PIA Variable Annuity Account I

LOGO

The Penn Insurance and Annuity Company

Variable Annuity Account I

Audited Financial Statements

as of December 31, 2023

and for the periods presented

LOGO

Report of Independent Registered Public Accounting Firm

To the Board of Directors of The Penn Insurance and Annuity Company and the Contract Owners of The Penn Insurance and Annuity Company Variable Annuity Account I

Opinions on the Financial Statements

We have audited the accompanying statements of assets and liabilities of the Money Market Fund, Limited Maturity Bond Fund, Quality Bond Fund, High Yield Bond Fund, Flexibly Managed Fund, Balanced Fund, Large Growth Stock Fund, Large Cap Growth Fund, Large Core Growth Fund, Large Cap Value Fund, Large Core Value Fund, Index 500 Fund, Mid Cap Growth Fund, Mid Cap Value Fund, Mid Core Value Fund, SMID Cap Growth Fund, SMID Cap Value Fund, Small Cap Growth Fund, Small Cap Value Fund, Small Cap Index Fund, Developed International Index Fund, International Equity Fund, Emerging Market Equity Fund, Real Estate Securities Fund, Aggressive Allocation Fund, Moderately Aggressive Allocation Fund, Moderate Allocation Fund, Moderately Conservative Allocation Fund, and Conservative Allocation Fund (constituting The Penn Insurance and Annuity Variable Annuity Account I, hereafter collectively referred to as the “Subaccounts”) of The Penn Insurance and Annuity Variable Annuity Account I as of December 31, 2023, the related statements of operations for the year then ended, and the statements of changes in net assets for each of the two years in the period ended December 31, 2023, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Subaccounts of The Penn Insurance and Annuity Variable Annuity Account I as of December 31, 2023, the results of each of their operations for the year then ended, and the changes in each of their net assets for each of the two years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinions

These financial statements are the responsibility of the Subaccounts’ management. Our responsibility is to express an opinion on the financial statements of each of the subaccounts of The Penn Insurance and Annuity Variable Annuity Account I based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to each of the subaccounts of The Penn Insurance and Annuity Variable Annuity Account I in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of investments owned as of December 31, 2023 by correspondence with the custodian, the transfer agents of the investee mutual funds and brokers. We believe that our audits provide a reasonable basis for our opinions.

LOGO

Philadelphia, PA

April 15, 2024

We have served as the auditor of one or more of the subaccounts of The Penn Insurance and Annuity Variable Annuity Account 1 since 2004.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF ASSETS AND LIABILITIES — DECEMBER 31, 2023


	Money Market Fund		Limited Maturity Bond Fund		Quality Bond Fund		High Yield Bond Fund		Flexibly Managed Fund
Assets:
Investments at fair value	$	590,652	$	112,412	$	669,416	$	650,404	$	18,926,441
Dividends receivable		2,552		—		—		—		—
Receivable for securities sold		24		4		26		25		727

Liabilities:
Due to The Penn Insurance and Annuity Company	$	45	$	9	$	51	$	50	$	1,448
Payable for securities purchased		—		—		—		—		—

Total Net Assets	$	593,183	$	112,407	$	669,391	$	650,379	$	18,925,720


TOTAL NET ASSETS REPRESENTED BY:
Net Assets of Contract owners:
Pennant	$	593,183	$	112,407	$	669,391	$	650,379	$	18,925,720


Accumulation of Unit Values:
Pennant	$	12.07	$	16.70	$	25.01	$	47.98	$	137.94


Number of Shares		593,228		8,224		42,103		37,061		199,129
Cost of Investments	$	593,228	$	102,983	$	651,237	$	429,734	$	6,116,107

	Balanced Fund		Large Growth Stock Fund		Large Cap Growth Fund		Large Core Growth Fund		Large Cap Value Fund
Assets:
Investments at fair value	$	777,051	$	1,172,124	$	238,573	$	3,179,847	$	2,629,123
Dividends receivable		—		—		—		—		—
Receivable for securities sold		30		45		9		122		101

Liabilities:
Due to The Penn Insurance and Annuity Company	$	59	$	90	$	18	$	243	$	201
Payable for securities purchased		—		—		—		—		—

Total Net Assets	$	777,022	$	1,172,079	$	238,564	$	3,179,726	$	2,629,023


TOTAL NET ASSETS REPRESENTED BY:
Net Assets of Contract owners:
Pennant	$	777,022	$	1,172,079	$	238,564	$	3,179,726	$	2,629,023


Accumulation of Unit Values:
Pennant	$	26.06	$	62.99	$	33.57	$	24.48	$	65.86


Number of Shares		25,035		15,829		6,199		105,053		58,015
Cost of Investments	$	482,330	$	477,721	$	98,279	$	1,690,405	$	1,167,686

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF ASSETS AND LIABILITIES — DECEMBER 31, 2023

(continued)


	Large Core Value Fund		Index 500 Fund		Mid Cap Growth Fund		Mid Cap Value Fund		Mid Core Value Fund
Assets:
Investments at fair value	$	2,481,385	$	1,881,275	$	546,974	$	699,697	$	107,616
Dividends receivable		—		—		—		—		—
Receivable for securities sold		95		72		21		27		4

Liabilities:
Due to The Penn Insurance and Annuity Company	$	190	$	144	$	42	$	54	$	8
Payable for securities purchased		—		—		—		—		—

Total Net Assets	$	2,481,290	$	1,881,203	$	546,953	$	699,670	$	107,612


TOTAL NET ASSETS REPRESENTED BY:
Net Assets of Contract owners:
Pennant	$	2,481,290	$	1,881,203	$	546,953	$	699,670	$	107,612


Accumulation of Unit Values:
Pennant	$	24.64	$	63.21	$	52.95	$	50.69	$	38.12


Number of Shares		82,060		44,132		14,387		24,062		3,059
Cost of Investments	$	1,022,962	$	900,866	$	193,987	$	428,055	$	83,913

	SMID Cap Growth Fund		SMID Cap Value Fund		Small Cap Growth Fund		Small Cap Value Fund		Small Cap Index Fund
Assets:
Investments at fair value	$	15,501	$	12,458	$	976,521	$	2,075,756	$	7,567
Dividends receivable		—		—		—		—		—
Receivable for securities sold		1		—		38		81		—

Liabilities:
Due to The Penn Insurance and Annuity Company	$	1	$	1	$	75	$	159	$	1
Payable for securities purchased		—		—		—		—		—

Total Net Assets	$	15,501	$	12,457	$	976,484	$	2,075,678	$	7,566


TOTAL NET ASSETS REPRESENTED BY:
Net Assets of Contract owners:
Pennant	$	15,501	$	12,457	$	976,484	$	2,075,678	$	7,566


Accumulation of Unit Values:
Pennant	$	37.10	$	31.02	$	66.71	$	89.86	$	25.63


Number of Shares		337		326		1 5,952		4 2,871		240
Cost of Investments	$	10,506	$	7,811	$	426,373	$	757,533	$	5,592

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF ASSETS AND LIABILITIES — DECEMBER 31, 2023

(continued)


	Developed International Index Fund†		International Equity Fund		Emerging Markets Equity Fund		Real Estate Securities Fund		Aggressive Allocation Fund
Assets:
Investments at fair value	$	—	$	2,358,021	$	236,056	$	120,278	$	17,504
Dividends receivable		—		—		—		—		—
Receivable for securities sold		—		90		9		5		1

Liabilities:
Due to The Penn Insurance and Annuity Company	$	—	$	180	$	18	$	9	$	1
Payable for securities purchased		—		—		—		—		—

Total Net Assets	$	—	$	2,357,931	$	236,047	$	120,274	$	17,504


TOTAL NET ASSETS REPRESENTED BY:
Net Assets of Contract owners:
Pennant	$	—	$	2,357,931	$	236,047	$	120,274	$	17,504


Accumulation of Unit Values:
Pennant	$	14.17	$	53.19	$	8.88	$	42.97	$	21.76


Number of Shares		—		59,760		21,519		3,831		659
Cost of Investments	$	—	$	1,473,678	$	245,620	$	70,377	$	13,062

	Moderately Aggressive Allocation Fund		Moderate Allocation Fund†		Moderately Conservative Allocation Fund		Conservative Allocation Fund
Assets:
Investments at fair value	$	70,795	$	—	$	477,640	$	6,822
Dividends receivable		—		—		—		—
Receivable for securities sold		3		—		18		—

Liabilities:
Due to The Penn Insurance and Annuity Company	$	5	$	—	$	37	$	1
Payable for securities purchased		—		—		—		—

Total Net Assets	$	70,793	$	—	$	477,621	$	6,821


TOTAL NET ASSETS REPRESENTED BY:
Net Assets of Contract owners:
Pennant	$	70,793	$	—	$	477,621	$	6,821


Accumulation of Unit Values:
Pennant	$	22.43	$	19.19	$	16.83	$	14.20


Number of Shares		2,598		—		23,576		400
Cost of Investments	$	34,780	$	—	$	434,964	$	5,823

†	The Fund held no assets at December 31, 2022 in Account I. However, the fund is an investment option.

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF OPERATIONS — FOR THE YEAR ENDED DECEMBER 31, 2023


	Money Market Fund			Limited Maturity Bond Fund			Quality Bond Fund			High Yield Bond Fund			Flexibly Managed Fund
Net Investment Income (Loss):
Dividends	$	21,796		$	—		$	—		$	—		$	—

Expense:
Mortality and expense risk charges		6,024			1,442			8,265			8,028			229,210
Contract administration charges		723			173			992			963			27,506

Net investment income (loss)		15,049			(1,615	)		(9,257	)		(8,991	)		(256,716	)


Net Realized and Unrealized Gains (Losses) on Investments:
Realized gain (loss) from redemption of fund shares		—			1,402			3,280			33,967			2,186,710
Realized gains distributions		—			—			—			—			—

Net realized gain (loss) from investment transactions		—			1,402			3,280			33,967			2,186,710
Net change in unrealized gain (loss) of investments		—			6,264			39,828			34,276			944,499

Net realized and unrealized gain (loss) on investments		—			7,666			43,108			68,243			3,131,209

Net increase (decrease) in net assets resulting from operations	$	15,049		$	6,051		$	33,851		$	59,252		$	2,874,493


	Balanced Fund			Large Growth Stock Fund			Large Cap Growth Fund			Large Core Growth Fund			Large Cap Value Fund
Net Investment Income (Loss):
Dividends	$	—		$	—		$	—		$	—		$	—

Expense:
Mortality and expense risk charges		9,368			13,603			2,461			37,368			32,500
Contract administration charges		1,124			1,632			295			4,484			3,900

Net investment income (loss)		(10,492	)		(15,235	)		(2,756	)		(41,852	)		(36,400	)


Net Realized and Unrealized Gains (Losses) on Investments:
Realized gain (loss) from redemption of fund shares		27,973			159,582			5,877			247,698			271,736
Realized gains distributions		—			—			—			—			—

Net realized gain (loss) from investment transactions		27,973			159,582			5,877			247,698			271,736
Net change in unrealized gain (loss) of investments		93,726			262,629			37,795			648,698			15,931

Net realized and unrealized gain (loss) on investments		121,699			422,211			43,672			896,396			287,667

Net increase (decrease) in net assets resulting from operations	$	111,207		$	406,976		$	40,916		$	854,544		$	251,267

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF OPERATIONS — FOR THE YEAR ENDED DECEMBER 31, 2023

(continued)


	Large Core Value Fund			Index 500 Fund			Mid Cap Growth Fund			Mid Cap Value Fund			Mid Core Value Fund
Net Investment Income (Loss):
Dividends	$	—		$	—		$	—		$	—		$	—

Expense:
Mortality and expense risk charges		30,452			22,436			6,313			8,968			1,458
Contract administration charges		3,654			2,692			758			1,076			175

Net investment income (loss)		(34,106	)		(25,128	)		(7,071	)		(10,044	)		(1,633	)


Net Realized and Unrealized Gains (Losses) on Investments:
Realized gain (loss) from redemption of fund shares		197,184			263,070			14,734			65,196			16,641
Realized gains distributions		—			—			—			—			—

Net realized gain (loss) from investment transactions		197,184			263,070			14,734			65,196			16,641
Net change in unrealized gain (loss) of investments		684			146,462			77,967			8,610			(10,289	)

Net realized and unrealized gain (loss) on investments		197,868			409,532			92,701			73,806			6,352

Net increase (decrease) in net assets resulting from operations	$	163,762		$	384,404		$	85,630		$	63,762		$	4,719


	SMID Cap Growth Fund			SMID Cap Value Fund			Small Cap Growth Fund			Small Cap Value Fund			Small Cap Index Fund
Net Investment Income (Loss):
Dividends	$	—		$	—		$	—		$	—		$	—

Expense:
Mortality and expense risk charges		177			139			11,688			24,497			192
Contract administration charges		21			17			1,403			2,940			23

Net investment income (loss)		(198	)		(156	)		(13,091	)		(27,437	)		(215	)


Net Realized and Unrealized Gains (Losses) on Investments:
Realized gain (loss) from redemption of fund shares		113			86			66,017			102,463			2,134
Realized gains distributions		—			—			—			—			—

Net realized gain (loss) from investment transactions		113			86			66,017			102,463			2,134
Net change in unrealized gain (loss) of investments		1,804			1,704			96,120			115,295			(1,368	)

Net realized and unrealized gain (loss) on investments		1,917			1,790			162,137			217,758			766

Net increase (decrease) in net assets resulting from operations	$	1,719		$	1,634		$	149,046		$	190,321		$	551

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF OPERATIONS — FOR THE YEAR ENDED DECEMBER 31, 2023

(continued)


	Developed International Index Fund†			International Equity Fund			Emerging Markets Equity Fund			Real Estate Securities Fund			Aggressive Allocation Fund
Net Investment Income (Loss):
Dividends	$	—		$	—		$	—		$	—		$	—

Expense:
Mortality and expense risk charges		—			29,544			2,968			1,359			204
Contract administration charges		—			3,545			356			163			25

Net investment income (loss)		—			(33,089	)		(3,324	)		(1,522	)		(229	)


Net Realized and Unrealized Gains (Losses) on Investments:
Realized gain (loss) from redemption of fund shares		—			209,146			(898	)		2,351			51
Realized gains distributions		—			—			—			—			—

Net realized gain (loss) from investment transactions		—			209,146			(898	)		2,351			51
Net change in unrealized gain (loss) of investments		—			130,065			5,256			10,684			2,299

Net realized and unrealized gain (loss) on investments		—			339,211			4,358			13,035			2,350

Net increase (decrease) in net assets resulting from operations	$	—		$	306,122		$	1,034		$	11,513		$	2,121


	Moderately Aggressive Allocation Fund			Moderate Allocation Fund†			Moderately Conservative Allocation Fund			Conservative Allocation Fund
Net Investment Income (Loss):
Dividends	$	—		$	—		$	—		$	—

Expense:
Mortality and expense risk charges		828			—			5,706			170
Contract administration charges		99			—			685			21

Net investment income (loss)		(927	)		—			(6,391	)		(191	)


Net Realized and Unrealized Gains (Losses) on Investments:
Realized gain (loss) from redemption of fund shares		658			—			6,181			1,645
Realized gains distributions		—			—			—			—

Net realized gain (loss) from investment transactions		658			—			6,181			1,645
Net change in unrealized gain (loss) of investments		8,341			—			40,547			(462	)

Net realized and unrealized gain (loss) on investments		8,999			—			46,728			1,183

Net increase (decrease) in net assets resulting from operations	$	8,072		$	—		$	40,337		$	992

†	The Fund held no assets at December 31, 2022 in Account I. However, the fund is an investment option.

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF CHANGES IN NET ASSETS — FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022


	Money Market Fund						Limited Maturity Bond Fund						Quality Bond Fund
	2023			2022			2023			2022			2023			2022
Operations:
Net investment income (loss)	$	15,049		$	(4,435	)	$	(1,615	)	$	(1,710	)	$	(9,257	)	$	(11,077	)
Net realized gain (loss) from investment transactions		—			—			1,402			1,646			3,280			28,059
Net change in unrealized gain (loss) of investments		—			—			6,264			(7,502	)		39,828			(156,975	)

Net increase (decrease) in net assets resulting from operations		15,049			(4,435	)		6,051			(7,566	)		33,851			(139,993	)

Variable Annuity Activities:
Purchase payments		—			—			—			—			—			22,170
Surrender benefits		(77,958	)		(115,135	)		(8,723	)		(4,469	)		(34,843	)		(71,984	)
Net transfers		433,982			95,656			1,348			3,801	)		24,747			(67,647	)
Contract administration charges		(417	)		(460	)		(50	)		(50	)		(242	)		(264	)
Annuity benefits		—			(113,714	)		—			(5,101	)		(3,872	)		(70,536	)

Net increase (decrease) in net assets resulting from variable annuity activities		355,607			(133,653	)		(7,425	)		(13,421	)		(14,210	)		(188,261	)

Total increase (decrease) in net assets		370,656			(138,088	)		(1,374	)		(20,987	)		19,641			(328,254	)
Net Assets:
Beginning of year		222,527			360,615			113,781			134,768			649,750			978,004

End of year	$	593,183		$	222,527		$	112,407		$	113,781		$	669,391		$	649,750


	High Yield Bond Fund						Flexibly Managed Fund						Balanced Fund
	2023			2022			2023			2022			2023			2022
Operations:
Net investment income (loss)	$	(8,991	)	$	(10,202	)	$	(256,716	)	$	(283,098	)	$	(10,492	)	$	(11,618	)
Net realized gain (loss) from investment transactions		33,967			61,394			2,186,710			2,877,923			27,973			78,976
Net change in unrealized gain (loss) of investments		34,276			(115,315	)		944,499			(5,653,869	)		93,726			(241,761	)

Net increase (decrease) in net assets resulting from operations		59,252			(64,123	)		2,874,493			(3,059,044	)		111,207			(174,403	)

Variable Annuity Activities:
Purchase payments		—			—			194,313			1,260			—			—
Surrender benefits		(44,154	)		(77,995	)		(1,491,301	)		(1,222,480	)		(54,233	)		(43,116	)
Net transfers		6,850			(40,287	)		(317,801	)		(992,489	)		1,407			(20,495	)
Contract administration charges		(160	)		(179	)		(3,358	)		(3,752	)		(199	)		(246	)
Annuity benefits		(14,687	)		(10,910	)		(475,563	)		(1,027,061	)		—			(86,760	)

Net increase (decrease) in net assets resulting from variable annuity activities		(52,151	)		(129,371	)		(2,093,710	)		(3,244,522	)		(53,025	)		(150,617	)

Total increase (decrease) in net assets		7,101			(193,494	)		780,783			(6,303,566	)		58,182			(325,020	)
Net Assets:
Beginning of year		643,278			836,772			18,144,937			24,448,503			718,840			1,043,860

End of year	$	650,379		$	643,278		$	18,925,720		$	18,144,937		$	777,022		$	718,840

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF CHANGES IN NET ASSETS — FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(continued)


	Large Growth Stock Fund						Large Cap Growth Fund						Large Core Growth Fund
	2023			2022			2023			2022			2023			2022
Operations:
Net investment income (loss)	$	(15,235	)	$	(15,724	)	$	(2,756	)	$	(2,622	)	$	(41,852	)	$	(47,620	)
Net realized gain (loss) from investment transactions		159,582			175,510			5,877			12,954			247,698			340,888
Net change in unrealized gain (loss) of investments		262,629			(807,990	)		37,795			(56,543	)		648,698			(3,368,574	)

Net increase (decrease) in net assets resulting from operations		406,976			(648,204	)		40,916			(46,211	)		854,544			(3,075,306	)

Variable Annuity Activities:
Purchase payments		4,074			—			—			—			4,074			—
Surrender benefits		(168,310	)		(61,094	)		(2,244	)		(15,704	)		(238,708	)		(205,649	)
Net transfers		8,192			(19,422	)		24,637			3,457			7,616			137,829
Contract administration charges		(496	)		(502	)		(27	)		(25	)		(853	)		(963	)
Annuity benefits		(14,539	)		(9,577	)		—			—			(13,866	)		(9,854	)

Net increase (decrease) in net assets resulting from variable annuity activities		(171,079	)		(90,595	)		22,366			(12,272	)		(241,737	)		(78,637	)

Total increase (decrease) in net assets		235,897			(738,799	)		63,282			(58,483	)		612,807			(3,153,943	)
Net Assets:
Beginning of year		936,182			1,674,981			175,282			233,765			2,566,919			5,720,862

End of year	$	1,172,079		$	936,182		$	238,564		$	175,282		$	3,179,726		$	2,566,919


	Large Cap Value Fund						Large Core Value Fund						Index 500 Fund
	2023			2022			2023			2022			2023			2022
Operations:
Net investment income (loss)	$	(36,400	)	$	(38,041	)	$	(34,106	)	$	(36,523	)	$	(25,128	)	$	(33,409	)
Net realized gain (loss) from investment transactions		271,736			386,014			197,184			374,399			263,070			805,597
Net change in unrealized gain (loss) of investments		15,931			(512,868	)		684			(456,856	)		146,462			(1,348,631	)

Net increase (decrease) in net assets resulting from operations		251,267			(164,895	)		163,762			(118,980	)		384,404			(576,443	)

Variable Annuity Activities:
Purchase payments		—			—			—			—			—			—
Surrender benefits		(245,688	)		(167,829	)		(215,058	)		(102,103	)		(292,611	)		(170,773	)
Net transfers		(28,366	)		(82,630	)		21,086			(140,229	)		19,532			(566,348	)
Contract administration charges		(585	)		(633	)		(472	)		(530	)		(835	)		(877	)
Annuity benefits		(4,064	)		(98,034	)		(24,683	)		(152,973	)		(878	)		(195,458	)

Net increase (decrease) in net assets resulting from variable annuity activities		(278,703	)		(349,126	)		(219,127	)		(395,835	)		(274,792	)		(933,456	)

Total increase (decrease) in net assets		(27,436	)		(514,021	)		(55,365	)		(514,815	)		109,612			(1,509,899	)
Net Assets:
Beginning of year		2,656,459			3,170,480			2,536,655			3,051,470			1,771,591			3,281,490

End of year	$	2,629,023		$	2,656,459		$	2,481,290		$	2,536,655		$	1,881,203		$	1,771,591

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF CHANGES IN NET ASSETS — FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(continued)


	Mid Cap Growth Fund						Mid Cap Value Fund						Mid Core Value Fund
	2023			2022			2023			2022			2023			2022
Operations:
Net investment income (loss)	$	(7,071	)	$	(7,220	)	$	(10,044	)	$	(12,449	)	$	(1,633	)	$	(1,704	)
Net realized gain (loss) from investment transactions		14,734			18,109			65,196			192,928			16,641			14,141
Net change in unrealized gain (loss) of investments		77,967			(229,879	)		8,610			(256,341	)		(10,289	)		(17,209	)

Net increase (decrease) in net assets resulting from operations		85,630			(218,990	)		63,762			(75,862	)		4,719			(4,772	)

Variable Annuity Activities:
Purchase payments		—			1,050			—			2,170			—			—
Surrender benefits		(9,883	)		(19,526	)		(94,032	)		(164,318	)		(21,039	)		(16,530	)
Net transfers		2,950			10,831			(2,253	)		(106,009	)		1,294			56,208
Contract administration charges		(162	)		(177	)		(267	)		(305	)		(31	)		(30	)
Annuity benefits		—			—			(3,884	)		(18,466	)		—			—

Net increase (decrease) in net assets resulting from variable annuity activities		(7,095	)		(7,822	)		(100,436	)		(286,928	)		(19,776	)		39,648

Total increase (decrease) in net assets		78,535			(226,812	)		(36,674	)		(362,790	)		(15,057	)		34,876
Net Assets:
Beginning of year		468,418			695,230			736,344			1,099,134			122,669			87,793

End of year	$	546,953		$	468,418		$	699,670		$	736,344		$	107,612		$	122,669


	SMID Cap Growth Fund						SMID Cap Value Fund						Small Cap Growth Fund
	2023			2022			2023			2022			2023			2022
Operations:
Net investment income (loss)	$	(198	)	$	(196	)	$	(156	)	$	(158	)	$	(13,091	)	$	(15,363	)
Net realized gain (loss) from investment transactions		113			136			86			67			66,017			130,575
Net change in unrealized gain (loss) of investments		1,804			(5,215	)		1,704			(2,068	)		96,120			(473,262	)

Net increase (decrease) in net assets resulting from operations		1,719			(5,275	)		1,634			(2,159	)		149,046			(358,050	)

Variable Annuity Activities:
Purchase payments		—			—			—			—			—			—
Surrender benefits		—			—			(178	)		(192	)		(68,241	)		(157,845	)
Net transfers		335			1,233			197			360			12,922			(914	)
Contract administration charges		(12	)		(12	)		(10	)		(10	)		(488	)		(516	)
Annuity benefits		—			—			—			—			(25,481	)		(11,956	)

Net increase (decrease) in net assets resulting from variable annuity activities		323			1,221			9			158			(81,288	)		(171,231	)

Total increase (decrease) in net assets		2,042			(4,054	)		1,643			(2,001	)		67,758			(529,281	)
Net Assets:
Beginning of year		13,459			17,513			10,814			12,815			908,726			1,438,007

End of year	$	15,501		$	13,459		$	12,457		$	10,814		$	976,484		$	908,726

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF CHANGES IN NET ASSETS — FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(continued)


	Small Cap Value Fund						Small Cap Index Fund						Developed International Index Fund
	2023			2022			2023			2022			2023			2022
Operations:
Net investment income (loss)	$	(27,437	)	$	(30,291	)	$	(215	)	$	(252	)	$	—		$	—
Net realized gain (loss) from investment transactions		102,463			126,074			2,134			757			—			—
Net change in unrealized gain (loss) of investments		115,295			(488,435	)		(1,368	)		(5,367	)		—			—

Net increase (decrease) in net assets resulting from operations		190,321			(392,652	)		551			(4,862	)		—			—

Variable Annuity Activities:
Purchase payments		4,074			—			—			—			—			—
Surrender benefits		(95,873	)		(96,773	)		(807	)		(2,077	)		—			—
Net transfers		12,229			(47,859	)		(8,359	)		446			—			—
Contract administration charges		(335	)		(381	)		(19	)		(18	)		—			—
Annuity benefits		(5,935	)		(2,790	)		—			—			—			—

Net increase (decrease) in net assets resulting from variable annuity activities		(85,840	)		(147,803	)		(9,185	)		(1,649	)		—			—

Total increase (decrease) in net assets		104,481			(540,455	)		(8,634	)		(6,511	)		—			—
Net Assets:
Beginning of year		1,971,197			2,511,652			16,200			22,711			—			—

End of year	$	2,075,678		$	1,971,197		$	7,566		$	16,200		$	—		$	—


	International Equity Fund						Emerging Markets Equity Fund						Real Estate Securities Fund
	2023			2022			2023			2022			2023			2022
Operations:
Net investment income (loss)	$	(33,089	)	$	(35,353	)	$	(3,324	)	$	(3,824	)	$	(1,522	)	$	(1,661	)
Net realized gain (loss) from investment transactions		209,146			168,033			(898	)		691			2,351			3,248
Net change in unrealized gain (loss) of investments		130,065			(870,200	)		5,256			(77,800	)		10,684			(38,792	)

Net increase (decrease) in net assets resulting from operations		306,122			(737,520	)		1,034			(80,933	)		11,513			(37,205	)

Variable Annuity Activities:
Purchase payments		4,074			1,120			—			1,400			—			—
Surrender benefits		(212,041	)		(182,775	)		(11,042	)		(8,398	)		(2,607	)		(3,569	)
Net transfers		(53,222	)		60,275			9,579			559			5,050			3,698
Contract administration charges		(419	)		(455	)		(140	)		(151	)		(38	)		(45	)
Annuity benefits		(7,027	)		(39,326	)		(8,853	)		—			—			—

Net increase (decrease) in net assets resulting from variable annuity activities		(268,635	)		(161,161	)		(10,456	)		(6,590	)		2,405			84

Total increase (decrease) in net assets		37,487			(898,681	)		(9,422	)		(87,523	)		13,918			(37,121	)
Net Assets:
Beginning of year		2,320,444			3,219,125			245,469			332,992			106,356			143,477

End of year	$	2,357,931		$	2,320,444		$	236,047		$	245,469		$	120,274		$	106,356

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

STATEMENTS OF CHANGES IN NET ASSETS — FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(continued)


	Aggressive Allocation Fund						Moderately Aggressive Allocation Fund						Moderate Allocation Fund
	2023			2022			2023			2022			2023		2022
Operations:
Net investment income (loss)	$	(229	)	$	(226	)	$	(927	)	$	(919	)	$	—	$	—
Net realized gain (loss) from investment transactions		51			47			658			644			—		—
Net change in unrealized gain (loss) of investments		2,299			(2,907	)		8,341			(11,406	)		—		—

Net increase (decrease) in net assets resulting from operations		2,121			(3,086	)		8,072			(11,681	)		—		—

Variable Annuity Activities:
Purchase payments		—			—			—			—			—		—
Surrender benefits		—			—			—			—			—		—
Net transfers		1			—			(1	)		—			—		—
Contract administration charges		(30	)		(30	)		(103	)		(102	)		—		—
Annuity benefits		—			—			—			—			—		—

Net increase (decrease) in net assets resulting from variable annuity activities		(29	)		(30	)		(104	)		(102	)		—		—

Total increase (decrease) in net assets		2,092			(3,116	)		7,968			(11,783	)		—		—
Net Assets:
Beginning of year		15,412			18,528			62,825			74,608			—		—

End of year	$	17,504		$	15,412		$	70,793		$	62,825		$	—	$	—


	Moderately Conservative Allocation Fund						Conservative Allocation Fund
	2023			2022			2023			2022
Operations:
Net investment income (loss)	$	(6,391	)	$	(6,543	)	$	(191	)	$	(318	)
Net realized gain (loss) from investment transactions		6,181			7,054			1,645			801
Net change in unrealized gain (loss) of investments		40,547			(65,147	)		(462	)		(3,193	)

Net increase (decrease) in net assets resulting from operations		40,337			(64,636	)		992			(2,710	)

Variable Annuity Activities:
Purchase payments		—			—			—			—
Surrender benefits		(7,879	)		(9,726	)		(10,140	)		(6,419	)
Net transfers		(4	)		(17	)		(30	)		(34	)
Contract administration charges		(27	)		(27	)		(44	)		(43	)
Annuity benefits		—			—			—			—

Net increase (decrease) in net assets resulting from variable annuity activities		(7,910	)		(9,770	)		(10,214	)		(6,496	)

Total increase (decrease) in net assets		32,427			(74,406	)		(9,222	)		(9,206	)
Net Assets:
Beginning of year		445,194			519,600			16,043			25,249

End of year	$	477,621		$	445,194		$	6,821		$	16,043

The accompanying notes are an integral part of these financial statements.

