CNO Financial Group Annual Report 2013

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FY2013 Annual Report · CNO Financial Group

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2013
ANNUAL
REPORT

CNO Financial Group, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032

(317) 817-6100

(03/14) 151351
© 2014 CNO Financial Group, Inc.

cnoinc.com

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table of contents

2013 in Review

To Our Shareholders

Bankers Life

Colonial Penn

Washington National

CNO in Our Community

Annual Report on Form 10-K

Market for Registrant’s Common Equity Related Stockholder
Matters and Issuer Purchases of Equity Securities

Selected Consolidated Financial Data

Management’s Discussion and Analysis of Consolidated
Financial Condition and Results of Operations

Consolidated Financial Statements and Supplementary Data

Exhibits and Financial Statement Schedules

Directors of CNO Financial Group, Inc.

Investor Information

112

174

180

183

Investor Information

Meeting of Shareholders
Our annual meeting of shareholders will be held at
8:00 a.m. (EDT) on May 7, 2014, in the auditorium
of CNO Financial Group’s headquarters at 11825 N.
Pennsylvania Street, Carmel, Indiana. This information is
included in the meeting notice, proxy statement and form
of proxy sent to each shareholder with this annual report.
You may vote your proxy by executing and returning your
form of proxy. If a brokerage firm holds your shares, you
may be able to vote over the internet or by telephone;
consult your broker for information.

Shareholder Services
If you are a registered shareholder and have a question
about your account, or if you would like to report a
change in your name or address, please call CNO’s transfer
agent, American Stock Transfer & Trust Company, at
(800) 937-5449 or (718) 921-8124. Shareholders may
reach American Stock Transfer at amstock.com, by email to
info@amstock.com, or by mail:
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219

Ways to Learn More About Us
Investor Hotline: Call (800) 426-6732—in Indianapolis,
(317) 817-2893—to receive annual reports, Form 10-Ks,
Form 10-Qs and other lengthy documents by mail or to
speak with an investor relations representative.
Email: Contact us at ir@cnoinc.com to ask questions or
request materials.

Quarterly Reporting
To receive CNO’s quarterly results as soon as they are
announced, please sign up for CNO’s mailing list by
contacting the investor relations department or visit
investor.cnoinc.com.

Copies of this Report
To obtain additional copies of this report or to receive
other free investor materials, contact the investor
relations department. To view these reports online, please
visit investor.cnoinc.com.

Stock Information
CNO Financial Group’s common
stock is listed on the
New York Stock Exchange
(trading symbol: CNO).

2013 in review

CNO Financial Group 2013 Annual Report

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Edward J. Bonach
Chief Executive Officer

to our
shareholders

In 2013, CNO Financial

Group increased shareholder

value, improved service to

our customers, and took

significant steps toward

investment-grade status.

Along the way, we reached

milestones that demonstrate

CNO is a company focused on

growing and delivering lasting

value to our stakeholders.

We achieved greater financial strength without
sacrificing growth. Our continued investment in
distribution, new products and enhancing the customer
experience contributed to increases in sales and
premiums across our businesses. These improvements
helped CNO reach a significant milestone in 2013: our
fifth consecutive full year of profitable growth.

We advanced our financial position by reducing
debt, generating capital and increasing our financial
flexibility. We took a meaningful step toward addressing
the acceleration of our run-off business and reducing
our long-term care exposure. Our financial strength
enabled us to return value to our shareholders in 2013
by repurchasing $253 million of securities during the
year and increasing our common stock dividend.

Our track record for success is not going unnoticed
or unrewarded. Our balanced approach of improving
financial strength, investing for growth and returning
value to shareholders was recognized in the capital
markets. CNO received positive rating actions
in 2013, including three upgrades. CNO’s total
shareholder return for the year was 91%, exceeding
the average of our industry peer group for the second
consecutive year.

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Financial Performance
CNO’s strong performance in 2013 was marked by sales growth in
each of our businesses. This growth was reflected in nearly every
product line, including annuities, which we were able to grow despite
a prolonged low interest rate environment. In total, consolidated sales
reached $416 million, an increase of 6% over 2012.

For the full year, CNO recorded net income of $478 million, or
$2.06 per diluted share, compared to $0.83 per diluted share in
2012. Net operating income was $270 million, or $1.17 per diluted
share, compared to $0.69 per diluted share in 2012. Our financial
strength continued to improve during the year. We ended the year
with $309 million in cash and investments at the holding company and
approximately $160 million in deployable capital. Our debt-to-total
capital ratio decreased to 16.9%, and our consolidated statutory risk-
based capital ratio increased 43 points over 2012 to 410%. We believe
a risk-based capital ratio over 400% is a meaningful milestone that
paves the way for additional rating upgrades.

Business Performance
CNO’s success stems from our focus on middle-income Americans who are
near or in retirement; our mix of distribution channels, which is primarily
exclusive; and the breadth of products we offer to meet our customers’
needs. We continue to accelerate this formula for success with strategic
investments to increase the reach and productivity of our distribution force,
drive efficiencies in our operations, and improve the customer experience.
The outcome of these investments can be seen in our 2013 results.

CNO’s total

return for the

year was 91%,

exceeding the

average of

our industry

peer group

for the second

consecutive year.

“

Our continued investment in distribution,
new products and enhancing the customer
experience contributed to increases in sales
and premiums across our businesses.

Bankers Life, our career distribution channel, added 25 new sales offices
in 2013, bringing the total to 301 branches and satellite offices across the
country. The average agent count increased by 3% for the year. Driven by
strong sales in Medicare supplement, life insurance and annuities, Bankers
Life recorded full-year sales growth of 6%. This more than offset the drop
in long-term care sales, an important yet challenging market. Medicare
Advantage products do not contribute to new annualized premium, but
do produce recurring fee revenue. That product was up 53% for the year.

”

Washington National, our independent distribution channel, produced
record-breaking sales growth of 9% for the year and premium growth
(excluding Medicare supplement) of 6% over 2012. Our initiatives
in agent recruitment and productivity resulted in higher sales in our

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wholly-owned agency, Performance Matters Associates, and among our
independent agency partners.

Colonial Penn, our direct distribution channel, experienced a
challenging television advertising environment that increased marketing
costs and affected conversion rates. As a result, Colonial Penn’s sales
did not meet our expectations, with sales up 1% for the year, but the
business produced 7% premium growth for the year.

Our People
Exceptional people are a vital component of exceptional companies;
strategies are only as good as the individuals who execute them. We
consider our ability to attract, develop and retain great people to be
one of our strengths and a meaningful competitive advantage. In 2013,
we continued to establish CNO as a great place to work by investing
in the careers and well-being of our associates. That commitment was
recognized when we were named one of the Healthiest 100 Workplaces
in America and when Bankers Life was recognized by Training magazine
as one the top 125 training companies in the country for the third
consecutive year.

We also significantly reinforced our senior leadership team in 2013
through a number of promotions and additions. Notably, Scott Goldberg
was elevated to president of Bankers Life, allowing Scott Perry to move
full-time into his role as chief business officer, and Barbara Stewart was
named president of Washington National. We also brought in new talent,
with Brad Bodell as chief information officer; Mike Heard as senior vice
president, enterprise operations; and Loretta Jacobs as vice president,
long-term care.

Our Industry’s Value
Everyone at CNO wholeheartedly embraces our mission—to enrich
lives by providing life and health insurance for the protection and
retirement needs of middle-income Americans, while building enduring
value for all our stakeholders. We are always mindful of the important
role our industry and our company play in helping provide financial
security to our policyholders. Research conducted by Bankers Life
Center for a Secure Retirement underscores three facts about pre-
retirement middle-income Americans: Their number is growing; they
are living longer; and most are unprepared for retirement.

We also know that today’s middle-income Americans think about
retirement differently than previous generations; specifically, two-
thirds are looking forward to an active lifestyle in retirement. By
understanding the changing face of our customer base, we’re able
to create and deliver products to help these underserved Americans
gain financial security and fulfill their expectations and aspirations for
retirement. This in turn positions CNO as a valuable partner to our
customers, not just a mere provider of insurance products.

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CNO Financial Group 2013 Annual Report

we’re able to create and deliver products to help these
underserved Americans gain financial security and fulfill
their expectations and aspirations for retirement.

“By understanding the changing face of our customers,
”

Looking Forward
We believe we have the right focus and strategy in
place to create long-term value for CNO shareholders.
We see significant opportunities for growth in the
middle-income marketplace and will continue to invest
capital in those opportunities. Specifically, we expect
to invest $45 million to $55 million next year in four
major categories: operating effectiveness in our back
office, enhanced customer experience, agent growth
and expansion, and new products. We expect these
investments to drive accelerated sales growth in each of
our core business segments.

With more than 300 locations nationwide, Bankers Life
will continue to expand, and will balance investments
with agent productivity initiatives. As trusted advisors to
the middle-income market, Bankers agents can play an
important role in providing customers a well-rounded
financial security plan. Our solutions address the needs
middle-income Americans worry about most: paying
healthcare expenses, having adequate retirement income
and leaving a legacy.

In 2014, Washington National will focus on
expanding worksite distribution and growing our
agency distribution. We will also introduce an
underwritten supplemental group health insurance
product, enabling us to acquire a new segment
of accounts, and will continue to invest in agent
recruitment and productivity.

Colonial Penn will continue to expand its new Patriot
program in 2014 and will accelerate an Hispanic
community marketing initiative. With our new customer
relationship management system coming fully online in
2014, we expect direct telephone sales to benefit.

Delivering shareholder value will continue to be a
focus, with sustained emphasis on building our long-
term return on equity, targeting a 9% run rate by
the end of 2015. Overall, we will concentrate on
maintaining a strong and secure capital and financial

position, delivering capital back to our shareholders
in the form of dividends and stock repurchases, and
actively managing our risk profile. To that end, the
closing and regulatory approval of the sale of our
Conseco Life Insurance Company closed block of life
and annuity business to Wilton Re is anticipated by mid-
year 2014. This marks a significant milestone for CNO
in enabling us to free up additional capital, reduce our
risk, and focus on our core business segments.

Our strategy and commitment to the long-term
care insurance market is worth noting. We believe
long-term care insurance serves an important role
in the retirement care and security of the middle-
income market. Having a long-term care marketplace
that includes private options is important not only
for those who need it but for our country as well,
to reduce the burden on already-strapped state
Medicaid programs. Despite this need, we face many
challenges. We constantly must balance the need to
price products profitably with providing affordable
solutions for our customers. We continue to actively
manage our risk in this market by effectively
addressing the closed block with our reinsurance
transaction, and with dedicated and experienced
professionals working our in-force block with rate
actions and claims management, allowing CNO to
serve this essential need in the marketplace.

We look forward to growing and delivering on our
initiatives in 2014. With your support as owners
and the continued dedication of our associates, we
are confident we can achieve our vision of becoming
the leading provider of financial security to middle-
income American working families and retirees.

Edward J. Bonach
Chief Executive Officer

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“

Bankers Life delivers on its promise. Our agent
has been both a counselor and a problem solver.
We feel secure, and that’s a great relief.

”

Pat Martin, Austin, Texas
Bankers Life policyholder

Bill and Pat Martin of Austin, Texas, Bankers Life policyholders,
pictured with Wendell Morgan, Bankers Life agent (right)

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CNO Financial Group 2013 Annual Report

Pat Martin’s parents purchased Bankers Life home
health care policies years ago. They believed the
benefits would help them maintain their independence
as long as possible, and provide continuity of care if
their health declined. In turn, Pat and her husband, Bill,
learned a valuable lesson.

“My dad’s health started declining, and it was a blessing
to be able to keep him home during his final years,” Pat
said. “It gave us a great deal of comfort. Now my mom is
receiving the quality of care she needs, and her financial
stability won’t be compromised.”

Based on the example set by Pat’s parents, the Martins
knew the importance of having a home health care
policy in fulfilling their wishes to remain at home if
they need long- or short-term care.

“It’s been quite an education since Mom and Dad
started using their benefits,” Pat said. “This policy will
help to offset the rising cost of care and ensure a better
quality of care when we need it.”

The Martins were introduced to the policy by their
Bankers Life agent, 30-year veteran Wendell Morgan of
our Austin branch. His accessibility and expertise have
been instrumental in their successful relationship.

“My job as an agent is so much more than selling
policies,” said Wendell. “I develop partnerships with my
customers, and I have a vested interest in taking care
of them. I know our products are helping people, and
it gives me great pride in hearing how Bankers Life has
been able to help Pat’s parents.”

When evaluating companies to do business with, the
Martins look first for knowledgeable and competent
people. “Wendell’s experience and ability to
demonstrate the company’s leadership in this market
gave us a great deal of confidence that Bankers Life
knew the business better than any competitors,” Pat
said. “We’ve got long-term peace of mind.”

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Bankers Life, based in Chicago,

was established in 1879 and

is a leading provider of health

and life insurance products

and annuities to retirees. In

2013, the company paid out

$1.4 billion in policy benefits.

84%

of middle-income Boomers
would prefer to receive
retirement care at home.

Source: Bankers Life Center for a Secure Retirement,
CenterforaSecureRetirement.com

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“

It’s important for me to go above and beyond my
job. I focus on delivering the best service possible in
a way that offers a better customer experience.

Kelvin Guzman, quality assurance representative
Colonial Penn

”

Pictured (L to R): Shannon Silver, Kelvin Guzman, Mitchell Bass, Bob Tisdale, Sherie Sealy and Valerie Emerson,
Colonial Penn telesales and teleservice representatives

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CNO Financial Group 2013 Annual Report

Providing a sales and service experience that exceeds
our customers’ expectations is not only a requirement
for doing business, but it can set us apart from
competitors. For 55 years, Colonial Penn has focused
on providing affordable insurance plans directly to
consumers. Our focus on easy-to-understand, low-cost
products is reinforced by a dedication to providing a
high level of service by our seasoned team of telesales
and teleservice representatives.

“Insurance is confusing, so my main objective is to
make it simple so that our customers are well educated
and can make an informed decision,” said Valerie
Emerson, senior telesales representative.

Shannon Silver, teleservice representative, agrees.
“I provide value by treating each customer the way
I would want my mother treated, with respect and
understanding, empathy and consideration.”

With a clear focus on meeting the needs of customers,
Colonial Penn understands that satisfaction is a direct
indication of the team’s quality.

“I create value for our customers by selling to their
needs,” said Mitchell Bass, telesales representative. “The
customer wants a product that’s easy to understand and
affordable, and it’s my job to make sure they get that.”

Sherie Sealy, a team lead in the teleservice department,
centers on embracing customers’ financial concerns and
finding the best solutions. “When we understand the needs
of our customers, we can build a solid support system
to help them achieve their goals. Our team is united to
accomplish a common goal—a satisfied customer.”

Embracing the essence of teamwork and commitment
to the customer, Bobby Tisdale, senior telesales
representative, says, “I always lead with a notion of
how to best serve our customers, by solving their
problems and resolving their concerns. I make sure they
know we’re here when they need us the most, with
sensitivity and efficiency.”

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Colonial Penn, based in

Philadelphia, specializes in

offering insurance directly to

consumers at affordable prices.

Colonial Penn’s commitment to

policyholders is evidenced by

$122 million paid in life

insurance benefits in 2013.

32%

of middle-income Americans age 55+
are leaving their loved ones
unproteced by life insurance.

Source: Bankers Life Center for a Secure Retirement,
CenterforaSecureRetirement.com

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“

The Washington National policy has more than met
my expectations. There’s an effort to provide me with
personal service, and that makes a big difference.

Beth Henning, Chelsea, Iowa
Washington National policyholder

”

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CNO Financial Group 2013 Annual Report

When Beth Henning got married 19 years ago, her
husband, Donald, thought it would be a good idea to
add her to his cancer policy. “He’s a careful person,
and he had the policy just in case,” she said. Beth
didn’t think much of it at the time, but that decision
turned out to be vital.

She was diagnosed four years ago with leukemia
and with lymphoma shortly thereafter—a rare double
diagnosis—and her family’s lives were turned
upside down.

“I was working at the time of my diagnosis, and I’m
an ER nurse, which itself is a very demanding job,”
said Beth, who lives with her family on a working
farm in rural Iowa. “With my job, my treatments and
the farm, I really didn’t have the time or energy to
do anything else, like the regular things I did with my
family and keeping up the house. It was really hard.”

With the costs of her medical care and treatments
covered, Beth’s Washington National cancer policy
alleviated her financial concerns and allowed her to
focus on her health. Able to leave her job, she spent
time getting better and being with her family, which
includes her 15-year-old son.

“The policy is well worth it,” she said. “I wish I could
talk everyone I know into getting one. If they tell me
they can’t afford it, I tell them they can’t afford not to
have it.”

Beth is quick to praise Washington National’s
policyholder representatives. She has a dedicated service
member who is familiar with her situation, helps make
the claims process easier and faster, explains the policy
benefits and answers her questions.

“It’s been a tough road, but the policy has made a
big difference in my life, and I’ve got a great deal of
reassurance,” Beth said.

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Washington National, based in
Carmel, Indiana, is focused on
serving the supplemental health
and life insurance needs of middle-
income Americans at the worksite
and at home. Washington National’s
commitment to policyholders is
evident in the $390 million paid
in policy benefits in 2013 and the
more than $1.8 billion in returned
premium since 1995.

79%

of middle-income Americans are
concerned about one day receiving
a cancer diagnosis.

Source: Washington National Institute for
Wellness Solutions, WNInstituteforWellness.com

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CNO in our community

CNO Financial Group supports our
communities, armed forces, associates and
customers through nonprofit agencies that
address the physical and financial health and
wellness of middle-income Americans.

Together, we are:

• Standing up for health and wellness.

• Supporting our veterans.

• Building stronger communities.

$426,500

CNO is a longtime partner of the Alzheimer’s
Association under Bankers Life. In 2013, Bankers
Life completed the 12th annual Forget Me Not Days
fundraiser. More than 1,000 agents and associates
participated in 163
cities. The two-day
event sends agents and
associates out in the
community to collect
donations for their local Alzheimer’s Association
chapter in return for packs of forget-me-not flower
seeds. Bankers Life also hosted the second annual
Forget Me Not Days event at Bankers Life Fieldhouse
to raise awareness of the organization.

in collections and
corporate donations
in 2013

The American Cancer Society works to raise
awareness of cancer and help people stay well by
funding research for cures and treatments. The ACS
mission makes it a natural partner for Washington
National. Along with Washington National, Health
Opportunity through Partnership in Education
(HOPE) made a gift of $100,000 to the ACS. That
gift was made possible through the contributions of
Washington National policyholders. Also in 2013,
associates participated
in the Making Strides
Against Breast Cancer
walk, and CNO’s Carmel
campus served as an enrollment site for the Cancer
Prevention Study-3. Hundreds of people enrolled in
the study at CNO to assist researchers in the fight
against cancer.

$103,500

DONATED IN 2013

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Military Warriors Support Foundation helps wounded
veterans and their families re-enter civilian life. CNO
supports that mission through the Homes4Heroes
program. All veterans receiving mortgage-free
homes from MWSF must go
through a three-year financial
mentoring program. CNO
DONATED TO ASSIST
sponsors the program in hopes
MILITARY FAMILIES
IN 2013
that the skills learned will help
establish a solid financial future for each family.

$30,000

In 2013, CNO associates donated more than

9,700 hours of service to the communities

where they live and work. Through Team

CNO, our employee volunteer program,

associates donated their time and financial

resources to a number of nonprofit

organizations, including:

CNO partners with United Way to build stronger
communities. In 2013, our partnership included an
associate giving campaign that surpassed our goal, a
successful school-supply drive for the BackPack Attack
and an initiative to provide 40 families with gifts and
groceries for the holidays. In addition, 150 associates
participated in Indy Do Day at Camp Jameson and
Camp Belzer in Indianapolis, where we performed
maintenance tasks and cleaned up the grounds.

Associate pledges and company match

$603,666

n
2
0
1
3

• Alzheimer’s Association

• American Cancer Society

• American Heart Association

• American Lung Association

• American Red Cross

• Arthritis Foundation

• BackPack Attack Indy

• Feeding America

•

Indiana Blood Center

• Kids Against Hunger

• Meals on Wheels Chicago

•

Military Warriors

Support Foundation

• United Way

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FORM 10-K

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

For the fiscal year ended December 31, 2013

CNO FINANCIAL GROUP, INC.

Commission File Number 001-31792

DELAWARE
State of Incorporation
11825 N. Pennsylvania Street Carmel, Indiana 46032
Address of principal executive offices

75-3108137
IRS Employer Identification No.
(317) 817-6100
Telephone

SecuritieS regiStered purSuant to Section 12(b) of the act:

title of each class
Common Stock, par value $0.01 per share

name of each exchange on which registered
New York Stock Exchange

Rights to purchase Series B Junior Participating Preferred Stock

New York Stock Exchange

SecuritieS regiStered purSuant to Section 12(g) of the act:
NONE

YES

indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of
the Securities act.
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the act.
indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities exchange act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days:
indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every interactive data file required to be submitted and posted pursuant
to rule 405 of regulation S-t (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
indicate by check mark if disclosure of delinquent filers pursuant to item 405 of regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in part iii of this form 10-K or any
amendment to this form 10-K.
indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2
of the exchange act.

Large accelerated filer

accelerated filer

non-accelerated filer

Smaller reporting company

indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the
exchange act):

at June 28, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the
registrant’s common equity held by nonaffiliates was approximately $2.8 billion.

Shares of common stock outstanding as of february 12, 2014: 220,343,659

DOCUMENTS INCORPORATED BY REFERENCE:
portions of the registrant’s definitive proxy statement for the 2014 annual meeting of shareholders are incorporated by reference into
part iii of this report.

CNO FINANCIAL GROUP, INC. - Form 10-K✔
✔
✔
✔
✔
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Table of Contents

PART I

Page
17

Item 1.
business of cno . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Item 1A. risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Item 1B. unresolved Staff comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Item 2.
properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Item 3.
Legal proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Item 4. Mine Safety disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
executive officers of the registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

PART II

Item 5. Market for registrant’s common equity, related Stockholder Matters and

issuer purchases of equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Selected consolidated financial data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

Item 6.
Item 7. Management’s discussion and analysis of consolidated financial condition and

results of operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Item 7A. Quantitative and Qualitative disclosures about Market risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
Item 8.
consolidated financial Statements and Supplementary data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
Item 9.
changes in and disagreements with accountants on accounting and
financial disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .172
Item 9A. controls and procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .172
Item 9B. other information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .172

PART III

173
Item 10. directors, executive officers and corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Item 11.
executive compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 173
Item 12.
Security ownership of certain beneficial owners and Management and
related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Item 13. certain relationships and related transactions, and director independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Item 14.
principal accountant fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

PART IV

174
Item 15. exhibits and financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

PART I

ITEM 1. Business of CNO.

cno financial group, inc., a delaware corporation (“cno”), is
a holding company for a group of insurance companies operating
throughout the united States that develop, market and administer
health insurance, annuity, individual life insurance and other
insurance products. the terms “cno financial group, inc.”,
“cno”, the “company”, “we”, “us”, and “our” as used in this
report refer to cno and its subsidiaries. Such terms, when used
to describe insurance business and products, refer to the insurance
business and products of cno’s insurance subsidiaries.

We focus on serving middle-income pre-retiree and retired
americans, which we believe are attractive, underserved, high
growth markets. We sell our products through three distribution
channels: career agents, independent producers (some of whom
sell one or more of our product lines exclusively) and direct
marketing. as of december 31, 2013, we had shareholders’
equity of $5.0 billion and assets of $34.8 billion. for the year
ended december 31, 2013, we had revenues of $4.5 billion and
net income of $478.0 million. See our consolidated financial
statements and accompanying footnotes for additional financial
information about the company and its segments.

the company manages its business through the following
operating segments: bankers Life, Washington national and
colonial penn, which are defined on the basis of product
distribution; other cno business, comprised primarily of
products we no longer sell actively; and corporate operations,
comprised of holding company activities and certain
noninsurance company businesses. the company’s segments are
described below:

Bankers Life, which markets and distributes Medicare
supplement
insurance,
traditional life insurance, fixed annuities and long-term care
insurance products to the middle-income senior market

interest-sensitive

insurance,

life

through a dedicated field force of career agents and sales
managers supported by a network of community-based sales
offices. the bankers Life segment includes primarily the
business of bankers Life and casualty company (“bankers
Life”). bankers Life also markets and distributes Medicare
advantage plans primarily through distribution arrangements
with humana, inc. (“humana”) and united healthcare and
Medicare part d prescription drug plans (“pdp”) primarily
through a distribution arrangement with coventry health
care (“coventry”).

Washington National, which markets and distributes
supplemental health (including specified disease, accident and
hospital indemnity insurance products) and life insurance to
middle-income consumers at home and at the worksite. these
products are marketed through performance Matters associates
of texas, inc. (“pMa”), a wholly owned subsidiary, and
through independent marketing organizations and insurance
agencies, including worksite marketing. the products being
marketed are underwritten by Washington national insurance
company (“Washington national”).

Colonial Penn, which markets primarily graded benefit and
simplified issue life insurance directly to customers in the
senior middle-income market through television advertising,
direct mail, the internet and telemarketing. the colonial penn
segment includes primarily the business of colonial penn Life
insurance company (“colonial penn”).

Other CNO Business, which consists of blocks of interest-
sensitive life insurance, traditional life insurance, annuities,
long-term care insurance and other supplemental health
products. these blocks of business are not actively marketed and
were primarily issued or acquired by conseco Life insurance
company (“conseco Life”) and Washington national.

Our Strategic Direction

our mission is to be the recognized market leader in providing
financial security for the protection and retirement needs of
middle-income american working families and retirees. our
strategic plans are focused on continuing to grow and deliver long-
term value for all our stakeholders. Specifically, we will focus on
the following priorities:

• Build on our investment in the business

(i) continue to increase our reach, adding to our agent force

and locations

(ii) invest in additional agent productivity tools
(iii) add to our product offerings and service capabilities

• Continue to focus on sustainable, profitable growth

(i) grow sales by at least 6 percent in 2014
(ii) continue progress towards our 9 percent operating return

on equity goal by 2015

• Accelerate operating effectiveness

(i) optimize sourcing
(ii) improve operating platforms

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1 Business of CNO

• Further enhance the Customer Experience

(ii) Make further progress towards a 20 percent dividend payout

(i) continue to improve communications with customers
(ii) track progress through a set of client service metrics
including net promoter score (a standard tool for measuring,
understanding and improving the customer experience)

• Tactically deploy excess capital

(i)

Meet our share repurchase guidance of $225 million to
$300 million in 2014

ratio by 2015

• Continue to invest in and develop our talent

(i) actively drive job development and rotation programs
(ii) develop future leaders through our leadership development

program

Other Information

our executive offices are located at 11825 n. pennsylvania
Street, carmel, indiana 46032, and our telephone number is
(317) 817-6100. our annual reports on form 10-K, quarterly
reports on form 10-Q, current reports on form 8-K and
amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities exchange act are available free of
charge on our website at www.cnoinc.com as soon as reasonably
practicable after they are electronically filed with, or furnished
to, the Securities and exchange commission (the “Sec”). these
filings are also available on the Sec’s website at www.sec.gov. in
addition, the public may read and copy any document we file at
the Sec’s public reference room located at 100 f Street, ne,
room 1580, Washington, d.c. 20549. the public may obtain
information on the operation of the public reference room by
calling the Sec at 1-800-Sec-0330. copies of these filings are
also available, without charge, from cno investor relations,
11825 n. pennsylvania Street, carmel, in 46032.

our website also includes the charters of our audit and enterprise
risk committee, executive committee, governance and
nominating committee, human resources and compensation
committee and investment committee, as well as our corporate
governance operating principles and our code of business
conduct and ethics that applies to all officers, directors and
employees. copies of these documents are available free of charge

on our website at www.cnoinc.com or from cno investor
relations at the address shown above. Within the time period
specified by the Sec and the new York Stock exchange, we will
post on our website any amendment to our code of business
conduct and ethics and any waiver applicable to our principal
executive officer, principal financial officer or principal accounting
officer.

in June 2013, we filed with the new York Stock exchange the
annual ceo certification regarding the company’s compliance
with their corporate governance listing standards as required
by Section 303a.12(a) of the new York Stock exchange Listed
company Manual. in addition, we have filed as exhibits to this
2013 form 10-K the applicable certifications of the company’s
chief executive officer and chief financial officer required
under Section 302 of the Sarbanes-oxley act of 2002 regarding
the company’s public disclosures.

cno became the successor to conseco, inc., an indiana
corporation (our “predecessor”), in connection with a bankruptcy
reorganization which became effective on September 10, 2003
(the “effective date”). our predecessor was organized in 1979 and
commenced operations in 1982.

data in item 1 are provided as of or for the year ended december 31,
2013 (as the context implies), unless otherwise indicated.

Marketing and Distribution

Insurance

our insurance subsidiaries develop, market and administer
health insurance, annuity, individual life insurance and other
insurance products. We sell these products through three primary
distribution channels: career agents, independent producers (some
of whom sell one or more of our product lines exclusively) and
direct marketing. We had premium collections of $3.5 billion,
$3.3 billion and $3.6 billion in 2013, 2012 and 2011, respectively.

our insurance subsidiaries collectively hold licenses to market our
insurance products in all fifty states, the district of columbia,
and certain protectorates of the united States. Sales to residents
of the following states accounted for at least five percent of our
2013 collected premiums: florida (7.9 percent), pennsylvania
(6.3 percent), texas (6.2 percent) and california (6.1 percent).

We believe that most purchases of life insurance, accident and
health insurance and annuity products occur only after individuals
are contacted and solicited by an insurance agent. accordingly, the
success of our distribution system is largely dependent on our ability
to attract and retain experienced and highly motivated agents. a
description of our primary distribution channels is as follows:

Career Agents. the products of the bankers Life segment are
sold through a career agency force of over 5,750 agents and sales
managers working from 301 bankers Life branch offices and
satellites. these agents establish one-on-one contact with potential
policyholders and promote strong personal relationships with
existing policyholders. the career agents sell primarily Medicare
supplement and long-term care insurance policies, life insurance
and annuities. in 2013, this distribution channel accounted for
$2.4 billion, or 70 percent, of our total collected premiums. these

CNO FINANCIAL GROUP, INC. - Form 10-K

PART I
ITEM 1 Business of CNO

agents sell bankers Life policies, as well as Medicare advantage
plans primarily through distribution arrangements with humana
and united healthcare, and typically visit the prospective
policyholder’s home to conduct personalized “kitchen-table” sales
presentations. after the sale of an insurance policy, the agent serves
as a contact person for policyholder questions, claims assistance
and additional insurance needs.

Independent Producers. the products of the Washington national
segment are sold through a diverse network of independent
agents, insurance brokers and marketing organizations. the
general agency and insurance brokerage distribution system is
comprised of independent licensed agents doing business in all
fifty states, the district of columbia, and certain protectorates of
the united States. in 2013, this distribution channel accounted
for $793.0 million, or 23 percent, of our total collected premiums.

Marketing organizations typically recruit agents by advertising
our products and commission structure through direct mail
advertising or through seminars for agents and brokers. these
organizations bear most of the costs incurred in marketing our
products. We compensate the marketing organizations by paying
them a percentage of the commissions earned on new sales
generated by agents recruited by such organizations. certain of
these marketing organizations are specialty organizations that
have a marketing expertise or a distribution system related to a
particular product or market, such as worksite and individual
health products.

the products of the Washington national segment are also sold
through our wholly-owned marketing organization, pMa.

Direct Marketing. this distribution channel is engaged primarily in
the sale of graded benefit life insurance policies through colonial
penn. in 2013, this channel accounted for $231.7 million, or
7 percent, of our total collected premiums.

Products

the following table summarizes premium collections by major category and segment for the years ended december 31, 2013, 2012 and
2011 (dollars in millions):

TOTAL PREMIUM COLLECTIONS

health:

bankers Life
Washington national
colonial penn
other cno business

total health

annuities:

bankers Life
other cno business

total annuities

Life:

bankers Life
Washington national
colonial penn
other cno business

total life

TOTAL PREMIUM COLLECTIONS

2013

2012

2011

1,317.8
595.7
4.1
24.2
1,941.8

744.1
4.6
748.7

368.3
13.4
227.6
155.1
764.4
3,454.9

1,323.9 $
576.3
4.9
25.8
1,930.9

709.0
3.8
712.8

314.6
14.2
211.9
165.0
705.7
3,349.4 $

1,330.6
569.8
5.7
27.8
1,933.9

985.5
16.4
1,001.9

250.0
16.0
196.4
179.4
641.8
3,577.6

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1 Business of CNO

our insurance subsidiaries collected premiums from the following products:

Health

HEALTH PREMIUM COLLECTIONS (DOLLARS IN MILLIONS)

Medicare supplement:

bankers Life
Washington national
colonial penn

total

Long-term care:
bankers Life
other cno business

total

prescription drug plan and Medicare advantage products included in bankers Life
Supplemental health:

bankers Life
Washington national

total

other:

bankers Life
Washington national
colonial penn
other cno business

total

TOTAL HEALTH PREMIUM COLLECTIONS

the following describes our major health products:

2013

745.3
101.9
3.7
850.9

534.0
23.6
557.6
18.2

9.9
491.3
501.2

10.4
2.5
.4
.6
13.9
1,941.8

2012

717.2 $
113.9
4.5
835.6

546.5
25.1
571.6
47.8

1.9
459.7
461.6

10.5
2.7
.4
.7
14.3
1,930.9 $

2011

701.2
132.1
5.2
838.5

561.9
27.0
588.9
56.5

—
434.2
434.2

11.0
3.5
.5
.8
15.8
1,933.9

Medicare Supplement

Long-Term Care

Medicare supplement collected premiums were $850.9 million
during 2013 or 25 percent of our total collected premiums.
Medicare is a federal health insurance program for disabled
persons and seniors (age 65 and older). part a of the program
provides protection against the costs of hospitalization and related
hospital and skilled nursing facility care, subject to an initial
deductible, related coinsurance amounts and specified maximum
benefit levels. the deductible and coinsurance amounts are subject
to change each year by the federal government. part b of Medicare
covers doctor’s bills and a number of other medical costs not
covered by part a, subject to deductible and coinsurance amounts
for charges approved by Medicare. the deductible amount is
subject to change each year by the federal government.

Medicare supplement policies provide coverage for many of the
hospital and medical expenses which the Medicare program does not
cover, such as deductibles, coinsurance costs (in which the insured
and Medicare share the costs of medical expenses) and specified
losses which exceed the federal program’s maximum benefits.
our Medicare supplement plans automatically adjust coverage to
reflect changes in Medicare benefits. in marketing these products,
we currently concentrate on individuals who have recently become
eligible for Medicare by reaching the age of 65. approximately 59
percent of new sales of Medicare supplement policies in 2013 were
to individuals who had recently reached the age of 65.

bankers Life sells Medicare supplement insurance. Washington
national discontinued new sales of Medicare supplement policies
in the fourth quarter of 2012 to focus on the sale of supplemental
health products.

Long-term care collected premiums were $557.6 million during
2013, or 16 percent of our total collected premiums. Long-term
care products provide coverage, within prescribed limits, for
nursing homes, home healthcare, or a combination of both. We sell
the long-term care plans primarily to retirees and, to a lesser degree,
to older self-employed individuals in the middle-income market.

current nursing home care policies cover incurred charges up to a
daily fixed-dollar limit with an elimination period (which, similar
to a deductible, requires the insured to pay for a certain number of
days of nursing home care before the insurance coverage begins),
subject to a maximum benefit. home healthcare policies cover
incurred charges after a deductible or elimination period and are
subject to a weekly or monthly maximum dollar amount, and
an overall benefit maximum. comprehensive policies cover both
nursing home care and home healthcare. We monitor the loss
experience on our long-term care products and, when necessary,
apply for rate increases in the jurisdictions in which we sell such
products. regulatory filings are made before we increase our
premiums on these products.

a small portion of our long-term care business resides in the
other cno business segment. this business was sold through
independent producers and was largely underwritten by certain
of our subsidiaries prior to their acquisitions by our predecessor
in 1996 and 1997. the performance of these blocks of business
did not meet the expectations we had when the blocks were
acquired. as a result, we ceased selling new long-term care policies
through independent distribution in 2003. in december 2013, we
ceded the long-term care business in the other cno business

CNO FINANCIAL GROUP, INC. - Form 10-K

PART I
ITEM 1 Business of CNO

segment to an unaffiliated reinsurer as further described in the
note to the consolidated financial statements entitled “Summary
of Significant accounting policies - reinsurance”.

We continue to sell long-term care insurance through the
bankers Life career agent distribution channel. this business is
underwritten using stricter underwriting and pricing standards
than had previously been used on our acquired blocks of long-
term care business included in the other cno business segment.

Prescription Drug Plan and Medicare Advantage

improvement

and
the Medicare prescription drug,
Modernization act of 2003 provided for the introduction of a
prescription drug program under Medicare part d. persons eligible
for Medicare can receive their part d coverage through a stand-
alone pdp. in order to offer a pdp product to our current and
potential future policyholders without investment in management
and infrastructure, we entered into a national distribution
agreement with coventry to use our career and independent
agents to distribute coventry’s pdp product, advantra rx. We
receive fees related to the pdp plans sold through our distribution
channels. in addition, cno had a quota-share reinsurance
agreement with coventry for cno enrollees that provided cno
with a specified percentage of net premiums and related profits
subject to a risk corridor. in august 2013, we received a notice of
coventry’s intent to terminate the pdp quota-share reinsurance
agreement whereby we assumed a portion of the risk related to
the pdp business sold through our bankers Life segment. We
continue to receive distribution income from coventry for pdp
business sold through our bankers Life segment. pdp collected
premiums were $18.2 million during 2013 or 1 percent of our total
collected premiums.

bankers Life primarily partners with humana and united
healthcare to offer Medicare advantage plans to its policyholders
and consumers nationwide through its career agency force and
receives marketing fees based on sales.

Supplemental Health Products

Supplemental health collected premiums were $501.2 million
during 2013, or 14 percent of our total collected premiums.
these policies generally provide fixed or limited benefits. cancer
insurance and heart/stroke products are guaranteed renewable
individual accident and health insurance policies. payments under

cancer insurance policies are generally made directly to, or at the
direction of, the policyholder following diagnosis of, or treatment
for, a covered type of cancer. heart/stroke policies provide for
payments directly to the policyholder for treatment of a covered
heart disease, heart attack or stroke. accident products combine
insurance for accidental death with limited benefit disability
income insurance. hospital indemnity products provide a fixed
dollar amount per day of confinement in a hospital. the benefits
provided under the supplemental health policies do not necessarily
reflect the actual cost incurred by the insured as a result of the
illness, or accident, and benefits are not reduced by any other
medical insurance payments made to or on behalf of the insured.

approximately 71 percent of the total number of our supplemental
health policies inforce was sold with return of premium or cash
value riders. the return of premium rider generally provides that,
after a policy has been inforce for a specified number of years or
upon the policyholder reaching a specified age, we will pay to the
policyholder, or in some cases, a beneficiary under the policy, the
aggregate amount of all premiums paid under the policy, without
interest, less the aggregate amount of all claims incurred under
the policy. for some policies, the return of premium rider does
not have any claim offset. the cash value rider is similar to the
return of premium rider, but also provides for payment of a graded
portion of the return of premium benefit if the policy terminates
before the return of premium benefit is earned.

premiums collected on supplemental health products in the
bankers Life segment relate to a new critical illness product that
was introduced in 2012. this critical illness insurance product
pays a lump sum cash benefit directly to the insured when the
insured is diagnosed with a specified critical illness. the product
is designed to provide additional financial protection associated
with treatment and recovery as well as cover non-medical expenses
such as: (i) loss of income; (ii) at home recovery or treatment;
(iii) experimental and/or alternative medicine; (iv) co-pays,
deductibles and out-of-network expenses; and (v) child care and
transportation costs.
Other Health Products

collected premiums on other health products were $13.9 million
during 2013. this category includes various other health products
such as major medical health insurance, senior hospital indemnity
and disability income products which are sold in small amounts
and other products which are no longer actively marketed.

Annuities

ANNUITy PREMIUM COLLECTIONS (DOLLARS IN MILLIONS)

fixed index annuity:

bankers Life
other cno business

total fixed index annuity premium collections

other fixed rate annuity:

bankers Life
other cno business

total fixed rate annuity premium collections
TOTAL ANNUITY PREMIUM COLLECTIONS

2013

566.8
3.8
570.6

177.3
.8
178.1
748.7

2012

505.0 $
2.9
507.9

204.0
.9
204.9
712.8 $

2011

708.4
13.4
721.8

277.1
3.0
280.1
1,001.9

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1 Business of CNO

during 2013, we collected annuity premiums of $748.7 million
or 22 percent of our total premiums collected. annuity products
include fixed index annuity, traditional fixed rate annuity and
single premium immediate annuity products sold through bankers
Life. annuities offer a tax-deferred means of accumulating savings
for retirement needs, and provide a tax-efficient source of income
in the payout period. our major source of income from fixed rate
annuities is the spread between the investment income earned on
the underlying general account assets and the interest credited to
contractholders’ accounts. for fixed index annuities, our major
source of income is the spread between the investment income
earned on the underlying general account assets and the cost of
the index options purchased to provide index-based credits to the
contractholders’ accounts.

the change in mix of premium collections between bankers Life’s
fixed index products and fixed annuity products has fluctuated
due to volatility in the financial markets in recent periods. in
addition, premium collections from bankers Life’s fixed annuity
products decreased in 2013 and 2012 as low market interest rates
negatively impacted the attractiveness to the consumer of these
products.

the following describes the major annuity products:

Fixed Index Annuities

these products accounted for $570.6 million, or 17 percent, of
our total premium collections during 2013. the account value (or
“accumulation value”) of these annuities is credited in an amount
that is based on changes in a particular index during a specified
period of time. Within each contract issued, each fixed index
annuity specifies:

• the index to be used.

