 million primarily due to higher ceded benefits and expenses of $70 million due to higher ceded claims 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 higher ceded revenue of $43 million in the traditional life 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.

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Stable Value Products
Segment Results of Operations
Segment results were as follows:
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
March 31,		Percent
20212020Change
 (Dollars In Millions)
Sales(1)
 
GIC$— $3 n/m
GFA875 500 75.0%
 $875 $503 74.0%
Average Account Values$6,624 $5,670 16.8%
Ending Account Values$6,655 $5,886 13.1%
Operating Spread 
Net investment income yield3.83 %4.42 %
Interest credited1.81 2.53 
Operating expenses0.10 0.10 
Operating spread1.92 %1.79 %
Adjusted operating spread(2)
1.65 %1.28 %
(1)  Sales are measured at the time the purchase payments are received.
(2)  Excludes participation commercial mortgage loan income.
N/M - we define n/m as not meaningful for increases or decreases greater than 100%.
For The Three Months Ended March 31, 2021, as compared to The Three Months Ended March 31, 2020
Pre-tax adjusted operating income
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Pre-tax adjusted operating income increased $6 million which primarily resulted from an increase in adjusted operating spread and higher average account values, partially offset by a decrease in participation commercial mortgage loan income. Participation commercial mortgage loan income for the three months ended March 31, 2021, was $4 million as compared to $7 million for the three months ended March 31, 2020. The adjusted operating spread, which excludes participation commercial mortgage loan income, increased by 37 basis points for the three months ended 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.

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Asset Protection
Segment Results of Operations
Segment results were as follows: 
For The
Three Months Ended
March 31,		Percent
20212020Change
 (Dollars In Millions)
REVENUES 
Gross premiums and policy fees$74 $75 (1.3)%
Reinsurance ceded(46)(46)—%
Net premiums and policy fees28 29 (3.4)%
Net investment income6 8 (25.0)%
Other income37 37 —%
Total operating revenues71 74 (4.1)%
BENEFITS AND EXPENSES  
Benefits and settlement expenses17 21 (19.0)%
Amortization of DAC/VOBA15 15 —%
Other operating expenses25 26 (3.8)%
Total benefits and expenses57 62 (8.1)%
INCOME BEFORE INCOME TAX14 12 16.7%
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%.
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

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For The Three Months Ended March 31, 2021, as compared to The Three Months Ended March 31, 2020
Pre-tax adjusted operating income
Pre-tax adjusted operating income increased $2 million due to an increase in the GAP product line due to lower loss ratios, offset by a decrease in the service contract earnings due to lower investment income and higher expenses.

Net premiums and policy fees

Net premiums and policy fees decreased $1 million due to a decrease in service contract premiums due to higher ceded premiums and a decrease in GAP premiums 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 $4 million due to a decrease in GAP claims of $3 million.

Sales

Total segment sales increased $11 million, due primarily to an increase in service contract sales of $11 million and GAP sales of $2 million mostly due to the positive impact of increased auto sales. Credit sales decreased $2 million due to discontinuing the product line.

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, 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
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 March 31, 2021, as compared to The Three Months Ended March 31, 2020
Reinsurance premiums ceded remained 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.
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Benefits and settlement expenses ceded decreased $2 million primarily due to lower ceded losses in the GAP product line.


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Corporate and Other
Segment Results of Operations
Segment results were as follows:
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 March 31, 2021 as compared to The Three Months Ended March 31, 2020
Pre-tax adjusted operating income (loss)
Pre-tax adjusted operating loss was $51 million for the three months ended March 31, 2021, as compared to a pre-tax adjusted operating loss of $41 million for the three months ended March 31, 2020. The increased operating loss was primarily due to a decrease in investment income, partially offset by decreased operating expenses.
Operating revenues
Net investment income for the segment decreased $28 million to an expense of $14 million, which was primarily attributable to decreased held-to-maturity income related to investments extinguished in 2020. The held-to-maturity income previously offset the investment expenses that are not allocated to other segments.