PENN INSURANCE AND ANNUITY VARIABLE ANNUITY ACCOUNT I

Notes to Financial Statements — December 31, 2023

Note 1. Organization

The Penn Insurance and Annuity Variable Annuity Account I (“Account I”) was established by The Penn Insurance and Annuity Company (“PIA”) under the provisions of the Delaware Insurance Law. Account I is registered under the Investment Company Act of 1940, as amended, as a unit investment trust. Account I contains contracts of the Pennant variable annuity product. Under applicable insurance law, the assets and liabilities of Account I are legally segregated from PIA’s other assets and liabilities. Account I offers units to variable annuity contract owners to provide for the accumulation of value and for the payment of annuities.

Note 2. Significant Accounting Policies

The preparation of the accompanying financial statements and notes are in accordance with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the reported values of assets and liabilities and the reported amounts from operations and annuity activities during the reporting period. Actual results could differ significantly with those estimates. The significant accounting policies of Account I are as follows:

Investments — Assets of Account I are invested into subaccounts which are invested in shares of Penn Series Funds, Inc. (“Penn Series”), an affiliate of PIA: Money Market, Limited Maturity Bond, Quality Bond, High Yield Bond, Flexibly Managed, Balanced, Large Growth Stock, Large Cap Growth, Large Core Growth, Large Cap Value, Large Core Value, Index 500, Mid Cap Growth, Mid Cap Value, Mid Core Value, SMID Cap Growth, SMID Cap Value, Small Cap Growth, Small Cap Value, Small Cap Index, Developed International Index, International Equity, Emerging Markets Equity, Real Estate Securities, Aggressive Allocation, Moderately Aggressive Allocation, Moderate Allocation, Moderately Conservative Allocation and Conservative Allocation.

Penn Series is an open-end diversified management investment company.

The investment in shares of these funds or portfolios are carried at fair market value as determined by the underlying net asset value of the respective funds or portfolios. Investment transactions are accounted for on a trade date basis. The resulting net unrealized gains/(losses) are reflected in the Statements of Operations. Realized gains/(losses) from securities transactions are determined for federal income tax and for financial reporting purposes on the FIFO cost basis.

The amounts shown as receivable for securities sold and payable for securities purchased on the Statements of Assets and Liabilities reflect transactions that occurred on the last business day of the reporting period. These amounts will be deposited to or withdrawn from the separate account in accordance with the contract owners’ instructions on the first business day subsequent to the close of the period presented.

All dividend distributions received from the underlying Penn Series Funds are reinvested in additional shares of these Funds and are recorded by Account I on the ex-dividend date. The Penn Series Funds have utilized consent dividends to effectively distribute income for income tax purposes. Account I consents to treat these amounts as dividend income for tax purposes although they are not paid by the underlying Penn Series Funds. Therefore, no dividend income is recorded in the statements of operations related to such consent dividends.

For the year ended December 31, 2023, consent dividends in Account I were:


	Consent Dividends
Money Market Fund		0
Limited Maturity Bond Fund		4,674
Quality Bond Fund		25,954
High Yield Bond Fund		38,445
Flexibly Managed Fund		585,125
Balanced Fund		103,734
Large Growth Stock Fund		75,606
Large Cap Growth Fund		27,267
Large Core Growth Fund		0

Note 2. Significant Accounting Policies (continued)


	Consent Dividends
Large Cap Value Fund		139,581
Large Core Value Fund		204,605
Index 500 Fund		126,307
Mid Cap Growth Fund		26,387
Mid Cap Value Fund		10,748
Mid Core Value Fund		5,203
SMID Cap Growth Fund		0
SMID Cap Value Fund		910
Small Cap Growth Fund		47,473
Small Cap Value Fund		14,619
Small Cap Index Fund		318
International Equity Fund		726
Emerging Markets Equity Fund		902
Real Estate Securities Fund		6,883
Aggressive Allocation Fund		1,593
Moderately Aggressive Allocation Fund		7,067
Moderate Allocation Fund		0
Moderately Conservative Allocation Fund		43,381
Conservative Allocation Fund		501

Federal Income Taxes — The operations of Account I are included in the federal income tax return of PIA, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (“IRC”). Under the current provisions of the IRC, PIA does not expect to incur federal income taxes on the earnings of Account I to the extent the earnings are credited under the contracts. Based on this, there is no charge to Account I for federal income taxes. PIA will review, as needed, the status of this policy in the event of changes in the tax law. A charge may be made in future years for any federal income taxes that would be attributable to the contracts.

Under the provisions of Section 817(h) of the IRC, a variable annuity contract will not be treated as an annuity contract for federal tax purposes for any period for which the investments of the segregated asset account on which the contract is based are not adequately diversified. The IRC provides that the “adequately diversified” requirement may be met if the underlying investments satisfy either a statutory safe harbor test or diversification requirements set forth in regulations issued by the Secretary of Treasury. Account I satisfies the current requirements of the regulations, and PIA intends that Account I will continue to meet such requirements.

Fair Value Measurement — Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement is based on assumptions market participants would make in pricing an asset or liability. The inputs to valuation techniques used to measure fair value are prioritized by establishing a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to prices derived from unobservable inputs. An asset or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its fair value measurement. Account I has categorized its assets and liabilities into the three-level fair value hierarchy based upon the priority of the inputs. The following summarizes the types of assets and liabilities included within the three-level hierarchy:

Level 1 — Fair value is based on unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. These generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following for the measured asset/liability: i) many transactions, ii) current prices, iii) price quotes not varying substantially among market makers. iv) narrow bid/ask spreads and v) most information publicly available. Prices are obtained from readily available sources for market transactions involving identical assets or liabilities.

Level 2 — Fair value is based on significant inputs, other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. In circumstances where prices from pricing services are reviewed for reasonability but cannot be validated to observable market data as noted above, these security values are recorded in Level 3 in our fair value hierarchy.

Note 2. Significant Accounting Policies (continued)

Level 3 — Fair value is based on significant inputs that are unobservable for the asset or liability. These are typically less liquid fixed maturity securities with very limited trading activity. Prices are determined using valuation methodologies such as option pricing models, discounted cash flow models and other similar techniques. Prices may also be based upon non-binding quotes from brokers or other market makers that are reviewed for reasonableness, based on PIA’s understanding of the market.

The fair value of all the investments in the respective fund portfolios, are at net asset values and the investments are considered actively traded and fall within Level 1.

Note 3. Purchases and Sales of Investments

The following table shows aggregate cost of shares purchased and proceeds of shares sold for each fund or portfolio for the period ended December, 31, 2023:


	Purchases		Sales
Money Market Fund	$	433,969	$	85,072
Limited Maturity Bond Fund		2,390		11,426
Quality Bond Fund		26,275		49,716
High Yield Bond Fund		12,641		73,756
Flexibly Managed Fund		321,767		2,671,443
Balanced Fund		15,456		78,942
Large Growth Stock Fund		13,099		199,359
Large Cap Growth Fund		27,613		7,991
Large Core Growth Fund		72,629		356,074
Large Cap Value Fund		32,773		347,775
Large Core Value Fund		50,171		303,311
Index 500 Fund		26,130		325,974
Mid Cap Growth Fund		7,055		21,197
Mid Cap Value Fund		14,922		125,376
Mid Core Value Fund		3,622		25,027
SMID Cap Growth Fund		497		372
SMID Cap Value Fund		448		595
Small Cap Growth Fund		14,380		108,719
Small Cap Value Fund		32,748		145,942
Small Cap Index Fund		450		9,850
Developed International Index Fund		—		—
International Equity Fund		37,357		338,990
Emerging Markets Equity Fund		8,966		22,737
Real Estate Securities Fund		5,017		4,129
Aggressive Allocation Fund		—		258
Moderately Aggressive Allocation Fund		—		1,027
Moderate Allocation Fund		—		—
Moderately Conservative Allocation Fund		—		14,281
Conservative Allocation Fund		—		10,405

Note 4. Related Party Transactions and Contract Charges

Account I is charged daily for mortality and expense risks assumed by PIA and for administration expenses at an annual rate of 1.25% and 0.15% respectively, of the average net assets of Account I, and are reflected as a reduction in the unit values.

As reimbursement for expenses incurred in administering the contract, PIA receives $30 or 2% of account value, whichever is less, per year from each annuity contract prior to the contract’s date of maturity. The $30 charge is waived if the contract owner’s value is more than $50,000. This charge is reflected as a reduction in the number of units held.

PIA received $564,634 and $623,955 from Account I for mortality and risk expenses, contract administration and certain other charges for the years ended December 31, 2023 and 2022, respectively. These amounts charged include those assessed through a reduction in unit values as well as those assessed through the redemption of units. Additionally, Penn Series pays The Penn Mutual Life Insurance Company and its affiliates fees for investment advisory and administrative services.

Note 4. Related Party Transactions and Contract Charges (continued)

If a policy is surrendered within the first 7 years, a contingent deferred sales charge may be assessed. This charge will be deducted before any surrender proceeds are paid.

Premium taxes on purchase payments are withdrawn from payments prior to the purchase of units. Currently, state premium taxes on purchase payments range from 0.00% to 4.00%.

Note 5. Accumulation Units


	December 31, 2023							December 31, 2022
Subaccount	Units Issued		Units Redeemed			Ending Unit Balance		Units Issued		Units Redeemed			Ending Unit Balance
Money Market Fund		36,682		(6,524	)		49,159		25,505		(36,950	)		19,001
Limited Maturity Bond Fund		154		(610	)		6,733		3		(834	)		7,189
Quality Bond Fund		1,095		(1,686	)		26,770		1,101		(8,815	)		27,361
High Yield Bond Fund		285		(1,433	)		13,558		—		(2,970	)		14,706
Flexibly Managed Fund		2,463		(19,071	)		137,213		1,131		(26,904	)		153,821
Balanced Fund		625		(2,862	)		29,814		24		(6,265	)		32,051
Large Growth Stock Fund		291		(3,273	)		18,609		2,438		(3,886	)		21,591
Large Cap Growth Fund		908		(178	)		7,107		104		(504	)		6,377
Large Core Growth Fund		3,989		(14,078	)		129,877		16,233		(19,312	)		139,966
Large Cap Value Fund		549		(5,051	)		39,921		2,489		(8,127	)		44,423
Large Core Value Fund		2,211		(11,462	)		100,696		6,792		(23,062	)		109,947
Index 500 Fund		450		(5,475	)		29,761		63		(17,195	)		34,786
Mid Cap Growth Fund		153		(282	)		10,331		231		(384	)		10,460
Mid Cap Value Fund		328		(2,479	)		13,805		62		(6,268	)		15,956
Mid Core Value Fund		109		(647	)		2,824		1,558		(534	)		3,362
SMID Cap Growth Fund		15		(5	)		418		45		(11	)		408
SMID Cap Value Fund		17		(16	)		402		14		(7	)		401
Small Cap Growth Fund		258		(1,557	)		14,639		303		(3,206	)		15,938
Small Cap Value Fund		409		(1,410	)		23,100		59		(1,778	)		24,101
Small Cap Index Fund		21		(450	)		295		27		(94	)		724
Developed International Index Fund		—		—			—		—		—			—
International Equity Fund		777		(6,024	)		44,332		1,458		(4,911	)		49,579
Emerging Markets Equity Fund		1,023		(2,154	)		26,570		794		(1,469	)		27,701
Real Estate Securities Fund		137		(67	)		2,799		102		(82	)		2,729
Aggressive Allocation Fund		—		(2	)		804		—		(1	)		806
Moderately Aggressive Allocation Fund		—		(5	)		3,157		1		(5	)		3,162
Moderate Allocation Fund		—		—			—		—		—			—
Moderately Conservative Allocation Fund		1		(500	)		28,377		—		(604	)		28,876
Conservative Allocation Fund		—		(734	)		481		1		(485	)		1,215

Note 6. Financial Highlights

Account I is a funding vehicle for a number of variable annuity products, which have unique combinations of features and fees that are charged against the contract owner’s account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. The Net Assets calculation in the table below excludes the accrual balance related to the “Due to The Penn Mutual Life Insurance Company” line in the Statement of Assets and Liabilities.

The following table was developed by determining which products offered within Account I have the lowest and highest total return. Only product designs within each subaccount that has units outstanding during the respective periods were considered when determining the lowest and highest total return. The summary may not reflect the minimum and maximum contract charges offered within Account I as contract owners may not have selected all available and applicable contract options.


	January 1, 2023		December 31, 2023						For the Year ended December 31, 2023
Subaccount	Unit Value		Units		Unit Value		Net Assets		Investment Income Ratio* (%)		Expense Ratio** (%)		Total Return * (%)**
Money Market Fund	$	11.71		49,159		12.07		593,228		4.50		1.40		3.04
Limited Maturity Bond Fund		15.83		6,733		16.70		112,416		—		1.40		5.48

Note 6. Financial Highlights (continued)


	January 1, 2023		December 31, 2023						For the Year ended December 31, 2023
Subaccount	Unit Value		Units		Unit Value		Net Assets		Investment Income Ratio* (%)		Expense Ratio** (%)		Total Return * (%)**
Quality Bond Fund	$	23.75		26,770		25.01		669,442		—		1.40		5.30
High Yield Bond Fund		43.74		13,558		47.98		650,429		—		1.40		9.68
Flexibly Managed Fund		117.97		137,213		137.94		18,927,168		—		1.40		16.93
Balanced Fund		22.43		29,814		26.06		777,081		—		1.40		16.21
Large Growth Stock Fund		43.36		18,609		62.99		1,172,169		—		1.40		45.27
Large Cap Growth Fund		27.49		7,107		33.57		238,582		—		1.40		22.13
Large Core Growth Fund		18.34		129,877		24.48		3,179,969		—		1.40		33.50
Large Cap Value Fund		59.80		39,921		65.86		2,629,224		—		1.40		10.13
Large Core Value Fund		23.07		100,696		24.64		2,481,480		—		1.40		6.81
Index 500 Fund		50.93		29,761		63.21		1,881,347		—		1.40		24.12
Mid Cap Growth Fund		44.78		10,331		52.95		546,995		—		1.40		18.24
Mid Cap Value Fund		46.15		13,805		50.69		699,724		—		1.40		9.83
Mid Core Value Fund		36.49		2,824		38.12		107,620		—		1.40		4.46
SMID Cap Growth Fund		33.01		418		37.10		15,502		—		1.40		12.39
SMID Cap Value Fund		26.96		402		31.02		12,458		—		1.40		15.06
Small Cap Growth Fund		57.02		14,639		66.71		976,559		—		1.40		17.00
Small Cap Value Fund		81.79		23,100		89.86		2,075,837		—		1.40		9.87
Small Cap Index Fund		22.36		295		25.63		7,567		—		1.40		14.62
Developed International Index Fund		12.26		—		14.17		—		—		1.40		15.60
International Equity Fund		46.80		44,332		53.19		2,358,111		—		1.40		13.65
Emerging Markets Equity Fund		8.86		26,570		8.88		236,065		—		1.40		0.26
Real Estate Securities Fund		38.98		2,799		42.97		120,283		—		1.40		10.23
Aggressive Allocation Fund		19.12		804		21.76		17,505		—		1.40		13.79
Moderately Aggressive Allocation Fund		19.87		3,157		22.43		70,798		—		1.40		12.86
Moderate Allocation Fund		17.25		—		19.19		—		—		1.40		11.21
Moderately Conservative Allocation Fund		15.42		28,377		16.83		477,658		—		1.40		9.18
Conservative Allocation Fund		13.21		481		14.20		6,822		—		1.40		7.50


	January 1, 2022		December 31, 2022						For the Year ended December 31, 2022
Subaccount	Unit Value		Units		Unit Value		Net Assets		Investment Income Ratio* (%)		Expense Ratio** (%)		Total Return * (%)**
Money Market Fund	$	11.84		19,001		11.71		222,536		0.17		1.40		-1.12
Limited Maturity Bond Fund		16.80		7,189		15.83		113,785		—		1.40		-5.81
Quality Bond Fund		27.88		27,361		23.75		649,775		—		1.40		-14.83
High Yield Bond Fund		47.34		14,706		43.74		643,303		—		1.40		-7.59
Flexibly Managed Fund		136.13		153,821		117.97		18,145,635		—		1.40		-13.34
Balanced Fund		27.26		32,051		22.43		718,868		—		1.40		-17.72
Large Growth Stock Fund		72.70		21,591		43.36		936,218		—		1.40		-40.35
Large Cap Growth Fund		34.49		6,377		27.49		175,289		—		1.40		-20.31
Large Core Growth Fund		39.99		139,966		18.34		2,567,018		—		1.40		-54.14
Large Cap Value Fund		63.33		44,423		59.80		2,656,561		—		1.40		-5.58
Large Core Value Fund		24.18		109,947		23.07		2,536,753		—		1.40		-4.57
Index 500 Fund		63.21		34,786		50.93		1,771,659		—		1.40		-19.42
Mid Cap Growth Fund		65.51		10,460		44.78		468,436		—		1.40		-31.64
Mid Cap Value Fund		49.59		15,956		46.15		736,372		—		1.40		-6.95
Mid Core Value Fund		37.56		3,362		36.49		122,674		—		1.40		-2.85
SMID Cap Growth Fund		46.80		408		33.01		13,460		—		1.40		-29.47
SMID Cap Value Fund		32.53		401		26.96		10,814		—		1.40		-17.13
Small Cap Growth Fund		76.32		15,938		57.02		908,761		—		1.40		-25.29
Small Cap Value Fund		97.28		24,101		81.79		1,971,273		—		1.40		-15.92
Small Cap Index Fund		28.73		724		22.36		16,201		—		1.40		-22.16
Developed International Index Fund		14.68		—		12.26		—		—		1.40		-16.50
International Equity Fund		60.70		49,579		46.80		2,320,534		—		1.40		-22.89
Emerging Markets Equity Fund		11.73		27,701		8.86		245,478		—		1.40		-24.48
Real Estate Securities Fund		52.96		2,729		38.98		106,360		—		1.40		-26.39
Aggressive Allocation Fund		22.95		806		19.12		15,413		—		1.40		-16.67
Moderately Aggressive Allocation Fund		23.56		3,162		19.87		62,827		—		1.40		-15.66
Moderately Conservative Allocation Fund		17.63		28,876		15.42		445,211		—		1.40		-12.53
Conservative Allocation Fund		14.86		1,215		13.21		16,044		—		1.40		-11.11

Note 6. Financial Highlights (continued)


	January 1, 2021		December 31, 2021						For the Year ended December 31, 2021
Subaccount	Unit Value		Units		Unit Value		Net Assets		Investment Income Ratio* (%)		Expense Ratio** (%)		Total Return * (%)**
Money Market Fund	$	12.01		30,446	$	11.84		360,615		0.01		1.40		-1.38
Limited Maturity Bond Fund		16.98		8,020		16.80		134,768		—		1.40		-1.02
Quality Bond Fund		28.47		35,075		27.88		978,004		—		1.40		-2.07
High Yield Bond Fund		45.67		17,676		47.34		836,772		—		1.40		3.66
Flexibly Managed Fund		116.71		179,594		136.13		24,448,503		—		1.40		16.64
Balanced Fund		23.88		38,292		27.26		1,043,860		—		1.40		14.16
Large Growth Stock Fund		63.32		23,039		72.70		1,674,981		—		1.40		14.81
Large Cap Growth Fund		27.80		6,777		34.49		233,765		—		1.40		24.10
Large Core Growth Fund		42.22		143,045		39.99		5,720,862		—		1.40		-5.27
Large Cap Value Fund		50.22		50,061		63.33		3,170,480		—		1.40		26.11
Large Core Value Fund		19.70		126,217		24.18		3,051,470		—		1.40		22.73
Index 500 Fund		49.96		51,918		63.21		3,281,490		—		1.40		26.51
Mid Cap Growth Fund		56.95		10,613		65.51		695,230		—		1.40		15.03
Mid Cap Value Fund		42.17		22,162		49.59		1,099,134		—		1.40		17.61
Mid Core Value Fund		30.92		2,338		37.56		87,793		—		1.40		21.45
SMID Cap Growth Fund		44.06		374		46.80		17,513		—		1.40		6.23
SMID Cap Value Fund		24.33		394		32.53		12,815		—		1.40		33.70
Small Cap Growth Fund		71.22		18,841		76.32		1,438,007		—		1.40		7.17
Small Cap Value Fund		77.88		25,820		97.28		2,511,652		—		1.40		24.91
Small Cap Index Fund		25.48		791		28.73		22,711		—		1.40		12.76
Developed International Index Fund		13.47		—		14.68		—		—		1.40		9.00
International Equity Fund		54.85		53,032		60.70		3,219,125		—		1.40		10.66
Emerging Markets Equity Fund		12.61		28,376		11.73		332,992		—		1.40		-6.94
Real Estate Securities Fund		37.63		2,709		52.96		143,477		—		1.40		40.72
Aggressive Allocation Fund		19.99		807		22.95		18,528		—		1.40		14.80
Moderately Aggressive Allocation Fund		20.72		3,166		23.56		74,608		—		1.40		13.72
Moderate Allocation Fund		18.49		—		20.30		—		—		1.40		9.78
Moderately Conservative Allocation Fund		16.45		29,480		17.63		519,600		—		1.40		7.13
Conservative Allocation Fund		14.41		1,699		14.86		25,249		—		1.40		3.07


	January 1, 2020		December 31, 2020						For the Year ended December 31, 2020
Subaccount	Unit Value		Units		Unit Value		Net Assets		Investment Income Ratio* (%)		Expense Ratio** (%)		Total Return * (%)**
Money Market Fund	$	12.15		95,641	$	12.01		1,148,657		0.15		1.40		(1.15	)
Limited Maturity Bond Fund		16.61		13,895		16.98		235,910		—		1.40		2.21
Quality Bond Fund		26.63		36,398		28.47		1,036,355		—		1.40		6.93
High Yield Bond Fund		43.07		18,509		45.67		845,252		—		1.40		6.02
Flexibly Managed Fund		100.45		202,957		116.71		23,687,401		—		1.40		16.19
Balanced Fund		21.10		42,388		23.88		1,012,197		—		1.40		13.18
Large Growth Stock Fund		46.88		24,887		63.32		1,575,829		—		1.40		35.08
Large Cap Growth Fund		23.08		7,496		27.80		208,343		—		1.40		20.44
Large Core Growth Fund		24.40		152,591		42.22		6,442,369		—		1.40		73.05
Large Cap Value Fund		49.78		55,392		50.22		2,781,894		—		1.40		0.89
Large Core Value Fund		19.46		135,369		19.70		2,666,590		—		1.40		1.23
Index 500 Fund		42.81		52,262		49.96		2,611,134		—		1.40		16.71
Mid Cap Growth Fund		38.63		11,216		56.95		638,679		—		1.40		47.41
Mid Cap Value Fund		48.75		24,203		42.17		1,020,627		—		1.40		(13.51	)
Mid Core Value Fund		30.87		2,654		30.92		82,085		—		1.40		0.18
SMID Cap Growth Fund		29.33		365		44.06		16,091		—		1.40		50.20
SMID Cap Value Fund		24.33		448		24.33		10,893		—		1.40		0.03
Small Cap Growth Fund		54.68		19,548		71.22		1,392,143		—		1.40		30.24
Small Cap Value Fund		77.17		28,487		77.88		2,218,565		—		1.40		0.92
Small Cap Index Fund		21.65		796		25.48		20,288		—		1.40		17.69
Developed International Index Fund		12.67		—		13.47		—		—		1.40		6.28
International Equity Fund		48.40		53,689		54.85		2,944,956		—		1.40		13.34

Note 6. Financial Highlights (continued)


	January 1, 2020		December 31, 2020						For the Year ended December 31, 2020
Subaccount	Unit Value		Units		Unit Value		Net Assets		Investment Income Ratio* (%)		Expense Ratio** (%)		Total Return * (%)**
Emerging Markets Equity Fund		11.58		28,138		12.61		354,813		—		1.40		8.89
Real Estate Securities Fund		39.44		4,478		37.63		168,505		—		1.40		(4.58	)
Aggressive Allocation Fund		18.56		809		19.99		16,168		—		1.40		7.73
Moderately Aggressive Allocation Fund		19.20		3,171		20.72		65,697		—		1.40		7.91
Moderate Allocation Fund		17.08		1,020		18.49		18,857		—		1.40		8.24
Moderately Conservative Allocation Fund		15.45		10,433		16.45		171,653		—		1.40		6.52
Conservative Allocation Fund		13.66		2,242		14.41		32,315		—		1.40		5.54


	January 1, 2019		December 31, 2019						For the Year ended December 31, 2019
Subaccount	Unit Value		Units		Unit Value		Net Assets		Investment Income Ratio* (%)		Expense Ratio** (%)		Total Return * (%)**
Money Market Fund		12.13		32,952		12.15		400,374		1.60		1.40		0.20
Limited Maturity Bond Fund		16.06		17,147		16.61		284,811		—		1.40		3.44
Quality Bond Fund		24.73		37,561		26.63		1,000,211		—		1.40		7.69
High Yield Bond Fund		37.76		21,678		43.07		933,754		—		1.40		14.08
Flexibly Managed Fund		81.80		225,319		100.45		22,632,524		—		1.40		22.79
Balanced Fund		17.59		46,548		21.10		982,125		—		1.40		19.97
Large Growth Stock Fund		36.44		28,412		46.88		1,331,854		—		1.40		28.62
Large Cap Growth Fund		16.74		9,194		23.08		212,182		—		1.40		37.83
Large Core Growth Fund		19.44		184,429		24.40		4,499,479		—		1.40		25.50
Large Cap Value Fund		40.86		62,742		49.78		3,123,119		—		1.40		21.81
Large Core Value Fund		15.22		146,384		19.46		2,848,533		—		1.40		7.89
Index 500 Fund		33.12		62,185		42.81		2,662,173		—		1.40		29.24
Mid Cap Growth Fund		28.39		13,555		38.63		523,655		—		1.40		36.06
Mid Cap Value Fund		42.25		25,395		48.75		1,238,118		—		1.40		15.41
Mid Core Value Fund		24.31		3,635		30.87		112,186		—		1.40		26.99
SMID Cap Growth Fund		21.56		416		29.33		12,205		—		1.40		36.03
SMID Cap Value Fund		20.58		420		24.33		10,209		—		1.40		18.19
Small Cap Growth Fund		43.24		25,357		54.68		1,386,569		—		1.40		26.46


	January 1, 2019		December 31, 2019						For the Year ended December 31, 2019
Subaccount	Unit Value		Units		Unit Value		Net Assets		Investment Income Ratio* (%)		Expense Ratio** (%)		Total Return(%)*
Small Cap Value Fund		63.61		31,644		77.17		2,442,035		—		1.40		21.32
Small Cap Index Fund		17.64		910		21.65		19,693		—		1.40		22.75
Developed International Index Fund		10.62		—		12.67		—		—		1.40		19.35
International Equity Fund		38.32		60,880		48.40		2,946,470		—		1.40		26.28
Emerging Markets Equity Fund		9.89		32,911		11.58		381,114		—		1.40		17.05
Real Estate Securities Fund		30.19		4,549		39.44		179,415		—		1.40		30.63
Aggressive Allocation Fund		15.27		810		18.56		15,038		—		1.40		21.55
Moderately Aggressive Allocation Fund		15.99		3,176		19.20		60,986		—		1.40		20.05
Moderate Allocation Fund		14.60		6,388		17.08		109,130		—		1.40		16.98
Moderately Conservative Allocation Fund		13.64		17,238		15.45		266,258		—		1.40		13.23
Conservative Allocation Fund		12.49		2,658		13.66		36,306		—		1.40		9.32

These ratios represent the dividends, excluding distributions of capital gains, received by the subaccounts within Account I from the underlying mutual fund, net of management fees and expenses assessed by the fund manager, divided by the average net assets of the respective subaccounts. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reduction in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying funds in which the subaccount invests and, to the extent the underlying fund utilizes consent dividend rather than paying dividends in cash or reinvested shares, Account I does not record investment income.