• the time period during which the change in the index is
measured. at the end of the time period, the change in the index
is applied to the account value. the time period of the contract
ranges from 1 to 4 years.

• the method used to measure the change in the index.

• the measured change in the index is multiplied by a “participation
rate” (percentage of change in the index) before the credit is
applied. Some policies guarantee the initial participation rate for
the life of the contract, and some vary the rate for each period.

• the measured change in the index may also be limited by a
“cap” before the credit is applied. Some policies guarantee the
initial cap for the life of the contract, and some vary the cap for
each period.

• the measured change in the index may also be limited to the
excess in the measured change over a “margin” before the credit
is applied. Some policies guarantee the initial margin for the life
of the contract, and some vary the margin for each period.

these products have guaranteed minimum cash surrender values,
regardless of actual index performance and the resulting indexed-
based interest credits applied.

We have generally been successful at hedging increases to
policyholder benefits resulting from increases in the indices to
which the product’s return is linked.

CNO FINANCIAL GROUP, INC. - Form 10-K

Other Fixed Rate Annuities

these products include fixed rate single-premium deferred
flexible premium deferred annuities
annuities (“Spdas”),
(“fpdas”) and single-premium immediate annuities (“Spias”).
these products accounted for $178.1 million, or 5 percent, of
our total premium collections during 2013, of which Spdas and
fpdas comprised $162.9 million. our fixed rate Spdas and
fpdas typically have an interest rate (the “crediting rate”) that is
guaranteed by the company for the first policy year, after which
we have the discretionary ability to change the crediting rate to any
rate not below a guaranteed minimum rate. the guaranteed rates
on annuities written recently range from 1.0 percent to 1.7 percent,
and the rates on all policies inforce range from 1.0 percent to
5.5 percent. the initial crediting rate is largely a function of:

• the interest rate we can earn on invested assets acquired with the

new annuity fund deposits;

• the costs related to marketing and maintaining the annuity

products; and

• the rates offered on similar products by our competitors.

for subsequent adjustments to crediting rates, we take into account
current and prospective yields on investments, annuity surrender
assumptions, competitive industry pricing and the crediting rate
history for particular groups of annuity policies with similar
characteristics.

in 2013, a significant portion of our new annuity sales were “bonus
interest” products. the initial crediting rate on these products
generally specifies a bonus crediting rate of up to .5 percent of the
annuity deposit for the first policy year only. after the first year, the
bonus interest portion of the initial crediting rate is automatically
discontinued, and the renewal crediting rate is established. as of
december 31, 2013, the average crediting rate, excluding bonuses,
on our outstanding traditional annuities was 3.1 percent.

Withdrawals from deferred annuities we are currently selling are
generally subject to a surrender charge of 8 percent to 10 percent in
the first year, declining to zero over a 5 to 12 year period, depending
on issue age and product. Surrender charges are set at levels
intended to protect the company from loss on early terminations
and to reduce the likelihood that policyholders will terminate their
policies during periods of increasing interest rates. this practice is
intended to lengthen the duration of policy liabilities and to enable
us to maintain profitability on such policies.

penalty-free withdrawals from deferred annuities of up to
10 percent of either premiums or account value are available in
most plans after the first year of the annuity’s term.

Some deferred annuity products apply a market value adjustment
during the surrender charge period. this adjustment is determined
by a formula specified in the annuity contract, and may increase
or decrease the cash surrender value depending on changes in the
amount and direction of market interest rates or credited interest
rates at the time of withdrawal. the resulting cash surrender values
will be at least equal to the guaranteed minimum values.

Spias accounted for $15.2 million, or .4 percent, of our total
premiums collected in 2013. Spias are designed to provide a
series of periodic payments for a fixed period of time or for life,

PART I
ITEM 1 Business of CNO

according to the policyholder’s choice at the time of issuance. once
the payments begin, the amount, frequency and length of time
over which they are payable are fixed. Spias often are purchased
by persons at or near retirement age who desire a steady stream
of payments over a future period of years. the single premium is

often the payout from a deferred annuity contract. the implicit
interest rate on Spias is based on market conditions when the
policy is issued. the implicit interest rate on our outstanding
Spias averaged 7.2 percent at december 31, 2013.

Life Insurance

LIFE INSURANCE PREMIUM COLLECTIONS (DOLLARS IN MILLIONS)

interest-sensitive life products:

bankers Life
colonial penn
other cno business

total interest-sensitive life premium collections

traditional life:
bankers Life
Washington national
colonial penn
other cno business

total traditional life premium collections

TOTAL LIFE INSURANCE PREMIUM COLLECTIONS

Life products include traditional and interest-sensitive
life
insurance products. these products are currently sold through
the bankers Life, Washington national and colonial penn
segments. during 2013, we collected life insurance premiums of
$764.4 million, or 22 percent, of our total collected premiums.
Sales of life products are affected by the financial strength ratings
assigned to our insurance subsidiaries by independent rating
agencies. See “competition” below.

Interest-Sensitive Life Products

these products include universal life and other interest-sensitive
life products that provide life insurance with adjustable rates
of return related to current interest rates. they accounted for
$259.6 million, or 7 percent, of our total collected premiums in
2013. these products are marketed by independent producers and,
to a lesser extent, career agents (including independent producers
and career agents specializing in worksite sales). the principal
differences between universal life products and other interest-
sensitive life products are policy provisions affecting the amount
and timing of premium payments. universal life policyholders
may vary the frequency and size of their premium payments, and
policy benefits may also fluctuate according to such payments.
premium payments under other interest-sensitive policies may not
be varied by the policyholders. universal life products include fixed
index universal life products. the account value of these policies is
credited with interest at a guaranteed rate, plus additional interest
credits based on changes in a particular index during a specified
time period.

Traditional Life

these products accounted for $504.8 million, or 15 percent, of
our total collected premiums in 2013. traditional life policies,
including whole life, graded benefit life, term life and single
premium whole life products, are marketed through independent
producers, career agents and direct response marketing. under
whole life policies, the policyholder generally pays a level premium

2013

125.8
.3
133.5
259.6

242.5
13.4
227.3
21.6
504.8
764.4

2012

88.1 $
.5
140.1
228.7

226.5
14.2
211.4
24.9
477.0
705.7 $

2011

71.3
.6
152.9
224.8

178.7
16.0
195.8
26.5
417.0
641.8

over an agreed period or the policyholder’s lifetime. the annual
premium in a whole life policy is generally higher than the
premium for comparable term insurance coverage in the early
years of the policy’s life, but is generally lower than the premium
for comparable term insurance coverage in the later years of the
policy’s life. these policies combine insurance protection with a
savings component that gradually increases in amount over the
life of the policy. the policyholder may borrow against the savings
component generally at a rate of interest lower than that available
from other lending sources. the policyholder may also choose to
surrender the policy and receive the accumulated cash value rather
than continuing the insurance protection. term life products offer
pure insurance protection for life with a guaranteed level premium
for a specified period of time-typically 5, 10, 15 or 20 years. in
some instances, these products offer an option to return the
premium at the end of the guaranteed period.

life products also

include graded benefit

traditional
life
insurance products. graded benefit life products accounted for
$225.2 million, or 7 percent, of our total collected premiums in
2013. graded benefit life insurance products are offered on an
individual basis primarily to persons age 50 to 85, principally in
face amounts of $400 to $25,000, without medical examination
or evidence of insurability. premiums are paid as frequently as
monthly. benefits paid are less than the face amount of the policy
during the first two years, except in cases of accidental death. our
colonial penn segment markets graded benefit life policies under
its own brand name using direct response marketing techniques.
new policyholder leads are generated primarily from television,
print advertisements and direct response mailings.

traditional life products also include single premium whole life
insurance. this product requires one initial lump sum payment
in return for providing life insurance protection for the insured’s
entire lifetime. Single premium whole life products accounted
for $70.4 million, or 2.0 percent, of our total collected premiums
in 2013.

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1 Business of CNO

Investments

40|86 advisors, inc. (“40|86 advisors”, a registered investment
advisor and wholly owned subsidiary of cno) manages the
investment portfolios of our insurance subsidiaries. 40|86 advisors
had approximately $26.8 billion of assets (at fair value) under
management at december 31, 2013, of which $26.6 billion were
our assets and $.2 billion were assets managed for third parties.
our general account investment strategies are to:

• provide largely stable investment income from a diversified high

quality fixed income portfolio;

• maximize and maintain a stable spread between our investment

income and the yields we pay on insurance products;

• sustain adequate liquidity levels to meet operating cash

requirements;

• continually monitor and manage the relationship between our
investment portfolio and the financial characteristics of our
insurance reserves such as durations and cash flows; and

• maximize total return through active investment management.

investment activities are an important and integral part of our
business because investment income is a significant component of
our revenues. the profitability of many of our insurance products
is significantly affected by spreads between interest yields on
investments and rates credited on insurance liabilities. also, certain
insurance products are priced based on long term assumptions
including investment returns. although substantially all credited
rates on Spdas, fpdas and interest sensitive life products may be
changed annually (subject to minimum guaranteed rates), changes
in crediting rates may not be sufficient to maintain targeted
investment spreads in all economic and market environments.
in addition, competition, minimum guaranteed rates and other
factors, including the impact of surrenders and withdrawals, may
limit our ability to adjust or to maintain crediting rates at levels
necessary to avoid narrowing of spreads under certain market
conditions. as of december 31, 2013, the average yield, computed
on the cost basis of our fixed maturity portfolio, was 5.6 percent,
and the average interest rate credited or accruing to our total
insurance liabilities was 4.5 percent.

We manage the equity-based risk component of our fixed index
annuity products by:

• purchasing

equity-based options with

similar payoff

characteristics; and

• adjusting the participation rate to reflect the change in the cost
of such options (such cost varies based on market conditions).

the price of the options we purchase to manage the equity-
based risk component of our fixed index annuities varies based
on market conditions. all other factors held constant, the price of
the options generally increases with increases in the volatility of
the applicable indices, which may either reduce the profitability of
the fixed index products or cause us to lower participation rates.
accordingly, volatility of the indices is one factor in the uncertainty
regarding the profitability of our fixed index products. We attempt
to mitigate this risk by adjusting participation rates to reflect the
change in the cost of such options.

our invested assets are predominately fixed rate in nature and
their value fluctuates with changes in market rates. We seek to
manage the interest rate risk inherent in our business by managing
the durations and cash flows of our fixed maturity investments
along with those of the related insurance liabilities. for example,
one management measure we use is asset and liability duration.
duration measures expected change in fair value for a given
change in interest rates. if interest rates increase by 1 percent, the
fair value of a fixed maturity security with a duration of 5 years is
typically expected to decrease in value by approximately 5 percent.
When the estimated durations of assets and liabilities are similar,
a change in the value of assets should be largely offset by a change
in the value of liabilities.

We calculate asset and liability durations using our estimates of
future asset and liability cash flows. at december 31, 2013, the
duration of our fixed income securities (as modified to reflect
prepayments and potential calls) was approximately 8.2 years
and the duration of our insurance liabilities was approximately
8.1 years. While our investment portfolio had a longer duration
and, consequently, was more sensitive to interest rate fluctuations
than our liabilities at that date, this sensitivity was within
our guidelines.

Competition

the markets in which we operate are competitive. compared
to cno, many companies in the financial services industry are
larger, have greater capital, technological and marketing resources,
have greater access to capital and other sources of liquidity at a
lower cost, offer broader and more diversified product lines, have
greater brand recognition, have larger staffs and higher ratings. an
expanding number of banks, securities brokerage firms and other
financial intermediaries also market insurance products or offer
competing products, such as mutual fund products, traditional
bank investments and other investment and retirement funding

alternatives. We also compete with many of these companies and
others in providing services for fees. in most areas, competition is
based on a number of factors including pricing, service provided
to distributors and policyholders and ratings. cno’s subsidiaries
must also compete to attract and retain the allegiance of agents,
insurance brokers and marketing companies.

in the individual health insurance business, companies compete
primarily on the bases of marketing, service and price. pursuant
to federal regulations, the Medicare supplement products offered

CNO FINANCIAL GROUP, INC. - Form 10-K

PART I
ITEM 1 Business of CNO

by all companies have standardized policy features. this increases
the comparability of such policies and intensifies competition
based on other factors. See “-insurance underwriting” and
information. in
“governmental regulation” for additional
addition to competing with the products of other insurance
companies, commercial banks, thrifts, mutual funds and broker
dealers, our insurance products compete with health maintenance
organizations, preferred provider organizations and other health
care-related institutions which provide medical benefits based on
contractual agreements.

our principal competitors vary by product line. our main
competitors for agent-sold long-term care insurance products
include genworth, Mutual of omaha and northwestern Mutual.
our main competitors for agent-sold Medicare supplement
insurance products include blue cross and blue Shield plans,
Mutual of omaha and united healthcare. our main competitors
for life insurance sold through direct marketing channels include
gerber Life, MetLife, Mutual of omaha, new York Life and
subsidiaries of torchmark. our main competitors for supplemental
health products sold through our Washington national segment
include afLac, subsidiaries of allstate, colonial Life and
accident company and subsidiaries of torchmark.

in some of our product lines, such as life insurance and fixed
annuities, we have a relatively small market share. even in some of
the lines in which we are one of the top writers, our market share
is relatively small. for example, while, based on an individual
Long-term care insurance Survey, our bankers Life segment
ranked eighth in annualized premiums of individual long-term
care insurance in 2012 with a market share of approximately
2.8 percent, the top seven writers of individual long-term care
insurance had annualized premiums with a combined market
share of approximately 87 percent during the period. in addition,
while, based on the naic’s 2012 Medicare Supplement Loss
ratios report, we ranked fifth in direct premiums earned for
Medicare supplement insurance in 2012 with a market share of
3.8 percent, the top writer of Medicare supplement insurance had
direct premiums with a market share of 33 percent during the
period.

Most of our major competitors have higher financial strength
ratings than we do. Many of our competitors are larger companies
that have greater capital, technological and marketing resources
and have access to capital at a lower cost. recent industry
consolidation, including business combinations among insurance
and other financial services companies, has resulted in larger
competitors with even greater financial resources. furthermore,
changes in federal law have narrowed the historical separation
between banks and insurance companies, enabling traditional
banking institutions to enter the insurance and annuity markets
and further increase competition. this increased competition may
harm our ability to maintain or improve our profitability.

not also lower our prices for similar products, we may lose market
share to these competitors. if we lower our prices to maintain
market share, our profitability will decline.

the colonial penn segment has faced increased competition from
other insurance companies who also distribute products through
direct marketing. in addition, the demand and cost of television
advertising appropriate for colonial penn’s campaigns has
increased. in recent periods, higher advertising costs have increased
the average cost to generate a tV lead, and may potentially
negatively impact the percentage of leads that ultimately purchase
a colonial penn policy.

an important competitive factor for life insurance companies
is the ratings they receive from nationally recognized rating
organizations. agents,
insurance brokers and marketing
companies who market our products and prospective purchasers
of our products use the ratings of our insurance subsidiaries as
one factor in determining which insurer’s products to market or
purchase. ratings have the most impact on our sales in the worksite
market and sales of our annuity, interest-sensitive life insurance
and long-term care products. financial strength ratings provided
by a.M. best company (“a.M. best”), fitch ratings (“fitch”),
Standard & poor’s corporation (“S&p”) and Moody’s investor
Services, inc. (“Moody’s”) are the rating agency’s opinions of the
ability of our insurance subsidiaries to pay policyholder claims and
obligations when due. they are not directed toward the protection
of investors, and such ratings are not recommendations to buy,
sell or hold securities. as summarized below, all four of these
rating agencies have upgraded the financial strength ratings of our
primary insurance subsidiaries, except conseco Life, over the last
two years.

on february 6, 2014, the “baa3” financial strength ratings of our
primary insurance subsidiaries, except conseco Life, were placed
on review for upgrade by Moody’s. Moody’s also affirmed the
financial strength rating of “ba1” of conseco Life with a stable
outlook. a rating under review indicates that a rating is under
consideration for a change in the near term. Most rating reviews
are completed within 45 to 180 days; however, some reviews are
completed more quickly and many require considerably more time.
on august 29, 2012, Moody’s upgraded the financial strength
ratings of our primary insurance subsidiaries, except conseco
Life, to “baa3” from “ba1”. a “stable” designation means that a
rating is not likely to change. Moody’s financial strength ratings
range from “aaa” to “c”. these ratings may be supplemented
with numbers “1”, “2”, or “3” to show relative standing within a
category. in Moody’s view, an insurer rated “baa” offers adequate

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1 Business of CNO

financial security, however, certain protective elements may be
lacking or may be characteristically unreliable over any great length
of time. in Moody’s view, an insurer rated “ba” offers questionable
financial security and, often, the ability of these companies to
meet policyholders’ obligations may be very moderate and thereby
not well safeguarded in the future. Moody’s has twenty-one
possible ratings. there are nine ratings above the “baa3” rating
of our primary insurance subsidiaries, other than conseco Life,
and eleven ratings that are below the rating. there are ten ratings
above the “ba1” rating of conseco Life and ten ratings that are
below that rating.

on September 27, 2013, a.M. best affirmed the financial strength
rating of “b++” of our primary insurance subsidiaries as well as
the “b-” rating of conseco Life and the outlook for all of these
ratings is stable. on September 4, 2012, a.M. best upgraded the
financial strength ratings of our primary insurance subsidiaries,
except conseco Life, to “b++” from “b+”. a.M. best also affirmed
the financial strength rating of “b-” of conseco Life. the outlook
for all ratings is stable. a “stable” designation means that there is
a low likelihood of a rating change due to stable financial market
trends. the “b++” rating is assigned to companies that have a good
ability, in a.M. best’s opinion, to meet their ongoing obligations
to policyholders. a “b-” rating is assigned to companies that have a
fair ability, in a.M. best’s opinion, to meet their current obligations
to policyholders, but are financially vulnerable to adverse changes
in underwriting and economic conditions. a.M. best ratings
for the industry currently range from “a++ (Superior)” to “f
(in Liquidation)” and some companies are not rated. an “a++”
rating indicates a superior ability to meet ongoing obligations to
policyholders. a.M. best has sixteen possible ratings. there are
four ratings above the “b++” rating of our primary insurance
subsidiaries, other than conseco Life, and eleven ratings that are
below that rating. there are seven ratings above the “b-” rating of
conseco Life and eight ratings that are below that rating.

on September 20, 2013, fitch affirmed the financial strength
ratings of “bbb” of our primary insurance subsidiaries as well
as the “bb+” rating of conseco Life and the outlook for all of
these ratings is stable. on february 3, 2012, fitch upgraded the
financial strength ratings of our primary insurance subsidiaries,
except conseco Life, to “bbb” (from “bbb-” or “bb+” depending
on the company). fitch also affirmed the financial strength rating
of “bb+” of conseco Life. a “bbb” rating, in fitch’s opinion,
indicates that there is currently a low expectation of ceased or
interrupted payments. the capacity to meet policyholder and
contract obligations on a timely basis is considered adequate,
but adverse changes in circumstances and economic conditions
are more likely to impact this capacity. a “bb” rating, in fitch’s
opinion, indicates that there is an elevated vulnerability to ceased
or interrupted payments, particularly as the result of adverse
economic or market changes over time. however, business or
financial alternatives may be available to allow for policyholder

and contract obligations to be met in a timely manner. fitch
ratings for the industry range from “aaa exceptionally Strong”
to “c distressed” and some companies are not rated. pluses and
minuses show the relative standing within a category. fitch has
nineteen possible ratings. there are eight ratings above the “bbb”
rating of our primary insurance subsidiaries, other than conseco
Life, and ten ratings that are below that rating. there are ten
ratings above the “bb+” rating of conseco Life and eight ratings
that are below that rating.

on May 3, 2013, S&p upgraded the financial strength ratings
of our primary insurance subsidiaries, except conseco Life, to
“bbb-” from “bb+”. on July 24, 2013, S&p again upgraded the
financial strength ratings of our primary insurance subsidiaries,
except conseco Life, to “bbb” from “bbb-”. also, on July 24,
2013, S&p downgraded the financial strength rating of conseco
Life to “b” from “b+”. the outlook for all ratings is stable. a
“stable” outlook means that a rating is not likely to change. S&p
financial strength ratings range from “aaa” to “r” and some
companies are not rated. an insurer rated “bbb” or higher is
regarded as having financial security characteristics that outweigh
any vulnerabilities, and is highly likely to have the ability to
meet financial commitments. an insurer rated “bbb”, in S&p’s
opinion, has good financial security characteristics, but is more
likely to be affected by adverse business conditions than are higher
rated insurers. pluses and minuses show the relative standing
within a category. in S&p’s view, an insurer rated “b” has weak
financial security characteristics and adverse business conditions
will likely impair its ability to meet financial commitments. S&p
has twenty-one possible ratings. there are eight ratings above the
“bbb” rating of our primary insurance subsidiaries, other than
conseco Life, and twelve ratings that are below that rating. there
are fourteen ratings above the “b” rating of conseco Life and
six ratings that are below that rating.

rating agencies have increased the frequency and scope of their
credit reviews and requested additional information from the
companies that they rate, including us. they may also adjust
upward the capital and other requirements employed in the
rating agency models for maintenance of certain ratings levels.
We cannot predict what actions rating agencies may take, or what
actions we may take in response. accordingly, downgrades and
outlook revisions related to us or the life insurance industry may
occur in the future at any time and without notice by any rating
agency. these could increase policy surrenders and withdrawals,
adversely affect relationships with our distribution channels,
reduce new sales, reduce our ability to borrow and increase our
future borrowing costs.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART I
ITEM 1 Business of CNO

Insurance Underwriting

under regulations developed by the national association of
insurance commissioners (the “naic”) (an association of state
regulators and their staffs) and adopted by the states, we are
prohibited from underwriting our Medicare supplement policies
for certain first-time purchasers. if a person applies for insurance
within six months after becoming eligible by reason of age, or
disability in certain limited circumstances, the application may
not be rejected due to medical conditions. Some states prohibit
underwriting of all Medicare supplement policies. for other
prospective Medicare supplement policyholders, such as senior
citizens who are transferring to our products, the underwriting
procedures are relatively limited, except for policies providing
prescription drug coverage.

before issuing long-term care products, we generally apply detailed
underwriting procedures to assess and quantify the insurance risks.
We require medical examinations of applicants (including blood
and urine tests, where permitted) for certain health insurance
products and for life insurance products which exceed prescribed
policy amounts. these requirements vary according to the
applicant’s age and may vary by type of policy or product. We also
rely on medical records and the potential policyholder’s written
application. in recent years, there have been significant regulatory
changes with respect to underwriting certain types of health
insurance. an increasing number of states prohibit underwriting
and/or charging higher premiums for substandard risks. We

Liabilities for Insurance Products

at december 31, 2013, the total balance of our liabilities for
insurance products was $24.9 billion. these liabilities are generally
payable over an extended period of time. the profitability of
our insurance products depends on pricing and other factors.
differences between our expectations when we sold these products
and our actual experience could result in future losses.

for

insurance products are calculated using
Liabilities
management’s best judgments, based on our past experience and
standard actuarial tables, of mortality, morbidity, lapse rates,
investment experience and expense levels with due consideration
of provision for adverse development where prescribed by
accounting principles generally accepted in the united States of
america (“gaap”). for all of our insurance products, we establish
an active life reserve, a liability for due and unpaid claims, claims
in the course of settlement and incurred but not reported claims.
in addition, for our health insurance business, we establish a
reserve for the present value of amounts not yet due on incurred

monitor changes in state regulation that affect our products,
and consider these regulatory developments in determining the
products we market and where we market them.

our supplemental health policies are individually underwritten
using a simplified issue application. based on an applicant’s
responses on the application, the underwriter either: (i) approves
the policy as applied for; (ii) approves the policy with reduced
benefits; or (iii) rejects the application.

Most of our life insurance policies are underwritten individually,
although standardized underwriting procedures have been adopted
for certain low face-amount life insurance coverages. after initial
processing, insurance underwriters obtain the information needed
to make an underwriting decision (such as medical examinations,
doctors’ statements and special medical tests). after collecting and
reviewing the information, the underwriter either: (i) approves
the policy as applied for; (ii) approves the policy with an extra
premium charge because of unfavorable factors; or (iii) rejects
the application.

We underwrite group insurance policies based on the characteristics
of the group and its past claim experience. graded benefit life
insurance policies are issued without medical examination or
evidence of insurability. there is minimal underwriting on
annuities.

claims. Many factors can affect these reserves and liabilities,
such as economic and social conditions, inflation, hospital and
pharmaceutical costs, changes in doctrines of legal liability and
extra-contractual damage awards. therefore, our reserves and
liabilities are necessarily based on extensive estimates, assumptions
and historical experience. establishing reserves is an uncertain
process, and it is possible that actual claims will materially exceed
our reserves and have a material adverse effect on our results of
operations and financial condition. our financial results depend
significantly upon the extent to which our actual claims experience
is consistent with the assumptions we used in determining our
reserves and pricing our products. if our assumptions are incorrect
with respect to future claims, future policyholder premiums and
policy charges or the investment income on assets supporting
liabilities, or our reserves are insufficient to cover our actual losses
and expenses, we would be required to increase our liabilities,
which would negatively affect our operating results.

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1 Business of CNO

Reinsurance

consistent with the general practice of the life insurance industry,
our subsidiaries enter into both facultative and treaty agreements
of indemnity reinsurance with other insurance companies in order
to reinsure portions of the coverage provided by our insurance
products. indemnity reinsurance agreements are intended to
limit a life insurer’s maximum loss on a large or unusually
hazardous risk or to diversify its risk. indemnity reinsurance
does not discharge the original insurer’s primary liability to the
insured. our reinsured business is ceded to numerous reinsurers.
based on our periodic review of their financial statements,

insurance industry reports and reports filed with state insurance
departments, we believe the assuming companies are able to honor
all contractual commitments.

as of december 31, 2013, the policy risk retention limit of our
insurance subsidiaries was generally $.8 million or less. reinsurance
ceded by cno represented 21 percent of gross combined life
insurance inforce and reinsurance assumed represented .7 percent
of net combined life insurance inforce. our principal reinsurers at
december 31, 2013 were as follows (dollars in millions):

Name of Reinsurer
Wilton reassurance company
Swiss re Life and health america inc.
Security Life of denver insurance company
Jackson national Life insurance company (“Jackson”)(a)
Munich american reassurance company
rga reinsurance company
Lincoln national Life insurance company
Scor global Life re insurance co of texas
hannover Life reassurance company
general re Life corporation
all others(b)

Ceded life insurance inforce
2,818.3
$
2,471.8
1,879.6
962.4
700.4
579.0
395.3
361.4
266.2
220.4
822.8
11,477.6

A.M. Best rating

a
a+
a
a+
a+
a+
a+
a
a+
a++

(a) In addition to the life insurance business summarized above, Jackson has assumed certain annuity business from our insurance subsidiaries through a coinsurance

agreement. Such business had total insurance policy liabilities of $1.5 billion at December 31, 2013.

(b) No other single reinsurer assumed greater than 2 percent of the total ceded business inforce.

in december 2013, two of our insurance subsidiaries with long-
term care business in the other cno business segment entered
into 100% coinsurance agreements ceding $495 million of long-
term care reserves to beechwood re Ltd. (“bre”), a reinsurer
domiciled in the cayman islands. bre was formed in 2012 and is
focused on specialized insurance including long-term care. bre is
a reinsurer that is not licensed, accredited or approved by the states

of domicile of the insurance subsidiaries ceding the long-term care
business. however, the insurance companies’ ceded reserve credits
will be secured by assets in market-value trusts subject to a 7%
over collateralization, investment guidelines and periodic true-up
provisions. future payments into the trusts to maintain collateral
requirements are the responsibility of bre.

Employees

at december 31, 2013, we had approximately 4,250 full time
employees, including 1,750 employees supporting our bankers
Life segment, 300 employees supporting our colonial penn
segment and 2,200 employees supporting our shared services and

our Washington national, other cno business and corporate
segments. none of our employees are covered by a collective
bargaining agreement. We believe that we have good relations
with our employees.

Governmental Regulation

our insurance businesses are subject to extensive regulation and
supervision by the insurance regulatory agencies of the jurisdictions
in which they operate. this regulation and supervision is primarily
for the benefit and protection of customers, and not for the benefit
of investors or creditors. State laws generally establish supervisory
agencies that have broad regulatory authority, including the
power to:

• grant and revoke business licenses;

• regulate and supervise sales practices and market conduct;

CNO FINANCIAL GROUP, INC. - Form 10-K

• establish guaranty associations;

• license agents;

• approve policy forms;

• approve premium rates and premium rate increases for some lines
of business such as long-term care and Medicare supplement;

• establish reserve requirements;

• prescribe the form and content of required financial statements

and reports;

• determine the reasonableness and adequacy of statutory capital

and surplus;

• perform financial, market conduct and other examinations;

• define acceptable accounting principles; and

• regulate the types and amounts of permitted investments.

in addition, the naic develops model laws and regulations, many
of which have been adopted by state legislators and/or insurance
regulators, relating to:

• reserve requirements;

• risk-based capital (“rbc”) standards;

• codification of insurance accounting principles;

• investment restrictions;

• restrictions on an insurance company’s ability to pay dividends;

• credit for reinsurance; and

• product illustrations.

in addition to the regulations described above, most states have also
enacted laws or regulations regarding the activities of insurance
holding company systems, including acquisitions, the terms of
surplus debentures, the terms of transactions between or involving
insurance companies and their affiliates and other related matters.
Various reporting and approval requirements apply to transactions
between or involving insurance companies and their affiliates
within an insurance holding company system, depending on the
size and nature of the transactions. currently, the company and
its insurance subsidiaries are registered as a holding company
system pursuant to such laws and regulations in the domiciliary
states of the insurance subsidiaries. in addition, the company’s
insurance subsidiaries routinely report to other jurisdictions.

• statutory net gain from operations or statutory net income for

the prior year; or

• 10 percent of statutory capital and surplus at the end of the

preceding year.

any dividends in excess of these levels require the approval
of the director or commissioner of the applicable state
insurance department.

PART I
ITEM 1 Business of CNO

in accordance with an order from the florida office of insurance
regulation, Washington national may not distribute funds to
any affiliate or shareholder without prior notice to the florida
office of insurance regulation. in addition, the rbc and
other capital requirements described below can also limit, in
certain circumstances, the ability of our insurance subsidiaries to
pay dividends.

our insurance subsidiaries that have long-term care business have
made insurance regulatory filings seeking actuarially justified
rate increases on our long-term care policies. Most of our long-
term care business is guaranteed renewable, and, if necessary
rate increases are not approved, we may be required to write off
all or a portion of the deferred acquisition costs and the present
value of future profits (collectively referred to as “insurance
acquisition costs”) and establish a premium deficiency reserve. if
we are unable to raise our premium rates because we fail to obtain
approval for actuarially justified rate increases in one or more
states, our financial condition and results of operations could be
adversely affected.

during 2006, the florida legislature enacted a statute, known as
house bill 947, intended to provide new protections to long-term
care insurance policyholders. among other requirements, this
statute requires: (i) claim experience of affiliated long-term care
insurers to be pooled in determining justification for rate increases
for florida policyholders; and (ii) insurers with closed blocks of
long-term care insurance to not raise rates above the comparable
new business premium rates offered by affiliated insurers. the
manner in which the requirements of this statute are applied to
our long-term care policies in florida (including policies subject
to the order from the florida office of insurance regulation
as described in “Management’s discussion and analysis of
consolidated financial condition and results of operations”)
may affect our ability to achieve our anticipated rate increases on
this business.

Most states have also enacted legislation or adopted administrative
regulations that affect the acquisition (or sale) of control of
insurance companies. the nature and extent of such legislation and
regulations vary from state to state. generally, these regulations
require an acquirer of control to file detailed information and the
plan of acquisition, and to obtain administrative approval prior
to the acquisition of control. “control” is generally defined as
the direct or indirect power to direct or cause the direction of the
management and policies of a person and is rebuttably presumed to
exist if a person or group of affiliated persons directly or indirectly
owns or controls 10 percent or more of the voting securities of
another person.

using statutory statements filed with state regulators annually, the
naic calculates certain financial ratios to assist state regulators
in monitoring the financial condition of insurance companies.
a “usual range” of results for each ratio is used as a benchmark.
an insurance company may fall out of the usual range for one or
more ratios because of specific transactions that are in themselves
immaterial or eliminated at the consolidated level. generally, an
insurance company will become subject to regulatory scrutiny if
it falls outside the usual ranges of four or more of the ratios, and
regulators may then act, if the company has insufficient capital,
to constrain the company’s underwriting capacity. in the past,
variances in certain ratios of our insurance subsidiaries have

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1 Business of CNO

resulted in inquiries from insurance departments, to which we
have responded. these inquiries have not led to any restrictions
affecting our operations.

the naic’s rbc requirements provide a tool for insurance
regulators to determine the levels of statutory capital and surplus an
insurer must maintain in relation to its insurance and investment
risks and the need for possible regulatory attention. the rbc
requirements provide four levels of regulatory attention, varying
with the ratio of the insurance company’s total adjusted capital
(“tac”, defined as the total of its statutory capital and surplus,
asset valuation reserve and certain other adjustments) to its rbc
(as measured on december 31 of each year), as follows:

• if a company’s total adjusted capital is less than 100 percent but
greater than or equal to 75 percent of its rbc (the “company
action Level”), the company must submit a comprehensive plan
to the regulatory authority proposing corrective actions aimed at
improving its capital position;

• if a company’s total adjusted capital is less than 75 percent but
greater than or equal to 50 percent of its rbc, the regulatory
authority will perform a special examination of the company
and issue an order specifying the corrective actions that must
be taken;

• if a company’s total adjusted capital is less than 50 percent but
greater than or equal to 35 percent of its rbc (the “authorized
control Level”), the regulatory authority may take any action
it deems necessary, including placing the company under
regulatory control; and

• if a company’s total adjusted capital is less than 35 percent of its
rbc (the “Mandatory control Level”), the regulatory authority
must place the company under its control.

in addition, the rbc requirements currently provide for a trend
test if a company’s total adjusted capital is between 100 percent
and 125 percent of its rbc at the end of the year. the trend test
calculates the greater of the decrease in the margin of total adjusted
capital over rbc:

• between the current year and the prior year; and

• for the average of the last 3 years.

it assumes that such decrease could occur again in the coming
year. any company whose trended total adjusted capital is less
than 95 percent of its rbc would trigger a requirement to submit
a comprehensive plan as described above for the company action
Level. in 2011, the naic approved an increase in the rbc
requirements that would subject a company to the trend test if
a company’s total adjusted capital is between 100 percent and
150 percent of its rbc at the end of the year (previously between
100 percent and 125 percent). however, this change will require
the states to modify their rbc law before it becomes effective for
their domiciled insurance companies. the 2013 statutory annual
statements of each of our insurance subsidiaries reflect total
adjusted capital in excess of the levels subjecting the subsidiaries
to any regulatory action.

in addition, although we are under no obligation to do so, we may
elect to contribute additional capital or retain greater amounts of
capital to strengthen the surplus of certain insurance subsidiaries.
any election to contribute or retain additional capital could
impact the amounts our insurance subsidiaries pay as dividends
to the holding company. the ability of our insurance subsidiaries
to pay dividends is also impacted by various criteria established by
rating agencies to maintain or receive higher ratings and by the
capital levels that we target for our insurance subsidiaries.

the naic has adopted model long-term care policy language
providing nonforfeiture benefits and has proposed a rate
stabilization standard for long-term care policies. Various bills are
introduced from time to time in the u.S. congress which propose
the implementation of certain minimum consumer protection
standards in all long-term care policies, including guaranteed
renewability, protection against inflation and limitations on
waiting periods for pre-existing conditions. federal legislation
permits premiums paid for qualified long-term care insurance to
be tax-deductible medical expenses and for benefits received on
such policies to be excluded from taxable income.

our insurance subsidiaries are required, under guaranty fund laws
of most states, to pay assessments up to prescribed limits to fund
policyholder losses or liabilities of insolvent insurance companies.
typically, assessments are levied on member insurers on a basis
which is related to the member insurer’s proportionate share of
the business written by all member insurers. assessments can be
partially recovered through a reduction in future premium taxes
in some states.

the company’s insurance subsidiaries are required to file
detailed annual reports, in accordance with prescribed statutory
accounting rules, with regulatory authorities in each of the
jurisdictions in which they do business. as part of their routine
oversight process, state insurance departments conduct periodic
detailed examinations, generally once every three to five years,
of the books, records and accounts of insurers domiciled in their
states. these examinations are generally conducted in cooperation
with the departments of two or three other states under guidelines
promulgated by the naic.

State regulatory authorities and industry groups have developed
several initiatives regarding market conduct, including the form
and content of disclosures to consumers, advertising, sales practices
and complaint handling. Various state insurance departments
periodically examine the market conduct activities of domestic
and non-domestic insurance companies doing business in their
states, including our insurance subsidiaries. the purpose of these
market conduct examinations is to determine if operations are
consistent with the laws and regulations of the state conducting
the examination. State regulators have imposed significant
fines and restrictions on our insurance company subsidiaries for
improper market conduct. See “Management’s discussion and
analysis of financial condition and results of operations”. in
addition, market conduct has become one of the criteria used by
rating agencies to establish the ratings of an insurance company.
for example, a.M. best’s ratings analysis now includes a review of
the insurer’s compliance program.

CNO FINANCIAL GROUP, INC. - Form 10-K

Most states mandate minimum benefit standards and benefit
ratios for accident and health insurance policies. We are generally
required to maintain, with respect to our individual long-term
care policies, minimum anticipated benefit ratios over the entire
period of coverage of not less than 60 percent. With respect to
our Medicare supplement policies, we are generally required to
attain and maintain an actual benefit ratio, after three years, of
not less than 65 percent. We provide to the insurance departments
of all states in which we conduct business annual calculations that
demonstrate compliance with required minimum benefit ratios for
both long-term care and Medicare supplement insurance. these
calculations are prepared utilizing statutory lapse and interest
rate assumptions. in the event that we fail to maintain minimum
mandated benefit ratios, our insurance subsidiaries could be
required to provide retrospective refunds and/or prospective rate
reductions. We believe that our insurance subsidiaries currently
comply with all applicable mandated minimum benefit ratios.

our insurance subsidiaries are subject to state laws and regulations
that require diversification of their investment portfolios and limit
the amount of investments in certain investment categories, such
as below-investment grade bonds, equity real estate and common
stocks. failure to comply with these laws and regulations would
cause investments exceeding regulatory limitations to be treated as
non-admitted assets for purposes of measuring statutory surplus,
and, in some instances, would require divestiture of such non-
qualifying investments. the investments made by our insurance
subsidiaries comply in all material respects with such investment
regulations as of december 31, 2013.

federal and state law and regulation require financial institutions
to protect the security and confidentiality of personal information,
including health-related and customer information, and to notify
customers and other individuals about their policies and practices
relating to their collection and disclosure of health-related and
customer information and their practices relating to protecting the
security and confidentiality of that information. State laws regulate
use and disclosure of social security numbers and federal and
state laws require notice to affected individuals, law enforcement,
regulators and others if there is a breach of the security of certain
personal information, including social security numbers. federal
and state laws and regulations regulate the ability of financial
institutions to make telemarketing calls and to send unsolicited
e-mail or fax messages to consumers and customers. federal
and state lawmakers and regulatory bodies may be expected to
consider additional or more detailed regulation regarding these
subjects and the privacy and security of personal information.
the united States department of health and human Services
has issued regulations under the health insurance portability and
accountability act relating to standardized electronic transaction
formats, code sets and the privacy of member health information.
these regulations, and any corresponding state legislation, affect
our administration of health insurance.

title iii of the uSa patriot act of 2001 (the “patriot act”),
amends the Money Laundering control act of 1986 and the bank
Secrecy act of 1970 to expand anti-money laundering (“aML”)
and financial transparency laws applicable to financial services
companies, including insurance companies. the patriot act,
among other things, seeks to promote cooperation among financial
institutions, regulators and law enforcement entities in identifying
parties that may be involved in terrorism, money laundering or

PART I
ITEM 1 Business of CNO

other illegal activities. to the extent required by applicable laws
and regulations, cno and its insurance subsidiaries have adopted
aML programs that include policies, procedures and controls to
detect and prevent money laundering, have designated compliance
officers to oversee the programs, provide for on-going employee
training and ensure periodic independent testing of the programs.
cno’s and the insurance subsidiaries’ aML programs, to the
extent required, also establish and enforce customer identification
programs and provide for the monitoring and the reporting to the
department of the treasury of certain suspicious transactions.

traditionally, the federal government has not directly regulated
the business of insurance. however, federal legislation and
administrative policies in several areas can significantly and
adversely affect insurance companies. Most prominently, the
patient protection and affordable care act and the health care
and education reconciliation act of 2010 give the u.S. federal
government direct regulatory authority over certain aspects of
the business of health insurance. in addition, the reform includes
major changes to the u.S. health care insurance marketplace.
among other changes, the reform legislation includes an individual
medical insurance coverage mandate, provides for penalties on
certain employers for failing to provide adequate coverage, creates
health insurance exchanges to attempt to facilitate the purchase
of insurance by individuals and small businesses, and addresses
policy coverages and exclusions as well as the medical loss ratios
of insurers. the legislation also includes changes in government
reimbursements and tax credits for individuals and employers
and alters federal and state regulation of health insurers. these
changes are being phased in through 2018. these changes are
directed toward major medical health insurance coverage, which
our insurance subsidiaries do not offer. rather, our core products
(e.g., Medicare supplement insurance, long-term care insurance,
and other limited benefit supplemental insurance products) are
not subject to or covered under the major provisions of this new
federal legislation.

in addition, the dodd-frank Wall Street reform and consumer
protection act of 2010 (the “dodd-frank act”) generally provides
for enhanced federal supervision of financial institutions, including
insurance companies in certain circumstances, and financial
activities that represent a systemic risk to financial stability
or the u.S. economy. under the dodd-frank act, a federal
insurance office has been established within the u.S. treasury
department to monitor all aspects of the insurance industry and
its authority will likely extend to most lines of insurance that are
written by the company, although the federal insurance office
is not empowered with any general regulatory authority over
insurers. the director of the federal insurance office serves in
an advisory capacity to the newly established financial Stability
oversight council and will have the ability to recommend that an
insurance company or an insurance holding company be subject
to heightened prudential standards by the federal reserve, if it is
determined that financial distress at the company could pose a
threat to financial stability in the u.S. the dodd-frank act also
provides for the preemption of state laws when inconsistent with
certain international agreements, and would streamline the state-
level regulation of reinsurance and surplus lines insurance. under
certain circumstances, the fdic can assume the role of a state
insurance regulator and initiate liquidation proceedings under
state law.

