Protective NY COLI VUL (Form: N-VPFS, Received: 08/23/2021 15:53:39)

INDEX TO FINANCIAL STATEMENTS

Protective NY COLI VUL

There are no financial statements for Protective NY COLI VUL because it had not commenced operations as of December 31, 2020.

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

Reports of Independent Auditors	F-1
Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus as of December 31, 2020 and 2019	F-5
Statutory Statements of Operations for each of the years in the three-year period ended December 31, 2020	F-6
Statutory Statements of Changes in Capital and Surplus for each of the years in the three-year period ended December 31, 2020	F-7
Statutory Statements of Cash Flow for each of the years in the three-year period ended December 31, 2020	F-8
Notes to Financial Statements	F-10
Supplemental Schedules:
Schedule I Summary of Investments — Other Than Investments in Related Parties as of December 31, 2020	S-1
Schedule IV Reinsurance as of and for the years ended December 31, 2020 and 2019	S-2

All other schedules to the statutory financial statements required by Article 7 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted.

FSA-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Protective Life and Annuity Insurance Company:

We have audited the accompanying financial statements of Protective Life and Annuity Insurance Company, which comprise the statutory statements of admitted assets, liabilities, and capital and surplus as of December 31, 2020 and 2019, and the related statutory statements of operations, changes in capital and surplus, and cash flow for the years then ended, and the related notes to the statutory financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with statutory accounting practices prescribed or permitted by the Alabama Department of Insurance. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles

As described in Notes 1 and 2 to the financial statements, the financial statements are prepared by Protective Life and Annuity Insurance Company using statutory accounting practices prescribed or permitted by the Alabama Department of Insurance, which is a basis of accounting other than U.S. generally accepted accounting principles. Accordingly, the financial statements are not intended to be presented in accordance with U.S. generally accepted accounting principles.

The effects on the financial statements of the variances between the statutory accounting practices described in Note 2 and U.S. generally accepted accounting principles, although not reasonably determinable, are presumed to be material.

F-1

Adverse Opinion on U.S. Generally Accepted Accounting Principles

In our opinion, because of the significance of the variances between statutory accounting practices and U.S. generally accepted accounting principles discussed in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles paragraph, the financial statements referred to above do not present fairly, in accordance with U.S. generally accepted accounting principles, the financial position of Protective Life and Annuity Insurance Company as of December 31, 2020 and 2019, or the results of its operations or its cash flows for the years then ended.

Opinion on Statutory Basis of Accounting

In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities, and capital and surplus of Protective Life and Annuity Insurance Company as of December 31, 2020 and 2019, and the results of its operations and its cash flow for the years then ended, in accordance with statutory accounting practices prescribed or permitted by the Alabama Department of Insurance described in Notes 1 and 2.

Other Matter

Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information included in Schedule I Summary of Investments — Other Than Investments in Related Parties and Schedule IV Reinsurance is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Securities and Exchange Commission's Regulation S-X. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

/s/ KPMG LLP

Birmingham, Alabama
April 14, 2021

F-2

Report of Independent Auditors

To the Board of Directors of
Protective Life and Annuity Insurance Company:

We have audited the accompanying statutory financial statements of Protective Life and Annuity Insurance Company (a wholly owned subsidiary of Protective Life Insurance Company) (the "Company"), which comprise the statutory statements of operations, changes in capital and surplus, and cash flows for the year ended December 31, 2018.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the Alabama Department of Insurance. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles

As described in Notes 1 and 2 to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the Alabama Department of Insurance, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

The effects on the financial statements of the variances between the statutory basis of accounting described in Notes 1 and 2 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

F-3

Adverse Opinion on U.S. Generally Accepted Accounting Principles

In our opinion, because of the significance of the matter discussed in the "Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles" paragraph, the financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the results of the Company's operations or its cash flows for the year ended December 31, 2018.

Opinion on Statutory Basis of Accounting

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of the Company's operations and its cash flows for the year ended December 31, 2018, in accordance with the accounting practices prescribed or permitted by the Alabama Department of Insurance described in Notes 1 and 2.

/s/ PricewaterhouseCoopers LLP

Birmingham, Alabama
April 29, 2019

F-4

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

STATEMENTS OF ADMITTED ASSETS, LIABILITIES, AND CAPITAL AND SURPLUS

(Statutory Basis)

	December 31
	2020			2019
	($ in thousands, except share amounts)
ADMITTED ASSETS
Bonds (fair value: 2020 — $6,418,872; 2019 — $5,811,563)	$	5,693,320		$	5,395,862
Preferred stocks (fair value: 2020 — $21,015; 2019 — $23,252)		20,387			21,301
Common stocks-unaffiliated (cost: 2020 — $5,522; 2019 — $1)		5,522			1
Mortgage loans on real estate		194,437			96,994
Contract loans		52,324			55,127
Cash		3,995			3,409
Cash equivalents		39,925			131,723
Short term investments		0			1,036
Receivable for securities		133			71
Derivatives		30,127			7,423
Derivative collateral and receivables		5,661			1,191
Other invested assets		29,808			18,296
Total cash and investments		6,075,639			5,732,434
Amounts recoverable from reinsurers		2,286			4,743
Deferred and uncollected premiums		2,586			3,369
Investment income due and accrued		52,818			53,144
Deferred tax asset		18,059			18,027
Other assets		6,441			7,033
Assets held in Separate Accounts		164,691			180,072
Total admitted assets	$	6,322,520		$	5,998,822
LIABILITIES AND CAPITAL AND SURPLUS
Aggregate reserves:
Life policies and contracts	$	5,445,001		$	5,319,758
Accident and health		2,297			2,384
Liability for deposit-type contracts		29,400			26,835
Policy and contract claims:
Life		23,537			20,271
Accident and health		21			11
Other policyholders' funds and policy and contract liabilities		3,755			2,662
Interest maintenance reserve (IMR)		50,923			51,498
Transfers from Separate Accounts due or accrued, net		(6,994	)		(7,410	)
Taxes, licenses and fees due or accrued		286			310
Remittances and items not allocated		2,534			11,873
Borrowed money		71,120			0
Asset valuation reserve (AVR)		27,106			24,318
Payable to parent, subsidiaries, and affiliates		2,384			9,367
Derivatives		26,832			4,870
Derivative collateral and payables		1,125			2,000
Other liabilities		6,563			4,512
Liabilities held in Separate Accounts		164,691			180,072
Total liabilities		5,850,581			5,653,331
Capital and surplus:
Common stock, $10.00 par value; 500,000 shares authorized; 250,000 shares issued and outstanding		2,500			2,500
Preferred stocks, $1 par value, shares authorized, issued and outstanding: 2,000		2			2
Gross paid-in and contributed surplus		529,569			429,569
Unassigned funds — surplus		(60,132	)		(86,580	)
Total capital and surplus		471,939			345,491
Total liabilities and capital and surplus	$	6,322,520		$	5,998,822

See notes to the financial statements (statutory basis).
F-5

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

STATEMENTS OF OPERATIONS

(Statutory Basis)

	Years Ended December 31
	2020			2019			2018
	($ in thousands)
Revenue:
Premiums and annuity considerations	$	414,070		$	1,339,177		$	3,190,493
Considerations for supplementary contracts with life contingencies		559			901			1,849
Net investment income		223,009			217,920			159,597
Commissions and expense allowances on reinsurance ceded		2,779			3,064			3,179
Amortization of interest maintenance reserve		5,307			4,138			3,136
Net gain (loss) from operations from Separate Accounts		135			303			(291	)
Reserve adjustments on reinsurance ceded		(12,562	)		(17,690	)		(19,051	)
Other income		10,549			7,933			5,880
Total revenue		643,846			1,555,746			3,344,792
Benefits and expenses:
Death and annuity benefits		172,725			119,321			92,232
Accident and health benefits		754			726			742
Surrender benefits and other fund withdrawals		272,864			345,134			263,648
Other policy and contract benefits		3,434			3,926			2,876
Increase in aggregate reserves		124,955			769,250			2,898,686
Commissions and expense allowances on reinsurance assumed		2,545			16,167			140,559
Commissions		12,782			13,464			13,535
General expenses		22,120			24,254			19,188
Insurance taxes, licenses, and fees		3,310			3,978			3,177
Transfers from Separate Accounts, net		(21,627	)		(20,449	)		(17,336	)
Change in MODCO reserves		0			238,543			0
Other expenses		2,431			(206	)		99
Total benefits and expenses		596,293			1,514,108			3,417,406
Net income (loss) from operations before dividends to policyholders and federal income taxes		47,553			41,638			(72,614	)
Dividends to policyholders		1,097			1,075			1,597
Federal income taxes		5,889			14,902			43,464
Net income (loss) from operations		40,567			25,661			(117,675	)
Net realized capital gains (losses) (less $1,448, $2,172, and $115 of capital gains tax in 2020, 2019, and 2018, respectively, and excluding $4,731, $6,908, and $792 transferred to the IMR in 2020, 2019, and 2018, respectively)		(9,267	)		(1,252	)		(1,029	)
Net income (loss)	$	31,300		$	24,409		$	(118,704	)

See notes to the financial statements (statutory basis).
F-6

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

STATEMENT OF CHANGES IN CAPITAL AND SURPLUS

(Statutory Basis)

	($ in thousands)
Capital and surplus, December 31, 2017	$	155,902
Net loss		(118,704	)
Change in nonadmitted assets and related items		(47,127	)
Change in asset valuation reserve		(5,022	)
Change in net deferred income tax		56,099
Change in net unrealized capital gains and losses		308
Contribution from parent		225,000
Change in surplus as a result of reinsurance		(342	)
Prior period adjustment		2,146
Capital and surplus, December 31, 2018		268,260
Net income		24,409
Change in nonadmitted assets and related items		1,155
Change in unauthorized reinsurance		(6	)
Change in asset valuation reserve		(6,429	)
Change in net deferred income tax		4,063
Change in net unrealized capital gains and losses		(630	)
Contribution from parent		55,000
Change in surplus as a result of reinsurance		(331	)
Capital and surplus, December 31, 2019		345,491
Net income		31,300
Change in nonadmitted assets and related items		(2,104	)
Change in unauthorized reinsurance		(1	)
Change in asset valuation reserve		(2,788	)
Change in net deferred income tax		77
Change in net unrealized capital gains and losses		478
Contribution from parent		100,000
Change in surplus as a result of reinsurance		(313	)
Change in reserve on account of change in valuation basis		(201	)
Capital and surplus, December 31, 2020	$	471,939

See notes to the financial statements (statutory basis).
F-7

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

STATEMENTS OF CASH FLOW

(Statutory Basis)

	Years Ended December 31
	2020			2019			2018
	($ in thousands)
Cash from operations
Premiums and annuity considerations	$	412,144		$	461,768		$	636,443
Commission and expense allowances ceded		2,779			3,064			3,179
Net investment income		230,632			221,978			160,793
Miscellaneous income		13,335			9,864			5,248
Benefit and loss related payments		(455,835	)		(486,690	)		(364,143	)
Commissions and expenses paid		(40,733	)		6,633			(76,683	)
Net transfers from Separate Accounts		22,043			13,870			19,265
Dividends paid to policyholders		(1,101	)		(1,064	)		(710	)
Federal and foreign income taxes paid		(6,481	)		(21,787	)		(50,498	)
Net cash from operations		176,783			207,636			332,894
Cash from investments
Proceeds from investments sold, matured or repaid:
Bonds		806,136			657,215			423,539
Stocks		8,250			5,856			2,651
Mortgage loans		24,883			13,194			11,112
Other invested assets		0			215			0
Net gains (losses) on cash, cash equivalents and short-term investments		295			1			(24	)
Miscellaneous proceeds		0			4			602
Total investment proceeds		839,564			676,485			437,880
Cost of investments acquired:
Bonds		(1,118,177	)		(874,415	)		(974,207	)
Stocks		(6,256	)		(221	)		(390	)
Mortgage loans		(122,338	)		0			(5,000	)
Other invested assets		(9,977	)		0			0
Miscellaneous applications		(17,105	)		(7,781	)		0
Total investments acquired		(1,273,853	)		(882,417	)		(979,597	)
Net decrease (increase) in contract loans and premium notes		2,781			2,857			1,625
Net cash used in investments		(431,508	)		(203,075	)		(540,092	)

See notes to the financial statements (statutory basis).
F-8

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

STATEMENTS OF CASH FLOW

(Statutory Basis)

	Years Ended December 31
	2020			2019			2018
	($ in thousands)
Cash from financing and miscellaneous sources
Cash provided (applied):
Funds held under coinsurance	$	0		$	(12	)	$	(2	)
Capital contribution from parent		100,000			55,000			184,976
Borrowed funds		71,120			0			0
Net deposits (withdrawals) from deposit-type contracts		772			2,932			(493	)
Other cash provided (applied), net		(9,415	)		25,814			35,948
Net cash from financing and miscellaneous sources		162,477			83,734			220,429
Net change in cash, cash equivalents, and short term investments		(92,248	)		88,295			13,231
Cash, cash equivalents, and short term investments, beginning of year		136,168			47,873			34,642
Cash, cash equivalents, and short term investments, end of year	$	43,920		$	136,168		$	47,873
Non-cash exchanges of securities (Investing activities)	$	88,224		$	84,416		$	27,864
Non-cash change in retained asset account (Operations, Financing and Miscellaneous sources)	$	1,793		$	689		$	830
Non-cash change in reinsurance loss contingency reserve	$	1,924		$	0		$	0
Non-cash contribution of bonds from Protective Life Insurance Company (Investing, Financing and Miscellaneous sources)	$	0		$	0		$	39,701
Accrued interest on bonds contributed from Protective Life Insurance Company (Operations, Financing and Miscellaneous sources)	$	0		$	0		$	323
Reclassification of securities from Bonds to Other Invested Assets (Investing activities)	$	1,584		$	6,917		$	8,991
Great-West reinsurance transaction initial impact (Operations) (See Note 9)	$	0		$	562,991		$	0
Great-West reinsurance transaction initial impact (Investing activities) (See Note 9)	$	0		$	582,489		$	0
Great-West reinsurance transaction initial impact (Financing and Miscellaneous sources) (See Note 9)	$	0		$	19,498		$	0
Liberty reinsurance transaction initial impact (Operations) (See Note 9)	$	0		$	0		$	2,430,726
Liberty reinsurance transaction initial impact (Investing activities) (See Note 9)	$	0		$	0		$	2,427,588
Liberty reinsurance transaction initial impact (Financing and Miscellaneous sources) (See Note 9)	$	0		$	0		$	3,138

See notes to the financial statements (statutory basis).
F-9

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

1. GENERAL

Basis of Presentation — The statutory basis financial statements of Protective Life and Annuity Insurance Company (the "Company") have been prepared in conformity with accounting practices prescribed or permitted by the Alabama Department of Insurance (the "Department"). The Company is a stock, legal reserve, life, and accident and health insurer.

All outstanding shares of the Company's common stock are owned by Protective Life Insurance Company ("PLICO"), a life insurance company domiciled in the State of Tennessee. All outstanding shares of the Company's preferred stock are owned by Protective Life Corporation ("PLC"), an insurance holding company domiciled in the State of Delaware. PLC is a wholly-owned subsidiary of Dai-ichi Life Holdings, Inc. ("Dai-ichi Life"), a kabushiki kaisha organized under the laws of Japan. PLICO is a wholly owned subsidiary of PLC. Other affiliated insurers include Golden Gate Captive Insurance Company, Protective Property & Casualty Insurance Company, MONY Life Insurance Company, Shades Creek Captive Insurance Company, and West Coast Life Insurance Company.

The Department recognizes only statutory practices prescribed or permitted by the State of Alabama for determining and reporting the financial condition and results of operations of an insurance company, and for determining its solvency under Alabama Insurance Law. The National Association of Insurance Commissioners' ("NAIC") Accounting Practices and Procedures manual, effective January 1, 2001, ("NAIC SAP") has been adopted as a component of prescribed or permitted practices by the State of Alabama. The State of Alabama has adopted certain prescribed accounting practices that differ from those found in NAIC SAP, none of which had a material impact on the Company's Statements of Admitted Assets, Liabilities, and Capital and Surplus as of December 31, 2020 and 2019, or Statements of Operations for each of the years in the three-year period ended December 31, 2020.

The Company has no permitted practices as of December 31, 2020 and 2019, or for each of the years in the three-year period ended December 31, 2020.

The preparation of financial statements in conformity with NAIC SAP requires management to make various estimates that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, as well as the reported amounts of revenues and expenses. Actual results could differ from those estimates.

Nature of Operations — The Company is an entity through which PLC markets, distributes and services life insurance and annuity products primarily in the State of New York. New York direct premiums were 98.2%, 96.9%, and 97.3% of the Company's total direct premiums and New York direct annuity premiums accounted for 79.3%, 85.8%, and 93.4% of the Company's total direct premiums in 2020, 2019 and 2018, respectively. In addition, on June 3, 2019, the Company assumed a block of life and annuity policies issued in New York from Great-West Life & Annuity Company of New York. On May 1, 2018, the Company assumed a block of life and annuity policies issued in New York from Liberty Life Assurance Company of Boston. See Note 9 for more details of these reinsurance transactions.

The Company has no employees, and, therefore, has no employee benefit plans.

F-10

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

1. GENERAL — (Continued)

Summary of Significant Accounting Policies — The Company uses the following significant accounting policies:

Cash and Investments

Investments are stated at values determined by methodologies prescribed by the NAIC. Bonds not backed by other loans are stated at amortized cost using the interest method, except for bonds with a NAIC designation of 6 which are carried at the lower of amortized cost or fair value. For bonds carried at fair value, the difference between cost and fair value is reflected in "Change in net unrealized capital gains and losses" in unassigned funds.

Loan-backed bonds and structured securities stated at amortized cost utilize anticipated prepayments to determine the effective yield at purchase. The majority of prepayment assumptions for loan-backed bonds and structured securities are obtained from Bloomberg; other sources are broker-dealer surveys, trustee information, and internal estimates. These assumptions are consistent with current interest rates and the economic environment. Changes in the timing of estimated future cash flows from the original purchase assumptions are accounted for using the retrospective method.

Bond and preferred stock fair values are obtained from a nationally recognized pricing service. The Company uses quotes obtained from brokers and internally developed pricing models to price those bonds that are not priced by this service.

Preferred stocks are stated at amortized cost or fair values, depending on the assigned NAIC designation. For preferred stocks carried at fair value, the difference between cost and fair value is reflected in "Change in net unrealized capital gains and losses" in unassigned funds.

The Company's investments in surplus notes with an NAIC Credit Rating Providers ("NAIC CRP") designation of NAIC 1 or NAIC 2 are reported at amortized cost. Surplus notes held with no NAIC CRP designation, or with a designation of NAIC 3, 4, 5, or 6, are carried at the lesser of amortized cost or fair value. Investments in surplus notes are reported as "Other invested assets."

Common stocks are generally stated at a fair value obtained from a nationally recognized pricing service.

Mortgage loans on real estate are stated at the aggregate unpaid principal balance. Book value adjustments are made for other-than-temporary declines. Temporary declines in value are reflected in in "Change in net unrealized capital gains and losses" in unassigned funds.

Contract loans are carried at the unpaid principal balance. The excess of unpaid contract loan balances over the cash surrender value, if any, is nonadmitted and reflected as an adjustment to surplus. Interest is capitalized on the anniversary date.