** These ratios represent the annualized contract expenses of the subaccount, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to

Note 6. Financial Highlights (continued)

unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying subaccount are excluded.

*** These ratios represent the total return for the periods indicated, including changes in the value of the underlying subaccount, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period.

Note 7. Subsequent Events

Management has evaluated events subsequent to December 31, 2023 and through the Account I Financial Statement date of issuance of April 15, 2024.

PM8676 05/24

LOGO

The Penn Insurance and Annuity Company

LOGO 2023 Statutory Financial Statements

LOGO

PricewaterhouseCoopers LLP,

Two Commerce Square,

2001 Market Street, Suite 1800,

Philadelphia, Pennsylvania 19103-7042

T: (267) 330 3000,

www.pwc.com/us

Report of Independent Auditors

To the Board of Directors of The Penn Insurance and Annuity Company

Opinions

We have audited the accompanying statutory financial statements of The Penn Insurance and Annuity Company (the “Company”), which comprise the statements of admitted assets, liabilities and capital and surplus as of December 31, 2023 and 2022, and the related statements of operations, changes in capital and surplus and cash flows for the years then ended, including the related notes (collectively referred to as the “financial statements”).

Unmodified Opinion on Statutory Basis of Accounting

In our opinion, the accompanying financial statements present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in accordance with the accounting practices prescribed or permitted by the Delaware Department of Insurance described in Note 1.

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 section of our report, the accompanying financial statements do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2023 and 2022, or the results of its operations or its cash flows for the years then ended.

Basis for Opinions

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. 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 Note 1 to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the Delaware Department of Insurance, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

LOGO

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

Responsibilities of Management 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 Delaware 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.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the financial statements are available to be issued.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with US GAAS, we:

•

Exercise professional judgment and maintain professional skepticism throughout the audit.

•

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

•

Obtain an understanding of internal control relevant to the audit 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, no such opinion is expressed.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

LOGO

•

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

LOGO

Philadelphia, Pennsylvania

February 16, 2024

Table of Contents


	*Page*

Statements of Admitted Assets, Liabilities and Capital and Surplus		1

Statements of Operations		2

Statements of Changes in Capital and Surplus		3

Statements of Cash Flows		4

*Notes to Financial Statements*

Note 1. Nature of Operations and Basis of Presentation		5

Note 2. Summary of Significant Accounting Policies		6

Note 3. Investments		12

Note 4. Separate Accounts		19

Note 5. Derivatives		20

Note 6. Fair Value of Financial Instruments		22

Note 7. Life Reserves by Withdrawal Characteristics		27

Note 8. Reserves and Funds for the Payment of Annuity Benefits		28

Note 9. Federal Income Taxes		30

Note 10. Reinsurance		35

Note 11. Related Parties		36

Note 12. Commitments and Contingencies		37

Note 13. Subsequent Events		37

($ in Thousands)

Statements of Admitted Assets, Liabilities and Capital and Surplus


As of December 31,	2023		2022

ADMITTED ASSETS
Bonds	$	7,748,725	$	7,015,519
Preferred stock		54,589		54,340
Common stock — affiliated		122,856		130,655
Common stock — unaffiliated		27,372		33,467
Policy loans		605,820		589,233
Cash and short-term investments		212,407		128,400
Alternative assets		344,415		366,264
Derivatives		1,336,593		990,389
Other invested assets		166,608		125,118

TOTAL INVESTMENTS		10,619,385		9,433,385

Investment income due and accrued		94,145		85,926
Deferred tax asset		82,446		68,112
Amounts recoverable from reinsurers		102,642		49,912
Funds held by reinsured company		1,103,153		1,049,203
Federal income taxes recoverable		3,995		22,071
Other assets		171,374		134,281
Separate account assets		133,688		76,939

TOTAL ASSETS	$	12,310,828	$	10,919,829


LIABILITIES
Reserves and funds for payment of future insurance and annuity benefits	$	7,512,936	$	7,037,940
Policy claims in process		15,568		24,077
Asset valuation reserve		85,763		107,178
Interest maintenance reserve		5,831		2,993
Funds held under coinsurance		1,726,120		1,630,788
Other liabilities		928,885		402,683
Derivatives		1,042,286		888,119
Separate account liabilities		133,688		76,939

TOTAL LIABILITIES		11,451,077		10,170,717


CAPITAL AND SURPLUS
Common stock, $2.50 par value, 1,000 shares authorized, issued and outstanding		2,500		2,500
Capital contributed in excess of par value		559,662		529,662
Accumulated surplus		297,589		216,950

TOTAL CAPITAL AND SURPLUS		859,751		749,112

TOTAL LIABILITIES, CAPITAL AND SURPLUS	$	12,310,828	$	10,919,829

The accompanying notes are an integral part of these financial statements.


2023 Statutory Financial Statements			Page 1

($ in Thousands)

Statements of Operations


For the Years Ended December 31,	2023			2022

REVENUES
Premium and annuity considerations	$	1,054,948		$	942,507
Net investment income		381,267			341,231
Other revenue		56,659			48,165

TOTAL REVENUE		1,492,874			1,331,903


BENEFITS AND EXPENSES
Benefits paid to policyholders and beneficiaries		429,623			298,409
Increase in reserves and funds for payment of future insurance and annuity benefits		704,234			594,866
Commissions		78,292			71,649
Operating expenses		123,063			108,015
Other expenses		99,621			76,380
Net transfer from separate accounts		41,064			23,080

TOTAL BENEFITS AND EXPENSES		1,475,897			1,172,399

GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES		16,977			159,504


Federal income tax expense/(benefit)		42,997			(9,157	)

(LOSS)/GAIN FROM OPERATIONS		(26,020	)		168,661


Net realized capital (losses)/gains, net of tax		(24,449	)		(24,614	)

NET (LOSS)/GAIN	$	(50,469	)	$	144,047

The accompanying notes are an integral part of these financial statements.


Page 2		The Penn Insurance and Annuity Company

($ in Thousands)

Statements of Changes in Capital and Surplus


For the Years Ended December 31,	2023			2022

COMMON STOCK
Beginning of year	$	2,500		$	2,500

End of year		2,500			2,500


CAPITAL CONTRIBUTED IN EXCESS OF PAR VALUE
Beginning of year		529,662			469,662
Capital contribution from parent		30,000			60,000

End of year		559,662			529,662


ACCUMULATED SURPLUS
Opening surplus adjustment		—			(1,357	)
Beginning of year		216,950			195,477
Net (loss)/gain		(50,469	)		144,047
Dividend to parent		—			(8,202	)
Change in:
Nonadmitted assets		(6,973	)		6,962
Asset valuation reserve		21,415			50,547
Net deferred income tax		45,116			(36,779	)
Net unrealized capital gains/(losses), net of tax		71,550			(135,102	)

End of year		297,589			216,950

TOTAL CAPITAL AND SURPLUS	$	859,751		$	749,112

The accompanying notes are an integral part of these financial statements.


2023 Statutory Financial Statements			Page 3

($ in Thousands)

Statements of Cash Flows


For the Years Ended December 31,	2023			2022

OPERATIONS
Premium and annuity considerations	$	1,173,278		$	985,242
Net investment income		429,681			403,358
Other revenue		59,850			48,967

CASH PROVIDED BY OPERATIONS		1,662,809			1,437,567

Benefits paid		437,230			304,369
Commissions, operating expenses and other		286,039			268,974
Net transfers from separate accounts		43,358			26,815
Taxes paid on operating income and realized investment losses		24,015			3,416

CASH USED IN OPERATIONS		790,642			603,574

NET CASH PROVIDED BY OPERATIONS		872,167			833,993


INVESTMENT ACTIVITIES
Investments sold, matured or repaid:
Bonds		399,463			546,613
Stocks		29,311			20,479
Other invested assets		11,893			11,733
Derivatives		223,553			96,984
Miscellaneous proceeds		11,163			—

NET PROCEEDS FROM INVESTMENTS SOLD, MATURED OR REPAID		675,383			675,809

Cost of investments acquired:
Bonds		1,191,442			1,463,246
Stocks		39,653			66,410
Other invested assets		46,759			24,364
Derivatives		251,673			201,523
Miscellaneous applications		16,588			39

TOTAL COST OF INVESTMENTS ACQUIRED		1,546,115			1,755,582

Net decrease in policy loans		(16,580	)		(22,000	)

NET CASH USED IN INVESTMENT ACTIVITIES		(887,312	)		(1,101,773	)


FINANCING AND MISCELLANEOUS
Net (deposits)/withdrawals on deposit-type funds		(228,354	)		225,598
Capital and paid in surplus		30,000			60,000
Other cash provided by/(used in), net		297,508			(57,790	)

NET CASH PROVIDED BY FINANCING AND MISCELLANEOUS		99,154			227,808

NET INCREASE/(DECREASE) IN CASH AND SHORT-TERM INVESTMENTS		84,007			(39,971	)

Cash and short-term investments:
Beginning of year		128,400			168,371

End of year	$	212,407		$	128,400

Supplemental Disclosure of Cash Flow Information for Non-Cash Transactions:
Premium Paid by Benefit	$	355		$	881
Premium Paid by Waiver	$	1,057		$	663
Non-Cash Acquisitions	$	1,893		$	1,570
Other	$	9,842		$	12,376

The accompanying notes are an integral part of these financial statements.


Page 4		The Penn Insurance and Annuity Company

($ in Thousands)

Notes to Financial Statements

Note 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

NATURE OF OPERATIONS The Penn Insurance and Annuity Company (the “Company” or “PIA”) is a wholly-owned life insurance subsidiary of The Penn Mutual Life Insurance Company (“Penn Mutual” or “PML”). The Company’s business activities are primarily concentrated in the sale of indexed universal life (“IUL”), variable universal life (“VUL”), fixed universal life and indexed annuity products. The Company markets and sells its products through Penn Mutual’s distribution systems, which consist of a network of career and independent financial professionals, and has its in-force business serviced by PML. Additionally, it has closed blocks of deferred and payout annuities. Domiciled in Delaware, PIA is licensed to write business in forty-nine states and the District of Columbia.

BASIS OF PRESENTATION The accompanying financial statements of the Company have been prepared in conformity with the National Association of Insurance Commissioner’s (“NAIC”) Practices and Procedures manual and with statutory accounting practices prescribed or permitted by the Delaware Department of Insurance (collectively “SAP” or “statutory accounting principles”). The Company currently has no permitted practices.

Pursuant to a permitted practice received from the Delaware Department of Insurance (Captive Bureau), PIA Reinsurance Company of Delaware I (“PIAre I”), a wholly-owned subsidiary of the Company, admits as an asset and a form of statutory surplus, the value of a credit linked variable funding note (LLC Note) provided by an unaffiliated company in conjunction with a reinsurance agreement with the Company. Based on the “look-through” provisions of the Statement of Statutory Accounting Principles No.97, Investments in Subsidiary, Controlled and Affiliated Entities, the Company includes the value of the LLC Note and related form of surplus in the financial statements of its Insurance SCA, PIAre I, in the carrying value of PIAre I.

In accordance with the permitted practice, the Company recorded $122,856 and $130,655 as of December 31, 2023 and 2022, respectively, in Common stock-affiliated, with a corresponding $122,856 and $130,655 in surplus, which represents the statutory reporting value of PIAre I. If PIAre I had completed their statutory financial statements in accordance with NAIC statutory accounting practices and procedures, the Company’s reporting value of PIAre I would have been $0 as of December 31, 2023 and 2022. There was no impact to net income as a result of the permitted practice.

Had the Company not been permitted to include the asset and statutory surplus noted above in either 2023 or 2022, the resulting RBC of PIA would not have triggered a regulatory event. Had PIAre I not received a permitted or prescribed practice to include the asset and statutory surplus above noted, the resulting RBC of PIAre I would have triggered a regulatory event.

Statutory accounting practices are different in some respects from financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The more significant differences between statutory accounting principles and GAAP are as follows:

(a)

certain acquisition costs, such as commissions and other variable costs, that are directly related to the successful acquisition of new business, are charged to current operations as incurred, whereas GAAP generally capitalizes these expenses and amortizes them based on profit emergence over the expected life of the policies or over premium payment period;

(b)

statutory policy reserves are based upon the methods prescribed in the Valuation Manual, whereas GAAP reserves would generally be based upon the net level premium method or the estimated gross margin method, with estimates of future mortality, morbidity and interest assumptions;

(c)

bonds are generally carried at amortized cost, whereas GAAP generally reports bonds at fair value;

(d)

undistributed earnings from alternative assets are included in unrealized gains and losses, whereas GAAP would reflect these changes as net investment income;

(e)

deferred income taxes, which provide for book versus tax temporary differences, are subject to limitation and are charged to surplus, whereas GAAP would generally include the change in deferred taxes in net income;

(f)

payments received for universal and variable life insurance products and variable annuities are reported as premium income and changes in reserves, whereas GAAP would treat these payments as deposits to policyholders’ account balances;


2023 Statutory Financial Statements			Page 5

($ in Thousands)

(g)

assets are reported at “admitted asset” value, and “nonadmitted assets” are excluded through a charge against surplus, whereas GAAP would record these assets net of any valuation allowance;

(h)

investments in subsidiaries are accounted for using the equity method. The Company’s investment in PIAre I, to the extent of the audited surplus/equity, are admitted assets. GAAP would consolidate this entity;

(i)

reinsurance reserve credits are reported as a reduction of policyholders’ reserves and liabilities for deposit-type contracts, whereas GAAP would report these balances as an asset;

(j)

an asset valuation reserve (“AVR”) is reported as a contingency reserve to stabilize surplus against fluctuations in the carrying value of stocks, real estate investments, partnerships and limited liability companies (“LLCs”), investments in low income housing tax credits (“LIHTC”), as well as non interest-related declines in the value of bonds, whereas GAAP would not record this reserve;

(k)

after-tax realized capital gains and losses which result from changes in the overall level of interest rates for all types of fixed-income investments and interest-related hedging activities are deferred into the interest maintenance reserve (“IMR”) and amortized into investment income over the remaining life of the investment sold, whereas GAAP would report these gains and losses as revenue at time of sale;

(l)

changes in the fair value of the derivative financial instruments are recorded as changes in surplus, unless deemed an effective hedge when it is carried at amortized cost with no resulting changes in fair value. Changes in fair value for GAAP would be reported as income for ineffective cash flow hedges and effective fair value hedges; changes in fair value for GAAP would be reported as other comprehensive income for effective cash flow hedges;

(m)

changes in the fair value of unaffiliated common stock are recorded as changes in surplus, whereas GAAP, records the change in fair value through realized capital gains/losses;

(n)

comprehensive income is not presented whereas GAAP would present changes in unrealized capital gains and losses and foreign currency translations as other comprehensive income;

(o)

changes in the value of perpetual preferred stock are recorded as changes in surplus, whereas GAAP recognizes the changes through realized capital gains/losses;

(p)

embedded derivatives are recorded as part of the underlying contract, whereas GAAP would identify and bifurcate certain embedded derivatives from the underlying contract or security and account for them separately;

(q)

identification of other-than-temporary impairment (“OTTI”) uses an “intent and ability to hold” criteria whereas GAAP would use an “ability and intent not to sell” criteria;

(r)

investments in Federal Home Loan Bank stock are reported as an investment in common stock, unaffiliated, whereas GAAP would report these within other invested assets.

RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to current year presentation. These reclassifications had no impact on capital and surplus or net income in the prior year.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES The preparation of financial statements requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material reported amounts and disclosures that requires extensive use of estimates are:

◇

Carrying value of certain invested assets

◇

Liabilities for reserves and funds for the payment of insurance and annuity benefits

◇

Accounting for income taxes and valuation of deferred income tax assets and liabilities and unrecognized tax benefits

◇

Litigation and other contingencies

INVESTMENTS Bonds with an NAIC designation of 1 to 5 are valued at amortized cost. All other bonds are valued at the lower of cost or fair value. Fair value is determined using an external pricing service or management’s pricing models.


Page 6		The Penn Insurance and Annuity Company

($ in Thousands)

Prepayment assumptions are based on borrower constraints and economic incentives such as original term, age, and coupon of the loan as affected by the interest rate environment. Cash flow assumptions for structured securities are obtained from broker dealer survey values or internal estimates. These assumptions are consistent with the current interest rate and economic environment.

Preferred Stock Highest-quality, high-quality or medium quality redeemable preferred stock (NAIC designations 1 to 3) shall be valued at amortized cost. All other redeemable preferred stocks (NAIC designations 4 to 6) shall be reported at the lower of amortized cost or fair value. Perpetual preferred stock shall be valued at fair value, not to exceed any currently effective call price. Fair value is determined using an external pricing service or management’s pricing model.

Common Stock Common Stock of the Company’s insurance affiliate, PIAre I, is carried at its underlying audited statutory surplus on the Statement of Admitted Assets, Liabilities, and Surplus. Common stock, unaffiliated is valued at fair value. Dividends are recognized in net investment income on the ex-dividend date. Changes in the carrying value are recognized in unrealized gains or losses in surplus. The investment in capital stock of the Federal Home Loan Bank of Pittsburgh (“FHLB-PGH”) is carried at par, which approximates fair value.

Policy Loans Policy Loans are carried at the aggregate balance of unpaid principal and interest.

Cash, Cash Equivalents and Short-term investments Cash Equivalents include investments purchased with maturities of three months or less and money market mutual funds. Short-term investments, which are carried at amortized cost and approximate fair value, consist of investments purchased with maturities greater than three months and less than or equal to 12 months.

Alternative Assets Alternative Assets consists primarily of limited partnerships. The Company accounts for the value of its investments at their underlying GAAP equity. Dividends and income distributions from limited partnerships are recorded as investment income. Undistributed earnings are included in the unrealized gains and losses balance and are reflected in surplus, net of deferred taxes. Distributions that are recorded as a return of capital reduce the carrying value of the limited partnership investment. Due to the timing of the valuation data received from the partnership, these investments are reported in accordance with the most recent valuations received, which are primarily on a one quarter lag.

Derivatives The Company may utilize derivative financial instruments in the normal course of business to manage risk, in conjunction with its management of assets and liabilities and interest rate risk. The accounting treatment of specific derivatives depends on whether the financial instrument is designated and qualifies as a highly effective hedge. Derivatives used in hedging transactions that meet the criteria of a highly effective hedge are reported and valued in a manner that is consistent with the instrument hedged. The change in fair value of these derivatives is recognized as an unrealized capital gain/(loss) until they are closed, at which time they are recognized within benefits paid to policyholders and beneficiaries. Derivatives used in risk management transactions that do not meet the criteria of an effective hedge are accounted for at fair value, with changes in fair value recorded in unrealized capital gains/ (losses). Derivatives with a positive fair value or carrying value are reported as admitted assets and Derivatives with a negative fair value or carrying value are reported as liabilities. Realized gains and losses that are recognized upon termination or maturity of the derivatives used in economic hedges of interest rate and currency risk of the fixed income portfolio, regardless of accounting treatment, are transferred, net of taxes, to the IMR. All other realized gains and losses are recognized in net income upon maturity or termination of the derivative contracts.

The Company entered into equity options in the form of call spreads during 2023 and 2022. During 2022, these equity options were designated to qualify as cash flow hedges of cash flows associated with indexed credits related to the annual return of the S&P 500 IUL policies. In 2023, the Company discontinued hedge accounting and these equity options are now carried at fair value.


2023 Statutory Financial Statements			Page 7

($ in Thousands)

The Company entered into interest rate swaps, that are carried at fair value. The Company may use payer swaps, a type of interest rate swap, to manage risk associated with rising interest rates. Receiver swaps, a type of interest rate swap, protect the Company from credit risk in the fixed income portfolio. The Company has not designated these as hedging instruments.

The Company does not engage in derivative financial instrument transactions for speculative purposes.

Other Invested Assets The Company invests in LIHTC investments, that generate tax credits for investing in affordable housing projects. Investments in LIHTC are included in other invested assets and are accounted for under the proportional amortized cost method. The delayed equity contributions for these investments are unconditional and legally binding and therefore, have been recognized as a liability. LIHTC investments are reviewed for OTTI, which is accounted for as a realized loss.

Other invested assets also include notes receivable carried at book value from Janney Montgomery Scott LLC (“JMS”), an affiliate, and Penn Mutual AM Strategic Income Fund (“PMAM’s PMUBX”) and receivables for unsettled investment transactions.

OTTI EVALUATION

Bonds, mortgage-backed and asset-backed securities The Company considers an impairment to be OTTI if: (a) the Company’s intent is to sell, (b) the Company will more likely than not be required to sell, (c) the Company does not have the intent and ability to hold the security for a period of time sufficient to recover the amortized cost basis, or (d) the Company does not expect to recover the entire amortized cost basis. The Company conducts a periodic management review of all bonds including those in default, not-in-good standing, or otherwise designated by management. The Company also considers other qualitative and quantitative factors in determining the existence of OTTI including, but not limited to, unrealized loss trend analysis and significant short-term changes in value, default rates, delinquency rates, percentage of nonperforming loans, prepayments, and severities. If the impairment is other-than-temporary, the non-interest loss portion of the impairment is recorded through realized losses, and the interest related portion of the loss is disclosed in the notes to the financial statements.

The non-interest portion is determined based on the Company’s “best estimate” of future cash flows discounted to a present value using the appropriate yield. The difference between the present value of the best estimate of cash flows and the amortized cost is the non-interest loss. The remaining difference between the amortized cost and the fair value is the interest loss.

Equity Securities OTTI The Company will impair any lot of equity securities in an unrealized loss position for more than 12 consecutive months by more than 10%. Any such impairments are accounted for as a realized loss.

Alternative Assets OTTI The Company’s evaluation for OTTI takes into consideration the remaining life of a partnership and the performance of the underlying assets when evaluating the facts and circumstances surrounding the recovery of the cost for a partnership. Any such impairments are accounted for as a realized loss.

LIHTC OTTI The Company’s evaluation for OTTI is determined by comparing the book value of the investment with the present value of future tax benefits. The investment is written down if the book value is higher than the present value and the impairment is accounted for as a realized loss.

INVESTMENT INCOME DUE AND ACCRUED Investment income due and accrued consists primarily of interest and dividends. Interest is recognized on an accrual basis and dividends are recorded as earned on the ex-dividend date. Due and accrued income is not recorded on: (a) bonds in default; (b) bonds delinquent more than 90 days or where collection of interest is improbable; and (c) policy loan interest due and accrued in excess of the cash surrender value of the underlying contract.

OTHER ASSETS Other assets primarily includes receivables for collateral remitted to counterparties.

FEDERAL INCOME TAX The Company files a consolidated federal income tax return with its parent, Penn Mutual, and Penn Mutual’s subsidiaries. Each subsidiary’s tax liability or refund is accrued on a benefits for loss basis. Penn Mutual reimburses subsidiaries for losses utilized in the consolidated return based on inter-company tax allocation


Page 8		The Penn Insurance and Annuity Company

($ in Thousands)

agreements. The provision for federal income taxes is computed in accordance with the section of the Internal Revenue Code applicable to life insurance companies and is based on income that is currently taxable.

Uncertain tax positions (“UTP”) are established when the merits of a tax position are evaluated against certain measurement and recognition tests. UTP changes are reflected as a component of income taxes. The Company currently has no UTPs.

Deferred income tax assets and liabilities are established to reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. These deferred tax assets or liabilities are measured by using the enacted tax rates expected to apply to taxable income in the period in which the deferred tax liabilities or assets are expected to be settled or realized. Changes in the deferred tax balances are reported as adjustments to surplus. Deferred tax assets, after the consideration of any necessary valuation allowance, in excess of statutory limits are treated as nonadmitted assets and charged to surplus.

REINSURANCE In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage and coinsurance contracts. The Company has set its retention limit for acceptance of risk on life insurance policies at various levels up to $7,500 for single life and $10,000 for joint lives.

In addition to excess coverage and coinsurance contracts, the Company also utilizes other forms of reinsurance such as coinsurance funds withheld.

Reinsurance does not relieve the Company of its primary liability and, as such, failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the risk transfer of its reinsurance contracts as well as the financial strength of potential reinsurers. The Company regularly monitors the financial condition and ratings of its existing reinsurers to ensure that amounts due from reinsurers are collectible.

Insurance liabilities are reported net of the effects of reinsurance. Estimated reinsurance recoverables are recognized in a manner consistent with the liabilities related to the underlying reinsured contracts.

SEPARATE ACCOUNT ASSETS AND LIABILITIES The Company has separate account assets and liabilities representing segregated funds administered and invested by the Company primarily for the benefit of variable life insurance policyholders and variable annuity contractholders. The assets of each account are legally segregated and are generally not subject to claims that arise out of any other business of the Company. The separate accounts have varying investment objectives.

Separate account assets are stated at the fair value of the underlying assets, which are shares of mutual funds. The value of the assets in the Separate Accounts reflects the actual investment performance of the respective accounts and is not guaranteed by the Company. The liability is reported at contract value and represents the policyholders’ interest in the account and includes accumulated net investment income and realized and unrealized capital gains/(losses) on the assets. The investment income and realized capital gains/(losses) from separate account assets accrue to the policyholders and are not included in the Statements of Operations. Mortality, policy administration, surrender charges assessed and asset management fees charged against the accounts are included in other revenue in the accompanying Statements of Operations.

The Company has traditional variable annuity contracts in the separate accounts in which the Company provides various forms of guarantees to benefit the related contract holders called Guaranteed Minimum Death Benefits (“GMDB”). In accordance with guarantees provided, if the investment proceeds in the separate accounts are insufficient to cover the guarantees for the product, the policyholder proceeds will be remitted by the general account.

NONADMITTED ASSETS Assets designated as nonadmitted by the NAIC include the amount of the deferred tax asset that will not be realized within the next three year period or in excess of statutory limitations, certain negative IMR balances, certain other receivables, advances and prepayments, and related party amounts outstanding greater than 90 days from the due date and the investment in certain subsidiaries. Such amounts are excluded from the Statements of Admitted Assets, Liabilities and Capital and Surplus.