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1 Business of CNO

in 2009, the u.S. house of representatives passed the “helping
families Save their homes act of 2009”, which would grant
federal bankruptcy judges the ability to modify the terms of
certain mortgage loans by, among other things, reducing interest
rates and principal and extending repayments. because it would
permit judges to reduce, or “cram down” principal, this type of
legislation is referred to as “cram down” legislation. although the
u.S. Senate defeated the “cram down” aspects of this legislation,
similar legislation may be introduced in the future. Mortgage
loan modifications can affect the allocation of losses on certain
residential mortgage-backed securities (“rMbS”) transactions
including senior tranches of rMbS transactions that include
bankruptcy carve-outs, which provide that bankruptcy losses
above a specified threshold are allocated to all tranches pro rata
regardless of seniority. if similar mortgage-related legislation
is signed into law, it could cause loss of principal on or ratings

downgrades of certain of the company’s rMbS holdings,
including senior tranches of rMbS transactions that include
bankruptcy carve-outs.

in late 2011, the naic adopted Statement of Statutory accounting
principles no. 101, “income taxes a replacement of SSap 10r
and SSap 10” (“SSap 101”), with an effective date of January 1,
2012. under SSap 101, the criteria for determining the value of
deferred tax assets will be based on certain admissibility tests. in
addition, tax contingencies will be based on a gaap-like standard
using a “more likely than not” approach. these changes did not
have a material effect on our statutory capital and surplus.

the asset management activities of 40|86 advisors are subject
to various federal and state securities laws and regulations. the
Sec and the commodity futures trading commission are the
principal regulators of our asset management operations.

Federal Income Taxation

our annuity and life insurance products generally provide
policyholders with an income tax advantage, as compared to other
savings investments such as certificates of deposit and bonds,
because taxes on the increase in value of the products are deferred
until received by policyholders. With other savings investments,
the increase in value is generally taxed as earned. annuity benefits
and life insurance benefits, which accrue prior to the death of the
policyholder, are generally not taxable until paid. Life insurance
death benefits are generally exempt from income tax. also,
benefits received on immediate annuities (other than structured
settlements) are recognized as taxable income ratably, as opposed
to the methods used for some other investments which tend to
accelerate taxable income into earlier years. the tax advantage for
annuities and life insurance is provided in the internal revenue
code (the “code”), and is generally followed in all states and other
united States taxing jurisdictions.

congress has considered, from time to time, possible changes to
the u.S. tax laws, including elimination of the tax deferral on the
accretion of value of certain annuities and life insurance products.
it is possible that further tax legislation will be enacted which
would contain provisions with possible adverse effects on our
annuity and life insurance products.

our insurance company subsidiaries are taxed under the life
insurance company provisions of the code. provisions in the code
require a portion of the expenses incurred in selling insurance
products to be deducted over a period of years, as opposed to
immediate deduction in the year incurred. this provision increases
the tax for statutory accounting purposes, which reduces statutory
earnings and surplus and, accordingly, decreases the amount of
cash dividends that may be paid by the life insurance subsidiaries.

our income tax expense includes deferred income taxes arising
from temporary differences between the financial reporting and
tax bases of assets and liabilities, capital loss carryforwards and net
operating loss carryforwards (“noLs”). in evaluating our deferred
tax assets, we consider whether it is more likely than not that the
deferred tax assets will be realized. the ultimate realization of our
deferred tax assets depends upon generating future taxable income
during the periods in which our temporary differences become
deductible and before our noLs expire. in addition, the use of
our noLs is dependent, in part, on whether the internal revenue
Service (“irS”) ultimately agrees with the tax position we plan
to take in our current and future tax returns. accordingly, with
respect to our deferred tax assets, we assess the need for a valuation
allowance on an ongoing basis.

based upon information existing at the time of our emergence
from bankruptcy, we established a valuation allowance equal to
our entire balance of net deferred tax assets because, at that time,
the realization of such deferred tax assets in future periods was
uncertain. as of december 31, 2013, 2012 and 2011, we determined
that a full valuation allowance was no longer necessary. however,
as further discussed in the note to the consolidated financial
statements entitled “income taxes”, we continue to believe that
it is necessary to have a valuation allowance on a portion of our
deferred tax assets. this determination was made by evaluating
each component of the deferred tax assets and assessing the effects
of limitations or issues on the value of such component to be fully
recognized in the future.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART I
ITEM 1A Risk Factors

ITEM 1A. Risk Factors.

cno and its businesses are subject to a number of risks including general business and financial risk. any or all of such risks could have
a material adverse effect on the business, financial condition or results of operations of cno. in addition, please refer to the “cautionary
Statement regarding forward-Looking Statements” included in “item 7 - Management’s discussion and analysis of consolidated
financial condition and results of operations”.

Potential continuation of a low interest rate
environment for an extended period of time may
negatively impact our results of operations,
financial position and cash flows.

in recent periods, interest rates have been at or near historically
low levels. Some of our products, principally traditional whole life,
universal life, fixed rate and fixed index annuity contracts, expose
us to the risk that low or declining interest rates will reduce our
spread (the difference between the amounts that we are required
to pay under the contracts and the investment income we are able
to earn on the investments supporting our obligations under the
contracts). our spread is a key component of our net income. in
addition, investment income is an important component of the
profitability of our health products, especially long-term care and
supplemental health policies.

if interest rates were to decrease further or remain at low levels
for an extended period of time, we may have to invest new cash
flows or reinvest proceeds from investments that have matured or

have been prepaid or sold at yields that have the effect of reducing
our net investment income as well as the spread between interest
earned on investments and interest credited to some of our products
below present or planned levels. to the extent prepayment rates on
fixed maturity investments or mortgage loans in our investment
portfolio exceed our asumptions, this could increase the impact
of this risk. We can lower crediting rates on certain products to
offset the decrease in investment yield. however, our ability to
lower these rates may be limited by: (i) contractually guaranteed
minimum rates; or (ii) competition. in addition, a decrease in
crediting rates may not match the timing or magnitude of changes
in investment yields. currently, the vast majority of our products
with contractually guaranteed minimum rates, have crediting
rates set at the minimum rate. as a result, further decreases in
investment yields would decrease the spread we earn and such
spread could potentially become a loss.

the following table summarizes the distribution of annuity and
universal life account values, net of amounts ceded, by guaranteed
interest crediting rates as of december 31, 2013 (dollars in millions):

Guaranteed rate
> 6.0% to 8.0%
> 5.0% to 6.0%
> 4.0% to 5.0%
> 3.0% to 4.0%
> 2.0% to 3.0%
> 1.0% to 2.0%
1.0% and under

Weighted average

in addition, during periods of declining or low interest rates,
life and annuity products may be relatively more attractive to
consumers, resulting in increased premium payments on products
with flexible premium features, repayment of policy loans and
increased persistency (a higher percentage of insurance policies
remaining in force from year-to-year).

our expectation of future investment income is an important
consideration in determining the amortization of insurance
acquisition costs and analyzing the recovery of these assets as well as
determining the adequacy of our liabilities for insurance products.
expectations of lower future investment earnings may cause us
to accelerate amortization, write down the balance of insurance
acquisition costs or establish additional liabilities for insurance
products, thereby reducing net income in the future periods.

Fixed rate and fixed
index annuities

— $
.2
84.7
1,517.4
3,341.7
1,183.4
1,861.8
7,989.2

2.31%

Universal
life
— $

36.1
861.7
1,084.0
376.5
5.2
102.3
2,465.8

Total
—
36.3
946.4
2,601.4
3,718.2
1,188.6
1,964.1
10,455.0

3.89%

2.68%

the blocks of business in our other cno business segment are
particularly sensitive to changes in our expectations of future
interest rates. Since the interest sensitive blocks in this segment are
not expected to generate future profits, the entire impact of adverse
changes to our earlier estimate of future gross profits is recognized
in earnings in the period such changes occur. for example, in
2012 and 2011, we recognized a pre-tax reduction in earnings of
approximately $43 million and $13 million, respectively, in the
other cno business segment primarily due to increases in future
loss reserves resulting from decreased projected future investment
yields related to investments backing our interest-sensitive
insurance products. the earnings reduction in 2012 resulted from
our review of interest rate assumptions on all of our products. as a
result of this review, we lowered our new money rate assumptions
used in determining our projections of future investment income.
the new money rate is the rate of return we receive on cash flows

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1A Risk Factors

invested at a current date. if new money rates are lower than the
overall weighted average return we earn from our investment
portfolio, and the lower rates persist, our overall earned rates will
decrease. Specifically, our revised projections assumed new money
rates of 4.75 percent for one year and then grade over 5 years from
this level to an ultimate new money rate ranging from 6.35 percent
to 7.00 percent, depending on the specific product. during 2013,
our review of interest rate assumptions resulted in no significant
adjustments to future loss reserves. We did not change our long-
term interest rate assumptions, as investment results are tracking
relatively consistent with our new money rate assumptions. in
addition, we continue to believe our assumptions for future new
money rates are reasonable.

While we expect the long-term care business in the bankers Life
segment to generate future profits, the margins are relatively small
and are vulnerable to lower interest rates.

the following hypothetical scenarios illustrate the sensitivity
of changes in interest rates to our interest-sensitive life and
annuity blocks:

• the first hypothetical scenario assumes

immediate and
permanent reductions to current interest rates. We estimate
that a pre-tax charge of $60 million would occur if assumed
spreads related to our interest-sensitive life and annuity products
immediately and permanently decreased by 10 basis points. in
addition, we estimate that we would not recognize a charge if
assumed investment earnings rates related to products other than
interest-sensitive life and annuity products immediately and
permanently decreased by 50 basis points.

• the second hypothetical scenario assumes continued low
investment yields in our portfolio. the scenario assumes our
current portfolio yield remains level. We estimate that this
scenario would result in an after tax charge of $20 million to
$50 million primarily related to an increase in future loss reserves
resulting from decreased projected future investment yields on
investments backing our interest-sensitive life business. under
this scenario, insurance liabilities under statutory accounting
principles may also increase modestly, but by less than
$25 million, with a reduction in our consolidated rbc ratio of
less than 5 percentage points.

although the hypothetical revisions described in the scenarios
summarized in the previous two paragraphs are not currently
required or anticipated, we believe similar changes could occur
based on past variances in experience and our expectations of
the ranges of future experience that could reasonably occur.
We have assumed that revisions to assumptions resulting in
such adjustments would occur equally among policy types, ages
and durations within each product classification. any actual
adjustment would be dependent on the specific policies affected
and, therefore, may differ from such estimates. in addition, the
impact of actual adjustments would reflect the net effect of all
changes in assumptions during the period.

Sustained periods of low or declining interest rates may adversely
affect our results of operations, financial position and cash flows.

CNO FINANCIAL GROUP, INC. - Form 10-K

Litigation and regulatory investigations are inherent
in our business, may harm our financial condition
and reputation, and may negatively impact our
financial results.

insurance companies historically have been subject to substantial
litigation. in addition to the traditional policy claims associated
with their businesses, insurance companies like ours face class
action suits and derivative suits from policyholders and/or
shareholders. We also face significant risks related to regulatory
investigations and proceedings. the litigation and regulatory
matters we are, have been, or may become, subject to include
matters related to sales, marketing and underwriting practices,
payment of contingent or other sales commissions, claim
payments and procedures, product design, product disclosure,
administration, additional premium charges for premiums paid on
a periodic basis, calculation of cost of insurance charges, changes to
certain non-guaranteed policy features, denial or delay of benefits,
charging excessive or impermissible fees on products, procedures
related to canceling policies and recommending unsuitable
products to customers. certain of our insurance policies allow or
require us to make changes based on experience to certain non-
guaranteed elements (“nges”) such as cost of insurance charges,
expense loads, credited interest rates and policyholder bonuses. We
intend to make changes to certain nges in the future. in some
instances in the past, such action has resulted in litigation and
similar litigation may arise in the future. our exposure (including
the potential adverse financial consequences of delays or decisions
not to pursue changes to certain nges), if any, arising from any
such action cannot presently be determined. our pending legal
and regulatory proceedings include matters that are specific to
us, as well as matters faced by other insurance companies. State
insurance departments have focused and continue to focus on
sales, marketing and claims payment practices and product issues
in their market conduct examinations. negotiated settlements of
class action and other lawsuits have had a material adverse effect
on the business, financial condition and results of operations of
our insurance subsidiaries.

We are, in the ordinary course of our business, a plaintiff or
defendant in actions arising out of our insurance business,
including class actions and reinsurance disputes, and, from
time to time, we are also involved in various governmental and
administrative proceedings and investigations and inquiries
such as information requests, subpoenas and books and record
examinations, from state, federal and other authorities. recently,
we and other insurance companies have been the subject of
regulatory examinations regarding compliance with state
unclaimed property laws. Such examinations have included
inquiries related to the use of data available on the u.S. Social
Security administration’s death Master file to identify instances
where benefits under life insurance policies, annuities and retained
asset accounts are payable. it is possible that such examination or
other regulatory inquiries may result in payments to beneficiaries,
escheatment of funds deemed abandoned under state laws and
changes to procedures for the identification and escheatment of
abandoned property. See the note to the consolidated financial
statements entitled “Litigation and other Legal proceedings.”
the ultimate outcome of these lawsuits, regulatory proceedings

and investigations cannot be predicted with certainty. in the event
of an unfavorable outcome in one or more of these matters, the
ultimate liability may be in excess of liabilities we have established
and could have a material adverse effect on our business, financial
condition, results of operations or cash flows. We could also
suffer significant reputational harm as a result of such litigation,
regulatory proceedings or investigations, including harm flowing
from actual or threatened revocation of licenses to do business,
regulator actions to assert supervision or control over our business,
and other sanctions which could have a material adverse effect
on our business, financial condition, results of operations or
cash flows.

If our subsidiary, Conseco Life, is unable to implement
anticipated changes to certain NGEs, the reserves on
our interest-sensitive life insurance blocks may prove to
be inadequate, requiring us to increase liabilities
which may have a material adverse effect on our
results of operations and our financial condition and
on the results of operations and financial condition
of Conseco Life.

in establishing the net liabilities for our interest-sensitive life
insurance products, we make estimates and assumptions using
management’s best judgments. these estimates and assumptions
include mortality, lapse rates, investment experience and expense
levels including charges to policyholders which, under some of our
policies, we are allowed or required to make based on experience
to certain nges such as cost of insurance charges, expense
loads, credited interest rates and policyholder bonuses. if our
estimates and assumptions are incorrect and our reserves prove
to be insufficient to cover amounts payable under these policies,
we would be required to increase our liabilities, and our financial
results would be adversely affected.

a substantial block of our interest-sensitive life insurance policies
was issued by conseco Life and its predecessors. these policies are
included in our other cno business segment. after conseco Life
notified holders in late 2008 of changes to certain nges of their
Lifetrend and ciuL3+ interest-sensitive life insurance policies,
several state insurance departments began a market conduct
examination. after working with state insurance regulators to
review the terms of the Lifetrend and ciuL3+ policies, conseco Life
entered into a regulatory settlement agreement with the regulators
regarding issues involving these policies, which was effective in
June 2010. in addition to the market conduct examination which
resulted in the regulatory settlement agreement, conseco Life
has been the defendant in litigation involving nge changes.
See the note to the consolidated financial statements entitled
“Litigation and other Legal proceedings”. conseco Life intends
to make additional changes to certain nges in the future, and
such changes may result in similar litigation. adverse decisions
in, or a negotiated resolution of, any such litigation, delays in
the implementation of changes to certain nges, or any other
events which limit conseco Life’s ability to implement changes to
certain nges could have a material adverse effect on our results
of operations and our financial condition and on the results of
operations and financial condition of conseco Life.

PART I
ITEM 1A Risk Factors

We have substantial indebtedness that will require
a significant portion of the cash available to CNO,
which may restrict our ability to take advantage of
business, strategic or financing opportunities.

as of december 31, 2013, we had an aggregate principal amount
of indebtedness of $860 million. cno’s indebtedness will
require approximately $98 million in cash to service in 2014. the
payment of principal and interest on our outstanding indebtedness
will require a substantial portion of cno’s available cash each
year, which, as a holding company, is limited, as further described
in the risk factor entitled “cno is a holding company and its
liquidity and ability to meet its obligations may be constrained
by the ability of cno’s insurance subsidiaries to distribute cash
to it” below. our debt obligations may restrict our ability to take
advantage of business, strategic or financing opportunities. See
“Management’s discussion and analysis of financial condition
and results of operations-Liquidity of the holding companies”
for more information.

on September 28, 2012, the company entered into a senior
secured credit agreement, providing for: (i) a $425.0 million
six-year term loan facility ($394.0 million remained outstanding
at december 31, 2013); (ii) a $250.0 million four-year term loan
facility ($187.5 million remained outstanding at december 31,
2013); and (iii) a $50.0 million three-year revolving credit facility,
with JpMorgan chase bank, n.a., as administrative agent, and
the lenders from time to time party thereto (the “Senior Secured
credit agreement”). on September 28, 2012, we also issued
$275.0 million in aggregate principal amount of 6.375% Senior
Secured notes due october 2020 (the “6.375% notes”) pursuant
to an indenture, dated as of September 28, 2012 (the “6.375%
indenture”), among the company, the subsidiary guarantors party
thereto and Wilmington trust, national association, as trustee
(the “trustee”) and as collateral agent (the “collateral agent”).
the Senior Secured credit agreement contains various restrictive
covenants and required financial ratios that we are required to
meet or maintain and that will limit our operating flexibility. if
we default under any of these covenants, the lenders could declare
the outstanding principal amount of the term loan, accrued and
unpaid interest and all other amounts owing or payable thereunder
to be immediately due and payable, which would have material
adverse consequences to us. in such event, the holders of the 7.0%
Senior debentures due 2016 (the “7.0% debentures”) and the
6.375% notes could elect to take similar action with respect to
those debts. if that were to occur, we would not have sufficient
liquidity to repay our indebtedness.

if we fail to pay interest or principal on our other indebtedness,
including the 7.0% debentures or the 6.375% notes, we will
be in default under the indentures governing such indebtedness,
which could also lead to a default under agreements governing
our existing and future indebtedness, including under the Senior
Secured credit agreement. if the repayment of the related
indebtedness were to be accelerated after any applicable notice or
grace periods, we likely would not have sufficient funds to repay
our indebtedness.

absent sufficient liquidity to repay our indebtedness, our
management or our independent registered public accounting
firm may conclude that there is substantial doubt regarding our
ability to continue as a going concern.

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1A Risk Factors

The Senior Secured Credit Agreement and the
6.375% Notes contain various restrictive covenants
and required financial ratios that limit our operating
flexibility. The violation of one or more loan covenant
requirements will entitle our lenders to declare all
outstanding amounts under the Senior Secured
Credit Agreement and the 6.375% Notes to be due
and payable.

pursuant to the Senior Secured credit agreement, cno agreed
to a number of covenants and other provisions that restrict the
company’s ability to borrow money and pursue some operating
activities without the prior consent of the lenders. We also agreed
to meet or maintain various financial ratios and balances. our
ability to meet these financial tests or maintain ratings may be
affected by events beyond our control. there are several conditions
or circumstances that could lead to an event of default under the
Senior Secured credit agreement, as described below.

the Senior Secured credit agreement prohibits or restricts,
among other things, cno’s ability to:

• incur or guarantee additional indebtedness (including, for this
purpose, reimbursement obligations under letters of credit, except
to the extent such reimbursement obligations relate to letters of
credit issued in connection with reinsurance transactions entered
into in the ordinary course of business) or issue preferred stock;

• pay dividends or make other distributions to shareholders;

• purchase or redeem capital stock or subordinated indebtedness;

• make certain investments;

• create liens;

• incur restrictions on cno’s ability and the ability of cno’s
subsidiaries to pay dividends or make other payments to cno;

• sell assets, including capital stock of cno’s subsidiaries;

• enter into sale and leaseback transactions;

• consolidate or merge with or into other companies or transfer all

or substantially all of our assets; and

• engage in transactions with affiliates;

in each case subject to important exceptions and qualifications as
set forth in the Senior Secured credit agreement.

Mandatory prepayments of the Senior Secured credit agreement
will be required, subject to certain exceptions, in an amount equal
to: (i) 100% of the net cash proceeds from certain asset sales or
casualty events; (ii) 100% of the net cash proceeds received by
the company or any of its restricted subsidiaries from certain
debt issuances; and (iii) 100% of the amount of certain restricted
payments made (including any common stock dividends and
share repurchases) as defined in the Senior Secured credit
agreement provided that if, as of the end of the fiscal quarter
immediately preceding such restricted payment, the debt to
total capitalization ratio is: (x) equal to or less than 25.0%, but
greater than 20.0%, the prepayment requirement shall be reduced
to 33.33%; or (y) equal to or less than 20.0%, the prepayment
requirement shall not apply.

CNO FINANCIAL GROUP, INC. - Form 10-K

notwithstanding the foregoing, no mandatory prepayments
pursuant to item (i) in the preceding paragraph shall be required
if: (x) the debt to total capitalization ratio is equal or less than
20% and (y) either (a) the financial strength rating of certain
of the company’s insurance subsidiaries is equal or better than
a- (stable) from a.M. best or (b) the Senior Secured credit
agreement is rated equal or better than bbb- (stable) from S&p
and baa3 (stable) by Moody’s.

the Senior Secured credit agreement requires the company
to maintain (each as calculated in accordance with the Senior
Secured credit agreement): (i) a debt to total capitalization
ratio of not more than 27.5 percent (such ratio was 17.0 percent
at december 31, 2013); (ii) an interest coverage ratio of not less
than 2.50 to 1.00 for each rolling four quarters (or, if less, the
number of full fiscal quarters commencing after the effective
date of the Senior Secured credit agreement) (such ratio was
8.53 for the period ended december 31, 2013); (iii) an aggregate
ratio of total adjusted capital to company action level risk-based
capital for the company’s insurance subsidiaries of not less
than 250 percent (such ratio was 410 percent at december 31,
2013); and (iv) a combined statutory capital and surplus for the
company’s insurance subsidiaries of at least $1,300.0 million
(combined statutory capital and surplus at december 31, 2013,
was $1,945.8 million).

these covenants place significant restrictions on the manner
in which we may operate our business and our ability to meet
these financial covenants may be affected by events beyond our
control. if we default under any of these covenants, the lenders
could declare the outstanding principal amount of the term loan,
accrued and unpaid interest and all other amounts owing and
payable thereunder to be immediately due and payable, which
would have material adverse consequences to us. if the lenders
under the Senior Secured credit agreement elect to accelerate the
amounts due, the holders of cno’s 7.0% debentures and 6.375%
notes could elect to take similar action with respect to those debts.
if that were to occur, we would not have sufficient liquidity to
repay our indebtedness.

We are required to assess our ability to continue as a going
concern as part of our preparation of financial statements at
each quarter-end. the assessment includes, among other things,
consideration of our plans to address our liquidity and capital
needs during the following twelve months and our ability
to comply with the future loan covenant and financial ratio
requirements under the Senior Secured credit agreement. if we
default under any covenants or financial ratio requirement, the
lenders could declare the outstanding principal amount of the
term loan, accrued and unpaid interest and all other amounts
owing and payable thereunder to be immediately due and payable.
in such event, the holders of cno’s 7.0% debentures and
6.375% notes could elect to take similar action with respect to
those debts. if that were to occur, we would not have sufficient
liquidity to repay our indebtedness. absent sufficient liquidity
to repay our indebtedness, we or our auditors may conclude that
there is substantial doubt regarding our ability to continue as a
going concern. if we were to conclude there was substantial doubt
regarding our ability to continue as a going concern in our financial
statements for subsequent periods, we may be required to increase

the valuation allowance for deferred tax assets, which could result
in the violation of one or more loan covenant requirements under
the Senior Secured credit agreement.

if in future periods we are not able to demonstrate that we will
be in compliance with the financial covenant requirements in the
Senior Secured credit agreement for at least 12 months following
the date of the financial statements, management would conclude
there is substantial doubt about our ability to continue as a going
concern and the audit opinion that we would receive from our
independent registered public accounting firm would include
an explanatory paragraph regarding our ability to continue as a
going concern. Such an opinion would cause us to be in breach
of the covenants in the Senior Secured credit agreement. if the
circumstances leading to the substantial doubt were not cured prior
to the issuance of the audit opinion, or we were unable to obtain a
waiver on the going concern opinion requirement within 30 days
after notice from the lenders, the issuance of such an opinion
would be an event of default entitling the lenders to declare the
outstanding principal amount of term loans, accrued and unpaid
interest and all other amounts due and payable thereunder to be
due and payable. if an event of default were to occur, it is highly
probable that we would not have sufficient liquidity to repay our
bank indebtedness in full or any of our other indebtedness which
could also be accelerated as a result of the default.

the 6.375% indenture contains covenants that, among other
things, limit (subject to certain exceptions) the company’s ability
and the ability of the company’s restricted Subsidiaries (as
defined in the 6.375% indenture) to:

• incur or guarantee additional indebtedness or issue preferred

stock;

• pay dividends or make other distributions to shareholders;

• purchase or redeem capital stock or subordinated indebtedness;

• make investments;

• create liens;

• incur restrictions on the company’s ability and the ability of its
restricted Subsidiaries to pay dividends or make other payments
to the company;

• sell assets, including capital stock of the company’s subsidiaries;

• consolidate or merge with or into other companies or transfer all

or substantially all of the company’s assets; and

• engage in transactions with affiliates.

the 6.375% indenture provides for customary events of default
(subject in certain cases to customary grace and cure periods),
which include nonpayment, breach of covenants in the 6.375%
indenture, failure to pay at maturity or acceleration of other
indebtedness, a failure to pay certain judgments and certain events
of bankruptcy and insolvency. generally, if an event of default
occurs, the trustee or holders of at least 25% in principal amount
of the then outstanding 6.375% notes may declare the principal of
and accrued but unpaid interest, including any additional interest,
on all of the 6.375% notes to be due and payable.

under the 6.375% indenture, the company can make restricted
payments (as such term is defined in the 6.375% indenture) up
to a calculated limit, provided that the company’s pro forma

PART I
ITEM 1A Risk Factors

risk-based capital ratio exceeds 225% after giving effect to
the restricted payment and certain other conditions are met.
restricted payments include, among other items, repurchases
of common stock and cash dividends on common stock (to the
extent such dividends exceed $30 million in the aggregate in any
calendar year). the limit of restricted payments permitted under
the 6.375% indenture is the sum of (x) 50% of the company’s “net
excess cash flow” (as defined in the 6.375% indenture) for the
period (taken as one accounting period) from July 1, 2012 to the
end of the company’s most recently ended fiscal quarter for which
financial statements are available at the time of such restricted
payment, (y) $175.0 million and (z) certain other amounts specified
in the 6.375% indenture. based on the provisions set forth in the
6.375% indenture and the company’s net excess cash flow for
the period from July 1, 2012 through december 31, 2013, the
company could have made additional restricted payments under
this 6.375% indenture covenant of approximately $242 million
as of december 31, 2013. this limitation on restricted payments
does not apply if the debt to total capitalization ratio (as defined
in the 6.375% indenture) as of the last day of the company’s most
recently ended fiscal quarter for which financial statements are
available that immediately precedes the date of any restricted
payment, calculated immediately after giving effect to such
restricted payment and any related transactions on a pro forma
basis, is equal to or less than 17.5%.

the obligations under the Senior Secured credit agreement
and the 6.375% notes are guaranteed by our current and
future restricted domestic subsidiaries, other than our insurance
subsidiaries and certain immaterial subsidiaries. the guarantee
of cdoc, inc. (“cdoc”) (our wholly owned subsidiary and
a guarantor under the 6.375% notes and the Senior Secured
credit agreement) is secured by a lien on substantially all of
the assets of the Subsidiary guarantors, including the stock of
conseco Life insurance company of texas (“conseco Life of
texas”) (which is the parent of bankers Life, bankers conseco
Life insurance company (“bankers conseco Life”) and colonial
penn), Washington national and conseco Life. if we fail to
make the required payments, do not meet the financial covenants
or otherwise default on the terms of the Senior Secured credit
agreement or the 6.375% notes, the stock of conseco Life
of texas, Washington national and conseco Life could be
transferred to the lenders (subject to regulatory approval) under the
Senior Secured credit agreement and the holders of the 6.375%
notes. any such transfer would have a material adverse effect on
our business, financial condition and results of operations.

Our current credit ratings may adversely affect our
ability to access capital and the cost of such capital,
which could have a material adverse effect on our
financial condition and results of operations.

our issuer credit and senior secured debt rating from each of
the major rating agencies is below investment grade. if we were
to require additional capital, either to refinance our existing
indebtedness or for any other reason, our current senior debt
ratings, as well as conditions in the credit markets generally, could
restrict our access to such capital and adversely affect its cost. See
“Management’s discussion and analysis of financial condition
and results of operations-Liquidity of the holding companies”
for more information.

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1A Risk Factors

CNO is a holding company and its liquidity and
ability to meet its obligations may be constrained
by the ability of CNO’s insurance subsidiaries to
distribute cash to it.

cno and cdoc are holding companies with no business
operations of their own. cno and cdoc depend on their
operating subsidiaries for cash to make principal and interest
payments on debt and to pay administrative expenses and
income taxes. cno and cdoc receive cash from our insurance
subsidiaries, consisting of dividends and distributions, principal
and interest payments on surplus debentures and tax-sharing
payments, as well as cash from their non-insurance subsidiaries
consisting of dividends, distributions, loans and advances.
deterioration in the financial condition, earnings or cash flow
of these significant subsidiaries for any reason could hinder
the ability of such subsidiaries to pay cash dividends or other
disbursements to cno and/or cdoc, which would limit our
ability to meet our debt service requirements and satisfy other
financial obligations. in addition, cno may elect to contribute
additional capital to certain insurance subsidiaries to strengthen
their surplus for covenant compliance or regulatory purposes
(including, for example, maintaining adequate rbc level) or to
provide the capital necessary for growth, in which case it is less
likely that its insurance subsidiaries would pay dividends to the
holding company. accordingly, this could limit cno’s ability to
meet debt service requirements and satisfy other holding company
financial obligations. See “Management’s discussion and analysis
of financial condition and results of operations-Liquidity of the
holding companies” for more information.

cno receives dividends and other payments from cdoc and
from certain non-insurance subsidiaries. cdoc receives dividends
and surplus debenture interest payments from our insurance
subsidiaries and payments from certain of our non-insurance
subsidiaries. payments from our non-insurance subsidiaries to
cno or cdoc, and payments from cdoc to cno, do
not require approval by any regulatory authority or other third
party. however, the payment of dividends or surplus debenture
interest by our insurance subsidiaries to cdoc is subject to
state insurance department regulations and may be prohibited
by insurance regulators if they determine that such dividends or
other payments could be adverse to our policyholders or contract
holders. insurance regulations generally permit dividends to be
paid from statutory earned surplus of the insurance company
without regulatory approval for any 12-month period in amounts
equal to the greater of (or in a few states, the lesser of):

• statutory net gain from operations or statutory net income for

the prior year, or

• 10 percent of statutory capital and surplus as of the end of the

preceding year.

this type of dividend is referred to as an “ordinary dividend”. any
dividend in excess of these levels requires the approval of the director
or commissioner of the applicable state insurance department
and is referred to as an “extraordinary dividend”. in 2013, our
insurance subsidiaries paid extraordinary dividends of $236.8
million to cdoc. each of the immediate insurance subsidiaries
of cdoc had negative earned surplus at december 31, 2013. as

CNO FINANCIAL GROUP, INC. - Form 10-K

a result, any dividend payments from the insurance subsidiaries to
cno will be considered extraordinary dividends and will require
the prior approval of the director or commissioner of the applicable
state insurance department. cno expects to receive regulatory
approval for future dividends from our insurance subsidiaries, but
there can be no assurance that such payments will be approved or
that the financial condition of our insurance subsidiaries will not
deteriorate, making future approvals less likely.

cdoc holds surplus debentures issued by conseco Life of texas
in the aggregate principal amount of $749.6 million. interest
payments on those surplus debentures do not require additional
approval provided the rbc ratio of conseco Life of texas exceeds
100 percent (but do require prior written notice to the texas state
insurance department). the rbc ratio of conseco Life of texas
was 336 percent at december 31, 2013. cdoc also holds a surplus
debenture from colonial penn with an outstanding principal
balance of $160.0 million. interest payments on the colonial penn
surplus debenture require prior approval by the pennsylvania state
insurance department. dividends and other payments from our
non-insurance subsidiaries, including 40|86 advisors and cno
Services, LLc, to cno or cdoc do not require approval by
any regulatory authority or other third party. however, insurance
regulators may prohibit payments by our insurance subsidiaries to
parent companies if they determine that such payments could be
adverse to our policyholders or contractholders.

in addition, although we are under no obligation to do so, we may
elect to contribute additional capital to strengthen the surplus
of certain insurance subsidiaries for covenant compliance or
regulatory purposes or to provide the capital necessary for growth.
any election regarding the contribution of additional capital
to our insurance subsidiaries could affect the ability of our top
tier insurance subsidiaries to pay dividends. the ability of our
insurance subsidiaries to pay dividends is also impacted by various
criteria established by rating agencies to maintain or receive higher
financial strength ratings and by the capital levels that we target
for our insurance subsidiaries, as well as rbc and statutory capital
and surplus compliance requirements under the Senior Secured
credit agreement.

in addition, Washington national may not distribute funds to any
affiliate or shareholder, without prior notice to the florida office
of insurance regulation, in accordance with an order from the
florida office of insurance regulation.

There are risks to our business associated with broad
economic conditions.

from 2008 to 2010, the u.S. economy experienced unusually
severe credit and liquidity issues and underwent a recession.
following several years of rapid credit expansion, a contraction in
mortgage lending coupled with substantial declines in home prices
and rising mortgage defaults, resulted in significant write-downs
of asset values by financial institutions, including government-
sponsored entities and major commercial and investment banks.
these write-downs, initially of mortgage-backed securities but
spreading to many sectors of the related credit markets, and to
related credit default swaps and other derivative securities, caused
many financial institutions to seek additional capital, to merge

with larger and stronger institutions, to be subsidized by the u.S.
government or, in some cases, to fail. these factors, combined
with declining business and consumer confidence and increased
unemployment, precipitated an economic slowdown. although
the recession may have ended, elevated unemployment remains.

even under more favorable market conditions, general factors
such as the availability of credit, consumer spending, business
investment, capital market conditions and inflation affect
our business. for example, in an economic downturn, higher
unemployment, lower family income, lower corporate earnings,
lower business investment and lower consumer spending may
depress the demand for life insurance, annuities and other insurance
products. in addition, this type of economic environment may
result in higher lapses or surrenders of policies. accordingly, the
risks we face related to general economic and business conditions
are more pronounced given the severity and magnitude of the
recent adverse economic and market conditions.

More specifically, our business is exposed to the performance of
the debt and equity markets. adverse market conditions can affect
the liquidity and value of our investments. the manner in which
debt and equity market performance and changes in interest rates
have affected, and will continue to affect, our business, financial
condition, growth and profitability include, but are not limited to,
the following:

• the value of our investment portfolio has been materially
affected in recent periods by changes in market conditions which
resulted in, and may continue to result in, substantial realized
and/or unrealized losses. for example, in 2013, the value of our
investments decreased by $1.7 billion due to net unrealized losses
on investments primarily resulting from rising interest rates
during 2013. future adverse capital market conditions could
result in additional realized and/or unrealized losses.

• changes in interest rates also affect our investment portfolio. in
periods of increasing interest rates, life insurance policy loans,
surrenders and withdrawals could increase as policyholders seek
higher returns. this could require us to sell invested assets at
a time when their prices may be depressed by the increase in
interest rates, which could cause us to realize investment losses.
conversely, during periods of declining interest rates, we could
experience increased premium payments on products with flexible
premium features, repayment of policy loans and increased
percentages of policies remaining inforce. We could obtain lower
returns on investments made with these cash flows. in addition,
prepayment rates on investments may increase so that we might
have to reinvest those proceeds in lower-yielding investments. as
a consequence of these factors, we could experience a decrease
in the spread between the returns on our investment portfolio
and amounts to be credited to policyholders and contractholders,
which could adversely affect our profitability.

• the attractiveness of certain of our insurance products may
decrease because they are linked to the equity markets and
assessments of our financial strength, resulting in lower profits.
increasing consumer concerns about the returns and features
of our insurance products or our financial strength may cause
existing customers to surrender policies or withdraw assets, and

PART I
ITEM 1A Risk Factors

diminish our ability to sell policies and attract assets from new
and existing customers, which would result in lower sales and
fee revenues.

Our investment portfolio is subject to several risks
that may diminish the value of our invested assets
and negatively impact our profitability, our financial
condition, our liquidity and our ability to continue to
comply with the financial covenants under the Senior
Secured Credit Agreement.

the value of our investment portfolio is subject to numerous
factors, which may be difficult to predict, and are often beyond our
control. these factors include, but are not limited to, the following:

• changes in interest rates and credit spreads, which can reduce the
value of our investments as further discussed in the risk factor
below entitled “changing interest rates may adversely affect our
results of operations”;

• changes in patterns of relative liquidity in the capital markets for

various asset classes;

• changes in the ability of issuers to make timely repayments, which
can reduce the value of our investments. this risk is significantly
greater with respect to below-investment grade securities, which
comprised 12 percent of the cost basis of our available for sale
fixed maturity investments as of december 31, 2013; and

• changes in the estimated timing of receipt of cash flows. for
example, our structured security investments, which comprised
23 percent of our available for sale fixed maturity investments
at december 31, 2013, are subject to risks relating to variable
prepayment on the assets underlying such securities, such as
mortgage loans. When asset-backed securities, collateralized debt
obligations, commercial mortgage-backed securities, mortgage
pass-through securities and collateralized mortgage obligations
(collectively referred to as “structured securities”) prepay faster
than expected, investment income may be adversely affected due
to the acceleration of the amortization of purchase premiums
or the inability to reinvest at comparable yields in lower interest
rate environments.

We have recorded writedowns of fixed maturity investments,
equity securities and other invested assets as a result of conditions
which caused us to conclude a decline in the fair value of the
investment was other than temporary as follows: $11.6 million
in 2013; $37.8 million in 2012; and $34.6 million in 2011
($39.9 million, prior to the $5.3 million of impairment losses
recognized through accumulated other comprehensive income).
our investment portfolio is subject to the risks of further declines in
realizable value. however, we attempt to mitigate this risk through
the diversification and active management of our portfolio.

in the event of substantial product surrenders or policy claims,
we may be required to sell assets at a loss, thereby eroding the
performance of our portfolio.

because a substantial portion of our operating results are derived
from returns on our investment portfolio, significant losses in
the portfolio may have a direct and materially adverse impact on

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1A Risk Factors

our results of operations. in addition, losses on our investment
portfolio could reduce the investment returns that we are able to
credit to our customers of certain products, thereby impacting our
sales and eroding our financial performance. investment losses
may also reduce the capital of our insurance subsidiaries, which
may cause us to make additional capital contributions to those
subsidiaries or may limit the ability of the insurance subsidiaries to
make dividend payments to cno. in addition, future investment
losses could cause us to be in violation of the financial covenants
under the Senior Secured credit agreement.

the fair value of financial assets and financial liabilities may differ
from the amount actually received to sell an asset or the amount
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Moreover, the use
of different valuation assumptions may have a material effect on
the fair values of the financial assets and financial liabilities. as of
december 31, 2013 and 2012, our total unrealized net investment
gains before adjustments for insurance intangibles and deferred
income taxes were $1.3 billion and $3.0 billion, respectively.

Deteriorating financial performance of securities
collateralized by mortgage loans and commercial
mortgage loans may lead to writedowns, which
could have a material adverse effect on our results of
operations and financial condition.

changes in mortgage delinquency or recovery rates, declining
real estate prices, challenges to the validity of foreclosures and
the quality of service provided by service providers on securities
in our portfolios could lead us to determine that writedowns are
appropriate in the future.

The determination of the amount of realized
investment losses recorded as impairments of our
investments is highly subjective and could have a
material adverse effect on our operating results and
financial condition.

the determination of realized investment losses recorded as
impairments is based upon our ongoing evaluation and assessment
of known risks. We consider a wide range of factors about the issuer
and use our best judgment in evaluating the cause of a decline
in estimated fair value and in assessing prospects for recovery.
inherent in our evaluation are assumptions and estimates about
the operations of the issuer and its future earnings potential. Such
evaluations and assessments are revised as conditions change and
new information becomes available. We update our evaluations
regularly and reflect losses from impairments in operating results
as such evaluations are revised. our assessment of whether
unrealized losses are other-than-temporary impairments requires
significant judgment and future events may occur, or additional
information may become available, which may necessitate future
impairments of securities in our portfolio. historical trends may
not be indicative of future other-than- temporary impairments.

The determination of fair value of our fixed maturity
securities results in unrealized investment gains and
losses and is, in some cases, highly subjective and
could materially impact our operating results and
financial condition.