Total benefits and expenses

Total benefits and expenses decreased $18 million, primarily due to reduced interest expense as the non-recourse funding obligations were redeemed October 1, 2020.

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CONSOLIDATED INVESTMENTS
As of March 31, 2021, our investment portfolio was $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”. 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 $67.2 billion, or 96.0%, of our fixed maturities as “available-for-sale” as of March 31, 2021. These securities are carried at fair value on our consolidated 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 gains (losses) in the consolidated condensed statements of income. 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 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).
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 $2.7 billion, or 3.9%, of our fixed maturities and $109 million of short-term investments as of 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.
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 4, Fair Value of Financial Instruments, to the financial statements.
The following table presents the reported values of our invested assets:
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 $2.7 billion and $2.9 billion of fixed maturities and $109 million and $76 million of short-term investments classified as trading securities as of March 31, 2021 and December 31, 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.
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Fixed Maturity Investments
As of March 31, 2021, our fixed maturity investment holdings were $69.9 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:
 As of
RatingMarch 31, 2021December 31, 2020
(Dollars In Millions)
AAA$9,236 13.2 %$9,497 13.1 %
AA6,926 9.9 7,337 10.1 
A22,427 32.0 24,372 33.6 
BBB28,600 41.0 28,654 39.5 
Below investment grade2,670 3.9 2,735 3.7 
 $69,859 100.0 %$72,595 100.0 %
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
TypeMarch 31, 2021December 31, 2020
 (Dollars In Millions)
Corporate securities$52,130 74.6 %$53,967 74.3 %
Residential mortgage-backed securities7,084 10.1 6,877 9.5 
Commercial mortgage-backed securities2,638 3.8 2,748 3.8 
Other asset-backed securities1,710 2.4 1,741 2.4 
U.S. government-related securities995 1.4 1,606 2.2 
Other government-related securities674 1.0 747 1.0 
States, municipals, and political subdivisions4,401 6.3 4,702 6.5 
Redeemable preferred stocks227 0.4 207 0.3 
Total fixed income portfolio$69,859 100.0 %$72,595 100.0 %
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The industry segment composition of our fixed maturity securities is presented in the following table:
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 
Energy 4,480 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
RatingMarch 31, 2021December 31, 2020
(Dollars In Millions)
AAA$277 10.3 %$340 11.9 %
AA258 9.6 268 9.4 
A845 31.3 909 31.8 
BBB1,187 43.9 1,205 42.1 
Below investment grade134 4.9 140 4.8 
 $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 March 31, 2021, were $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.
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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 March 31, 2021 and December 31, 2020.
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.
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As of December 31, 2020
Prime(1)
Non-Prime(1)
CommercialOther asset-backedTotal
FairAmortizedFairAmortizedFairAmortizedFairAmortizedFairAmortized
ValueCostValueCostValueCostValueCostValueCost
(Dollars In Millions)
Rating $
AAA$5,541 $5,420 $2 $2 $1,596 $1,514 $543 $527 $7,682 $7,463 
AA— — — — 587 570 277 268 864 838 
A1,268 1,228 8 7 469 449 731 727 2,476 2,411 
BBB4 4 1 1 85 86 164 158 254 249 
Below24 24 29 27 11 19 26 29 90 99 
$6,837 $6,676 $40 $37 $2,748 $2,638 $1,741 $1,709 $11,366 $11,060 
Rating %
AAA81.1 %81.2 %5.3 %5.6 %58.1 %57.4 %31.2 %30.8 %67.6 %67.5 %
AA— — 0.2 0.2 21.4 21.6 15.9 15.7 7.6 7.6 
A18.5 18.3 19.7 18.2 17.0 17.0 42.0 42.6 21.8 21.7 
BBB0.1 0.1 2.8 2.9 3.1 3.3 9.4 9.2 2.2 2.3 
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 %
Estimated Fair Value of Security by Year of Security Origination
2016 and prior$1,701 $1,647 $38 $35 $2,238 $2,167 $1,069 $1,044 $5,046 $4,893 
2017737 711 2 2 270 249 402 397 1,411 1,359 
20181,001 970 — — 151 136 148 148 1,300 1,254 
20191,070 1,045 — — 75 71 92 91 1,237 1,207 
20202,328 2,303 — — 14 15 30 29 2,372 2,347 
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
The majority of our RMBS holdings as of March 31, 2021, were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average life of 2.7 years. The following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of March 31, 2021:
 Weighted-Average
Non-agency portfolioLife
  