2023 Statutory Financial Statements			Page 9

($ in Thousands)

RESERVES AND FUNDS FOR THE PAYMENT OF FUTURE INSURANCE AND ANNUITY BENEFITS Policyholders’ reserves provide amounts adequate to discharge estimated future obligations in excess of estimated future premium on policies in-force. Any adjustments that are made to the reserve balances are reflected in the Statements of Operations in the year in which such adjustments are made, with the exception of changes in valuation bases that are accounted for as charges or credits to surplus.

Reserves and funds for the payment of future life and annuity benefits are developed using actuarial methods based on statutory mortality and interest requirements. Reserves for life insurance contracts are developed using accepted actuarial methods computed principally on the Commissioners’ Reserve Valuation Method (“CRVM”) method using the 1958, 1980, 2001, and 2017 Commissioners’ Standard Ordinary Mortality Tables and assumed interest rates ranging from 3.50% to 9.00%. Reserves for substandard policies are computed using multiples of the respective underlying mortality tables. The Company has universal life contracts with secondary guarantee features. The Company establishes reserves according to Actuarial Guideline XXXVIII.

Reserves for Single Life UL with secondary guarantee features are based on the methodology specified by the Life Principle-Based Reserve approach (“VM-20”), starting with 2017 policy issue years. Reserves for Single and Joint Life IUL are based on the same VM-20 methodology starting with 2018 policy issue years. Reserves for all other life insurance products are based on the same VM-20 methodology starting with 2020 policy issue years. VM-20 specifies the final reserve as the greater of the Net Premium Reserve (“NPR”), Deterministic Reserve (“DR”) and Stochastic Reserve (“SR”). The NPR is a formulaic reserve with prescribed assumptions, including the 2017 CSO Mortality Tables. The DR is based on a single path, deterministic projection with prudent estimate assumptions, including margins for uncertainty. The SR is based on the Conditional Tail Expectation 70 (“CTE70”) of 1,000 stochastically generated interest rate return scenarios with prudent estimate assumptions, including margins for uncertainty.

Reserves for fixed indexed annuities are developed using accepted actuarial methods computed principally on the Commissioners’ Annuity Reserve Valuation Method (“CARVM”) method using the 2012 Individual Annuity Mortality Basis and assumed interest rates ranging from 3.00% to 4.25%. Reserves for substandard policies are computed using multiples of the respective underlying reserving tables. The Company establishes reserves according to Actuarial Guideline XXXV.

The Company waives deduction of deferred fractional premium at death and returns any portion of the final premium beyond the date of death. Reserves are computed using continuous functions to reflect these practices. Surrender values are not promised in excess of the legally computed reserves.

Reserves for deferred fixed individual annuity contracts are developed using accepted actuarial methods computed principally under the Commissioners’ Annuity Reserve Valuation Method using applicable interest rates and mortality tables, primarily on the 1971, 1983, 2000, and 2012 Individual Annuity Mortality Table and rates ranging from 1.00% to 7.75%.

The Company also has deferred variable annuity contracts and establishes reserves according to the methodology specified by Principle-Based Reserves for Variable Annuities (“VM-21”).

Reserves for group annuity contracts are developed using accepted actuarial methods computed principally on the 1971 Group Annuity Mortality Tables with an assumed interest rate of 11.25%.

The Company had $30,077 and $205 as of December 31, 2023 and December 31, 2022, respectively, of insurance in force for which the gross premiums are less than the net premiums according to the standards of valuation set by the Delaware Department of Insurance.

The tabular interest has been determined from the basic data for the calculation of policy reserves. The tabular less actual reserve released has been determined by formula.

LIABILITIES FOR DEPOSIT-TYPE CONTRACTS Reserves for funding agreements, investment-type contracts such as supplementary contracts not involving life contingencies, and certain structured settlement annuities are based on account value or accepted actuarial methods using applicable interest rates. Fair value is estimated by discounting future cash flows using current market rates.


Page 10		The Penn Insurance and Annuity Company

($ in Thousands)

The tabular interest for funds not involving life contingencies is determined as the change in reserves less funds added during the year less other increases, plus funds withdrawn during the year.

POLICY CLAIMS IN PROCESS Policy claims in process include provisions for payments to be made on reported claims and claims incurred but not reported.

INTEREST MAINTENANCE RESERVE The IMR captures the realized capital gains/(losses) that result from changes in the overall level of interest rates and amortizes them into income over the calendar years to expected maturity.

ASSET VALUATION RESERVE The AVR is a contingency reserve to stabilize surplus against fluctuations in the statement value of common stocks, partnerships, LIHTC investments, and LLCs, as well as non interest-related declines in the value of bonds. The AVR is reported in the Statement of Admitted Assets, Liabilities and Capital and Surplus, and the change in AVR is reported in the Statements of Changes in Capital and Surplus.

DRAFTS OUTSTANDING Drafts outstanding that have not been presented for payment are recorded as a liability.

OTHER LIABILITIES Other liabilities consists primarily of premiums received in advance, drafts outstanding, amounts payable on unaffiliated reinsurance agreements and amounts payable to the Company’s affiliates under reinsurance agreements and other service agreements.

CONTINGENCIES Amounts related to contingencies are accrued if it is probable that a liability has been incurred and an amount is reasonably estimable. Regarding litigation, management evaluates whether there are incremental legal or other costs directly associated with the ultimate resolution of the matter that are reasonably estimable and, if so, includes these costs in the accrual.

RISK-BASED CAPITAL Life insurance companies are subject to certain risk-based capital (“RBC”) requirements as specified by the NAIC. Under those requirements, minimum amounts of statutory surplus are required to be maintained based on various risk factors related to it. At December 31, 2023, the Company’s surplus exceeds these minimum levels.

PREMIUM AND RELATED EXPENSE RECOGNITION Life insurance premium revenue is generally recognized as revenue on the gross basis when due from policyholders under the terms of the insurance contract. Annuity premium on policies with life contingencies is recognized as revenue when received. Both premium and annuity considerations are recorded net of reinsurance premiums. Commissions and other costs related to issuance of new policies, and policy maintenance and settlement costs are charged to current operations when incurred. Surrender fee charges on certain life and annuity products are recorded as a reduction of benefits and expenses. Benefits payments are reported net of the amounts received from reinsurers.

The Company accounts for deposit-type contracts (those that do not subject the Company to mortality or morbidity risk) under the deposit method. Amounts received from and payments to policyholders related to these contracts are recorded directly against the related policy reserves. Interest credited to policyholder accounts is reflected in Benefits paid to policyholders and beneficiaries. Fees charged to policyholder accounts are reflected in Other revenue.

OTHER REVENUE AND OTHER EXPENSES Other revenue includes interest income earned on the funds withheld assets in PML pursuant to the terms of the 70% coinsurance with funds withheld agreement with PML. The Company subsequently remits this interest income earned to PIAre I, the ultimate assuming company, which is recognized in Other expenses.

Other revenue also includes benefits received by the Company under reinsurance agreements with PML relating to index credits on certain universal life policies issued by the Company.

REALIZED AND UNREALIZED CAPITAL GAINS AND LOSSES Realized capital gains and losses, net of taxes, exclude gains and losses transferred to the IMR. Realized capital gains and losses are recognized in net income and are determined using the specific identification method.


2023 Statutory Financial Statements			Page 11

($ in Thousands)

All after-tax realized capital gains and losses that result from changes in the overall level of interest rates for all types of fixed-income investments and interest-related derivative activities for derivatives backing assets are transferred to the IMR and amortized into net investment income using the grouped method over the remaining life of the investment sold or, in the case of derivative financial instruments, over the remaining life of the underlying asset.

Unrealized capital gains and losses, net of deferred federal income taxes, are recorded as a change in surplus.

FEDERAL HOME LOAN BANK BORROWINGS The Company is a member of the FHLB-PGH, which provides access to collateralized advances, collateralized funding agreements, and other FHLB-PGH products. Collateralized advances from the FHLB-PGH are classified in Borrowed money. Collateralized funding agreements issued to the FHLB-PGH are classified as liabilities for deposit-type funds and are recorded within Reserves and funds for payment of insurance and annuity benefits. FHLB-PGH is a first-priority secured creditor.

The Company’s membership in FHLB-PGH requires the ownership of member stock, and borrowings from FHLB-PGH require the purchase of FHLB-PGH activity based stock in an amount equal to 4% of the outstanding borrowings. All FHLB-PGH stock purchased by the Company is classified as restricted general account investments within Common stock — unaffiliated. The Company’s borrowing capacity is determined by the lesser of the assets available to be pledged as collateral to FHLB-PGH or 10% of the Company’s prior period admitted general account assets. The fair value of the qualifying assets pledged as collateral by the Company must be maintained at certain specified levels of the borrowed amount, which can vary, depending on the nature of the assets pledged. The Company’s agreement allows for the substitution of assets and the advances are pre-payable. Current borrowings are subject to prepayment penalties.

Borrowings from the FHLB-PGH are classified as funding agreements. As of December 31, 2023, there was $0 in outstanding borrowings and the maximum borrowed during the year was $225,000. As of December 31, 2022, there were $225,000 in outstanding borrowings and the maximum borrowed during the year was $325,000.

NEW ACCOUNTING STANDARDS

The NAIC adopted INT 23-01T, which is an interpretation that prescribes limited-time, optional, statutory accounting guidance as an exception to the existing guidance detailed in SSAP No. 7 “Asset Valuation Reserve and Interest Maintenance Reserve”. Under the INT, reporting entities are allowed to admit negative IMR if certain criteria are met. The Company did not admit any negative IMR at December 31, 2023 in its Statement of Admitted Assets, Liabilities and Capital and Surplus.

Note 3. INVESTMENTS

The Company maintains a diversified investment portfolio. Investment policies limit concentration in any asset class (except for U.S. Treasury and U.S. Government guaranteed securities), geographic region, industry group, economic characteristic, investment quality, or individual investment.


Page 12		The Penn Insurance and Annuity Company

($ in Thousands)

BONDS AND PREFERRED STOCK The following summarizes the admitted value and estimated fair value of the Company’s investment in bonds and redeemable preferred stock.


			Gross Unrealized Capital
	Admitted Value		Gains		Losses		Estimated Fair Value

December 31, 2023
US Governments	$	61,192	$	799	$	4,658	$	57,333
Other Governments		6,996		—		496		6,500
States, Territories and Possessions		49,893		1,437		1,731		49,599
Political Subdivisions		207,219		1,487		28,091		180,615
Special Revenue		720,639		9,810		91,227		639,222
Industrial and Miscellaneous		3,447,170		33,539		395,772		3,084,937
Residential Mortgage-backed Securities		588,598		4,746		53,340		540,004
Commercial Mortgage-backed Securities		1,023,518		4,533		72,871		955,180
Asset-backed Securities		1,495,969		3,939		67,765		1,432,143
Hybrid Securities		147,152		1,387		8,253		140,286
SVO Identified Funds		379		116		116		379

Total Bonds		7,748,725		61,793		724,320		7,086,198
Preferred Stock		54,589		6,352		8,632		52,309

Total Bonds and Preferred Stock	$	7,803,314	$	68,145	$	732,952	$	7,138,507


			Gross Unrealized Capital
	Admitted Value		Gains		Losses		Estimated Fair Value

December 31, 2022
US Governments	$	34,228	$	1	$	5,192	$	29,037
Other Governments		6,994		—		440		6,554
States, Territories and Possessions		49,967		996		2,773		48,189
Political Subdivisions		202,832		1,167	$	35,027.05		168,972
Special Revenue		661,518		5,988		113,933		553,573
Industrial and Miscellaneous		3,315,611		13,376		509,704		2,819,283
Residential Mortgage-backed Securities		462,000		744		59,587		403,157
Commercial Mortgage-backed Securities		1,080,983		1,621		99,552		983,052
Asset-backed Securities		1,052,337		995		88,593		964,739
Hybrid Securities		148,687		647		13,539		135,795
SVO Identified Funds		362		—		—		362

Total Bonds		7,015,519		25,535		928,341		6,112,713
Preferred Stock		54,340		6,601		9,663		51,278

Total Bonds and Preferred Stock	$	7,069,859	$	32,136	$	938,004	$	6,163,991


2023 Statutory Financial Statements			Page 13

($ in Thousands)

RESTRICTED ASSETS AND SPECIAL DEPOSITS The Company maintains assets on deposit with governmental authorities or trustees as required by certain state insurance laws. The Company also receives and pledges collateral for derivative contracts and FHLB in the form of cash and securities. Capital stock was purchased as a requirement to participate in the FHLB lending program.


Balance Sheet Classification	Type	2023		2022

Debt securities — Available for sale	Collateral — FHLB	$	—	$	502,019
Debt securities — Available for sale	Reinsurance agreements		597,866		581,315
Debt securities — Available for sale	State deposit		1,528		1,512
Equity securities — Common stock unaffiliated	FHLB Stock		1,270		10,103
Equity securities — Common stock unaffiliated	Reinsurance agreements		4,352		723
Cash	Collateral — Derivatives		200,159		—
Cash	State deposit		2,936		2,936

Total Restricted Assets		$	808,111	$	1,098,608

The following table summarizes the admitted value and estimated fair value of debt securities as of December 31, 2023 by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties. Securities that are not due on a single maturity are included as of the final maturity.


Years to maturity:	Admitted Value		Fair Value

Due in one year or less	$	24,928	$	24,870
Due after one year through five years		414,305		408,295
Due after five years through ten years		609,675		592,220
Due after ten years		3,591,731		3,133,485
Residential Mortgage-backed Securities⁽¹⁾		588,599		540,005
Commercial Mortgage-backed Securities⁽¹⁾		1,023,518		955,180
Asset-backed Securities⁽¹⁾		1,495,969		1,432,143

Total Bonds		7,748,725		7,086,198
Preferred Stock		54,589		52,309

TOTAL BONDS AND PREFERRED STOCK	$	7,803,314	$	7,138,507


(1) Includes U.S. Agency structured securities

Mortgage and other asset-backed securities consist of commercial and residential mortgage pass-through holdings and securities backed by various forms of collateral, with the largest being collateralized loan obligations. These securities follow a structured principal repayment schedule and are rated investment grade, other than $67,724 primarily in asset-backed securities that do not follow a structured principal repayment schedule. The mortgage and other asset-backed securities portfolio are presented separately in the maturity schedule due to the potential for prepayment. The weighted average life of this portfolio is 5.4 years.

At December 31, 2023, the largest industry concentration of the Company’s portfolio was investments in the Electric-Integrated sector of $419,897, representing 6% of the total debt securities portfolio.


Page 14		The Penn Insurance and Annuity Company

($ in Thousands)

CREDIT LOSS ROLLFORWARD The following represents a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities still held for which a portion of the OTTI loss was not recognized in earnings.


As of December 31,	2023			2022

Balance, beginning of period	$	2,214		$	684
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(38	)		(46	)
Credit loss impairments previously recognized on securities impaired to fair value during the period		—			—
Credit loss impairment recognized in the current period on securities not previously impaired		—			1,576
Additional credit loss impairments recognized in the current period on securities previously impaired		—			—

Balance, end of period	$	2,176		$	2,214

UNREALIZED LOSSES ON INVESTMENTS Management has determined that the unrealized losses on the Company’s investments in equity and fixed maturity securities at December 31, 2023 are temporary in nature.

The following tables are an analysis of the fair values and gross unrealized losses aggregated by bond category and length of time that the securities were in a continuous unrealized loss position.


	Less than 12 months				12 months or greater				Total
	Fair Value		Gross Unrealized Capital Loss		Fair Value		Gross Unrealized Capital Loss		Fair Value		Gross Unrealized Capital Loss		Number of Securities

December 31, 2023
US Governments	$	4,317	$	123	$	26,645	$	4,535	$	30,962	$	4,658		17
Other Governments		—		—		6,500		496		6,500		496		2
States, Territories and Possessions		—		—		15,652		1,731		15,652		1,731		13
Political Subdivisions		—		—		136,923		28,091		136,923		28,091		57
Special Revenue		19,127		428		419,513		90,799		438,640		91,227		220
Industrial and Miscellaneous		36,010		2,535		2,310,187		393,237		2,346,197		395,772		1,324
Residential Mortgage-backed Securities		52,522		2,243		382,567		51,097		435,089		53,340		130
Commercial Mortgage-backed Securities		60,665		1,225		724,116		71,646		784,781		72,871		363
Asset-backed Securities		246,685		4,914		835,631		62,851		1,082,316		67,765		328
Hybrid Securities		—		—		112,224		8,253		112,224		8,253		62
SVO Identified Funds		—		—		379		116		379		116		2

Total Bonds	$	419,326	$	11,468	$	4,970,337	$	712,852	$	5,389,663	$	724,320		2,518
Preferred Stock		—		—		52,310		8,632		52,310		8,632		25

Total Bonds and Preferred	$	419,326	$	11,468	$	5,022,647	$	721,484	$	5,441,973	$	732,952		2,543


2023 Statutory Financial Statements			Page 15

($ in Thousands)


	Less than 12 months				12 months or greater				Total
	Fair Value		Gross Unrealized Capital Loss		Fair Value		Gross Unrealized Capital Loss		Fair Value		Gross Unrealized Capital Loss		Number of Securities

December 31, 2022
US Governments	$	17,572	$	430	$	50,336	$	4,762	$	67,908	$	5,192		15
Other Governments		6,554		440		—		—		6,554		440		—
States, Territories and		25,066		2,773		—		—		25,066		2,774		—
Political Subdivisions		95,216		21,928		30,540		13,100		125,756		35,027		57
Special Revenue		271,045		45,416		157,233		68,517		428,278		113,933		207
Industrial and Miscellaneous		1,911,997		271,073		583,573		238,631		2,495,570		509,704		1,273
Residential Mortgage-backed		263,919		27,965		126,074		31,622		389,993		59,587		113
Commercial Mortgage-backed		683,201		54,145		258,985		45,407		942,186		99,552		346
Asset-backed Securities		485,508		31,897		436,888		56,696		922,396		88,593		242
Hybrid Securities		113,780		10,959		13,147		2,580		126,927		13,539		63
SVO Identified Funds		—		—		—		—		—		—		—

Total Bonds	$	3,873,858	$	467,026	$	1,656,776	$	461,315	$	5,530,634	$	928,341		2,316
Preferred Stock		41,255		6,955		10,023		2,708		51,278		9,663		25

Total Bonds and Preferred	$	3,915,113	$	473,981	$	1,666,799	$	464,023	$	5,581,912	$	938,004		2,341

Included in the December 31, 2023 and 2022 amounts above is the interest portion of other-than-temporary impairments on securities of $498 and $412, respectively.

COMMON STOCK — UNAFFILIATED The following summarizes the cost and estimated fair value of the Company’s investment in unaffiliated common stock:


			Gross Unrealized Capital
	Cost		Gains		Losses		Estimated Fair Value

December 31, 2023	$	27,705	$	727	$	1,060	$	27,372
December 31, 2022	$	37,132	$	859	$	4,524	$	33,467

The following presents the gross unrealized capital losses and fair values for unaffiliated common stock with unrealized capital losses.


	Less than 12 months				Greater than 12 Months				Total
	Fair Value		Gross Unrealized Capital Losses		Fair Value		Gross Unrealized Capital Losses		Fair Value		Gross Unrealized Capital Losses

December 31, 2023	$	3,448	$	273	$	7,280	$	787	$	10,728	$	1,060
December 31, 2022	$	4,797	$	561	$	10,516	$	3,963	$	15,313	$	4,524

The amount of unrealized capital losses on the Company’s investment in unaffiliated common stock is spread over 14 individual securities. As of December 31, 2023, there was 1 unaffiliated common stock security that was priced below 80% of the security’s cost. Of these securities, 1 was impaired totaling $490.


Page 16		The Penn Insurance and Annuity Company

($ in Thousands)

Federal Home Loan Bank The Company’s investment in FHLB-PGH Class B Membership Capital Stock as of December 31, 2023 and December 31, 2022 was $1,270 and $1,103, respectively. The Company also invested $— and $9,000 in FHLB-PGH Activity Stock as of December 31, 2023 and December 31, 2022, respectively. The Class B Membership Capital Stock held by the Company is subject to written notices of requests for redemption followed by a five year waiting period.

The Company’s borrowing capacity with the FHLB-PGH was $859,580 and $630,406 as of December 31, 2023 and December 31, 2022, respectively.

The following represents the amount of collateral required to be pledged to the FHLB-PGH and the maximum amount of collateral pledged as of:


	December 31 2023		Maximum during 2023		December 31 2022		Maximum during 2022

Carrying value	$	433,637	$	491,903	$	502,019	$	522,911
Fair value		391,971		447,788		448,129		495,858

The amount of interest on borrowings classified as funding agreements for the years ended December 31, 2023 and December 31, 2022 was $2,466 and $4,330, respectively.

OTHER THAN TEMPORARY IMPAIRMENTS ON LOAN-BACKED SECURITIES There were no other-than-temporary impairments recognized on loan-backed securities for the years ended December 31, 2023 and December 31, 2022.

ALTERNATIVE ASSETS The investment values of alternative assets are provided per the partnerships’ capital account statements. The Company’s interest cannot be redeemed, without exception. Instead, distributions from each fund result from the liquidation of the underlying assets. The period over which unredeemable investments are expected to be liquidated ranges from 5 to 10 years.

As of December 31, 2023, none of these investments exceed 10% of the Company’s admitted assets. The Company recognized realized losses of $179 and $169 for the years ended December 31, 2023 and December 31, 2022, respectively, associated with other-than-temporary impairments of certain alternative assets.

Unfunded commitments for alternative assets were $91,212 and $106,885 for the years ended December 31, 2023 and December 31, 2022.

The Company did not recognize any realized gains (losses) for the years ended December 31, 2023 and December 31, 2022 associated with liquidations of the company’s interest in alternative assets.

OTHER INVESTED ASSETS The components of other invested assets as of December 31, 2023 and 2022 were as follows:


December 31,	2023		2022

LIHTC	$	44,779	$	25,179
Receivable for securities		22,017		5,428
Notes receivable — JMS		40,000		40,000
PMUBX		59,812		54,511

Total other invested assets	$	166,608	$	125,118

Low Income Housing Tax Credits The Company has no LIHTC properties under regulatory review at December 31, 2023 and 2022. There were no write-downs due to forfeiture of eligibility and there were no impairments for 2023 or 2022.


2023 Statutory Financial Statements			Page 17

($ in Thousands)

Commitments of $40,503 and $22,907 for the years ended December 31, 2023 and December 31, 2022, respectively, have been recorded in Other liabilities related to unconditional and legally binding delayed equity contributions associated with investments in LIHTC. The Company has unexpired tax credits with remaining lives ranging between 1 and 14 years and required holding periods for its LIHTC investments between 4 and 19 years.

NET INVESTMENT INCOME AND REALIZED CAPITAL GAINS AND LOSSES The following table summarizes the major categories of net investment income for the years ended:


December 31,	2023			2022

Bonds and preferred stock	$	355,492		$	285,043
Common Stock — unaffiliated		2,424			2,286
Policy loans		33,557			28,604
Cash and short term investments		6,250			955
Alternative assets		22,032			34,799
Derivatives		(20,653	)		(10,090	)
Other invested assets		5,127			8,903
IMR amortization		(5,309	)		(4,255	)

Gross investment income		398,920			346,245
Less investment expenses		17,653			5,014

Net investment income	$	381,267		$	341,231

There was no nonadmitted accrued investment income at December 31, 2023 and December 31, 2022.

Included in the table above (Bonds and preferred stocks) is $344 of investment income attributable to securities disposed of as a result of a callable feature, spread over 2 securities in 2023.

The following table represents proceeds from sales of bonds, preferred stock, and unaffiliated common stocks, and related gross realized gains and losses on those sales for the years ended December 31:


	2023						2022
	Proceeds From Sales		Gross Realized Gains		Gross Realized Losses		Proceeds From Sales		Gross Realized Gains		Gross Realized Losses

Bonds	$	48,020	$	376	$	2,720	$	290,295	$	498	$	30,880
Preferred stock		—		—		—		—		—		—
Common stock-unaffiliated		14,364		2,545		595		16,025		103		8,404

As of December 31, 2023, there were no preferred stock impairments.

Realized capital gains/(losses) are reported net of federal income taxes and amounts transferred to the IMR are as follows for the years ended:


December 31,	2023			2022

Realized capital losses	$	(27,828	)	$	(61,686	)
Less amount transferred to IMR		(3,129	)		(36,938	)
Less Taxes:
Transferred to IMR		656			7,757
Capital losses		(906	)		(7,891	)

Net Realized Capital Losses	$	(24,449	)	$	(24,614	)


Page 18		The Penn Insurance and Annuity Company

($ in Thousands)

Portions of realized capital gains and losses that were determined to be interest related were transferred to the IMR.

There were no NAIC designation 3 or below, or unrated securities sold during the year ended December 31, 2023 and reacquired within 30 days of the sale date.

Note 4. SEPARATE ACCOUNTS

SEPARATE ACCOUNTS REGISTERED WITH THE SEC The Company maintains separate accounts that are registered with the Securities Exchange Commission (“SEC”) for its individual variable life and annuity products with assets of $133,688 and $76,939 at December 31, 2023 and December 31, 2022, respectively. The assets for these separate accounts, which are carried at fair value, represent investments in shares of the Company’s Penn Series Funds and other non-proprietary funds.

Information regarding the Separate Accounts of the Company, all of which are nonguaranteed, is as follows:


	2023		2022

Premiums, considerations and deposits for the year ended December 31	$	38,819	$	29,362
Reserves at December 31, at market value		127,473		73,019
Subject to discretionary withdrawal at market value		127,473		73,019

The following table reconciles the amounts transferred to and from the separate accounts as reported in the financial statements of the separate accounts to the amount reported in the Statements of Operations:


Years Ended December 31,	2023		2022

Transfers as reported in the financial statements of the separate accounts:
Transfers to separate accounts	$	38,819	$	29,362
Transfers from separate accounts		2,245		(6,282	)

Transfers as reported in the Statements of Operations	$	41,064	$	23,080

The Company utilizes separate accounts to record and account for assets and liabilities for particular lines of business and transactions. For the current reporting year, the Company reported assets and liabilities from variable life and annuities product lines into a separate account.

The assets of the separate accounts, which are legally insulated from the general account, are comprised of the following as of December 31:


Product Description	2023		2022

Individual Annuity	$	41,042	$	38,597
Single Life Variable Universal Life		92,646		38,342

Total	$	133,688	$	76,939

In accordance with the products recorded within the separate account, some separate account liabilities are guaranteed by the general account.

There were no risk charges paid to compensate the general account for the risk taken as of December 31, 2023 and December 31, 2022.

For the years ended December 31, 2023 and December 31, 2022, the general account of the Company has paid $30 and $5, respectively, and $60 cumulatively over the last five years towards separate account guarantees.


2023 Statutory Financial Statements			Page 19

($ in Thousands)

Note 5. DERIVATIVES

The Company utilizes derivatives to achieve its risk management goals. Exposure to risk is monitored and analyzed as part of the Company’s asset/liability management process, which focuses on risks that impact liquidity, capital, and income. The Company may enter into derivative transactions to hedge exposure to interest rate, credit, liability, currency, and cash flow risks.

The Company offers IUL products which have embedded options with guaranteed returns. The Company uses equity options in the form of call spread options for protection from rising equity levels and rising volatility.

The Company uses interest rate swaps to reduce market risks from changes in interest rates.

When entering into a derivative transaction, there are several risks, including but not limited to basis risk, credit risk, and market risk. Basis risk is the exposure to loss from imperfectly matched positions, and is monitored and minimized by modifying or terminating the transaction. Credit risk is the exposure to loss as a result of default or a decline in credit rating of a counterparty. Credit risk is addressed by establishing and monitoring guidelines on the amount of exposure to any particular counterparty. Market risk is the adverse effect that a change in interest rates, currency rates, implied volatility rates, or a change in certain equity indexes or instruments has on the value of a financial instrument. The Company manages the market risk by establishing and monitoring limits as to the types and degree of risk that may be undertaken. Also, the Company requires that an International Swaps and Derivatives Association Master agreement govern all Over-the-Counter (“OTC”) derivative contracts.

Derivative Instruments Designated and Qualifying as Hedging Instruments

The Company discontinued hedge accounting in 2023.