The limited historical claims experience on our
long-term care products could negatively impact our
operations if our estimates prove wrong and we have
not adequately set premium rates.

in setting premium rates, we consider historical claims
information and other factors, but we cannot predict future
claims with certainty. this is particularly applicable to our long-
term care insurance products, for which we (as well as other
companies selling these products) have relatively limited historical
claims experience. Long-term care products tend to have fewer
claims than other health products such as Medicare supplement
products, but when claims are incurred, they tend to be much
higher in dollar amount and longer in duration. also, long-term
care claims are incurred much later in the life of the policy than
most other supplemental health products. as a result of these traits,
it is difficult to appropriately price this product. for our long-
term care insurance, actual persistency in later policy durations
that is higher than our persistency assumptions could have a
negative impact on profitability. if these policies remain inforce
longer than we assumed, then we could be required to make
greater benefit payments than anticipated when the products were
priced. Mortality is a critical factor influencing the length of time
a claimant receives long-term care benefits. Mortality continues
to improve for the general population, and life expectancy has
increased. improvements in actual mortality trends relative to
assumptions may adversely affect our profitability.

our bankers Life segment has offered long-term care insurance
since 1985. in recent years, the claims experience on some of
bankers Life long-term care blocks has generally been higher
than our pricing expectations and the persistency of these policies
has been higher than our pricing expectations, which may result
in higher benefit ratios in the future and adversely affect our
profitability. We have received regulatory approvals for numerous
premium rate increases in recent years pertaining to these blocks.
even with these rate increases, this block experienced benefit ratios
of 129.3 percent in 2013, 117.6 percent in 2012 and 112.6 percent
in 2011.

The occurrence of natural or man-made disasters
or a pandemic could adversely affect our financial
condition and results of operations.

in determining fair value, we generally utilize market transaction
data for the same or similar instruments. the degree of
management judgment involved in determining fair values
is inversely related to the availability of market observable
information. Since significant observable market inputs are not
available for certain securities, it may be difficult to value them.

We are exposed to various risks arising out of natural disasters,
including earthquakes, hurricanes, floods and tornadoes, and man-
made disasters, including acts of terrorism and military actions
and pandemics. for example, a natural or man-made disaster or a
pandemic could lead to unexpected changes in persistency rates as
policyholders and contractholders who are affected by the disaster

CNO FINANCIAL GROUP, INC. - Form 10-K

may be unable to meet their contractual obligations, such as
payment of premiums on our insurance policies and deposits into
our investment products. in addition, such a disaster or pandemic
could also significantly increase our mortality and morbidity
experience above the assumptions we used in pricing our products.
the continued threat of terrorism and ongoing military actions
may cause significant volatility in global financial markets, and
a natural or man-made disaster or a pandemic could trigger an
economic downturn in the areas directly or indirectly affected by
the disaster or pandemic. these consequences could, among other
things, result in a decline in business and increased claims from
those areas. disasters or a pandemic also could disrupt public and
private infrastructure, including communications and financial
services, which could disrupt our normal business operations.

a natural or man-made disaster or a pandemic could also disrupt
the operations of our counterparties or result in increased prices
for the products and services they provide to us. for example, a
natural or man-made disaster or a pandemic could lead to increased
reinsurance prices and potentially cause us to retain more risk than
we otherwise would retain if we were able to obtain reinsurance at
lower prices. in addition, a disaster or a pandemic could adversely
affect the value of the assets in our investment portfolio if it affects
companies’ ability to pay principal or interest on their securities.

Interruption in telecommunication, information
technology and other operational systems, or a failure
to maintain the security, confidentiality or privacy of
sensitive data residing on such systems, could harm
our business.

We depend heavily on our telecommunication, information
technology and other operational systems and on the integrity and
timeliness of data we use to run our businesses and service our
customers. these systems may fail to operate properly or become
disabled as a result of events or circumstances which may be
wholly or partly beyond our control. further, we face the risk of
operational and technology failures by others, including financial
intermediaries, vendors and parties that provide services to us. if
these parties do not perform as anticipated, we may experience
operational difficulties, increased costs and other adverse effects on
our business. despite our implementation of a variety of security
measures, our information technology and other systems could be
subject to physical or electronic break-ins, unauthorized tampering
or other security breaches, resulting in a failure to maintain the
security, confidentiality or privacy of sensitive data, including
personal financial and health information relating to customers.
there can be no assurance that any such breach will not occur
or, if any does occur, that it can be sufficiently remediated. to
date, we have not had a material security breach. interruption in
telecommunication, information technology and other operational
systems, or a failure to maintain the security, confidentiality or
privacy of sensitive data residing on such systems, whether due
to actions by us or others, could delay or disrupt our ability to do
business and service our customers, harm our reputation, subject
us to litigation, regulatory sanctions and other claims, require us to
incur significant expenses, lead to a loss of customers and revenues
and otherwise adversely affect our business.

PART I
ITEM 1A Risk Factors

The results of operations of our insurance business will
decline if our premium rates are not adequate or if we
are unable to increase rates.

We set the premium rates on our health insurance policies,
including long-term care policies and certain life insurance policies,
based on facts and circumstances known at the time we issue the
policies and on assumptions about numerous variables, including
the actuarial probability of a policyholder incurring a claim,
the probable size of the claim, maintenance costs to administer
the policies and the interest rate earned on our investment of
premiums. in setting premium rates, we consider historical claims
information, industry statistics, the rates of our competitors and
other factors, but we cannot predict with certainty the future actual
claims on our products. if our actual claims experience proves to
be less favorable than we assumed and we are unable to raise our
premium rates to the extent necessary to offset the unfavorable
claims experience, our financial results will be adversely affected.

We review the adequacy of our premium rates regularly and file
proposed rate increases on our health insurance products when we
believe existing premium rates are too low. it is possible that we
will not be able to obtain approval for premium rate increases from
currently pending requests or from future requests. if we are unable
to raise our premium rates because we fail to obtain approval in
one or more states, our financial results will be adversely affected.
Moreover, in some instances, our ability to exit unprofitable lines
of business is limited by the guaranteed renewal feature of the
policy. due to this feature, we cannot exit such lines of business
without regulatory approval, and accordingly, we may be required
to continue to service those products at a loss for an extended
period of time. Most of our long-term care business is guaranteed
renewable, and, if necessary rate increases are not approved, we
would be required to recognize a loss and establish a premium
deficiency reserve. during 2013, the financial statements of four of
our insurance subsidiaries prepared in accordance with statutory
accounting practices prescribed or permitted by regulatory
authorities reflected asset adequacy or premium deficiency
reserves. total asset adequacy and premium deficiency reserves for
conseco Life, Washington national, bankers conseco Life and
bankers Life were $305.9 million, $89.0 million, $19.0 million
and $18.0 million, respectively, at december 31, 2013. due to
differences between statutory and gaap insurance liabilities, we
were not required to recognize a similar asset adequacy or premium
deficiency reserve in our consolidated financial statements
prepared in accordance with gaap. the determination of the
need for and amount of asset adequacy or premium deficiency
reserves is subject to numerous actuarial assumptions, including
our ability to change nges related to certain products consistent
with contract provisions.

if, however, we are successful in obtaining regulatory approval to
raise premium rates, the increased premium rates may reduce the
volume of our new sales and cause existing policyholders to allow
their policies to lapse. this could result in a significantly higher
ratio of claim costs to premiums if healthier policyholders who get
coverage elsewhere allow their policies to lapse, while policies of
less healthy policyholders continue inforce. this would reduce our
premium income and profitability in future periods.

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1A Risk Factors

Most of our supplemental health policies allow us to increase
premium rates when warranted by our actual claims experience.
these rate increases must be approved by the applicable state
insurance departments, and we are required to submit actuarial
claims data to support the need for such rate increases. the re-rate
application and approval process on supplemental health products
is a normal recurring part of our business operations and reasonable
rate increases are typically approved by the state departments as
long as they are supported by actual claims experience and are not
unusually large in either dollar amount or percentage increase.
for policy types on which rate increases are a normal recurring
event, our estimates of insurance liabilities assume we will be able
to raise rates if experience on the blocks warrants such increases in
the future.

as a result of higher persistency and resultant higher claims in our
long-term care block in the bankers Life segment than assumed in
the original pricing, our premium rates were too low. accordingly,
we have been seeking approval from regulatory authorities for rate
increases on portions of this business. Many of the rate increases
have been approved by regulators and implemented, but it has
become increasingly difficult to receive regulatory approval for the
premium rate increases we have sought. if we are unable to obtain
pending or future rate increases, the profitability of these policies
and the performance of this block of business will be adversely
affected. in addition, such rate increases may reduce the volume
of our new sales and cause existing policyholders to allow their
policies to lapse, resulting in reduced profitability.

We have implemented and will continue to implement from time
to time and when actuarially justified, premium rate increases in
our long-term care business. in some cases, we offer policyholders
the opportunity to reduce their coverage amounts or accept non-
forfeiture benefits as alternatives to increasing their premium rates.
the financial impact of our rate increase actions could be adversely
affected by policyholder anti-selection, meaning that policyholders
who are less likely to incur claims may lapse their policies or reduce
their benefits, while policyholders who are more likely to incur
claims may maintain full coverage and accept their rate increase.

We previously identified a material weakness in our
internal control over financial reporting which has
been remediated, and our business may be adversely
affected if we fail to maintain effective controls over
financial reporting.

We have previously identified material weaknesses in internal
controls, including one identified at September 30, 2012 related
to the accurate calculation of certain adjustments impacting other
comprehensive income. Specifically, controls in place to ensure
the accurate calculation of these adjustments did not operate
effectively. We have emphasized the importance of performing and
reviewing calculations consistent with the design of our internal
control structure in an effort to ensure controls operate effectively.
the company has completed its testing of controls over the
calculation of these adjustments and concluded that the material
weakness identified at September 30, 2012 was remediated as of
december 31, 2012.

CNO FINANCIAL GROUP, INC. - Form 10-K

We face the risk that, notwithstanding our efforts to date to identify
and remedy the material weakness in our internal control over
financial reporting, we may discover other material weaknesses in
the future and the cost of remediating the material weakness could
be high and could have a material adverse effect on our financial
condition and results of operations.

Our ability to use our existing NOLs may be limited
by certain transactions, and an impairment of existing
NOLs could result in a significant writedown in the
value of our deferred tax assets, which could cause us to
breach the debt to total capitalization covenant of the
Senior Secured Credit Agreement.

as of december 31, 2013, we had approximately $3.5 billion of
federal tax noLs resulting in deferred tax assets of approximately
$1.2 billion, expiring in years 2018 through 2032. Section 382 of
the code imposes limitations on a corporation’s ability to use its
noLs when it undergoes a 50 percent “ownership change” over a
three year period. although we underwent an ownership change
in 2003 as the result of our reorganization, the timing and manner
in which we will be able to utilize our noLs is not currently
limited by Section 382.

We regularly monitor ownership changes (as calculated for
purposes of Section 382) based on available information and, as
of december 31, 2013, our analysis indicated that we were below
the 50 percent ownership change threshold that would limit our
ability to utilize our noLs. a future transaction or transactions
and the timing of such transaction or transactions could trigger
an ownership change under Section 382. Such transactions
may include, but are not limited to, additional repurchases or
issuances of common stock, including upon conversion of the
7.0% debentures (including conversion pursuant to a make
whole adjustment event) or exercise of the warrants sold to
paulson & co. inc., or acquisitions or sales of shares of cno’s
stock by certain holders of its shares, including persons who have
held, currently hold or may accumulate in the future 5 percent
or more of cno’s outstanding common stock for their own
account. in January 2009, cno’s board of directors adopted a
Section 382 rights agreement designed to protect shareholder
value by preserving the value of our noLs. the Section 382
rights agreement was amended and extended by the cno
board of directors on december 6, 2011 and was approved by
cno’s shareholders at the 2012 annual meeting of shareholders.
the amended Section 382 rights agreement provides a strong
economic disincentive for any one shareholder knowingly,
and without the approval of the board of directors, to become
an owner of more than 4.99% of the company’s outstanding
common stock (or any other interest in cno that would be treated
as “stock” under applicable Section 382 regulations) and for any
owner of more than 4.99% of cno’s outstanding common stock
as of the date of the amended Section 382 rights agreement
to increase their ownership stake by more than 1 percent of the
shares of cno’s common stock then outstanding, and thus limits
the uncertainty with regard to the potential for future ownership
changes. however, despite the strong economic disincentives of
the amended Section 382 rights agreement, shareholders may

elect to increase their ownership, including beyond the limits
set by the amended Section 382 rights agreement, and thus
adversely affect cno’s ownership shift calculations. to further
protect against the possibility of triggering an ownership change
under Section 382, cno’s shareholders approved an amendment
to cno’s certificate of incorporation (the “original Section 382
charter amendment”) designed to prevent certain transfers of
common stock which could otherwise adversely affect our ability
to use our noLs.

on May 8, 2013, our shareholders approved an amendment (the
“extended Section 382 charter amendment”) to cno’s certificate
of incorporation to: (i) extend the term of the original Section 382
charter amendment for three years until december 31, 2016,
(ii) provide for a 4.99% ownership threshold relating to our stock,
and (iii) amend certain other provisions of the original Section
382 charter amendment, including updates to certain definitions,
for consistency with the amended Section 382 rights agreement.
See the note to the consolidated financial statements entitled
“income taxes” for further information regarding the amended
Section 382 rights agreement, the extended Section 382 charter
amendment and cno’s noLs.

if an ownership change were to occur for purposes of Section 382,
we would be required to calculate an annual limitation on the
amount of our taxable income that may be offset by noLs arising
prior to such ownership change. that limitation would apply to all
of our current noLs. the annual limitation would be calculated
based upon the fair market value of our equity at the time of such
ownership change, multiplied by a federal long-term tax exempt
rate (3.50 percent at december 31, 2013), and would eliminate our
ability to use a substantial portion of our noLs to offset future
taxable income. additionally, the writedown of our deferred tax
assets that would occur in the event of an ownership change for
purposes of Section 382 could cause us to breach the debt to total
capitalization covenant in the Senior Secured credit agreement.

The value of our deferred tax assets may be reduced
to the extent our future profits are less than we have
projected or the current corporate income tax rate is
reduced, and such reductions in value may have a
material adverse effect on our results of operations and
our financial condition.

as of december 31, 2013, we had net deferred tax assets of
$1,173.2 million. our income tax expense includes deferred
income taxes arising from temporary differences between the
financial reporting and tax bases of assets and liabilities, capital
loss carry-forwards and noLs. We evaluate the realizability of our
deferred tax assets and assess the need for a valuation allowance
on an ongoing basis. in evaluating our deferred tax assets, we
consider whether it is more likely than not that the deferred tax
assets will be realized. the ultimate realization of our deferred
tax assets depends upon generating sufficient future taxable
income during the periods in which our temporary differences
become deductible and before our capital loss carry-forwards and
noLs expire. our assessment of the realizability of our deferred
tax assets requires significant judgment. failure to achieve our
projections may result in an increase in the valuation allowance

PART I
ITEM 1A Risk Factors

in a future period. any future increase in the valuation allowance
would result in additional income tax expense which could have a
material adverse effect upon our earnings in the future, and reduce
shareholders’ equity.

the value of our net deferred tax assets as of december 31, 2013
reflects the current corporate income tax rate of approximately
35 percent. a reduction in the corporate income tax rate
would cause a writedown of our deferred tax assets, which may
have a material adverse effect on our results of operations and
financial condition.

From time to time we may become subject to tax
audits, tax litigation or similar proceedings, and as
a result we may owe additional taxes, interest and
penalties, or our NOLs may be reduced, in amounts
that may be material.

in determining our provisions for income taxes and our accounting
for tax-related matters in general, we are required to exercise
judgment. We regularly make estimates where the ultimate tax
determination is uncertain. the final determination of any tax
audit, appeal of the decision of a taxing authority, tax litigation or
similar proceedings may be materially different from that reflected
in our financial statements. the assessment of additional taxes,
interest and penalties could be materially adverse to our current
and future results of operations and financial condition. See the
note to the consolidated financial statements entitled “income
taxes” for further information.

Concentration of our investment portfolio in any
particular sector of the economy or type of asset may
have an adverse effect on our financial position or
results of operations.

the concentration of our investment portfolio in any particular
industry, group of related industries, asset classes (such as rMbS
and other asset-backed securities), or geographic area could have an
adverse effect on our results of operations and financial position.
While we seek to mitigate this risk by having a broadly diversified
portfolio, events or developments that have a negative impact on
any particular industry, group of related industries or geographic
area may have an adverse effect on the investment portfolio.

Our business is subject to extensive regulation, which
limits our operating flexibility and could result in our
insurance subsidiaries being placed under regulatory
control or otherwise negatively impact our financial
results.

our insurance business is subject to extensive regulation and
supervision in the jurisdictions in which we operate. See “business
of cno - governmental regulation.” our insurance subsidiaries
are subject to state insurance laws that establish supervisory
agencies. the regulations issued by state insurance agencies can be
complex and subject to differing interpretations. if a state insurance
regulatory agency determines that one of our insurance company

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1A Risk Factors

subsidiaries is not in compliance with applicable regulations, the
subsidiary is subject to various potential administrative remedies
including, without limitation, monetary penalties, restrictions on
the subsidiary’s ability to do business in that state and a return of
a portion of policyholder premiums. in addition, regulatory action
or investigations could cause us to suffer significant reputational
harm, which could have an adverse effect on our business, financial
condition and results of operations.

our insurance subsidiaries are also subject to rbc requirements.
these requirements were designed to evaluate the adequacy of
statutory capital and surplus in relation to investment and insurance
risks associated with asset quality, mortality and morbidity, asset and
liability matching and other business factors. the requirements are
used by states as an early warning tool to discover companies that
may be weakly-capitalized for the purpose of initiating regulatory
action. generally, if an insurer’s rbc ratio falls below specified
levels, the insurer is subject to different degrees of regulatory action
depending upon the magnitude of the deficiency.

the 2013 statutory annual statements of each of our insurance
subsidiaries reflect rbc ratios in excess of the levels subjecting the
insurance subsidiaries to any regulatory action. however, in prior
periods, the rbc ratio of conseco Life, which had experienced
significant losses primarily related to pending legal settlements,
was near the level at which it would have been required to submit
a comprehensive plan to insurance regulators proposing corrective
actions aimed at improving its capital position. if that were to
occur in future periods, no assurances can be given that capital
will be contributed or otherwise made available to conseco Life or
the other insurance subsidiaries.

in addition to the rbc requirements, certain states have established
minimum capital requirements for insurance companies licensed
to do business in their state. these regulators have the discretionary
authority, in connection with the continual licensing of the
company’s insurance subsidiaries, to limit or prohibit writing new
business within its jurisdiction when, in the state’s judgment, the
insurance subsidiary is not maintaining adequate statutory surplus
or capital or that the insurance subsidiary’s further transaction of
business would be hazardous to policyholders. the state insurance
department rules provide several standards for the regulators to use
in identifying companies which may be deemed to be in hazardous
financial condition. one of the standards defines hazardous
conditions as existing if an insurer’s operating loss in the last
twelve months or any shorter period of time, (including, but not
limited to: (a) net capital gain or loss; (b) change in nonadmitted
assets; and (c) cash dividends paid to shareholders), is greater than
fifty percent of the insurer’s remaining surplus. While all of our
insurance subsidiaries currently exceed these standards, one of the
company’s subsidiaries, conseco Life, reported statutory financial
results below the threshold to meet the standard in 2012. no
actions were taken against conseco Life. based on each subsequent
statutory filing in 2013, the calculation based on conseco Life’s
operating loss for each applicable twelve month period did not
indicate a surplus deficiency under this standard, and conseco Life
is no longer considered in hazardous financial condition.

Our reserves for future insurance policy benefits and
claims may prove to be inadequate, requiring us to
increase liabilities which results in reduced net income
and shareholders’ equity.

for

Liabilities
insurance products are calculated using
management’s best judgments, based on our past experience
and standard actuarial tables of mortality, morbidity, lapse rates,
investment experience and expense levels. for our health insurance
business, we establish an active life reserve, a liability for due and
unpaid claims, claims in the course of settlement, incurred but
not reported claims, and a reserve for the present value of amounts
on incurred claims not yet due. We establish reserves based on
assumptions and estimates of factors either established at the
effective date for business inforce or considered when we set
premium rates for business written after that date.

Many factors can affect these reserves and liabilities, such
as economic and social conditions, inflation, hospital and
pharmaceutical costs, changes in life expectancy, regulatory
actions, changes in doctrines of legal liability and extra-contractual
damage awards. therefore, the reserves and liabilities we establish
are necessarily based on estimates, assumptions, industry data and
prior years’ statistics. it is possible that actual claims will materially
exceed our reserves and have a material adverse effect on our
results of operations and financial condition. We have incurred
significant losses beyond our estimates as a result of actual claim
costs and persistency of our long-term care business included
in our bankers Life and other cno business segments. the
insurance policy benefits incurred for our long-term care products
in our bankers Life segment were $689.2 million, $653.1 million
and $642.6 million in 2013, 2012 and 2011, respectively. the
benefit ratios for our long-term care products in our bankers Life
segment were 129.3 percent, 117.6 percent and 112.6 percent
in 2013, 2012 and 2011, respectively. the benefit ratios for our
long-term care products in our other cno business segment
were 245.7 percent, 247.0 percent and 226.4 percent in 2013, 2012
and 2011, respectively. the insurance policy benefits incurred
for our long-term care products in our other cno business
segment were $59.2 million, $63.4 million and $62.7 million
in 2013, 2012 and 2011, respectively. our financial performance
depends significantly upon the extent to which our actual
claims experience and future expenses are consistent with the
assumptions we used in setting our reserves. if our assumptions
with respect to future claims are incorrect, and our reserves prove
to be insufficient to cover our actual losses and expenses, we would
be required to increase our liabilities, and our financial results
could be adversely affected.

We may be required to accelerate the amortization of
deferred acquisition costs or the present value of future
profits or establish premium deficiency reserves.

deferred acquisition costs represent incremental direct costs
related to the successful acquisition of new or renewal insurance
contracts. the present value of future profits represents the value
assigned to the right to receive future cash flows from contracts

CNO FINANCIAL GROUP, INC. - Form 10-K

existing at the effective date. the balances of these accounts are
amortized over the expected lives of the underlying insurance
contracts. on an ongoing basis, we test these accounts recorded
on our balance sheet to determine if these amounts are recoverable
under current assumptions. in addition, we regularly review the
estimates and assumptions underlying these accounts for those
products for which we amortize deferred acquisition costs or the
present value of future profits in proportion to gross profits or gross
margins. if facts and circumstances change, these tests and reviews
could lead to reduction in the balance of those accounts, and
the establishment of a premium deficiency reserve. Such results
could have an adverse effect on the results of our operations and
our financial condition. See “item 7 Management’s discussion
and analysis of consolidated finance condition and results of
operations, critical accounting policies, present Value of future
profits and deferred acquisition costs.”

Our operating results will suffer if policyholder
surrender levels differ significantly from
our assumptions.

Surrenders of our annuities and life insurance products can
result in losses and decreased revenues if surrender levels differ
significantly from assumed levels. at december 31, 2013,
approximately 29 percent of our total insurance liabilities, or
approximately $7.2 billion, could be surrendered by the policyholder
without penalty. the surrender charges that are imposed on our
fixed rate annuities typically decline during a penalty period,
which ranges from five to twelve years after the date the policy
is issued. Surrender charges are eliminated after the penalty
period. Surrenders and redemptions could require us to dispose
of assets earlier than we had planned, possibly at a loss. Moreover,
surrenders and redemptions require faster amortization of either
the acquisition costs or the commissions associated with the
original sale of a product, thus reducing our net income. We
believe policyholders are generally more likely to surrender their
policies if they believe the issuer is having financial difficulties,
or if they are able to reinvest the policy’s value at a higher rate of
return in an alternative insurance or investment product.

Changing interest rates may adversely affect our results
of operations.

our profitability is affected by fluctuating interest rates. While we
monitor the interest rate environment and employ asset/liability
and hedging strategies to mitigate such impact, our financial
results could be adversely affected by changes in interest rates.
our spread-based insurance and annuity business is subject to
several inherent risks arising from movements in interest rates.
first, interest rate changes can cause compression of our net spread
between interest earned on investments and interest credited to
customer deposits. our ability to adjust for such a compression is
limited by the guaranteed minimum rates that we must credit to
policyholders on certain products, as well as the terms on most of
our other products that limit reductions in the crediting rates to pre-
established intervals. as of december 31, 2013, the vast majority
of our products with contractual guaranteed minimum rates, had
crediting rates set at the minimum. in addition, approximately

PART I
ITEM 1A Risk Factors

35 percent of our insurance liabilities were subject to interest rates
that may be reset annually; 42 percent had a fixed explicit interest
rate for the duration of the contract; 17 percent had credited rates
that approximate the income we earn; and the remainder had no
explicit interest rates. Second, if interest rate changes produce an
unanticipated increase in surrenders of our spread-based products,
we may be forced to sell invested assets at a loss in order to fund
such surrenders. third, the profits from many non-spread-based
insurance products, such as long-term care policies, can be adversely
affected when interest rates decline because we may be unable
to reinvest the cash from premiums received at the interest rates
anticipated when we sold the policies. finally, changes in interest
rates can have significant effects on the fair value and performance
of our investments in general such as the timing of cash flows on
many structured securities due to changes in the prepayment rate
of the loans underlying such securities.

We employ asset/liability strategies that are designed to mitigate
the effects of interest rate changes on our profitability but do
not currently extensively employ derivative instruments for
this purpose. We may not be successful in implementing these
strategies and achieving adequate investment spreads.

We simulate our cash flows expected from existing business under
various interest rate scenarios. With such estimates, we actively
manage the relationship between the duration of our assets and the
expected duration of our liabilities. When the estimated durations
of assets and liabilities are similar, exposure to interest rate risk is
minimized because a change in the value of assets should be largely
offset by a change in the value of liabilities. at december 31, 2013,
the duration of our fixed income securities (as modified to reflect
prepayments and potential calls) was approximately 8.2 years,
and the duration of our insurance liabilities was approximately
8.1 years. We estimate that our fixed maturity securities and short-
term investments, net of corresponding changes in insurance
acquisition costs, would decline in fair value by approximately
$390 million if interest rates were to increase by 10 percent
from rates as of december 31, 2013. this compares to a decline
in fair value of approximately $230 million based on amounts
and rates at december 31, 2012. our simulations incorporate
numerous assumptions, require significant estimates and assume
an immediate change in interest rates without any management
reaction to such change. consequently, potential changes in the
values of our financial instruments indicated by the simulations
will likely be different from the actual changes experienced under
given interest rate scenarios, and the differences may be material.
because we actively manage our investments and liabilities, our
net exposure to interest rates can vary over time.

General market conditions affect investments and
investment income.

the performance of our investment portfolio depends in part
upon the level of and changes in interest rates, risk spreads, real
estate values, market volatility, the performance of the economy in
general, the performance of the specific obligors included in our
portfolio and other factors that are beyond our control. changes in
these factors can affect our net investment income in any period,
and such changes can be substantial.

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1A Risk Factors

financial market conditions can also affect our realized and
unrealized investment gains (losses). during periods of rising
interest rates, the fair values of our investments will typically
decline. conversely, during periods of falling interest rates, the fair
values of our investments will typically rise.

Our results of operations may be negatively impacted if
our initiatives to restructure our insurance operations
or our efforts to become more efficient are unsuccessful.

initiatives to

improve operating results,

We have implemented or are in the process of implementing
including:
several
(i) focusing sales efforts on higher margin products; (ii) reducing
operating expenses by eliminating or reducing marketing costs
of certain products; (iii) streamlining administrative procedures
and reducing personnel; and (iv) increasing retention rates on
our more profitable blocks of inforce business. Many of our
initiatives address issues resulting from the substantial number
of acquisitions of our predecessor. between 1982 and 1997, our
predecessor completed 19 transactions involving the acquisitions
of 44 separate insurance companies. these prior acquisitions
have contributed to the complexity and cost of our current
administrative operating environment and make it challenging, in
some instances, to operate our business within the expense levels
assumed in the pricing of our products. if we are unsuccessful in
our efforts to become more efficient, our future earnings will be
adversely affected.

conversions to new systems can result in valuation differences
between the prior system and the new system. We have recognized
such differences in the past. our planned conversions could result
in future valuation adjustments, and these adjustments may have a
material adverse effect on future earnings.

A decline in the current financial strength rating of
our insurance subsidiaries could cause us to experience
decreased sales, increased agent attrition and increased
policyholder lapses and redemptions.

an important competitive factor for our insurance subsidiaries
is the ratings they receive from nationally recognized rating
organizations. agents,
insurance brokers and marketing
companies who market our products and prospective purchasers
of our products use the financial strength ratings of our insurance
subsidiaries as an important factor in determining whether to
market or purchase. ratings have the most impact on our annuity,
interest-sensitive life insurance and long-term care products.
the current financial strength ratings of our primary insurance
subsidiaries (except conseco Life) from a.M. best, fitch, S&p
and Moody’s are “b++”, “bbb”, “bbb” and “baa3”, respectively.
a.M. best has sixteen possible ratings. there are four ratings
above our “b++” rating and eleven ratings that are below our
rating. fitch has nineteen possible ratings. there are eight ratings
above our “bbb” rating and ten ratings that are below our rating.
S&p has twenty-one possible ratings. there are eight ratings
above our “bbb-” rating and twelve ratings that are below our
rating. Moody’s has twenty-one possible ratings. there are nine
ratings above our “baa3” rating and eleven ratings that are below

CNO FINANCIAL GROUP, INC. - Form 10-K

our rating. the current financial strength ratings of conseco Life
from a.M. best, fitch, S&p and Moody’s are “b-”, “bb+”, “b”
and “ba1”, respectively.

if our ratings are downgraded, we may experience declining sales
of certain of our insurance products, defections of our independent
and career sales force, and increased policies being redeemed or
allowed to lapse. these events would adversely affect our financial
results, which could then lead to ratings downgrades.

Competition from companies that have greater market
share, higher ratings, greater financial resources and
stronger brand recognition, may impair our ability
to retain existing customers and sales representatives,
attract new customers and sales representatives and
maintain or improve our financial results.

the supplemental health insurance, annuity and individual life
insurance markets are highly competitive. competitors include
other life and accident and health insurers, commercial banks,
thrifts, mutual funds and broker-dealers.

in some of our product lines, such as life insurance and fixed
annuities, we have a relatively small market share. even in some of
the lines in which we are one of the top writers, our market share
is relatively small. for example, while, based on an individual
Long-term care insurance Survey, our bankers Life segment
ranked eighth in annualized premiums of individual long-term
care insurance in 2012 with a market share of approximately
2.8 percent, the top seven writers of individual long-term care
insurance had annualized premiums with a combined market share
of approximately 87 percent during the period. in addition, while,
based on the naic’s 2012 Medicare Supplement Loss ratios
report, we ranked fifth in direct premiums earned for Medicare
supplement insurance in 2012 with a market share of 3.8 percent,
the top writer of Medicare supplement insurance had direct
premiums with a market share of 33 percent during the period.

PART I
ITEM 1A Risk Factors

banking institutions to enter the insurance and annuity markets
and further increase competition. this increased competition may
harm our ability to maintain or improve our profitability.

in addition, because the actual cost of products is unknown when
they are sold, we are subject to competitors who may sell a product
at a price that does not cover its actual cost. accordingly, if we do
not also lower our prices for similar products, we may lose market
share to these competitors. if we lower our prices to maintain
market share, our profitability will decline.

We must attract and retain sales representatives to sell our insurance
and annuity products. Strong competition exists among insurance
and financial services companies for sales representatives. We
compete for sales representatives primarily on the basis of our
financial position, financial strength ratings, support services,
compensation, products and product features. our competitiveness
for such agents also depends upon the relationships we develop
with these agents. our predecessor’s bankruptcy continues to be
an adverse factor in developing relationships with certain agents.
if we are unable to attract and retain sufficient numbers of sales
representatives to sell our products, our ability to compete and our
revenues and profitability would suffer.

If we are unable to attract and retain agents and
marketing organizations, sales of our products may
be reduced.

our products are marketed and distributed primarily through
a dedicated field force of career agents and sales managers (in
our bankers Life segment) and through pMa and independent
(in our Washington national
marketing organizations
segment). We must attract and retain agents, sales managers and
independent marketing organizations to sell our products through
those distribution channels. We compete with other insurance
companies and financial services companies for agents and sales
managers and for business through marketing organizations. if
we are unable to attract and retain these agents, sales managers
and marketing organizations, our ability to grow our business and
generate revenues from new sales would suffer.

Volatility in the securities markets, and other
economic factors, may adversely affect our business,
particularly our sales of certain life insurance products
and annuities.

fluctuations in the securities markets and other economic factors
may adversely affect sales and/or policy surrenders of our annuities
and life insurance policies. for example, volatility in the equity
markets may deter potential purchasers from investing in fixed

index annuities and may cause current policyholders to surrender
their policies for the cash value or to reduce their investments. in
addition, significant or unusual volatility in the general level of
interest rates could negatively impact sales and/or lapse rates on
certain types of insurance products.

Federal and state legislation could adversely affect the
financial performance of our insurance operations.

during recent years, the health insurance industry has experienced
substantial changes, including those caused by healthcare
legislation. recent federal and state legislation and pending
legislative proposals concerning healthcare reform contain features
that could severely limit, or eliminate, our ability to vary pricing
terms or apply medical underwriting standards to individuals,
thereby potentially increasing our benefit ratios and adversely
impacting our financial results. in particular, Medicare reform
could affect our ability to price or sell our products or profitably
maintain our blocks inforce. for example, the Medicare advantage
program provides incentives for health plans to offer managed
care plans to seniors. the growth of managed care plans under
this program could decrease sales of the traditional Medicare
supplement products we sell. Some current proposals contain
government provided long-term care insurance which could affect
the sales of our long-term care products.

proposals currently pending in congress and some state legislatures
may also affect our financial results. these proposals include the
implementation of minimum consumer protection standards in
all long-term care policies, including: guaranteed premium rates;
protection against inflation; limitations on waiting periods for
pre-existing conditions; setting standards for sales practices for
long-term care insurance; and guaranteed consumer access to
information about insurers, including information regarding lapse
and replacement rates for policies and the percentage of claims
denied. enactment of any proposal that would limit the amount
we can charge for our products, such as guaranteed premium rates,
or that would increase the benefits we must pay, such as limitations
on waiting periods, or that would otherwise increase the costs of
our business, could adversely affect our financial results.

on July 21, 2010, the dodd-frank act was enacted and signed
into law. the dodd-frank act made extensive changes to the laws
regulating financial services firms and requires various federal
agencies to adopt a broad range of new rules and regulations.
among other provisions, the dodd-frank act provides for a
new framework of regulation of over-the-counter derivatives
markets. this will require us to clear certain types of transactions
currently traded in the over-the-counter derivative markets and
may limit our ability to customize derivative transactions for our
needs. in addition, we will likely experience additional collateral
requirements and costs associated with derivative transactions.

the dodd-frank act also establishes a financial Stability
oversight council, which is authorized to subject nonbank
financial companies deemed systemically significant to stricter
prudential standards and other requirements and to subject such a
company to a special orderly liquidation process outside the federal
bankruptcy code, administered by the federal deposit insurance
corporation (although insurance company subsidiaries would

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1A Risk Factors

remain subject to liquidation and rehabilitation proceedings under
state law). in addition, the dodd-frank act establishes a federal
insurance office within the department of the treasury. While
not having a general supervisory or regulatory authority over the
business of insurance, the director of this office will perform
various functions with respect to insurance, including serving as a
non-voting member of the financial Stability oversight council
and making recommendations to the council regarding insurers
to be designated for more stringent regulation. the director is also
required to conduct a study on how to modernize and improve the
system of insurance regulation in the united States, including by
increased national uniformity through either a federal charter or
effective action by the states.

federal agencies have been given significant discretion in drafting
the rules and regulations that will implement the dodd-frank act.
consequently, many of the details and much of the impact of the
dodd-frank act may not be known for some time. in addition,
this legislation mandated multiple studies and reports for congress,
which could result in additional legislative or regulatory action.

We cannot predict the requirements of the regulations ultimately
adopted under the dodd-frank act, the effect such regulations
will have on financial markets generally, or on our businesses
specifically, the additional costs associated with compliance with
such regulations, or any changes to our operations that may be
necessary to comply with the dodd-frank act, any of which could
have a material adverse affect on our business, results of operations,
cash flows or financial condition.

Reinsurance may not be available, affordable or
adequate to protect us against losses.

as part of our overall risk and capital management strategy, we
have historically purchased reinsurance from external reinsurers
as well as provided internal reinsurance support for certain risks
underwritten by our business segments. the availability and cost
of reinsurance protection are impacted by our operating and
financial performance as well as conditions beyond our control.
for example, volatility in the equity markets and the related
impacts on asset values required to fund liabilities may reduce
the availability of certain types of reinsurance and make it more
costly when it is available, as reinsurers are less willing to take on
credit risk in a volatile market. accordingly, we may be forced
to incur additional expenses for reinsurance or may not be able
to obtain sufficient new reinsurance on acceptable terms, which
could adversely affect our ability to write future business or obtain
statutory capital credit for new reinsurance.

We face risk with respect to our reinsurance agreements.

We transfer exposure to certain risks to others through
reinsurance arrangements. under these arrangements, other
insurers assume a portion of our losses and expenses associated
with reported and unreported claims in exchange for a portion of
policy premiums. the availability, amount and cost of reinsurance
depend on general market conditions and may vary significantly.
as of december 31, 2013, our reinsurance receivables totaled
$3.4 billion. our ceded life insurance in-force totaled $11.5 billion.
our ten largest reinsurers accounted for 93 percent of our
ceded life insurance in-force. We face credit risk with respect to
reinsurance. When we obtain reinsurance, we are still liable for
those transferred risks if the reinsurer cannot meet its obligations.
therefore, the inability of our reinsurers to meet their financial
obligations may require us to increase liabilities, thereby reducing
our net income and shareholders’ equity.

in december 2013, two of our insurance subsidiaries with long-
term care business in the other cno business segment entered
into 100% coinsurance agreements ceding $495 million of long-
term care reserves to bre, a reinsurer domiciled in the cayman
islands. all required regulatory approvals for the transaction
have been received. bre was formed in 2012 and is focused on
specialized insurance including long-term care. bre is a reinsurer
that is not licensed or accredited by the states of domicile of
the insurance subsidiaries ceding the long-term care business.
however, the insurance companies’ ceded reserve credits will
be secured by assets in market-value trusts subject to a 7% over
collateralization, investment guidelines and periodic true-up
provisions. future payments into the trusts to maintain collateral
requirements are the responsibility of bre.

Our insurance subsidiaries may be required to pay
assessments to fund other companies’ policyholder
losses or liabilities and this may negatively impact our
financial results.

the solvency or guaranty laws of most states in which an
insurance company does business may require that company
to pay assessments up to certain prescribed limits to fund
policyholder losses or liabilities of other insurance companies that
become insolvent. insolvencies of insurance companies increase
the possibility that these assessments may be required. these
assessments may be deferred or forgiven under most guaranty
laws if they would threaten an insurer’s financial strength and, in
certain instances, may be offset against future premium taxes. We
cannot estimate the likelihood and amount of future assessments.
although past assessments have not been material, if there were a
number of large insolvencies, future assessments could be material
and could have a material adverse effect on our operating results
and financial position.

CNO FINANCIAL GROUP, INC. - Form 10-K

ITEM 1B. Unresolved Staff Comments.

none.

PART I
ITEM 3 Legal Proceedings

ITEM 2. Properties.

our headquarters and the administrative operations of our
Washington national and other cno business segments and
certain administrative operations of our subsidiaries are located
on a company-owned corporate campus in carmel, indiana,
immediately north of indianapolis. We currently occupy four
buildings on the campus with approximately 422,000 square feet
of space.

our bankers Life segment is primarily administered from
downtown chicago, illinois. in 2012, bankers Life relocated
from one downtown location to another. the new location has
approximately 135,000 square feet leased under an agreement
which expires in 2023. bankers Life has subleased its prior

location of 222,000 square feet through the remaining term of
the lease which expires in 2018. We also lease approximately 300
sales offices in various states totaling approximately 903,000
square feet. these leases generally are short-term in length, with
remaining lease terms expiring between 2014 and 2019.

our colonial penn segment is administered from a company-
owned office building in philadelphia, pennsylvania, with
approximately 127,000 square feet. We occupy approximately
60 percent of this space, with unused space leased to tenants.

Management believes that this office space is adequate for
our needs.

ITEM 3. Legal Proceedings.

information required for item 3 is incorporated by reference to the discussion under the heading “Legal proceedings” in note 7 “Litigation
and other Legal proceedings” to our consolidated financial statements included in item 8 of this form 10-K.

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 4 Mine Safety Disclosures

ITEM 4. Mine Safety Disclosures.

not applicable.

Executive Officers of the Registrant

Officer Name and Age(a)
bruce baude, 49

Since
2012

edward J. bonach, 59

2007

frederick J. crawford, 50

2012

eric r. Johnson, 53

1997

John r. Kline, 56

Susan L. Menzel, 48
christopher J. nickele, 57

Scott r. perry, 51

Matthew J. Zimpfer, 46

1990

2005
2005

2001

1998

Positions with CNO, Principal Occupation and Business Experience(b)
Since July 2012, executive vice president, chief operations and technology officer. from 2008 to
2012, Mr. baude was chief operating officer at univita health. he joined Long term care group in
2005 and served as chief executive officer through 2008, when it was acquired by univita health.
Since october 2011, chief executive officer. from May 2007 to January 2012, chief financial
officer of cno.
Since January 2012, executive vice president and chief financial officer. from 2001 to January 2012,
Mr. crawford was with Lincoln financial group, serving as vice president and treasurer (2001-2004),
chief financial officer (2005-2010), and executive vice president and head of corporate development and
investments (2011-January 2012).
Since September 2003, chief investment officer of cno and president and chief executive officer
of 40|86 advisors, cno’s wholly-owned registered investment advisor. Mr. Johnson has held
various investment management positions since joining cno in 1997.
Since July 2002, senior vice president and chief accounting officer. Mr. Kline has served in various
accounting and finance capacities with cno since 1990.
Since May 2005, executive vice president, human resources.
Since october 2005, executive vice president, product management and since May 2010, president,
other cno business.
Since July 2011, chief business officer of cno. from 2006 until September 2013, president of
bankers Life and from 2001 to 2006, employed in various capacities for bankers Life.
Since June 2008, executive vice president and general counsel. Mr. Zimpfer has held various legal
positions since joining cno in 1998.