Cash includes all demand deposits reduced by the amount of outstanding checks. The Company has deposits with certain financial institutions which exceed federally insured limits; however, total deposits are maintained within the bank-specific deposit level guidelines established by the Investments Policy Committee (IPC). The Company reviews the creditworthiness of these financial institutions and believes there is minimal risk of material loss.

F-11

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

1. GENERAL — (Continued)

Short-term investments are stated at amortized cost, which approximates fair value. The short-term investment category includes those investments whose maturities at the time of acquisition were one year or less. Money market mutual funds are classified as cash equivalents with measurement at fair value.

Receivables and payables for securities represent balances outstanding with brokers related to purchase and sale transactions. These balances are cleared as amounts are received or paid.

Investment income is recorded when earned.

Realized gains and losses on the sale or maturity of investments are determined on the basis of specific identification and are included in the Statements of Operations on the trade date, net of the amount transferred to the Interest Maintenance Reserve ("IMR") and net of applicable federal income taxes. The Company analyzes various factors to determine if any specific other-than-temporary asset impairment ("OTTI") exists. Once a determination has been made that a specific OTTI exists, a realized loss is incurred and the cost basis of the impaired asset, other than loan-backed and structured securities, is adjusted to its fair value. Impaired loan-backed and structured securities are adjusted to the sum of their discounted future expected cash flows.

Derivatives

Derivative instruments expose the Company to credit and market risk. The Company minimizes its credit risk by entering into transactions with highly-rated counterparties. The Company manages market risk by establishing and monitoring limits as to the types and degrees of risk that may be undertaken. The Company monitors its use of derivatives in connection with its overall asset/liability management programs and risk management strategies. In addition, all derivative programs are monitored by the Company's risk management department.

The Company uses various derivative instruments to manage risks related to certain annuity products, including the guaranteed living withdrawal benefit ("GLWB") rider associated with variable annuity ("VA") contracts. The derivative instruments the Company may use include interest rate swaps, interest rate swaptions, interest rate futures, equity futures, equity options, foreign currency futures, variance swaps, volatility futures, volatility options, and credit derivatives. The Company can use these derivatives as economic hedges against risks inherent in the products. These risks have a direct impact on the cost of the VA GLWB products and are correlated with the equity markets, interest rates, foreign currency levels, and overall volatility.

The Company uses equity options to manage its equity risk in its fixed indexed annuity products. The Company may purchase and sell index call and put options which have underlyings based upon the S&P equity index. As of December 31, 2020 and 2019, the Company had paid a net amount of $1.3 million and $0.4 million, respectively, for its open call options.

The Company uses US equity index futures to manage its equity risk in its fixed indexed annuity products. These positions are traded on recognized exchanges, and they require the posting of margin through the broker. Because the counterparties also are required to post margin, these positions do not contain significant counterparty credit risk.

F-12

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

1. GENERAL — (Continued)

The Company uses a combination of derivative instruments to mitigate volatility, equity, and currency risk related to certain guaranteed minimum benefits, including GLWB benefits within its VA products.

The Company uses US and foreign equity market index futures and foreign currency futures transactions. These positions are traded on recognized exchanges, and they require the posting of margin through the broker. Because the counterparties also are required to post margin, these positions do not contain significant counterparty credit risk.

The Company uses index put options which have underlyings based upon several equity indexes, both U.S. and foreign. As of December 31, 2020, 2019, and 2018, the Company had paid $2.1 million, $2.8 million, and $0.7 million, respectively, for its open put options.

None of the Company's derivative instruments qualify for hedge accounting. Therefore, all derivative instruments are reported at fair value and are included in the Statements of Admitted Assets, Liabilities, and Capital and Surplus. The changes in the fair value of these derivatives are recognized immediately as changes in unrealized gains (losses) in surplus. Upon termination, the realized gain or loss is recorded in realized capital gains and losses.

During the years ended December 31, 2020, 2019, and 2018, the Company had $0.6 million of unrealized gains, $0.8 million of unrealized losses, and $0.4 million of unrealized gains, respectively, related to derivatives that did not qualify for hedge accounting.

Premium Revenue and Related Commissions

Annuity considerations are recognized as revenue when received. Premiums for flexible premiums/universal life policies and single premium credit life are recognized as revenues when collected. Premiums for traditional life insurance products are recognized as revenue when due. Accident and health premiums are earned ratably over the terms of the related insurance contracts.

Considerations for deposit type contracts, which do not have any life contingencies, are recorded directly to the related liability.

Acquisition costs, such as commissions and other costs related to new business, are expensed as incurred.

The amount of dividends to be paid to policyholders is determined annually by the Company's Board of Directors. The aggregate amount of policyholders' dividends is related to actual interest, mortality, morbidity and expense experience for the year and judgment as to the appropriate level of statutory surplus to be retained by the Company.

Aggregate Reserves for Policies and Contracts

Policy reserves for future life insurance policy benefits are actuarially computed using methods and assumptions in accordance with certain state statutes and administrative regulations. The mortality table and interest assumptions currently being used on the majority of policies in force are the 1941, 1958, 1980, and 2001 Commissioner's Standard Ordinary tables with 2.25% to 6.0% interest. Effective in 2017 the Company began calculating reserves for certain newly issued policies in accordance with

F-13

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

1. GENERAL — (Continued)

NAIC Valuation Manual 20, "Requirements for Principle-Based Reserves for Life Products" ("VM-20"), and effective in 2020 reserves for all new issues are in accordance with VM-20.

The Company waives deduction of deferred fractional premiums upon death of the insureds and returns any portion of the final premium beyond the month of death. The Company has certain surrender values in excess of the legally computed reserves which are included in "Aggregate reserves: Life policies and contracts" in the Statements of Admitted Assets, Liabilities, and Capital and Surplus.

The method used in the valuation of substandard policies is based on the normal tabular reserves plus a portion of the substandard extra premium. For policies with a Mean reserve method, the extra substandard reserve is one half of the annualized extra premium (less a deferred premium). For policies with a Mid-Terminal reserve method, the extra substandard reserve is the unearned modal substandard extra premium.

As of December 31, 2020 and 2019, the Company had $1.1 billion and $1.3 billion, respectively, of insurance in force for which the gross premiums are less than the net premiums according to the standard valuation set by the State of Alabama. Reserves to cover this insurance totaled $10.0 million and $11.0 million as of December 31, 2020 and 2019, respectively, and are reported in "Aggregate reserves: Life policies and contracts" in the Statements of Admitted Assets, Liabilities and Capital and Surplus. Tabular interest, tabular less actual reserves released, and tabular cost are determined by formula. Other net changes in reserves for the years ended December 31 are as follows:

2020					ORDINARY								GROUP

ITEM	Total		Industrial Life		Life Insurance		Individual Annuities		Supplementary Contracts		Credit Life Group and Individual		Life Insurance		Annuities
									($ in thousands)
Excess interest due to VM-21	$	201	$	0	$	0	$	201	$	0	$	0	$	0	$	0
Excess interest on universal life products		12,010		0		10,704		0		0		0		1,306		—
Total	$	12,211	$	0	$	10,704	$	201	$	0	$	0	$	1,306	$	0
2019					ORDINARY								GROUP

ITEM	Total		Industrial Life		Life Insurance		Individual Annuities		Supplementary Contracts		Credit Life Group and Individual		Life Insurance		Annuities
									($ in thousands)
Excess interest on universal life products	$	9,323	$	0	$	7,958	$	0	$	0	$	0	$	1,365	$	0
Acquisition via reinsurance of policies from Great-West Life & Annuity Insurance Company of NY *		634,834		0		592,172		2,422		30,158		0		0		10,082
Total	$	644,157	$	0	$	600,130	$	2,422	$	30,158	$	0	$	1,365	$	10,082

* See Note 9 for more information regarding this reinsurance transaction

F-14

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

1. GENERAL — (Continued)

2018					ORDINARY								GROUP

ITEM	Total		Industrial Life		Life Insurance		Individual Annuities		Supplementary Contracts		Credit Life Group and Individual		Life Insurance		Annuities
									($ in thousands)
Excess interest on universal life products	$	5,083	$	0	$	4,558	$	0	$	0	$	0	$	525	$	0
Acquisition via reinsurance of policies from Liberty Life Assurance Company of Boston *		2,547,918		0		1,573,241		779,975		520		0		181,183		12,999
Total	$	2,553,001	$	0	$	1,577,799	$	779,975	$	520	$	0	$	181,708	$	12,999

* See Note 9 for more information regarding this reinsurance transaction

For the determination of investment earnings on funds not involving life contingencies, for each valuation rate of interest the tabular interest is calculated as one-hundredth of the product of such valuation rate of interest times the mean of the amounts of funds subject to such valuation rate of interest held at the beginning and the end of the year of valuation. The tabular interest on funds not involving life contingencies is generally the interest actually credited or paid on such funds.

Liabilities for policy reserves on fixed annuity contracts are calculated based on the Commissioner's Annuity Reserve Valuation Method ("CARVM"). The reserve calculation considers the interest credited rates and guarantee periods specific to each policy as well as the appropriate mortality table depending on the contract issue date.

Certain of the Company's VA contracts contain guaranteed minimum death benefit ("GMDB") and GLWB features. The VA GMDB becomes payable upon death. The guaranteed amount varies by the particular contract and option elected and may be based on amounts deposited or maximum account value on prior anniversaries. All guarantees are reduced for prior partial withdrawal activity. The charge for the GMDB is based on a percentage of account value. The Company does not reinsure the GMDB feature. The VA GLWB applies to amounts withdrawn. The charge is a percentage of the guaranteed benefit base, and the annual guaranteed withdrawal amount is equal to 4.0% to 7.0% depending on the contract owner's age. Effective January 1, 2020, statutory reserves are calculated according to NAIC Valuation Manual 21, "Requirements for Principal-Based Reserves for Variable Annuities" ("VM-21"). This replaces the prior reserve calculations under Actuarial Guidelines 43 ("AG43"). Please see Note 3 — Accounting Changes for the effect of this reserve change on the Company's financial statements. There is not a standalone reserve for GMDB or GLWB. The base reserve incorporates the risk of all these guarantees.

Reserves for deposit type funds are equal to deposits received and interest credited to contract holders less surrenders and withdrawals that represent a return to the contract holder. Interest rates credited ranged from 1.0% to 6.0% for immediate annuities during 2020. Interest rates credited ranged from 2.5% to 6.0% for immediate annuities during 2019. Interest rates credited ranged from 0.59% to 5.0% for immediate annuities during 2018.

F-15

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

1. GENERAL — (Continued)

Liabilities for Single Premium Deferred Annuity ("SPDA") contracts are calculated in accordance with Actuarial Guideline 33. The reserves are calculated using a CARVM approach such that the reserve equals the greatest present value of future benefits floored at the cash surrender value of the contract. Future benefits include death, surrender and annuitization. Mortality and discount rates used in the reserve calculation are specified by regulatory authorities.

Certain of the Company's policy reserves relate to universal life policies with secondary guarantees ("ULSG"), which guarantee that insurance coverage will remain in force (subject to the payment of specified premiums). These products do not allow the Company to adjust policyholder premiums after a policy is issued, and most of these products do not have significant account values upon which interest is credited. Policy reserves for these products are actuarially computed using methods and assumptions in accordance with Actuarial Guideline 38 ("AG38") for policies issued between 2003-2019, and in accordance with VM-20 for policies issued in 2020 and later. Total reserves for ULSG policies were $44.2 million and $42.9 million at December 31, 2020 and 2019, respectively.

Liabilities for accident and health policies include unearned premiums and additional reserves. The liability for future policy benefits and claims on life and health insurance products includes estimated unpaid claims that have been reported to the Company and claims incurred but not yet reported. Changes in estimates are reflected in operations currently.

Liabilities for losses and loss adjustment expenses for accident and health contracts are estimated by the Company's valuation actuary using statistical claim development models to develop best estimates of liabilities for medical expense business and using tabular reserves employing mortality/morbidity tables and discount rates specified by regulatory authorities for disability income business.

The Company anticipates investment income as a factor in the premium deficiency calculation, in accordance with Statement of Statutory Accounting Principles ("SSAP") No. 54, "Individual and Group Accident and Health Contracts."

Policy and Contract Claims

Policy and contract claims include provisions for reported life, accident and health claims in process of settlement, valued in accordance with the terms of the related policies and contracts, as well as provisions for claims incurred but not reported based primarily on prior experience of the Company. As such amounts are necessarily estimates, the ultimate liability may differ from the amount recorded and will be reflected in the results of operations when additional information becomes known.

Asset Valuation Reserve ("AVR") and Interest Maintenance Reserve ("IMR")

The Company established certain reserves as required by NAIC SAP. The AVR is based upon a statutory formula as prescribed by the NAIC to provide a standardized reserve for realized and unrealized losses from default and/or equity risks associated with all invested assets, excluding cash, contract loans, premium notes, collateral loans, and investment receivables. Realized gains and losses related to fixed maturities resulting from changes in credit quality and capital gains and losses related to all other investments, net of applicable federal income taxes, are reflected in the calculation of AVR.

F-16

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

1. GENERAL — (Continued)

Unrealized gains and losses, net of applicable deferred federal income taxes, are also reflected in the calculation. Changes in AVR are charged or credited directly to unassigned funds.

The IMR captures realized gains and losses, net of applicable federal income taxes, from the sale of fixed maturity investments. The portion of these realized gains and losses resulting from changes in the general level of interest rates is not recognized currently but is amortized into income over the approximate remaining life of the investment sold.

Federal Income Taxes

The provision for federal income taxes is computed in accordance with those sections of the Internal Revenue Code applicable to life insurance companies. Deferred income taxes are provided based upon the expected future impact of differences between the financial statement and tax basis of assets and liabilities. The admission of gross deferred income tax assets is subject to various limitations as specified by NAIC SAP. Changes in deferred tax assets and liabilities are recognized as a separate component of gains and losses in unassigned funds.

Reinsurance

In the normal course of business, the Company seeks to limit aggregate and single exposure to losses on large risks by purchasing reinsurance from other reinsurers. Amounts recoverable from reinsurers related to paid policy claims are included in "Amounts recoverable from reinsurers" and insurance liabilities are reported net of reinsurance recoverables in the Statements of Admitted Assets, Liabilities, and Capital and Surplus. Receivables and payables from the same reinsurer, including funds withheld, are generally offset. For reserve credits taken related to reinsurers considered to be unauthorized by the Department, the Company must obtain letters of credit, funds withheld, or other forms of collateral in amounts at least equal to reserve credits. To the extent such collateral is not obtained, the Company must record a liability for reinsurance in unauthorized companies.

Reinsurance premiums ceded and reinsurance recoveries on policy claims are netted against the respective "Premiums and annuity considerations" and "Death and annuity benefits" in the Statements of Operations. Revenues from commissions and expense allowances on reinsurance ceded are recognized in the period in which the transaction occurs and recorded in "Commissions and expense allowances on reinsurance ceded" in the Statements of Operations. The change in modified coinsurance ("MODCO") reserves ceded and related expenses are included in "Reserve adjustments on reinsurance ceded" in the Statements of Operations.

The Company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations it assumed. The Company evaluates the financial condition of its reinsurers and monitors the associated concentration of credit risk.

Separate Accounts

The Company issues both market value adjusted annuities and variable annuities. Excluding any contract guarantees for either a minimum return or account value upon death or annuitization, variable annuity policyholders bear the investment risk that the Separate Accounts funds may not meet their

F-17

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

1. GENERAL — (Continued)

stated investment objectives. The assets and liabilities related to Separate Accounts are recorded at fair value and reported separately as assets and liabilities held in Separate Accounts. Fees charged on Separate Account contract owner deposits are included in the Statements of Operations. In the event that the asset value of certain contract holder accounts is projected to be below the value guaranteed by the Company, a liability is established through a charge to operations.

2. STATUTORY AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DIFFERENCES

Accounting practices prescribed or permitted by the Department vary in some respects from accounting principles generally accepted in the United States of America ("GAAP"). A summary of significant statutory accounting practices ("SAP") and their difference to GAAP, is as follows:

(1) The costs related to acquiring business, principally commissions and certain policy issue expenses, are charged to operations in the year incurred and thus are not amortized over the period benefited, whereas premiums are taken into revenue over the premium paying period of the related policies. Under GAAP, acquisition costs on successful efforts are capitalized and charged to operations as the revenues or expected gross profits are recognized;

(2) Deposits to universal life contracts, investment contracts and limited payment contracts are credited to revenue. Under GAAP, these items are accounted for as deposits on the balance sheet and do not flow through the income statement;

(3) Under SAP rules that precede Principles Based Reserves ("PBR"), policy reserves for future policy benefits are actuarially computed in accordance with certain state statutes and administrative regulations including reserve bases appropriate for life, accident and health, and annuity products. These liabilities are computed using statutory actuarial tables which do not allow for modification based on the Company's experience. Under PBR, company experience is utilized in setting certain assumptions for the scenario-based reserves for Life and Annuity products as defined under VM-20 and VM-21. Aggregate statutory reserves are shown net of the credit taken for reinsurance. Under GAAP, reserves for life-contingent annuity and traditional life insurance products are based on the present value of future benefits less the present value of future net premiums based on mortality, lapse, and other assumptions, which were appropriate at the time the policies were issued or acquired. Reserves for non-life-contingent annuity and universal life insurance, insurance products are recognized by establishing a liability equal to the current account value of the policyholders' contracts, with an additional reserve for certain guaranteed benefits. Aggregate reserves are shown gross with an offsetting reinsurance recoverable;

(4) Certain assets must be included in the statutory financial statements at "admitted asset value" and "nonadmitted assets" must be excluded through a charge against surplus. No such reduction of asset values is required under GAAP;

(5) Bonds and preferred stock are generally carried at amortized cost. Under GAAP, bonds and preferred stock, other than those classified as held to maturity, are carried at fair value with changes recorded in accumulated other comprehensive income (loss) in the balance sheet if classified as available-for-sale securities or in the income statement if classified as trading securities;

F-18

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

2. STATUTORY AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DIFFERENCES — (Continued)

(6) Certain assets and liabilities are reported net of ceded reinsurance balances, which is not permitted by GAAP;

(7) Realized capital gains and losses are reflected net of transfers to IMR and federal income tax in the Statements of Operations. Under GAAP realized capital gains and losses are reflected on a gross basis in the Income Statement as the IMR concept does not exist in GAAP;

(8) Deferred federal income tax is provided based upon the expected future impact of differences between the financial statement and tax basis of assets and liabilities. The admission of gross deferred income taxes is subject to various limitations as specified by NAIC SAP. Under GAAP, gross deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the assets will not be realized. In addition, changes in deferred tax assets and liabilities are recognized as a separate component of gains and losses in unassigned funds, while under GAAP, these changes are included in income tax expense or benefit in the Income Statement;

(9) The AVR is reported as a liability rather than as a reduction in investments and is charged directly to surplus. No such reserve is required under GAAP;

(10) The IMR is reported as a liability and the amortization of the IMR is reported in the revenue section of the Statements of Operations. No such reserve is required under GAAP;

(11) The Statements of Cash Flow are presented in the required statutory format which differs in certain respects from the presentation required by GAAP, including the presentation of the changes in cash, cash equivalents and short-term investments instead of cash and cash equivalents. Short-term investments include securities with maturities of one year or less at the time of acquisition. SAP requires no reconciliation between net income and net cash provided by operating activities as required by GAAP;

(12) The change in the unrealized gains or losses on certain investments is recorded as an increase or decrease in statutory surplus under SAP. Under GAAP, such unrealized gains and losses are recorded as a component of comprehensive income (loss);

(13) Any premiums due that are not yet paid, and premiums paid on other than an annual basis, are included in premiums deferred and uncollected on the statutory statements of admitted assets, liabilities and capital and surplus. On a GAAP basis, deferred premiums are netted against policy reserves and are generally calculated as a component of gross premiums;

(14) For reserve credits taken related to reinsurers considered "unauthorized" by the Department, the Company must obtain letters of credit, funds withheld or other forms of collateral in amounts at least equal to the reserve credits. To the extent such collateral is not obtained, the Company must record a liability for reinsurance in unauthorized companies with a charge to unassigned funds. No such liability is recorded for GAAP;

(15) Market value adjusted annuities are included in the Company's general account for GAAP purposes, but are included in Separate Accounts on a statutory basis;

F-19

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

2. STATUTORY AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DIFFERENCES — (Continued)

(16) Contracts that contain an embedded derivative are not bifurcated between components and are accounted for as part of the host contract, whereas under GAAP, the embedded derivative would be bifurcated from the host contract and accounted for separately;

(17) Acquisitions and reinsurance transactions can be subject to different accounting treatments due to differences in risk transfer and business combination assessments. On a GAAP basis, PLC and its subsidiaries, including the Company, accounted for its February 1, 2015 acquisition by Dai-ichi Life under the acquisition method of accounting prescribed in ASC Topic 805, "Business Combinations." In accordance with this guidance, "pushdown" accounting was elected, including the initial recognition of most of PLC's and its subsidiaries' assets and liabilities at fair value as of the acquisition date. For SAP, no similar accounting or adjustments occurred on February 1, 2015. Similarly, certain acquisitions of inforce business are accounted for as reinsurance pursuant to Statutory guidelines but are subject to Purchase GAAP accounting ("PGAAP") guidelines for GAAP reporting purposes due to their qualification as a business combination.