In 2022, the Company has purchased equity options in the form of call spreads that qualify for hedge accounting. These have been designated as cash flow hedges of cash flows related to the annual return of the S&P 500 Index. These call spreads are used to hedge the increase in liability associated with indexed credits on IUL policies. As these are derivatives in a highly effective hedge, they are carried at cost in a manner consistent with the firm commitment being hedged. At termination, a realized gain amount, net of the cost basis, is recognized within benefits paid to policyholders and beneficiaries on the Statements of Income and Changes in Surplus, consistent with the change in liability associated with the account value. In the event that the hedge fails to qualify as being highly effective at any of the accounting measurement points, the hedge will be considered ineffective and the derivative will be marked to market and the associated change will be recognized as unrealized gain/(loss). At the time of exercise or expiration of the derivative, the associated realized gain or loss will flow through net investment gain/(loss) on the income statement.

The following table presents the notional values, fair values and carrying values of derivative instruments designated and qualifying as hedging instruments. Derivative instruments with carrying values showing a gain are reported as admitted assets and Derivative instruments with carrying values showing a loss are reported in Other liabilities.

Derivative Instruments Designated and Qualifying as Hedging Instruments are as follows:


December 31,	2022
	Notional Value		Fair Value					Carrying Value
	Notional Value		Gain		(Loss)			Gain		(Loss)

Cash flow hedges:
Equity options	$	5,427,572	$	261,526	$	(145,960	)	$	498,370	$	(308,406	)

Total designated and qualifying as hedges	$	5,427,572	$	261,526	$	(145,960	)	$	498,370	$	(308,406	)

The following table presents the notional and fair values of derivative financial instruments not designated and not qualifying as hedging instruments. Derivative instruments with carrying values showing a gain are reported as admitted assets and Derivative instruments with carrying values showing a loss are reported in Other liabilities. For the derivative instruments shown below, fair values equal carrying values.


Page 20		The Penn Insurance and Annuity Company

($ in Thousands)

Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments are as follows:


December 31,	2023							2022
	Notional Value		Fair Value					Notional Value		Fair Value
	Notional Value		Gain		(Loss)			Notional Value		Gain		(Loss)

Equity options	$	6,406,003	$	891,779	$	(532,263	)	$	341,704	$	523	$	(4	)
Interest rate swaps		4,860,900		444,814		(510,023	)		4,860,900		491,496		(579,709	)

Total not designated and not qualifying as hedges	$	11,266,903	$	1,336,593	$	(1,042,286	)	$	5,202,604	$	492,018	$	(579,713	)

The impact of derivatives instruments reported on the Statements of Operations for the years ended December 31, 2023 and 2022, segregated by derivatives designated and qualifying as hedging instruments and derivatives not designated and not qualifying as hedging instruments, is reported in the tables below:

Derivative Instruments Designated and Qualifying as Hedging Instruments are as follows:


Year Ended December 31,	2023		2022
	Benefits paid to policyholders and beneficiaries		Benefits paid to policyholders and beneficiaries

Cash flow hedges:
Equity options	$	44,598	$	(56,417	)

Total qualifying hedges	$	44,598	$	(56,417	)

Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments are as follows:


Year Ended December 31,	2023			2022
	Net Investment Gains/(Losses)			Net Investment Gains/(Losses)

Equity options	$	(22,570	)	$	(13,197	)
Interest rate swaps		2			(8,262	)

Total nonqualifying hedges	$	(22,568	)	$	(21,459	)

The change in unrealized capital gains/(losses) for derivative instruments not designated and not qualifying as hedging instruments are as follows for the years ended December 31:


	2023		2022

Equity options	$	118,884	$	(30,646	)
Interest rate swaps		23,004		(68,168	)

Total	$	141,888	$	(98,814	)

CREDIT RISK The Company is exposed to credit related losses in the event of non-performance by counterparties to derivative financial instruments. In order to minimize credit risk, the Company and its derivative counterparties require collateral to be posted in the amount owed under each transaction, subject to minimum transfer amounts that are functions of the counterparties credit rating. As of December 31, 2023 and 2022, the Company was fully collateralized thereby eliminating the potential for an accounting loss. Additionally, certain agreements with counterparties allow for contracts in a positive position to be offset by contracts in a negative position. This right of offset also reduces the Company’s exposure. As of December 31, 2023 and 2022, the Company has received net


2023 Statutory Financial Statements			Page 21

($ in Thousands)

(posted)/collateral of $200,159 and $(13,434), respectively, in the form of cash. The cash received from held collateral that is not invested in an interest bearing money market fund is invested mainly in fixed income securities.

Note 6. FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE MEASUREMENT Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement is based on assumptions market participants would make in pricing an asset or liability. Inputs to valuation techniques to measure fair value are prioritized by establishing a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to prices derived from unobservable inputs. An asset or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its fair value measurement.

The Company has categorized its assets and liabilities into the three-level fair value hierarchy based upon the priority of the inputs. The following summarizes the types of assets and liabilities included within the three-level hierarchy:

Level 1

Fair value is based on unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. These generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following for the measured asset/liability: i) many transactions, ii) current prices, iii) price quotes not varying substantially among market makers, iv) narrow bid/ask spreads and v) most information publicly available. Prices are obtained from readily available sources for market transactions involving identical assets and liabilities.

Level 2

Fair value is based on significant inputs, other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. Prices for assets classified as Level 2 are primarily provided by an independent pricing service or are internally priced using observable inputs. In circumstances where prices from pricing services are reviewed for reasonability but cannot be corroborated to observable market data as noted above, these security values are recorded in Level 3 in the fair value hierarchy.

Level 3

Fair value is based on significant inputs that are unobservable for the asset or liability. These inputs reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability. These are typically less liquid fixed maturity securities with very limited trading activity. Prices are determined using valuation methodologies such as option pricing models, discounted cash flow models, market approach and other similar techniques. Prices may be based upon non-binding quotes from brokers or other market makers that are reviewed for reasonableness, based on the Company’s understanding of the market but are not further corroborated with other additional observable market information.

The determination of fair value, which for certain assets and liabilities is dependent on the application of estimates and assumptions, can have a significant impact on the Company’s results of operations. The following sections describe the valuation methodologies used to determine fair values as well as key estimates and assumptions surrounding certain assets and liabilities, measured at fair value on a recurring basis, that could have a significant impact on the Company’s results of operations or involve the use of significant unobservable inputs.

The fair value process is monitored on a monthly basis by financial and investment professionals who utilize additional subject matter experts as applicable. The purpose is to monitor the Company’s asset valuation policies and procedures by ensuring objective and reliable valuation practices and pricing of financial instruments, as well as addressing fair valuation issues, changes to valuation methodologies and pricing sources. To assess the continuing appropriateness of third party pricing service security valuations, the Company regularly monitors the prices and reviews price variance reports. In addition, the Company performs an initial and ongoing review of the third party pricing services methodologies, reviews inputs and assumptions used for a sample of securities on a periodic basis. Pricing challenges are raised on valuations considered not reflective of market and are monitored by the Company.


Page 22		The Penn Insurance and Annuity Company

($ in Thousands)

BONDS The fair values of the Company’s debt securities are generally based on quoted market prices or prices obtained from independent pricing services. In order to validate reasonability, prices are reviewed by investment professionals through comparison with directly observed recent market trades or color or by comparison of significant inputs used by the pricing service to the Company’s observations of those inputs in the market. Consistent with the fair value hierarchy described above, securities with quoted market prices or corroborated valuations from pricing services are generally reflected within Level 2. Inputs considered to be standard for valuations by the independent pricing service include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data and industry and economic events. In circumstances where prices from pricing services are reviewed for reasonability but cannot be corroborated to observable market data as noted above, these security values are recorded in Level 3 in the Company’s fair value hierarchy. Under certain conditions, the Company may conclude pricing information received from third party pricing services is not reflective of market activity and may over-ride that information with a valuation that utilizes market information and activity. As of December 31, 2023, there were no debt securities carried at a fair value. As of December 31, 2022, there were 2 debt securities carried at a fair value of $2,392 that were valued in this manner.

In circumstances where market data such as quoted market prices or vendor pricing is not available, internal estimates based on significant observable inputs are used to determine fair value. This category also includes fixed income securities priced internally. Inputs considered include: public debt, industrial comparables, underlying assets, credit ratings, yield curves, type of deal structure, collateral performance, loan characteristics and various indices, as applicable. Also included in Level 2 are private placement securities. Inputs considered are: public corporate bond spreads, industry sectors, average life, internal ratings, security structure, liquidity spreads, credit spreads and yield curves, as applicable. If the discounted cash flow model incorporates significant unobservable inputs, these securities would be reflected within Level 3 in the Company’s fair value hierarchy.

In circumstances where significant observable inputs are not available, estimated fair value is calculated by using unobservable inputs. These inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset, and are therefore included in Level 3 in the Company’s fair value hierarchy. Circumstances where observable market data is not available may include events such as market illiquidity and credit events related to the security.

EQUITY SECURITIES Equity securities consist principally of investments in common and preferred stock of publicly traded companies. The fair values of most publicly traded equity securities are based on quoted market prices in active markets for identical assets and are classified within Level 1 in the Company’s fair value hierarchy.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Short-term investments and cash equivalents carried at Level 1 consist of money market funds and investments purchased with maturities less than or equal to 12 months. These are carried at amortized cost and approximate fair value.

DERIVATIVE INSTRUMENTS The fair values of derivative contracts are determined based on quoted prices in active exchanges or prices provided by counterparties, exchanges or clearing members as applicable, utilizing valuation models. The fair values of derivative contracts can be affected by changes in interest rates, foreign exchange rates, commodity prices, credit spreads, market volatility, expected returns and liquidity as well as other factors.

The Company’s exchange traded futures are valued using quoted prices in active markets and are classified within Level 1 in our fair value hierarchy.

Derivative positions traded in the OTC and cleared OTC derivative markets where fair value is determined by third party independent sources are classified within Level 2. These investments included: interest rate swaps, interest rate caps, total return swaps, swaptions, equity options, inflation swaps, forward contracts, and credit default swaps. OTC derivatives classified within Level 2 are valued using models generally accepted in the financial services industry that use actively quoted or observable market input values from external market data providers, broker dealer quotations, third-party pricing vendors and/or recent trading activity. Prices are reviewed by investment professionals through comparison with directly observed recent market trades, comparison with valuations estimated through use of valuation models maintained on an industry standard analytical and valuation platform, or comparison of all significant inputs used by the pricing service to observations of those inputs in the market.


2023 Statutory Financial Statements			Page 23

($ in Thousands)

SEPARATE ACCOUNT ASSETS Separate account assets primarily consist of mutual funds. The fair value of mutual funds is based upon quoted prices in an active market, resulting in classification in Level 1.

The following table presents the financial instruments carried at fair value by caption on the Statements of Admitted Assets, Liabilities and Capital and Surplus and by valuation hierarchy (as described above):


December 31, 2023	FV Level 1		FV Level 2			FV Level 3		Total

Bonds	$	379	$	—		$	—	$	379
Preferred stock		26,158		3,264			—		29,422
Common stock — unaffiliated		26,102		—			1,270		27,372
Derivatives		—		1,336,593			—		1,336,593
Separate account assets ⁽¹⁾		133,688		—			—		133,688

Total assets	$	186,327	$	1,339,857		$	1,270	$	1,527,454

Derivatives		—		(1,042,286	)		—		(1,042,286	)

Total liabilities	$	—	$	(1,042,286	)	$	—	$	(1,042,286	)

(1)

Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value in the Company’s Statements of Admitted Assets, Liabilities and Capital and Surplus.


December 31, 2022	FV Level 1		FV Level 2			FV Level 3		Total

Bonds	$	362	$	504		$	—	$	866
Preferred stock		26,113		—			—		26,113
Common stock — unaffiliated		23,364		—			10,103		33,467
Derivatives		—		492,018			—		492,018
Separate account assets⁽¹⁾		76,939		—			—		76,939

Total assets	$	126,778	$	492,522		$	10,103	$	629,403

Derivatives		—		(579,713	)		—		(579,713	)

Total liabilities	$	—	$	(579,713	)	$	—	$	(579,713	)

(1)

CHANGES IN LEVEL 3 RECURRING FAIR VALUE MEASUREMENTS When a determination is made to classify a financial instrument within level 3, the determination is based upon the significance of the unobservable parameters to the overall fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.

The Company recognizes transfers into Level 3 as of the end of the period in which the circumstances leading to the transfer occurred. The Company recognizes transfers out of Level 3 at the beginning of a period in which the circumstances leading to the transfer occurred.


Page 24		The Penn Insurance and Annuity Company

($ in Thousands)

There were no assets transferred into Level 3 and there were no assets transferred out of Level 3 for the year ended December 31, 2023. There were no assets transferred into Level 3 and 2 assets transferred out of Level 3 due to change in fair value for the year ended December 31, 2022.

The tables below include a rollforward of the Statements of Admitted Assets, Liabilities and Surplus amounts for the years ended December 31, 2023 and December 31, 2022 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy.


	2023			2022
	Unaffiliated Common Stock			Unaffiliated Common Stock

Balance January 1	$	10,103		$	1,081
Transfers in		—			—
Transfers out		—			—
Total gains or losses (realized/unrealized) included in:
Income/(loss)		—			—
Surplus		—			—
Amortization/Accretion		—			—
Purchases/(Sales):
Purchases		—			9,022
(Sales)		(8,833	)		—

Balance December 31	$	1,270		$	10,103

The following summarizes the fair value, valuation techniques and significant unobservable inputs of the Level 3 fair value measurements that were developed as of December 31, 2023:

Fair Value

Valuation Technique

Significant
Unobservable
Inputs

Rate/Range
or /weighted
avg.

Assets:

Investments

Common stock, unaffiliated

1,270

Set by issuer — FHLB-PGH

⁽¹⁾

Not available

N/A

Total investments

1,270

(1)	Fair Value approximates carrying value. The par value of the FHLB capital stock is $100 and set by the FHLB. The capital stock is issued, redeemed and repurchased at par.


2023 Statutory Financial Statements			Page 25

($ in Thousands)

The following table summarizes the aggregate fair value for all financial instruments and the level within the fair value hierarchy in which the fair value measurements in their entirety fall, for which it is practicable to estimate fair value, at December 31:


2023	Aggregate Fair Value		Admitted Value		Level 1		Level 2		Level 3

Financial Assets:
Bonds	$	7,086,198	$	7,748,725	$	1,734	$	6,862,759	$	221,705
Preferred stock		52,309		54,589		44,197		8,112		—
Common stock — unaffiliated		27,372		27,372		26,102		—		1,270
Cash, Cash Equivalents and short-term investments		212,407		212,407		212,407		—		—
Derivatives		1,336,593		1,336,593		—		1,336,593		—
Separate account assets		133,688		133,688		133,688		—		—

Financial Liabilities:
Investment-type contracts:
Individual annuities	$	292,214	$	291,469	$	—	$	—	$	292,214
Derivatives		1,042,286		1,042,286		—		1,042,286		—
Separate account liabilities		133,688		133,688		133,688		—		—


2022	Aggregate Fair Value		Admitted Value		Level 1		Level 2		Level 3

Financial Assets:
Bonds	$	6,112,713	$	7,015,519	$	1,691	$	5,981,565	$	129,458
Preferred stock		51,278		54,340		43,218		8,060		—
Common stock — unaffiliated		33,467		33,467		23,364		—		10,103
Cash and short-term investments		128,400		128,400		128,400		—		—
Derivatives		961,784		990,389		—		961,784		—
Separate account assets		76,939		76,939		76,939		—		—

Financial Liabilities:
Investment-type contracts:
Individual annuities	$	240,894	$	240,908	$	—	$	—	$	240,894
Derivatives		862,744		888,119		—		862,744		—
Separate account liabilities		76,939		76,939		76,939		—		—

During 2023, there were no securities with transfers from Level 3 to Level 2.


Page 26		The Penn Insurance and Annuity Company

($ in Thousands)

Note 7. LIFE RESERVES BY WITHDRAWAL CHARACTERISTICS

The withdrawal characteristics of the Company’s life reserves are illustrated below as of December 31:


	General Account						Separate Account
December 31, 2023	Account Value		Cash Value		Reserve		Account Value		Cash Value		Reserve

Subject to Discretionary Withdrawal, Surrender Values, or Policy Loans:
Universal Life	$	374,086	$	374,006	$	380,441	$	—	$	—	$	—
Universal Life with Secondary Guarantees		1,114,168		856,008		2,241,768		—		—		—
Indexed Universal Life		—		—		—		—		—		—
Indexed Universal Life with Secondary Guarantees		6,525,247		6,180,264		7,123,188		—		—		—
Variable Universal Life		9,591		7,273		28,523		92,055		86,457		86,457
Miscellaneous Reserves		—		—		75		—		—		—

Not Subject to Discretionary Withdrawal or No Cash Values:
Accidental Death Benefits		—		—		13		—		—		—
Disability — Active Lives		—		—		315		—		—		—
Disability — Disabled Lives		—		—		2,839		—		—		—
Miscellaneous Reserves		—		—		—		—		—		—

Total		8,023,092		7,417,551		9,777,162		92,055		86,457		86,457
Less: Reinsurance ceded		1,090,758		927,951		2,555,847		—		—		—

Net	$	6,932,334	$	6,489,600	$	7,221,315	$	92,055	$	86,457	$	86,457

Life reserves of $46,621 with a surrender charge of 5% or more as of December 31, 2023 will have less than a 5% surrender charge in 2024.


2023 Statutory Financial Statements			Page 27

($ in Thousands)


	General Account						Separate Account
December 31, 2022	Account Value		Cash Value		Reserve		Account Value		Cash Value		Reserve
Withdrawal, Surrender Values, or Policy Loans:
Universal Life	$	457,072	$	456,988	$	462,709	$	—	$	—	$	—
Universal Life with Secondary Guarantees		1,057,910		811,709		2,072,673		—		—		—
Indexed Universal Life		—		—		—		—		—		—
Indexed Universal Life with Secondary Guarantees		5,922,820		5,609,947		6,441,117		—		—		—
Variable Universal Life		9,584		7,026		21,070		38,349		34,437		34,435
Miscellaneous Reserves		—		—		10		—		—		—

Not Subject to Discretionary Withdrawal or No Cash Values:
Accidental Death Benefits		—		—		14		—		—		—
Disability — Active Lives		—		—		308		—		—		—
Disability — Disabled Lives		—		—		2,971		—		—		—
Miscellaneous Reserves		—		—		—		—		—		—

Total		7,447,386		6,885,670		9,000,872		38,349		34,437		34,435
Less: Reinsurance ceded		1,066,363		904,007		2,429,583		—		—		—

Net	$	6,381,023	$	5,981,663	$	6,571,289	$	38,349	$	34,437	$	34,435

Life reserves on corporate owned life insurance policies issued by the Company to PML as of December 31, 2023 and 2022 were $42,108 and $43,812, respectively.

Note 8. RESERVES AND FUNDS FOR THE PAYMENT OF ANNUITY BENEFITS

The withdrawal characteristics of the Company’s annuity actuarial reserves and deposit-type contracts are illustrated below:


December 31, 2023	General Account		Separate Account		Total		% of Total

Subject to discretionary withdrawal-with adjustments:
With market value adjustment	$	—	$	—	$	—		—	%
At book value less surrender charges		178,907		—		178,907		54	%
At market value		—		41,042		41,042		12	%

Subtotal		178,907		41,042		219,949		66	%

At book value — without adjustment		96,532		—		96,532		29	%
Not subject to discretionary withdrawal		16,182		—		16,182		5	%

Total annuity reserves and deposit liabilities, gross		291,621		41,042		332,663		100	%
Less: Reinsurance ceded		—		—		—		—	%

Total annuity reserves and deposit liabilities, net	$	291,621	$	41,042	$	332,663		100	%


Page 28		The Penn Insurance and Annuity Company

($ in Thousands)

Annuity and deposit-type contract reserves of $26,137 with surrender charges of 5% or more as of December 31, 2023 will have less than a 5% surrender charge in 2024.


December 31, 2022	General Account		Separate Account		Total		% of Total

Subject to discretionary withdrawal-with adjustments:
With market value adjustment	$	—	$	—	$	—		—	%
At book value less surrender charges		159,425		—		159,425		57	%
At market value		—		55,127		55,127		20	%

Subtotal		159,425		55,127		214,552		77	%

At book value — without adjustment		43,107		—		43,107		15	%
Not subject to discretionary withdrawal		20,525		—		20,525		7	%

Total annuity reserves and deposit liabilities, gross		223,057		55,127		278,184		100	%
Less: Reinsurance ceded		—		—		—		—	%

Total annuity reserves and deposit liabilities, net	$	223,057	$	55,127	$	278,184		100	%

The following summarizes the total annuity actuarial reserves and liabilities for deposit-type contracts as of December 31:


	2023		2022

Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus:
Policyholders’ reserves — group annuities	$	152	$	270
Policyholders’ reserves — individual annuities		283,358		229,914
Liabilities for deposit-type contracts		8,111		236,467
VM-21 reserves		—		—

Subtotal	$	291,621	$	466,651

Separate Account Annual Statement:
Annuities	$	41,042	$	38,583

Subtotal		41,042		38,583

TOTAL RESERVES	$	332,663	$	505,234

The Company has variable annuity contracts containing GMDB provisions that provide a specified minimum return upon death as follows:

RETURN OF PREMIUM provides the greater of the account value or total deposits made to the contract less any partial withdrawals and assessments, which is referred to as “net purchase payments”. This guarantee is a standard death benefit on all individual variable annuity products.

RISING FLOOR provides a variable death benefit equal to the greater of the current account value and the variable purchase payments accumulated at a set rate and adjusted for withdrawals and transfers.

The following table summarizes the account values and net amount at risk (death benefit in excess of account value), net of reinsurance, for variable annuity contracts with guarantees invested in the separate accounts as of December 31:


	2023		2022

Account value	$	41,042	$	38,597
Net amount at risk		2,285		2,970


2023 Statutory Financial Statements			Page 29

($ in Thousands)

The Company has fixed indexed annuity contracts that have GMWB Rider options. The GMWB rider allows for guaranteed withdrawals from a benefit base after a selected waiting period. The GMWB riders are also available with inflation protection. The benefit base is calculated as the maximum of principal increase at a roll up rate less any partial withdrawals during the accumulation phase, the current account value, and the highest anniversary value over the first ten years. The withdrawal amount is stated as a percentage of the benefit base and varies based on whether the annuitant selects lifetime withdrawals or a specified period. One version of this rider has an inflation adjustment applied to the Guaranteed Withdrawal Amount.

The following table summarizes the account values for the different benefit types as of December 31, 2023:


Rider Type	Contracts		Fund Value		Cash Value

GMWB		553	$	114,344	$	108,881
GMWB w/ inflation		62		10,030		9,483

Total		615	$	124,374	$	118,364

The following table summarizes the account values for the different benefit types as of December 31, 2022:


Rider Type	Contracts		Fund Value		Cash Value

GMWB		505	$	102,195	$	97,068
GMWB w/ inflation		49		8,130		7,779

Total		554	$	110,325	$	104,847

Variable annuity reserves for living and death benefits are based on the methodology specified in Valuation Manual — 21: Requirements for Principle-Based Reserves for Variable Annuities (“VM-21”), which specifies the reserve as the Company Stochastic Reserve plus the Additional Standard Projection Amount. The individual policy reserve is floored at cash surrender value. The Company Stochastic Reserve is based on the Conditional Tail Expectation (“CTE”) 70% of 1,000 stochastically generated interest rate and equity return scenarios. Prudent estimate assumptions including margins for uncertainty are used to calculate the Company Stochastic Reserve. Key assumptions needed in valuing the liability include full withdrawals, partial withdrawals, mortality, the Consumer Price Index, investment management fees and revenue sharing, expenses, fund allocations and other policyholder behavior. The Additional Standard Projection Amount requires prescribed assumptions to be used in place of company assumptions for most key assumptions. The reserve also requires the projection of in-force general account assets and assets from reinvested cash flows. The key assumptions needed in valuing the assets, including the maximum reinvestment earned rate spreads and default rates, are prescribed. In addition, the method for projecting interest rates and equity returns is prescribed for both the Company Stochastic Reserve calculation and the Additional Standard Projection Amount calculation. The final reserve balance for policies that fall within the scope of VM-21, which covers both Living and Death Benefit guarantees, is $41,020 and $38,585 as of December 31, 2023 and December 31, 2022, respectively.

Fixed indexed annuity reserves for living benefits are based on the methodology specified in Actuarial Guideline XXXV, which specifies the reserve as the sum of the nonelective benefit reserve and the elective benefit reserve. The elective benefit reserve is calculated using the elective benefit path that results in the highest present value of future benefits. The final reserve balance for policies that fall within the scope of Actuarial Guideline XXXV is $249,806 and $193,426, as of December 31, 2023 and December 31, 2022, respectively.

Note 9. FEDERAL INCOME TAXES

The Company follows Statement of Statutory Accounting Principles No. 101 — Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10 (“SSAP 101”). SSAP 101 includes a calculation for the limitation of gross deferred tax assets for insurers that maintain a minimum of 300% of their authorized control level RBC computed without net deferred tax assets. The Company exceeded the 300% minimum RBC requirement at December 31, 2023 and 2022.


Page 30		The Penn Insurance and Annuity Company

($ in Thousands)

The Company is required to evaluate the recoverability of deferred tax assets and to establish a valuation allowance if necessary to reduce the deferred tax asset to an amount which is more likely than not to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, the Company considers many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable income exclusive of reversing temporary differences and carryforwards; (5) the length of time that carryovers can be utilized; (6) unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that the Company would employ to avoid a tax benefit from expiring unused; although the realization is not assured, management believes it is more likely than not that the deferred tax assets, will be realized. The Company has not recorded a valuation allowance as of December 31, 2023 and 2022.

The components of deferred tax asset (“DTAs”) and deferred tax liabilities (“DTLs”) recognized by the Company are as follows as of December 31:


Description	2023									2022
	Ordinary			Capital			Total			Ordinary			Capital			Total

Gross DTAs	$	157,883		$	2,189		$	160,072		$	130,590		$	2,027		$	132,617

Adjusted gross DTAs		157,883			2,189			160,072			130,590			2,027			132,617
Adjusted gross DTAs nonadmitted		(34,261	)		—			(34,261	)		(27,034	)		(196	)		(27,230	)

Subtotal admitted adjusted DTA		123,622			2,189			125,811			103,556			1,831			105,387
Gross DTL		(5,756	)		(37,609	)		(43,365	)		(25,794	)		(11,481	)		(37,275	)

Net admitted DTA/(DTL)	$	117,866		$	(35,420	)	$	82,446		$	77,762		$	(9,650	)	$	68,112

The changes in components of deferred tax asset (“DTAs”) and deferred tax liabilities (“DTLs”) recognized by the Company are as follows:


Description	Changes During 2023
	Ordinary			Capital			Total

Gross DTAs	$	27,293		$	162		$	27,455

Adjusted gross DTAs		27,293			162			27,455
Adjusted gross DTAs nonadmitted		(7,227	)		196			(7,031	)

Subtotal admitted adjusted DTA		20,066			358			20,424
Gross DTA/(DTL)		20,038			(26,128	)		(6,090	)

Net admitted DTA/(DTL)	$	40,104		$	(25,770	)	$	14,334


2023 Statutory Financial Statements			Page 31

($ in Thousands)

Admitted DTA’s are comprised of the following admission components based on paragraph 11 SSAP No. 101 as of December 31:


Description	2023						2022
	Ordinary		Capital		Total		Ordinary		Capital		Total

Admitted DTA 3 years:
Federal income taxes paid that can be recovered:
Remaining adjusted gross DTAs expected to be realized in 3 years (lesser of 1 or 2):	$	80,257	$	2,189	$	82,446	$	66,281	$	1,831	$	68,112
1. Adjusted gross DTA expected to be realized		80,257		2,189		82,446		66,281		1,831		68,112
2. Adjusted gross DTA allowed per limitation threshold		—		—		116,596		—		—		102,150
Adjusted gross DTA offset by existing DTLs		43,366		—		43,366		37,275		—		37,275

Total admitted DTA realized within 3 years	$	123,623	$	2,189	$	125,812	$	103,556	$	1,831	$	105,387


Description	Changes During 2023
	Ordinary		Capital		Total

Admitted DTA 3 years:
Federal income taxes paid that can be recovered:
Remaining adjusted gross DTAs expected to be realized within 3 years (lesser of 1 or 2):	$	13,976	$	358	$	14,334
1. Adjusted gross DTA expected to be realized		13,976		358		14,334
2. Adjusted gross DTA allowed per limitation threshold		—		—		14,446
Adjusted gross DTA offset by existing DTLs		6,091		—		6,091

Total admitted DTA realized within 3 years	$	20,067	$	358	$	20,425

The authorized control level RBC and total adjusted capital computed without net deferred tax assets utilized when determining the amount of net deferred tax was as follows:


December 31:	2023			2022

Ratio percentage used to determine recovery period and threshold limitation amount		482	%		416	%
Amount of adjusted capital and surplus used to determine recovery period and threshold limitation	$	947,702		$	790,327

The impact of Tax planning strategies on the determination of adjusted gross DTA’s and net admitted DTA’s is as follows:


	December 31, 2023									December 31, 2022												Change
	Ordinary			Capital			Total			Ordinary			Capital			Total			Ordinary			Capital			Total

Adjusted gross DTAs		87	%		100	%		67	%		—	%		100	%		2	%		87	%		—	%		65	%
Net admitted DTAs		91	%		100	%		69	%		—	%		100	%		3	%		91	%		—	%		66	%

The Company’s tax planning strategies do not include the use of internal and external reinsurance during 2023 to support DTA realization.