(a) The executive officers serve as such at the discretion of the Board of Directors and are elected annually.

(b) Business experience is given for at least the last five years.

CNO FINANCIAL GROUP, INC. - Form 10-K

Part II

ITEM 5. Market for Registrant’s Common Equity,

Related Stockholder Matters and Issuer
Purchases of Equity Securities.

Market Information and Dividends

The following table sets forth the dividends declared and paid per share and the ranges of high and low sales prices per share for our
common stock on the New York Stock Exchange for the quarterly periods beginning January 1, 2012.

Period
2012:

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2013:

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Market price
High

8.20 $
7.99
10.18
10.06

11.67 $
13.01
14.97
17.91

Low

6.04
6.30
7.55
8.26

9.34
10.46
12.99
13.86

Dividends declared
and paid

—
0.02
0.02
0.02

0.02
0.03
0.03
0.03

As of February 10, 2014, there were approximately 29,000 holders
of the outstanding shares of common stock, including individual
participants in securities position listings.

We commenced the payment of a dividend on our common stock
in the second quarter of 2012. The dividend on our common stock
is declared each quarter by our Board of Directors. In determining
dividends, our Board of Directors takes into consideration our

financial condition, including current and expected earnings and
projected cash flows. The Company’s debt agreements contain
covenants which could limit our ability to pay cash dividends on
our common stock, but we do not believe such covenants are likely
to impact the future payment of dividends on our common stock.
Refer to the note to the consolidated financial statements entitled
“Notes Payable - Direct Corporate Obligations” for further
information regarding these limitations.

Performance Graph

The performance graph below compares CNO’s cumulative
total shareholder return on its common stock for the period
from December 31, 2008 through December 31, 2013 with the
cumulative total return of the Standard & Poor’s 500 Composite
Stock Price Index (the “S&P 500 Index”) and the Standard
& Poor’s Life and Health Insurance Index (the “S&P Life and
Health Insurance Index”). The comparison for each of the

periods assumes that $100 was invested on December 31, 2008
in each of CNO common stock, the stocks included in the S&P
500 Index and the stocks included in the S&P Life and Health
Insurance Index and that all dividends were reinvested. The stock
performance shown in this graph represents past performance and
should not be considered an indication of future performance of
CNO’s common stock.

CNO FINANCIAL GROUP, INC. - Form 10-KCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among CNO Financial Group, Inc., the S&P 500 Index, and the S&P Life & Health Insurance Index

$400

$350

$300

$250

$200

$150

$100

$50

$-
12/08

12/09

12/10

12/11

12/12

12/13

CNO Financial Group, Inc.

S&P 500

S&P Life & Health Insurance

$100 invested on 12/31/08 in stock or index, including reinvestment of dividends.

CNO Financial Group, Inc.
S&P 500 Index
S&P Life & Health Insurance Index

12/08
100.00 $
100.00
100.00

12/09
96.53 $
126.46
115.57

12/10
130.89 $
145.51
144.76

12/11
121.81 $
148.59
114.78

12/12
181.42
172.37
131.53

12/13
346.75
228.19
215.02

Issuer Purchases of Equity Securities

Period
October 1 through October 31
November 1 through November 30
December 1 through December 31

tOtaL

total number
of shares
(or units)

3,188 $

1,943,200
121,408
2,067,796

average price
paid per share
(or unit)
12.26
15.99
17.55
16.08

total number of shares
(or units) purchased as
part of publicly announced
plans or programs
—
1,943,200
—
1,943,200

Maximum number (or approximate dollar
value) of shares (or units) that may yet be
purchased under the plans or programs(a)
(dollars in millions)
128.4
97.4
397.4
397.4

(a) In May 2011, the Company announced a securities repurchase program of up to $100.0 million. In February 2012, June 2012, December 2012 and December 2013,

the Company’s Board of Directors approved, in aggregate, an additional $800.0 million to repurchase the Company’s outstanding securities.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Part II
ITEM 6 Selected Consolidated Financial Data

Equity Compensation Plan Information

The following table summarizes information, as of December 31, 2013, relating to our common stock that may be issued under the CNO
Financial Group, Inc. Amended and Restated Long-Term Incentive Plan.

Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders

tOtaL

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights
10.64
—
10.64

Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in first column)
9,098,568
—
9,098,568

5,578,885 $

—

5,578,885 $

ITEM 6. Selected Consolidated Financial Data.

(Amounts in millions, except per share data)
STATEMENT OF OPERATIONS DATA
Insurance policy income
Net investment income
Net realized investment gains (losses)
Total revenues
Interest expense
Total benefits and expenses
Income before income taxes
Income tax expense (benefit)
Net income
PER SHARE DATA
Net income, basic
Net income, diluted
Dividends declared per common share
Book value per common share outstanding
Weighted average shares outstanding for basic earnings
Weighted average shares outstanding for diluted earnings
Shares outstanding at period-end
BALANCE SHEET DATA - AT PERIOD END
Total investments
Total assets
Corporate notes payable
Total liabilities
Shareholders’ equity
STATUTORY DATA - AT PERIOD END(a)
Statutory capital and surplus
Asset valuation reserve (“AVR”)
Total statutory capital and surplus and AVR

Years ended December 31,

2013

2012

2011

2010

2009

2,744.7
1,664.0
33.4
4,476.1
105.3
4,171.3
304.8
(173.2)
478.0

2.16
2.06
.11
22.49
221.6
232.7
220.3

27,151.7
34,780.6
856.4
29,825.4
4,955.2

1,711.9
233.9
1,945.8

2,755.4
1,486.4
81.1
4,342.7
114.6
4,187.0
155.7
(65.3)
221.0

.95
.83
.06
22.80
233.7
281.4
221.5

27,959.3
34,131.4
1,004.2
29,082.1
5,049.3

1,560.4
222.2
1,782.6

2,690.5
1,354.1
61.8
4,124.6
114.1
3,818.4
306.2
(29.5)
335.7

1.35
1.15
—
19.12
248.0
304.1
241.3

26,364.3
32,921.9
857.9
28,308.1
4,613.8

2,670.0
1,366.9
30.2
4,083.9
113.2
3,859.0
224.9
(15.7)
240.6

.96
.84
—
15.18
251.0
301.9
251.1

23,782.0
31,394.9
998.5
27,583.3
3,811.6

1,578.1
168.4
1,746.5

1,525.1
71.3
1,596.4

3,093.6
1,292.7
(60.5)
4,341.4
117.9
4,269.6
71.8
51.4
20.4

.11
.11
—
12.12
188.4
193.3
250.8

21,530.2
29,860.4
1,037.4
26,821.8
3,038.6

1,410.7
28.2
1,438.9

(a) We have derived the statutory data from statements filed by our insurance subsidiaries with regulatory authorities which are prepared in accordance with statutory

accounting principles, which vary in certain respects from GAAP.

CNO FINANCIAL GROUP, INC. - Form 10-KITEM 7. Management’s Discussion and Analysis of

Consolidated Financial Condition and Results
of Operations.

In this section, we review the consolidated financial condition of CNO and its consolidated results of operations for the years ended
December 31, 2013, 2012 and 2011 and, where appropriate, factors that may affect future financial performance. Please read this
discussion in conjunction with the consolidated financial statements and notes included in this Form 10-K.

Cautionary Statement Regarding Forward-Looking Statements

Our statements, trend analyses and other information contained in
this report and elsewhere (such as in filings by CNO with the SEC,
press releases, presentations by CNO or its management or oral
statements) relative to markets for CNO’s products and trends in
CNO’s operations or financial results, as well as other statements,
contain forward-looking statements within the meaning of the
federal securities laws and the Private Securities Litigation Reform
Act of 1995. Forward-looking statements typically are identified
by the use of terms such as “anticipate,” “believe,” “plan,”
“estimate,” “expect,” “project,” “intend,” “may,” “will,” “would,”
“contemplate,” “possible,” “attempt,” “seek,” “should,” “could,”
“goal,” “target,” “on track,” “comfortable with,” “optimistic” and
similar words, although some forward-looking statements are
expressed differently. You should consider statements that contain
these words carefully because they describe our expectations,
plans, strategies and goals and our beliefs concerning future
business conditions, our results of operations, financial position,
and our business outlook or they state other “forward-looking”
information based on currently available information. The “Risk
Factors” in Item 1A provide examples of risks, uncertainties and
events that could cause our actual results to differ materially from
the expectations expressed in our forward-looking statements.
Assumptions and other important factors that could cause our
actual results to differ materially from those anticipated in our
forward-looking statements include, among other things:

• changes in or sustained low interest rates causing reductions
in investment income, the margins of our fixed annuity
and life insurance businesses, and sales of, and demand for,
our products;

• expectations of lower future investment earnings may cause us
to accelerate amortization, write down the balance of insurance
acquisition costs or establish additional liabilities for insurance
products;

• general economic, market and political conditions, including
the performance of the financial markets which may affect the
value of our investments as well as our ability to raise capital or
refinance existing indebtedness and the cost of doing so;

• the ultimate outcome of lawsuits filed against us and other legal

and regulatory proceedings to which we are subject;

• our ability to make anticipated changes to certain NGEs of our

life insurance products;

• our ability to obtain adequate and timely rate increases on our

health products, including our long-term care business;

• the receipt of any required regulatory approvals for dividend
and surplus debenture interest payments from our insurance
subsidiaries;

• mortality, morbidity, the increased cost and usage of health
care services, persistency, the adequacy of our previous reserve
estimates and other factors which may affect the profitability of
our insurance products;

• changes in our assumptions related to deferred acquisition costs

or the present value of future profits;

• the recoverability of our deferred tax assets and the effect of
potential ownership changes and tax rate changes on their
value;

• our assumption that the positions we take on our tax return

filings will not be successfully challenged by the IRS;

• changes in accounting principles and the interpretation thereof
(including changes in principles related to accounting for
deferred acquisition costs);

• our ability to continue to satisfy the financial ratio and balance

requirements and other covenants of our debt agreements;

• our ability to achieve anticipated expense reductions and levels
of operational efficiencies including improvements in claims
adjudication and continued automation and rationalization of
operating systems;

• performance and valuation of our investments, including the
impact of realized losses (including other-than-temporary
impairment charges);

• our ability to identify products and markets in which we can
compete effectively against competitors with greater market
share, higher ratings, greater financial resources and stronger
brand recognition;

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations• our ability to generate sufficient liquidity to meet our debt

service obligations and other cash needs;

• our ability to maintain effective controls over financial

reporting;

• our ability to continue to recruit and retain productive agents
and distribution partners and customer response to new
products, distribution channels and marketing initiatives;

• our ability to achieve additional upgrades of the financial
strength ratings of CNO and our insurance company
subsidiaries as well as the impact of our ratings on our business,
our ability to access capital, and the cost of capital;

• the risk factors or uncertainties listed from time to time in our

filings with the SEC;

• regulatory changes or actions, including those relating to
regulation of the financial affairs of our insurance companies,
such as the payment of dividends and surplus debenture
interest to us, regulation of the sale, underwriting and pricing of
products, and health care regulation affecting health insurance
products; and

Overview

We are a holding company for a group of insurance companies
operating throughout the United States that develop, market and
administer health insurance, annuity, individual life insurance
and other insurance products. We focus on serving the senior
and middle-income markets, which we believe are attractive,
underserved, high growth markets. We sell our products through
three distribution channels: career agents, independent producers
(some of whom sell one or more of our product lines exclusively)
and direct marketing.

The Company manages its business through the following
operating segments: Bankers Life, Washington National and
Colonial Penn, which are defined on the basis of product
distribution; Other CNO Business, comprised primarily of
products we no longer sell actively; and corporate operations,
comprised of holding company activities and certain
noninsurance company businesses. The Company’s segments are
described below:

life

insurance,

interest-sensitive

• changes in the Federal income tax laws and regulations which
may affect or eliminate the relative tax advantages of some of
our products or affect the value of our deferred tax assets.

Other factors and assumptions not identified above are also
relevant to the forward-looking statements, and if they prove
incorrect, could also cause actual results to differ materially from
those projected.

All written or oral forward-looking statements attributable to us
are expressly qualified in their entirety by the foregoing cautionary
statement. Our forward-looking statements speak only as of the
date made. We assume no obligation to update or to publicly
announce the results of any revisions to any of the forward-looking
statements to reflect actual results, future events or developments,
changes in assumptions or changes in other factors affecting the
forward-looking statements.

The reporting of RBC measures is not intended for the purpose of
ranking any insurance company or for use in connection with any
marketing, advertising or promotional activities.

primarily through distribution arrangements with Humana and
United HealthCare and PDP primarily through a distribution
arrangement with Coventry.

• Washington National, which markets and distributes
supplemental health (including specified disease, accident
and hospital indemnity insurance products) and life insurance
to middle-income consumers at home and at the worksite.
These products are marketed through PMA and through
independent marketing organizations and insurance agencies
including worksite marketing. The products being marketed
are underwritten by Washington National.

• Colonial Penn, which markets primarily graded benefit and
simplified issue life insurance directly to customers in the
senior middle-income market through television advertising,
direct mail, the internet and telemarketing. The Colonial Penn
segment includes primarily the business of Colonial Penn Life
Insurance Company.

• Other CNO Business, which consists of blocks of interest-
sensitive life insurance, traditional life insurance, annuities,
long-term care insurance and other supplemental health
products. These blocks of business are not actively marketed
and were primarily issued or acquired by Conseco Life and
Washington National.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe following summarizes our earnings for the three years ending December 31, 2013 (dollars in millions, except per share data):

Income before loss related to reinsurance transaction, net realized investment gains, fair value
changes in embedded derivative liabilities, equity in earnings of certain non-strategic investments
and earnings attributable to non-controlling interests, corporate interest expense, loss on
extinguishment of debt and income taxes (“EBIT” a non-GAAP financial measure)(a):

Bankers Life
Washington National
Colonial Penn
Other CNO Business

EBIT from business segments

Corporate operations, excluding corporate interest expense

EBIT

Corporate interest expense

Income before loss related to reinsurance transaction, net realized investment gains, fair value
changes in embedded derivative liabilities, equity in earnings of certain non-strategic investments and
earnings attributable to non-controlling interests, loss on extinguishment of debt and income taxes

Tax expense on operating income

Net operating income

Loss related to reinsurance transaction (net of taxes)
Net realized investment gains (net of related amortization and taxes)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
Equity in earnings of certain non-strategic investments and earnings attributable to non-controlling
interests (net of taxes)
Loss on extinguishment of debt (net of taxes)

Net income before valuation allowance for deferred tax assets and other tax items

Valuation allowance for deferred tax assets and other tax items

NEt INCOME

Per diluted share:

Net operating income
Loss related to reinsurance transaction (net of taxes)
Net realized investment gains (net of related amortization and taxes)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
Equity in earnings of certain non-strategic investments and earnings attributable to non-
controlling interests (net of taxes)
Loss on extinguishment of debt (net of taxes)
Valuation allowance for deferred tax assets and other tax items

NEt INCOME

2013

2012

2011

310.5
120.8
(12.5)
25.5
444.3
18.6
462.9
(51.3)

411.6
141.6
270.0
(63.3)
20.7
23.0

(9.9)
(64.0)
176.5
301.5
478.0

1.17
(.27)
.09
.10

(.04)
(.28)
1.29
2.06

300.9
127.1
(8.6)
(48.8)
370.6
(20.3)
350.3
(66.2)

284.1
103.7
180.4
—
48.4
(1.8)

—
(177.5)
49.5
171.5
221.0

.69
—
.17
(.01)

—
(.63)
.61
.83

290.9
96.1
(4.7)
15.3
397.6
(47.7)
349.9
(76.3)

273.6
102.1
171.5
—
36.7
(13.3)

—
(2.2)
192.7
143.0
335.7

.61
—
.12
(.04)

—
(.01)
.47
1.15

(a) Management believes that an analysis of EBIT provides a clearer comparison of the operating results of the Company from period to period because it excludes:
(i) loss related to reinsurance transaction; (ii) corporate interest expense; (iii) loss on extinguishment of debt; (iv) net realized investment gains; (v) fair value changes
in embedded derivative liabilities that are unrelated to the Company’s underlying fundamentals; and (vi) equity in earnings of certain non-strategic investments
and earnings attributable to non-controlling interests. Net realized investment gains or losses include: (i) gains or losses on the sales of investments; (ii) other-than-
temporary impairments recognized through net income; and (iii) changes in fair value of certain fixed maturity investments with embedded derivatives. The table
above reconciles the non-GAAP measure to the corresponding GAAP measure.

Our mission is to be the recognized market leader in providing
financial security for the protection and retirement needs of
middle-income American working families and retirees. Our
strategic plans are focused on continuing to grow and deliver long-
term value for all our stakeholders. Specifically, we will focus on
the following priorities:

• Build on our investment in the business

(i)

Continue to increase our reach, adding to our agent force
and locations

(ii) Invest in additional agent productivity tools
(iii) Add to our product offerings and service capabilities

• Continue to focus on sustainable, profitable growth

(i) Grow sales by at least 6 percent in 2014
(ii) Continue progress towards our 9 percent operating return

on equity goal by 2015

• Accelerate operating effectiveness

(i) Optimize sourcing
(ii) Improve operating platforms

• Further enhance the Customer Experience

(i) Continue to improve communications with customers
(ii) Track progress through a set of client service metrics
including net promoter score (a standard tool for measuring,
understanding and improving the customer experience)

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations• Tactically deploy excess capital

(i)

Meet our share repurchase guidance of $225 million to
$300 million in 2014

(ii) Make further progress towards a 20 percent dividend payout

ratio by 2015

• Continue to invest in and develop our talent

(i) Actively drive job development and rotation programs
(ii) Develop future leaders through our leadership development

program

Critical Accounting Policies

The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Management has made estimates in
the past that we believed to be appropriate but were subsequently
revised to reflect actual experience. If our future experience differs
materially from these estimates and assumptions, our results of
operations and financial condition could be materially affected.

We base our estimates on historical experience and other
assumptions that we believe are reasonable under the circumstances.
We continually evaluate the information used to make these
estimates as our business and the economic environment change.
The use of estimates is pervasive throughout our financial
statements. The accounting policies and estimates we consider
most critical are summarized below. Additional information
on our accounting policies is included in the note to our
consolidated financial statements entitled “Summary of Significant
Accounting Policies”.

Investments

At December 31, 2013, the carrying value of our investment
portfolio was $27.2 billion.

We defer any fees received or costs incurred when we originate
investments. We amortize fees, costs, discounts and premiums as
yield adjustments over the contractual lives of the investments. We
consider anticipated prepayments on structured securities when
we estimate yields on such securities. When actual prepayments
differ from our estimates, the adjustment to yield is recognized as
investment income (loss).

Our evaluation of investments for impairment requires significant
judgments, including: (i) the identification of potentially impaired
securities; (ii) the determination of their estimated fair value; and
(iii) the assessment of whether any decline in estimated fair value
is other than temporary.

in accordance with the contractual terms of the investment and
is expected to meet all of its obligations under the terms of the
investment; (vii) whether we intend to sell the investment or it is
more likely than not that circumstances will require us to sell the
investment before recovery occurs; (viii) the underlying current and
prospective asset and enterprise values of the issuer and the extent
to which the recoverability of the carrying value of our investment
may be affected by changes in such values; (ix) projections of,
and unfavorable changes in, cash flows on structured securities
including mortgage-backed and asset-backed securities; (x) our
best estimate of the value of any collateral; and (xi) other objective
and subjective factors.

Future events may occur, or additional information may become
available, which may necessitate future realized losses in our
portfolio. Significant losses could have a material adverse effect on
our consolidated financial statements in future periods.

Impairment losses on equity securities are recognized in net
income. The manner in which impairment losses on fixed
maturity securities, available for sale, are recognized in the
financial statements is dependent on the facts and circumstances
related to the specific security. If we intend to sell a security or it
is more likely than not that we would be required to sell a security
before the recovery of its amortized cost, the security is other-than-
temporarily impaired and the full amount of the impairment is
recognized as a loss through earnings. If we do not expect to recover
the amortized cost basis, we do not plan to sell the security, and
if it is not more likely than not that we would be required to sell a
security before the recovery of its amortized cost, less any current
period credit loss, the recognition of the other-than-temporary
impairment is bifurcated. We recognize the credit loss portion in
net income and the noncredit loss portion in accumulated other
comprehensive income.

We estimate the amount of the credit loss component of a fixed
maturity security impairment as the difference between amortized
cost and the present value of the expected cash flows of the
security. The present value is determined using the best estimate of
future cash flows discounted at the effective interest rate implicit
to the security at the date of purchase or the current yield to accrete
an asset-backed or floating rate security. The methodology and
assumptions for establishing the best estimate of future cash flows
vary depending on the type of security.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kcost basis less the impairment recognized in net income becomes
the security’s new cost basis. We accrete the new cost basis to the
estimated future cash flows over the expected remaining life of
the security, except when the security is in default or considered
nonperforming.

The remaining noncredit impairment, which is recorded in
accumulated other comprehensive income, is the difference
between the security’s estimated fair value and our best estimate
of future cash flows discounted at the effective interest rate prior
to impairment. The remaining noncredit impairment typically
represents changes in the market interest rates, current market
liquidity and risk premiums. As of December 31, 2013, other-
than-temporary impairments included in accumulated other
comprehensive income of $4.3 million (before taxes and related
amortization) related to structured securities.

Fair value is 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 and, therefore, represents an
exit price, not an entry price. We carry certain assets and liabilities
at fair value on a recurring basis, including fixed maturities, equity
securities, trading securities, investments held by VIEs, derivatives,
cash and cash equivalents, separate account assets and embedded
derivatives. We carry our company-owned life insurance policy,
which is backed by a series of mutual funds, at its cash surrender
value and our hedge fund investments at their net asset values; in
both cases, we believe these values approximate their fair values. In
addition, we disclose fair value for certain financial instruments,
including mortgage loans and policy loans, insurance liabilities for
interest-sensitive products, investment borrowings, notes payable
and borrowings related to VIEs.

The degree of judgment utilized in measuring the fair value
of financial instruments is largely dependent on the level to
which pricing is based on observable inputs. Observable inputs
reflect market data obtained from independent sources, while
unobservable inputs reflect our view of market assumptions in the
absence of observable market information. Financial instruments
with readily available active quoted prices would be considered to
have fair values based on the highest level of observable inputs,
and little judgment would be utilized in measuring fair value.
Financial instruments that rarely trade would often have fair value
based on a lower level of observable inputs, and more judgment
would be utilized in measuring fair value.

There is a three-level hierarchy for valuing assets or liabilities at
fair value based on whether inputs are observable or unobservable.

• Level 1 – includes assets and liabilities valued using inputs that
are unadjusted quoted prices in active markets for identical
assets or liabilities. Our Level 1 assets primarily include cash and
exchange traded securities.

from observable information in the marketplace or are supported
by observable levels at which transactions are executed in the
marketplace. Financial assets in this category primarily include:
certain public and privately placed corporate fixed maturity
securities; certain government or agency securities; certain
mortgage and asset-backed securities; certain equity securities;
most investments held by our consolidated VIEs; certain
mutual fund and hedge fund investments; and most short-term
investments; and non-exchange-traded derivatives such as call
options to hedge liabilities related to our fixed index annuity
products. Financial liabilities in this category include investment
borrowings, notes payable and borrowings related to VIEs.

• Level 3 – includes assets and liabilities valued using unobservable
inputs that are used in model-based valuations that contain
management assumptions. Level 3 assets and liabilities include
those financial instruments whose fair value is estimated based
on broker/dealer quotes, pricing services or internally developed
models or methodologies utilizing significant inputs not based
on, or corroborated by, readily available market information.
Financial assets in this category include certain corporate
securities (primarily certain below-investment grade privately
placed securities), certain structured securities, mortgage loans,
and other less liquid securities. Financial liabilities in this category
include our insurance liabilities for interest-sensitive products,
which includes embedded derivatives (including embedded
derivatives related to our fixed index annuity products and to
a modified coinsurance arrangement) since their values include
significant unobservable inputs including actuarial assumptions.

At each reporting date, we classify assets and liabilities into
the three input levels based on the lowest level of input that is
significant to the measurement of fair value for each asset and
liability reported at fair value. This classification is impacted by
a number of factors, including the type of financial instrument,
whether the financial instrument is new to the market and not
yet established, the characteristics specific to the transaction and
overall market conditions. Our assessment of the significance of
a particular input to the fair value measurement and the ultimate
classification of each asset and liability requires judgment and is
subject to change from period to period based on the observability
of the valuation inputs.

Below-investment grade corporate debt securities typically have
different characteristics than investment grade corporate debt
securities. Based on historical performance, probability of default
by the borrower is significantly greater for below-investment
grade corporate debt securities and in many cases severity of loss
is relatively greater as such securities are generally unsecured and
often subordinated to other indebtedness of the issuer. Also, issuers
of below-investment grade corporate debt securities frequently
have higher levels of debt relative to investment-grade issuers,
hence, all other things being equal, are generally more sensitive to
adverse economic conditions. The Company attempts to reduce
the overall risk related to its investment in below-investment grade
securities, as in all investments, through careful credit analysis,
strict investment policy guidelines, and diversification by issuer
and/or guarantor and by industry.

Our fixed maturity investments are generally purchased in the
context of long-term strategies, including funding insurance
liabilities, so we do not generally seek to generate short-term
realized gains through the purchase and sale of such securities.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsIn certain circumstances, including those in which securities
are selling at prices which exceed our view of their underlying
economic value, or when it is possible to reinvest the proceeds to
better meet our long-term asset-liability objectives, we may sell
certain securities. During 2013, we sold $477.5 million of fixed
maturity investments which resulted in gross investment losses
(before income taxes) of $11.4 million.

We actively manage the relationship between the duration and cash
flows of our invested assets and the estimated duration and cash
flows of benefit payments arising from contract liabilities. These
efforts may cause us to sell investments before their maturity date
and could result in the realization of net realized investment gains
(losses). When the estimated durations of assets and liabilities are
similar, exposure to interest rate risk is minimized because a change
in the value of assets should be largely offset by a change in the value
of liabilities. In certain circumstances, a mismatch of the durations
or related cash flows of invested assets and insurance liabilities
could have a significant impact on our results of operations and
financial position. See “- Quantitative and Qualitative Disclosures
About Market Risks” for additional discussion of the duration of
our invested assets and insurance liabilities.

For more information on our investment portfolio and our critical
accounting policies related to investments, see the note to our
consolidated financial statements entitled “Investments”.

Present Value of Future Profits and Deferred
Acquisition Costs

In conjunction with the implementation of fresh start accounting,
we eliminated the historical balances of our Predecessor’s deferred
acquisition costs and the present value of future profits and
replaced them with the present value of future profits as calculated
on the Effective Date.

The value assigned to the right to receive future cash flows from
contracts existing at the Effective Date is referred to as the present
value of future profits. The balance of this account is amortized,
evaluated for recovery, and adjusted for the impact of unrealized
gains (losses) in the same manner as the deferred acquisition
costs described below. We expect to amortize the balance of the
present value of future profits as of December 31, 2013 as follows:
10 percent in 2014, 9 percent in 2015, 8 percent in 2016, 7 percent
in 2017 and 7 percent in 2018.

Deferred acquisition costs represent incremental direct costs
related to the successful acquisition of new or renewal insurance
contracts. For interest-sensitive life or annuity products, we
amortize these costs in relation to the estimated gross profits using
the interest rate credited to the underlying policies. For other
products, we amortize these costs in relation to future anticipated
premium revenue using the projected investment earnings rate.

Insurance acquisition costs are amortized to expense over the
lives of the underlying policies in relation to future anticipated
premiums or gross profits. The insurance acquisition costs for
policies other than interest-sensitive life and annuity products are

amortized with interest (using the projected investment earnings
rate) over the estimated premium-paying period of the policies, in
a manner which recognizes amortization expense in proportion
to each year’s premium income. The insurance acquisition costs
for interest-sensitive life and annuity products are amortized with
interest (using the interest rate credited to the underlying policy)
in proportion to estimated gross profits. The interest, mortality,
morbidity and persistency assumptions used to amortize insurance
acquisition costs are consistent with those assumptions used to
estimate liabilities for insurance products. For interest-sensitive
life and annuity products, these assumptions are reviewed on a
regular basis. When actual profits or our current best estimates
of future profits are different from previous estimates, we adjust
cumulative amortization of insurance acquisition costs to maintain
amortization expense as a constant percentage of gross profits over
the entire life of the policies.

When we realize a gain or loss on investments backing our interest-
sensitive life or annuity products, we adjust the amortization of
insurance acquisition costs to reflect the change in estimated gross
profits from the products due to the gain or loss realized and the
effect on future investment yields. We increased amortization
expense for such changes by $1.6 million, $6.5 million and
$5.4 million during the years ended December 31, 2013, 2012
and 2011, respectively. We also adjust insurance acquisition costs
for the change in amortization that would have been recorded if
fixed maturity securities, available for sale, had been sold at their
stated aggregate fair value and the proceeds reinvested at current
yields. Such adjustments are commonly referred to as “shadow
adjustments” and may include adjustments to: (i) deferred
acquisition costs; (ii) the present value of future profits; (iii) loss
recognition reserves; and (iv) income taxes. We include the impact
of this adjustment in accumulated other comprehensive income
(loss) within shareholders’ equity. We limit the total adjustment
related to unrealized losses to the total of the costs capitalized
plus interest (or the total value of policies inforce recognized at
the Effective Date plus interest with respect to the present value of
future profits) related to insurance policies issued in a particular
year (or policies inforce at the Effective Date with respect to the
present value of future profits). The total pre-tax impact of such
adjustments on accumulated other comprehensive income was
a decrease of $184.7 million at December 31, 2013 (including
$27.8 million for premium deficiencies that would exist on certain
long-term care products if unrealized gains on the assets backing
such products had been realized and the proceeds from our sales of
such assets were invested at then current yields.) The total pre-tax
impact of such adjustments on accumulated other comprehensive
income at December 31, 2012 was a decrease of $1,135.7 million
(including $802.0 million for premium deficiencies that would
exist on certain long-term care products if unrealized gains on the
assets backing such products had been realized and the proceeds
from our sales of such assets were invested at then current yields.)

At December 31, 2013, the balance of insurance acquisition costs
was $1.8 billion prior to shadow adjustments. The recoverability
of this amount is dependent on the future profitability of the
related business. Each year, we evaluate the recoverability of
the unamortized balance of insurance acquisition costs. These

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kevaluations are performed to determine whether estimates of the
present value of future cash flows, in combination with the related
liability for insurance products, will support the unamortized
balance. These future cash flows are based on our best estimate of
future premium income, less benefits and expenses. The present
value of these cash flows, plus the related balance of liabilities
for insurance products, is then compared with the unamortized
balance of insurance acquisition costs. In the event of a deficiency,
such amount would be charged to amortization expense. If the
deficiency exceeds the balance of insurance acquisition costs,
a premium deficiency reserve is established for the excess. The
determination of future cash flows involves significant judgment.
Revisions to the assumptions which determine such cash flows
could have a significant adverse effect on our results of operations
and financial position.

The blocks of business in our Other CNO Business segment are
particularly sensitive to changes in assumptions. Since many of
these blocks are not expected to generate future profits, the entire
impact of adverse changes to our earlier estimate of future gross

profits is recognized in earnings in the period such changes occur.
While we expect the long-term care business in the Bankers Life
segment to generate future profits, the margins are relatively thin
and are vulnerable to changes in assumptions.

The table presented below summarizes our estimates of
cumulative adjustments to insurance acquisition costs or premium
deficiency reserves (when the deficiency exceeds the balance of
insurance acquisition costs) resulting from hypothetical revisions
to certain assumptions. Although such hypothetical revisions are
not currently required or anticipated, we believe they could occur
based on past variances in experience and our expectations of the
ranges of future experience that could reasonably occur. We have
assumed that revisions to assumptions resulting in the adjustments
summarized below would occur equally among policy types, ages
and durations within each product classification. Any actual
adjustment would be dependent on the specific policies affected
and, therefore, may differ from the estimates summarized below.
In addition, the impact of actual adjustments would reflect the net
effect of all changes in assumptions during the period.

Change in assumptions
Interest-sensitive life products:

5% increase to assumed mortality
5% decrease to assumed mortality
15% increase to assumed expenses
15% decrease to assumed expenses
10 basis point decrease to assumed spread
10 basis point increase to assumed spread
10% increase to assumed lapses
10% decrease to assumed lapses

Fixed index and deferred annuity products:

20% increase to assumed surrenders
20% decrease to assumed surrenders
15% increase to assumed expenses
15% decrease to assumed expenses
10 basis point decrease to assumed spread
10 basis point increase to assumed spread

Other than interest-sensitive life and annuity products(a):

5% increase to assumed morbidity
50 basis point decrease to investment earnings rate

Estimated adjustment to income before income
taxes based on revisions to certain assumptions

(dollars in millions)

(90)
90
(20)
20
(20)
20
5
(5)

(70)
85
(10)
10
(35)
35

(45)
—

(a) We have excluded the effect of reasonably likely changes in lapse, surrender and expense assumptions for policies other than interest-sensitive life and annuity products.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe following summarizes the persistency of our major blocks of insurance business summarized by segment and line of business:

Bankers Life:

Medicare supplement(1)
Long-term care(1)
Fixed index annuities(2)
Other annuities(2)
Life(1)

Washington National:

Medicare supplement(1)
Supplemental health(1)
Life(1)

Colonial Penn:

Life(1)

Other CNO Business:
Long-term care(1)
Fixed index annuities(2)
Other annuities(1)
Life(1)
(1) Based on number of inforce policies.

(2) Based on the percentage of the inforce block persisting.

Years ended December 31,

2013

2012

2011

82.3%
90.9%
90.8%
86.6%
87.2%

82.4%
87.2%
90.9%

83.8%

92.5%
90.0%
90.4%
93.0%

80.7%
90.4%
90.8%
87.3%
86.2%

81.2%
88.3%
92.4%

84.7%

92.2%
87.9%
91.0%
91.3%

81.7%
90.1%
90.1%
87.4%
87.2%

80.9%
88.4%
93.3%

85.6%

91.7%
86.4%
91.2%
92.3%

Liabilities for Insurance Products - reserves for
the future payment of long-term care policy
claims

We calculate and maintain reserves for the future payment of
claims to our policyholders based on actuarial assumptions. For
all our insurance products, we establish an active life reserve,
a liability for due and unpaid claims, claims in the course of
settlement and incurred but not reported claims. In addition,
for our health insurance business, we establish a reserve for the
present value of amounts not yet due on claims. Many factors can

affect these reserves and liabilities, such as economic and social
conditions, inflation, hospital and pharmaceutical costs, changes
in doctrines of legal liability and extra-contractual damage
awards. Therefore, our reserves and liabilities are necessarily based
on numerous estimates and assumptions as well as historical
experience. Establishing reserves is an uncertain process, and it
is possible that actual claims will materially exceed our reserves
and have a material adverse effect on our results of operations
and financial condition. For example, our long-term care policy
claims may be paid over a long period of time and, therefore, loss
estimates have a higher degree of uncertainty.

The following summarizes the components of the reserves related to our long-term care business in both our Bankers Life and Other
CNO Business segments as of December 31, 2013 and December 31, 2012 (dollars in millions):

Amounts classified as future policy benefits:

Active life reserves
Reserves for the present value of amounts not yet due on claims
Future loss reserves
Premium deficiency reserves related to reinsurance transaction

Amounts classified as liability for policy and contract claims:

Liability for due and unpaid claims, claims in the course of settlement
and incurred but not reported claims

tOtaL

2013

3,547.9
1,256.8
98.1
96.9

2012

3,441.6
1,213.2
76.0
—

187.8
5,187.5

181.3
4,912.1

The significant assumptions used to calculate the active life
reserves include morbidity, persistency and investment yields.
These assumptions are determined at the issuance date and do not
change over the life of the policy.

The significant assumptions used to calculate the reserves for the
present value of amounts not yet due on claims include future
benefit payments, interest rates and claim continuance patterns.
Interest rates are used to determine the present value of the future

benefit payments and are based on the investment yield of assets
supporting the reserves. Claim continuance assumptions are
estimates of the expected period of time that claim payments will
continue before termination due to recovery, death or attainment
of policy maximum benefits. These estimates are based on
historical claim experience for similar policy and coverage types.
Our estimates of benefit payments, interest rates and claim
continuance are reviewed regularly and updated to consider
current portfolio investment yields and recent claims experience.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KIn December 2013, two of our insurance subsidiaries with long-
term care business in the Other CNO Business segment entered
into 100% coinsurance agreements ceding $495 million of
long-term care reserves to BRe. Pursuant to the agreements, the
Company will pay an additional premium of $96.9 million to
BRe and an amount equal to the related net liabilities. We evaluate
this block separately to determine whether aggregate liabilities
are deficient. We recognized a premium deficiency reserve of
$96.9 million related to the transaction to reflect the known loss
on the business, as we will not be recognizing additional income
in future periods to recover the unamortized additional premium
which will be paid to BRe.

With respect to the long-term care block in our Bankers Life
segment, the aggregate liability is not deficient, but our projections
of estimated future profits (losses) indicate that profits will be
recognized in earlier periods, followed by losses in later periods.
In this situation, we are required to recognize future loss reserves.
Such reserves are calculated based on our current estimate of the
amount necessary to offset the losses in future periods and are
established during the period the block is profitable. We estimate
the future losses based on our current best estimates of morbidity,
persistency, maintenance expense and investment yields, which
estimates are generally updated annually. During 2013, we
increased the future loss reserves related to our long-term care
blocks of business by $22.1 million based on these calculations.

The significant assumptions used to calculate the liability for due
and unpaid claims, claims in the course of settlement and incurred
but not reported claims are based on historical claim payment
patterns and include assumptions related to the number of claims
and the size and timing of claim payments. These assumptions
are updated quarterly to reflect the most current information
regarding claim payment patterns. In order to determine the
accuracy of our prior estimates, we calculate the total redundancy
(deficiency) of our prior claim reserve estimates. The 2012 claim
reserve redundancy (deficiency) for long-term care claim reserves,
as measured at December 31, 2013, was $12.8 million (recognized
as a reduction to claim expense during 2013 and consisting of
$17.9 million for the Bankers Life segment and $(5.1) million for
the Other CNO Business segment).

Estimates of unpaid losses related to long-term care business have a
higher degree of uncertainty than estimates for our other products
due to the range of ultimate duration of these claims and the
resulting variability in their cost (in addition to the variations in
the lag time in reporting claims). We would not consider a variance
of 5-10 percentage points from the initial expected loss ratio to be
unusual. As an example, an increase in the initial loss ratio of 5-10
percentage points for claims incurred in 2013 related to our long-
term care business (in both our Bankers Life and Other CNO
Business segments) would have resulted in an immediate decrease
in our earnings of approximately $25 million to $55 million
(representing the entire impact of the increase in loss ratio on
claims incurred in 2013). Our financial results depend significantly
upon the extent to which our actual claims experience is consistent
with the assumptions we used in determining our reserves and
pricing our products. If our assumptions with respect to future
claims are incorrect, and our reserves are insufficient to cover our
actual losses and expenses, we would be required to increase our
liabilities, which would negatively affect our operating results.

Accounting for marketing agreements with
other parties

Bankers Life has entered into various distribution and marketing
agreements with other insurance companies to use Bankers
Life’s career agents to distribute prescription drug and Medicare
Advantage plans. These agreements allow Bankers to offer these
products to current and potential future policyholders without
investment in management and infrastructure. We receive fee
income related to the plans sold through our distribution channels.

We account for these distribution agreements as follows:

• We recognize distribution income based on either: (i) a fixed
fee per contract sold; or (ii) a percentage of premiums collected.
This fee income is recognized over the calendar year term of
the contract.

• We also pay commissions to our agents who sell the plans.
These payments are deferred and amortized over the term of
the contract.

The following summarizes the fee revenue, net of distribution expenses, earned through these marketing agreements (dollars in millions):

Fee revenue:

Medicare Advantage contracts
PDP contracts
Total revenue
Distribution expenses

FEE rEVENUE, NEt OF DIStrIBUtION EXPENSES

2013

16.1
2.3
18.4
7.1
11.3

2012

12.4 $
2.5
14.9
5.9
9.0 $

2011

9.9
1.9
11.8
4.7
7.1

Prior to its termination in August 2013, we had a quota-share reinsurance agreement with an insurance company that provided Bankers
Life with 50 percent of the net premiums and related policy benefits of certain PDP business sold through Bankers Life’s career agency force.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe following summarizes the pre-tax income from the quota-share reinsurance agreement (dollars in millions):

Insurance policy income
Insurance policy benefits
Other operating expenses

Total expenses
PrE-taX INCOME

Income Taxes

Our income tax expense includes deferred income taxes arising
from temporary differences between the financial reporting and tax
bases of assets and liabilities, capital loss carryforwards and NOLs.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply in the years in which temporary differences
are expected to be recovered or paid. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in earnings
in the period when the changes are enacted.

A reduction of the net carrying amount of deferred tax assets by
establishing a valuation allowance is required if, based on the
available evidence, it is more likely than not that such assets will
not be realized. In assessing the need for a valuation allowance, all
available evidence, both positive and negative, shall be considered
to determine whether, based on the weight of that evidence,
a valuation allowance for deferred tax assets is needed. This
assessment requires significant judgment and considers, among
other matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the duration of
carryforward periods, our experience with operating loss and tax
credit carryforwards expiring unused, and tax planning strategies.
We evaluate the need to establish a valuation allowance for our
deferred tax assets on an ongoing basis. The realization of our
deferred tax assets depends upon generating sufficient future
taxable income of the appropriate type during the periods in
which our temporary differences become deductible and before
our capital loss carryforwards and life and non-life NOLs expire.

Based on our assessment, it appears more likely than not that
$1,173.2 million of our deferred tax assets will be realized through
future taxable earnings. Accordingly, we reduced our deferred tax
valuation allowance by $472.1 million in 2013. We will continue
to assess the need for a valuation allowance in the future. If
future results are less than projected, a valuation allowance may
be required to reduce the deferred tax asset, which could have a
material impact on our results of operations in the period in which
it is recorded.

