SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF INCOME

PROTECTIVE LIFE INSURANCE COMPANY

(Parent Company)

	For The Year Ended December 31,
	2013			2012			2011
	(Dollars In Thousands)
Revenues
Premiums and policy fees	$	869,498		$	807,044		$	622,342
Dividends from subsidiaries*	109,373			129,751			186,400
Net investment income (loss)	1,301,510			1,331,811			1,255,985
Realized investment gains (losses)	103,422			(43,384		)	32,255
Other income	162,666			212,693			60,746
Total revenues	2,546,469			2,437,915			2,157,728
Benefits and Expenses
Benefits and settlement expenses	1,614,671			1,556,966			1,386,883
Amortization of deferred policy acquisition costs and value of business acquired	219,593			134,549			155,614
Other operating expenses	265,345			405,222			189,423
Total benefits and expenses	2,099,609			2,096,737			1,731,920
Income (loss) before income tax and other items below	446,860			341,178			425,808
Income tax (benefit) expense
Current	(53,269		)	(103,541		)	(16,675		)
Deferred	163,208			163,183			85,472
Total income tax (benefit) expense	109,939			59,642			68,797
Income (loss) before equity in undistributed income of subsidiaries	336,921			281,536			357,011
Equity in undistributed income (loss) of subsidiaries*	(45,319		)	27,000			(33,255		)
Net income	$	291,602		$	308,536		$	323,756

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF COMPREHENSIVE INCOME

PROTECTIVE LIFE INSURANCE COMPANY

(Parent Company)

	For The Year Ended December 31,
	2013			2012		2011
	(Dollars In Thousands)
Net income	$	291,602		$	308,536	$	323,756

Other comprehensive income	$	(1,272,158	)	$	756,803	$	696,481

Total other comprehensive income	$	(980,556	)	$	1,065,339	$	1,020,237

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEETS

PROTECTIVE LIFE INSURANCE COMPANY

(Parent Company)

	As of December 31,
	2013			2012
	(Dollars In Thousands)
Assets
Fixed maturities	$	20,616,992		$	20,609,232
Equity securities		393,911			276,046
Mortgage loans	4,027,626			4,182,263
Investment real estate	16,873			6,517
Policy loans	908,431			785,841
Other long-term investments	416,290			360,867
Short-term investments	74,907			143,344
Investments in subsidiaries (equity method)*	2,602,566			2,586,543
Total investments	29,057,596			28,950,653
Cash	2,440			128,568
Accounts and premiums receivable	87,636			70,011
Reinsurance receivables	5,575,085			5,358,881
Receivables from subsidiaries*	—			5,424
Deferred policy acquisition costs and value of business acquired	2,271,579			2,089,708
Goodwill	22,582			25,680
Property and equipment, net	49,892			45,921
Other assets	585,597			428,737
Income tax receivable	7,043			165,013
Assets related to separate accounts	13,154,395			10,030,831
Total Assets	$	50,813,845		$	47,299,427
Liabilities
Policy liabilities and accruals	$	17,868,373		$	16,554,276
Stable value product account balances	2,559,552			2,510,559
Annuity account balances	9,551,869			9,308,179
Other policyholders’ funds	521,799			452,798
Accrued expenses and other liabilities	1,148,485			1,354,321
Payables to subsidiaries*	2,964			—
Deferred income taxes	965,982			1,251,250
Securities sold under repurchase agreements	350,000			150,000
Liabilities related to separate accounts	13,154,395			10,030,831
Total liabilities	46,123,419			41,612,214
Commitments and contingent liabilities- Note 3
Shareowners’ equity
Preferred stock	2			2
Common stock	5,000			5,000
Additional paid-in-capital	1,433,258			1,363,258
Retained earnings, including undistributed (losses) of subsidiaries:(2013- $(774,766); 2012- $(729,448))	2,713,200			2,507,829
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments, all from subsidiaries, net of income tax: (2013: $290,553; 2012- $979,251)	539,598			1,818,608
Net unrealized gains (losses) related to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax (2013- $325; 2012- $(2,147))	603			(3,988		)
Accumulated gain (loss)- derivatives, net of income tax: (2013- $(666); 2012- $(1883))	(1,235		)	(3,496		)
Total shareowners’ equity	4,690,426			5,687,213
Total liabilities and shareowners’ equity	$	50,813,845		$	47,299,427

SCHEDULE II- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF CASH FLOWS

PROTECTIVE LIFE INSURANCE COMPANY

(Parent Company)

