We consider polar subcodes (PSCs), which are polar codes (PCs) with dynamically-frozen symbols, to increase the minimum distance as compared to corresponding PCs. A randomized nested PSC construction with a low-rate PSC and a high-rate PC, is proposed for list and sequential successive cancellation decoders. This code construction aims to perform lossy compression with side information. Nested PSCs are used in the key agreement problem with physical identifiers. Gains in terms of the secret-key vs. storage rate ratio as compared to nested PCs with the same list size are illustrated to show that nested PSCs significantly improve on nested PCs. The performance of the nested PSCs is shown to improve with larger list sizes, which is not the case for nested PCs considered.
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