There are no temporary differences for which a DTL has not been established.


Page 32		The Penn Insurance and Annuity Company

($ in Thousands)

Current income taxes incurred consist of the following major components for the years ended December 31:


Description	2023			2022

Current federal income tax (benefit)/expense	$	42,997		$	(9,157	)
Income tax effect on realized capital losses		(906	)		(7,891	)

Federal and foreign income taxes incurred	$	42,091		$	(17,048	)

As reported on the capital gains and losses, net of tax as disclosed within the income statement, the Company’s accounting policy is to record tax expense or benefit as calculated pursuant to the Internal Revenue Code, adjusted for taxes transferred to the IMR reserve.

The tax effects of temporary differences that give rise to significant portions of the DTA’s and DTL’s are as follows as of December 31:


	2023			2022			Change

DTA resulting in book/tax difference in:
Ordinary:
Future policy benefits	$	31,543		$	24,853		$	6,690
DAC		80,771			69,420			11,351
Investments — ordinary		22,793			146			22,647
Deferred gain on reinsurance		18,272			18,272			—
Nonadmitted assets		—			12			(12	)
LIHTC		4,453			17,843			(13,390	)
Other — ordinary		51			44			7

Subtotal — gross ordinary DTAs		157,883			130,590			27,293
Nonadmitted ordinary DTAs		(34,261	)		(27,034	)		(7,227	)

Admitted ordinary DTAs		123,622			103,556			20,066
Capital:
OTTI on investments		2,189			2,027			162

Capital gross DTAs		2,189			2,027			162
Nonadmitted capital DTAs		—			(196	)		196

Admitted capital DTAs		2,189			1,831			358

Admitted DTAs		125,811			105,387			20,424

DTLs resulting in book/tax differences in:
Ordinary:
Investments — ordinary		(3,006	)		(21,669	)		18,663
Future policy benefits — 8 year spread		(2,750	)		(4,125	)		1,375

Ordinary DTLs		(5,756	)		(25,794	)		20,038

Capital:
Alternative asset investments		(13,618	)		(11,241	)		(2,377	)
Net unrealized investment gains		(23,991	)		(240	)		(23,751	)

Capital DTLs		(37,609	)		(11,481	)		(26,128	)

DTLs		(43,365	)		(37,275	)		(6,090	)

Net deferred tax asset	$	82,446		$	68,112		$	14,334


2023 Statutory Financial Statements			Page 33

($ in Thousands)

The change in deferred income taxes 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 taxes in the surplus section of the Annual Statement):


	2023			2022			Change

Total deferred tax assets	$	160,072		$	132,617		$	27,455
Total deferred tax liabilities		(43,365	)		(37,275	)		(6,090	)

Net deferred tax asset/liabilities		116,707			95,342			21,365

Tax effect on unrealized (gains)/losses								23,751

Change in net deferred income taxes							$	45,116

The provision for federal income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes including realized capital gains/(losses). The significant items causing the differences as of December 31, 2023 are as follows:


Description	Amount			Tax Effect			Effective Tax Rate

Income before taxes	$	(10,850	)	$	(2,278	)		21.00	%
Dividends received deduction		(1,491	)		(313	)		2.89	%
Separate Account DRD		(88	)		(18	)		0.17	%
IMR amortization		5,309			1,115			-10.28	%
LIHTC		(3,788	)		(795	)		7.33	%
Other		(3,496	)		(736	)		6.77	%

Total	$	(14,404	)	$	(3,025	)		27.88	%

Federal income tax expense incurred				$	42,997			-396.31	%
FIT expense/(benefit) on Realized Capital Gains/Losses					(250	)		2.30	%
FIT in IMR Gains/Losses					(656	)		6.05	%
Change in net deferred income taxes					(45,116	)		415.83	%

Total statutory taxes				$	(3,025	)		27.88	%

The Company has $4,453 LIHTC available of as of December 31, 2023 that will begin to expire in 2040.

The Company has not made any deposits regarding the suspension of running interest (protective deposits) pursuant to Internal Revenue Code Section 6603.

The Company’s federal income tax return is consolidated with its parent, Penn Mutual, and Penn Mutual’s subsidiaries. The method of tax allocation among the companies is subject to a written agreement, whereby the tax allocation is made on a benefits for loss basis. In addition, the Company is party to a tax agreement with PIAre I whereby PIAre I will pay its federal income tax liability or receive a refund for its net operating losses from the Company determined on a separate return basis. There was no income tax expense for 2023, 2022 and 2021 that is available for recoupment in the event of future net losses.

A listing of the companies included in the consolidated return is as follows:

Penn Mutual Life Insurance Company (Parent)

Penn Insurance & Annuity Company

PIA Reinsurance Company of Delaware I

Vantis Life Insurance Company

Penn Insurance and Annuity Company of New York

For the year ended December 31, 2023, PIA Re had a taxable net loss of $30,659 generating an amount payable from PIA to PIAre I of $6,438.


Page 34		The Penn Insurance and Annuity Company

($ in Thousands)

For the year ended December 31, 2022, PIA Re had a taxable net loss of $46,639 generating an amount payable from PIA to PIAre I of $9,794, which was paid in 2023.

Tax years 2020 and subsequent are still subject to audit by the Internal Revenue Service.

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits, as a component of tax expense. During the years ended December 31, 2023 and December 31, 2022, the Company did not recognize or accrue penalties or interest.

The Company has no tax loss contingencies for which it is reasonably possible that the total liability will significantly increase within the next twelve months of the reporting date.

On August 16, 2022, the Inflation Reduction Act of 2022 (Act) was passed by the US Congress and signed into law by President Biden. The Act includes a new corporate alternative minimum tax (CAMT) for tax years beginning after December 31, 2022. The Company has determined that they are a non-applicable reporting entity in 2023.

Note 10. REINSURANCE

The Company has assumed and ceded reinsurance on certain life and annuity contracts under various agreements. Reinsurance ceded permits recovery of a portion of losses from reinsurers.

The table below highlights the reinsurance amounts shown in the accompanying financial statements.


	Direct		Assumed		Ceded		Net Amount

December 31, 2023
Premium and annuity considerations	$	954,496	$	179,253	$	78,801	$	1,054,948
Reserves and funds for payment of future insurance and annuity benefits		6,620,524		3,448,259		2,555,847		7,512,936

December 31, 2022
Premium and annuity considerations	$	843,274	$	181,732	$	82,499	$	942,507
Reserves and funds for payment of future insurance and annuity benefits		6,082,244		3,385,279		2,429,583		7,037,940

INTERCOMPANY REINSURANCE The Company maintains various reinsurance agreements with affiliates. The following table summarizes premium and reserves balances associated with such agreements as of and for the years ended December 31:


		Assumed/(Ceded)
		2023						2022
	Affiliate	Premium			Reserves			Premium			Reserves

Coinsurance funds withheld	PML	$	30,972		$	1,585,521		$	33,895		$	1,518,169
Coinsurance funds withheld	PIAre I		(38,232	)		(2,547,882	)		(42,937	)		(2,422,872	)
Coinsurance — Inforce	PML		33,543			579,871			37,929			565,410
Coinsurance	PML		95,936			1,273,466			92,718			1,293,105
YRT — Index credits	PIAre I		18,802			9,401			17,190			8,595
YRT — Over retention	PML		(4,932	)		(668	)		(4,239	)		(584	)

Total		$	136,089		$	899,709		$	134,556		$	961,823


2023 Statutory Financial Statements			Page 35

($ in Thousands)

and AXXX Reinsurance Model Regulation. The Company then contemporaneously reinsured the policies to PIAre I. At inception, the agreement generated an after-tax gain of $87,008, which was a direct increase to surplus and is amortized into income over the life of the agreement.

Coinsurance — Inforce Effective January 1, 2015, the Company assumed from PML an inforce block of single life index universal life policies issued by PML between 2012 and 2014. The Company assumed 100% of the risk, net of inuring reinsurance.

Coinsurance The Company assumes certain risks under reinsurance agreements with Penn Mutual relating to various fixed and indexed universal life business.

YRT — Index credits Effective January 1, 2017, the Company assumes the equity risk associated with PIAre I’s indexed UL products on a YRT basis.

YRT — Over retention The Company ceded to PML policies issued after October 1, 2006 and before October 1, 2014 that resulted in retention greater than $1,000 per life.

Note 11. RELATED PARTIES

The Company entered into a revolving loan agreement with JMS on August 19, 2011, to provide funding to JMS in an amount not to exceed $40,000. Terms of the loan specify that semi-annual interest be paid on the outstanding balances based on market rates determined at the dates of the loans. The principal balances are not due until maturity in August 2030. The Company recorded $3,650 and $3,650 in interest income on this note for the years ended December 31, 2023 and December 31, 2022, respectively. At December 31, 2023 and December 31, 2022, the Company had an outstanding principal receivable from JMS of $40,000 and outstanding interest receivables of $920 and $920, relating to this agreement.

The Company has received a rating equivalent to an NAIC 1 for the note receivable from JMS.

The Company declared a $10,000 and $40,000 capital contribution to PIAre in 2023 and 2022. In 2023 and 2022, the Company received $30,000 and $60,000, respectively, in capital contributions from its parent, Penn Mutual.

In 2022, the Company declared their ownership of Independence Square Properties LLC (“ISP LLC”) as a dividend to their parent company, Penn Mutual, in the amount of $8,202.

The Company’s unconsolidated subsidiaries had combined assets of $2,691,255 and $2,564,862 and combined liabilities of $2,568,399 and $2,434,206 as of December 31, 2023 and 2022, respectively. There was no goodwill or other intangible assets in the admitted value of the Company’s subsidiaries at December 31, 2023 and 2022, respectively.

Under the terms of an expense allocation agreement, the Company reimbursed Penn Mutual for services and facilities provided on behalf of the Company, including direct and allocated expenses. For December 31, 2023 and December 31, 2022, the total expenses incurred under this agreement were $58,660 and $47,733, respectively. The amount due was $14,261 and $13,581 at December 31, 2023 and December 31, 2022, respectively.

Under the terms of investment management and administrative services agreements, the Company paid PMAM for investment management and accounting services provided on behalf of the Company. For December 31, 2023 and December 31, 2022, the total expenses incurred under these agreements were $9,433 and $6,088, respectively. The amount due was $845 and $481 at December 31, 2023 and December 31, 2022, respectively.

The Company agreed to provide certain accounting and administrative services, at cost, to PIAre I. The administrative costs for the years ended December 31, 2023 and December 31, 2022 were $450 and $435, respectively.


Page 36		The Penn Insurance and Annuity Company

($ in Thousands)

Note 12. COMMITMENTS AND CONTINGENCIES

LITIGATION The Company and its subsidiaries are involved in litigation arising in and out of the normal course of business that seek both compensatory and punitive damages. In addition, the regulators within the insurance and brokerage industries continue to focus on market conduct and compliance issues. While the Company is not aware of any actions or allegations that should reasonably give rise to a material adverse impact to the Company’s financial position or liquidity, the outcome of litigation cannot be foreseen with certainty.

GUARANTY FUNDS The Company is subject to insurance guaranty fund laws in the states in which it does business. These laws assess insurance companies amounts to be used to pay benefits to policyholders and policy claimants of insolvent insurance companies. Many states allow these assessments to be credited against future premium taxes. The liability for estimated guaranty fund assessments net of applicable premium tax credits as of December 31, 2023 and December 31, 2022 was $60 and $60. The Company monitors sales materials and compliance procedures and makes extensive efforts to minimize any potential liabilities in this area. The Company believes such assessments in excess of amounts accrued will not materially impact its financial statement position, results of operation, or liquidity.

COMMITMENTS In the normal course of business, the Company extends commitments relating to its investment activities. As of December 31, 2023 the Company had outstanding commitments totaling $91,212 relating to these investment activities. The fair value of these commitments approximates their face amount.

PIAre I has an adjustable 20 year, non-interest bearing financial instrument with a current face amount of $812,362 to support a modified coinsurance arrangement with an unaffiliated reinsurer. The Company is obligated to pay a financing fee on the reserve amount being financed. The Company may be subject to an early termination fee upon the occurrence of certain events through December 31, 2030. The modified coinsurance arrangement was effective December 31, 2013. Fees incurred during the years ended December 31, 2023 and December 31, 2022 were $2,759 and $2,539, respectively, which are included in Other expenses in the Statements of Operations.

DIVIDEND RESTRICTIONS The payment of dividends by the Company to Penn Mutual is subject to restrictions set forth in the State of Delaware insurance laws. These laws require that the maximum amount of ordinary dividends that can be paid by the Company to Penn Mutual without restriction cannot exceed the greater of the net gain from operations of the previous year or 10% of surplus as of the previous year end. Generally, these restrictions pose no short-term liquidity concerns for the Company. Based on these restrictions and 2023 statutory results, the Company could pay $85,975 in dividends in 2024 to Penn Mutual without prior approval from the Delaware Department of Insurance, subject to the notification requirement. In 2022, the Company recorded a dividend to Penn Mutual in the form of the Company’s ownership of ISP, valued at $8,202.

Note 13. SUBSEQUENT EVENTS

The Company has evaluated events subsequent to December 31, 2023 and through the financial statement issuance date of February 16, 2024 and has determined that there were no other significant events requiring disclosure in the financial statements.


2023 Statutory Financial Statements			Page 37

LOGO

About The Penn Insurance and Annuity Company

The Penn Insurance and Annuity Company (PIA) is a wholly owned life insurance subsidiary of The Penn Mutual Life Insurance Company (Penn Mutual). Domiciled in Delaware, PIA maintains its operations in Horsham, Pa., and is licensed to do business in 49 states and the District of Columbia. It markets its products with a focus on universal life insurance through Penn Mutual’s distribution systems and has its in-force business serviced by the parent company.

Visit Penn Mutual at www.pennmutual.com.

LOGO LOGO LOGO LOGO LOGO


PM9072		01/24

LOGO

The Penn Insurance and Annuity Company

LOGO 2021 Statutory Financial Statements

Report of Independent Auditors

To the Board of Directors of

The Penn Insurance and Annuity Company

Opinions

We have audited the accompanying statutory financial statements of The Penn Insurance and Annuity Company (a wholly-owned subsidiary of The Penn Mutual Life Insurance Company) (the “Company”), which comprise the statutory statements of admitted assets, liabilities and capital and surplus as of December 31, 2021 and 2020, and the related statutory statements of income and changes in surplus, and of cash flows for the years then ended, including the related notes (collectively referred to as the “financial statements”).

Unmodified Opinion on Statutory Basis of Accounting

In our opinion, the accompanying financial statements present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in accordance with the accounting practices prescribed or permitted by the Delaware Department of Insurance described in Note 1.

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 section of our report, the accompanying financial statements do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2021 and 2020, or the results of its operations or its cash flows for the years then ended.

Basis for Opinions

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

LOGO

PricewaterhouseCoopers LLP, Two Commerce Square, Suite 1800, 2001 Market Street, Philadelphia, PA 19103-7042

T: (267) 330 3000, F: (267) 330 3300, www.pwc.com/us

Responsibilities of Management for the Financial Statements

Auditors’ Responsibilities for the Audit of the Financial Statements

In performing an audit in accordance with US GAAS, we:

•

Exercise professional judgment and maintain professional skepticism throughout the audit.

•

LOGO

February 23, 2022

LOGO

Table of Contents


	*Page*

Statements of Admitted Assets, Liabilities and Capital and Surplus		1

Statements of Operations		2

Statements of Changes in Capital and Surplus		3

Statements of Cash Flows		4

*Notes to Financial Statements*

Note 1. Nature of Operations and Basis of Presentation		6

Note 2. Summary of Significant Accounting Policies		7

Note 3. Investments		14

Note 4. Separate Accounts		20

Note 5. Derivatives		21

Note 6. Fair Value of Financial Instruments		23

Note 7. Life Reserves by Withdrawal Characteristics		28

Note 8. Reserves and Funds for the Payment of Annuity Benefits		29

Note 9. Federal Income Taxes		31

Note 10. Reinsurance		36

Note 11. Related Parties		37

Note 12. Commitments and Contingencies		37

Note 13. Subsequent Events		38

($ in Thousands)

Statements of Admitted Assets, Liabilities and Capital and Surplus


As of December 31,	2021		2020

ADMITTED ASSETS
Bonds	$	6,200,067	$	5,207,479
Preferred Stock		62,437		54,928
Common stock — affiliated		107,305		107,152
Common stock — unaffiliated		34,722		35,481
Policy loans		567,226		581,849
Cash and short-term investments		168,371		226,007
Alternative assets		385,959		266,520
Derivatives		577,670		529,812
Other invested assets		112,591		109,804

TOTAL INVESTMENTS		8,216,348		7,119,032

Investment income due and accrued		78,151		72,279
Deferred tax asset		66,791		69,191
Amounts recoverable from reinsurers		55,176		68,241
Funds held by reinsured company		997,405		940,755
Federal income taxes recoverable		2,965		—
Other assets		51,833		35,533
Separate account assets		63,914		53,424

TOTAL ASSETS	$	9,532,583	$	8,358,455


LIABILITIES
Reserves and funds for payment of future insurance and annuity benefits	$	6,217,928	$	5,345,743
Policy claims in process		18,290		10,506
Asset valuation reserve		157,725		79,236
Interest maintenance reserve		27,919		30,174
Funds held under coinsurance		1,543,064		1,443,849
Federal income taxes payable		—		4,541
Other liabilities		431,496		395,038
Derivatives		403,251		324,569
Separate account liabilities		63,914		53,424

TOTAL LIABILITIES		8,863,587		7,687,080


CAPITAL AND SURPLUS
Common stock, $2.50 par value, 1,000 shares authorized, issued and outstanding		2,500		2,500
Capital contributed in excess of par value		469,662		439,662
Accumulated surplus		196,834		229,213

TOTAL CAPITAL AND SURPLUS		668,996		671,375

TOTAL LIABILITIES, CAPITAL AND SURPLUS	$	9,532,583	$	8,358,455

The accompanying notes are an integral part of these financial statements.


2021 Statutory Financial Statements			Page 1

($ in Thousands)

Statements of Operations


For the Years Ended December 31,	2021			2020

REVENUES
Premium and annuity considerations	$	845,410		$	785,477
Net investment income		334,102			278,943
Other revenue		49,026			45,955

TOTAL REVENUE		1,228,538			1,110,375


BENEFITS AND EXPENSES
Benefits paid to policyholders and beneficiaries		94,375			98,804
Increase in reserves and funds for payment of future insurance and annuity benefits		870,199			757,717
Commissions		71,957			66,436
Operating expenses		125,080			114,516
Other expenses		101,278			88,531
Net transfer from separate accounts		3,168			(5,286	)

TOTAL BENEFITS AND EXPENSES		1,266,057			1,120,718

LOSS FROM OPERATIONS BEFORE FEDERAL INCOME TAXES		(37,519	)		(10,343	)


Federal income tax expense		2,136			10,281

LOSS FROM OPERATIONS		(39,655	)		(20,624	)


Net realized capital gains/(losses), net of tax		29,548			(1,620	)

NET LOSS	$	(10,107	)	$	(22,244	)

The accompanying notes are an integral part of these financial statements.


Page 2		The Penn Insurance and Annuity Company

($ in Thousands)

Statements of Changes in Capital and Surplus


For the Years Ended December 31,	2021			2020

COMMON STOCK
Beginning of year	$	2,500		$	2,500

End of year		2,500			2,500


CAPITAL CONTRIBUTED IN EXCESS OF PAR VALUE
Beginning of year		439,662			409,662
Capital Contribution from Parent		30,000			30,000

End of year		469,662			439,662


ACCUMULATED SURPLUS
Beginning of year		229,213			213,124
Net loss		(10,107	)		(22,244	)
Change in:
Nonadmitted assets		1,958			(1,320	)
Asset valuation reserve		(78,489	)		(18,284	)
Net deferred income tax		7,427			18,068
Net unrealized capital gains, net of tax		46,832			39,869

End of year		196,834			229,213

TOTAL CAPITAL AND SURPLUS	$	668,996		$	671,375

The accompanying notes are an integral part of these financial statements.


2021 Statutory Financial Statements			Page 3

($ in Thousands)

Statements of Cash Flows


For the Years Ended December 31,	2021			2020

OPERATIONS
Premium and annuity considerations	$	835,194		$	788,899
Net investment income		392,309			344,758
Other revenue		49,255			48,128

CASH PROVIDED BY OPERATIONS		1,276,758			1,181,785

Benefits paid		245,617			221,055
Commissions, operating expenses and other		296,213			268,755
Net transfers from separate accounts		3,322			(5,257	)
Taxes paid on operating income and realized investment losses		9,609			4,953

CASH USED IN OPERATIONS		554,761			489,506

NET CASH PROVIDED BY OPERATIONS		721,997			692,279


INVESTMENT ACTIVITIES
Investments sold, matured or repaid:
Bonds		906,327			949,521
Stocks		35,994			35,554
Other invested assets		16,846			24,930
Derivatives		311,291			187,061
Miscellaneous proceeds		—			8,450

NET PROCEEDS FROM INVESTMENTS SOLD, MATURED OR REPAID		1,270,458			1,205,516

Cost of investments acquired:
Bonds		1,978,511			1,739,486
Stocks		24,188			54,148
Other invested assets		45,980			46,908
Derivatives		167,494			155,070
Miscellaneous applications		1,266			15,000

TOTAL COST OF INVESTMENTS ACQUIRED		2,217,439			2,010,612

Net (increase) in policy loans		14,629			(13,103	)

NET CASH USED IN INVESTMENT ACTIVITIES		(932,352	)		(818,199	)


FINANCING AND MISCELLANEOUS
Net withdrawals/(deposits)/withdrawals on deposit-type funds		1,985			380
Capital and paid in surplus		30,000			30,000
Other cash provided, net		120,734			107,243

NET CASH PROVIDED BY/(USED IN) FINANCING AND MISCELLANEOUS		152,719			137,623

NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS		(57,636	)		11,703

Cash and short-term investments:
Beginning of year		226,007			214,304

End of year	$	168,371		$	226,007

…continued -


Page 4		The Penn Insurance and Annuity Company

($ in Thousands)

Statements of Cash Flows (cont’)


For the Years Ended December 31,	2021		2020

Supplemental Disclosure of Cash Flow Information for Non-Cash Transactions:
Capitalized Interest		—	$	306
Premium Paid by Benefit	$	1,180	$	407
Premium Paid by Waiver	$	686	$	628
Non-Cash Acquisitions	$	15,197	$	66,255
Other	$	442	$	442

The accompanying notes are an integral part of these financial statements.


2021 Statutory Financial Statements			Page 5

($ in Thousands)

Notes to Financial Statements

Note 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

PIA Reinsurance Company of Delaware I (“PIAre I”), a wholly-owned subsidiary of the Company, admits as an asset and a form of statutory surplus, the value of a credit linked variable funding note (LLC Note) provided by an unaffiliated company in conjunction with a reinsurance agreement with the Company. Pursuant to the licensing order from the Delaware Department of Insurance (Captive Bureau), PIAre I recorded as a prescribed practice from inception through September 30, 2019, the LLC Note as an admitted asset and a form of surplus. This accounting practice differs from the NAIC statutory accounting practices and procedures.

Effective October 1, 2019, PIAre I received a permitted practice from the Delaware Department of Insurance (Captive Bureau). The “look-through” provisions of Statement of Statutory Accounting Principles No. 97, Investments in Subsidiary, Controlled and Affiliated Entities, allow the Company to include the value of the LLC Note and related form of surplus reflected in the financial statements of its Insurance SCA, PIAre I, in the carrying value of PIAre I.

In accordance with the permitted practice, the Company recorded $107,305 and $107,152 as of December 31, 2021 and 2020, respectively, in Common stock-affiliated, with a corresponding $107,305 and $107,152 in surplus, which represents the statutory reporting value of PIAre I. If PIAre I had completed their statutory financial statements in accordance with NAIC statutory accounting practices and procedures, the Company’s reporting value of PIAre I would have been $0 as of December 31, 2021 and 2020. There was no impact to net income as a result of the permitted practice.

Had the Company not been permitted to include the asset and statutory surplus noted above in either 2021 or 2020, the resulting RBC of PIA would not have triggered a regulatory event. Had PIAre I not received a permitted or prescribed practice to include the asset and statutory surplus above noted, the resulting RBC of PIAre I would have triggered a regulatory event.

(a)

(b)

(c)

bonds are generally carried at amortized cost, whereas GAAP generally reports bonds at fair value;

(d)

undistributed earnings from alternative assets are included in unrealized gains and losses, whereas GAAP would reflect these changes as net investment income;


Page 6		The Penn Insurance and Annuity Company

($ in Thousands)

(e)

(f)

(g)

assets are reported at “admitted asset” value, and “nonadmitted assets” are excluded through a charge against surplus, whereas GAAP would record these assets net of any valuation allowance;

(h)

investments in subsidiaries are accounted for using the equity method. The Company’s investments in Independence Square Properties, LLC (“ISP”) and PIAre I, to the extent of the audited surplus/equity, are admitted assets. GAAP would consolidate these entities;

(i)

reinsurance reserve credits are reported as a reduction of policyholders’ reserves and liabilities for deposit-type contracts, whereas GAAP would report these balances as an asset;

(j)

(k)

(l)

(m)

changes in the fair value of unaffiliated common stock are recorded as changes in surplus, whereas GAAP, records the change in fair value through realized capital gains/losses;

(n)

comprehensive income is not presented whereas GAAP would present changes in unrealized capital gains and losses and foreign currency translations as other comprehensive income;

(o)

changes in the value of perpetual preferred stock are recorded as changes in surplus, whereas GAAP recognizes the changes through realized capital gains/losses;

(p)

(q)

identification of other-than-temporary impairment (“OTTI”) uses an “intent and ability to hold” criteria whereas GAAP would use an “ability and intent not to sell” criteria;

(r)

investments in Federal Home Loan Bank stock are reported as an investment in common stock, unaffiliated, whereas GAAP would report these within other invested assets.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

◇

Carrying value of certain invested assets

◇

Liabilities for reserves and funds for the payment of insurance and annuity benefits

◇

Accounting for income taxes and valuation of deferred income tax assets and liabilities and unrecognized tax benefits

◇

Litigation and other contingencies


2021 Statutory Financial Statements			Page 7

($ in Thousands)

For fixed income securities that do not have a fixed schedule of payments, including asset-backed and mortgage-backed securities, the effect on amortization or accretion is revalued periodically based on the current estimated cash flows. Prepayment assumptions are based on borrower constraints and economic incentives such as original term, age, and coupon of the loan as affected by the interest rate environment. Cash flow assumptions for structured securities are obtained from broker dealer survey values or internal estimates. These assumptions are consistent with the current interest rate and economic environment.

Policy Loans Policy Loans are carried at the aggregate balance of unpaid principal and interest.