The differences between NAIC SAP and GAAP have not been quantified as of December 31, 2020 and 2019 or for each of the years in the three-year period ended December 31, 2020; however, the differences are presumed to be material.

3. ACCOUNTING CHANGES AND PRIOR PERIOD ADJUSTMENTS

Accounting Changes

As of January 1, 2020, VM-21 replaced AG43 for the valuation of statutory reserves for variable annuities. The cumulative net impact of this regulation change was a $0.2 million increase in reserves. The change was treated as a "Change in reserve on account of change in valuation basis". The financial statement impact of this change was to increase "Aggregate reserve: Life policies and contracts" and decrease both "Change in reserve on account of change in valuation basis", and "Unassigned funds — surplus" by $0.2 million. In accordance with the provisions of SSAP No. 3, "Accounting Changes and Corrections of Errors" ("SSAP No. 3"), the $0.2 million cumulative effect represents the January 1, 2020 impact of the change.

Effective January 1, 2020, the Company adopted SSAP No. 108, "Derivative Hedging Variable Annuity Guarantees" ("SSAP No. 108"), which prescribes guidance for derivatives that hedge interest rate risk of variable annuity guarantees reserved under VM-21. The guidance in SSAP No. 108 is not currently applicable to the Company's derivatives, and the adoption had no effect on the Company's financial statements.

Effective January 1, 2020, the Company adopted revisions to SSAP No. 22. "Leases", ("SSAP No. 22R"). SSAP No. 22R rejected U.S. GAAP guidance on operating leases, but incorporated, with modification, guidance on sale-leaseback transactions, lessor accounting and leveraged leases for all new leases, and for existing leases reassessed due to a change in terms and conditions. The adoption of these revisions had no effect on the Company's financial statements.

Effective June 30, 2020, the Company adopted revisions to SSAP No. 105, "Working Capital Finance Investments" ("SSAP No. 105R"), which provided substantive updates to the Working Capital Finance

F-20

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

3. ACCOUNTING CHANGES AND PRIOR PERIOD ADJUSTMENTS — (Continued)

Investments Program requirements. The Company holds no working capital finance investments, and therefore this adoption had no effect on the Company's financial statements.

Effective January 1, 2019, the Company adopted revisions to SSAP No. 30, "Unaffiliated Common Stock" ("SSAP No. 30R"), which update the common stock definition to include U.S. Securities and Exchange Commission registered closed-end funds and unit-investment trusts in accordance with the initiatives of the Investment Classification Project. The adoption of these revisions had no effect on the Company's financial statements.

Prior Period Adjustments

For the June 30, 2018 statutory filing, the Company corrected its calculation of fixed indexed annuity ("FIA") reserves as reported on its December 31, 2017 statutory annual statement. The correction was due to the use of incorrect interest rates and annuitization path in the computation of the Company's FIA reserves as of December 31, 2017. The effect of this adjustment resulted in a decrease to "Aggregate reserves: Life policies and contracts" of $2.7 million and a decrease to "Deferred tax asset" of $0.6 million. The net effect of these changes was an increase in "Unassigned funds — surplus" of $2.1 million. In accordance with the provisions of SSAP No. 3, this change represents the January 1, 2018 impact of the correction.

4. INVESTMENTS

Net Investment Income

Net investment income for the years ended December 31 consists of the following:

	2020			2019			2018
	($ in thousands)
Bonds	$	224,286		$	216,720		$	156,281
Stocks		774			1,508			1,543
Mortgage loans		7,670			5,358			5,655
Cash, cash equivalents, and short-term investments		627			2,598			1,264
Contract loans		2,943			3,299			3,312
Other invested assets		1,340			893			345
Miscellaneous investment income		(17	)		(34	)		43
Total investment income		237,623			230,342			168,443
Investment expenses		(14,614	)		(12,422	)		(8,846	)
Net investment income	$	223,009		$	217,920		$	159,597

Due and accrued income is excluded from investment income on the following basis:

Mortgage loans — Income is excluded on loans delinquent more than 90 days. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible.

Bonds — When the Company determines collection of interest to be uncertain or interest is 90 days past due, the accrual of interest receivable is discontinued.

F-21

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

There was no due and accrued investment income excluded at December 31, 2020 or 2019.

Realized Gains and Losses

Realized investment gains (losses) for the years ended December 31 are summarized as follows:

	2020			2019			2018
	($ in thousands)
Bonds	$	5,094		$	8,598		$	2,139
Common stock-unaffiliated		0			1			95
Preferred stock		1,600			39			250
Cash, cash equivalents and short-term investments		296			1			(24	)
Derivative instruments		(4,235	)		(1,006	)		73
Other invested assets		0			394			0
Other investments		(47	)		(26	)		5
Other-than-temporary impairments		(5,796	)		(173	)		(2,660	)
Less:
Amounts transferred to interest maintenance reserve		4,731			6,908			792
Federal income taxes		1,448			2,172			115
Net realized investment losses	$	(9,267	)	$	(1,252	)	$	(1,029	)

Proceeds from the sales of investments in bonds, common stocks, and preferred stocks during 2020, 2019, and 2018 were approximately $171.8 million, $356.5 million, and $336.7 million, respectively. The Company realized gross gains of $8.1 million, $9.6 million, and $5.3 million on those sales for the years ended December 31, 2020, 2019, and 2018, respectively. Gross losses of $1.1 million, $1.0 million, and $2.9 million, were realized on those sales for the years ended December 31, 2020, 2019, and 2018, respectively.

Unrealized Gains and Losses

The change in net unrealized investment gains and losses included in surplus for the years ended December 31 is as follows:

	2020			2019			2018
	($ in thousands)
Bonds	$	(1	)	$	1		$	(5	)
Common stocks		1			0			(1	)
Derivative instruments		605			(798	)		396
Less:
Federal income taxes		127			(167	)		82
Change in net unrealized capital gains and losses	$	478		$	(630	)	$	308

During 2020, the Company recorded $0.6 million in unrealized gains on derivative instruments due to changes in fair value. The gains included $0.2 million of gains related to equity options, which were used to mitigate risks associated with the Company's variable annuity products and $0.6 million of

F-22

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

gains related to equity options, which were used to mitigate risks associated with the Company's fixed indexed annuity products. These gains were offset by $0.1 million of losses related to foreign currency futures and $0.1 million of losses related to equity futures, which were used to mitigate risks associated with the Company's VA products.

During 2019, the Company recorded $0.8 million in unrealized losses on derivative instruments due to changes in fair value. The losses included $0.6 million related to equity futures and $0.5 million related to equity options, which were used to mitigate risks associated with the Company's VA products. In addition, there were gains of $0.2 million related to equity futures and $0.1 million of gains related to equity options, which were used to mitigate risks associated with the Company's FIA products.

During 2018, the Company recorded $0.4 million in unrealized gains on derivative instruments due to changes in fair value. The gains included $0.4 million of gains related to equity futures and $0.2 million of gains related to equity options, which were used to mitigate risks associated with the Company's VA products. In addition, there were losses of $0.2 million related to equity futures, which were used to mitigate risks associated with the Company's FIA products.

Bonds and Preferred Stocks

The statement value and estimated fair value of the Company's bond and preferred stock investments at December 31 are as follows:

	Statement Value		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
2020	($ in thousands)
Bonds:
US Government	$	49,991	$	2,135	$	0		$	52,126
Other governments		32,369		6,244		0			38,613
US states, territories and possessions		15,129		2,353		0			17,482
US political subdivisions		74,836		8,119		0			82,955
US special revenue and assessment		329,356		56,725		(1	)		386,080
Industrial and miscellaneous		3,603,924		589,852		(3,719	)		4,190,057
Hybrids		41,593		8,113		(42	)		49,664
Total bonds, excluding loan-backed and structured securities		4,147,198		673,541		(3,762	)		4,816,977
Loan-backed and structured securities:
Residential mortgage backed securities		1,125,930		30,046		(268	)		1,155,708
Commercial mortgage backed securities		328,448		24,073		(1,910	)		350,611
Other loan-backed and structured securities		91,744		5,000		(1,168	)		95,576
Total loan-backed and structured securities		1,546,122		59,119		(3,346	)		1,601,895
Total bonds		5,693,320		732,660		(7,108	)		6,418,872
Preferred stocks		20,387		1,724		(1,096	)		21,015
Total bonds and preferred stocks	$	5,713,707	$	734,384	$	(8,204	)	$	6,439,887

F-23

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

	Statement Value		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
2019	($ in thousands)
Bonds:
US Government	$	49,862	$	997	$	(91	)	$	50,768
Other governments		32,892		4,287		0			37,179
US states, territories and possessions		20,664		1,215		0			21,879
US political subdivisions		88,480		4,035		0			92,515
US special revenue and assessment		377,891		35,256		(578	)		412,569
Industrial and miscellaneous		3,376,025		329,315		(3,135	)		3,702,205
Hybrids		41,734		5,287		(75	)		46,946
Total bonds, excluding loan-backed and structured securities		3,987,548		380,392		(3,879	)		4,364,061
Loan-backed and structured securities:
Residential mortgage backed securities		862,292		23,012		(1,433	)		883,871
Commercial mortgage backed securities		413,046		15,646		(205	)		428,487
Other loan-backed and structured securities		132,976		2,847		(679	)		135,144
Total loan-backed and structured securities		1,408,314		41,505		(2,317	)		1,447,502
Total bonds		5,395,862		421,897		(6,196	)		5,811,563
Preferred stocks		21,301		2,980		(1,029	)		23,252
Total bonds and preferred stocks	$	5,417,163	$	424,877	$	(7,225	)	$	5,834,815

The statement value and estimated fair value of bonds at December 31, 2020, by expected maturity is shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay certain of these obligations.

	Statement Value		Estimated Fair Value
	($ in thousands)
Bonds, excluding loan-backed and structured securities:
Due in 1 year or less	$	152,306	$	154,779
Due after 1 year through 5 years		720,536		773,922
Due after 5 years through 10 years		1,498,365		1,684,384
Due after 10 years		1,775,991		2,203,892
Total bonds, excluding loan-backed and structured securities		4,147,198		4,816,977
Total loan-backed and structured securities		1,546,122		1,601,895
Total bonds	$	5,693,320	$	6,418,872

F-24

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

The statement value and estimated fair value of bonds at December 31, 2019, by expected maturity is shown below.

	Statement Value		Estimated Fair Value
	($ in thousands)
Bonds, excluding loan-backed and structured securities:
Due in 1 year or less	$	125,268	$	126,508
Due after 1 year through 5 years		752,986		781,074
Due after 5 years through 10 years		1,312,408		1,401,542
Due after 10 years		1,796,886		2,054,937
Total bonds, excluding loan-backed and structured securities		3,987,548		4,364,061
Total loan-backed and structured securities		1,408,314		1,447,502
Total bonds	$	5,395,862	$	5,811,563

The Company's investment gross unrealized losses and estimated fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, at December 31 are as follows:

	Less Than 12 Months					12 Months or More					Total
	Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss
2020	($ in thousands)
Bonds:
US special revenue and assessment	$	9,999	$	(1	)	$	0	$	0		$	9,999	$	(1	)
Industrial and miscellaneous		60,042		(2,402	)		7,756		(1,317	)		67,798		(3,719	)
Hybrids		1,278		(25	)		409		(17	)		1,687		(42	)
Total bonds, excluding loan-backed and structured securities		71,319		(2,428	)		8,165		(1,334	)		79,484		(3,762	)
Loan-backed and structured securities:
Residential mortgage backed securities		39,049		(137	)		3,569		(131	)		42,618		(268	)
Commercial mortgage backed securities		25,883		(1,910	)		0		0			25,883		(1,910	)
Other loan-backed and structured securities		9,821		(1,168	)		0		0			9,821		(1,168	)
Total loan-backed and structured securities		74,753		(3,215	)		3,569		(131	)		78,322		(3,346	)
Total bonds		146,072		(5,643	)		11,734		(1,465	)		157,806		(7,108	)
Preferred stocks		0		0			2,134		(1,096	)		2,134		(1,096	)
Total bonds and preferred stocks	$	146,072	$	(5,643	)	$	13,868	$	(2,561	)	$	159,940	$	(8,204	)

F-25

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

	Less Than 12 Months					12 Months or More					Total
	Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss
2019	($ in thousands)
Bonds:
US Governments	$	3,180	$	(31	)	$	5,827	$	(60	)	$	9,007	$	(91	)
US special revenue and assessment		19,422		(578	)		0		0			19,422		(578	)
Industrial and miscellaneous		83,978		(1,637	)		21,200		(1,498	)		105,178		(3,135	)
Hybrids		2,662		(46	)		540		(29	)		3,202		(75	)
Total bonds, excluding loan-backed and structured securities		109,242		(2,292	)		27,567		(1,587	)		136,809		(3,879	)
Loan-backed and structured securities:
Residential mortgage backed securities		163,783		(1,359	)		5,019		(74	)		168,802		(1,433	)
Commercial mortgage backed securities		40,799		(181	)		801		(24	)		41,600		(205	)
Other loan-backed and structured securities		9,131		(37	)		1,932		(642	)		11,063		(679	)
Total loan-backed and structured securities		213,713		(1,577	)		7,752		(740	)		221,465		(2,317	)
Total bonds		322,955		(3,869	)		35,319		(2,327	)		358,274		(6,196	)
Preferred stocks		107		(4	)		2,171		(1,025	)		2,278		(1,029	)
Total bonds and preferred stocks	$	323,062	$	(3,873	)	$	37,490	$	(3,352	)	$	360,552	$	(7,225	)

For securities other than loan-backed securities, the Company generally considers a number of factors in determining whether an impairment is other-than-temporary (please see the "Loan-backed and Structured Securities" section for information on loan-backed security OTTIs). These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) an assessment of the Company's intent to sell the security (including a more likely than not assessment of whether the Company will be required to sell the security) before recovering the security's amortized cost, 5) the duration of the decline, 6) an economic analysis of the issuer's industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security by security review each quarter in evaluating the need for any OTTIs. Although no set formula is used in this process, the investment performance, collateral position, and continued viability of the issuer are significant measures considered. For securities in an unrealized loss position for which an OTTI was not recognized, the Company believes that it will collect all amounts due according to the contractual terms of the securities in effect at the date of acquisition and has the intent and the ability to hold these securities until recovery. The Company recognized $4.4 million, $0.2 million, and $2.6 million of OTTIs on non-loan-backed securities during 2020, 2019, and 2018, respectively.

F-26

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

The Company had securities with a fair value of $13.9 million in an unrealized loss position for greater than 12 months at December 31, 2020, and the related unrealized loss of $2.6 million pertains primarily to banking and energy securities. The Company had securities with a fair value of $37.5 million in an unrealized loss position for greater than 12 months at December 31, 2019, and the related unrealized loss of $3.4 million pertains primarily to banking, asset-backed, and energy securities. The aggregate decline in fair value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered included credit ratings, the financial health of the investee, the continued access of the investee to capital markets, and other pertinent information.

The Company had individual bonds from the following issuers that exceeded 10% of capital and surplus as of December 31, 2020:

	Carrying Value
	($ in thousands)
Fannie Mae	$	95,052
Freddie Mac		70,610

The Company had no individual bonds that exceeded 10% of capital and surplus at December 31, 2019.

As of December 31, 2020 and 2019, bonds and cash having a fair value of $6.9 million and $6.7 million were on deposit with various governmental authorities as required by law.

The Company held no securities with a 5GI NAIC rating as of December 31, 2020 and 2019.

Loan-backed and Structured Securities

For the impairment review of loan-backed and structured securities, the Company employed the retrospective method during the period, basing its assumptions regarding expected maturity dates on market interest rates and overall economic conditions. The information that was used for these assumptions was provided by a nationally-recognized, real-time database.

For each of the years in the three-year period ended December 31, 2020, no OTTIs were recorded due to an intent to sell these securities. Also, no such impairments were recorded due to an inability or lack of intent to retain the securities for a period of time sufficient to recover their amortized cost.

During 2020, the Company recognized the following OTTIs for loan-backed securities:

CUSIP	Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI		Present Value of Projected Cash Flows		Recognized Other-Than- Temporary Impairment		Amortized Cost After Other-Than- Temporary Impairment		Fair Value at time of OTTI		Date of Financial Statement Where Reported
	($ in thousands)
45112AAA5	$	2,516	$	1,858	$	658	$	1,858	$	1,858	3/31/2020
45112AAA5		1,786		1,016		770		1,016		1,016	12/31/2020
Total		XXX		XXX	$	1,428		XXX		XXX	XXX

F-27

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

The Company recognized no OTTIs in 2019 for loan-backed securities.

During 2018, the Company recognized the following OTTIs for loan-backed securities:

CUSIP	Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI		Present Value of Projected Cash Flows		Recognized Other-Than- Temporary Impairment		Amortized Cost After Other-Than- Temporary Impairment		Fair Value at time of OTTI		Date of Financial Statement Where Reported
	($ in thousands)
12544AAE5	$	298	$	279	$	19	$	279	$	267	12/31/2018

All impaired securities (fair value is less than cost or amortized cost) for which an OTTI has not been recognized in the Statements of Operations as a realized loss (including securities with a recognized OTTI for non-interest related declines when a non-recognized interest related impairment remains) are as follows as of December 31:

	2020		2019
	($ in thousands)
a. The aggregate amount of unrealized losses:
1. Less than 12 months	$	3,215	$	1,577
2. Twelve months or longer	$	100	$	716
b. The aggregate related fair value of securities with unrealized losses:
1. Less than 12 months	$	74,748	$	213,707
2. Twelve months or longer	$	3,262	$	7,383

In determining whether a loan-backed security had experienced an OTTI, the Company considered the delinquency (and foreclosure status, if applicable) of the underlying loans or mortgages, the expected recovery value of the underlying collateral (if any) in relation to the current amount of the investment, and the degree to which such losses, based upon the foregoing factors, will first be absorbed by tranches that are subordinate to the Company's securities.