2013
19.7
15.8
2.6
18.4
1.3

2012
49.9 $
35.6
3.9
39.5
10.4 $

2011
54.5
45.1
4.9
50.0
4.5

The principal components of the reduction to our valuation
allowance for deferred tax assets are further discussed below. First,
our 2013 taxable income exceeded the amount previously reflected
in our deferred tax valuation model, resulting in a reduction to the
valuation allowance of $19.7 million. In addition, our recent higher
levels of operating income resulted in the projection of higher levels
of future years taxable income based on evidence we consider to
be objective and verifiable. This change is further described in the
following paragraph and resulted in a reduction to the valuation
allowance for deferred tax assets in 2013 of $114.7 million. We
reduced our deferred tax valuation allowance by $26.5 million
resulting from the utilization of capital loss carryforwards during
2013. Furthermore, deferred tax assets and the valuation allowance
for deferred tax assets were both reduced by $159.4 million due to
the expiration of capital loss carryforwards. As further described
below, we reached an agreement with the IRS regarding the
classification of cancellation of indebtedness income (“CODI”)
related to the bankruptcy of our Predecessor which resulted
in a $71.8 million reduction to our valuation allowance. In the
fourth quarter of 2013, we completed certain investment trading
strategies that resulted in the realization, for tax purposes only,
of unrealized gains in our investment portfolio of $277 million.
Such transactions allowed us to utilize capital loss carryforwards
(that would have otherwise expired) of $277 million to offset such
tax gains. Accordingly, we reduced our valuation allowance for
deferred tax assets by $97.1 million. However, as a result of the
higher tax basis for these investments, our future taxable income
during the carryforward period will be lower. As a result, we were
required to increase our valuation allowance for deferred tax assets
by $32.4 million.

Our deferred tax valuation model reflects projections of future
taxable income based on a normalized average annual taxable
income for the last three years, plus 3 percent growth for the next
five years and level income thereafter. In our new projections,
our three year average increased to $360 million, compared to
$292 million in our prior projection. We have evaluated each
component of the deferred tax asset and assessed the effect of
limitations and/or interpretations on the value of each component
to be fully recognized in the future.

Changes in our valuation allowance are summarized as follows (dollars in millions):

Balance, December 31, 2010

Decrease in 2011

Balance, December 31, 2011

Decrease in 2012

Balance, December 31, 2012

Decrease in 2013

BaLaNCE, DECEMBEr 31, 2013

1,081.4
(143.0)(a)
938.4
(171.5)(b)
766.9
(472.1)(c)
294.8

(a) The $143.0 million reduction to the deferred tax valuation allowance during 2011 resulted primarily from our recent higher levels of operating income when

projecting future taxable income.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K(b) The $171.5 million reduction to the deferred tax valuation allowance during 2012 resulted primarily from: (i) higher taxable income in 2012 (including investment

gains); and (ii) our recent higher levels of operating income when projecting future taxable income.

(c) The $472.1 million reduction to the deferred tax valuation allowance during 2013 resulted from: (i) $19.7 million applicable to higher current year income;
(ii) $114.7 million applicable to higher levels of income on projected future taxable income; (iii) $26.5 million related to the utilization of capital loss carryforwards;
(iv) $159.4 million related to the expiration of capital loss carryforwards; (v) $71.8 million applicable to the classification of a portion of the CODI; (vi) $64.7 million
related to the completion of certain investment trading strategies; and (vii) other reductions totaling $15.3 million.

Recovery of our deferred tax asset is dependent on achieving the
future taxable income used in our deferred tax valuation model
and failure to do so would result in an increase in the valuation
allowance in a future period. Any future increase in the valuation
allowance may result in additional income tax expense and reduce
shareholders’ equity, and such an increase could have a significant
impact upon our earnings in the future. In addition, the use of
the Company’s NOLs is dependent, in part, on whether the IRS
ultimately agrees with the tax position we have taken in our tax
returns with respect to the classification of the loss we recognized as
a result of the transfer of the stock of our former subsidiary, Conseco
Senior Health Insurance Company (“CSHI”) to Senior Health Care
Oversight Trust, an independent trust (the “Independent Trust”).

The Code limits the extent to which losses realized by a non-life
entity (or entities) may offset income from a life insurance company
(or companies) to the lesser of: (i) 35 percent of the income of the
life insurance company; or (ii) 35 percent of the total loss of the
non-life entities (including NOLs of the non-life entities). There
is no similar limitation on the extent to which losses realized by
a life insurance entity (or entities) may offset income from a non-
life entity (or entities). This limitation is the primary reason a
valuation allowance for NOLs is required.

Section 382 of the Code imposes limitations on a corporation’s
ability to use its NOLs when the company undergoes an ownership
change. Future transactions and the timing of such transactions
could cause an ownership change for Section 382 income tax
purposes. Such transactions may include, but are not limited to,
additional repurchases under our securities repurchase program,
issuances of common stock and acquisitions or sales of shares of
CNO stock by certain holders of our shares, including persons
who have held, currently hold or may accumulate in the future five
percent or more of our outstanding common stock for their own
account. Many of these transactions are beyond our control. If an
additional ownership change were to occur for purposes of Section
382, we would be required to calculate an annual restriction on
the use of our NOLs to offset future taxable income. The annual
restriction would be calculated based upon the value of CNO’s
equity at the time of such ownership change, multiplied by a federal
long-term tax exempt rate (3.50 percent at December 31, 2013),
and the annual restriction could effectively eliminate our ability
to use a substantial portion of our NOLs to offset future taxable
income. We regularly monitor ownership change (as calculated for
purposes of Section 382) and, as of December 31, 2013, we were
below the 50 percent ownership change level that would trigger
further impairment of our ability to utilize our NOLs.

As of December 31, 2013, we had $3.5 billion of federal NOLs and $38.2 million of capital loss carryforwards. The following table
summarizes the expiration dates of our loss carryforwards assuming the IRS ultimately agrees with the position we have taken with respect
to the loss on our investment in CSHI (dollars in millions):

Year of expiration
2014
2016
2018
2021
2022
2023
2025
2027
2028
2029
2032

Subtotal

Less:

Unrecognized tax benefits

tOtaL

Net operating loss carryforwards

Life

— $
—
314.9
30.0
202.0
742.6
—
—
—
—
—
1,289.5

(379.0)
910.5

Non-life

— $
—
—
—
—
2,199.2
118.6
220.6
.5
272.3
44.0
2,855.2

(222.4)
2,632.8

Capital loss
carryforwards
.2
1.9
—
—
—
—
—
—
—
—
—
2.1

total loss
carryforwards
.2
1.9
314.9
30.0
202.0
2,941.8
118.6
220.6
.5
272.3
44.0
4,146.8

36.1
38.2

(565.3)
3,581.5

We had deferred tax assets related to NOLs for state income taxes
of $20.0 million and $16.2 million at December 31, 2013 and
2012, respectively. The related state NOLs are available to offset
future state taxable income in certain states through 2025.

In July 2006, the Joint Committee of Taxation accepted the audit
and the settlement which characterized $2.1 billion of the tax
losses on our Predecessor’s investment in Conseco Finance Corp.
as life company losses and the remaining $3.8 billion as non-life
losses prior to the application of the CODI attribute reductions
described below.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe Code provides that any income realized as a result of the
CODI in bankruptcy must reduce NOLs. We realized $2.5 billion
of CODI when we emerged from bankruptcy. Pursuant to the
Company’s interpretation of the tax law, the CODI reductions
were all used to reduce non-life NOLs and this position has been
taken in our tax returns. However, the IRS was not in agreement
with our position. Due to uncertainties with respect to the position
the IRS could take and limitations on our ability to utilize NOLs
based on projected life and non-life income, we had consistently
considered the $631 million of CODI to be a reduction to life
NOLs when determining our valuation allowance. A final closing
agreement was received from the IRS in August 2013. Under
the terms of the agreement, $315 million of the $631 million of

CODI is treated as a reduction to the non-life NOLs resulting in
a reduction to our valuation allowance of $71.8 million which was
recognized in 2013.

We recognized an $878 million ordinary loss on our investment
in CSHI which was worthless when it was transferred to the
Independent Trust in 2008. Of this loss, $742 million has been
reported as a life loss and $136 million as a non-life loss. The IRS
has disagreed with our ordinary loss treatment and believes that it
should be treated as a capital loss, subject to a five year carryover.
If the IRS position is ultimately determined to be correct,
$473 million would have expired unused in 2013. Due to this
uncertainty, we have not recognized a tax benefit of $166 million.
However, if this unrecognized tax benefit would have been
recognized, we would also have established a valuation allowance
of $41 million at December 31, 2013.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2013 and 2012 is as
follows (dollars in millions):

Balance at beginning of year

Increase based on tax positions taken in prior years
Decrease based on tax positions taken in prior years
Increase based on tax positions taken in the current year
Decrease in unrecognized tax benefits related to settlements with taxing authorities

BaLaNCE at END OF YE ar

Years ended December 31,

2013
310.5
35.6
(27.0)
47.6
(140.0)
226.7

2012
318.2
7.3
(15.0)
—
—
310.5

As of December 31, 2013 and 2012, $156.0 million and
$285.0 million, respectively, of our unrecognized tax benefits,
if recognized, would affect the effective tax rate. The remaining
balances relate to timing differences which, if recognized, would
have no effect on the Company’s tax expense. The Company
recognizes interest related to unrecognized tax benefits as
income tax expense in the consolidated statement of operations.
Such amounts were not significant in each of the three years
ended December 31, 2013. The liability for accrued interest
was $1.8 million and $1.8 million at December 31, 2013 and
2012, respectively.

Due to the uncertainty in tax law, we were not able to conclude that
a tax position for the repurchase premium related to the repurchase
of our 7.0% Debentures on September 28, 2012 and March 27,
2013, was more likely than not to be sustained. We engaged
outside counsel and received external evidence in July 2013 which
supports our position that deductions with respect to a portion of
the repurchase premium paid in 2012 and 2013 should be allowed
under Section 249 of the Code. We recognized a tax benefit of
$14.3 million in 2013, related to the change in facts regarding the
deductibility of a portion of the repurchase premium.

Tax years 2004 and 2008 through 2012 are open to examination
by the IRS. The Company’s various state income tax returns are
generally open for tax years 2010 through 2012 based on the
individual state statutes of limitation. Generally, for tax years
which generate NOLs, capital losses or tax credit carryforwards,

the statute of limitations does not close until the expiration of the
statute of limitations for the tax year in which such carryforwards
are utilized.

Liabilities for Insurance Products

At December 31, 2013, the total balance of our liabilities for
insurance products was $24.9 billion. These liabilities are generally
payable over an extended period of time and the profitability of
the related products is dependent on the pricing of the products
and other factors. Differences between our expectations when
we sold these products and our actual experience could result in
future losses.

We calculate and maintain reserves for the future payment of
claims to our policyholders based on actuarial assumptions. For
our insurance products, we establish an active life reserve, a liability
for due and unpaid claims, claims in the course of settlement
and incurred but not reported claims. In addition, for our health
insurance business, we establish a reserve for the present value
of amounts not yet due on claims. Many factors can affect these
reserves and liabilities, such as economic and social conditions,
inflation, hospital and pharmaceutical costs, changes in doctrines
of legal liability and extra-contractual damage awards. We
establish liabilities for annuity and interest-sensitive life products
equal to the accumulated policy account values, which include
an accumulation of deposit payments plus credited interest, less
withdrawals and the amounts assessed against the policyholder
through the end of the period. In addition, policyholder account

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kvalues for certain interest-sensitive life products are impacted
by our assumptions related to changes of certain NGEs that we
are allowed to make under the terms of the policy, such as cost
of insurance charges, expense loads, credited interest rates and
policyholder bonuses. Therefore, our reserves and liabilities are
necessarily based on numerous estimates and assumptions as
well as historical experience. Establishing reserves is an uncertain
process, and it is possible that actual claims will materially exceed
our reserves and have a material adverse effect on our results of
operations and financial condition. We have incurred significant
losses beyond our estimates as a result of actual claim costs and
persistency of our long-term care business in the Other CNO
Business segment. Our financial results depend significantly upon
the extent to which our actual claims experience is consistent with
the assumptions we used in determining our reserves and pricing
our products. If our assumptions with respect to future claims
are incorrect, and our reserves are insufficient to cover our actual
losses and expenses, we would be required to increase our liabilities,
which would negatively affect our operating results. Liabilities
for insurance products are calculated using management’s best
judgments, based on our past experience and standard actuarial
tables, of mortality, morbidity, lapse rates, investment experience
and expense levels.

Our assumptions related to our interest-sensitive insurance
liabilities are reviewed each quarter. During 2013, such reviews
resulted in no significant adjustments. We did not change our long-
term interest rate assumptions, as investment results are tracking
relatively consistent with our new money rate assumptions. In
addition, we continue to believe our assumptions for future new
money rates are reasonable.

Accounting for Long-term Care Premium Rate
Increases

Many of our long-term care policies have been subject to premium
rate increases. In some cases, these premium rate increases were
materially consistent with the assumptions we used to value the
particular block of business at the Effective Date. With respect
to certain premium rate increases, some of our policyholders were
provided an option to cease paying their premiums and receive a
non-forfeiture option in the form of a paid-up policy with limited
benefits. In addition, our policyholders could choose to reduce
their coverage amounts and premiums in the same proportion,
when permitted by our contracts or as required by regulators. The
following describes how we account for these policyholder options:

• Premium rate increases - If premium rate increases reflect a change
in our previous rate increase assumptions, the new assumptions
are not reflected prospectively in our reserves. Instead, the
additional premium revenue resulting from the rate increase is
recognized as earned and original assumptions continue to be
used to determine changes to liabilities for insurance products
unless a premium deficiency exists.

• Benefit reductions - If there is a premium rate increase on
one of our long-term care policies, a policyholder may choose
reduced coverage with a proportionate reduction in premium,
when permitted by our contracts. This option does not require
additional underwriting. Benefit reductions are treated as a

partial lapse of coverage, and the balance of our reserves and
deferred insurance acquisition costs is reduced in proportion to
the reduced coverage.

• Non-forfeiture benefits offered in conjunction with a rate
increase - In some cases, non-forfeiture benefits are offered to
policyholders who wish to lapse their policies at the time of a
significant rate increase. In these cases, exercise of this option
is treated as an extinguishment of the original contract and
issuance of a new contract. The balance of our reserves and
deferred insurance acquisition costs are released, and a reserve
for the new contract is established.

Some of our policyholders may receive a non-forfeiture benefit
if they cease paying their premiums pursuant to their original
contract (or pursuant to changes made to their original contract as
a result of a litigation settlement made prior to the Effective Date
or an order issued by the Florida Office of Insurance Regulation).
In these cases, exercise of this option is treated as the exercise of
a policy benefit, and the reserve for premium paying benefits is
reduced, and the reserve for the non-forfeiture benefit is adjusted
to reflect the election of this benefit.

Liabilities for Loss Contingencies Related to
Lawsuits

The Company and its subsidiaries are involved in various legal
actions in the normal course of business, in which claims for
compensatory and punitive damages are asserted, some for
substantial amounts. We recognize an estimated loss from these
loss contingencies when we believe it is probable that a loss has been
incurred and the amount of the loss can be reasonably estimated.
Some of the pending matters have been filed as purported class
actions and some actions have been filed in certain jurisdictions
that permit punitive damage awards that are disproportionate to
the actual damages incurred. The amounts sought in certain of
these actions are often large or indeterminate and the ultimate
outcome of certain actions is difficult to predict. In the event
of an adverse outcome in one or more of these matters, there is
a possibility that the ultimate liability may be in excess of the
liabilities we have established and could have a material adverse
effect on our business, financial condition, results of operations
and cash flows. In addition, the resolution of pending or future
litigation may involve modifications to the terms of outstanding
insurance policies or could impact the timing and amount of rate
increases, which could adversely affect the future profitability of
the related insurance policies. Based upon information presently
available, and in light of legal, factual and other defenses available
to the Company and its subsidiaries, the Company does not
believe that it is probable that the ultimate liability from either
pending or threatened legal actions, after consideration of
existing loss provisions, will have a material adverse effect on the
Company’s consolidated financial condition, operating results or
cash flows. However, given the inherent difficulty in predicting
the outcome of legal proceedings, there exists the possibility such
legal actions could have a material adverse effect on the Company’s
consolidated financial condition, operating results or cash flows.

In addition to the inherent difficulty of predicting litigation
outcomes, particularly those that will be decided by a jury, many of
these matters purport to seek substantial or an unspecified amount

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationsof damages for unsubstantiated conduct spanning several years
based on complex legal theories and damages models. The alleged
damages typically are indeterminate or not factually supported
in the complaint, and, in any event, the Company’s experience
indicates that monetary demands for damages often bear little
relation to the ultimate loss. In some cases, plaintiffs are seeking
to certify classes in the litigation and class certification either has
been denied or is pending and we have filed oppositions to class
certification or sought to decertify a prior class certification. In
addition, for many of these cases: (i) there is uncertainty as to the

outcome of pending appeals or motions; (ii) there are significant
factual issues to be resolved; and/or (iii) there are novel legal issues
presented. Accordingly, the Company can not reasonably estimate
the possible loss or range of loss in excess of amounts accrued,
if any, or predict the timing of the eventual resolution of these
matters. The Company reviews these matters on an ongoing basis.
When assessing reasonably possible and probable outcomes, the
Company bases its assessment on the expected ultimate outcome
following all appeals.

Results of Operations

We manage our business through the following operating
segments: Bankers Life, Washington National and Colonial Penn,
which are defined on the basis of product distribution; Other
CNO Business, comprised primarily of products we no longer sell

actively; and corporate operations, comprised of holding company
activities and certain noninsurance company businesses.

Please read this discussion in conjunction with the consolidated
financial statements and notes included in this Form 10-K.

The following tables and narratives summarize the operating results of our segments (dollars in millions):

2013

2012

2011

Income (loss) before loss related to reinsurance transaction, net realized investment gains (losses),
fair value changes in embedded derivative liabilities, net of related amortization, equity in earnings
of certain non-strategic investments and earnings attributable to non-controlling interests, loss on
extinguishment of debt and income taxes (a non-GAAP measure)(a):

Bankers Life
Washington National
Colonial Penn
Other CNO Business
Corporate operations

Loss related to reinsurance transaction:

Other CNO Business

Net realized investment gains (losses), net of related amortization:

Bankers Life
Washington National
Colonial Penn
Other CNO Business
Corporate operations

Fair value changes in embedded derivative liabilities, net of related amortization:

Bankers Life
Other CNO Business

Equity in earnings of certain non-strategic investments and earnings attributable
to non-controlling interests:

Corporate operations

Loss on extinguishment of debt:

Corporate operations

Income (loss) before income taxes:

Bankers Life
Washington National
Colonial Penn
Other CNO Business
Corporate operations

INCOME BEFOrE INCOME ta XES

310.5
120.8
(12.5)
25.5
(32.7)
411.6

(98.4)

15.1
4.1
.4
13.7
(1.5)
31.8

34.8
.6
35.4

(10.2)

(65.4)

360.4
124.9
(12.1)
(58.6)
(109.8)
304.8

300.9
127.1
(8.6)
(48.8)
(86.5)
284.1

290.9
96.1
(4.7)
15.3
(124.0)
273.6

—

48.7
6.7
7.2
10.2
1.8
74.6

(2.8)
—
(2.8)

—

(200.2)

346.8
133.8
(1.4)
(38.6)
(284.9)
155.7

—

42.7
2.0
5.8
5.9
—
56.4

(19.8)
(.6)
(20.4)

—

(3.4)

313.8
98.1
1.1
20.6
(127.4)
306.2

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K(a) These non-GAAP measures as presented in the above table and in the following segment financial data and discussions of segment results exclude loss related to
reinsurance transaction, net realized investment gains (losses), fair value changes in embedded derivative liabilities, net of related amortization, equity in earnings of
certain non-strategic investments and earnings attributable to non-controlling interests, loss on extinguishment of debt and before income taxes. These are considered
non-GAAP financial measures. A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that excludes or includes
amounts that are normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.

These non-GAAP financial measures of “ income (loss) before loss related to reinsurance transaction, net realized investment gains (losses), fair value changes in
embedded derivative liabilities, net of related amortization, equity in earnings of certain non-strategic investments and earnings attributable to non-controlling
interests, loss on extinguishment of debt and before income taxes” differ from “ income (loss) before income taxes” as presented in our consolidated statement of
operations prepared in accordance with GAAP due to the exclusion of before tax loss related to reinsurance transaction, realized investment gains (losses), fair value
changes in embedded derivative liabilities, net of related amortization, equity in earnings of certain non-strategic investments and earnings attributable to non-
controlling interests and loss on extinguishment of debt. We measure segment performance excluding these items because we believe that this performance measure is
a better indicator of the ongoing businesses and trends in our business. Our primary investment focus is on investment income to support our liabilities for insurance
products as opposed to the generation of realized investment gains (losses), and a long-term focus is necessary to maintain profitability over the life of the business.
Realized investment gains (losses), fair value changes in embedded derivative liabilities and equity in earnings of certain non-strategic investments and earnings
attributable to non-controlling interests depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments.
However, “ income (loss) before loss related to reinsurance transaction, net realized investment gains (losses), fair value changes in embedded derivative liabilities,
net of related amortization, equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests, loss on extinguishment of
debt and before income taxes” does not replace “ income (loss) before income taxes” as a measure of overall profitability. We may experience realized investment gains
(losses), which will affect future earnings levels since our underlying business is long-term in nature and we need to earn the assumed interest rates on the investments
backing our liabilities for insurance products to maintain the profitability of our business. In addition, management uses this non-GAAP financial measure in its
budgeting process, financial analysis of segment performance and in assessing the allocation of resources. We believe these non-GAAP financial measures enhance
an investor’s understanding of our financial performance and allows them to make more informed judgments about the Company as a whole. These measures also
highlight operating trends that might not otherwise be transparent. The table above reconciles the non-GAAP measure to the corresponding GAAP measure.

General: CNO is the top tier holding company for a group of
insurance companies operating throughout the United States
that develop, market and administer health insurance, annuity,
individual life insurance and other insurance products. We
distribute these products through our Bankers Life segment,

which utilizes a career agency force, through our Colonial Penn
segment, which utilizes direct response marketing, and through
our Washington National segment, which utilizes independent
producers.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations
Bankers Life (dollars in millions)

Premium collections:

Annuities
Medicare supplement and other supplemental health
Life

Total collections

Average liabilities for insurance products:

Fixed index annuities
Deferred annuities
SPIAs and supplemental contracts:

Mortality based
Deposit based

Health:

Long-term care
Medicare supplement
Other health

Life:

Interest sensitive
Non-interest sensitive

Total average liabilities for insurance products, net of reinsurance ceded

Revenues:

Insurance policy income
Net investment income:

General account invested assets
Fixed index products

Fee revenue and other income

Total revenues

Expenses:

Insurance policy benefits
Amounts added to policyholder account balances:

Cost of interest credited to policyholders
Cost of options to fund index credits, net of forfeitures
Market value changes credited to policyholders

Amortization related to operations
Interest expense on investment borrowings
Other operating costs and expenses
Total benefits and expenses

Income before net realized investment gains (losses), net of related amortization, and fair value
changes in embedded derivative liabilities, net of related amortization, and income taxes

Net realized investment gains
Amortization related to net realized investment gains

Net realized investment gains, net of related amortization

Insurance policy benefits - fair value changes in embedded derivative liabilities
Amortization related to fair value changes in embedded derivative liabilities

Fair value changes in embedded derivative liabilities, net of related amortization

INCOME BEFOrE INCOME ta XES

2013
744.1
1,317.8
368.3
2,430.2

3,185.8
4,137.2

221.5
156.5

4,632.2
332.4
45.4

490.4
610.6
13,812.0

1,648.7

854.0
151.7
19.0
2,673.4

2012
709.0
1,323.9
314.6
2,347.5

2,831.5
4,407.2

231.7
162.5

4,370.0
334.2
43.9

448.9
499.3
13,329.2

1,657.4

817.6
21.3
15.2
2,511.5

2011
985.5
1,330.6
250.0
2,566.1

2,350.5
4,619.4

241.4
161.7

4,161.2
342.5
43.9

428.6
416.0
12,765.2

1,612.4

780.3
(14.0)
13.8
2,392.5

1,447.5

1,415.0

1,373.0

141.9
47.4
151.9
187.5
6.7
380.0
2,362.9

310.5
16.3
(1.2)
15.1
51.7
(16.9)
34.8
360.4

155.0
51.1
21.8
187.6
5.3
374.8
2,210.6

300.9
53.0
(4.3)
48.7
(4.5)
1.7
(2.8)
346.8

163.0
50.8
(16.7)
206.3
4.8
320.4
2,101.6

290.9
47.9
(5.2)
42.7
(31.2)
11.4
(19.8)
313.8

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KHealth benefit ratios:
All health lines:

Insurance policy benefits
Benefit ratio(a)

Medicare supplement:

Insurance policy benefits
Benefit ratio(a)

PDP:

Insurance policy benefits
Benefit ratio(a)
Long-term care:

Insurance policy benefits
Benefit ratio(a)
Interest-adjusted benefit ratio(b)

2013

2012

2011

1,214.0

92.6%

509.0

67.1%

15.9
80.5%

689.2
129.3%
80.6%

1,196.7

89.1%

508.5

69.0%

35.6
71.4%

653.1
117.6%
71.2%

1,181.5

87.7%

495.4

69.0%

45.1
82.8%

642.6
112.6%
68.8%

(a) We calculate benefit ratios by dividing the related product’s insurance policy benefits by insurance policy income.

(b) We calculate the interest-adjusted benefit ratio (a non-GAAP measure) for Bankers Life’s long-term care products by dividing such product’s insurance policy benefits
less the imputed interest income on the accumulated assets backing the insurance liabilities by policy income. These are considered non-GAAP financial measures.
A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that excludes or includes amounts that are normally
excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.

These non-GAAP financial measures of “ interest-adjusted benefit ratios” differ from “benefit ratios” due to the deduction of imputed interest income on the
accumulated assets backing the insurance liabilities from the product’s insurance policy benefits used to determine the ratio. Interest income is an important factor
in measuring the performance of health products that are expected to be inforce for a longer duration of time, are not subject to unilateral changes in provisions (such
as non-cancelable or guaranteed renewable contracts) and require the performance of various functions and services (including insurance protection) for an extended
period of time. The net cash flows from long-term care products generally cause an accumulation of amounts in the early years of a policy (accounted for as reserve
increases) that will be paid out as benefits in later policy years (accounted for as reserve decreases). Accordingly, as the policies age, the benefit ratio will typically
increase, but the increase in benefits will be partially offset by the imputed interest income earned on the accumulated assets. The interest-adjusted benefit ratio reflects
the effects of such interest income offset. Since interest income is an important factor in measuring the performance of this product, management believes a benefit ratio
that includes the effect of interest income is useful in analyzing product performance. We utilize the interest-adjusted benefit ratio in measuring segment performance
because we believe that this performance measure is a better indicator of the ongoing businesses and trends in the business. However, the “ interest-adjusted benefit
ratio” does not replace the “benefit ratio” as a measure of current period benefits to current period insurance policy income. Accordingly, management reviews both
“benefit ratios” and “ interest-adjusted benefit ratios” when analyzing the financial results attributable to these products. The imputed investment income earned on
the accumulated assets backing Bankers Life’s long-term care reserves was $259.5 million, $257.8 million and $249.8 million in 2013, 2012 and 2011, respectively.

Total premium collections were $2,430.2 million in 2013,
up 3.5 percent from 2012, and $2,347.5 million in 2012, down
8.5 percent from 2011. See “Premium Collections” for further
analysis of Bankers Life’s premium collections.

Average liabilities for insurance products, net of reinsurance
ceded were $13.8 billion in 2013, up 3.6 percent from 2012 and
$13.3 billion in 2012, up 4.4 percent from 2011. The increase
in such liabilities was primarily due to increases in new sales of
these products.

Insurance policy income is comprised of premiums earned on
policies which provide mortality or morbidity coverage and fees
and other charges assessed on other policies. Insurance policy
income included premium revenue of $19.7 million, $49.9 million
and $54.5 million in 2013, 2012 and 2011, respectively, related
to our PDP quota-share reinsurance agreement with Coventry. In
August 2013, we received a notice of Coventry’s intent to terminate
our PDP quota-share reinsurance agreement, as further described
in the note to the consolidated financial statements entitled
“Summary of Significant Accounting Policies - Reinsurance”.
Partially offsetting the decrease in premium income from the PDP
business in 2013 was higher premium income and policyholder
charges from our life insurance products. The increase in insurance
policy income in 2012, compared to 2011, was primarily due to
higher premium income from our life insurance business.

Net investment income on general account invested assets
(which excludes income on policyholder accounts) increased
4.5 percent, to $854.0 million, in 2013 and 4.8 percent, to
$817.6 million, in 2012. The average balance of general account
invested assets was $14.9 billion, $14.2 billion and $13.6 billion
in 2013, 2012 and 2011, respectively. The average yield on
these assets was 5.73 percent in 2013, 5.74 percent in 2012 and
5.75 percent in 2011. The increase in general account invested
assets is primarily due to: (i) sales and increased persistency
of our annuity and health products in recent periods; and
(ii) the proceeds from $250 million of additional collateralized
borrowings from the Federal Home Loan Bank (“FHLB”) in
2013 pursuant to an investment borrowing program. The increase
in net investment income reflects the growth in general account
invested assets and prepayment income. Prepayment income was
$13.4 million, $11.6 million and $15.4 million in 2013, 2012
and 2011, respectively. Investing in relatively higher yielding
investments and reduction to turnover rates to preserve existing
higher yielding investments has resulted in maintaining overall
yields in this segment. However, should current market conditions
continue, it is possible that the overall yield may decline in future
periods, absent changes in our investment strategy.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations
Our fixed index products are designed so that investment income
spread is expected to be more than adequate to cover the cost of the
options and other costs related to these policies. Net investment
income (loss) related to fixed index products was $151.7 million,
$21.3 million and $(18.0) million in 2013, 2012 and 2011,
respectively. Such amounts were mostly offset by the corresponding
charge (credit) to amounts added to policyholder account
balances - market value changes credited to policyholders. Such
income and related charges fluctuate based on the value of options
embedded in the segment’s fixed index annuity policyholder
account balances subject to this benefit and to the performance
of the index to which the returns on such products are linked. For
periods prior to June 30, 2011, net investment income related to
fixed index products also included income on trading securities
which were held to offset the change in estimated fair values of the
embedded derivatives related to our fixed index products caused
by interest rate fluctuations. During the second quarter of 2011,
we discontinued and liquidated this trading portfolio. Trading
account income was $4.0 million in 2011.

Fee revenue and other income was $19.0 million in 2013,
compared to $15.2 million in 2012, and $13.8 million in 2011.
We recognized fee income of $18.4 million, $14.9 million and
$11.8 million in 2013, 2012 and 2011, respectively, pursuant
to marketing agreements to sell PDP and Medicare Advantage
products of other insurance companies.

Insurance policy benefits fluctuated as a result of the factors
summarized below for benefit ratios. Benefit ratios are calculated
by dividing the related insurance product’s insurance policy
benefits by insurance policy income.

The Medicare supplement business consists of both individual
and group policies. Government regulations generally require us
to attain and maintain a ratio of total benefits incurred to total
premiums earned (excluding changes in policy benefit reserves),
after three years from the original issuance of the policy and over
the lifetime of the policy, of not less than 65 percent on individual
products and not less than 75 percent on group products, as
determined in accordance with statutory accounting principles.
Since the insurance product liabilities we establish for Medicare
supplement business are subject to significant estimates, the
ultimate claim liability we incur for a particular period is likely
to be different than our initial estimate. Our benefit ratios were
67.1 percent, 69.0 percent and 69.0 percent in 2013, 2012 and
2011, respectively. Our insurance policy benefits reflected reserve
redundancies from prior years of $10.3 million, $13.7 million and
$12.4 million in 2013, 2012 and 2011, respectively. Excluding
the effects of prior period claim reserve redundancies, our benefit
ratios would have been 68.5 percent, 70.8 percent and 70.7 percent
in 2013, 2012 and 2011, respectively. In 2014, we currently expect
the benefit ratio on this Medicare supplement business will be
approximately 70 percent.

The insurance policy benefits on our PDP business result from
our quota-share reinsurance agreement with Coventry. Insurance
margins (insurance policy income less insurance policy benefits)
on the PDP business were $3.8 million, $14.3 million and
$9.4 million in 2013, 2012 and 2011, respectively. In August
2013, we received a notice of Coventry’s intent to terminate our
PDP quota-share reinsurance agreement, as further described
in the note to the consolidated financial statements entitled
“Summary of Significant Accounting Policies - Reinsurance”.

As a result, there was no PDP business recognized in the third
and fourth quarters of 2013. In 2012 and 2011, reserves related
to the terminated PFFS business were released due to favorable
claim developments resulting in insurance policy benefits of
$(.5) million and $(1.6) million, respectively.

The net cash flows from our long-term care products generally
cause an accumulation of amounts in the early years of a policy
(accounted for as reserve increases) which will be paid out as
benefits in later policy years (accounted for as reserve decreases).
Accordingly, as the policies age, the benefit ratio typically increases,
but the increase in reserves is partially offset by investment income
earned on the accumulated assets. The benefit ratio on our long-
term care business in the Bankers Life segment was 129.3 percent,
117.6 percent and 112.6 percent in 2013, 2012 and 2011,
respectively. The interest-adjusted benefit ratio on this business
was 80.6 percent, 71.2 percent and 68.8 percent in 2013, 2012
and 2011, respectively. The benefit ratio in 2013 increased due
to higher persistency and higher incurred claims as the business
continues to age and as new business becomes less of a component
of the overall inforce business. In addition, we recognized an
out-of-period adjustment of $6.7 million in the first quarter of
2013 and made certain refinements to reserving methodologies
of $3.5 million in the second quarter of 2013, both of which
increased insurance policy benefits. In 2014, we currently expect
the interest adjusted benefit ratio on this long-term care business
will be approximately 79 percent. Since the insurance product
liabilities we establish for long-term care business are subject to
significant estimates, the ultimate claim liability we incur for a
particular period is likely to be different than our initial estimate.
Our insurance policy benefits reflected reserve redundancies from
prior years of $17.9 million, $26.6 million and $25.3 million in
2013, 2012 and 2011, respectively. Excluding the effects of prior
year claim reserve redundancies, our benefit ratios would have
been 132.7 percent, 122.4 percent and 117.0 percent in 2013, 2012
and 2011, respectively. When policies lapse, active life reserves for
such lapsed policies are released, resulting in decreased insurance
policy benefits (although such decrease is somewhat offset by
additional amortization expense).

Over the past several years, we have implemented rate increases
in the long-term care block in the Bankers Life segment. In 2013,
2012 and 2011, the income before income taxes in the Bankers Life
segment reflected a reduction in insurance policy benefits partially
offset by additional amortization of insurance acquisition costs
due to the impacts of recent rate increases. These impacts netted
to approximately $4 million in 2013, $18 million in 2012 and
$23 million in 2011 and included: (i) the reduction in liabilities
for policyholders choosing to lapse their policies rather than
paying higher rates; (ii) the reduction in liabilities for policyholders
choosing to reduce their coverages to achieve a lower cost; offset
by (iii) the increase in the liabilities related to waiver of premium
benefits to reflect higher premiums after the rate increases; and
(iv) increased amortization of insurance acquisition costs resulting
from the increase in lapses. The net impacts described above
are expected to be lower in future periods as re-rating activity
slows given we have completed several rounds of rate actions on
underperforming blocks of long-term care business in recent years.

Amounts added to policyholder account balances - cost
of interest credited to policyholders were $141.9 million,
$155.0 million and $163.0 million in 2013, 2012 and 2011,

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Krespectively. The weighted average crediting rates for these
products was 3.0 percent, 3.1 percent and 3.2 percent in 2013,
2012 and 2011, respectively. The average liabilities of the deferred
annuity block was $4.1 billion, $4.4 billion and $4.6 billion in
2013, 2012 and 2011, respectively.

Amounts added to policyholder account balances for fixed
index products represent a guaranteed minimum rate of return
and a higher potential return that is based on a percentage (the
“participation rate”) of the amount of increase in the value of a
particular index, such as the S&P 500 Index, over a specified
period. Such amounts include our cost to fund the annual index
credits, net of policies that are canceled prior to their anniversary
date (classified as cost of options to fund index credits, net of
forfeitures). Market value changes in the underlying indices
during a specified period of time are classified as market value
changes credited to policyholders. Such market value changes are
generally offset by the net investment income related to fixed
index products discussed above.

Commission expense and agent manager benefits
Other operating expenses

tOtaL

period and on our expectation of future profits. For other products,
we amortize insurance acquisition costs in relation to actual and
expected premium revenue, and amortization is only adjusted if
expected premium revenue changes or if we determine the balance
of these costs is not recoverable from future profits. Bankers Life’s
amortization expense was $187.5 million, $187.6 million and
$206.3 million in 2013, 2012 and 2011, respectively. During the
first quarter of 2011, we experienced higher policy lapses than
we anticipated on our Medicare supplement products, including
lapses where policyholders terminated their current policy and
purchased a lower cost policy offered through this segment. These
lapses reduced our estimates of future expected premium income
and, accordingly, we recognized additional amortization expense
of $6 million.

Interest expense on investment borrowings represents interest
expense on collateralized borrowings as further described in the
note to the consolidated financial statements entitled “Summary
of Significant Accounting Policies - Investment Borrowings”.

Other operating costs and expenses in our Bankers Life segment
were $380.0 million in 2013, up 1.4 percent from 2012, and were
$374.8 million in 2012, up 17 percent from 2011. The increase
in operating costs in 2013 from 2012 reflected the business
investment expenses incurred related to expanding our branch
office locations and increasing the productivity of the career agency
force, partially offset by lower legal and regulatory costs. Other
operating expenses in 2012 reflect higher legal and regulatory
expenses of approximately $24 million. Other operating costs and
expenses include the following (dollars in millions):

2013
60.0
320.0
380.0

2012
61.1 $
313.7
374.8 $

2011
53.3
267.1
320.4

Net realized investment gains (losses) fluctuated each period.
During 2013, net realized investment gains in this segment
included $22.3 million of net gains from the sales of investments
(primarily fixed maturities) and $6.0 million of writedowns
of investments for other than temporary declines in fair value
recognized through net income. During 2012, net realized
investment gains in this segment included $61.7 million of net
gains from the sales of investments (primarily fixed maturities)
and $8.7 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.
During 2011, net realized investment gains in this segment included
$55.8 million of net gains from the sales of investments (primarily
fixed maturities) and $7.9 million of writedowns of investments
for other than temporary declines in fair value recognized through
net income ($11.4 million, prior to the $3.5 million of impairment
losses recognized through accumulated other comprehensive
income (loss)).

Amortization related to net realized investment losses is the
increase or decrease in the amortization of insurance acquisition
costs which results from realized investment gains or losses.
When we sell securities which back our interest-sensitive life and

annuity products at a gain (loss) and reinvest the proceeds at a
different yield, we increase (reduce) the amortization of insurance
acquisition costs in order to reflect the change in estimated gross
profits due to the gains (losses) realized and the resulting effect
on estimated future yields. Sales of fixed maturity investments
resulted in an increase in the amortization of insurance acquisition
costs of $1.2 million, $4.3 million and $5.2 million in 2013, 2012
and 2011, respectively.

Insurance policy benefits - fair value changes in embedded
derivative liabilities represents fair value changes due to
fluctuations in the interest rates used to discount embedded
derivative liabilities related to our fixed index annuities. Prior
to June 30, 2011, we held certain trading securities to offset the
income statement volatility caused by the interest rate fluctuations.
In the second quarter of 2011, we sold this trading portfolio.

Amortization related to fair value changes in embedded
derivative liabilities is the increase or decrease in the amortization
of insurance acquisition costs which results from changes in
interest rates used to discount embedded derivative liabilities
related to our fixed index annuities.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsWashington National (dollars in millions)

Premium collections:

Medicare supplement and other supplemental health
Life

Total collections

Average liabilities for insurance products:

SPIAs and supplemental contracts - deposit based
Health:

Supplemental health
Medicare supplement
Other health

Non-interest sensitive life

Total average liabilities for insurance products, net of reinsurance ceded

Revenues:

Insurance policy income
Net investment income:

General account invested assets
Trading account income related to reinsurer accounts
Change in value of embedded derivatives related to modified coinsurance agreements

Fee revenue and other income

Total revenues

Expenses:

Insurance policy benefits
Amortization related to operations
Interest expense on investment borrowings
Other operating costs and expenses

Total benefits and expenses

Income before net realized investment gains (losses) and income taxes

Net realized investment gains (losses)
INCOME BEFORE INCOME TAXES
Health benefit ratios:

Medicare supplement:

Insurance policy benefits
Benefit ratio(a)

Supplemental health:

Insurance policy benefits
Benefit ratio(a)
Interest-adjusted benefit ratio(b)

2013

595.7
13.4
609.1

14.1

2,377.9
40.9
12.3
198.8
2,644.0

600.7

206.5
(.7)
.7
.9
808.1

470.5
53.8
1.9
161.1
687.3
120.8
4.1
124.9

66.1
64.6%

378.1
78.5%
52.3%

2012

576.3
14.2
590.5

17.6

2,357.0
47.3
15.1
199.4
2,636.4

590.4

204.0
.6
(.5)
1.1
795.6

447.1
47.7
2.8
170.9
668.5
127.1
6.7
133.8

77.6
65.4%

347.6
76.6%
49.8%

2011

569.8
16.0
585.8

18.3

2,361.9
57.3
17.0
201.4
2,655.9

585.1

189.4
3.8
(3.7)
1.0
775.6

464.5
44.9
.7
169.4
679.5
96.1
2.0
98.1

93.5
68.5%

343.4
80.0%
51.3%

(a) We calculate benefit ratios by dividing the related product’s insurance policy benefits by insurance policy income.