Prime2.66
Sub-prime2.28
Commercial Mortgage Loans
We invest a portion of our investment portfolio in commercial mortgage loans. As of March 31, 2021 our commercial mortgage loan holdings were $10.3 billion, $10.1 billion net of allowance for credit losses. We have specialized in making loans on credit-oriented commercial properties, 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 loan portfolio was underwritten by us. From time to time, we may acquire loans in conjunction with an acquisition.
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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. 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 9 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 March 31, 2021, assuming the loans are called at their next call dates, $168 million of principal would become due for the remainder of 2021, $538 million in 2022 through 2026, and $10 million in 2027 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 March 31, 2021 and December 31, 2020, $774 million and $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 months ended March 31, 2021 and 2020, the Company recognized $7 million and $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)

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 March 31, 2021 and December 31, 2020, there were allowances for commercial mortgage loan and unfunded commitment credit losses of $186 million and $245 million, respectively.

While our commercial mortgage loans do not have quoted market values, as of March 31, 2021 we estimated the fair value of our commercial mortgage loans to be $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 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
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liquidity or ability to maintain proper matching of assets and liabilities. For all commercial mortgage loans, the impact of troubled debt restructurings is reflected in our investment balance and in the allowance for commercial mortgage loan credit losses.
During the three months ended March 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 concessions to borrowers which included loan terms unavailable from other lenders. These concessions were the result of agreements between the creditor and the debtor. The Company did not identify any loans whose principal was permanently impaired during the three months ended March 31, 2021.

It is our 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. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the 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.

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 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 $3.5 billion, prior to tax and the related impact of certain insurance assets and liabilities offsets, as of March 31, 2021, and an overall net unrealized gain of $6.9 billion as of December 31, 2020.

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For fixed maturity securities held that are in an unrealized loss position as of 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
 (Dollars In Millions)
<= 90 days$9,879 84.3 %$10,209 83.8 %$— 0.1 %$(330)71.2 %
>90 days but <= 180 days338 2.9 362 3.0 — — (24)5.1 
>180 days but <= 270 days200 1.7 217 1.8 — — (17)3.5 
>270 days but <= 1 year406 3.5 429 3.5 (1)31.1 (22)4.7 
>1 year but <= 2 years222 1.9 239 2.0 — 3.3 (17)3.7 
>2 years but <= 3 years211 1.8 220 1.8 (1)31.9 (8)1.6 
>3 years but <= 4 years71 0.6 77 0.6 (1)7.7 (5)1.1 
>4 years but <= 5 years69 0.6 70 0.6 — — (1)0.3 
>5 years311 2.7 353 2.9 (1)25.9 (41)8.8 
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 March 31, 2021, varies, with 8.0% maturing in less than 5 years, 22.5% maturing between 5 and 10 years, and 69.5% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of March 31, 2021:
%%
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 March 31, 2021, the Barclays Investment Grade Index was priced at 89 bps versus a 10 year average of 131 bps. Similarly, the Barclays High Yield Index was priced at 357 bps versus a 10 year average of 502 bps. As of March 31, 2021, the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 0.9%, 1.7%, and 2.4%, as compared to 10 year averages of 1.5%, 2.1%, and 2.9%, respectively.
As of March 31, 2021, 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.
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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 March 31, 2021, we held a total of 845 positions that were in an unrealized loss position. Included in that amount were 66 positions of below investment grade securities with a fair value of $702 million that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $54 million, $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 0.8% of invested assets.
As of March 31, 2021, securities in an unrealized loss position that were rated as below investment grade represented 6.0% of the total fair value and 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 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 March 31, 2021:
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 March 31, 2021, is presented in the following table:
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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 
Energy 741 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, 2020, is presented in the following table:
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 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 
Energy 431 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 %