The Company's exposure to subprime mortgage related risk is limited to investments in residential mortgage-backed securities that are backed by loans to borrowers with lower credit ratings. These securities are classified as subprime at issuance. The Company has exposure to Alt-A bonds which were made to borrowers with less than conventional documentation of their income and/or net assets. The Company may be exposed to unrealized losses on these holdings from time to time as the fair values of these securities are sensitive to widening spreads that can occur in difficult and illiquid market environments. In addition, the Company has exposure to realized losses if it is determined that the securities are other-than-temporarily impaired. These risks are mitigated somewhat by the Company's ability and intent to hold these securities to recovery, which may be at maturity. These securities are reviewed monthly to ensure they are performing as expected and to ensure sufficient credit support. The Company has no direct exposure through investments in subprime mortgage loans.

F-28

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

The following information relates to the Company's other investments with subprime exposure:

	Actual Cost		Book/Adjusted Carrying Value (excluding interest)		Fair Value		Other Than Temporary Impairment Losses Recognized
2020	($ in thousands)
Residential mortgage-backed securities	$	1,127	$	1,147	$	1,231	$	216
2019
Residential mortgage-backed securities	$	1,527	$	1,553	$	1,646	$	216

As of December 31, 2018, the Company had recognized $0.2 million of OTTI losses on residential mortgage-backed securities with subprime exposure held as of December 31, 2018.

Prepayment Penalties and Acceleration Fees

The Company had the following prepayment penalties or acceleration fees for the years ended December 31:

	General Account		Separate Account
2020	($ in thousands)
(1) Number of CUSIPs		24		0
(2) Aggregate amount of investment income	$	1,014	$	0
	General Account		Separate Account
2019	($ in thousands)
(1) Number of CUSIPs		28		0
(2) Aggregate amount of investment income	$	2,196	$	0
	General Account		Separate Account
2018	($ in thousands)
(1) Number of CUSIPs		21		0
(2) Aggregate amount of investment income	$	3,053	$	0

F-29

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

Mortgage Loans

The Company's mortgage loan portfolio had the following concentrations by type of property as of December 31:

	Percent of Portfolio
	2020			2019
Retail		31.4	%		50.6	%
Apartment		6.3			20.5
Industrial		35.6			16.3
Office		25.1			9.2
Other commercial		1.1			2.4
Hotel		0.0			0.0
Mixed Use		0.5			1.0
		100.0	%		100.0	%

The Company's mortgage loan portfolio had the following concentrations by location as of December 31:

	Percent of Portfolio
	2020			2019
Alabama		17.3	%		6.5	%
New York		12.3			0.0
Wisconsin		7.8			3.5
Illinois		7.2			6.7
Tennessee		7.1			14.8
Michigan		6.8			10.8
Arkansas		6.3			0.0
Virginia		5.7			0.0
South Carolina		5.3			0.0
Nebraska		4.2			0.0
Minnesota		3.5			0.0
Texas		2.6			8.3
North Carolina		2.0			5.7
Florida		1.8			3.9
California		1.8			11.3
Mississippi		1.5			5.2
Nevada		1.3			2.8
Kentucky		1.2			2.6
Missouri		1.0			2.2
Delaware		0.8			1.6
Utah		0.7			1.5
Colorado		0.6			1.4
Indiana		0.5			1.0
Ohio		0.4			1.0

F-30

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

	Percent of Portfolio
	2020			2019
Idaho		0.3	%		0.6	%
Nebraska		0.0			8.4
Pennsylvania		0.0			0.2
		100.0	%		100.0	%

The minimum and maximum lending rates for new commercial mortgage loans during 2020 were 3.0% and 3.75%. The Company issued no new mortgage loans during 2019. The Company did not exclude any interest due to delinquency or uncollectibility or reduce interest rates on any outstanding loans during 2020, 2019, and 2018.

The target percentage of any one loan to the value of collateral at the time of the loan, exclusive of insured or guaranteed or purchase money mortgages, is generally 75%. The Company uses this loan-to-value ratio as a credit quality indicator, which is a component of the Company's ongoing monitoring of the credit risk of its mortgage loan portfolio. The Company also monitors borrower conditions such as payment practices, borrower credit, operating performance, and property conditions, as well as ensuring the timely payment of property taxes and insurance. Through this monitoring process, the Company assesses the risk of each loan. As of December 31, 2020 and 2019, the Company had no mortgage loans that exceeded a 75% loan to value ratio based on the most recent appraisal. For loans the Company held as of December 31, 2020 and 2019, the maximum percentage of any one loan to the value of security at the time of the loan was 75% and 68%, respectively.

As of December 31, 2020 and 2019, the Company did not have any mortgages with interest more than 90 days past due.

As of December 31, 2020 and 2019, no taxes and/or assessments had been advanced but not repaid or included in the mortgage loan total.

The Company's mortgage loans of $194.4 million and $97.0 million as of December 31, 2020 and 2019, respectively, were all classified as "Commercial-All Other" and were current.

As of December 31, 2020 and 2019, the Company had no foreclosed properties or impaired loans. The Company reported no valuation allowances on any loans at either December 31, 2020 or 2019. No activity occurred in the allowance for credit losses during 2020, 2019, or 2018.

On March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), was signed into law. Section 4013 of the CARES Act provides additional relief for certain loan modifications made as a result of the COVID-19 pandemic. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law, which slightly modified and extended the original CARES Act through January 1, 2022. In conjunction with the Consolidated Appropriations Act, the NAIC Statutory Accounting Principles Working Group extended certain limited time exceptions in INT 20-03 and INT 20-07, which align with the provisions of the CARES Act, as amended, and provide relief from the requirement to assess certain loan modifications as troubled debt restructurings or more than minor modifications for certain loans modified in response to COVID-19. In consideration of this

F-31

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

guidance, the Company has provided certain relief to certain of its commercial loan borrowers via its COVID-19 Commercial Mortgage Loan Program (the "Loan Modification Program"). As of December 31, 2020, the Company had a total of 8 loans with $22.4 million in unpaid principal balance under the Loan Modification Program. The modifications under this program may include agreements to defer principal payments only or to defer principal and interest payments for a specified period of time. None of these modifications were considered troubled debt restructurings.

The Company did not restructure any debt during 2020 and 2019.

Common Stock — Federal Home Loan Bank ("FHLB") Agreements

The Company is a member of the FHLB of Atlanta. Through its membership, the Company may receive cash advances as a result of entering repurchase agreements with the FHLB of Atlanta. The Company had no advances outstanding as of December 31, 2020 and 2019.

Amounts received under repurchase agreements are accounted for pursuant to SSAP No. 103R, "Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."

The Company's aggregate totals of FHLB capital stock as of December 31, 2020, are as follows:

	1 Total 2+3		2 General Account		3 Separate Accounts
	($ in thousands)
(a) Membership stock-Class A	$	0	$	0	$	0
(b) Membership stock-Class B		5,521		5,521		0
(c) Activity stock		0		0		0
(d) Excess stock		0		0		0
(e) Aggregate total		5,521		5,521		0
(f) Actual or estimated borrowing capacity as determined by the insurer		0		XXX		XXX

Membership stock eligible and not eligible for redemption as of December 31, 2020, is as follows:

Membership stock	Current Year Total		Not Eligible for Redemption		Less than 6 Months		6 Months to Less Than 1 year		1 to Less Than 3 Years		3 to 5 Years
	($ in thousands)
1. Class A	$	0	$	0	$	0	$	0	$	0	$	0
2. Class B		5,521		5,521		0		0		0		0

The Company had no FHLB capital stock balances as of December 31, 2019.

F-32

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

Restricted Assets

The Company's had the following restricted assets, all within the General Account, as of December 31:

Restricted Asset Category	2020		2019		Increase/ (Decrease)		% of Admitted Assets
	($ in thousands)
Subject to repurchase agreements	$	74,552	$	0	$	74,552		1.18	%
Federal home loan bank capital stock		5,521		0		5,521		0.09
On deposit with states		6,515		6,499		16		0.10
Collateral for derivative instruments		10,560		6,266		4,294		0.17
Total restricted assets	$	97,148	$	12,765	$	84,383		1.54	%

The Company had no other restricted assets as of December 31, 2020 and 2019.

The Company had $1.0 million and $2.0 million of cash collateral received and reflected as assets within the Company's Statements of Admitted Assets, Liabilities, and Capital and Surplus as of December 31, 2020 and 2019, respectively, representing 0.016% and 0.034% of total admitted assets excluding Separate Accounts, respectively. The recognized obligation to return the collateral asset was $1.0 million and $2.0 million, representing 0.018% and 0.037% of total liabilities excluding Separate Accounts, as of December 31, 2020 and 2019, respectively.

There was no collateral received and reflected as assets within the Company's Separate Accounts as of December 31, 2020 and 2019.

Repurchase Agreements, Securities Lending Transactions, and Wash Sales

For repurchase agreements, the Company initiates short-term (typically less than 30 days) collateralized borrowings whereby cash is received, and securities are posted as collateral. The Company reports the cash proceeds as a liability, and the difference between the cash proceeds and the amount at which the securities are reacquired as interest expense. As of December 31, 2020, the Company had a "Borrowed money" obligation of $71.1 million, which represents the cash amount of $22.2 million and $48.9 million to be paid at the repurchase agreements' maturity on January 8, 2021 and January 15, 2021, respectively.

The Company has posted $74.6 million (statutory carrying value) of its assets as repurchase agreement collateral, which was classified as "Bonds" as of December 31, 2020. In connection with the outstanding repurchase agreements, the Company has also recognized a liability of $71.1 million, which is classified as "Borrowed money" on the Company's December 31, 2020 Statement of Admitted Assets, Liabilities, and Capital and Surplus.

As of December 31, 2019, the Company had no balances outstanding under these agreements.

The Company is not involved in securities lending transactions.

In the normal course of the Company's investment management, securities can be sold and reacquired within 30 days. This practice is known as wash sales. The Company did not record any wash sales for the years ended December 31, 2020, 2019, and 2018.

F-33

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

Repurchase Agreements Transactions Accounted for as Secured Borrowing

While the Company anticipates that its cash flows 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 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 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 provided for net settlement in the event of default or on termination of the agreements. Due to the short tenor of the repurchase agreements, the Company would not expect any stress on liquidity to be an issue.

If market deterioration is detected and/or additional sources of liquidity are needed to manage asset/liability mismatches, the Company would draw down short-term investment positions and conserve cash by ceasing new investment activity. The Company also has an intercompany loan agreement set up with the Company's parent, PLICO, if needed.

The types of repurchase agreement trades used during 2020 are as follows:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

(a) Bilateral (Yes/No)

Yes

(b) Tri-Party (Yes/No)

A summary of the maturity time frame and ending balance of repurchase agreement transactions during 2020 is as follows:

	$ in thousands
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
a. Maximum Amount
1. Open — No Maturity	$	0	$	0	$	0	$	0
2. Overnight		0		0		0		0
3. 2 Days to 1 Week		0		0		0		71,031
4. > 1 Week to 1 Month		0		9,875		0		107,076
5. > 1 Month to 3 Months		0		0		0		0
6. > 3 Months to 1 Year		0		0		0		0
7. > 1 Year		0		0		0		0

F-34

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

	$ in thousands
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
b. Ending Balance
1. Open — No Maturity	$	0	$	0	$	0	$	0
2. Overnight		0		0		0		0
3. 2 Days to 1 Week		0		0		0		0
4. > 1 Week to 1 Month		0		0		0		71,119
5. > 1 Month to 3 Months		0		0		0		0
6. > 3 Months to 1 Year		0		0		0		0
7. > 1 Year		0		0		0		0

The Company had no securities sold and/or acquired that resulted in default during 2020.

A summary of securities "sold" under repurchase agreement — secured borrowing during 2020 is as follows:

	$ in thousands
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
a. Maximum Amount
1. BACV		XXX		XXX		XXX	$	183,394
2. Nonadmitted — Subset of BACV		XXX		XXX		XXX		0
3. Fair Value	$	0	$	10,235	$	0		185,106
b. Ending Balance
1. BACV		XXX		XXX		XXX	$	74,552
2. Nonadmitted — Subset of BACV		XXX		XXX		XXX		0
3. Fair Value	$	0	$	0	$	0		74,683

As of December 31, 2020, the Company held securities "sold" under repurchase agreement — secured borrowing consisting of NAIC 1 bonds with a carrying value of $74.6 million and fair value of $74.7 million.

Details of the collateral received — secured borrowing for the year ended December 31, 2020, are as follows:

	$ in thousands
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
a. Maximum Amount
1. Cash	$	0	$	9,875	$	0	$	178,107
2. Securities (FV)		0		0		0		0
b. Ending Balance
1. Cash	$	0	$	0	$	0	$	71,119
2. Securities (FV)		0		0		0		0

F-35

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

4. INVESTMENTS — (Continued)

The Company had cash collateral received — secured borrowing of $71.1 million as of December 31, 2020.

The allocation of aggregate collateral by remaining contractual maturity as of December 31, 2020 is as follows:

	Fair Value
	$ in thousands
a. Overnight and Continuous	$	0
b. 30 Days or Less		71,119
c. 31 to 90 Days		0
d. > 90 Days		0

The Company did not receive any cash collateral that was reinvested in 2020.

The Company recognized the following liability to return cash collateral for 2020:

	$ in thousands
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
a. Maximum Amount
1. Cash(Collateral-All)	$	0	$	9,875	$	0	$	178,107
2. Securities collateral (FV)		0		0		0		0
b. Ending Balance
1. Cash(Collateral-All)	$	0	$	0	$	0	$	71,119
2. Securities collateral (FV)		0		0		0		0

For 2020, the Company had no reverse repurchase agreements transactions accounted for as secured borrowing and no repurchase agreements or reverse repurchase agreement transactions accounted for as a sale.

The Company did not enter into any repurchase agreements or reverse repurchase agreements during 2019.

5. INCOME TAXES

The Company is included in the consolidated federal income tax return of PLC and its subsidiaries. The method of allocation of current income taxes between the affiliates is subject to a written agreement under which the Company incurs a liability to PLC to the extent that a separate return calculation indicates that the Company has a federal income tax liability. If the Company has an income tax benefit, the benefit is recorded currently to the extent that it can be carried back against prior years' separate company income tax expense. Any amount not carried back is carried forward on a separate company basis. Income taxes recoverable (payable) are recorded in the federal income taxes receivable (payable) account and are settled periodically, per the tax sharing agreement.

F-36

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

The components of the net deferred tax asset/(deferred tax liability) ("DTA"/("DTL")) at December 31 are as follows:

	$ in thousands
	12/31/2020						12/31/2019						Change
	(1)		(2)		(3)		(4)		(5)		(6)		(7)			(8)		(9)
1.	Ordinary		Capital		(Col 1+2) Total		Ordinary		Capital		(Col 4+5) Total		Ordinary			Capital		(Col 7+8) Total
(a) Gross Deferred Tax Assets	$	72,999	$	1,158	$	74,157	$	74,506	$	395	$	74,901	$	(1,507	)	$	763	$	(744	)
(b) Statutory Valuation Allowance Adjustments		0		0		0		0		0		0		0			0		0
(c) Adjusted Gross Deferred Tax Assets (1a-1b)		72,999		1,158		74,157		74,506		395		74,901		(1,507	)		763		(744	)
(d) Deferred Tax Assets Nonadmitted		48,259		0		48,259		48,342		0		48,342		(83	)		0		(83	)
(e) Subtotal Net Admitted Deferred Tax Asset) (1c-1d)		24,740		1,158		25,898		26,164		395		26,559		(1,424	)		763		(661	)
(f) Deferred Tax Liabilities		7,839		0		7,839		8,532		0		8,532		(693	)		0		(693	)
(g) Net Admitted Deferred Tax Asset/ (Net Deferred Tax Liability) (1e-1f)	$	16,901	$	1,158	$	18,059	$	17,632	$	395	$	18,027	$	(731	)	$	763	$	32

F-37

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

	$ in thousands
	12/31/2020						12/31/2019						Change
	(1)		(2)		(3)		(4)		(5)		(6)		(7)			(8)		(9)
2.	Ordinary		Capital		(Col 1+2) Total		Ordinary		Capital		(Col 4+5) Total		Ordinary			Capital		(Col 7+8) Total
Admission Calculation Components — SSAP No. 101
(a) Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carryback	$	0	$	1,158	$	1,158	$	0	$	395	$	395	$	0		$	763	$	763
(b) Adjusted Gross Deferred Tax Assets Expected To Be Realized (Excluding The Amount of Deferred Tax Assets from 2(a) above) After Application Of The Threshold Limitation (The Lesser of 2(b)1 and 2(b)2 Below)		16,901		0		16,901		17,632		0		17,632		(731	)		0		(731	)
1) Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date		16,901		0		16,901		17,632		0		17,632		(731	)		0		(731	)
2) Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold		XXX		XXX		68,082		XXX		XXX		49,120		XXX			XXX		18,962

F-38

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

	$ in thousands
	12/31/2020						12/31/2019						Change
	(1)		(2)		(3)		(4)		(5)		(6)		(7)			(8)		(9)
2.	Ordinary		Capital		(Col 1+2) Total		Ordinary		Capital		(Col 4+5) Total		Ordinary			Capital		(Col 7+8) Total
(c) Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities	$	7,839	$	0	$	7,839	$	8,532	$	0	$	8,532	$	(693	)	$	0	$	(693	)
(d) Deferred Tax Assets Admitted as the result of Application of SSAP No. 101. Total 2(a)+2(b)+2(c)	$	24,740	$	1,158	$	25,898	$	26,164	$	395	$	26,559	$	(1,424	)	$	763	$	(661	)

	$ in thousands
3.	2020			2019
(a) Ratio Percentage Used To Determine Recovery Period And Threshold Limitation Amount		1143	%		913	%
(b) Amount Of Adjusted Capital And Surplus Used To Determine Recovery Period And Threshold Limitation In 2(b)2 Above.	$	481,460		$	352,256

	$ in thousands
	12/31/2020				12/31/2019				Change
	(1)		(2)		(3)		(4)		(5)			(6)
4.	Ordinary		Capital		Ordinary		Capital		(Col 1-3) Ordinary			(Col 2-4) Capital
Impact of Tax Planning Strategies
(a) Determination Of Adjusted Gross Deferred Tax Assets and Net Admitted Deferred Tax assets, By Tax Character as a Percentage
1. Adjusted Gross DTA Amount From Note 9A1(c)	$	72,999	$	1,158	$	74,506	$	395	$	(1,507	)	$	763

F-39

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

	$ in thousands
	12/31/2020						12/31/2019						Change
	(1)			(2)			(3)			(4)			(5)			(6)
4.	Ordinary			Capital			Ordinary			Capital			(Col 1-3) Ordinary			(Col 2-4) Capital
2. Percentage of Adjusted Gross DTAs By Tax Character Attributable To the Impact of Tax Planning Strategies		0	%		0	%		0	%		0	%		0	%		0	%
3. Net Admitted Adjusted Gross DTA Amount From Note 9A1(e)	$	24,740		$	1,158		$	26,164		$	395		$	(1,424	)	$	763
4. Percentage of Net Admitted Adjusted Gross DTAs by Tax Character Admitted Because of the Impact of Tax Planning Strategies		0	%		0	%		0	%		0	%		0	%		0	%
(b) Does the Company's tax-planning strategies include the use of reinsurance?							Yes						No				X

The Company has no DTLs that are not recognized.