(b) We calculate the interest-adjusted benefit ratio (a non-GAAP measure) for Washington National’s supplemental health products by dividing such product’s insurance
policy benefits less the imputed interest income on the accumulated assets backing the insurance liabilities by policy income. These are considered non-GAAP financial
measures. A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that excludes or includes amounts that are
normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.

These non-GAAP financial measures of “ interest-adjusted benefit ratios” differ from “benefit ratios” due to the deduction of imputed interest income on the
accumulated assets backing the insurance liabilities from the product’s insurance policy benefits used to determine the ratio. Interest income is an important factor
in measuring the performance of health products that are expected to be inforce for a longer duration of time, are not subject to unilateral changes in provisions (such
as non-cancelable or guaranteed renewable contracts) and require the performance of various functions and services (including insurance protection) for an extended
period of time. The net cash flows from supplemental health products generally cause an accumulation of amounts in the early years of a policy (accounted for as reserve
increases) that will be paid out as benefits in later policy years (accounted for as reserve decreases). Accordingly, as the policies age, the benefit ratio will typically
increase, but the increase in benefits will be partially offset by the imputed interest income earned on the accumulated assets. The interest-adjusted benefit ratio
reflects the effects of such interest income offset. Since interest income is an important factor in measuring the performance of these products, management believes a
benefit ratio that includes the effect of interest income is useful in analyzing product performance. We utilize the interest-adjusted benefit ratio in measuring segment
performance because we believe that this performance measure is a better indicator of the ongoing businesses and trends in the business. However, the “ interest-adjusted
benefit ratio” does not replace the “benefit ratio” as a measure of current period benefits to current period insurance policy income. Accordingly, management reviews
both “benefit ratios” and “ interest-adjusted benefit ratios” when analyzing the financial results attributable to these products. The imputed investment income earned
on the accumulated assets backing the supplemental health reserves was $126.4 million, $121.6 million and $122.8 million in 2013, 2012 and 2011, respectively.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K
Total premium collections were $609.1 million in 2013, up
3.1 percent from 2012, and $590.5 million in 2012, up .8 percent
from 2011. See “Premium Collections” for further analysis of
fluctuations in premiums collected by product.

Average liabilities for insurance products, net of reinsurance
ceded were $2.6 billion in 2013, up .3 percent from 2012, and
$2.6 billion in 2012, down .7 percent from 2011.

Insurance policy income is comprised of premiums earned on
traditional insurance policies which provide mortality or morbidity
coverage and fees and other charges assessed on other policies.
Such income increased in recent periods as supplemental health
premiums have increased and Medicare supplement premiums
have decreased consistent with sales.

Net investment income on general account invested assets
(which excludes income on policyholder and reinsurer accounts)
increased 1.2 percent, to $206.5 million in 2013 and 7.7 percent,
to $204.0 million in 2012. The average balance of general account
invested assets was $3.8 billion, $3.7 billion and $3.2 billion in
2013, 2012 and 2011, respectively. The average yield on these assets
was 5.50 percent in 2013, 5.56 percent in 2012 and 5.86 percent
in 2011. Increases in general account invested assets and net
investment income in 2012 are primarily due to invested assets
purchased with the proceeds from collateralized borrowings from
the FHLB pursuant to an investment borrowing program that
commenced in this segment in June 2011. The decline in average
yield in 2013 and 2012 is primarily due to lower yields related to
the variable rate investments purchased with the proceeds from
the collateralized borrowings from the FHLB as well as the lower
interest rate environment.

Trading account income related to reinsurer accounts primarily
represents the income on trading securities which are held to act
as hedges for embedded derivatives related to certain modified
coinsurance agreements. The income on our trading account
securities is designed to substantially offset the change in value of
embedded derivatives related to modified coinsurance agreements
described below.

Change in value of embedded derivatives related to
modified coinsurance agreements is described in the note
to our consolidated financial statements entitled “Summary of
Significant Accounting Policies - Accounting for Derivatives.”
We have transferred the specific block of investments related
to these agreements to our trading securities account, which
we carry at estimated fair value with changes in such value
recognized as trading account income. The change in the value of
the embedded derivatives has largely been offset by the change in
value of the trading securities.

Washington National’s Medicare supplement business primarily
consists of individual policies. The insurance product liabilities
we establish for our Medicare supplement business are subject
to significant estimates and the ultimate claim liability we incur
for a particular period is likely to be different than our initial
estimate. Governmental regulations generally require us to attain
and maintain a ratio of total benefits incurred to total premiums

earned (excluding changes in policy benefit reserves), after
three years from the original issuance of the policy and over the
lifetime of the policy, of not less than 65 percent on these products,
as determined in accordance with statutory accounting principles.
Insurance margins (insurance policy income less insurance policy
benefits) on these products were $36.2 million, $41.0 million and
$43.0 million in 2013, 2012 and 2011, respectively. Such decrease
reflects the run-off of this business as we discontinued new sales
of Medicare supplement business in this segment in the fourth
quarter of 2012.

Washington National’s supplemental health products (including
specified disease, accident and hospital indemnity products)
generally provide fixed or limited benefits. For example, payments
under cancer insurance policies are generally made directly
to, or at the direction of, the policyholder following diagnosis
of, or treatment for, a covered type of cancer. Approximately
three-fourths of our supplemental health policies inforce (based
on policy count) are sold with return of premium or cash value
riders. The return of premium rider generally provides that after
a policy has been inforce for a specified number of years or upon
the policyholder reaching a specified age, we will pay to the
policyholder, or a beneficiary under the policy, the aggregate
amount of all premiums paid under the policy, without interest,
less the aggregate amount of all claims incurred under the policy.
The cash value rider is similar to the return of premium rider,
but also provides for payment of a graded portion of the return
of premium benefit if the policy terminates before the return of
premium benefit is earned. Accordingly, the net cash flows from
these products generally result in the accumulation of amounts
in the early years of a policy (reflected in our earnings as reserve
increases) which will be paid out as benefits in later policy years
(reflected in our earnings as reserve decreases which offset the
recording of benefit payments). As the policies age, the benefit
ratio will typically increase, but the increase in benefits will be
partially offset by investment income earned on the accumulated
assets. The benefit ratio will fluctuate depending on the claim
experience during the year.

Insurance margins (insurance policy income less insurance policy
benefits) on these products were $103.4 million, $106.2 million
and $85.8 million in 2013, 2012 and 2011, respectively. The
benefit ratio on these products was 78.5 percent, 76.6 percent and
80.0 percent in 2013, 2012 and 2011, respectively. The higher
benefit ratio in 2013 is partially due to a decision we made in the
first quarter of 2013 to reduce the commission we pay on certain
conversion activity. While we believe this change will improve the
longer-term profitability of the block, lower conversions of policies
with return-of-premium features that are approaching maturity,
results in lower reserve releases. Accordingly, the benefit ratio on
this block has increased. In addition, we recognized $7.6 million of
out-of-period adjustments in 2011, which decreased the insurance
margin on these products. The interest adjusted benefit ratio on
this supplemental health business was 52.3 percent, 49.8 percent
and 51.3 percent in 2013, 2012 and 2011, respectively. In 2014,
we currently expect this interest-adjusted benefit ratio will be
approximately 52 percent.

Amortization related to operations includes amortization
of insurance acquisition costs. Insurance acquisition costs are
generally amortized in relation to actual and expected premium
revenue, and amortization is only adjusted if expected premium

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationsrevenue changes or if we determine the balance of these costs is
not recoverable from future profits. Such amounts were generally
consistent with the related premium revenue. A revision to our
current assumptions could result in increases or decreases to
amortization expense in future periods.

investment borrowings

Interest expense on
represents
$1.9 million, $2.8 million and $.7 million of interest expense on
collateralized borrowings in 2013, 2012 and 2011, respectively,
as further described in the note to the consolidated financial
statements entitled “Summary of Significant Accounting Policies
- Investment Borrowings”.

Other operating costs and expenses were $161.1 million,
$170.9 million and $169.4 million in 2013, 2012 and 2011,
respectively. Other operating costs and expenses
include
commission expense of $63.7 million, $70.0 million and
$67.2 million in 2013, 2012 and 2011, respectively. In addition,
2013 reflects lower legal expenses than the previous year.

Colonial Penn (dollars in millions)

Net realized investment gains (losses) fluctuate each period.
During 2013, net realized investment gains in this segment
included $5.8 million of net gains from the sales of investments
(primarily fixed maturities) and $1.7 million of writedowns of
investments for other than temporary declines in fair value
recognized through net income. During 2012, net realized
investment gains in this segment included $17.2 million of net
gains from the sales of investments (primarily fixed maturities)
and $10.5 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.
During 2011, net realized investment gains in this segment
included $9.6 million of net gains from the sales of investments
(primarily fixed maturities) and $7.6 million of writedowns of
investments for other than temporary declines in fair value
recognized through net income ($8.1 million, prior to the
$.5 million of impairment losses recognized through accumulated
other comprehensive income (loss)).

Premium collections:

Life
Supplemental health
Total collections

Average liabilities for insurance products:

SPIAs - mortality based
Health:

Medicare supplement
Other health

Life:

Interest sensitive
Non-interest sensitive

Total average liabilities for insurance products, net of reinsurance ceded

Revenues:

Insurance policy income
Net investment income on general account invested assets
Fee revenue and other income

Total revenues

Expenses:

Insurance policy benefits
Amounts added to annuity and interest-sensitive life product account balances
Amortization related to operations
Other operating costs and expenses

Total benefits and expenses

Loss before net realized investment gains and income taxes

Net realized investment gains

INCOME (lOSS) BEFORE INCOME TAXES

2013

227.6
4.1
231.7

73.5

9.2
4.7

17.5
629.4
734.3

232.1
40.0
.8
272.9

165.0
.7
14.5
105.2
285.4
(12.5)
.4
(12.1)

2012

2011

211.9
4.9
216.8

76.5

10.2
4.9

18.7
604.5
714.8

217.8
40.4
.7
258.9

160.3
.8
15.0
91.4
267.5
(8.6)
7.2
(1.4) $

196.4
5.7
202.1

77.7

11.1
5.1

20.3
589.8
704.0

203.0
41.1
.9
245.0

149.2
.9
15.0
84.6
249.7
(4.7)
5.8
1.1

This segment’s results are significantly impacted by the accounting
standard related to deferred acquisition costs. We are not able to
defer most of Colonial Penn’s direct response advertising costs
although such costs generate predictable sales and future inforce
profits. We plan to continue to invest in this segment’s business,
including the development of new products and markets. The
amount of our investment in new business during a particular
period will have a significant impact on this segment’s results.

Based on our current advertising plan, we expect this segment
to report a loss (before net realized investment gains (losses) and
income taxes) of approximately $5 million in 2014.

collections

Total premium
to
$231.7 million, in 2013 and 7.3 percent, to $216.8 million, in
2012. See “Premium Collections” for further analysis of Colonial
Penn’s premium collections.

increased 6.9 percent,

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KAverage liabilities for insurance products, net of reinsurance
ceded have increased as a result of growth in this segment.

Insurance policy income is comprised of premiums earned on
policies which provide mortality or morbidity coverage and fees
and other charges assessed on other policies. The increase in such
income reflects the growth in the block of business.

Net investment income on general account invested assets
did not fluctuate significantly during the three years ended
December 31, 2013. The average balance of general account
invested assets was $679.8 million in 2013, $679.4 million in
2012 and $680.1 million in 2011. The average yield on these assets
was 5.88 percent in 2013, 5.95 percent in 2012 and 6.04 percent
in 2011.

Insurance policy benefits fluctuated as a result of the growth in
this segment.

Amortization related to operations includes amortization of
insurance acquisition costs. Insurance acquisition costs in the
Colonial Penn segment are amortized in relation to actual and
expected premium revenue, and amortization is only adjusted if
expected premium revenue changes or if we determine the balance
of these costs is not recoverable from future profits. Such amounts
were generally consistent with the related premium revenue and
gross profits for such periods and the assumptions we made when
we established the present value of future profits. A revision to
our current assumptions could result in increases or decreases to
amortization expense in future periods.

Other operating costs and expenses in our Colonial Penn
segment fluctuate primarily due to changes in the marketing
expenses incurred to generate new business. Such marketing
expenses totaled $76.7 million, $66.1 million and $59.2 million in
2013, 2012 and 2011, respectively. The Colonial Penn segment has
faced increased competition from other insurance companies who
also distribute products through direct marketing. In addition,
the demand and cost of television advertising appropriate for
Colonial Penn’s campaigns has increased. In recent periods, higher
advertising costs have increased the average cost to generate a TV
lead, and may potentially negatively impact the percentage of leads
that ultimately purchase a Colonial Penn policy.

Net realized investment gains fluctuated each period. During
2013, net realized investment gains in this segment included
$.6 million of net gains from the sales of investments (primarily
fixed maturities) and $.2 million of writedowns of investments for
other than temporary declines in fair value recognized through
net income. During 2012, net realized investment gains in
this segment included $7.8 million of net gains from the sales
of investments (primarily fixed maturities) and $.6 million of
writedowns of investments for other than temporary declines in fair
value recognized through net income. During 2011, net realized
investment gains in this segment included $6.2 million of net
gains from the sales of investments (primarily fixed maturities) and
$.4 million of writedowns of investments for other than temporary
declines in fair value recognized through net income ($.7 million,
prior to the $.3 million of impairment losses recognized through
accumulated other comprehensive income (loss)).

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsOther CNO Business (dollars in millions)

Premium collections:

Annuities
Other health
Life

Total collections

Average liabilities for insurance products:

Fixed index annuities
Deferred annuities
SPIAs and supplemental contracts:

Mortality based
Deposit based
Separate accounts
Health:

Long-term care
Other health

Life:

Interest sensitive
Non-interest sensitive

Total average liabilities for insurance products, net of reinsurance ceded

Revenues:

Insurance policy income
Net investment income:

General account invested assets
Fixed index products
Trading account income related to policyholder accounts

Fee revenue and other income

Total revenues

Expenses:

Insurance policy benefits
Amounts added to policyholder account balances:

Cost of interest credited to policyholders
Cost of options to fund index credits, net of forfeitures
Market value changes credited to policyholders

Amortization related to operations
Interest expense on investment borrowings
Other operating costs and expenses
Total benefits and expenses

Income (loss) before loss related to reinsurance transaction, net realized investment
gains and fair value changes in embedded derivative liabilities, net of related amortization,
and income taxes

Loss related to reinsurance transaction
Net realized investment gains
Amortization related to net realized investment gains

Net realized investment gains, net of related amortization

Insurance policy benefits - fair value changes in embedded derivative liabilities
Amortization related to fair value changes in embedded derivative liabilities

Fair value changes in embedded derivative liabilities, net of related amortization

INCOME (lOSS) BEFORE INCOME TAXES
Health benefit ratios:
Long-term care:

Insurance policy benefits
Benefit ratio(a)
Interest-adjusted benefit ratio(b)

2013

4.6
24.2
155.1
183.9

458.0
295.5

288.1
338.5
14.1

467.4
6.7

2,484.0
432.1
4,784.4

263.2

312.0
25.8
4.0
5.1
610.1

326.1

104.9
7.5
30.7
19.9
19.3
76.2
584.6

25.5
(98.4)
14.1
(.4)
13.7
2.7
(2.1)
.6
(58.6)

59.2
245.7%
131.2%

2012

3.8
25.8
165.0
194.6

521.7
324.4

300.8
340.3
15.6

467.0
12.5

2,554.9
450.3
4,987.5

289.8

332.9
4.2
3.5
—
630.4

377.0

114.4
10.7
6.3
33.8
19.9
117.1
679.2

(48.8)
—
12.4
(2.2)
10.2
.1
(.1)
—
(38.6)

63.4
247.0%
137.6%

2011

16.4
27.8
179.4
223.6

617.4
359.1

314.2
331.4
16.8

467.0
14.6

2,676.8
470.5
5,267.8

290.0

346.9
(3.4)
.6
—
634.1

347.1

124.5
10.5
(2.2)
39.8
20.3
78.8
618.8

15.3
—
6.1
(.2)
5.9
(3.2)
2.6
(.6)
20.6

62.7
226.4%
127.3%

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K(a) We calculate benefit ratios by dividing the related product’s insurance policy benefits by insurance policy income.

(b) We calculate the interest-adjusted benefit ratio (a non-GAAP measure) for long-term care products in our Other CNO Business segment by dividing such product’s
insurance policy benefits less the imputed interest income on the accumulated assets backing the insurance liabilities by policy income. These are considered non-GAAP
financial measures. A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that excludes or includes amounts
that are normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.

These non-GAAP financial measures of “ interest-adjusted benefit ratios” differ from “benefit ratios” due to the deduction of imputed interest income on the
accumulated assets backing the insurance liabilities from the product’s insurance policy benefits used to determine the ratio. Interest income is an important factor
in measuring the performance of health products that are expected to be inforce for a longer duration of time, are not subject to unilateral changes in provisions (such
as non-cancelable or guaranteed renewable contracts) and require the performance of various functions and services (including insurance protection) for an extended
period of time. The net cash flows from long-term care products generally cause an accumulation of amounts in the early years of a policy (accounted for as reserve
increases) that will be paid out as benefits in later policy years (accounted for as reserve decreases). Accordingly, as the policies age, the benefit ratio will typically
increase, but the increase in benefits will be partially offset by the imputed interest income earned on the accumulated assets. The interest-adjusted benefit ratio
reflects the effects of such interest income offset. Since interest income is an important factor in measuring the performance of these products, management believes a
benefit ratio that includes the effect of interest income is useful in analyzing product performance. We utilize the interest-adjusted benefit ratio in measuring segment
performance because we believe that this performance measure is a better indicator of the ongoing businesses and trends in the business. However, the “ interest-adjusted
benefit ratio” does not replace the “ benefit ratio” as a measure of current period benefits to current period insurance policy income. Accordingly, management reviews
both “benefit ratios” and “ interest-adjusted benefit ratios” when analyzing the financial results attributable to these products. The imputed investment income earned
on the accumulated assets backing the long-term care reserves was $27.6 million, $28.1 million and $27.4 million in 2013, 2012 and 2011, respectively.

This segment’s results are significantly impacted by the interest-
sensitive life insurance block which is sensitive to interest rates and
changes to NGEs. This segment also includes declining blocks
of traditional life and annuity products which generally generate
stable earnings.

As further described below, two of our insurance subsidiaries entered
into long-term care coinsurance agreements in December 2013
pursuant to which 100% of the long-term care reserves in this
segment will be ceded to BRe. In addition to this transaction, we
are continuing to explore other options to reduce our risk related
to the business in the Other CNO Business segment.

Total premium collections were $183.9 million in 2013, down
5.5 percent from 2012, and $194.6 million in 2012, down
13 percent from 2011. The decrease in collected premiums
was primarily due to policyholder redemptions and lapses. See
“Premium Collections” for further analysis of fluctuations in
premiums collected by product.

Average liabilities for insurance products, net of reinsurance
ceded were $4.8 billion in 2013, down 4.1 percent from 2012, and
$5.0 billion in 2012, down 5.3 percent from 2011. The decreases
in such liabilities were primarily due to policyholder redemptions
and lapses.

Insurance policy income is comprised of policyholder charges on
our interest-sensitive products and premiums earned on traditional
insurance policies which provide mortality or morbidity coverage.
The decrease in insurance policy income in 2013 is primarily due
to a reduction in policyholder charges on certain interest-sensitive
life products consistent with the settlement offered in a class
action lawsuit and lower premium revenue due to policyholder
redemptions and lapses. Insurance policy income in 2012 was
comparable to 2011 primarily due to increased policyholder
charges from the implementation of changes to certain NGEs
related to certain interest-sensitive life products; partially offset
by lower premium revenue due to policyholder redemptions
and lapses.

Net investment income on general account invested assets
(which excludes income on policyholder and reinsurer accounts)
decreased 6.3 percent, to $312.0 million in 2013 and 4.0 percent,
to $332.9 million, in 2011. The average balance of general account
invested assets was $5.4 billion in 2013, $5.6 billion in 2012
and $5.9 billion in 2011. The average yield on these assets was

5.83 percent in 2013, 5.93 percent in 2012 and 5.89 percent in
2011. The decrease in net investment income is primarily due to
the lower invested assets in this segment as the business runs off.
The decrease in average yield reflects lower prepayment income in
2013. In 2012, investing in higher yielding investments, slightly
higher prepayment income and reduction to turnover rates to
preserve higher yielding investments resulted in maintaining (or
slightly improving) overall yield in this segment.

Net investment income related to fixed index products
represents the change in the estimated fair value of options
which are purchased in an effort to offset or hedge certain
potential benefits accruing to the policyholders of our fixed
index products. Our fixed index products are designed so that
investment income spread is expected to be more than adequate
to cover the cost of the options and other costs related to these
policies. Net investment income (loss) related to fixed index
products was $25.8 million, $4.2 million and $(3.2) million in
2013, 2012 and 2011, respectively. Such amounts were mostly
offset by the corresponding charge (credit) to amounts added to
policyholder account balances - market value changes credited
to policyholders. Such income and related charges fluctuate based
on the value of options embedded in the segment’s fixed index
annuity policyholder account balances subject to this benefit
and to the performance of the index to which the returns on
such products are linked. For periods prior to June 30, 2011, net
investment income related to fixed index products also included
income on trading securities which were held to offset the change
in estimated fair values of the embedded derivatives related to our
fixed index products caused by interest rate fluctuations. During
the second quarter of 2011, we discontinued and liquidated
this trading portfolio. Such trading account income (loss) was
$(.2) million in 2011.

Trading account income related to policyholder accounts
represents the income on investments backing the market strategies
of certain annuity products which provide for different rates of
cash value growth based on the experience of a particular market
strategy. The income on our trading account securities is designed
to substantially offset certain amounts included in insurance
policy benefits related to the aforementioned annuity products.

Fee revenue and other income in 2013 included a $5 million
favorable impact from the settlement of a reinsurance matter.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations
Insurance policy benefits were affected by a number of items as
summarized below.

During 2012 and 2011, we were required to recognize approximately
$43 million and $13 million, respectively, of additional increases
to future loss reserves primarily resulting from decreased projected
future investment yields related to interest-sensitive insurance
products. During 2013, our review of assumptions resulted in no
significant adjustments. We did not change our long-term interest
rate assumptions, as investment results were relatively consistent
with our 2013 new money rate assumptions. In addition, we
continue to believe our assumptions for future new money rates
are reasonable.

The long-term care policies in this segment generally provide for
indemnity and non-indemnity benefits on a guaranteed renewable
or non-cancellable basis. Benefit ratios are calculated by dividing
the related insurance product’s insurance policy benefits by
insurance policy income. The benefit ratio on our long-term care
policies was 245.7 percent, 247.0 percent and 226.4 percent in
2013, 2012 and 2011, respectively. Since the insurance product
liabilities we establish for long-term care business are subject to
significant estimates, the ultimate claim liability we incur for a
particular period is likely to be different than our initial estimate.
Our insurance policy benefits reflected reserve deficiencies from
prior years of $5.1 million, $9.2 million and $6.1 million in 2013,
2012 and 2011, respectively. Excluding the effects of prior year
claim reserve deficiencies, our benefit ratios would have been
224.6 percent, 211.1 percent and 204.3 percent in 2013, 2012 and
2011, respectively. These ratios reflect the level of incurred claims
experienced in recent periods, adverse development on claims
incurred in prior periods and lower policy income. The prior
period deficiencies have primarily resulted from the impact of paid
claim experience being different than prior estimates.

The net cash flows from long-term care products generally cause an
accumulation of amounts in the early years of a policy (reflected in
our earnings as reserve increases) which will be paid out as benefits
in later policy years (reflected in our earnings as reserve decreases
which offset the recording of benefit payments). Accordingly, as
the policies age, the benefit ratio will typically increase, but the
increase in benefits will be partially offset by investment income
earned on the assets which have accumulated. The interest-adjusted
benefit ratio for long-term care products is calculated by dividing
the insurance product’s insurance policy benefits less the imputed
interest income on the accumulated assets backing the insurance
liabilities by insurance policy income. The interest-adjusted
benefit ratio on this business was 131.2 percent, 137.6 percent and
127.3 percent in 2013, 2012 and 2011, respectively. Excluding the
effects of prior year claim reserve deficiencies, our interest-adjusted
benefit ratios would have been 110.0 percent, 101.8 percent and
105.2 percent in 2013, 2012 and 2011, respectively.

In each quarterly period, we calculate our best estimate of claim
reserves based on all of the information available to us at that time,
which necessarily takes into account new experience emerging
during the period. Our actuaries estimate these claim reserves
using various generally recognized actuarial methodologies which
are based on informed estimates and judgments that are believed
to be appropriate. As additional experience emerges and other data
become available, these estimates and judgments are reviewed and

may be revised. Significant assumptions made in estimating claim
reserves for long-term care policies include expectations about the:
(i) future duration of existing claims; (ii) cost of care and benefit
utilization; (iii) interest rate utilized to discount claim reserves;
(iv) claims that have been incurred but not yet reported; (v) claim
status on the reporting date; (vi) claims that have been closed but
are expected to reopen; and (vii) correspondence that has been
received that will ultimately become claims that have payments
associated with them.

Amounts added to policyholder account balances - cost
of interest credited to policyholders were $104.9 million,
$114.4 million and $124.5 million in 2013, 2012 and 2011,
respectively. The decrease was primarily due to a smaller block
of interest-sensitive life business inforce due to lapses in recent
periods. The weighted average crediting rates for these products
were 4.4 percent, 4.3 percent and 4.4 percent in 2013, 2012 and
2011, respectively.

Amortization related to operations includes amortization
of insurance acquisition costs. Insurance acquisition costs are
generally amortized either: (i) in relation to the estimated gross
profits for interest-sensitive life and annuity products; or (ii) in
relation to actual and expected premium revenue for other
products. In addition, for interest-sensitive life and annuity
products, we are required to adjust the total amortization recorded
to date through the statement of operations if actual experience or
other evidence suggests that earlier estimates of future gross profits
should be revised. Accordingly, amortization for interest-sensitive
life and annuity products is dependent on the profits realized
during the period and on our expectation of future profits. For
other products, we amortize insurance acquisition costs in relation
to actual and expected premium revenue, and amortization is only
adjusted if expected premium revenue changes. The assumptions
we use to estimate our future gross profits and premiums involve
significant judgment. A revision to our current assumptions
could result in increases or decreases to amortization expense in
future periods. Earnings on our interest-sensitive life products,
which comprise a significant part of this block, are subject to
volatility since our insurance acquisition costs are equal to the
value of future estimated gross profits. Accordingly, the impact
of adverse changes in our earlier estimates of future gross profits
is generally reflected in earnings in the period such differences
occur. In 2013, amortization of insurance acquisition costs in the
annuity block was favorably impacted primarily due to revising
our lapse assumptions as we have experienced lower surrenders
than reflected in our previous assumptions. Amortization related

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K(primarily fixed maturities) and $2.6 million of writedowns
of investments for other than temporary declines in fair value
recognized through net income. During 2012, net realized
investment gains in this segment included $29.6 million of net
gains from the sales of investments (primarily fixed maturities)
and $17.2 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.
During 2011, net realized investment gains in this segment included
$20.5 million of net gains from the sales of investments (primarily
fixed maturities) and $14.4 million of writedowns of investments
for other than temporary declines in fair value recognized through
net income ($15.4 million, prior to the $1.0 million of impairment
losses recognized through accumulated other comprehensive
income (loss)).

Amortization related to net realized investment gains (losses)
is the increase or decrease in the amortization of insurance
acquisition costs which results from realized investment gains or
losses. When we sell securities which back our interest-sensitive life
and annuity products at a gain (loss) and reinvest the proceeds at
a different yield (or when we have the intent to sell the impaired
investments before an anticipated recovery in value occurs), we
increase (reduce) the amortization of insurance acquisition costs
in order to reflect the change in estimated gross profits due to the
gains (losses) realized and the resulting effect on estimated future
yields. Sales of fixed maturity investments resulted in an increase
in the amortization of insurance acquisition costs of $.4 million,
$2.2 million and $.2 million in 2013, 2012 and 2011, respectively.

to operations in 2012 and 2011 was impacted by an acceleration
of amortization due to lower projected estimated gross profits for
interest-sensitive life products. The lower profits primarily resulted
from decreased projected future investment yields, as described
above under insurance policy benefits.

expense on

investment borrowings

Interest
includes
$19.3 million, $19.9 million and $20.2 million of interest expense
on collateralized borrowings in 2013, 2012 and 2011, respectively,
as further described in the note to the consolidated financial
statements entitled “Summary of Significant Accounting Policies
- Investment Borrowings”.

Other operating costs and expenses were $76.2 million,
$117.1 million and $78.8 million in 2013, 2012 and 2011,
respectively. Other operating costs and expenses
include
commission expense of $2.8 million, $3.7 million and $3.7 million
in 2013, 2012 and 2011, respectively. In 2012, we recognized
charges of $41.5 million related to pending lawsuits that were
subsequently settled.

Loss related to reinsurance transaction resulted from two of our
insurance subsidiaries with long-term care business in this segment
entering into 100% coinsurance agreements in December 2013.
As a result, $495 million of long-term care reserves will be ceded
to BRe. Pursuant to the agreements, the insurance subsidiaries will
pay an additional premium of $96.9 million to BRe and an amount
equal to the related net liabilities. The insurance subsidiaries’
ceded reserve credits will be secured by assets in market-value
trusts subject to a 7% over-collateralization, investment guidelines
and periodic true-up provisions. Future payments into the trusts
to maintain collateral requirements are the responsibility of BRe.
All required regulatory approvals for the transaction have been
received. We evaluate this block separately to determine whether
aggregate liabilities are deficient. We recognized a pre-tax loss of
$98.4 million to reflect: (i) the known loss (or premium deficiency)
on the business, as we will not be recognizing additional income
in future periods to recover the unamortized additional premium
which will be paid to BRe; and (ii) other transaction costs.

Net realized investment gains (losses) fluctuate each period.
During 2013, net realized investment gains in this segment
included $16.7 million of net gains from the sales of investments

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCorporate Operations (dollars in millions)

Corporate operations:

Interest expense on corporate debt
Net investment income (loss):
General investment portfolio
Other special-purpose portfolios:

COLI
Investments held in a rabbi trust
Investments in certain hedge funds
Other trading account activities

Fee revenue and other income
Net operating results of variable interest entities
Interest expense on investment borrowings
Other operating costs and expenses

Loss before net realized investment gains (losses), equity in earnings
of certain non-strategic investments and earnings attributable to
non-controlling interests, loss on extinguishment of debt and income taxes

Net realized investment gains (losses)
Equity in earnings of certain non-strategic investments and earnings
attributable to non-controlling interests
Loss on extinguishment of debt

lOSS BEFORE INCOME TAXES

2013

2012

2011

(51.3)

(66.2) $

(76.3)

5.4

15.7
1.3
4.9
12.5
6.2
—
(.1)
(27.3)

(32.7)
(1.5)

(10.2)
(65.4)
(109.8)

3.6

5.0
4.3
(2.1)
20.3
1.2
12.3
(.4)
(64.5)

(86.5)
1.8

—
(200.2)
(284.9) $

3.0

(7.8)
(1.4)
(6.8)
7.3
1.3
7.5
(.2)
(50.6)

(124.0)
—

—
(3.4)
(127.4)

Interest expense on corporate debt has been impacted by: (i) the
recapitalization transactions completed in September 2012 as
further described in “Management’s Discussion and Analysis of
Consolidated Financial Condition and Results of Operations
- Liquidity of the Holding Companies”; (ii) prepayments of
our $375 million senior secured term loan facility maturing
on September 30, 2016 (the “Previous Senior Secured Credit
Agreement”) in 2011 and 2012 and the amendment in May 2011
which reduced the interest rate payable on the Previous Senior
Secured Credit Agreement; (iii) repayments of the Senior Health
Note due November 12, 2013; (iv) the amendment to our Senior
Secured Credit Agreement in May 2013 which reduced the interest
rate payable; and (v) the completion of the cash tender offer (the
“Offer”) in March 2013 for $59.3 million aggregate principal
amount of our 7.0% Debentures. Such transactions are further
discussed in the note to the consolidated financial statements
entitled “Notes Payable - Direct Corporate Obligations”.
Our average corporate debt outstanding was $926.9 million,
$882.7 million and $951.7 million in 2013, 2012 and 2011,
respectively. The average interest rate on our debt was 4.8 percent,
6.8 percent and 7.4 percent in 2013, 2012 and 2011, respectively.

Net investment income on general investment portfolio
fluctuates based on the amount and type of invested assets in the
corporate operations segment.

Net investment income on other special-purpose portfolios
includes the income (loss) from: (i) investments related to deferred
compensation plans held in a rabbi trust (which is offset by
amounts included in other operating costs and expenses as the
investment results are allocated to participants’ account balances);
(ii) trading account activities; (iii) income (loss) from Company-
owned life insurance (“COLI”) equal to the difference between
the return on these investments (representing the change in value
of the underlying investments) and our overall portfolio yield; and

(iv) other investments including certain hedge funds and other
alternative strategies which commenced in the third quarter of
2011. COLI is utilized as an investment vehicle to fund Bankers
Life’s agent deferred compensation plan. For segment reporting,
the Bankers Life segment is allocated a return on these investments
equivalent to the yield on the Company’s overall portfolio,
with any difference in the actual COLI return allocated to the
Corporate operations segment. We also recognized a death benefit
of $2.9 million related to the COLI in 2013.

Net operating results of variable interest entities relates to the
2012 and 2011 periods and represents the impact of consolidating
various variable interest entities (“VIEs”) in accordance with
GAAP. These entities were established to issue securities and
use the proceeds to invest in loans and other permitted assets.
Refer to the note to the consolidated financial statements entitled
“Investments in Variable Interest Entities” for more information
on the VIEs. Beginning January 1, 2013, the earnings from the
VIEs are recognized by our segments as follows: (i) investment
income earned on investments in the VIEs made by our insurance
segments are recognized in the segment’s earnings; (ii) investment
income earned on investments in the VIEs made by the Corporate
segment are recognized in the Corporate segment earnings; (iii) fee
revenue earned for providing investment management services to
the VIEs is recognized in fee revenue and other income in the
Corporate segment; and (iv) earnings from the non-controlling
interests in the VIEs are recognized as “equity in earnings of
certain non-strategic investments and earnings attributable to
non-controlling interests.”

Interest expense on investment borrowings represents interest
expense on repurchase agreements as further discussed in the note
to the consolidated financial statements entitled “Summary of
Significant Accounting Policies - Investment Borrowings”.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KOther operating costs and expenses include general corporate
expenses, net of amounts charged to subsidiaries for services
provided by the corporate operations. These amounts fluctuate
as a result of expenses such as consulting and legal costs which
often vary from period to period. In 2013, 2012 and 2011,
other operating costs and expenses were increased (decreased)
by $(15.9) million, $9.7 million and $18.9 million, respectively,
related to changes in the underlying actuarial assumptions used
to value liabilities for our agent deferred compensation plan and
former executive retirement annuities. In 2012, we also recognized
a $6.8 million charge related to the relocation of Bankers Life’s
primary office. In 2011, we recognized a reduction in expenses of
$7.4 million related to a true-up of forfeiture estimates related to
certain stock-based compensation awards.

Net realized investment gains (losses) often fluctuate each
period. During 2013, net realized investment losses in this segment
included $.4 million of net losses from the sales of investments (of
which $.5 million were losses recognized by VIEs) and $1.1 million
of writedowns of investments (all of which were recognized by
VIEs) due to other-than-temporary declines in value. During
2012, net realized investment gains in this segment included
$2.6 million of net gains from the sales of investments (of which
$.4 million were gains recognized by VIEs) and $.8 million of
writedowns of investments (all of which were recognized by VIEs)
due to other-than-temporary declines in value. During 2011, net
realized investment gains in this segment included $4.3 million
of net gains from the sales of investments (of which $3.0 million
were gains recognized by VIEs) and $4.3 million of writedowns of
investments (all of which were recognized by VIEs) due to other-
than-temporary declines in value.

Equity in earnings of certain non-strategic investments and
earnings attributable to non-controlling interests include the
earnings attributable to non-controlling interests in certain VIEs

that we are required to consolidate and certain private companies
that were acquired in the commutation of an investment
made by our Predecessor, net of affiliated amounts. Such
earnings are not indicative and are unrelated to the Company’s
underlying fundamentals.

Loss on extinguishment of debt in 2013 of $65.4 million resulted
from: (i) the Offer and repurchase of 7.0% Debentures, the write-
off of unamortized discount and issuance costs associated with
the 7.0% Debentures that were repurchased and other transaction
costs; and (ii) expenses related to the amendment of our Senior
Secured Credit Agreement and the write-off of unamortized
discount and issuance costs associated with prepayments on the
Senior Secured Credit Agreement. The loss on extinguishment
of debt of $200.2 million in 2012 represents: (i) $136.5 million
due to our repurchase of $200.0 million principal amount of 7.0%
Debentures and the write-off of unamortized discount and issuance
costs associated with the 7.0% Debentures; (ii) $58.2 million
related to the tender offer and consent solicitation for the 9.0%
Notes, the write-off of unamortized issuance costs related to the
9.0% Senior Secured Notes due January 2018 (the “9.0% Notes”)
and other transactions; (iii) $5.1 million representing the write-
off of unamortized discount and issuance costs associated with
repayments of our Previous Senior Secured Credit Agreement; and
(iv) $.4 million representing the write-off of unamortized discount
and issuance costs associated with payments on our Senior
Secured Credit Agreement. The loss on extinguishment of debt
of $3.4 million in 2011 represents the write-off of unamortized
discount and issuance costs associated with repayments of the
Previous Senior Secured Credit Agreement. These transactions
are further discussed in the note to the consolidated financial
statements entitled “Notes Payable - Direct Corporate Obligations”.

EBIT From Business Segments Summarized by In-Force and New Business

Management believes that an analysis of EBIT, separated between
in-force and new business provides increased clarity around the
value drivers of our business, particularly since the new business
results are significantly impacted by the rate of sales, mix of business
and the distribution channel through which new sales are made.
EBIT from new business includes pre-tax revenues and expenses
associated with new sales of our insurance products during the

first year after the sale is completed. EBIT from in-force business
includes all pre-tax revenues and expenses associated with sales
of insurance products that were completed more than one year
before the end of the reporting period. The allocation of certain
revenues and expenses between new and in-force business is based
on estimates, which we believe are reasonable.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe following summarizes our earnings, separated between in-force and new business on a consolidated basis and for each of our operating
segments for the three years ended December 31, 2013:

Business segments - total (dollars in millions)

2013

2012

2011

EBIT FROM IN-FORCE BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses

EBIT from In-Force Business

EBIT FROM NEW BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses
EBIT from New Business

EBIT FROM IN-FORCE AND NEW BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses

EBIT from In-Force and New Business

2,365.4
1,572.0
3,937.4

2,627.0
245.1
418.9
3,291.0
646.4

379.3
47.8
427.1

267.1
30.6
331.5
629.2
(202.1)

2,744.7
1,619.8
4,364.5

2,894.1
275.7
750.4
3,920.2
444.3

2,377.1
1,402.3
3,779.4

2,498.8
254.5
471.1
3,224.4
555.0

378.3
38.7
417.0

260.7
29.6
311.1
601.4
(184.4) $

2,755.4
1,441.0
4,196.4

2,759.5
284.1
782.2
3,825.8
370.6

2,347.2
1,314.1
3,661.3

2,429.6
266.1
393.6
3,089.3
572.0

343.3
42.6
385.9

235.0
39.9
285.4
560.3
(174.4)

2,690.5
1,356.7
4,047.2

2,664.6
306.0
679.0
3,649.6
397.6

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K2013

2012

2011

1,378.0
976.9
2,354.9

1,574.7
160.9
176.7
1,912.3
442.6

270.7
47.8
318.5

214.0
26.6
210.0
450.6
(132.1)

1,648.7
1,024.7
2,673.4

1,788.7
187.5
386.7
2,362.9
310.5

1,381.3
815.4
2,196.7

1,431.2
161.8
186.4
1,779.4
417.3

276.1
38.7
314.8

211.7
25.8
193.7
431.2
(116.4) $

1,657.4
854.1
2,511.5

1,642.9
187.6
380.1
2,210.6
300.9

1,358.9
737.5
2,096.4

1,378.0
169.9
148.9
1,696.8
399.6

253.5
42.6
296.1

192.1
36.4
176.3
404.8
(108.7)

1,612.4
780.1
2,392.5

1,570.1
206.3
325.2
2,101.6
290.9

Bankers Life (dollars in millions)

EBIT FROM IN-FORCE BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses

EBIT from In-Force Business

EBIT FROM NEW BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses
EBIT from New Business

EBIT FROM IN-FORCE AND NEW BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses

EBIT from In-Force and New Business

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsWashington National (dollars in millions)

2013

2012

2011

EBIT FROM IN-FORCE BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses

EBIT from In-Force Business

EBIT FROM NEW BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses
EBIT from New Business

EBIT FROM IN-FORCE AND NEW BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses

EBIT from In-Force and New Business

537.2
207.4
744.6

443.3
50.2
119.0
612.5
132.1

63.5
—
63.5

27.2
3.6
44.0
74.8
(11.3)

600.7
207.4
808.1

470.5
53.8
163.0
687.3
120.8

531.5
205.2
736.7

422.9
44.8
123.1
590.8
145.9

58.9
—
58.9

24.2
2.9
50.6
77.7
(18.8) $

590.4
205.2
795.6

447.1
47.7
173.7
668.5
127.1

530.7
190.5
721.2

442.0
42.1
119.5
603.6
117.6

54.4
—
54.4

22.5
2.8
50.6
75.9
(21.5)

585.1
190.5
775.6

464.5
44.9
170.1
679.5
96.1

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KColonial Penn (dollars in millions)

EBIT FROM IN-FORCE BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses

EBIT from In-Force Business
EBIT FROM NEW BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses
EBIT From New Business

EBIT FROM IN-FORCE AND NEW BUSINESS
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses

EBIT from In-Force and New Business

Other CNO Business (dollars in millions)

EBIT FROM IN-FORCE BUSINESS(a)
Revenues:

Insurance policy income
Net investment income and other

Total revenues
Benefits and expenses:

Insurance policy benefits
Amortization
Other expenses

Total benefits and expenses

EBIT from In-Force Business

(a) All activity in the Other CNO Business segment relates to in-force business.