Derivatives The Company may utilize derivative financial instruments in the normal course of business to manage risk, in conjunction with its management of assets and liabilities and interest rate risk. The accounting treatment of specific derivatives depends on whether the financial instrument is designated and qualifies as a highly effective hedge. Derivatives used in hedging transactions that meet the criteria of a highly effective hedge are reported and valued in a manner that is consistent with the instrument hedged. The change in fair value of these derivatives is recognized as an unrealized capital gain/(loss) until they are closed, at which time they are recorded in realized capital gains/(losses). Derivatives used in risk management transactions that do not meet the criteria of an effective hedge are accounted for at fair value, with changes in fair value recorded in unrealized capital gains/ (losses). Derivatives with a positive fair value or carrying value are reported as admitted assets and Derivatives with a negative fair value or carrying value are reported as liabilities. Realized gains and losses that are recognized upon termination or maturity of the derivatives used in economic hedges of interest rate and currency risk of the fixed income portfolio, regardless of accounting treatment, are transferred, net of taxes, to the IMR. All other realized gains and losses are recognized in net income upon maturity or termination of the derivative contracts.

The Company has entered into equity options in the form of call spreads that qualify for hedge accounting. The equity options in the form of call spreads have been designated to qualify as cash flow hedges of cash flows associated with indexed credits related to the annual return of the S&P 500 IUL policies.


Page 8		The Penn Insurance and Annuity Company

($ in Thousands)

The Company does not engage in derivative financial instrument transactions for speculative purposes.

Other invested assets also include notes receivable carried at book value from Janney Montgomery Scott LLC (“JMS”), an affiliate, and the Company’s investments in ISP, Penn Mutual Asset Management Multi -Series Funds Series A and Penn Mutual AM Strategic Income Fund (collectively “PMAM’s Private Funds/PMUBX”) and receivables for unsettled investment transactions.

OTTI EVALUATION

Equity Securities OTTI The Company will impair any lot of equity securities in an unrealized loss position for more than 12 consecutive months by more than 10%. Any such impairments are accounted for as a realized loss.

OTHER ASSETS Other assets primarily consists of amounts receivable from the Company’s affiliates relating to reinsurance and other intercompany service agreements.

FEDERAL INCOME TAX The Company files a consolidated federal income tax return with its parent, Penn Mutual, and Penn Mutual’s non-insurance subsidiaries. Each subsidiary’s tax liability or refund is accrued on a benefits for loss basis. Penn Mutual reimburses subsidiaries for losses utilized in the consolidated return based on inter-company tax allocation agreements. The provision for federal income taxes is computed in accordance with the section of the Internal Revenue Code applicable to life insurance companies and is based on income that is currently taxable.


2021 Statutory Financial Statements			Page 9

($ in Thousands)

In addition to excess coverage and coinsurance contracts, the Company also utilizes other forms of reinsurance such as coinsurance funds withheld.

NONADMITTED ASSETS Assets designated as nonadmitted by the NAIC include the amount of the deferred tax asset that will not be realized within the next three year period or in excess of statutory limitations, the IMR in a net asset position, certain other receivables, advances and prepayments, and related party amounts outstanding greater than 90 days from the due date and the investment in certain subsidiaries. Such amounts are excluded from the Statements of Admitted Assets, Liabilities and Capital and Surplus.


Page 10		The Penn Insurance and Annuity Company

($ in Thousands)

Reserves for Term and Single Life UL with secondary guarantee features are based on the methodology specified by the Life Principle-Based Reserve approach (“VM-20”), starting with 2017 policy issue years. Reserves for Single and Joint Life IUL are based on the same VM-20 methodology starting with 2018 policy issue years. Reserves for all other life insurance products are based on the same VM-20 methodology starting with 2020 policy issue years. VM-20 specifies the final reserve as the greater of the Net Premium Reserve (“NPR”), Deterministic Reserve (“DR”) and Stochastic Reserve (“SR”). The NPR is a formulaic reserve with prescribed assumptions, including the 2017 CSO Mortality Tables. The DR is based on a single path, deterministic projection with prudent estimate assumptions, including margins for uncertainty. The SR is based on the Conditional Tail Expectation 70 (“CTE70”) of 1,000 stochastically generated interest rate return scenarios with prudent estimate assumptions, including margins for uncertainty.

Reserves for fixed indexed annuities are developed using accepted actuarial methods computed principally on the Commissioners’ Annuity Reserve Valuation Method (“CARVM”) method using the 2012 Individual Annuity Mortality Basis and assumed interest rates ranging from 3.00% to 3.75%. Reserves for substandard policies are computed using multiples of the respective underlying reserving tables. The Company establishes reserves according to Actuarial Guideline XXXV.

The Company also has deferred variable annuity contracts and establishes reserves according to the methodology specified by Principle-Based Reserves for Variable Annuities (“VM-21”).

Reserves for group annuity contracts are developed using accepted actuarial methods computed principally on the 1971 Group Annuity Mortality Tables with an assumed interest rate of 11.25%.

The Company had $405 and $654 as of December 31, 2021 and December 31, 2020, respectively, of insurance in force for which the gross premiums are less than the net premiums according to the standards of valuation set by the Delaware Department of Insurance.

The tabular interest has been determined from the basic data for the calculation of policy reserves. The tabular less actual reserve released has been determined by formula.


2021 Statutory Financial Statements			Page 11

($ in Thousands)

The tabular interest for funds not involving life contingencies is determined as the change in reserves less funds added during the year less other increases, plus funds withdrawn during the year.

POLICY CLAIMS IN PROCESS Policy claims in process include provisions for payments to be made on reported claims and claims incurred but not reported.

DRAFTS OUTSTANDING Drafts outstanding that have not been presented for payment are recorded as a liability.

RISK-BASED CAPITAL Life insurance companies are subject to certain risk-based capital (“RBC”) requirements as specified by the NAIC. Under those requirements, minimum amounts of statutory surplus are required to be maintained based on various risk factors related to it. At December 31, 2021, the Company’s surplus exceeds these minimum levels.

Other revenue also includes benefits received by the Company under reinsurance agreements with PML relating to index credits on certain universal life policies issued by the Company.


Page 12		The Penn Insurance and Annuity Company

($ in Thousands)

Unrealized capital gains and losses, net of deferred federal income taxes, are recorded as a change in surplus.

Borrowings from the FHLB-PGH are classified as funding agreements. As of December 31, 2021, there were $0 in outstanding borrowings and the maximum borrowed during the year was $50,000. As of December 31, 2020, there were $0 in outstanding borrowings and the maximum borrowed during the year was $400,000.

NEW ACCOUNTING STANDARDS

Effective by December 31, 2022, guidance is updated to provide optional guidance for a limited period of time to ease the potential burden of reference rate reform on financial reporting. The amendments provide optional expedients and exception for contracts, hedging relationships and other transactions impacted by reference rate reform. The amendments are effective for contract modifications made between March 12, 2020 and December 31, 2022. This standard may be elected and applied prospectively as reference rate reform unfolds.

Effective January 1, 2021, the Company adopted revisions to SSAP 32R for perpetual preferred stock. Perpetual preferred stock now shall be valued at fair value, not to exceed any currently effective call price. Prior to this effective date, perpetual preferred stock was valued at amortized cost. NAIC 1 to 3 designated redeemable preferred stock will remain valued at amortized cost while NAIC 4 to 6 designated redeemable preferred stock will also remain at the lower of amortized cost or fair value. Adoption of this is guidance did not materially impact the Company.

Effective January 1, 2020, the Company adopted VM-21, which replaces Actuarial Guideline 43 (AG43) and impacts all inforce variable annuity policies which had previously been reserved for under AG43, as well as new issues going forward. The new regulation had no impact on the Company’s financial results.

Effective January 1, 2020, SSAP No. 22R rejects US GAAP guidance on operating leases. SSAP No. 22R incorporates additional disclosures regarding sale-leaseback transactions, lessor accounting and leveraged leases. Adoption of this guidance did not impact the Company.

Effective January 1, 2020, SSAP No. 108 provides accounting and reporting guidance for derivatives that hedge interest rate risk of variable annuity guarantees reserved under VM-21. The Company has currently not elected to adopt this guidance.


2021 Statutory Financial Statements			Page 13

($ in Thousands)

Note 3. INVESTMENTS

BONDS AND PREFERRED STOCK The following summarizes the admitted value and estimated fair value of the Company’s investment in bonds and redeemable preferred stock.


			Gross Unrealized Capital
December 31, 2021	Admitted Value		Gains		Losses		Estimated Fair Value

US Governments	$	72,699	$	340	$	1,755	$	71,284
Other Governments		6,993		828		—		7,821
States, Territories and Possessions		36,039		9,157		—		45,196
Political Subdivisions		164,651		15,411		360		179,702
Special Revenue		598,831		69,275		1,893		666,213
Industrial and Miscellaneous		2,944,832		362,230		10,657		3,296,405
Residential Mortgage-backed Securities		369,459		3,660		1,512		371,607
Commercial Mortgage-backed Securities		917,758		37,055		6,603		948,210
Asset-backed Securities		945,327		21,850		7,259		959,918
Hybrid Securities		137,801		11,094		551		148,344
SVO Identified Funds		5,677		—		—		5,677

Total Bonds		6,200,067		530,900		30,590		6,700,377
Preferred Stock		62,437		829		13		63,253

Total Bonds and Preferred Stock	$	6,262,504	$	531,729	$	30,603	$	6,763,630

Included in admitted value and estimated fair value for Residential mortgage-backed securities above are $76,763 and $79,564, respectively, of subprime mortgages.


			Gross Unrealized Capital
December 31, 2020	Admitted Value		Gains		Losses		Estimated Fair Value

US Governments	$	61,753	$	932	$	1,081	$	61,604
Other Governments		6,991		1,153		—		8,144
States, Territories and Possessions		36,158		11,355		—		47,513
Political Subdivisions		125,371		17,125		—		142,496
Special Revenue		475,809		78,982		159		554,632
Industrial and Miscellaneous		2,406,887		449,048		2,857		2,853,078
Residential Mortgage-backed Securities		428,702		10,207		314		438,595
Commercial Mortgage-backed Securities		832,804		36,885		10,955		858,734
Asset-backed Securities		674,970		25,814		11,670		689,114
Hybrid Securities		147,302		11,727		1,763		157,266
SVO Identified Funds		10,732		—		—		10,732

Total Bonds		5,207,479		643,228		28,799		5,821,908
Preferred Stock		54,928		4,133		71		58,990

Total Bonds and Preferred Stock	$	5,262,407	$	647,361	$	28,870	$	5,880,898


Page 14		The Penn Insurance and Annuity Company

($ in Thousands)


Balance Sheet Classification	Type		2021		2020

Debt securities — Available for sale		Reinsurance agreements	$	529,382	$	476,533
Debt securities — Available for sale		State deposit		1,607		1,300
Equity securities — Common stock unaffiliated		FHLB Stock		1,081		846
Equity securities — Common stock unaffiliated		Reinsurance agreements		678		2,611
Cash		Collateral — Derivatives		235,938		216,859
Cash		State deposit		2,936		2,936

Total Restricted Assets			$	771,622	$	701,086

The following table summarizes the admitted value and estimated fair value of debt securities as of December 31, 2021 by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties. Securities that are not due on a single maturity are included as of the final maturity.


Years to maturity:	Admitted Value		Fair Value

Due in one year or less	$	35,540	$	36,825
Due after one year through five years		258,100		271,442
Due after five years through ten years		490,076		536,208
Due after ten years		3,146,703		3,576,167
Residential Mortgage-backed Securities⁽¹⁾		383,128		371,608
Commercial Mortgage-backed Securities⁽¹⁾		941,193		948,209
Asset-backed Securities⁽¹⁾		945,327		959,918

Total Bonds		6,200,067		6,700,377
Preferred Stock		62,437		63,253

TOTAL BONDS AND PREFERRED STOCK	$	6,262,504	$	6,763,630

(1) Includes U.S. Agency structured securities

Mortgage and other asset-backed securities consist of commercial and residential mortgage pass-through holdings and securities backed by various forms of collateral, with the largest being collateralized loan obligations. These securities follow a structured principal repayment schedule and are rated investment grade, other than $56,879 primarily in asset-backed securities. The mortgage and other asset-backed securities portfolio are presented separately in the maturity schedule due to the potential for prepayment. The weighted average life of this portfolio is 6.2 years.

At December 31, 2021, the largest industry concentration of the Company’s portfolio was investments in the Electric-Integrated sector of $386,560, representing 6% of the total debt securities portfolio.


2021 Statutory Financial Statements			Page 15

($ in Thousands)


As of December 31,	2021			2020

Balance, beginning of period	$	744		$	1,746
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(60	)		(1,002	)
Credit loss impairment recognized in the current period on securities not previously impaired		—			—

Balance, end of period	$	684		$	744

The following tables are an analysis of the fair values and gross unrealized losses aggregated by bond category and length of time that the securities were in a continuous unrealized loss position.


	Less than 12 months				12 months or greater				Total
December 31, 2021	Fair Value		Gross Unrealized Capital Loss		Fair Value		Gross Unrealized Capital Loss		Fair Value		Gross Unrealized Capital Loss		Number of Securities

US Governments	$	44,741	$	826	$	86,797	$	929	$	131,538	$	1,755		17
Political Subdivisions		15,541		269		5,527		91		21,068		360		250
Special Revenue		119,172		1,893		—		—		119,172		1,893		191
Industrial and Miscellaneous		320,436		6,024		98,849		4,633		419,285		10,657		1,144
Residential Mortgage-backed Securities		194,648		1,512		—		—		194,648		1,512		91
Commercial Mortgage-backed Securities		199,184		2,748		48,913		3,855		248,097		6,603		298
Asset-backed Securities		527,667		4,035		67,550		3,224		595,217		7,259		222
Hybrid Securities		9,190		551		—		—		9,190		551		59

Total Bonds		1,430,579		17,858		307,636		12,732		1,738,215		30,590		2,272
Preferred Stock		6,367		13		—		—		6,367		13		22

Total Bonds and Preferred Stock	$	1,436,946	$	17,871	$	307,636	$	12,732	$	1,744,582	$	30,603		2,294


Page 16		The Penn Insurance and Annuity Company

($ in Thousands)


	Less than 12 months				12 months or greater				Total
December 31, 2020	Fair Value		Gross Unrealized Capital Loss		Fair Value		Gross Unrealized Capital Loss		Fair Value		Gross Unrealized Capital Loss		Number of Securities

US Governments	$	21,000	$	480	$	62,702	$	601	$	83,702	$	1,081		18
Special Revenue		22,362		159		—		—		22,362		159		155
Industrial and Miscellaneous		75,447		2,328		5,531		529		80,978		2,857		977
Residential Mortgage-backed Securities		24,050		226		988		88		25,038		314		95
Commercial Mortgage-backed Securities		219,530		8,661		31,088		2,294		250,618		10,955		258
Asset-backed Securities		196,824		9,539		98,739		2,131		295,563		11,670		177
Hybrid Securities		20,459		723		12,006		1,040		32,465		1,763		59

Total Bonds		579,672		22,116		211,054		6,683		790,726		28,799		1,739
Preferred Stock		2,498		2		1,931		69		4,429		71		20

Total Bonds and Preferred Stock	$	582,170	$	22,118	$	212,985	$	6,752	$	795,155	$	28,870		1,759

Included in the December 31, 2021 and 2020 amounts above is the interest portion of other-than-temporary impairments on securities of $407 and $0, respectively.

COMMON STOCK — UNAFFILIATED The following summarizes the cost and estimated fair value of the Company’s investment in unaffiliated common stock:


			Gross Unrealized Capital
	Cost		Gains		Losses		Estimated Fair Value

December 31, 2021	$	37,626	$	787	$	3,691	$	34,722
December 31, 2020		45,950		17		10,486		35,481

The following presents the gross unrealized capital losses and fair values for unaffiliated common stock with unrealized capital losses.


	Less than 12 months				Greater than 12 Months				Total
	Fair Value		Gross Unrealized Capital Losses		Fair Value		Gross Unrealized Capital Losses		Fair Value		Gross Unrealized Capital Losses

December 31, 2021	$	19,642	$	3,658	$	4,923	$	33	$	24,565	$	3,691
December 31, 2020		16,509		3,731		16,762		6,755		33,271		10,486


2021 Statutory Financial Statements			Page 17

($ in Thousands)

The amount of unrealized capital losses on the Company’s investment in unaffiliated common stock is spread over 29 individual securities. As of December 31, 2021, there were 8 unaffiliated common stock securities that were priced below 80% of the security’s cost. These securities totaling $2,932 have been impaired.

Federal Home Loan Bank The Company’s investment in FHLB-PGH Class B Membership Capital Stock as of December 31, 2021 and December 31, 2020 was $1,081 and $846, respectively. The Company also invested $0 and $0 in FHLB-PGH Activity Stock as of December 31, 2021 and December 31, 2020, respectively. The Class B Membership Capital Stock held by the Company is subject to written notices of requests for redemption followed by a five year waiting period.

The Company’s borrowing capacity with the FHLB-PGH was $830,503 and $712,283 as of December 31, 2021 and December 31, 2020, respectively.

The following represents the amount of collateral required to be pledged to the FHLB-PGH and the maximum amount of collateral pledged as of:


	December 31, 2021		Maximum during 2021		December 31, 2020		Maximum during 2020

Carrying value	$	—	$	64,675	$	—	$	478,772
Fair value		—		73,456		—		526,582

The amount of interest on borrowings classified as funding agreements for the years ended December 31, 2021 and December 31, 2020 was $24 and $1,412, respectively.

As of December 31, 2021, none of these investments exceed 10% of the Company’s admitted assets. The Company recognized realized losses of $65 and $1,541 for the years ended December 31, 2021 and December 31, 2020, respectively, associated with other-than-temporary impairments of certain alternative assets.

Unfunded commitments for alternative assets were $109,099 and $114,268 for the years ended December 31, 2021 and December 31, 2020.

The Company did not recognize any realized gains (losses) for the years ended December 31, 2021 and December 31, 2020 associated with liquidations of the company’s interest in alternative assets.

OTHER INVESTED ASSETS The components of other invested assets as of December 31, 2021 and 2020 were as follows:


December 31,	2021		2020

LIHTC	$	8,001	$	3,587
Receivable for securities		77		3,086
Notes receivable — JMS		40,000		40,000
Other invested assets, affiliated		64,513		63,131

Total other invested assets	$	112,591	$	109,804


Page 18		The Penn Insurance and Annuity Company

($ in Thousands)

Other invested assets, affiliated represents the Company’s investment in subsidiaries ISP, and PMAM’s Private Funds/ PMUBX.

Low Income Housing Tax Credits The Company has no LIHTC properties under regulatory review at December 31, 2021 and 2020. There were no write-downs due to forfeiture of eligibility and there were no impairments for 2021 or 2020.

Commitments of $5,413 and $9 for the years ended December 31, 2021 and December 31, 2020, respectively, have been recorded in Other liabilities related to unconditional and legally binding delayed equity contributions associated with investments in LIHTC. The Company has unexpired tax credits with remaining lives ranging between 3 and 13 years and required holding periods for its LIHTC investments between 6 and 17 years.

NET INVESTMENT INCOME AND REALIZED CAPITAL GAINS AND LOSSES The following table summarizes the major categories of net investment income for the years ended:


December 31,	2021			2020

Bonds and preferred stock	$	238,296		$	220,714
Common Stock — unaffiliated		2,264			3,796
Policy loans		29,358			29,710
Cash and short term investments		47			1,166
Alternative assets		58,930			23,728
Derivatives		5,963			1,379
Other invested assets		5,828			4,225
IMR amortization		(72	)		503

Gross investment income		340,614			285,221
Less: Investment expenses		6,512			6,278

Net investment income	$	334,102		$	278,943

There was no nonadmitted accrued investment income at December 31, 2021 and December 31, 2020.

Included in the table above (Bonds and preferred stocks) is $7,177 of investment income attributable to securities

disposed of as a result of a callable feature, spread over 21 securities in 2021.


			2021						2020

	Proceeds From Sales		Gross Realized Gains		Gross Realized Losses		Proceeds From Sales		Gross Realized Gains		Gross Realized Losses
Bonds	$	297,270	$	2,574	$	7,577	$	503,958	$	43,765	$	21,277
Preferred stock		4,993		—		7		4,000		—		34
Common stock-unaffiliated		24,220		337		4,224		13,303		86		3,346

As of December 31, 2021, there were no preferred stock impairments.


2021 Statutory Financial Statements			Page 19

($ in Thousands)

Realized capital gains/(losses) are reported net of federal income taxes and amounts transferred to the IMR are as follows for the years ended:


December 31,	2021			2020

Realized capital gains	$	27,188		$	9,055
Less amount transferred to IMR		(2,945	)		8,771
Less Taxes:
Transferred to IMR		617			(1,842	)
Capital gains		(32	)		3,746

Net Realized Capital Gains/(Losses)	$	29,548		$	(1,620	)

Portions of realized capital gains and losses that were determined to be interest related were transferred to the IMR.

There were no NAIC designation 3 or below, or unrated securities sold during the year ended December 31, 2021 and reacquired within 30 days of the sale date.

Note 4. SEPARATE ACCOUNTS

SEPARATE ACCOUNTS REGISTERED WITH THE SEC The Company maintains separate accounts that are registered with the Securities Exchange Commission (“SEC”) for its individual variable life and annuity products with assets of $63,914 and $53,424 at December 31, 2021 and December 31, 2020, respectively. The assets for these separate accounts, which are carried at fair value, represent investments in shares of the Company’s Penn Series Funds and other non-proprietary funds.

Information regarding the Separate Accounts of the Company, all of which are nonguaranteed, is as follows:


	2021		2020

Premiums, considerations and deposits for the year ended December 31	$	8,873	$	350
Reserves at December 31, at market value		63,730		53,395
Subject to discretionary withdrawal at market value	$	63,730	$	53,395


Years Ended December 31,	2021			2020

Transfers as reported in the financial statements of the separate accounts:
Transfers to separate accounts	$	8,873		$	350
Transfers from separate accounts		(5,705	)		(5,636	)

Transfers as reported in the Statements of Operations	$	3,168		$	(5,286	)


Page 20		The Penn Insurance and Annuity Company

($ in Thousands)

The assets of the separate accounts, which are legally insulated from the general account, are comprised of the following as of December 31:


Product Description	2021		2020

Individual Annuity	$	55,154	$	53,424
Single Life Variable Universal Life		8,760		—

Total	$	63,914	$	53,424

In accordance with the products recorded within the separate account, some separate account liabilities are guaranteed by the general account.

There were no risk charges paid to compensate the general account for the risk taken as of December 31, 2021 and December 31, 2020.

For the years ended December 31, 2021 and December 31, 2020, the general account of the Company has paid $4 and $1, respectively, and $377 cumulatively over the last five years towards separate account guarantees.

Note 5. DERIVATIVES

The Company uses interest rate swaps to reduce market risks from changes in interest rates.

Derivative Instruments Designated and Qualifying as Hedging Instruments

The Company has purchased equity options in the form of call spreads that qualify for hedge accounting. These have been designated as cash flow hedges of cash flows related to the annual return of the S&P 500 Index. These call spreads are used to hedge the increase in liability associated with indexed credits on IUL policies. As these are derivatives in a highly effective hedge, they are carried at cost in a manner consistent with the firm commitment being hedged. At termination, a realized gain amount, net of the cost basis, is recognized within benefits paid to policyholders and beneficiaries on the Statements of Income and Changes in Surplus, consistent with the change in liability associated with the account value. In the event that the hedge fails to qualify as being highly effective at any of the accounting measurement points, the hedge will be considered ineffective and the derivative will be marked to market and the associated change will be recognized as unrealized gain/(loss). At the time of exercise or expiration of the derivative, the associated realized gain or loss will flow through net investment gain/(loss) on the income statement.


2021 Statutory Financial Statements			Page 21

($ in Thousands)

Derivative Instruments Designated and Qualifying as Hedging Instruments are as follows:


December 31,	2021

	Notional Value		Fair Value					Carrying Value
	Notional Value		Gain		(Loss)			Gain		(Loss)
Cash flow hedges:
Equity options	$	4,490,812	$	578,939	$	(347,470	)	$	284,951	$	(133,162	)

Total designated and qualifying as hedges	$	4,490,812	$	578,939	$	(347,470	)	$	284,951	$	(133,162	)


December 31,	2020

	Notional Value		Fair Value					Carrying Value
	Notional Value		Gain		(Loss)			Gain		(Loss)
Cash flow hedges:
Equity options	$	3,291,114	$	554,832	$	(370,320	)	$	240,270	$	(123,621	)

Total designated and qualifying as hedges	$	3,291,114	$	554,832	$	(370,320	)	$	240,270	$	(123,621	)

Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments are as follows:


December 31,			2021							2020

	Notional Value		Fair Value					Notional Value		Fair Value
	Notional Value		Gain		(Loss)			Notional Value		Gain		(Loss)
Equity options	$	679,394	$	138,311	$	(95,636	)	$	1,163,957	$	223,959	$	(157,272	)
Interest rate swaps		5,760,900		154,408		(174,453	)		4,672,100		65,583		(43,676	)

Total not designated and not qualifying as hedges	$	6,440,294	$	292,719	$	(270,089	)	$	5,836,057	$	289,542	$	(200,948	)

The impact of derivatives instruments reported on the Statements of Operations for the years ended December 31, 2021 and 2020, segregated by derivatives designated and qualifying as hedging instruments and derivatives not designated and not qualifying as hedging instruments, is reported in the tables below:

Derivative Instruments Designated and Qualifying as Hedging Instruments are as follows:


Year Ended December 31,	2021		2020

	Benefits paid to policyholders and beneficiaries		Benefits paid to policyholders and beneficiaries
Cash flow hedges:
Equity options	$	125,796	$	69,804

Total qualifying hedges	$	125,796	$	69,804


Page 22		The Penn Insurance and Annuity Company

($ in Thousands)

Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments are as follows:


Year Ended December 31,	2021		2020

	Net Investment Gains/ (Losses)		Net Investment Gains/ (Losses)
Equity options	$	34,763	$	7,029
Interest rate swaps		554		(15,916	)

Total nonqualifying hedges	$	35,317	$	(8,887	)

The change in unrealized capital gains/(losses) for derivative instruments not designated and not qualifying as hedging instruments are as follows for the years ended December 31:


	2021			2020

Equity options	$	(6,188	)	$	6,659
Interest rate swaps		(41,952	)		21,907

Total	$	(48,140	)	$	28,566

CREDIT RISK The Company is exposed to credit related losses in the event of non-performance by counterparties to derivative financial instruments. In order to minimize credit risk, the Company and its derivative counterparties require collateral to be posted in the amount owed under each transaction, subject to minimum transfer amounts that are functions of the counterparties credit rating. As of December 31, 2021 and 2020, the Company was fully collateralized thereby eliminating the potential for an accounting loss. Additionally, certain agreements with counterparties allow for contracts in a positive position to be offset by contracts in a negative position. This right of offset also reduces the Company’s exposure. As of December 31, 2021 and 2020, the Company has received net collateral of $235,938 and $216,860, respectively, in the form of cash. The cash received from held collateral that is not invested in an interest bearing money market fund is invested mainly in fixed income securities.

Note 6. FAIR VALUE OF FINANCIAL INSTRUMENTS

Level 1

Level 2


2021 Statutory Financial Statements			Page 23

($ in Thousands)

priced using observable inputs. In circumstances where prices from pricing services are reviewed for reasonability but cannot be corroborated to observable market data as noted above, these security values are recorded in Level 3 in the fair value hierarchy.

Level 3

BONDS The fair values of the Company’s debt securities are generally based on quoted market prices or prices obtained from independent pricing services. In order to validate reasonability, prices are reviewed by investment professionals through comparison with directly observed recent market trades or color or by comparison of significant inputs used by the pricing service to the Company’s observations of those inputs in the market. Consistent with the fair value hierarchy described above, securities with quoted market prices or corroborated valuations from pricing services are generally reflected within Level 2. Inputs considered to be standard for valuations by the independent pricing service include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data and industry and economic events. In circumstances where prices from pricing services are reviewed for reasonability but cannot be corroborated to observable market data as noted above, these security values are recorded in Level 3 in the Company’s fair value hierarchy. Under certain conditions, the Company may conclude pricing information received from third party pricing services is not reflective of market activity and may over-ride that information with a valuation that utilizes market information and activity. As of December 31, 2021, there were 2 debt securities carried at a fair value of $2,392 that was valued in this manner. As of December 31, 2020, there were 1 debt security carried at a fair value of $1,732 that was valued in this manner.