Current income taxes incurred consist of the following major components:

	$ in thousands
	(1)		(2)		(3)
1.	2020		2019		(Col 1-2) Change
(a) Federal	$	5,889	$	14,902	$	(9,013	)
(b) Foreign		0		0		0
(c) Subtotal		5,889		14,902		(9,013	)
(d) Federal income tax on capital gains		1,448		2,172		(724	)
(e) Utilization of capital loss carryforwards		0		0		0
(f) Other		0		0		0
(g) Federal and foreign income taxes incurred	$	7,337	$	17,074	$	(9,737	)

F-40

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

	$ in thousands
	(1)		(2)		(3)
1.	2019		2018		(Col 1-2) Change
(a) Federal	$	14,902	$	43,464	$	(28,562	)
(b) Foreign		0		0		0
(c) Subtotal		14,902		43,464		(28,562	)
(d) Federal income tax on capital gains		2,172		115		2,057
(e) Utilization of capital loss carryforwards		0		0		0
(f) Other		0		0		0
(g) Federal and foreign income taxes incurred	$	17,074	$	43,579	$	(26,505	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

Deferred Tax Assets

	$ in thousands
	(1)		(2)		(3)
2.	12/31/2020		12/31/2019		(Col 1-2) Change
(a) Ordinary:
(1) Discounting of unpaid losses	$	0	$	0	$	0
(2) Unearned premium reserve		0		0		0
(3) Policyholder reserves		29,954		28,610		1,344
(4) Investments		839		51		788
(5) Deferred acquisition costs		41,088		44,445		(3,357	)
(6) Policyholder dividends accrual		201		202		(1	)
(7) Fixed assets		0		0		0
(8) Compensation and benefits accrual		0		0		0
(9) Pension accrual		0		0		0
(10) Receivables — nonadmitted		547		86		461
(11) Net operating loss carryforward		0		0		0
(12) Tax credit carryforward		0		0		0
(13) Other (including items <5% of total ordinary tax assets)		0		0		0
(14) Due & deferred premium		0		0		0
(15) Intangibles		370		1,112		(742	)
(99) Subtotal		72,999		74,506		(1,507	)
(b) Statutory valuation allowance adjustment		0		0		0
(c) Nonadmitted		48,259		48,342		(83	)
(d) Admitted ordinary deferred tax assets (2a99-2b-2c)		24,740		26,164		(1,424	)

F-41

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

	$ in thousands
	(1)		(2)		(3)
2.	12/31/2020		12/31/2019		(Col 1-2) Change
(e) Capital:
(1) Investments	$	1,158	$	395	$	763
(2) Net capital loss carryforward		0		0		0
(3) Real estate		0		0		0
(4) Other (including items <5% of total capital tax assets)		0		0		0
(99) Subtotal		1,158		395		763
(f) Statutory valuation allowance adjustment		0		0		0
(g) Nonadmitted		0		0		0
(h) Admitted capital deferred tax assets (2e99-2f-2g)		1,158		395		763
(i) Admitted deferred tax assets (2d+2h)	$	25,898	$	26,559	$	(661	)

Deferred Tax Liabilities

	$ in thousands
	(1)		(2)		(3)
3.	12/31/2020		12/31/2019		(Col 1-2) Change
(a) Ordinary:
(1) Investments	$	5,148	$	5,581	$	(433	)
(2) Fixed assets		0		0		0
(3) Deferred and uncollected premium		0		0		0
(4) Policyholder reserves		1,909		1,953		(44	)
(5) Other (including items <5% of total ordinary tax liabilities)		4		16		(12	)
(6) Due and deferred premium		543		707		(164	)
(7) Policy loans		235		275		(40	)
(99) Subtotal		7,839		8,532		(693	)
(b) Capital:		0		0		0
(1) Investments		0		0		0
(2) Real estate		0		0		0
(3) Other (including items <5% of total capital tax liabilities)		0		0		0
(99) Subtotal		0		0		0
(c) Deferred tax liabilities (3a99+3b99)	$	7,839	$	8,532	$	(693	)
Net deferred tax assets/liabilities (2i-3c)	$	18,059	$	18,027	$	32

F-42

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

The change in net deferred income taxes as of December 31 is comprised of the following (this analysis is exclusive of nonadmitted assets as the change in nonadmitted assets is reported separately from the change in net deferred income tax in the Statement of Changes in Capital and Surplus):

	$ in thousands
	(1)		(2)		(3)
	12/31/2020		12/31/2019		(Col 1-2) Change
Adjusted gross deferred tax assets	$	74,157	$	74,901	$	(744	)
Total deferred tax liabilities		7,839		8,532		(693	)
Net deferred tax assets/(liabilities)	$	66,318	$	66,369		(51	)
Tax effect of unrealized gains/(losses)						(128	)
Change in net deferred income tax [(charge)/benefit]					$	77
	$ in thousands
	(1)		(2)		(3)
	12/31/2019		12/31/2018		(Col 1-2) Change
Adjusted gross deferred tax assets	$	74,901	$	65,081	$	9,820
Total deferred tax liabilities		8,532		2,943		5,589
Net deferred tax assets/(liabilities)	$	66,369	$	62,138		4,231
Tax effect of unrealized gains/(losses)						168
Change in net deferred income tax [(charge)/benefit]					$	4,063

On March 27, 2020, the CARES Act was signed into legislation and includes tax provisions relevant to businesses. Some of the significant changes include but are not limited to modifying the restrictions around carryback and utilizing net operating losses. Such provisions did not have a material impact on the Company for the tax years ended December 31, 2020, 2019, and 2018.

F-43

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

The provision for federal and foreign income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The significant items causing this difference at December 31 are as follows:

	$ in thousands
	2020			Effective Tax Rate (%)
Provision computed at statutory rate	$	9,756			21.0	%
Tax on STAT capital gains (losses)		(649	)		(1.4	)
Amortization of IMR		(1,115	)		(2.5	)
Change in non-admits		(459	)		(1.0	)
Nondeductible expense		7			0.0
Dividends received deduction		(105	)		(0.2	)
Tax-exempt income deduction		(16	)		0.0
Prior year deferred tax true-up		(189	)		(0.4	)
Prior year current tax true-up		171			0.4
Gain/(loss) on reinsurance		(66	)		(0.1	)
Reserve valuation changes through surplus		(42	)		(0.1	)
Foreign tax credit		(33	)		(0.1	)
Total	$	7,260			15.6	%
Federal and foreign income taxes incurred	$	5,889			12.7	%
Tax on capital gains/(losses)		1,448			3.1
Change in net deferred income taxes charge/(benefit)		(77	)		(0.2	)
Total statutory income taxes	$	7,260			15.6	%
	$ in thousands
	2019			Effective Tax Rate (%)
Provision computed at statutory rate	$	8,518			21.0	%
Tax on STAT capital gains (losses)		5,639			13.9
Amortization of IMR		(869	)		(2.1	)
Change in non-admits		(51	)		(0.1	)
Nondeductible expense		5			0.0
Dividends received deduction		(141	)		(0.3	)
Tax-exempt income deduction		(13	)		0.0
Prior year deferred tax true-up		4,947			12.2
Prior year current tax true-up		(4,929	)		(12.2	)

F-44

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

	$ in thousands
	2019			Effective Tax Rate (%)
Gain/(loss) on reinsurance	$	(69	)		(0.2	)%
Foreign tax credit		(26	)		(0.1	)
Total	$	13,011			32.1	%
Federal and foreign income taxes incurred	$	14,902			36.7	%
Tax on capital gains/(losses)		2,172			5.4
Change in net deferred income taxes charge/(benefit)		(4,063	)		(10.0	)
Total statutory income taxes	$	13,011			32.1	%
	$ in thousands
	2018			Effective Tax Rate (%)
Provision computed at statutory rate	$	(15,584	)		21.0	%
Tax on STAT capital gains (losses)		(26	)		(0.1	)
Amortization of IMR		(658	)		0.9
IMR transferred through acquisition		4,057			(5.4	)
Change in non-admits		(31	)		0.0
Nondeductible expense		8			0.0
Dividends received deduction		(155	)		0.2
Prior year deferred tax true-up		(9	)		0.0
Prior year current tax true-up		(12	)		0.0
Gain/(loss) on reinsurance		(72	)		0.1
Effect of change in tax law		(38	)		0.1
Total	$	(12,520	)		16.8	%
Federal and foreign income taxes incurred	$	43,464			(58.6	)%
Tax on capital gains/(losses)		115			(0.2	)
Change in net deferred income taxes charge/(benefit)		(56,099	)		75.6
Total statutory income taxes	$	(12,520	)		16.8	%

F-45

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

As of December 31, 2020 and 2019, the Company had no operating loss, no capital loss, and no foreign tax credit carryforwards available to offset future net income subject to federal income taxes.

The Company incurred the following amount of income taxes in the current year and preceding years that are available for recoupment in the event of future net losses:

	Ordinary		Capital		Total
			($ in thousands)
2018	$	0	$	238	$	238
2019		0		2,336		2,336
2020		0		1,718		1,718
	$	0	$	4,292	$	4,292

The Company has no deposits admitted under Section 6603 of the Internal Revenue Code as of December 31, 2020 and 2019.

The Company recorded federal income tax receivables of $3.3 million and $4.1 million as of December 31, 2020 and 2019, respectively.

The Company had no state transferable tax credits at December 31, 2020 or 2019.

The Company's federal income tax return for 2020 will be consolidated with the following entities:

Asset Protection Financial, Inc.

Chesterfield International Reinsurance Limited

Dealer Services Reinsurance, Ltd.

Empower Financial Resources, Inc.

First Protection Company

First Protection Corporation

First Protection Corporation of Florida

First Protective Insurance Group, Inc.

Golden Gate Captive Insurance Company

Golden Gate II Captive Insurance Company

Golden Gate III Vermont Captive Insurance Company

Golden Gate IV Vermont Captive Insurance Company

Golden Gate V Vermont Captive Insurance Company

Investment Distributors, Inc.

MONY Life Insurance Company

New World Re

New World Warranty Corp.

ProEquities, Inc.

Protective Administrative Services, Inc.

Protective Asset Protection, Inc.

Protective Finance Corporation

Protective Finance Corporation II

Protective Finance Corporation IV

Protective Investment Advisors, Inc.

Protective Life Corporation

Protective Life Insurance Company

Protective Property & Casualty Insurance Company

Protective Real Estate Holdings, Inc.

Shades Creek Captive Insurance Company

The Advantage Warranty Corporation

United States Warranty Corp.

USWC Holding Company

USWC Installment Program, Inc.

Warranty Business Services Corporation

West Coast Life Insurance Company

Western Diversified Services, Inc.

Western General Dealer Services, Inc.

Western General Warranty Corporation

F-46

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

5. INCOME TAXES — (Continued)

The Company does not have any federal income tax loss contingencies for which it is reasonably possible that the total liability will significantly increase within twelve months of the reporting date.

The Company does not owe the Repatriation Transition Tax under the Tax Cuts and Jobs Act.

The Company does not have an Alternative Minimum Tax (AMT) credit.

6. INFORMATION CONCERNING PARENT, SUBSIDIARIES, AND AFFILIATES

In the fourth quarter of 2020, the Company received a cash capital contribution of $100.0 million from its parent, PLICO. In conjunction with the Great-West reinsurance transaction described in Note 9, the Company received cash capital contributions of $25.0 million and $30.0 million from its parent, PLICO, in the first and second quarters of 2019, respectively.

In conjunction with the Liberty Mutual reinsurance transaction described in Note 9, the Company received cash capital contributions totaling $180.0 million from its parent, PLICO, in the second quarter of 2018. In the fourth quarter of 2018, the Company received capital contributions totaling $45.0 million from PLICO, consisting of $5.0 million in cash and $40.0 million in bonds (including accrued interest of $0.3 million).

The Company paid no dividends in the three-year period ended December 31, 2020.

The Company routinely receives from or pays to affiliates under the control of PLC reimbursements for expenses incurred on one another's behalf. Receivables and payables among affiliates are generally settled monthly. As of December 31, 2020, the Company had an intercompany receivable from its affiliates of $1.0 million and a payable of $2.4 million. As of December 31, 2019, the Company had an intercompany receivable from its affiliates of $0 and a payable of $9.4 million.

PLC has contracts with its affiliates under which it supplies investment, legal and data processing services on a fee basis and other managerial and administrative services on a shared cost basis. In addition, the affiliates have a joint contract relating to allocation of costs for services performed by employees of one affiliate for another. The Company paid $36.6 million, $37.1 million, and $28.6 million during the years ended December 31, 2020, 2019 and 2018, respectively, for these services.

PLICO entered into a guaranty agreement on October 27, 1993, with the Company. PLICO has guaranteed the payment of all insurance policy claims made by the holders or beneficiaries of any policies, which were issued after the date of the guaranty agreement in accordance with the terms of said policies. Total liabilities for policies covered by this agreement were $1.9 billion and $1.7 billion at December 31, 2020 and 2019, respectively.

PLICO entered into a guaranty agreement with the Company on December 31, 1995, whereby PLICO guaranteed that the Company will perform all of the obligations of PLICO pursuant to the terms and conditions of an indemnity coinsurance agreement between PLICO and an unaffiliated life insurance company. Total liabilities related to this coinsurance agreement were $5.6 million and $5.8 million at December 31, 2020 and 2019, respectively.

The Company entered into an agreement with PLICO in 2012 in which a loan can be given to or received from PLICO subject to certain limitations as described in the agreement. The Company had no loaned or borrowed amounts as of December 31, 2020 and 2019.

F-47

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

7. CAPITAL AND SURPLUS, SHAREHOLDERS' DIVIDEND RESTRICTIONS

Dividends and distributions on preferred and common stock are non-cumulative and are paid as determined by the Board of Directors. Dividends and distributions may be paid without approval of the Insurance Commissioner of the State of Alabama in an amount up to the greater of 10% of policyholders' surplus as of the preceding December 31, or the Company's net gain from operations for the preceding year reduced by dividends or distributions paid within the preceding twelve months. In the three-year period ended December 31, 2020, the Company paid no dividends on common or preferred stock. During 2021, the Company can pay $47.2 million in distributions without the approval of the Insurance Commissioner of the State of Alabama. The participating preferred stock can be redeemed at the option of the Company at $1,000 per share.

The portion of unassigned funds (surplus) represented or reduced for cumulative unrealized gains and losses was $(78) thousand and $(683) thousand as of December 31, 2020 and 2019, respectively.

The portion of unassigned funds (surplus) reduced for nonadmitted assets was $50.9 million and $48.8 million at December 31, 2020 and 2019, respectively.

The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. These requirements are intended to allow insurance regulators to identify inadequately capitalized insurance companies based upon the types and mixtures of risk inherent in the insurer's operations. The formula includes components for asset risk, liability risk, interest rate exposure, and other factors. The Company was adequately capitalized under the formula at December 31, 2020 and 2019.

8. LIABILITIES, COMMITMENTS, AND CONTINGENCIES

The Company has not entered into any contingent commitments or guarantees. The Company did not recognize any gain contingencies during the three-year period ended December 31, 2020.

The Company paid no claims in the reporting period to settle claims-related extra contractual obligations or bad faith claims stemming from lawsuits during 2020, 2019 and 2018.

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 pays 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

F-48

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

8. LIABILITIES, COMMITMENTS, AND CONTINGENCIES — (Continued)

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 filed a draft Amended Rehabilitation Plan ("Amended Plan") with the Court. The majority of the substance and form of the original Rehabilitation Plan, including its two-option structure described above, remains 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. It is expected that the parties will report back to the Court on or around April 30, 2021 at which time it is likely a new scheduling order will be entered.

As of December 31, 2020, the Company had outstanding claim reserves from SRUS of $0.2 million, including a recoverable of $0.2 million. In addition, the Company had a statutory reserve credit of approximately $4.4 million at December 31, 2020. As of December 31, 2020, the Company accrued a loss contingency reserve of $1.9 million under SSAP No. 5R, "Liabilities, Contingencies, and Impairment of Assets" with respect to amounts receivable from SRUS for ceded claims and reserves. As of December 31, 2019, the Company had outstanding claim reserves from SRUS of $0.2 million, including a recoverable of $0.1 million. In addition, the Company had a statutory reserve credit of approximately $4.8 million at December 31, 2019. The Company continues to monitor SRUS and the actions of the Receiver through discussions with legal counsel and review of publicly available information. As of December 31, 2020, management does not believe that the ultimate outcome of the rehabilitation process will have a material impact on the Company's financial position or results of operations.

A number of judgments have been returned against insurers, broker dealers and other providers of financial services involving, among other things, sales, underwriting practices, product design, product disclosure, administration, denial or delay of benefits, charging excessive or impermissible fees, recommending unsuitable products to customers, breaching fiduciary or other duties to customers, refund or claims practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or persons with whom the insurer does business, payment of sales and other contingent commissions, and other matters. Often these legal proceedings have resulted in the award of substantial judgments that are disproportionate to 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 non-economic compensatory damages which creates the potential for unpredictable material adverse judgments or awards in any given legal proceeding. Arbitration awards are subject to very limited appellate review. In addition, in some legal proceedings, companies have made material settlement payments. In some instances, substantial judgments may be the result of a party's perceived ability to satisfy such judgments as opposed to the facts and circumstances regarding the claims made.

F-49

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

8. LIABILITIES, COMMITMENTS, AND CONTINGENCIES — (Continued)

The Company, as well as certain of its insurance affiliates and certain other insurance companies for which the Company or its affiliates have co-insured 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 uncertainty as to the legal theory or theories that may give rise to liability and the early stages of the audits being conducted. The Company will continue to monitor the matter for any developments that would make the loss contingency associated with the audits reasonably estimable.

The Company, like other insurance companies, in the ordinary course of business, is involved in legal proceedings. The Company cannot predict the outcome of any legal proceeding nor can it provide an estimate of the possible loss, or range of loss, that may result from such legal proceeding. However, with respect to such legal proceedings, the Company does not expect that its ultimate liability, if any, will be material to its financial condition.

9. REINSURANCE

The Company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations it assumed. As of December 31, 2020, the Company's maximum retention limit was $5.0 million or less on a single risk, depending on the life product. The Company evaluates the financial condition of its reinsurers and monitors the associated concentration of credit risk.

The Company had no amounts ceded to affiliates in 2020. For the years ended December 31, 2019 and 2018, the Company ceded accident and health premiums of $1 thousand and $2 thousand, respectively, to affiliated insurers.