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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 March 31, 2021: 
  Percent of
RatingFair ValueFair Value
 (Dollars In Millions) 
AAA$8,959 13.3 %
AA6,668 9.9 
A21,582 32.1 
BBB27,413 40.9 
Investment grade64,622 96.2 
BB2,376 3.5 
B129 0.2 
CCC or lower31 0.1 
Below investment grade2,536 3.8 
Total$67,158 100.0 %
Not included in the table above are $2.6 billion of investment grade and $134 million of below investment grade fixed maturities classified as trading 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 March 31, 2021. The following table summarizes our ten largest fixed maturity exposures to an individual creditor group as of March 31, 2021: 
 Fair Value of 
 FundedUnfundedTotal
CreditorSecuritiesExposuresFair Value
 (Dollars In Millions)
Berkshire Hathaway Inc$290 $— $290 
JP Morgan Chase & Co281 12 293 
UnitedHealth Group Inc269 — 269 
Federal Home Loan Bank282 — 282 
AT&T Inc281 — 281 
Verizon Communications Inc275 — 275 
Wells Fargo & Co272 — 272 
HSBC Holdings Plc267 1 268 
TIAA Board of Overseers266 — 266 
Apple Inc265 — 265 
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.
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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 months ended March 31, 2021, we recognized $5 million of credit gains 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 March 31, 2021. As of March 31, 2021, we had no material unfunded exposure and had no material direct sovereign exposure. 
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   Total Gross
 Non-sovereign DebtFunded
Financial Instrument and CountryFinancialNon-financialExposure
 (Dollars In Millions)
Securities:   
United Kingdom$1,336 $1,354 $2,690 
France705 437 1,142 
Netherlands375 322 697 
Germany205 810 1,015 
Switzerland428 152 580 
Spain190 349 539 
Belgium— 194 194 
Norway4 120 124 
Finland126 — 126 
Ireland63 124 187 
Italy41 153 194 
Luxembourg— 35 35 
Sweden— 52 52 
Denmark71 — 71 
Portugal— 24 24 
Total securities3,544 4,126 7,670 
Derivatives:   
Germany39 — 39 
United Kingdom214 — 214 
Switzerland27 — 27 
France47 — 47 
Total derivatives327 — 327 
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:
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For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Fixed maturity gains - sales$31 $40 
Fixed maturity losses - sales(1)(1)
Equity gains and losses(8)(43)
Change in net expected credit losses - fixed maturities5 (52)
Commercial mortgage loans56 (95)
Modco trading portfolio(137)(124)
Other investments— (1)
Total realized gains (losses) - investments$(54)$(276)
Derivatives related to VA contracts:  
Interest rate futures $9 $1 
Equity futures (8)31 
Currency futures 6 12 
Equity options (46)280 
Interest rate swaps (297)409 
Total return swaps(69)140 
Embedded derivative - GLWB405 (935)
Total derivatives related to VA contracts— (62)
Derivatives related to FIA contracts:  
Embedded derivative 3 39 
Funds withheld derivative(3)— 
Equity futures1 (8)
Equity options23 (60)
Other derivatives(1)— 
Total derivatives related to FIA contracts23 (29)
Derivatives related to IUL contracts:  
Embedded derivative 21 — 
Equity futures— (2)
Equity options 3 (14)
Total derivatives related to IUL contracts24 (16)
Embedded derivative - Modco reinsurance treaties127 75 
Derivatives with PLC(1)
— (2)
Other derivatives7 9 
Total realized gains (losses) - derivatives181 (25)
Total realized gains (losses) $127 $(301)
(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 months ended March 31, 2021, primarily reflects the normal operation of our asset/liability program within the context of the changing interest rate and spread environment.
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Realized losses are comprised of net changes in expected credit losses and actual sales of investments. These impairments 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 are presented in the chart below: 
For The
Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Other MBS$1 $(1)
Corporate securities2 (51)
CMBS2 — 
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 three months ended March 31, 2021, we sold securities in an unrealized loss position with a fair value of $8 million. For such securities, the proceeds, realized loss, and total time period that the security had been in an unrealized loss position are presented in the table below:
 Proceeds% ProceedsRealized Loss% Realized Loss
 (Dollars In Millions)
<= 90 days$— — %$— — %
>90 days but <= 180 days— — — — 
>180 days but <= 270 days— — — — 
>270 days but <= 1 year— — — — 
>1 year8 100.0 (1)100.0 
Total$8 100.0 %$(1)100.0 %
For the three months ended March 31, 2021, we sold securities in an unrealized loss position with a fair value (proceeds) of $8 million. The losses realized on the sale of these securities were $1 million. We made the decision to exit these holdings in conjunction with our overall asset/liability management process.
For the three months ended March 31, 2021, we sold securities in an unrealized gain position with a fair value of $1.1 billion. The gains realized on the sale of these securities were $31 million.
For the three months ended March 31, 2021, net gains of $137 million related to changes in fair value on our Modco trading portfolios, were included in realized gains and losses. Of this amount, $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 gains of $127 million during the three months ended March 31, 2021. The gains on the embedded derivative were due to treasury 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 months ended March 31, 2021, we experienced immaterial losses on derivatives related to VA contracts. These net losses on derivatives related to VA contracts were affected by capital market impacts, changes in the Company’s non-performance risk, 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 months ended March 31, 2021.