	For The Year Ended December 31,
	2013			2012			2011
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	291,602		$	308,536		$	323,756
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment losses (gains)	(103,422		)	43,384			(32,255		)
Equity in undistributed (net income) loss of subsidiaries*	45,319			(27,000		)	33,255
Non-cash dividend from subsidiary	—			—			—
Amortization of deferred policy acquisition costs and value of businesses acquired	219,593			134,549			155,614
Capitalization of deferred policy acquisition cost	(369,538		)	(431,560		)	(190,859		)
Depreciation expense	6,146			4,716			5,944
Deferred income taxes	163,208			163,183			85,472
Accrued income taxes	157,970			(111,649		)	15,332
Interest credited to universal life and investment products	703,620			775,749			790,799
Policy fees assessed on universal life and investment products	(716,862		)	(582,848		)	(487,602		)
Change in reinsurance receivables	(209,152		)	(630,244		)	(55,169		)
Change in accrued investment income and other receivables	3,327			(18,632		)	(10,280		)
Change in due to/from subsidiaries, net	8,388			(5,424		)	(7,650		)
Change in policy liabilities and other policyholders’ funds of traditional life and health products	120,456			668,760			(217,459		)
Trading securities:
Maturities and principal reductions of investments	133,635			223,889			230,857
Sale of investments	235,701			430,095			817,434
Cost of investments acquired	(330,119		)	(526,694		)	(860,487		)
Other net change in trading securities	33,650			(62,528		)	(37,030		)
Change in other liabilities	47,639			113,825			(153,839		)
Other, net	91,254			45,512			(120,189		)
Net cash provided by operating activities	532,415			515,619			285,644
Cash flows from investing activities
Maturities and principal reductions of investments	637,855			767,796			972,818
Sale of investments	2,104,400			1,921,862			2,082,356
Cost of investments acquired	(3,324,738		)	(3,425,248		)	(3,348,476		)
Mortgage loans:
New borrowings	(543,760		)	(262,677		)	(472,893		)
Repayments	692,377			657,780			382,229
Additional investments in/return of capital from subsidiaries*	(54,228		)	(103,236		)	(113,941		)
Change in investment real estate, net	(10,356		)	4,065			(4,306		)
Change in policy loans, net	5,978			(23,122		)	17,336
Purchase of property and equipment	(10,117		)	(4,053		)	(14,998		)
Change in other long-term investments, net	(212,261		)	(111,745		)	123,388
Change in short-term investments, net	45,250			(31,174		)	74,246
Net unsettled security transactions	13,652			37,169			68,810
Payments for business acquisitions	(471,714		)	—			(209,609		)
Net cash used in investing activities	(1,127,662		)	(572,583		)	(443,040		)
Cash flows from financing activities
Capital contributions	70,000			—			—
Repurchase program borrowings	200,000			150,000			—
Investment product and universal life deposits	2,883,575			3,692,312			3,613,791
Investment products and univeral life withdrawals	(2,684,456		)	(3,624,816		)	(3,576,474		)
Other financing activities, net	—			—			—
Net cash provided by financing activities	469,119			217,496			37,317
Change in cash	(126,128		)	160,532			(120,079		)
Cash at beginning of period	128,568			(31,964		)	88,115
Cash at end of period	$	2,440		$	128,568		$	(31,964	)

SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PROTECTIVE LIFE INSURANCE COMPANY

(Parent Company)

NOTES TO CONDENSED FINANCIAL INFORMATION

The Company publishes consolidated financial statements that are its primary financial statements. Therefore, this parent company condensed financial information is not intended to be the primary financial statements of the Company, and should be read in conjunction with the consolidated financial statements and notes thereto of Protective Life Insurance Company and subsidiaries.

1. BASIS OF PRESENTATION

Nature of Operations

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 whose common stock is traded on the New York Stock Exchange “PL”. The Company provides financial services through the production, distribution, and administration of insurance and investment products. 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 division devoted to the acquisition of insurance policies from other companies. The condensed financial statements of Protective Life Insurance Company reflect its wholly owned subsidiaries using the equity method of accounting.

2. SHAREOWNERS’ EQUITY

PLC owns all of the 2,000 shares of non-voting preferred stock issued by the Company’s subsidiary, Protective Life and Annuity Insurance Company (“PL&A”). The stock pays, when and if declared, noncumulative participating dividends to the extent PL&A’s statutory earnings for the immediately preceding fiscal year exceeded $1.0 million. In 2013, 2012, and 2011, PL&A paid no dividends to PLC on its preferred stock.

3. COMMITMENTS AND CONTINGENCIES

The Company leases administrative and marketing office space in approximately 19 cities including 24,090 square feet in Birmingham (excluding the home office building), with most leases being for periods of three to ten years. The Company had rental expense of $11.2 million, $11.2 million, and $10.8 million for the years ended December 31, 2013, 2012, and 2011, respectively. The aggregate annualized rent was approximately $7.0 million for the year ended December 31, 2013. The following is a schedule by year of future minimum rental payments required under these leases:

Year	Amount
	(Dollars In Thousands)
2014	$	6,971
2015	5,845
2016	3,770
2017	1,391
2018	750
Thereafter	1,978

Additionally, the Company leases a building contiguous to its home office. The lease was renewed in December 2013 and was extended to December 2018. At the end of the lease term the Company may purchase the building for approximately $75 million. Monthly rental payments are based on the current LIBOR rate plus a spread. The following is a schedule by year of future minimum rental payments required under this lease:

Year	Amount
	(Dollars In Thousands)
2014	$	1,236
2015	1,236
2016	1,239
2017	1,236
2018	76,211

The Company has provided liquidity support to some of its insurance subsidiaries in the form of guarantees of certain (primarily insurance) obligations. The majority of these obligations are backed by assets held in the Company’s insurance subsidiaries which the Company believes sufficiently cover the underlying obligations.

4. SUPPLEMENTAL CASH FLOW INFORMATION

	For The Year Ended December 31,
	2013			2012		2011
	(Dollars In Thousands)
Cash paid during the year for:
Interest paid	$	550		$	563	$	149
Income taxes (reduced by amounts received from affiliates under a tax sharing agreement)	(212,786		)	6,897		(29,527		)

Noncash investing and financing activities:
Decrease in collateral for securities lending transactions	—			—		(96,953		)

5. DERIVATIVE FINANCIAL INSTRUMENTS

In connection with a reinsurance agreement between the Company and Shades Creek, Shades Creek assumed the economic performance of certain hedging instruments held by the Company, giving rise to a derivative instrument. As of December 31, 2013, the Company included in its balance sheet a liability for this instrument of $34.3 million. During the year ended December 31, 2013, the Company included in its statement of income pre-tax gains of $71.9 million.