The Company has ceded the following to non-affiliated insurers as of and for the years ended December 31:

	2020		2019
	($ in thousands)
Life:
Insurance in force	$	6,619,433	$	7,019,559
Policy reserves ceded		169,304		186,574
Policy claim liabilities ceded		14,285		7,606
Premiums ceded		27,715		28,907
Accident and health:
Policy reserves ceded		279		293
Policy claim liabilities ceded		0		0
Premiums ceded		0		0

F-50

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

9. REINSURANCE — (Continued)

For the year ended December 31, 2018, the Company ceded life insurance premiums of $30.8 million to non-affiliated insurers.

Great-West Reinsurance Transaction

On January 23, 2019, PLICO and the Company entered into a Master Transaction Agreement (the "GWL&A Master Transaction Agreement") with Great-West Life & Annuity Insurance Company ("GWL&A"), Great-West Life & Annuity Insurance Company of New York ("GWL&A of NY"), The Canada Life Assurance Company ("CLAC") and The Great-West Life Assurance Company ("GWL" and, together with GWL&A, GWL&A of NY and CLAC, the "Sellers"), pursuant to which PLICO and the Company acquired via coinsurance (the "Transaction") substantially all of the Sellers' individual and group life and A&H insurance and annuity business (the "Business"), except for the Separate Account business, which was assumed via a Modified Coinsurance ("MODCO") agreement.

On June 3, 2019, PLICO and the Company completed the Transaction (the "GWL&A Closing"). Pursuant to the GWL&A Master Transaction Agreement, PLICO and the Company entered into reinsurance agreements (the "GWL&A Reinsurance Agreements") and related ancillary documents at the Closing. On the terms and subject to the conditions of the GWL&A Reinsurance Agreements, the Sellers ceded to PLICO and the Company, effective as of the closing of the Transaction, substantially all of the insurance policies related to the Business. The initial aggregate ceding commission for the reinsurance of the Business was $905.4 million, which was subject to adjustment in accordance with the GWL&A Master Transaction Agreement. The ceding commission was subsequently updated via customary adjustments to $847.6 million. Of this amount, approximately $11.2 million was reported by the Company. All policies issued in states other than New York were ceded to PLICO under reinsurance agreements between the applicable Seller and PLICO, and all policies issued in New York were ceded to the Company under a reinsurance agreement between GWL&A of NY and the Company. The aggregate statutory reserves and deposit-type contracts of the Sellers ceded to PLICO and the Company as of the Closing were approximately $20.6 billion (including MODCO reserves of $10.8 billion), which amount was based on initial estimates and is subject to adjustment following the Closing. To support its obligations under the GWL&A Reinsurance Agreements, PLICO established trust accounts for the benefit of GWL&A, CLAC and GWL, and the Company established a trust account for the benefit of GWL&A of NY. The Sellers retained a block of participating policies which will be administered by PLICO.

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

In conjunction with the transaction, the Company assumed approximately $639.3 million of life and accident and health policy reserves, $0.6 million of deposit-type contracts, an Interest Maintenance Reserve of approximately $19.0 million, and other liabilities of approximately $(4.7) million. Among the assets received by the Company upon assumption were bonds of approximately $565.2 million, mortgage loans of $12.0 million, contract loans of $1.5 million, other invested assets of $3.8 million, cash, cash equivalents and short-term investments of $53.2 million, and other assets of approximately $7.3 million. In addition, the Company assumed initial MODCO reserves of approximately

F-51

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

9. REINSURANCE — (Continued)

$238.5 million, which are reported as "Change in MODCO reserves" as included in "benefits and expenses", with an offsetting amount reported as "premiums and annuity considerations" as included in "total revenue".

Liberty Mutual Reinsurance Transaction

On May 1, 2018, The Lincoln National Life Insurance Company ("Lincoln Life") completed its previously announced acquisition (the "Closing") of Liberty Mutual Group Inc.'s ("Liberty Mutual") Group Benefits Business and Individual Life and Annuity Business (the "Life Business") through the acquisition of all of the issued and outstanding capital stock of Liberty Life Assurance Company of Boston ("Liberty"). In connection with the Closing and pursuant to the Master Transaction Agreement, dated January 18, 2018 (the "Master Transaction Agreement"), the Company's parent, PLICO, and the Company entered into reinsurance agreements (the "Liberty Reinsurance Agreements") and related ancillary documents (including administrative services agreements and transition services agreements) providing for the reinsurance and administration of the Life Business.

Pursuant to the Reinsurance Agreements, Liberty ceded to PLICO and the Company the insurance policies related to the Life Business on a 100% coinsurance basis. The aggregate ceding commission for the reinsurance of the Life Business was $422.4 million, which is the purchase price. The ceding commission was subsequently updated via customary adjustments to $402.5 million. Of this amount, approximately $134.4 million was reported by the Company.

All policies issued in states other than New York were ceded to PLICO under a reinsurance agreement between Liberty and PLICO, and all policies issued in New York were ceded to the Company under a reinsurance agreement between Liberty and the Company. The aggregate statutory reserves and policyholder liabilities of Liberty ceded to PLICO and the Company as of the closing of the transaction were approximately $13.2 billion, which amount was based on initial estimates. The final reserve amount determined, as adjusted during the measurement period, was $13.2 billion. In addition, there are certain pending items which remain subject to adjustment in accordance with the Master Transaction Agreement and could result in a gain in future periods. In conjunction with the transaction, the Company assumed approximately $2.549 billion of life policy reserves, $11.7 million of deposit-type contracts, policy contract claims of $12.6 million, an Interest Maintenance Reserve of approximately $19.3 million, and other net liabilities of approximately $2.1 million. Among the assets received by the Company upon assumption were bonds (including short-term investments and cash equivalents) and accrued interest of approximately $2.463 billion, contract loans of $29.0 million, and other net assets of approximately $41.7 million. In addition, the Company had a net cash outflow of $74.0 million related to the transaction. Pursuant to the terms of the Liberty Reinsurance Agreements, each of PLICO and the Company are required to maintain assets in trust for the benefit of Liberty to secure their respective obligations to Liberty under the Liberty Reinsurance Agreements. The trust accounts were initially funded by each of PLICO and the Company principally with the investment assets that were received from Liberty. Additionally, PLICO and the Company have each agreed to provide, on behalf of Liberty, administration and policyholder servicing of the Life Business reinsured by it pursuant to administrative services agreements between Liberty and each of PLICO and the Company.

F-52

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

9. REINSURANCE — (Continued)

The Company has assumed from non-affiliated insurers as of and for the years ended December 31 as follows:

	2020		2019
	($ in thousands)
Life:
Insurance in force	$	8,971,770	$	9,187,582
Policy reserves assumed		3,401,770		3,524,218
Policy claim liabilities assumed		24,201		23,950
Premiums assumed		100,563		1,008,133
Accident and health:
Policy reserves assumed		756		789
Policy claim liabilities assumed		0		0
Premiums assumed		20		321

For the year ended December 31, 2018, the Company assumed life insurance premiums of $2.8 billion and accident and health premiums of $4 thousand from non-affiliated insurers.

None of the reinsurers included as "non-affiliated" in the above tables are owned in excess of 10% or controlled, either directly or indirectly, by the Company or any representative, officer, trustee, or director of the Company. No policies issued by the Company have been reinsured with a company chartered in a country other than the United States (excluding U.S. Branches of such companies) which is owned in excess of 10% or controlled directly or indirectly by an insured, a beneficiary, a creditor of an insured or any other person not primarily engaged in the insurance business.

The Company does not have any reinsurance agreements in effect under which the reinsurer may unilaterally cancel any reinsurance for reasons other than for nonpayment of premium or other similar credits. The Company does not have any reinsurance agreements in effect such that the amount of losses paid or accrued through the statement date may result in a payment to the reinsurer of amounts which, in aggregate and allowing for offset of mutual credits from other reinsurance agreements with the same reinsurer, exceed the total direct premium collected under the reinsured policies.

The Company had no aggregate reductions to surplus for terminations of reinsurance agreements during 2020, 2019, and 2018. No new agreements were executed nor existing agreements amended during 2020 and 2019 to include policies or contracts which were in-force or which had existing reserves established by the Company as of the effective date of the agreement.

The Company has not written any receivables off as uncollectible during the three-year period ended December 31, 2020. As of December 31, 2020 and 2019, the Company had $2.1 million and $0, respectively, of nonadmitted reinsurance receivables.

The Company had no commutation of ceded reinsurance during the three-year period ended December 31, 2020.

F-53

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

9. REINSURANCE — (Continued)

The Company had the following reinsurance recoverable balances relating to paid losses as of December 31, 2020:

Company	Amount Recoverable		% of Total			Rating
	($ in thousands)
RGA Reinsurance Company	$	1,147		50.2	%	A.M. Best Company A+
Security Life of Denver Insurance Company		493		21.6		Not rated
Swiss Re Life & Health America Inc.		194		8.5		A.M. Best Company A+
Scottish Re (U.S.) Inc.		188		8.2		Not rated
All other companies		264		11.5
Total	$	2,286		100.0	%

The Company had the following reinsurance recoverable balances relating to paid losses as of December 31, 2019:

Company	Amount Recoverable		% of Total			Rating
	($ in thousands)
SCOR Global Life Americas Reinsurance Company	$	2,031		42.8	%	A.M. Best Company A+
RGA Reinsurance Company		1,376		29.0		A.M. Best Company A+
Security Life of Denver Insurance Company		730		15.4		Not rated
All other companies		606		12.8
Total	$	4,743		100.0	%

As of December 31, 2020, the Company had no accident and health recoverables and reinsurance credits with PLICO. As of December 31, 2019, the Company had $1 thousand of accident and health recoverables and reinsurance credits with PLICO, which represented less than 0.1% of capital and surplus.

10. INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK

Derivative Financial Instruments

The table below summarizes the notional amount of the Company's financial instruments with off-balance sheet risk as of December 31:

	Assets				Liabilities
	2020		2019		2020		2019
	($ in thousands)
Swaps	$	0	$	0	$	0	$	0
Futures		8,976		11,845		30,241		24,623
Options		171,100		65,309		157,474		45,233
Totals	$	180,076	$	77,154	$	187,715	$	69,856

F-54

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

10. INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK — (Continued)

None of the Company's derivative instruments qualify for hedge accounting. Therefore, they are reported at fair value and are included in the Statements of Admitted Assets, Liabilities, and Capital and Surplus. The changes in the fair value of these derivatives are recognized immediately as unrealized gains and losses.

As of December 31, 2020, the Company had posted cash and securities (at fair value) for its derivatives as collateral of approximately $5.5 million and $5.1 million, respectively. Of this amount, approximately $3.0 million and $5.1 million of cash and securities, respectively, related to outstanding futures, and approximately $2.5 million of cash was posted as collateral for outstanding options. As of December 31, 2020, the Company received $1.0 million of cash as collateral related to options.

As of December 31, 2019, the Company had posted cash and securities (at fair value) for its derivatives as collateral of approximately $1.2 million and $5.0 million, respectively. Of this amount, approximately $0.9 million and $5.0 million of cash and securities, respectively, related to outstanding futures, and approximately $0.3 million of cash was posted as collateral for outstanding options. As of December 31, 2019, the Company received $2.0 million of cash as collateral related to options.

The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit ratings. The credit exposure of over-the-counter options is represented by the fair value of contracts with a positive fair value at the reporting date. As of December 31, 2020 and 2019, the Company had received $1.0 million and $2.0 million, respectively, of cash pledged as collateral. Because exchange-traded futures and options are effected through a regulated exchange and positions are marked to market on a daily basis, the Company has little exposure to credit-related losses in the event of nonperformance by counterparties to such financial instruments.

The current credit exposure of the Company's derivative contracts is limited to the fair value at the reporting date. Credit risk is managed by entering into transactions with creditworthy counterparties. The Company also attempts to minimize its exposure to credit risk through the use of multiple highly rated counterparties.

F-55

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

10. INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK — (Continued)

Off-balance Sheet Financial Instruments

The table below presents a summary of the contractual amounts of off-balance sheet financial instruments, other than derivative financial instruments, as of December 31:

	2020		2019
	($ in thousands)
Commitments to extend mortgage loans	$	36,000	$	0

Commitments to extend mortgage loans are agreements to lend to a borrower, provided there is no violation of any condition established in the contract. The Company enters into these agreements to commit to future loan fundings at a predetermined interest rate. Commitments generally have fixed expiration dates or other termination clauses.

For commitments to extend mortgage loans, the amounts presented in Part 1 above do not represent amounts at risk if the counterparty defaults.

The collateral held for commitments to extend mortgage loans is a cash commitment fee, which is forfeited if the counterparty fails to perform.

11. PARTICIPATING POLICIES

Direct and assumed premiums under individual life participating policies were $11.3 million and 7.7%, $12.1 million and 1.6%, and $147.6 million and 8.0% for the years ended December 31, 2020, 2019, and 2018, respectively, of total direct and assumed individual life premium earned. The Company accrues dividends when declared by the Board of Directors. Dividends to policyholders were $1.1 million, $1.1 million, and $1.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company has not allocated any additional income to participating policyholders.

12. ANALYSIS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT LIABILITIES BY WITHDRAWAL CHARACTERISTICS

Withdrawal characteristics of annuity actuarial reserves and deposit liabilities as of December 31, 2020 are as follows:

Individual Annuities

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
(1) Subject to discretionary withdrawal:
a. With market value adjustments	$	7,909	$	305	$	0	$	8,214		0.3	%
b. At book value less current surrender charge of 5% or more		514,400		0		0		514,400		18.0

F-56

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

12. ANALYSIS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT LIABILITIES BY WITHDRAWAL CHARACTERISTICS — (Continued)

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
c. At fair value	$	0	$	0	$	153,065	$	153,065		5.3	%
d. Total with market value adjustment or at fair value (total of a through c)		522,309		305		153,065		675,679		23.6
e. At book value without adjustment (minimal or no charge or adj.)		2,138,181		0		0		2,138,181		74.7
(2) Not subject to discretionary withdrawal provision		48,198		0		0		48,198		1.7
(3) Total (gross: direct + assumed)		2,708,688		305		153,065		2,862,058		100.0	%
(4) Reinsurance ceded		1,205		0		0		1,205
(5) Total (net) (3) — (4)	$	2,707,483	$	305	$	153,065	$	2,860,853
(6) Amount included in A(1)b above that will move to A(1)e in the year after the statement date	$	57,788	$	0	$	0	$	57,788

Group Annuities

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
(1) Subject to discretionary withdrawal:
a. With market value adjustments	$	0	$	7,731	$	0	$	7,731		27.3	%
b. At book value less current surrender charge of 5% or more		0		0		0		0		0.0
c. At fair value		0		0		0		0		0.0
d. Total with market value adjustment or at fair value (total of a through c)		0		7,731		0		7,731		27.3

F-57

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

12. ANALYSIS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT LIABILITIES BY WITHDRAWAL CHARACTERISTICS — (Continued)

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
e. At book value without adjustment (minimal or no charge or adj.)	$	103	$	352	$	0	$	455		1.6	%
(2) Not subject to discretionary withdrawal provision		20,102		0		0		20,102		71.1
(3) Total (gross: direct + assumed)		20,205		8,083		0		28,288		100.0	%
(4) Reinsurance ceded		0		0		0		0
(5) Total (net) (3) — (4)	$	20,205	$	8,083	$	0	$	28,288
(6) Amount included in B(1)b above that will move to B(1)e in the year after the statement date	$	0	$	0	$	0	$	0

Deposit-type Contracts (no life contingencies)

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
(1) Subject to discretionary withdrawal:
a. With market value adjustments	$	0	$	0	$	0	$	0		0.0	%
b. At book value less current surrender charge of 5% or more		0		0		0		0		0.0
c. At fair value		0		0		0		0		0.0
d. Total with market value adjustment or at fair value (total of a through c)		0		0		0		0		0.0
e. At book value without adjustment (minimal or no charge or adj.)		13,952		0		0		13,952		45.8

F-58

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

12. ANALYSIS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT LIABILITIES BY WITHDRAWAL CHARACTERISTICS — (Continued)

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
(2) Not subject to discretionary withdrawal provision	$	16,495	$	0	$	0	$	16,495		54.2	%
(3) Total (gross: direct + assumed)		30,447		0		0		30,447		100.0	%
(4) Reinsurance ceded		1,047		0		0		1,047
(5) Total (net) (3) — (4)	$	29,400	$	0	$	0	$	29,400
(6) Amount included in C(1)b above that will move to C(1)e in the year after the statement date	$	0	$	0	$	0	$	0

Reconciliation of Total Annuity Actuarial Reserves and Deposit Fund Liabilities

Life & Accident & Health Annual Statement:

1. Exhibit 5, Annuities Section, Total (net)	$	2,721,324
2. Exhibit 5, Supplementary Contracts with Life Contingencies Section, Total (net)		6,363
3. Exhibit 7, Deposit-Type Contracts, Line 14, column 1		29,400
4. Subtotal		2,757,087

Separate Accounts Annual Statement:

5. Exhibit 3, Line 0299999, Column 2		161,454
6. Exhibit 3, Line 0399999, Column 2		0
7. Policy dividend and coupon accumulations		0
8. Policyholder premiums		0
9. Guaranteed interest contracts		0
10. Other contract deposit funds		0
11. Subtotal		161,454
12. Combined Total	$	2,918,541

F-59

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

12. ANALYSIS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT LIABILITIES BY WITHDRAWAL CHARACTERISTICS — (Continued)

Withdrawal characteristics of annuity actuarial reserves and deposit liabilities as of December 31, 2019 are as follows:

Individual Annuities

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
(1) Subject to discretionary withdrawal:
a. With market value adjustments	$	9,053	$	301	$	0	$	9,354		0.3	%
b. At book value less current surrender charge of 5% or more		584,434		0		0		584,434		21.2
c. At fair value		0		0		168,174		168,174		6.1
d. Total with market value adjustment or at fair value (total of a through c)		593,487		301		168,174		761,962		27.7
e. At book value without adjustment (minimal or no charge or adj.)		1,940,059		0		0		1,940,059		70.5
(2) Not subject to discretionary withdrawal provision		50,234		0		0		50,234		1.8
(3) Total (gross: direct + assumed)		2,583,780		301		168,174		2,752,255		100.0	%
(4) Reinsurance ceded		1,175		0		0		1,175
(5) Total (net) (3) — (4)	$	2,582,605	$	301	$	168,174	$	2,751,080
(6) Amount included in A(1)b above that will move to A(1)e in the year after the statement date	$	53,155	$	0	$	0	$	53,155

Group Annuities

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
(1) Subject to discretionary withdrawal:
a. With market value adjustments	$	0	$	8,437	$	0	$	8,437		27.5	%
b. At book value less current surrender charge of 5% or more		0		0		0		0		0.0
c. At fair value		0		0		0		0		0.0

F-60

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

12. ANALYSIS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT LIABILITIES BY WITHDRAWAL CHARACTERISTICS — (Continued)

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
d. Total with market value adjustment or at fair value (total of a through c)	$	0	$	8,437	$	0	$	8,437		27.5	%
e. At book value without adjustment (minimal or no charge or adj.)		169		517		0		686		2.2
(2) Not subject to discretionary withdrawal provision		21,510		0		0		21,510		70.2
(3) Total (gross: direct + assumed)		21,679		8,954		0		30,633		100.0	%
(4) Reinsurance ceded		0		0		0		0
(5) Total (net) (3) — (4)	$	21,679	$	8,954	$	0	$	30,633
(6) Amount included in B(1)b above that will move to B(1)e in the year after the statement date	$	0	$	0	$	0	$	0