The Funds Withheld derivative associated with Protective Life Reinsurance Bermuda Ltd. (“PL Re”) had pre-tax realized losses of $3 million for the three months ended March 31, 2021.
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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 of the Company (“collectively the “Captives”) merged with and into (the “Captive Merger”) Golden Gate.
In conjunction with the Captive Merger, the Company terminated its interest support, yearly renewable term (“YRT”) premium support, and portfolio maintenance agreements with PLC.
As part of the Captive Merger, Golden Gate entered into a new portfolio maintenance agreement with PLC. The Company recognized no gains or losses on this agreement for the three months ended March 31, 2021.
We also use various swaps and other types of derivatives to mitigate risk related to other exposures. For the three months ended March 31, 2021, these contracts generated $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.
Under a revolving line of credit arrangement (the “Credit Facility”), we have the ability to borrow on an unsecured basis up to an aggregate principal amount of $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 $2 billion. We are not aware of any non-compliance with the financial debt covenants of the Credit Facility as of March 31, 2021. PLC had an outstanding balance under the Credit Facility of $385 million as of March 31, 2021 and $190.0 million as of December 31, 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.
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.
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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 March 31, 2021 to fund commercial mortgage loans in the amount of $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 March 31, 2021, we held cash and short-term investments of $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 Three Months Ended
March 31,
20212020
 (Dollars In Millions)
Net cash (used in) provided by operating activities$(293)$164 
Net cash used in investing activities(1,309)(448)
Net cash provided by financing activities1,511 514 
Total$(91)$230 
For The Three Months Ended March 31, 2021 as compared to the Three Months Ended March 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 $491 million of inflows from secured financing liabilities for the three months ended March 31, 2021, as compared to the $268 million of outflows for the three months ended March 31, 2020 and $1.0 billion of inflows of investment product and universal life net activity as compared to $763 million in the prior year. In addition, we did not receive a capital contribution from our parent during 2021 as compared to a contribution of $20 million for the three months ended March 31, 2020.
The Company and certain of our subsidiaries, we are members of the FHLB of Cincinnati, the FHLB of New York, and the FHLB of 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 March 31, 2021, we had $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 March 31, 2021, the fair value of securities pledged under the repurchase program was $917 million, and the repurchase obligation of $854 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 15 basis points). During the three months ended March 31, 2021, the maximum balance outstanding at any one point in time related to
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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 $825 million. The average daily balance was $143 million (at an average borrowing rate of 33 basis points) during the year ended December 31, 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 March 31, 2021 and December 31, 2020, securities with a fair value of $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 March 31, 2021 and December 31, 2020, the fair value of the collateral related to this program was $133 million and $59 million and we have an obligation to return $133 million and $59 million of collateral to the securities 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 2021 is $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 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-
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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 months ended March 31, 2021, we ceded premiums to third party reinsurers amounting to $317 million. In addition, we had receivables from reinsurers amounting to $4.6 billion as of 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 on June 30, 2020. The Rehabilitation Plan presents the following two options to each cedent: (1) remain in business with SRUS and be governed by the Rehabilitation Plan, or (2) recapture business ceded to SRUS. Due to SRUS’s financial status, neither option would 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. On October 9, 2020, the Receiver filed a proposed order setting forth a schedule to present the Rehabilitation Plan for Court approval, which order contemplated 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. As of March 31, 2021, management does not believe that the ultimate outcome of the rehabilitation process will have a material impact on our financial position or results of operations.
Captive Reinsurance Companies
The 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.” 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 utilize a captive reinsurance company to implement reinsurance and capital management actions to satisfy these reserve requirements by financing the non-economic reserves through third-party financial institutions.
Golden Gate assumes business from affiliates only. Golden Gate is capitalized to a level we believe is sufficient to support its contractual risks and other general obligations. Golden Gate is a wholly owned subsidiaries of the Company and is subject to regulations in its domiciliary state of Vermont.