Page 24		The Penn Insurance and Annuity Company

($ in Thousands)

where observable market data is not available may include events such as market illiquidity and credit events related to the security.

The Company’s exchange traded futures are valued using quoted prices in active markets and are classified within Level 1 in our fair value hierarchy.


December 31, 2021	FV Level 1		FV Level 2			FV Level 3		Total

Bonds	$	5,676	$	538		$	—	$	6,214
Preferred stock		36,019		—			—		36,019
Common stock — unaffiliated		33,641		—			1,081		34,722
Derivatives		—		292,718			—		292,718
Separate account assets ⁽¹⁾		63,914		—			—		63,914

Total assets	$	139,250	$	293,256		$	1,081	$	433,587

Derivatives		—		(270,089	)		—		(270,089	)

Total liabilities	$	—	$	(270,089	)	$	—	$	(270,089	)

(1)


2021 Statutory Financial Statements			Page 25

($ in Thousands)


December 31, 2020	FV Level 1		FV Level 2			FV Level 3		Total

Common stock — unaffiliated		34,635		—			846		35,481
Derivatives		—		289,542			—		289,542
Separate account assets ⁽¹⁾		53,424		—			—		53,424

Total assets		88,059		289,542			846		378,447

Derivatives		—		(200,948	)		—		(200,948	)

Total liabilities		—		(200,948	)		—		(200,948	)

(1)

There were no assets transferred into Level 3 and there were no assets transferred out of Level 3 for the year ended December 31, 2021. There were no assets transferred into Level 3 and 2 assets transferred out of Level 3 due to increase in fair value for the year ended December 31, 2020.

The tables below include a rollforward of the Statements of Admitted Assets, Liabilities and Surplus amounts for the years ended December 31, 2021 and December 31, 2020 (including the change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy.


	2021				2020
	Unaffiliated Common Stock		Total		Unaffiliated Common Stock			Total

Balance January 1	$	846	$	846	$	823		$	823
Transfers in		—		—		—			—
Transfers out		—		—		—			—
Total gains or losses (realized/unrealized) included in:
Income/(loss)		—		—		—			—
Surplus		—		—		—			—
Amortization/Accretion		—		—		—			—
Purchases/(Sales):
Purchases		235		235		17,623			17,623
(Sales)		—		—		(17,600	)		(17,600	)

Balance December 31	$	1,081	$	1,081	$	846		$	846


Page 26		The Penn Insurance and Annuity Company

($ in Thousands)

The following summarizes the fair value, valuation techniques and significant unobservable inputs of the Level 3 fair value measurements that were developed as of December 31, 2021:

Fair Value

Valuation Technique

Significant
Unobservable Inputs

Rate/Range or /

weighted avg.

Assets:

Investments

Common stock, unaffiliated

1,081

Set by issuer -FHLB-PGH⁽¹⁾

Not available

N/A

Total investments

1,081

(1)	Fair Value approximates carrying value. The par value of the FHLB capital stock is $100 and set by the FHLB. The capital stock is issued, redeemed and repurchased at par.


2021	Aggregate Fair Value		Admitted Value		Level 1		Level 2		Level 3

Financial Assets:
Bonds	$	6,700,377	$	6,200,067	$	24,141	$	6,616,843	$	59,393
Preferred stock		63,253		62,437		63,253		—		—
Common stock-unaffiliated		34,722		34,722		33,641		—		1,081
Cash, Cash Equivalents and short-term investments		168,371		168,371		168,371		—		—
Derivatives		871,659		577,670		—		871,659		—
Separate account assets		63,914		63,914		63,914		—		—

Financial Liabilities:
Investment-type contracts:
Individual annuities	$	221,641	$	222,778	$	—	$	—	$	221,641
Derivatives		617,559		403,251		—		617,559		—
Separate account liabilities		63,914		63,914		63,914		—		—


2020	Aggregate Fair Value		Admitted Value		Level 1		Level 2		Level 3

Financial Assets:
Bonds	$	5,821,908	$	5,207,479	$	28,914	$	5,792,994	$	—
Preferred stock		58,990		54,928		58,990		—		—
Common stock-unaffiliated		35,481		35,481		34,635		—		846
Cash and short-term investments		226,007		226,007		226,007		—		—
Derivatives		844,375		529,812		—		844,375		—
Separate account assets		53,424		53,424		53,424		—		—

Financial Liabilities:
Investment-type contracts:
Individual annuities	$	201,803	$	202,908	$	—	$	—	$	201,803
Derivatives		571,268		324,569		—		571,268		—
Separate account liabilities		53,424		53,424		53,424		—		—

During 2021, there were no securities with transfers from Level 3 to to Level 2.


2021 Statutory Financial Statements			Page 27

($ in Thousands)

Note 7. LIFE RESERVES BY WITHDRAWAL CHARACTERISTICS

The withdrawal characteristics of the Company’s life reserves are illustrated below as of December 31:


	General Account						Separate Account

December 31, 2021	Account Value		Cash Value		Reserve		Account Value		Cash Value		Reserve

Subject to Discretionary Withdrawal, Surrender Values, or Policy Loans:
Universal Life	$	477,413	$	477,337	$	483,174	$	—	$	—		—
Universal Life with Secondary Guarantees		998,564		774,679		1,916,025		—		—		—
Indexed Universal Life		—		—		—		—		—		—
Indexed Universal Life with Secondary Guarantees		5,365,733		5,064,441		5,800,544		—		—		—
Variable Universal Life		309		19		247		8,897		8,603		8,603
Miscellaneous Reserves		—		—		89,094		—		—		—

Not Subject to Discretionary Withdrawal or No Cash Values:
Accidental Death Benefits		—		—		14		—		—		—
Disability — Active Lives		—		—		301		—		—		—
Disability — Disabled Lives		—		—		3,090		—		—		—
Miscellaneous Reserves		—		—		—		—		—		—

Total		6,842,019		6,316,476		8,292,489		8,897		8,603		8,603
Less: Reinsurance ceded		1,053,456		895,184		2,297,619		—		—		—

Net	$	5,788,563	$	5,421,292	$	5,994,870	$	8,897	$	8,603	$	8,603

Life reserves of $44,698 with a surrender charge of 5% or more as of December 31, 2021 will have less than a 5% surrender charge in 2022.


December 31, 2020	Account Value		General Account Cash Value		Reserve

Subject to Discretionary Withdrawal, Surrender Values, or Policy Loans:
Universal Life	$	593,249	$	593,149	$	603,129
Universal Life with Secondary Guarantees		871,037		679,777		1,690,766
Indexed Universal Life		3,912,089		3,681,792		3,789,666
Indexed Universal Life with Secondary Guarantees		658,835		617,116		1,164,805
Miscellaneous Reserves		—		—		48,740
Variable Universal Life

Not Subject to Discretionary Withdrawal or No Cash Values:
Accidental Death Benefits		—		—		14
Disability — Active Lives		—		—		288
Disability — Disabled Lives		—		—		3,197
Miscellaneous Reserves		—		—		—

Total		6,035,210		5,571,834		7,300,605
Less: Reinsurance ceded		1,011,394		857,415		2,158,065

Net	$	5,023,816	$	4,714,419	$	5,142,540

During the year ended December 31, 2020 there were no separate account life reserves.


Page 28		The Penn Insurance and Annuity Company

($ in Thousands)

Note 8. RESERVES AND FUNDS FOR THE PAYMENT OF ANNUITY BENEFITS

The withdrawal characteristics of the Company’s annuity actuarial reserves and deposit-type contracts are illustrated below:


December 31, 2021	General Account		Separate Account		Total		% of Total

Subject to discretionary withdrawal-with adjustments:
With market value adjustment	$	—	$	—	$	—		—	%
At book value less surrender charges		159,425		—		159,425		57	%
At market value		—		55,127		55,127		20	%

Subtotal		159,425		55,127		214,552		77	%

At book value — without adjustment		43,107		—		43,107		15	%
Not subject to discretionary withdrawal		20,525		—		20,525		7	%

Total annuity reserves and deposit liabilities, gross		223,057		55,127		278,184		100	%

Less: Reinsurance ceded		—		—		—		—	%

Total annuity reserves and deposit liabilities, net	$	223,057	$	55,127	$	278,184		100	%

Annuity and deposit-type contract reserves of $9,711 with surrender charges of 5% or more as of December 31, 2021 will have less than a 5% surrender charge in 2022.


December 31, 2020	General Account		Separate Account		Total		% of Total

Subject to discretionary withdrawal-with adjustments:
With market value adjustment	$	—	$	—	$	—		—	%
At book value less surrender charges		140,741		—		140,741		55	%
At market value		—		53,395		53,395		21	%

Subtotal		140,741		53,395		194,135		76	%

At book value — without adjustment		39,069		—		39,069		15	%
Not subject to discretionary withdrawal		23,393		—		23,393		9	%

Total annuity reserves and deposit liabilities, gross		203,203		53,395		256,598		100	%

Less: Reinsurance ceded		—		—		—		—	%

Total annuity reserves and deposit liabilities, net	$	203,203	$	53,395	$	256,598		100	%

The following summarizes the total annuity actuarial reserves and liabilities for deposit-type contracts as of December 31:


	2021		2020

Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus:
Policyholders’ reserves — group annuities	$	279	$	295
Policyholders’ reserves — individual annuities		211,909		194,024
Liabilities for deposit-type contracts		10,869		8,884
VM-21 reserves		—		—

Subtotal	$	223,057	$	203,203

Separate Account Annual Statement:
Annuities	$	55,127	$	53,395

Subtotal		55,127		53,395

TOTAL RESERVES	$	278,184	$	256,598


2021 Statutory Financial Statements			Page 29

($ in Thousands)

The Company has variable annuity contracts containing GMDB provisions that provide a specified minimum return upon death as follows:


	2021		2020

Account value	$	55,154	$	53,424
Net amount at risk		1,990		2,583

The following table summarizes the account values for the different benefit types as of December 31, 2021:


Rider Type	Contracts		Fund Value		Cash Value

GMWB		462	$	96,455	$	90,981
GMWB w/ inflation		48		8,171		7,763

Total		510	$	104,626	$	98,744

The following table summarizes the account values for the different benefit types as of December 31, 2020:


Rider Type	Contracts		Fund Value		Cash Value

GMWB		437	$	88,880	$	83,209
GMWB w/ inflation		50		8,312		7,793

Total		487	$	97,192	$	91,002


Page 30		The Penn Insurance and Annuity Company

($ in Thousands)

company assumptions for most key assumptions. The reserve also requires the projection of in-force general account assets and assets from reinvested cash flows. The key assumptions needed in valuing the assets, including the maximum reinvestment earned rate spreads and default rates, are prescribed. In addition, the method for projecting interest rates and equity returns is prescribed for both the Company Stochastic Reserve calculation and the Additional Standard Projection Amount calculation. The final reserve balance for policies that fall within the scope of VM-21, which covers both Living and Death Benefit guarantees, is $55,126 and $53,393 as of December 31, 2021 and December 31, 2020, respectively.

Fixed indexed annuity reserves for living benefits are based on the methodology specified in Actuarial Guideline XXXV, which specifies the reserve as the sum of the nonelective benefit reserve and the elective benefit reserve. The elective benefit reserve is calculated using the elective benefit path that results in the highest present value of future benefits. The final reserve balance for policies that fall within the scope of Actuarial Guideline XXXV is $176,651 and $156,226, as of December 31, 2021 and December 31, 2020, respectively.

Note 9. FEDERAL INCOME TAXES

The Company follows Statement of Statutory Accounting Principles No. 101 – Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10 (“SSAP 101”). SSAP 101 includes a calculation for the limitation of gross deferred tax assets for insurers that maintain a minimum of 300% of their authorized control level RBC computed without net deferred tax assets. The Company exceeded the 300% minimum RBC requirement at December 31, 2021 and 2020.

The components of deferred tax asset (“DTAs”) and deferred tax liabilities (“DTLs”) recognized by the Company are as follows as of December 31:


Description	2021									2020

	Ordinary			Capital			Total			Ordinary			Capital			Total
Gross DTAs	$	143,094		$	3,192		$	146,286		$	135,515		$	1,566		$	137,081

Adjusted gross DTAs		143,094			3,192			146,286			135,515			1,566			137,081
Adjusted gross DTAs nonadmitted		(32,867	)		—			(32,867	)		(35,428	)		—			(35,428	)
Subtotal admitted adjusted DTA		110,227			3,192			113,419			100,087			1,566			101,653
Gross DTL		(5,500	)		(41,128	)		(46,628	)		(6,875	)		(25,587	)		(32,462	)

Net admitted DTA/(DTL)	$	104,727		$	(37,936	)	$	66,791		$	93,212		$	(24,021	)	$	69,191


2021 Statutory Financial Statements			Page 31

($ in Thousands)

The changes in components of deferred tax asset (“DTAs”) and deferred tax liabilities (“DTLs”) recognized by the Company are as follows:


Description	Changes during 2021

	Ordinary		Capital			Total
Gross DTAs	$	7,579	$	1,626		$	9,205

Adjusted gross DTAs		7,579		1,626			9,205
Adjusted gross DTAs nonadmitted		2,561		—			2,561

Subtotal admitted adjusted DTA		10,140		1,626			11,766
Gross DTA/(DTL)		1,375		(15,541	)		(14,166	)

Net admitted DTA/(DTL)	$	11,515	$	(13,915	)	$	(2,400	)

Admitted DTA’s are comprised of the following admission components based on paragraph 11 SSAP No. 101 as of December 31:


Description	2021						2020

	Ordinary		Capital		Total		Ordinary		Capital		Total
Admitted DTA 3 years:
Federal income taxes paid that can be recovered:
Remaining adjusted gross DTAs expected to be realized in 3 years (lesser of 1 or 2):	$	63,599	$	3,192	$	66,791	$	67,625	$	1,566	$	69,191
1. Adjusted gross DTA expected to be realized		63,599		3,192		66,791		67,625		1,566		69,191
2. Adjusted gross DTA allowed per limitation threshold		—		—		90,331		—		—		90,328
Adjusted gross DTA offset by existing DTLs		46,628		—		46,628		32,462		—		32,462

Total admitted DTA realized within 3 years	$	110,227	$	3,192	$	113,419	$	100,087	$	1,566	$	101,653


Description	Changes during 2020

	Ordinary			Capital		Total
Admitted DTA 3 years:
Federal income taxes paid that can be recovered:
Remaining adjusted gross DTAs expected to be realized within 3 years (lesser of 1 or 2):	$	(4,026	)	$	1,626	$	(2,400	)
1. Adjusted gross DTA expected to be realized		(4,026	)		1,626		(2,400	)
2. Adjusted gross DTA allowed per limitation threshold		—			—		3
Adjusted gross DTA offset by existing DTLs		14,166			—		14,166

Total admitted DTA realized within 3 years	$	10,140		$	1,626	$	11,766


Page 32		The Penn Insurance and Annuity Company

($ in Thousands)

The authorized control level RBC and total adjusted capital computed without net deferred tax assets utilized when determining the amount of net deferred tax was as follows:


December 31:	2021			2020

Ratio percentage used to determine recovery period and threshold limitation amount		404.3	%		454	%
Amount of adjusted capital and surplus used to determine recovery period and threshold limitation	$	762,122		$	683,419

The impact of Tax planning strategies on the determination of adjusted gross DTA’s and net admitted DTA’s is as follows:


	December 31, 2021									December 31, 2020												Change

	Ordinary			Capital			Total			Ordinary			Capital			Total			Ordinary			Capital			Total
Adjusted gross DTAs		76	%		100	%		77	%		87	%		100	%		87	%		(11	)%		—	%		(10	)%
Net admitted DTAs		77	%		100	%		79	%		88	%		100	%		88	%		(11	)%		—	%		(9	)%

The Company’s tax planning strategies do not include the use of internal and external reinsurance during 2021 to support DTA realization.

There are no temporary differences for which a DTL has not been established.

Current income taxes incurred consist of the following major components for the years ended December 31:


Description	2021			2020

Current federal income tax expense/(benefit)	$	2,136		$	10,281
Income tax effect on realized capital gains/(losses)		(32	)		3,746

Federal and foreign income taxes incurred	$	2,104		$	14,027


2021 Statutory Financial Statements			Page 33

($ in Thousands)

The tax effects of temporary differences that give rise to significant portions of the DTA’s and DTL’s are as follows as of December 31:


	2021			2020			Change

DTA resulting in book/tax difference in:
Ordinary:
Future policy benefits	$	36,723		$	27,355		$	9,368
DAC		59,678			52,371			7,307
Investments — ordinary		17,083			16,467			616
Deferred gain on reinsurance		18,272			18,272			—
Nonadmitted assets		129			3			126
LIHTC		11,195			21,035			(9,840	)
Other- ordinary		14			12			2

Subtotal — gross ordinary DTAs		143,094			135,515			7,579
Nonadmitted ordinary DTAs		(32,867	)		(35,428	)		2,561

Admitted ordinary DTAs		110,227			100,087			10,140
Capital:
OTTI on investments		3,192			1,566			1,626

Capital gross DTAs		3,192			1,566			1,626
Nonadmitted capital DTAs		—			—			—

Admitted capital DTAs		3,192			1,566			1,626

Admitted DTAs		113,419			101,653			11,766
DTLs resulting in book/tax differences in:
Ordinary:
Future policy benefits — 8 year spread		(5,500	)		(6,875	)		1,375

Ordinary DTLs		(5,500	)		(6,875	)		1,375
Capital:
Alternative asset investments		(8,424	)		(5,271	)		(3,153	)
Net unrealized investment gains		(32,704	)		(20,316	)		(12,388	)

Capital DTLs		(41,128	)		(25,587	)		(15,541	)

DTLs		(46,628	)		(32,462	)		(14,166	)

Net deferred tax asset	$	66,791		$	69,191		$	(2,400	)


	2021			2020			Change

Total deferred tax assets	$	146,286		$	137,081		$	9,205
Total deferred tax liabilities		(46,628	)		(32,462	)		(14,166	)

Net deferred tax asset/liabilities		99,658			104,619			(4,961	)

Net deferred tax asset/liability after SVA	$	99,658		$	104,618

Tax effect on unrealized (gains)/losses								12,388

Change in net deferred income taxes							$	7,427


Page 34		The Penn Insurance and Annuity Company

($ in Thousands)


Description	Amount			Tax Effect			Effective Tax Rate

Income before taxes	$	(10,329	)	$	(2,169	)		21.00	%
Dividends received deduction		(2,056	)		(432	)		4.18	%
Separate Account DRD		(120	)		(25	)		0.24	%
Income from affiliates		(3,566	)		(749	)		7.25	%
2020 tax return true-up		425			89			-0.86	%
IMR amortization		72			15			-0.15	%
LIHTC		—			(1,926	)		18.65	%
Other		(601	)		(125	)		1.22	%

Total	$	(16,175	)	$	(5,322	)		51.53	%

Federal income tax expense incurred					2,136			-20.68	%
FIT expense/(benefit) on Realized Capital					586			-5.67	%
FIT in IMR Gains/Losses					(617	)		5.98	%
Change in net deferred income taxes					(7,427	)		71.90	%

Total statutory taxes				$	(5,322	)		51.53	%

With the filing of the 2020 tax return, the Company does not have any net operating loss carryforwards remaining. In addition, the Company has $11,194 LIHTC available of as of December 31, 2021 that will begin to expire in 2034.

The Company has not made any deposits regarding the suspension of running interest (protective deposits) pursuant to Internal Revenue Code Section 6603.

The Company’s federal income tax return is consolidated with its parent, Penn Mutual, and Penn Mutual’s non-insurance subsidiaries. The method of tax allocation among the companies is subject to a written agreement, whereby the tax allocation is made on a benefits for loss basis. In addition, the Company is party to a tax agreement with PIAre I whereby PIAre I will pay its federal income tax liability or receive a refund for its net operating losses from the Company determined on a separate return basis. There was no income tax expense for 2021, 2020 and 2019 that is available for recoupment in the event of future net losses.

A listing of the companies included in the consolidated return is as follows:

Penn Mutual Life Insurance Company (Parent)

Penn Insurance & Annuity Company

PIA Reinsurance Company of Delaware I

For the year ended December 31, 2021, PIAre I had a taxable net loss of $18,147 generating an amount payable from PIA to PIAre I of $3,811.

For the year ended December 31, 2020, PIAre I had a taxable net loss of $28,926 generating an amount payable from PIA to PIAre I of $6,051, which was paid in 2021.

Tax years 2018 and subsequent are still subject to audit by the Internal Revenue Service.

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits, as a component of tax expense. During the years ended December 31, 2021 and December 31, 2020, the Company did not recognize or accrue penalties or interest.

The Company has no tax loss contingencies for which it is reasonably possible that the total liability will significantly increase within the next twelve months of the reporting date.


2021 Statutory Financial Statements			Page 35

($ in Thousands)

Note 10. REINSURANCE

The Company has assumed and ceded reinsurance on certain life and annuity contracts under various agreements. Reinsurance ceded permits recovery of a portion of losses from reinsurers.

The table below highlights the reinsurance amounts shown in the accompanying financial statements.


	Direct		Assumed		Ceded		Net Amount

December 31, 2021
Premium and annuity considerations	$	734,859	$	194,533	$	83,982	$	845,410
Reserves and funds for payment of future insurance and annuity benefits		5,300,135		3,215,412		2,297,619		6,217,928

December 31, 2020
Premium and annuity considerations	$	663,259	$	208,425	$	86,207	$	785,477
Reserves and funds for payment of future insurance and annuity benefits		4,539,667		2,964,141		2,158,065		5,345,743


			Assumed/(Ceded)
			2021						2020
	Affiliate		Premium			Reserves			Premium			Reserves

Coinsurance funds withheld		PML	$	36,080		$	1,447,171		$	36,560		$	1,370,240
Coinsurance funds withheld		PIAre I		(46,535	)		(2,292,158	)		(50,417	)		(2,153,832	)
Coinsurance — Inforce		PML		42,332			545,308			46,680			485,990
Coinsurance		PML		100,613			1,215,179			112,295			1,101,466
YRT — Index credits		PIAre I		15,508			7,754			12,890			6,445
YRT — Over retention		PML		(3,726	)		(452	)		(3,284	)		(384	)

Total			$	144,272		$	922,802		$	154,724		$	809,925

Coinsurance funds withheld Effective December 31, 2013, the Company ceded a closed block of business to PIAre I on a 100% coinsurance funds withheld basis. Effective December 31, 2014, the Company entered into a contract with PML to assume reserves pursuant to transactions subject to the requirements of Section 7 of the NAIC XXX and AXXX Reinsurance Model Regulation. The Company then contemporaneously reinsured the policies to PIAre I. At inception, the agreement generated an after-tax gain of $87,008, which was a direct increase to surplus and is amortized into income over the life of the agreement.

Coinsurance The Company assumes certain risks under reinsurance agreements with Penn Mutual relating to various fixed and indexed universal life business.

YRT — Index credits Effective January 1, 2017, the Company assumes the equity risk associated with PIAre I’s indexed UL products on a YRT basis.

YRT — Over retention The Company ceded to PML policies issued after October 1, 2006 and before October 1, 2014 that resulted in retention greater than $1,000 per life.


Page 36		The Penn Insurance and Annuity Company

($ in Thousands)

Note 11. RELATED PARTIES

The Company entered into a revolving loan agreement with JMS on August 19, 2011, to provide funding to JMS in an amount not to exceed $40,000. Terms of the loan specify that semi-annual interest be paid on the outstanding balances based on market rates determined at the dates of the loans. The principal balances are not due until maturity in August 2030. The Company recorded $3,650 and $3,660 in interest income on this note for the years ended December 31, 2021 and December 31, 2020, respectively. At December 31, 2021 and December 31, 2020, the Company had an outstanding principal receivable from JMS of $40,000 and outstanding interest receivables of $920 and $920, relating to this agreement.

The Company has received a rating equivalent to an NAIC 1 for the note receivable from JMS.

The Company’s unconsolidated subsidiaries had combined assets of $2,421,296 and 2,486,902 and combined liabilities of $2,313,991 and 2,371,211 as of December 31, 2021 and 2020, respectively. The admitted value of the Company’s investments in subsidiaries includes goodwill of $4,831 and $4,301 and other intangible assets of $266 and $267 at December 31, 2021 and 2020, respectively.

Under the terms of an expense allocation agreement, the Company reimbursed Penn Mutual for services and facilities provided on behalf of the Company, including direct and allocated expenses. For December 31, 2021 and December 31, 2020, the total expenses incurred under this agreement were $59,985 and $57,178, respectively. The amount due was $13,760 and $17,274 at December 31, 2021 and December 31, 2020, respectively.

Under the terms of investment management and administrative services agreements, the Company paid PMAM for investment management and accounting services provided on behalf of the Company. For December 31, 2021 and December 31, 2020, the total expenses incurred under these agreements were $6,370 and $5,394, respectively. The amount due was $553 and $477 at December 31, 2021 and December 31, 2020, respectively.

The Company agreed to provide certain accounting and administrative services, at cost, to PIAre I. The administrative costs for the years ended December 31, 2021 and December 31, 2020 were $425 and $0, respectively.

Note 12. COMMITMENTS AND CONTINGENCIES

GUARANTY FUNDS The Company is subject to insurance guaranty fund laws in the states in which it does business. These laws assess insurance companies amounts to be used to pay benefits to policyholders and policy claimants of insolvent insurance companies. Many states allow these assessments to be credited against future premium taxes. The liability for estimated guaranty fund assessments net of applicable premium tax credits as of December 31, 2021 and December 31, 2020 was $60 and $60. The Company monitors sales materials and compliance procedures and makes extensive efforts to minimize any potential liabilities in this area. The Company believes such assessments in excess of amounts accrued will not materially impact its financial statement position, results of operation, or liquidity.

COMMITMENTS In the normal course of business, the Company extends commitments relating to its investment activities. As of December 31, 2021 the Company had outstanding commitments totaling $114,268 relating to these investment activities. The fair value of these commitments approximates their face amount.

PIAre I has an adjustable 20 year, non-interest bearing financial instrument with a current face amount of $741,339 to support a modified coinsurance arrangement with an unaffiliated reinsurer. The Company is obligated to pay a financing fee on the reserve amount being financed. The Company may be subject to an early termination fee upon the occurrence of certain events through December 31, 2030. The modified coinsurance arrangement was effective December 31, 2013. Fees incurred during the years ended December 31, 2021 and December 31, 2020 were $2,407 and $2,241, respectively, which are included in Other expenses in the Statements of Operations.


2021 Statutory Financial Statements			Page 37

($ in Thousands)

DIVIDEND RESTRICTIONS The payment of dividends by the Company to Penn Mutual is subject to restrictions set forth in the State of Delaware insurance laws. These laws require that the maximum amount of ordinary dividends that can be paid by the Company to Penn Mutual without restriction cannot exceed the greater of the net gain from operations of the previous year or 10% of surplus as of the previous year end. Generally, these restrictions pose no short-term liquidity concerns for the Company. Based on these restrictions and 2021 statutory results, the Company could pay $66,900 in dividends in 2022 to Penn Mutual without prior approval from the Delaware Department of Insurance, subject to the notification requirement. In 2021 and 2020, the Company paid no dividends to Penn Mutual.

Note 13. SUBSEQUENT EVENTS

The Company has evaluated events subsequent to December 31, 2021 and through the financial statement issuance date of February 23, 2022 and has determined that there were no other significant events requiring disclosure in the financial statements.


Page 38		The Penn Insurance and Annuity Company

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About The Penn Mutual Life Insurance Company

Penn Mutual helps people become stronger. Our expertly crafted life insurance is vital to long-term financial health and strengthens people’s ability to enjoy every day. Working with our trusted network of financial professionals, we take the long view, building customized solutions for individuals, their families, and their businesses. Penn Mutual supports its financial professionals with retirement and investment services through its wholly owned subsidiary Homor, Townsend & Kent, LLC, member FINRA/SIPC.

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PM2019		01/22