Deposit-type Contracts (no life contingencies)

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
(1) Subject to discretionary withdrawal:
a. With market value adjustments	$	0	$	0	$	0	$	0		0.0	%
b. At book value less current surrender charge of 5% or more		0		0		0		0		0.0
c. At fair value		0		0		0		0		0.0
d. Total with market value adjustment or at fair value (total of a through c)		0		0		0		0		0.0
e. At book value without adjustment (minimal or no charge or adj.)		11,646		0		0		11,646		41.9

F-61

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

12. ANALYSIS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT LIABILITIES BY WITHDRAWAL CHARACTERISTICS — (Continued)

	General Account		Separate Account with Guarantees		Separate Account Non- guaranteed		Total		% of Total
	($ in thousands)
(2) Not subject to discretionary withdrawal provision	$	16,126	$	0	$	0	$	16,126		58.1	%
(3) Total (gross: direct + assumed)		27,772		0		0		27,772		100.0	%
(4) Reinsurance ceded		938		0		0		938
(5) Total (net) (3) — (4)	$	26,834	$	0	$	0	$	26,834
(6) Amount included in C(1)b above that will move to C(1)e in the year after the statement date	$	0	$	0	$	0	$	0

Reconciliation of Total Annuity Actuarial Reserves and Deposit Fund Liabilities

	($ in thousands)
Life & Accident & Health Annual Statement:
1. Exhibit 5, Annuities Section, Total (net)	$	2,597,314
2. Exhibit 5, Supplementary Contracts with Life Contingencies Section, Total (net)		6,970
3. Exhibit 7, Deposit-Type Contracts, Line 14, column 1		26,835
4. Subtotal		2,631,119
Separate Accounts Annual Statement:
5. Exhibit 3, Line 0299999, Column 2		177,428
6. Exhibit 3, Line 0399999, Column 2		0
7. Policy dividend and coupon accumulations		0
8. Policyholder premiums		0
9. Guaranteed interest contracts		0
10. Other contract deposit funds		0
11. Subtotal		177,428
12. Combined Total	$	2,808,547

F-62

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

13. ANALYSIS OF LIFE ACTUARIAL RESERVES BY WITHDRAWAL CHARACTERISTICS

Withdrawal characteristics of the Company's life actuarial reserves in the Company's General Account as of December 31, 2020, are as follows:

	General Account
	Account Value		Cash Value		Reserve
	($ in thousands)
(1) Subject to discretionary withdrawal, surrender values, or policy loans:
(a) Term Policies with Cash Value	$	0	$	108	$	49
(b) Universal Life		2,116,986		2,253,617		2,360,481
(c) Universal Life with Secondary Guarantees		5,180		2,966		22,804
(d) Indexed Universal Life		0		0		0
(e) Indexed Universal Life with Secondary Guarantees		0		0		0
(f) Indexed Life		0		0		0
(g) Other Permanent Cash Value Life Insurance		0		259,651		277,246
(h) Variable Life		0		0		0
(i) Variable Universal Life		2,217		2,217		2,165
(j) Miscellaneous Reserves		0		0		0
(2) Not subject to discretionary withdrawal or no cash values		0		0		0
(a) Term Policies without Cash Value		XXX		XXX		204,595
(b) Accidental Death Benefits		XXX		XXX		57
(c) Disability — Active Lives		XXX		XXX		1,144
(d) Disability — Disabled Lives		XXX		XXX		4,021
(e) Miscellaneous Reserves		XXX		XXX		11,390
(3) Total (gross: direct + assumed)		2,124,383		2,518,559		2,883,952
(4) Reinsurance Ceded		1,989		2,109		166,638
(5) Total (net) (3) — (4)	$	2,122,394	$	2,516,450	$	2,717,314

Reconciliation of Total Life Reserves

			($ in thousands)
Life & Accident & Health Annual Statement:
(1) Exhibit 5, Life Insurance Section, Total (net)			$	2,700,702
(2) Exhibit 5, Accidental Death Benefits Section, Total (net)				57
(3) Exhibit 5, Disability — Active Lives Section, Total (net)				1,144
(4) Exhibit 5, Disability — Disabled Lives Section, Total (net)				4,021
(5) Exhibit 5, Miscellaneous Reserves Section, Total (net)				11,390
	(6	) Subtotal		2,717,314

F-63

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

13. ANALYSIS OF LIFE ACTUARIAL RESERVES BY WITHDRAWAL CHARACTERISTICS — (Continued)

	($ in thousands)
Separate Accounts Annual Statement:
(7) Exhibit 3, Line 0199999, Column 2	$	0
(8) Exhibit 3, Line 0499999, Column 2		0
(9) Exhibit 3, Line 0599999, Column 2		0
(10) Subtotal (Lines (7) through (9))		0
(11) Combined Total ((6) and (10))	$	2,717,314

Withdrawal characteristics of the Company's life actuarial reserves in the Company's General Account as of December 31, 2019, are as follows:

	General Account
	Account Value		Cash Value		Reserve
	($ in thousands)
(1) Subject to discretionary withdrawal, surrender values, or policy loans:
(a) Term Policies with Cash Value	$	0	$	134	$	134
(b) Universal Life		2,229,765		2,307,514		2,410,967
(c) Universal Life with Secondary Guarantees		4,923		2,670		20,448
(d) Indexed Universal Life		0		0		0
(e) Indexed Universal Life with Secondary Guarantees		0		0		0
(f) Indexed Life		0		0		0
(g) Other Permanent Cash Value Life Insurance		0		211,722		229,902
(h) Variable Life		0		0		0
(i) Variable Universal Life		2,205		2,204		2,157
(j) Miscellaneous Reserves		0		0		0
(2) Not subject to discretionary withdrawal or no cash values
(a) Term Policies without Cash Value	XXX		XXX			218,385
(b) Accidental Death Benefits	XXX		XXX			96
(c) Disability — Active Lives	XXX		XXX			1,313
(d) Disability — Disabled Lives	XXX		XXX			4,059
(e) Miscellaneous Reserves	XXX		XXX			12,473
(3) Total (gross: direct + assumed)		2,236,893		2,524,244		2,899,934
(4) Reinsurance Ceded		2,206		2,279		184,461
(5) Total (net) (3) — (4)	$	2,234,687	$	2,521,965	$	2,715,473

F-64

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

13. ANALYSIS OF LIFE ACTUARIAL RESERVES BY WITHDRAWAL CHARACTERISTICS — (Continued)

Reconciliation of Total Life Reserves

	($ in thousands)
Life & Accident & Health Annual Statement:
(1) Exhibit 5, Life Insurance Section, Total (net)	$	2,697,967
(2) Exhibit 5, Accidental Death Benefits Section, Total (net)		59
(3) Exhibit 5, Disability — Active Lives Section, Total (net)		1,176
(4) Exhibit 5, Disability — Disabled Lives Section, Total (net)		4,054
(5) Exhibit 5, Miscellaneous Reserves Section, Total (net)		12,217
(6) Subtotal		2,715,473
Separate Accounts Annual Statement:
(7) Exhibit 3, Line 0199999, Column 2		0
(8) Exhibit 3, Line 0499999, Column 2		0
(9) Exhibit 3, Line 0599999, Column 2		0
(10) Subtotal (Lines (7) through (9))		0
(11) Combined Total ((6) and (10))	$	2,715,473

The Company has no life reserves in Separate Accounts.

14. PREMIUMS AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED

Life insurance premiums and annuity considerations deferred and uncollected represent annual or fractional premiums, either due and uncollected or not yet due, where policy reserves have been provided on the assumption that the full premium for the current policy year has been collected.

Deferred and uncollected life insurance premiums and annuity considerations as of December 31 were as follows:

2020

Type	Gross			Net of Loading
	($ in thousands)
Industrial	$	0		$	0
Ordinary new business		613			603
Ordinary renewal		3,349			2,883
Credit Life		0			0
Group Life		(832	)		(900	)
Group Annuity		0			0
Totals	$	3,130		$	2,586

F-65

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

14. PREMIUMS AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED — (Continued)

2019

Type	Gross			Net of Loading
	($ in thousands)
Industrial	$	0		$	0
Ordinary new business		15			(4	)
Ordinary renewal		4,217			4,264
Credit Life		0			0
Group Life		(823	)		(891	)
Group Annuity		0			0
Totals	$	3,409		$	3,369

15. SEPARATE ACCOUNTS

The Company utilizes Separate Accounts to record and account for assets and liabilities for particular lines of business. For the current reporting year, the Company reported assets and liabilities from the following product lines into a Separate Account:

• Market value adjusted annuities

• Variable annuities

Separate Accounts held by the Company are for variable annuity and individual and group market value adjusted annuity contracts. The Separate Account for market value adjusted annuities provides the opportunity for the policyholder to invest in one or any combination of interest rate guarantee periods. The assets for this account are carried at fair value and are held in a non-unitized Separate Account. Amounts withdrawn from the contract in excess of the free withdrawal amount are subject to market value adjustment, which can be positive or negative. The market value adjusted annuity business has been included as "Non-indexed Guarantee less than 4%" and "Non-indexed Guarantee more than 4%" in the table disclosing information regarding the Company's Separate Accounts as shown later in Note 15.

The Separate Accounts for the variable annuities invest in shares of various mutual funds with external investment advisors. The net investment experience of the Separate Account is credited directly to the policyholder and can be positive or negative. Variable annuities have been included as "Nonguaranteed Separate Accounts" in the table disclosing information regarding the Company's Separate Accounts as shown later in Note 15.

Some of the variable annuity contracts contain GMDB and GLWB features, which are described in Note 1.

These products are included within the Separate Accounts pursuant to Alabama Code § 27-38-1.

In accordance with the products recorded within the Separate Account, all of the Company's assets are considered legally insulated from the General Account. As of December 31, 2020 and 2019, the Company Separate Account statement included legally insulated assets of $164.7 million and

F-66

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

15. SEPARATE ACCOUNTS — (Continued)

$180.1 million, respectively. The assets legally insulated from the General Account as of December 31 are attributed to the following products:

	($ in thousands)
Product	2020		2019
Market value adjusted annuities	$	10,230	$	10,261
Variable annuities		154,461		169,811
Total	$	164,691	$	180,072

In accordance with the products recorded within the Separate Account, some Separate Account liabilities are guaranteed by the General Account. To compensate the General Account for the risk taken, the Separate Account paid risk charges of $4.3 million, $4.7 million, $5.1 million, $5.3 million, and $5.3 million during 2020, 2019, 2018, 2017, and 2016.

For the year ended December 31, 2020, $92 thousand was paid by the General Account toward Separate Account guarantees. For the preceding four years, $6 thousand, $2 thousand, $5 thousand, and $24 thousand were paid by the General Account toward Separate Account guarantees in 2019, 2018, 2017, and 2016, respectively.

The Company did not have securities lending transactions within the Separate Accounts during 2020 or 2019.

Information regarding the Company's Separate Accounts is as follows:

	2020
	Index		Nonindexed Guarantee Less Than 4%		Nonindexed Guarantee More Than 4%		Nonguaranteed Separate Account		Total
	($ in thousands)
(1) Premiums, consideration or deposits for the year ended 12/31/2020	$	0	$	2	$	0	$	707	$	709
Reserves at 12/31/2020
(2) For accounts with assets at:
a. Fair value	$	0	$	8,389	$	0	$	153,065	$	161,454
b. Amortized cost		0		0		0		0		0
c. Total reserves *	$	0	$	8,389	$	0	$	153,065	$	161,454
(3) By withdrawal characteristics:
a. Subject to discretionary withdrawal:
1. With market value adjustment	$	0	$	8,389	$	0	$	0	$	8,389
2. At book value without market value adjustment and with current surrender charge of 5% or more		0		0		0		0		0
3. At fair value		0		0		0		153,065		153,065

F-67

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

15. SEPARATE ACCOUNTS — (Continued)

	2020
	Index		Nonindexed Guarantee Less Than 4%		Nonindexed Guarantee More Than 4%		Nonguaranteed Separate Account		Total
	($ in thousands)
4. At book value without market value adjustment and with current surrender charge less than 5%		0		0		0		0		0
5. Subtotal	$	0	$	8,389	$	0	$	153,065	$	161,454
b. Not subject to discretionary withdrawal		0		0		0		0		0
c. Total	$	0	$	8,389	$	0	$	153,065	$	161,454
* Line 2(c) should equal Line 3(c)
(4) Reserves for Asset Default Risk in Lieu of AVR	$	0	$	0	$	0	$	0	$	0
	2019
	Index		Nonindexed Guarantee Less Than 4%		Nonindexed Guarantee More Than 4%		Nonguaranteed Separate Account		Total
	($ in thousands)
(1) Premiums, consideration or deposits for the year ended 12/31/2019	$	0	$	0	$	0	$	240	$	240
Reserves at 12/31/2019
(2) For accounts with assets at:
a. Fair value	$	0	$	9,254	$	0	$	168,174	$	177,428
b. Amortized cost		0		0		0		0		0
c. Total reserves *	$	0	$	9,254	$	0	$	168,174	$	177,428
(3) By withdrawal characteristics:
a. Subject to discretionary withdrawal:
1. With market value adjustment	$	0	$	9,254	$	0	$	0	$	9,254
2. At book value without market value adjustment and with current surrender charge of 5% or more		0		0		0		0		0
3. At fair value		0		0		0		168,174		168,174
4. At book value without market value adjustment and with current surrender charge less than 5%		0		0		0		0		0
5. Subtotal		0		9,254		0		168,174		177,428
b. Not subject to discretionary withdrawal		0		0		0		0		0
c. Total	$	0	$	9,254	$	0	$	168,174	$	177,428
* Line 2(c) should equal Line 3(c)
(4) Reserves for Asset Default Risk in Lieu of AVR	$	0	$	0	$	0	$	0	$	0

F-68

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

15. SEPARATE ACCOUNTS — (Continued)

Premiums in Nonguaranteed Separate Accounts were $1.0 million for the year ended December 31, 2018.

A reconciliation of net transfers to (from) Separate Accounts is as follows:

	2020			2019			2018
	($ in thousands)
Transfers as reported in the Summary of Operations of the Separate Accounts Statement:
Transfers to Separate Accounts	$	715		$	246		$	989
Transfers from Separate Accounts		18,920			21,176			17,671
Net transfers from Separate Accounts		(18,205	)		(20,930	)		(16,682	)
Reconciling adjustments
Transfers assumed under reinsurance agreements		(3,422	)		481			(654	)
Transfers as reported in the Statements of Operations	$	(21,627	)	$	(20,449	)	$	(17,336	)

16. FAIR VALUE MEASUREMENTS

The Company determines the fair value of its financial instruments in accordance with SSAP No. 100R, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about assets and liabilities measured at fair value. The definition of fair value in SSAP No. 100R focuses on an "exit price", the price that would be received to sell the asset or paid to transfer the liability. Included in various line items in the statutory financial statements are certain financial instruments carried at fair value. Other financial instruments are periodically measured at fair value, such as when impaired, or, for certain bonds and preferred stocks, when carried at the lower of cost or fair value.

The Company's financial assets and liabilities carried at fair value have been classified, for disclosure purposes, based on a hierarchy defined by SSAP No. 100R. 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. The hierarchy can be defined 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,

(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.

F-69

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

16. FAIR VALUE MEASUREMENTS — (Continued)

The following tables provide information as of December 31 about the Company's financial assets and liabilities (other than derivative instruments) measured at fair value:

2020

Description	Level 1		Level 2		Level 3		Net Asset Value (NAV)		Total
	($ In thousands)
Assets at fair value
Bonds
Residential Mortgage-backed Securities	$	0	$	9	$	0	$	0	$	9
Total bonds		0		9		0		0		9
Common stocks
Industrial and misc.		0		0		5,522		0		5,522
Total common stocks		0		0		5,522		0		5,522
Separate Account assets		159,530		5,161		0		0		164,691
Total assets at fair value	$	159,530	$	5,170	$	5,522	$	0	$	170,222

2019

Description	Level 1		Level 2		Level 3		Net Asset Value (NAV)		Total
	($ In thousands)
Assets at fair value
Bonds
Residential Mortgage-backed Securities	$	0	$	11	$	0	$	0	$	11
Total bonds		0		11		0		0		11
Common stocks
Industrial and misc.		0		0		1		0		1
Total common stocks		0		0		1		0		1
Separate Account assets		174,937		5,135		0		0		180,072
Total assets at fair value	$	174,937	$	5,146	$	1	$	0	$	180,084

F-70

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

16. FAIR VALUE MEASUREMENTS — (Continued)

The following is a Level 3 rollforward for 2020:

Description	Beginning Balance at 1/1/2020		Transfers into Level 3		Transfers out of Level 3		Total gains and (losses) included in Net Income		Total gains and (losses) included in Surplus		Purchases		Issuances		Sales		Settlements		Ending Balance at 12/31/2020
	($ in thousands)
Assets
Common stock- indust and misc.	$	1	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	1
Common stock- FHLB		0		0		0		0		0		5,521		0		0		0		5,521
Total assets	$	1	$	0	$	0	$	0	$	0	$	5,521	$	0	$	0	$	0	$	5,522

The following is a Level 3 rollforward for 2019:

Description	Beginning Balance at 1/1/2019		Transfers into Level 3		Transfers out of Level 3		Total gains and (losses) included in Net Income		Total gains and (losses) included in Surplus		Purchases		Issuances		Sales		Settlements		Ending Balance at 12/31/2019
	($ in thousands)
Assets
Common stock- indust and misc.	$	1	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	1
Total assets	$	1	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	1

There were no transfers between levels for the Company's financial assets and liabilities (other than derivative instruments) measured at fair value during the years ended December 31, 2020, 2019, and 2018.

Fair Value Methodology

Description of Pricing Inputs

The Company predominantly uses a third-party pricing service and broker quotes to determine fair values. The third-party pricing service and brokers use certain inputs to determine the value of asset backed securities, including residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities. For these securities, the valuation would consist of inputs such as, but not limited to: 1) monthly principal and interest payments on the underlying assets, 2) average life of the security, 3) prepayment speeds, 4) credit spreads, 5) treasury and swap yield curves, 6) discount margin, and 7) credit ratings of the securities.

F-71

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

16. FAIR VALUE MEASUREMENTS — (Continued)

To price corporate bonds, U.S. government-related securities, and other government-related securities, the brokers and third-party pricing service utilize a valuation model that consists of a hybrid income and market approach to valuation, while the Company uses a discounted cash flow model with both observable and unobservable inputs to determine a price when the securities are illiquid bonds. The external and internal pricing models include inputs such as, but not limited to: 1) principal and interest payments, 2) coupon, 3) maturity, 4) treasury yield curve, 5) credit spreads from new issue and secondary trading markets, 6) dealer quotes with adjustments for issues with early redemption features, 7) illiquidity premiums, 8) discount margins from dealers in the new issue market, 9) underlying collateral, and 10) comparative bond analysis.

The third-party pricing service prices equity securities using market observable prices for the same or similar securities traded in an active market.

Mortgage loan valuations are categorized as Level 3. The Company utilizes an internally developed model to estimate fair value. This model includes inputs derived by the Company based on assumed discount rates relative to the Company's current mortgage lending rate and an expected cash flow analysis based on a review of the mortgage loan terms. The model also contains the Company's determined representative risk adjustment assumptions related to nonperformance and liquidity risks.