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
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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 and state adoption of Actuarial Guideline XLVIII and the Term and Universal Life Insurance Reserve Financing Model Regulation may make the use of new captive structures in the future less capital efficient and/or lead to lower product terms and 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 accounted for the transaction pursuant to ASC 805-50 “Transactions between Entities under Common Control”. The transferred assets and liabilities of Shades Creek were recorded by the Company at their carrying value at the date of transfer. In accordance with ASC 805-50, all prior financial information has been recast to reflect this transaction as of the earliest period presented under 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.
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 our financial strength ratings or those of 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.
As of March 31, 2021, we had policy liabilities and accruals of $54.4 billion. Our interest-sensitive life insurance policies have a weighted average minimum credited interest rate of 3.47%.
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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 2020 Annual Report on Form 10-K filed on March 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 March 31, 2021, the allowance for credit losses for unfunded loan commitments was $15 million. The Company had a total of 122 unfunded commitments that had a balance of $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 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.
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:
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•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
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 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 March 31, 2021, we had outstanding commercial mortgage loan commitments of $1.1 billion at a weighted average interest rate of 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 March 31, 2021 and December 31, 2020:
Credited Rate Summary
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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 $29,671 
Percentage of Total62 %12 %26 %100 %
Credited Rate Summary
December 31, 2020
  1-50 bpsMore than 
Atabove50 bps 
MGIRMGIRabove MGIRTotal
 (Account Value In Millions)
Crediting Rate
Universal Life Insurance    
2%$— $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 %
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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 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. The conversion to the Company’s operating environment was still in process, but not yet completed as of 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.
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Other than the considerations noted in the paragraph above, there were no changes in the Company’s internal control over financial reporting during the three months ended 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, 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 the Company’s business, and the ultimate effect on its 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 the 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, the Company’s ability to sell products through its regular channels and the demand for its products and services could be significantly impacted. The extent to which the COVID-19 pandemic could 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, Policy Fees, and Contractholder Liabilities. The impact of COVID-19 on general economic activity may negatively impact the Company’s premiums, policy fees, other revenues, and its 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, the Company has experienced, and it may continue to experience, an elevated incidence and level of life insurance claims. The Company expects to incur higher claims expense in our life insurance and deferred annuity businesses, partially offset by lower life contingent payments in its 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. The 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.