The Company's Separate Account assets consist of financial instruments similar to those held in the general account. The Company utilizes the same valuation methodology as described above in determining the fair value of Separate Account assets as the Company does for general account assets. All assets in the Separate Account are held at fair value. The Separate Account liability matches the Separate Account asset value and its fair value is determined from valuation methods that are consistent with the Separate Account assets.

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 financial instruments owned by the Company.

The fair value of corporate bonds, government securities, equity securities, and mortgage-backed securities is determined by management after considering one of three primary sources of information: third-party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied using a "waterfall" approach whereby publicly available prices are first sought from third-party pricing services, and the remaining unpriced securities are submitted to independent brokers for non-binding prices. Typical inputs used by these pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets,

F-72

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

16. FAIR VALUE MEASUREMENTS — (Continued)

benchmark securities, bids, offers, and reference data including market research publications. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third-party pricing services derive the majority of security prices from observable market inputs such as recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information outlined above. If there are no recent reported trades, the third-party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Certain securities are priced via independent non-binding broker quotations, which are considered to have no significant unobservable inputs. When using non-binding independent broker quotations, the Company obtains two quotes per security when available. Where multiple broker quotes are obtained, the Company reviews the quotes and selects the quote that provides the best estimate of the price a market participant would pay for these specific assets in an arm's-length transaction. A pricing matrix is used to price securities for which the Company is unable to obtain or effectively rely on either a price from a third-party pricing service or an independent broker quotation.

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

The pricing matrix used by the Company begins with current spread levels to determine the market price for the security. The credit spreads, assigned by brokers, incorporate the issuer's credit rating, liquidity discounts, weighted-average of contacted cash flows, risk premium, if warranted, due to the issuer's industry, and the security's time to maturity. The Company uses credit ratings provided by nationally recognized rating agencies.

For securities that are priced via non-binding independent broker quotations, the Company assesses whether prices received from independent brokers represent a reasonable estimate of fair value through an analysis using internal and external cash flow models developed based on spreads and, when available, market indices. The Company uses a market-based cash flow analysis to validate the reasonableness of prices received from independent brokers. These analytics, which are updated daily, incorporate various metrics (yield curves, credit spreads, prepayment rates, etc.) to determine the valuation of such holdings. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly. The Company did not adjust any quotes or prices received from brokers during the years ended December 31, 2020 and 2019.

F-73

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

16. FAIR VALUE MEASUREMENTS — (Continued)

The fair value hierarchy for derivative instruments measured at fair value at December 31 is as follows:

2020

	Level 1		Level 2		Level 3		Net Asset Value (NAV)		Total
	($ in thousands)
Derivative assets
Equity contracts	$	205	$	29,922	$	0	$	0	$	30,127
Total derivative assets	$	205	$	29,922	$	0	$	0	$	30,127
Derivative liabilities
Foreign currency contracts	$	85	$	0	$	0	$	0	$	85
Equity contracts		525		26,222		0		0		26,747
Total derivative liabilities	$	610	$	26,222	$	0	$	0	$	26,832

2019

	Level 1		Level 2		Level 3		Net Asset Value (NAV)		Total
	($ in thousands)
Derivative assets
Foreign currency contracts	$	2	$	0	$	0	$	0	$	2
Equity contracts		311		7,110		0		0		7,421
Total derivative assets	$	313	$	7,110	$	0	$	0	$	7,423
Derivative liabilities
Foreign currency contracts	$	36	$	0	$	0	$	0	$	36
Equity contracts		264		4,570		0		0		4,834
Total derivative liabilities	$	300	$	4,570	$	0	$	0	$	4,870

Derivative instruments are valued using exchange prices or counterparty quotations. Derivative instruments classified as Level 1 include futures and options, all of which are traded on active exchange markets. Derivative instruments classified as Level 2 include options which are traded over-the-counter. These Level 2 derivative valuations are determined using independent broker quotations, which are corroborated with observable market inputs. There were no derivative instruments categorized within Level 3 of the fair value hierarchy, and there were no transfers into or out of Level 3 for the years ended December 31, 2020 and 2019.

F-74

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

16. FAIR VALUE MEASUREMENTS — (Continued)

The following table presents the Company's fair value hierarchy for its financial instruments as of December 31:

Type of Financial Instrument	Aggregate Fair Value		Carrying Value		Level 1		Level 2		Level 3		Net Asset Value (NAV)		Not Practicable (Carrying Value)
2020	$ In thousands
ASSETS
Bonds	$	6,418,872	$	5,693,320	$	52,126	$	6,308,832	$	57,914	$	0	$	0
Common stocks		5,522		5,522		0		0		5,522		0		0
Preferred stocks		21,015		20,387		15,751		5,264		0		0		0
Mortgage loans		204,461		194,437		0		0		204,461		0		0
Cash		3,995		3,995		3,995		0		0		0		0
Cash equivalents		39,925		39,925		39,925		0		0		0		0
Other invested assets		36,278		29,808		0		36,278		0		0		0
Contract loans		52,324		52,324		0		0		52,324		0		0
Derivative assets		30,127		30,127		205		29,922		0		0		0
Derivative collateral and receivables		5,661		5,661		5,661		0		0		0		0
Separate Accounts		164,691		164,691		159,530		5,161		0		0		0
LIABILITIES
Deposit-type contracts		30,345		29,400		0		0		30,345		0		0
Derivative liabilities		26,832		26,832		610		26,222		0		0		0
Derivative collateral and payables		1,125		1,125		1,125		0		0		0		0

F-75

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

16. FAIR VALUE MEASUREMENTS — (Continued)

Type of Financial Instrument	Aggregate Fair Value		Carrying Value		Level 1		Level 2		Level 3		Net Asset Value (NAV)		Not Practicable (Carrying Value)
2019	$ In thousands
ASSETS
Bonds	$	5,811,563	$	5,395,862	$	50,769	$	5,709,225	$	51,569	$	0	$	0
Common stocks		1		1		0		0		1		0		0
Preferred stocks		23,252		21,301		23,252		0		0		0		0
Mortgage loans		101,701		96,994		0		0		101,701		0		0
Cash		3,409		3,409		3,409		0		0		0		0
Cash equivalents		131,723		131,723		131,723		0		0		0		0
Short term investments		1,036		1,036		0		1,036		0		0		0
Other invested assets		22,229		18,296		0		22,229		0		0		0
Contract loans		55,127		55,127		0		0		55,127		0		0
Derivative assets		7,423		7,423		313		7,110		0		0		0
Derivative collateral and receivables		1,191		1,191		1,191		0		0		0		0
Separate Accounts		180,072		180,072		174,937		5,135		0		0		0
LIABILITIES
Deposit-type contracts		26,976		26,835		0		0		26,976		0		0
Derivative liabilities		4,870		4,870		300		4,570		0		0		0
Derivative collateral and payables		2,000		2,000		2,000		0		0		0		0

The fair value of bonds, preferred stocks, and certain surplus notes reported as "Other invested assets" are determined using methodologies prescribed by the NAIC. The fair value of bonds, preferred stock, and certain surplus notes are determined by management after considering one of three primary sources of information: third-party pricing services, non-binding independent broker quotations, or pricing matrices.

Publicly traded unaffiliated common stock is valued based on market trades and is a Level 1 valuation under SSAP No. 100R. As of December 31, 2020, the Company held approximately $5.5 million of FHLB stock, which is classified as Level 3. The Company believes that the cost of the FHLB stock approximates fair value. The remaining amount of equity securities classified as Level 3 consists of

F-76

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

16. FAIR VALUE MEASUREMENTS — (Continued)

holdings obtained through bankruptcy proceedings, debt restructurings or tender offers. The Company held approximately $1 thousand of Hercules Inc. publicly traded common stock warrants, consisting of holdings obtained through a tender offer.

The carrying value of the Company's cash and short-term investments approximates fair value.

Cash equivalent fair values are determined using methodologies prescribed by the NAIC and are provided by a third-party pricing service.

The Company estimates the fair value of mortgage loans using an internally developed model. This model includes inputs derived by the Company based on assumed discount rates relative to the Company's current mortgage loan lending rate and an expected cash flow analysis based on a review of the mortgage loan terms. The model also contains the Company's determined representative risk adjustment assumptions related to nonperformance and liquidity risks.

Contract loans are funds provided to policy holders in return for a claim on the account value of the policy. The funds provided are limited to a certain percent of the account balance. The nature of contract loans is to have low default risk as the loans are fully collateralized by the value of the policy. The majority of contract loans do not have a stated maturity and the balances and accrued interest are repaid with proceeds from the policy account balance. Due to the collateralized nature of contract loans and unpredictable timing of repayments, the Company's fair value of contract loans approximates carrying value.

The Separate Account assets are carried at fair value and are equal to the Separate Account liabilities, which represent the policyholder's equity in those assets. These amounts are reported separately as assets and liabilities related to Separate Accounts in the accompanying financial statements. Separate Account assets are invested in bonds, mortgage loans, preferred stocks, and open-ended mutual funds. The fair value of bonds and preferred stock held in Separate Accounts are determined using methodologies prescribed by the NAIC. The fair value of bonds and preferred stocks is determined by management after considering one of four primary sources of information: published NAIC rates, third-party pricing services, non-binding independent broker quotations, or pricing matrices. These valuations are generally categorized as a level 2 valuation as defined by SSAP No. 100R. The fair value of open-ended mutual funds held in Separate Accounts was obtained from unadjusted quoted market prices. These valuations are categorized as a Level 1 valuation as defined by SSAP No. 100R.

Deposit-type contracts include annuities certain, supplemental contracts, and dividend accumulations. The Company estimates the fair values of annuities certain and supplemental contracts using models based on discounted estimated cash flows. The discount rates used in the models were based on a current market rate for similar financial instruments. The Company estimates that the fair value of dividend accumulations approximates carrying value.

The Company held no financial instruments as of December 31, 2020 and 2019, for which it was not practicable to estimate fair value. The Company held no investments measured at NAV as of December 31, 2020 and 2019.

F-77

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

17. RETAINED ASSETS

The Company accounts for retained assets in a manner similar to supplementary contracts. Claims expense is reported in "Death and annuity benefits" in the Statements of Operations. In lieu of a cash payment to the beneficiary, a liability is established in "Liability for deposit-type contracts" in the Statements of Admitted Assets, Liabilities, and Capital and Surplus. For 2020 and 2019, the credited rate for direct retained asset accounts was 0.40% for accounts opened prior to May 1, 2019 and 1.0% for accounts opened on or after May 1, 2019. For 2018, the credited rate for direct retained asset accounts was 0.40%. The credited rate for Liberty Mutual assumed retained asset accounts was 2.0% prior to May 1, 2019 and 1.0% on or after May 1, 2019.

No fees were charged to direct retained asset account owners and certain assumed retained asset account owners during 2020, 2019 and 2018. For Liberty Mutual assumed retained asset accounts, nominal fees were charged prior to May 1, 2019.

In the event of a claim, the beneficiary is given the option of a direct payment, a settlement option provided by the policy, or a retained asset account. For direct business, retained asset accounts are generally used as the default method for settlement of claims when an election for payment has not been made. For assumed business, however, retained asset accounts are not the default method for settlement of claims.

The table below summarizes the number and balance of retained asset accounts in force, by aging category, as of December 31:

	In Force ($ in thousands)
	2020				2019
	Number		Balance		Number		Balance
a. Up to and including 12 Months		20	$	3,032		26	$	1,612
b. 13 to 24 Months		20		1,325		35		1,817
c. 25 to 36 Months		28		1,650		22		886
d. 37 to 48 Months		21		765		28		1,048
e. 49 to 60 Months		26		1,008		27		773
f. Over 60 Months		86		2,491		69		2,342
g. Total		201	$	10,271		207	$	8,478

All of the Company's retained asset accounts are individual contracts. The table below shows retained asset components as of December 31:

	($ in thousands)
	2020				2019
	Number		Balance/ Amount		Number		Balance/ Amount
a. Number/Balance of Retained Asset Accounts at the Beginning of the Year		207	$	8,478		226	$	9,014
b. Number/Amount of Retained Asset Account Issued/Added During the Year		29		4,749		42		3,204

F-78

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

17. RETAINED ASSETS — (Continued)

	($ in thousands)
	2020				2019
	Number		Balance/ Amount		Number		Balance/ Amount
c. Investment Earnings Credited to Retained Asset Accounts During the Year		XXX	$	150		XXX	$	153
d. Fees and Other Charges Assessed to Retained Asset Accounts During the Year		XXX		0		XXX		0
e. Number/Amount of Retained Asset Accounts Transferred to State Unclaimed Property funds During the Year		0		0		0		0
f. Number/Amount of Retained Asset Accounts Closed/Withdrawn During the Year		35		3,106		61		3,893
g. Number/Balance of Retained Asset Accounts at the End of the Year g=a+b+c-d-e-f		201	$	10,271		207	$	8,478

18. BORROWED MONEY

For repurchase agreements, the Company initiates short-term (typically less than 30 days) collateralized borrowings whereby cash is received, and securities are posted as collateral. The Company reports the cash proceeds as a liability, and the difference between the cash proceeds and the amount at which the securities are reacquired as interest expense. As of December 31, 2020, the Company had a "Borrowed money" obligation of $71.1 million, which represents the cash amount to be paid at the repurchase agreements' maturity. The Company has posted $74.6 million (statutory carrying value) of its assets as repurchase agreement collateral, which are classified as "Bonds" as of December 31, 2020. As of December 31, 2019, the Company did not have a borrowed money obligation.

19. RECONCILIATION FROM STATUTORY FILING

The Company is required to prepare and file annual financial statements ("Annual Statement") with insurance regulatory authorities. The 2018 audited results included herein contain adjustments not recorded by the Company in its Annual Statement. The following is reconciliation between the audited

F-79

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

19. RECONCILIATION FROM STATUTORY FILING — (Continued)

financial statements and the Annual Statement filed with the insurance regulatory authorities as of December 31, 2018:

	Statement of Cash Flow Year Ended December 31, 2018
	Per Statutory Annual Statement			Reclassification			As Reported Herein
				($ in thousands)
Premiums and annuity considerations	$	3,192,658		$	(2,556,215	)	$	636,443
Net investment income		136,495			24,298			160,793
Benefit and loss related payments		(365,657	)		1,514			(364,143	)
Commissions and expenses paid		(176,357	)		99,674			(76,683	)
Net transfers from Separate Accounts		19,262			3			19,265
Net cash from operations		2,763,620			(2,430,726	)		332,894
Cost of investments acquired: Bonds		(3,372,830	)		2,398,623			(974,207	)
Total investments acquired		(3,378,220	)		2,398,623			(979,597	)
Net decrease (increase) in contract loans and premium notes		(27,340	)		28,965			1,625
Net cash from investments		(2,967,680	)		2,427,588			(540,092	)
Net deposits from deposit-type contracts		11,227			(11,720	)		(493	)
Other cash provided (applied), net		21,090			14,858			35,948
Net cash from financing and miscellaneous sources		217,291			3,138			220,429

Adjustments noted above are the result of a restatement of the 2018 Statement of Cash Flow as reported in the Company's 2018 Annual Statement to change the reporting of the initial impact of the Liberty reinsurance transaction (see Note 9) to reflect only the net initial cash settlement, which included a cash payment, in addition to the receipt of cash equivalents and short-term investments at inception. These adjustments had no impact on the admitted assets, liabilities, capital and surplus, or net income as reported in the Company's 2018 Annual Statement.

20. OTHER DISCLOSURES

In December 2019, a novel strain of coronavirus, which causes the disease termed COVID-19, was reported in Wuhan, China. COVID-19 has since spread, and infections have been found around the world, including the United States. On March 11, 2020, the World Health Organization declared the outbreak to constitute a pandemic based on the global spread of the disease, the severity of illnesses it causes, and its effects on society. The extent of the impact of COVID-19 on the Company's operational and financial performance will depend on certain developments, including the duration and continued spread of the outbreak, regulatory and private sector responses, which may be precautionary, and the impact on the Company's customers, workforce, and vendors, all of which are uncertain and cannot be predicted. The COVID-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries, and it could materially adversely impact the mortality, morbidity, or other experience of the Company or its reinsurers or have a material adverse effect on lapses and surrenders of existing policies, as well as sales of new policies. The Company

F-80

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS

(Statutory Basis)

20. OTHER DISCLOSURES — (Continued)

has recorded an increased reserve associated with guaranteed benefits on certain of its variable annuity contracts, while realizing gains from derivatives held to hedge these guaranteed benefits. Additionally, there has been an increase in life insurance claims attributed to COVID-19.The macroeconomic effects of the COVID-19 outbreak could also materially adversely affect the Company's asset portfolio, as well as many other aspects of the Company's business, financial condition, and results of operations.

21. SUBSEQUENT EVENTS

The Company has evaluated the effects of events subsequent to December 31, 2020, and through April 14, 2021 (the date of the issuance of the Statutory statements included herein), and has no material subsequent events to report.

F-81

SUPPLEMENTAL SCHEDULES

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

SCHEDULE I

Summary of Investments-Other than Investments in Related Parties

as of December 31, 2020

Type of investment	Cost		Fair Value		Amount at which shown in the balance sheet
	($ in thousands)
Fixed maturities:
Bonds:
United States Government and government agencies and authorities	$	909,587	$	992,952	$	909,587
States, municipalities and political subdivisions		89,965		100,437		89,965
Foreign governments		32,369		38,613		32,369
Public utilities		412,494		504,283		412,494
Convertibles and bonds with warrants attached		16,592		19,043		16,592
All other corporate bonds		4,232,317		4,763,544		4,232,313
Redeemable preferred stock		9,809		10,574		9,809
Total fixed maturities		5,703,133		6,429,446		5,703,129
Equity securities:
Common stocks:
Banks, trust and insurance companies		5,521		5,521		5,521
Industrial, miscellaneous and all other		0		1		1
Nonredeemable preferred stocks		10,578		10,441		10,578
Total equity securities		16,099		15,963		16,100
Mortgage loans on real estate		194,437		204,461		194,437
Policy loans		52,324		52,324		52,324
Other long-term investments		65,596		72,066		65,596
Total investments	$	6,031,589	$	6,774,260	$	6,031,586

See accompanying independent auditors' report.
S-1

PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY

(a wholly-owned subsidiary of Protective Life Insurance Company)

SCHEDULE IV

Reinsurance

as of and for the years ended December 31, 2020 and 2019

	Gross amount		Ceded to other companies		Assumed from other companies		Net amount		Percentage of amount assumed to net
	($ in thousands)
2020
Life insurance in force	$	7,979,140	$	6,619,433	$	8,971,770	$	9,187,477		86.8	%
Premiums:
Life insurance		341,174		27,715		100,563		414,022		24.3	%
Accident and health insurance		28		0		20		48		41.7	%
Total	$	341,202	$	27,715	$	100,583	$	414,070		24.3	%
2019
Life insurance in force	$	7,795,011	$	7,019,559	$	9,187,582	$	9,963,034		92.2	%
Premiums:
Life insurance		359,601		28,907		1,008,133		1,338,827		75.3	%
Accident and health insurance		30		1		321		350		91.7	%
Total	$	359,631	$	28,908	$	1,008,454	$	1,339,177		75.3	%

See accompanying independent auditors' report.
S-2