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•Investments. The disruption in the financial markets related to COVID-19 has and may continue to adversely affect certain 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 its 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.

•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, which make it difficult to anticipate exact financial impacts. If these extensions continue, premium waivers may significantly exceed the Company’s expectations, and its earnings may be negatively impacted. If policyholder lapse and surrender rates or premium waivers significantly exceed the Company’s expectations, the Company may need to change its assumptions, models, or reserves.

•Operational Disruptions and Heightened Cybersecurity Risks. Currently, approximately 90% of the Company’s employees are working remotely with only a limited number of employees working at certain facilities. The current period of Companywide remote work arrangements could introduce additional operational risk, including but not limited to cybersecurity risks, and it could impair the Company’s ability to effectively manage its 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 the Company’s or third-party system capabilities could result in a deterioration of its 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, the Company is more dependent on remote internet and telecommunications services, and it potentially faces 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 the 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 the Company’s financial statement balances and estimates and assumptions used to run its 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 the 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 the Company’s employees are currently working from home, new processes, procedures, and controls could be required to respond to changes in its business environment. Should any key employees become ill from COVID-19 and unable to work, the Company’s ability to operate its internal controls may be adversely affected.

•Reliance on the Performance of Third Parties. The Company relies on outside parties, including independent third-party distribution channels, data processing servicers, and investment fund managers, among others. While the Company closely monitors the business continuity activities of these third parties, successful implementation and execution of their business continuity strategies are largely outside of its 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, the 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 this report, and could materially adversely affect the Company’s business, results of operations, or financial condition. The 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 the Company’s business from the full impacts of the pandemic.

The Company’s reinsurers could fail to meet assumed obligations, attempt to increase rates, or terminate
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agreements 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 premium rates it charges for policies it has already issued, and for competitive reasons it may not be able to raise the premium 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 available 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 our reputation and have a material adverse effect on our business, financial condition and 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 to 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 enacted. 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 incur substantial costs or require it to change its business practices and policies. Non-compliance could result in monetary penalties or significant legal liability.

Many of the associates who conduct the Company’s business 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 confidentiality of consumer information that is accessible to, or in the possession of, its associates. It is possible that an associate could, intentionally or unintentionally, disclose or misappropriate confidential consumer information or Company data could be the subject of a cybersecurity 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 occur. Such internal control inadequacies or non-compliance could materially damage the Company’s reputation or lead to regulatory, civil or criminal investigations and penalties.

The Company depends on the ability of its subsidiaries to transfer funds to it to meet its obligations.
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The Company owns insurance companies. A portion of the Company’s funding comes from dividends from its operating subsidiaries, revenues from services rendered to subsidiaries, investment income, and external financing. These funding sources support the Company’s general corporate needs including its debt service. If the funding the Company receives from its subsidiaries is insufficient for it to fund its debt service and other obligations, it may be required to raise funds through the incurrence of debt, or the sale of assets.

The states in which the Company’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 constrained by the amount of surplus they hold to maintain their financial strength ratings, to provide an additional layer of margin for risk protection and for future investment in our businesses.


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Item 6.    Exhibits
Exhibit  
Number Document
 2020 Amended and Restated Charter of Protective Life Insurance Company dated as of December 30, 2020, filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
 2020 Amended and Restated By-Laws of Protective Life Insurance Company dated as of December 30, 2020, filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 30, 2021 (No. 001-31901).
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

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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: May 14, 2021 By:/s/ PAUL R. WELLS
  Paul R. Wells
  Chief Accounting Officer
  

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