CNO FINANCIAL GROUP, INC. - Form 10-K

2013

2012

2011

187.0
40.8
227.8

139.8
14.1
27.7
181.6
46.2

45.1
—
45.1

25.9
.4
77.5
103.8
(58.7)

232.1
40.8
272.9

165.7
14.5
105.2
285.4
(12.5)

174.5
41.1
215.6

136.3
14.1
24.6
175.0
40.6

43.3
—
43.3

24.8
.9
66.8
92.5
(49.2) $

217.8
41.1
258.9

161.1
15.0
91.4
267.5

(8.6) $

167.6
42.0
209.6

129.7
14.3
26.1
170.1
39.5

35.4
—
35.4

20.4
.7
58.5
79.6
(44.2)

203.0
42.0
245.0

150.1
15.0
84.6
249.7
(4.7)

2013

2012

2011

263.2
346.9
610.1

469.2
19.9
95.5
584.6
25.5

289.8
340.6
630.4

508.4
33.8
137.0
679.2
(48.8) $

290.0
344.1
634.1

479.9
39.8
99.1
618.8
15.3

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe above analysis of EBIT, separated between in-force and new
business, illustrates how our segments are impacted by the rate
of sales, mix of business and distribution channel through which
new sales are made. In addition, when the impacts from new
business are separated, the value drivers of our in-force business
are more apparent.

The EBIT from in-force business in the Bankers life segment
grew in 2013 and 2012 primarily due to the growth in the size of
the block. The EBIT from new business in the Bankers life
segment reflects increased sales.

The EBIT from in-force business in the Washington National
segment was lower in 2013 due to higher supplemental health
benefit ratios and the run-off of the Medicare supplement business
in this segment. EBIT from in-force business in the Washington
National segment grew in 2012 primarily due to higher investment
income on higher average balance of general account assets from

the FHLB investment borrowing program that commenced in
June 2011 and higher insurance margins on our supplemental
health block of business.

The EBIT from in-force business in the Colonial Penn segment
in 2013 reflects growth in the size of the block. The EBIT from
new business in the Colonial Penn segment in 2013 and 2012
reflects additional marketing costs. The vast majority of the costs
to generate new business in this segment are not deferrable and
EBIT will fluctuate based on management’s decisions on how
much marketing costs to incur in each period.

The EBIT from in-force business in the Other CNO Business
segment reflects $41.5 million of legal expenses related to pending
litigation in 2012.

We are not investing in new business in the Other CNO
Business segment.

Premium Collections

In accordance with GAAP, insurance policy income in our
consolidated statement of operations consists of premiums earned
for traditional insurance policies that have life contingencies or
morbidity features. For annuity and interest-sensitive life contracts,
premiums collected are not reported as revenues, but as deposits
to insurance liabilities. We recognize revenues for these products
over time in the form of investment income and surrender or
other charges.

Our insurance segments sell products through three primary
distribution channels - career agents (our Bankers Life segment),
direct marketing (our Colonial Penn segment) and independent
producers (our Washington National segment). Our career
agency force in the Bankers Life segment sells primarily Medicare
supplement and long-term care insurance policies, life insurance
and annuities. These agents visit the customer’s home, which
permits one-on-one contact with potential policyholders and
promotes strong personal relationships with existing policyholders.
Our direct marketing distribution channel in the Colonial
Penn segment is engaged primarily in the sale of graded benefit
life and simplified issue life insurance policies which are sold
directly to the policyholder. Our Washington National segment
sells primarily supplemental health and life insurance. These
products are marketed through PMA, a subsidiary that specializes
in marketing and distributing health products, and through
independent marketing organizations and insurance agencies,
including worksite marketing.

Agents, insurance brokers and marketing companies who market
our products and prospective purchasers of our products use
the financial strength ratings of our insurance subsidiaries as an
important factor in determining whether to market or purchase.
Ratings have the most impact on our annuity, interest-sensitive

life insurance and long-term care products. The current financial
strength ratings of our primary insurance subsidiaries (except
Conseco Life) from Moody’s, A.M. Best, Fitch and S&P are
“Baa3”, “B++”, “BBB” and “BBB”, respectively. The current
financial strength rating of Conseco Life from Moody’s,
A.M. Best, Fitch and S&P are “Ba1”, “B-”, “BB+” and “B”,
respectively. For a description of these ratings and additional
information on our ratings, see “Financial Strength Ratings of our
Insurance Subsidiaries.”

We set premium rates on our health insurance policies based on
facts and circumstances known at the time we issue the policies
using assumptions about numerous variables, including the
actuarial probability of a policyholder incurring a claim, the
probable size of the claim, and the interest rate earned on our
investment of premiums. We also consider historical claims
information, industry statistics, the rates of our competitors and
other factors. If our actual claims experience is less favorable than
we anticipated and we are unable to raise our premium rates, our
financial results may be adversely affected. We generally cannot
raise our health insurance premiums in any state until we obtain the
approval of the state insurance regulator. We review the adequacy
of our premium rates regularly and file for rate increases on our
products when we believe such rates are too low. It is likely that
we will not be able to obtain approval for all requested premium
rate increases. If such requests are denied in one or more states, our
net income may decrease. If such requests are approved, increased
premium rates may reduce the volume of our new sales and may
cause existing policyholders to lapse their policies. If the healthier
policyholders allow their policies to lapse, this would reduce our
premium income and profitability in the future.

Bankers Life (dollars in millions)

Premiums collected by product:

Annuities:

Fixed index (first-year)
Other fixed rate (first-year)
Other fixed rate (renewal)

Subtotal - other fixed rate annuities

Total annuities

Health:

Medicare supplement (first-year)
Medicare supplement (renewal)

Subtotal - Medicare supplement

Long-term care (first-year)
Long-term care (renewal)

Subtotal - long-term care
PDP and PFFS (first year)
PDP and PFFS (renewal)

Subtotal – PDP and PFFS
Supplemental health (first-year)
Supplemental health (renewal)

Subtotal – supplemental health

Other health (first-year)
Other health (renewal)

Subtotal - other health

Total health

Life insurance:
First-year
Renewal

Total life insurance

Collections on insurance products:

2013

2012

2011

566.8
170.6
6.7
177.3
744.1

92.1
653.2
745.3
21.2
512.8
534.0
.1
18.1
18.2
8.3
1.6
9.9
1.3
9.1
10.4
1,317.8

163.3
205.0
368.3

505.0 $
198.0
6.0
204.0
709.0

99.4
617.8
717.2
23.4
523.1
546.5
.7
47.1
47.8
1.9
—
1.9
1.4
9.1
10.5
1,323.9

149.9
164.7
314.6

708.4
272.9
4.2
277.1
985.5

101.3
599.9
701.2
23.5
538.4
561.9
1.8
54.7
56.5
—
—
—
1.6
9.4
11.0
1,330.6

115.8
134.2
250.0

Total first-year premium collections on insurance products
Total renewal premium collections on insurance products

TOTAl COllECTIONS ON INSURANCE PRODUCTS

1,023.7
1,406.5
2,430.2

979.7
1,367.8
2,347.5 $

1,225.3
1,340.8
2,566.1

Annuities in this segment include fixed index and other fixed
annuities sold to the senior market. Annuity collections in this
segment increased 5.0 percent, to $744.1 million, in 2013 and
decreased 28 percent, to $709.0 million, in 2012. Premium
collections from our fixed index products have fluctuated due
to volatility in the financial markets in recent periods. Premium
collections from our fixed index products were favorably impacted
in 2013 by the general stock market performance which made
these products attractive to certain customers. Premium collections
from Bankers Life’s fixed annuity products have decreased in
recent periods as low new money interest rates negatively impacted
our sales and the overall sales in the fixed annuity market.

Health products include Medicare supplement, PDP contracts,
long-term care and other insurance products. Our profits on health
policies depend on the overall level of sales, the length of time the
business remains inforce, investment yields, claims experience and
expense management.

Collected premiums on Medicare supplement policies in the
Bankers Life segment increased 3.9 percent, to $745.3 million, in
2013 and 2.3 percent, to $717.2 million, in 2012. During the second
half of 2013, we experienced a slight shift in the sale of Medicare
supplement policies to the sale of Medicare Advantage policies.
Medicare Advantage policies are sold through Bankers Life’s agency
force for other providers in exchange for marketing fees.

Premiums collected on Bankers Life’s long-term care policies
decreased 2.3 percent, to $534.0 million, in 2013 and 2.7 percent,
to $546.5 million, in 2012.

Premiums collected on PDP business relates to our quota-share
reinsurance agreement with Coventry. In August 2013, we
received a notice of Coventry’s intent to terminate our PDP quota-
share reinsurance agreement as further described in the note to
the consolidated financial statements entitled “Summary of
Significant Accounting Policies - Reinsurance”. Coventry decided
to cease selling PFFS plans effective January 1, 2010. Effective
January 1, 2010, the Company no longer assumes the underwriting
risk related to PFFS business. Bankers Life primarily partners with

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsHumana and United HealthCare to offer Medicare Advantage
plans to its policyholders and consumers nationwide through its
career agency force and receives marketing fees based on sales.
Premiums collected on the PFFS business were $3.7 million in 2011.
The PFFS premiums recognized in 2011 related to adjustments to
prior year contracts based on audits conducted by the Centers for
Medicare and Medicaid Services, an agency of the United States
government which, among other things, administers the Medicare
program. Such audits can result in positive or negative adjustments
to premium revenue in the period the results of the audits are

reported to us. These agreements are described in “Management’s
Discussion and Analysis of Consolidated Financial Condition and
Results of Operations - Critical Accounting Policies”.

Premiums collected on supplemental health products relate to a
new critical illness product that was introduced in 2012.

Life products in this segment include traditional and interest-
sensitive life products. Life premiums collected in this segment
increased 17 percent, to $368.3 million, in 2013 and 26 percent,
to $314.6 million, in 2012. Collected premiums in 2013 and 2012
reflect higher sales in this segment (including increased sales of
single premium whole life products).

Washington National (dollars in millions)

Premiums collected by product:

Health:

Medicare supplement (first-year)
Medicare supplement (renewal)

Subtotal - Medicare supplement

Supplemental health (first-year)
Supplemental health (renewal)

Subtotal – supplemental health

Other health (first-year)
Other health (renewal)

Subtotal – other health

Total health

Life insurance:
First-year
Renewal

Total life insurance

Collections on insurance products:

Total first-year premium collections on insurance products
Total renewal premium collections on insurance products

TOTAl COllECTIONS ON INSURANCE PRODUCTS

2013

2012

2011

.3
101.6
101.9
64.7
426.6
491.3
.2
2.3
2.5
595.7

.7
12.7
13.4

65.9
543.2
609.1

1.0
112.9
113.9
59.2
400.5
459.7
—
2.7
2.7
576.3

1.0
13.2
14.2

61.2
529.3
590.5

1.9
130.2
132.1
54.1
380.1
434.2
—
3.5
3.5
569.8

1.2
14.8
16.0

57.2
528.6
585.8

Health products in the Washington National segment include
Medicare supplement, supplemental health and other insurance
products. Our profits on health policies depend on the overall level
of sales, the length of time the business remains inforce, investment
yields, claim experience and expense management.

Premiums collected on supplemental health products (including
specified disease, accident and hospital indemnity insurance
products) increased 6.9 percent, to $491.3 million, in 2013 and
5.9 percent, to $459.7 million, in 2012. Such increases are due to
higher new sales in each year and an improvement in persistency.

Collected premiums on Medicare supplement policies in the
Washington National segment decreased 11 percent, to $101.9
million, in 2013 and 14 percent, to $113.9 million, in 2012. We
discontinued new sales of Medicare supplement policies in this
segment in the fourth quarter of 2012.

Overall, excluding premiums from the Washington National
Medicare supplement block which is in run-off, collected
premiums were up 6.4 percent in 2013 compared to 2012, driven
by strong sales and persistency.

Life products in the Washington National segment are primarily
traditional life products. Life premiums collected in this segment
have declined in recent periods.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KColonial Penn (dollars in millions)

Premiums collected by product:

Life insurance:
First-year
Renewal

Total life insurance

Health (all renewal):

Medicare supplement
Other health
Total health

Collections on insurance products:

Total first-year premium collections on insurance products
Total renewal premium collections on insurance products

TOTAl COllECTIONS ON INSURANCE PRODUCTS

2013

2012

2011

45.2
182.4
227.6

3.7
.4
4.1

45.2
186.5
231.7

43.1
168.8
211.9

4.5
.4
4.9

43.1
173.7
216.8

35.4
161.0
196.4

5.2
.5
5.7

35.4
166.7
202.1

Life products in this segment are sold primarily to the senior
market. Life premiums collected in this segment increased
7.4 percent, to $227.6 million, in 2013 and 7.9 percent, to
$211.9 million, in 2012. Graded benefit life products sold
through our direct response marketing channel accounted for
$225.2 million, $209.2 million and $193.2 million of collected
premiums in 2013, 2012 and 2011, respectively.

Health products
include Medicare supplement and other
insurance products. Our profits on health policies depend on
the overall level of sales, the length of time the business remains
inforce,
investment yields, claims experience and expense
management. Premiums collected on these products have
decreased as we do not currently market these products through
this segment.

Other CNO Business (dollars in millions)

Premiums collected by product:

Annuities:

Fixed index (first-year)
Fixed index (renewal)

Subtotal - fixed index annuities

Other fixed rate (first-year)
Other fixed rate (renewal)

Subtotal - other fixed rate annuities

Total annuities

Health:

Long-term care (all renewal)
Other health (all renewal)

Total health
Life insurance:
First-year
Renewal

Total life insurance

Collections on insurance products:

Total first-year premium collections on insurance products
Total renewal premium collections on insurance products

TOTAl COllECTIONS ON INSURANCE PRODUCTS

Annuities in this segment include fixed index and other fixed
annuities. We are no longer actively pursuing sales of annuity
products in this segment.

CNO FINANCIAL GROUP, INC. - Form 10-K

2013

2012

2011

.4
3.4
3.8
—
.8
.8
4.6

23.6
.6
24.2

4.2
150.9
155.1

4.6
179.3
183.9

.6
2.3
2.9
—
.9
.9
3.8

25.1
.7
25.8

3.4
161.6
165.0

4.0
190.6
194.6

9.5
3.9
13.4
2.1
.9
3.0
16.4

27.0
.8
27.8

2.1
177.3
179.4

13.7
209.9
223.6

Health products in the Other CNO Business segment include
long-term care and other health insurance products. Our profits
on health policies depend on the length of time the business
remains inforce, investment yields, claim experience and expense
management.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe long-term care premiums in this segment relate to blocks
of business that we no longer market or underwrite. As a result,
we expect this segment’s long-term care premiums to continue to
decline, reflecting additional policy lapses in the future.

Life products in the Other CNO Business segment include
primarily interest-sensitive life products. Life premiums collected
decreased 6.0 percent, to $155.1 million, in 2013 and 8.0 percent,

to $165.0 million, in 2012. The decrease in collected premiums in
2013 was primarily due to a reduction in policyholder charges on
certain interest-sensitive life products consistent with the settlement
offered in a class action lawsuit and policyholder redemptions and
lapses. While there has been a slight increase in new sales of life
products in this segment, we expect overall premiums to continue
to decline.

Investments

Our investment strategy is to: (i) provide largely stable investment
income from a diversified high quality fixed income portfolio;
(ii) mitigate the effect of changing interest rates through active
asset/liability management; (iii) provide liquidity to meet our cash
obligations to policyholders and others; and (iv) maximize total
return through active investment management. Consistent with

this strategy, investments in fixed maturity securities, mortgage
loans and policy loans made up 93 percent of our $27.2 billion
investment portfolio at December 31, 2013. The remainder of the
invested assets was trading securities, investments held by variable
interest entities, equity securities and other invested assets.

The following table summarizes the composition of our investment portfolio as of December 31, 2013 (dollars in millions):

Fixed maturities, available for sale
Equity securities
Mortgage loans
Policy loans
Trading securities
Investments held by variable interest entities
Company-owned life insurance
Other invested assets
TOTAl INvESTMENTS

Carrying value
23,178.3
249.3
1,729.5
277.0
247.6
1,046.7
144.8
278.5
27,151.7

Percent of total
investments

85%
1
6
1
1
4
1
1
100%

Insurance statutes regulate the types of investments that our
insurance subsidiaries are permitted to make and limit the
amount of funds that may be used for any one type of investment.
In addition, we have internal management compliance limits
on various exposures and activities which are typically more
restrictive than insurance statutes. In light of these statutes and

regulations and our business and investment strategy, we generally
seek to invest in United States government and government-
agency securities and corporate securities rated investment grade
by established nationally recognized rating organizations or in
securities of comparable investment quality, if not rated.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe following table summarizes the carrying value of our fixed maturity securities, available for sale, by category as of December 31, 2013
(dollars in millions):

Energy/pipelines
States and political subdivisions
Collateralized mortgage obligations
Utilities
Commercial mortgage-backed securities
Insurance
Asset-backed securities
Healthcare/pharmaceuticals
Food/beverage
Real estate/REITs
Cable/media
Banks
Capital goods
Aerospace/defense
Telecom
Transportation
Chemicals
Building materials
Metals and mining
Paper
Collateralized debt obligations
Brokerage
Technology
Business services
Consumer products
Retail
Autos
Other

TOTAl FIXED MATURITIES, AvAIlABlE FOR SAlE $

Carrying value
2,377.3
2,204.4
1,848.9
1,834.1
1,609.0
1,596.8
1,462.1
1,245.7
1,073.6
886.0
846.9
769.5
670.1
456.1
408.6
404.3
403.2
379.4
318.7
317.6
294.0
290.6
267.0
256.3
235.2
178.6
171.8
372.5
23,178.3

Percent of fixed
maturities

10.3% $
9.5
8.0
7.9
6.9
6.9
6.3
5.4
4.6
3.8
3.6
3.3
2.9
2.0
1.8
1.7
1.7
1.6
1.4
1.4
1.3
1.3
1.2
1.1
1.0
.8
.7
1.6

100.0% $

Gross unrealized
losses
23.8
39.0
1.6
7.5
5.8
5.2
7.2
19.6
11.6
1.4
27.6
2.9
.4
1.0
3.8
.9
8.2
5.3
12.2
1.2
.5
.5
2.3
9.1
.7
4.0
3.0
2.0
208.3

Percent of gross
unrealized losses

11.4%
18.7
.8
3.6
2.8
2.5
3.4
9.5
5.6
.7
13.2
1.4
.2
.5
1.8
.4
4.0
2.6
5.8
.6
.2
.2
1.1
4.4
.3
1.9
1.4
1.0
100.0%

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe following table summarizes the gross unrealized losses of our fixed maturity securities, available for sale, by category and ratings
category as of December 31, 2013 (dollars in millions):

Below-investment grade

B+ and below

States and political subdivisions
Cable/media
Energy/pipelines
Healthcare/pharmaceuticals
Metals and mining
Food/beverage
Business services
Chemicals
Utilities
Asset-backed securities
Commercial mortgage-backed securities
Building materials
Insurance
Retail
Telecom
Autos
Banks
Technology
Collateralized mortgage obligations
Real estate/REITs
Paper
Aerospace/defense
Transportation
Consumer products
Brokerage
Collateralized debt obligations
Capital goods
Other

TOTAL FIXED MATURITIES,
AVAILABLE FOR SALE

Investment grade

AAA/AA/A

25.9 $
.1
.9
1.2
—
1.2
—
—
1.0
1.2
3.1
—
.3
—
.9
—
1.7
—
1.1
—
—
.1
—
—
.3
.1
.1
.6

BBB
12.6
23.6
19.0
16.1
11.4
5.5
—
6.7
6.4
2.7
2.7
2.3
4.9
4.0
1.1
2.7
1.2
1.9
.2
1.4
1.2
.8
.9
.2
.2
—
.3
1.3

.5 $
2.9
.8
2.1
.8
4.7
9.1
1.5
.1
.6
—
3.0
—
—
1.4
.3
—
.4
—
—
—
.1
—
.5
—
.2
—
—

Total gross
unrealized losses
39.0
27.6
23.8
19.6
12.2
11.6
9.1
8.2
7.5
7.2
5.8
5.3
5.2
4.0
3.8
3.0
2.9
2.3
1.6
1.4
1.2
1.0
.9
.7
.5
.5
.4
2.0

— $
1.0
3.1
.2
—
.2
—
—
—
2.7
—
—
—
—
.4
—
—
—
.3
—
—
—
—
—
—
.2
—
.1

39.8 $

131.3

29.0 $

8.2

208.3

Our investment strategy is to maximize, over a sustained period
and within acceptable parameters of quality and risk, investment
income and total investment return through active investment
management. Accordingly, we may sell securities at a gain or a loss
to enhance the projected total return of the portfolio as market
opportunities change, to reflect changing perceptions of risk, or
to better match certain characteristics of our investment portfolio
with the corresponding characteristics of our insurance liabilities.

Our fixed maturity securities consist predominantly of publicly
traded securities. We classify securities issued in the Rule 144A
market as publicly traded. Securities not publicly traded comprise
approximately 11 percent of our
fixed maturity
securities portfolio.

total

Fair Value of Investments

securities, trading securities, investments held by VIEs, derivatives,
cash and cash equivalents, separate account assets and embedded
derivatives. We carry our company-owned life insurance policy,
which is backed by a series of mutual funds, at its cash surrender
value and our hedge fund investments at their net asset values; in
both cases, we believe these values approximate their fair values. In
addition, we disclose fair value for certain financial instruments,
including mortgage loans and policy loans, insurance liabilities for
interest-sensitive products, investment borrowings, notes payable
and borrowings related to VIEs.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KValuation Hierarchy

There is a three-level hierarchy for valuing assets or liabilities at
fair value based on whether inputs are observable or unobservable.

• Level 2 – includes assets and liabilities valued using inputs that
are quoted prices for similar assets in an active market, quoted
prices for identical or similar assets in a market that is not active,
observable inputs, or observable inputs that can be corroborated
by market data. Level 2 assets and liabilities include those
financial instruments that are valued by independent pricing
services using models or other valuation methodologies. These
models consider various inputs such as interest rate, credit or issuer
spreads, reported trades and other inputs that are observable or
derived from observable information in the marketplace or are
supported by observable levels at which transactions are executed
in the marketplace. Financial assets in this category primarily
include: certain public and privately placed corporate fixed
maturity securities; certain government or agency securities;
certain mortgage and asset-backed securities; certain equity
securities; most investments held by our consolidated VIEs;
certain mutual fund and hedge fund investments; and most
short-term investments; and non-exchange-traded derivatives
such as call options to hedge liabilities related to our fixed index
annuity products. Financial liabilities in this category include
investment borrowings, notes payable and borrowings related
to VIEs.

of the valuation inputs. Any transfers between levels are reported
as having occurred at the beginning of the period. There were no
transfers between Level 1 and Level 2 in 2013 and 2012.

The vast majority of our fixed maturity and equity securities,
including those held in trading portfolios and those held by
consolidated VIEs, short-term and separate account assets use
Level 2 inputs for the determination of fair value. These fair
values are obtained primarily from independent pricing services,
which use Level 2 inputs for the determination of fair value.
Substantially all of our Level 2 fixed maturity securities and
separate account assets were valued from independent pricing
services. Third party pricing services normally derive the security
prices through recently reported trades for identical or similar
securities making adjustments through the reporting date based
upon available market observable information. If there are no
recently reported trades, the third party pricing services may
use matrix or model processes to develop a security price where
future cash flow expectations are discounted at an estimated risk-
adjusted market rate. The number of prices obtained for a given
security is dependent on the Company’s analysis of such prices as
further described below.

For securities that are not priced by pricing services and may not
be reliably priced using pricing models, we obtain broker quotes.
These broker quotes are non-binding and represent an exit price,
but assumptions used to establish the fair value may not be
observable and therefore represent Level 3 inputs. Approximately
18 percent of our Level 3 fixed maturity securities were valued
using unadjusted broker quotes or broker-provided valuation
inputs. The remaining Level 3 fixed maturity investments do not
have readily determinable market prices and/or observable inputs.
For these securities, we use internally developed valuations. Key
assumptions used to determine fair value for these securities may
include risk-free rates, risk premiums, performance of underlying
collateral and other factors involving significant assumptions which
may not be reflective of an active market. For certain investments,
we use a matrix or model process to develop a security price where
future cash flow expectations are developed and discounted at
an estimated market rate. The pricing matrix incorporates term
interest rates as well as a spread level based on the issuer’s credit
rating and other factors relating to the issuer and the security’s
maturity. In some instances issuer-specific spread adjustments,
which can be positive or negative, are made based upon internal
analysis of security specifics such as liquidity, deal size, and time
to maturity.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K(iii) a review of month to month price fluctuations; (iv) a review to
ensure valuations are not unreasonably dated; and (v) back testing
to compare actual purchase and sale transactions with valuations
received from third parties. As a result of such procedures, the
Company may conclude the prices received from third parties are
not reflective of current market conditions. In those instances, we
may request additional pricing quotes or apply internally developed
valuations. However, the number of instances is insignificant and
the aggregate change in value of such investments is not materially
different from the original prices received.

The categorization of the fair value measurements of our
investments priced by independent pricing services was based
upon the Company’s judgment of the inputs or methodologies

used by the independent pricing services to value different asset
classes. Such inputs include: benchmark yields, reported trades,
broker dealer quotes, issuer spreads, benchmark securities, bids,
offers and reference data. The Company categorizes such fair
value measurements based upon asset classes and the underlying
observable or unobservable inputs used to value such investments.

The fair value measurements for derivative instruments, including
embedded derivatives requiring bifurcation, are determined based
on the consideration of several inputs including closing exchange
or over-the-counter market price quotations; time value and
volatility factors underlying options; market interest rates; and
non-performance risk. For certain embedded derivatives, we use
actuarial assumptions in the determination of fair value.

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at
December 31, 2013 is as follows (dollars in millions):

Assets:

Fixed maturities, available for sale:

Corporate securities
United States Treasury securities and obligations of
United States government corporations and agencies
States and political subdivisions
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations

Total fixed maturities, available for sale

Equity securities - corporate securities
Trading securities:

Corporate securities
United States Treasury securities and obligations of
United States government corporations and agencies
States and political subdivisions
Asset-backed securities
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations
Equity securities

Total trading securities

Investments held by variable interest entities -
corporate securities
Other invested assets - derivatives
Assets held in separate accounts

TOTAL ASSETS cARRIED AT FAIR VALUE
By cATEgORy
LIAbILItIes:

Liabilities for insurance products:

Interest-sensitive products - embedded derivatives
associated with fixed index
annuity products
Interest-sensitive products - embedded derivatives
associated with modified
coinsurance agreement

Total liabilities for insurance products

TOTAL LIABILITIES cARRIED AT FAIR VALUE
By cATEgORy

Quoted prices in active markets
for identical assets or liabilities
(Level 1)

Significant other
observable inputs
(Level 2)

Significant
unobservable inputs
(Level 3)

Total

— $

15,313.8 $

359.6 $ 15,673.4

—
—
—
—
—
—
—
—
79.6

—

—
—
—
—
—
—
2.4
2.4

—
.6
—

73.1
2,204.4
1,419.9
47.3
1,609.0
11.8
1,848.9
22,528.2
145.2

45.2

4.6
14.1
24.3
125.8
.1
31.1
—
245.2

1,046.7
156.2
10.3

—
—
42.2
246.7
—
1.6
—
650.1
24.5

—

—
—
—
—
—
—
—
—

—
—
—

73.1
2,204.4
1,462.1
294.0
1,609.0
13.4
1,848.9
23,178.3
249.3

45.2

4.6
14.1
24.3
125.8
.1
31.1
2.4
247.6

1,046.7
156.8
10.3

82.6 $

24,131.8 $

674.6 $ 24,889.0

—

—
—

—

—
—

903.7

1.8
905.5

— $

905.5 $

905.5

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which we
have utilized significant unobservable (Level 3) inputs to determine fair value for the year ended December 31, 2013 (dollars in millions):

December 31, 2013

Beginning
balance as of
December 31,
2012

Purchases,
sales,
issuances and
settlements,
net(b)

Total
realized and
unrealized
gains
(losses)
included in
net income

Total realized
and unrealized
gains (losses)
included in
accumulated
other
comprehensive
income (loss)

Transfers
into
Level 3

Transfers
out of
Level 3(a)

Ending
balance as of
December 31,
2013

Amount of
total gains
(losses) for the
year ended
December 31,
2013 included
in our net
income
relating to
assets and
liabilities still
held as of the
reporting date

355.5 $

34.0

(.3) $

(9.8) $

13.2

(33.0)

359.6

13.1
44.0

324.0

6.2

1.9

16.9

761.6

.1
2.8
2.9

7.3

5.8
13.7

—
1.6

(85.4)

—

(.3)

—

(50.1)

24.5
—
24.5

—

(7.7)

—
(7.7)

—
.1

—

—
(2.5)
(2.5)

—

—
.6

—
(3.6)

7.9

—

—
.1

—

(13.1)
—

—

(6.2)

—

(16.9)

—
42.2

246.7

—

1.6

—

(5.5)

13.3

(69.2)

650.1

(.1)
(.3)
(.4)

—

(.2)

—
(.2)

—
—
—

—

—
—

24.5
—
24.5

—

—
—

—

—
—

—

—
—
—

—

(.2)

—
(.2)

Assets:

Fixed maturities, available
for sale:

Corporate securities
States and political
subdivisions
Asset-backed securities
Collateralized debt
obligations
Commercial mortgage-
backed securities
Mortgage pass-through
securities
Collateralized mortgage
obligations

Total fixed maturities,
available for sale

Equity securities:

Corporate securities
Venture capital investments
Total equity securities

Trading securities:

States and political
subdivisions
Collateralized debt
obligations
Collateralized mortgage
obligations

Total trading securities

LIAbILItIes:

Liabilities for insurance
products:

Interest-sensitive products
- embedded derivatives
associated with fixed
index annuity products
Interest-sensitive products
- embedded derivatives
associated with modified
coinsurance agreement
Total liabilities for
insurance products

(734.0)

(219.0)

49.3

—

(5.5)

3.7

(739.5)

(215.3)

—

49.3

—

(903.7)

49.3

(1.8)

(905.5)

—

49.3

(a) For our fixed maturity securities, the majority of our transfers out of Level 3 are the result of obtaining a valuation from an independent pricing service which utilized

observable inputs at the end of the period, whereas a broker quote was used as of the beginning of the period.

(b) Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not
represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and
equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing
contracts. The following summarizes such activity for the year ended December 31, 2013 (dollars in millions):

CNO FINANCIAL GROUP, INC. - Form 10-K

—
—
—

(.6)

—

(5.8)
(6.4)

—

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsPART II
IteM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations

Purchases

Sales

Issuances

Settlements

Purchases, sales,
issuances and
settlements, net

ASSETS:

Fixed maturities, available for sale:

Corporate securities
Asset-backed securities
Collateralized debt obligations
Mortgage pass-through securities

Total fixed maturities, available for sale

Equity securities - corporate securities
Trading securities - collateralized debt obligations

LIABILITIES:

Liabilities for insurance products:

Interest-sensitive products - embedded derivatives
associated with fixed index annuity products
Interest-sensitive products - embedded derivatives
associated with modified coinsurance agreement

Total liabilities for insurance products

44.0
22.0
6.0
—
72.0
24.5
—

(105.6)

—
(105.6)

(10.0) $
(20.4)
(91.4)
(.3)
(122.1)
—
(7.7)

— $
—
—
—
—
—
—

1.4

3.7
5.1

(156.3)

—
(156.3)

41.5

—
41.5

34.0
1.6
(85.4)
(.3)
(50.1)
24.5
(7.7)

(219.0)

3.7
(215.3)

At December 31, 2013, 90 percent of our Level 3 fixed maturities,
available for sale, were investment grade and 38 percent and
55 percent of our Level 3 fixed maturities, available for sale, consisted
of structured securities and corporate securities, respectively.

changes in fair value of trading securities and certain derivatives
and changes in fair value of embedded derivative instruments
included in liabilities for insurance products that exist as of the
reporting date.

Realized and unrealized investment gains and losses presented in
the preceding tables represent gains and losses during the time the
applicable financial instruments were classified as Level 3.

Realized and unrealized gains (losses) on Level 3 assets are
primarily reported in either net investment income for policyholder
and reinsurer accounts and other special-purpose portfolios, net
realized investment gains (losses) or insurance policy benefits
within the consolidated statement of operations or accumulated
other comprehensive income within shareholders’ equity based on
the appropriate accounting treatment for the instrument.

lowest rating
Investment ratings are assigned the second
by Nationally Recognized Statistical Rating Organizations
(Moody’s, S&P or Fitch), or if not rated by such firms, the rating
assigned by the NAIC. NAIC designations of “1” or “2” include
fixed maturities generally rated investment grade (rated “Baa3” or
higher by Moody’s or rated “BBB-” or higher by S&P and Fitch).
NAIC designations of “3” through “6” are referred to as below-
investment grade (which generally are rated “Ba1” or lower by
Moody’s or rated “BB+” or lower by S&P and Fitch). References
to investment grade or below-investment grade throughout our
consolidated financial statements are determined as described
above. The following table sets forth fixed maturity investments
at December 31, 2013, classified by ratings (dollars in millions):

Estimated fair value

Investment rating
AAA
AA
A
BBB+
BBB
BBB-

Investment grade

BB+
BB
BB-
B+ and below

Below-investment grade

TOTAL FIXED MATURIT y SEcURITIES

Amortized cost
2,391.1
1,571.9
4,828.5
2,880.4
4,324.6
3,173.0
19,169.5
406.0
365.2
454.3
1,465.6
2,691.1
21,860.6

Amount
2,525.5
1,659.6
5,240.2
3,090.2
4,517.0
3,343.2
20,375.7
416.7
369.8
460.0
1,556.1
2,802.6
23,178.3

Percent of fixed
maturities

11%
7
23
13
20
14
88
2
1
2
7
12
100%

CNO FINANCIAL GROUP, INC. - Form 10-KThe following table summarizes investment yields earned over the past three years on the general account invested assets of our insurance
subsidiaries. General account investments exclude the value of options (dollars in millions).

Weighted average general account invested assets as defined:

As reported
Excluding unrealized appreciation (depreciation)(a)

Net investment income on general account invested assets
Yields earned:
As reported
Excluding unrealized appreciation (depreciation)(a)

2013

2012

2011

26,869.6
24,693.2
1,412.5

26,757.8
24,215.5
1,394.9

24,758.2
23,370.6
1,357.7

5.26%
5.72%

5.21%
5.76%

5.48%
5.81%

(a) Excludes the effect of reporting fixed maturities at fair value as described in the note to our consolidated financial statements entitled “Investments”.

Although investment income is a significant component of total
revenues, the profitability of certain of our insurance products is
evaluated primarily by the spreads between the interest rates we
earn and the rates we credit or accrue to our insurance liabilities.
At December 31, 2013 and 2012, the average yield, computed on
the cost basis of our fixed maturity portfolio, was 5.6 percent and
5.7 percent, respectively, and the average interest rate credited or
accruing to our total insurance liabilities (excluding interest rate
bonuses for the first policy year only and excluding the effect of
credited rates attributable to variable or fixed index products) was
4.5 percent and 4.5 percent, respectively.

Fixed Maturities, Available for sale

Our fixed maturity portfolio at December 31, 2013, included
primarily debt securities of the United States government,
various corporations, and structured securities. Asset-backed
securities, collateralized debt obligations, commercial mortgage-
backed
securities and
collateralized mortgage obligations are collectively referred to as
“structured securities”.

securities, mortgage pass-through

At December 31, 2013, our fixed maturity portfolio had
$1,526.0 million of unrealized gains and $208.3 million of
unrealized losses, for a net unrealized gain of $1,317.7 million.
Estimated fair values of fixed maturity investments were
determined based on estimates from: (i) nationally recognized
pricing services (87 percent of the portfolio); (ii) broker-dealer
market makers (1 percent of the portfolio); and (iii) internally
developed methods (11 percent of the portfolio).

At December 31, 2013, approximately 10 percent of our invested
assets (12 percent of fixed maturity investments) were fixed
maturities rated below-investment grade. Our level of investments
in below-investment grade fixed maturities could change based
on market conditions or changes in our management policies.
Below-investment grade corporate debt securities have different
characteristics than investment grade corporate debt securities.
Based on historical performance, probability of default by the
borrower is significantly greater for below-investment grade
securities and in many cases severity of loss is relatively greater
as such securities are often subordinated to other indebtedness
of the issuer. Also, issuers of below-investment grade securities
frequently have higher levels of debt relative to investment-grade
issuers, hence, all other things being equal, are more sensitive
to adverse economic conditions, such as recession or increasing

interest rates. The Company attempts to reduce the overall risk
related to its investment in below-investment grade securities, as in
all investments, through careful credit analysis, strict investment
policy guidelines, and diversification by issuer and/or guarantor
and by industry. At December 31, 2013, our below-investment
grade fixed maturity investments had an amortized cost of
$2,691.1 million and an estimated fair value of $2,802.6 million.

We continually evaluate the creditworthiness of each issuer whose
securities we hold. We pay special attention to large investments,
investments which have significant risk characteristics and to
those securities whose fair values have declined materially for
reasons other than changes in interest rates or other general market
conditions. We evaluate the realizable value of the investment, the
specific condition of the issuer and the issuer’s ability to comply
with the material terms of the security. We review the recent
operational results and financial position of the issuer, information
about its industry, information about factors affecting the issuer’s
performance and other information. 40|86 Advisors employs
experienced securities analysts in a broad variety of specialty areas
who compile and review such data. If evidence does not exist to
support a realizable value equal to or greater than the amortized
cost of the investment, and such decline in fair value is determined
to be other than temporary, we reduce the amortized cost to its fair
value, which becomes the new cost basis. We report the amount of
the reduction as a realized loss. We recognize any recovery of such
reductions as investment income over the remaining life of the
investment (but only to the extent our current valuations indicate
such amounts will ultimately be collected), or upon the repayment
of the investment. During 2013, we recognized net realized
investment gains of $33.4 million, which were comprised of
$51.8 million of net gains from the sales of investments (primarily
fixed maturities) with proceeds of $2.3 billion, the decrease in
fair value of certain fixed maturity investments with embedded
derivatives of $6.8 million and $11.6 million of writedowns
of investments for other than temporary declines in fair value
recognized through net income. Our investment portfolio is
subject to the risk of declines in realizable value. However, we
attempt to mitigate this risk through the diversification and active
management of our portfolio.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kopportunities change, to reflect changing perceptions of risk, or
to better match certain characteristics of our investment portfolio
with the corresponding characteristics of our insurance liabilities.

As of December 31, 2013, we had investments in substantive
default (i.e., in default due to nonpayment of interest or principal)
that had a carrying value of $.5 million. There were no other fixed
maturity investments about which we had serious doubts as to the
recoverability of the carrying value of the investment.

When a security defaults or securities (other than structured
securities) are other-than-temporarily impaired, our policy is
to discontinue the accrual of interest and eliminate all previous
interest accruals, if we determine that such amounts will not
be ultimately realized in full. Investment income forgone on
nonperforming investments was $.5 million, $.6 million and
$1.0 million for the years ended December 31, 2013, 2012 and
2011, respectively.

At December 31, 2013 fixed maturity investments included
structured securities with an estimated fair value of $5.2 billion
(or 22.6 percent of all fixed maturity securities). The yield
characteristics of structured securities generally differ in some
respects from those of traditional corporate fixed-income securities
or government securities. For example, interest and principal
payments on structured securities may occur more frequently,
often monthly. In many instances, we are subject to variability in
the amount and timing of principal and interest payments. For
example, in many cases, partial prepayments may occur at the
option of the issuer and prepayment rates are influenced by a number
of factors that cannot be predicted with certainty, including:
the relative sensitivity of prepayments on the underlying assets
backing the security to changes in interest rates and asset values;
the availability of alternative financing; a variety of economic,
geographic and other factors; the timing, pace and proceeds of
liquidations of defaulted collateral; and various security-specific
structural considerations (for example, the repayment priority of
a given security in a securitization structure). In addition, the total
amount of payments for non-agency structured securities could be
affected by changes to cumulative default rates or loss severities of
the related collateral.

Historically, the rate of prepayments on structured securities has
tended to increase when prevailing interest rates have declined
significantly in absolute terms and also relative to the interest rates
on the underlying collateral. The yields recognized on structured
securities purchased at a discount to par will increase (relative
to the stated rate) when the underlying collateral prepays faster
than expected. The yields recognized on structured securities
purchased at a premium will decrease (relative to the stated rate)
when the underlying collateral prepays faster than expected.
When interest rates decline, the proceeds from prepayments may
be reinvested at lower rates than we were earning on the prepaid
securities. When interest rates increase, prepayments may decrease
below expected levels. When this occurs, the average maturity and
duration of structured securities increases, decreasing the yield on
structured securities purchased at discounts and increasing the
yield on those purchased at a premium because of a decrease in
the annual amortization of premium. However, in recent periods,
prepayment rates have been less directly sensitive to changes in
interest rates for a variety of reasons.

For structured securities that were purchased at a discount or
premium, we recognize investment income using an effective
yield based on anticipated future prepayments and the estimated
final maturity of the securities. Actual prepayment experience is
periodically reviewed and effective yields are recalculated when
differences arise between the prepayments originally anticipated
and the actual prepayments received and currently anticipated.
For credit sensitive mortgage-backed and asset-backed securities,
and for securities that can be prepaid or settled in a way that we
would not recover substantially all of our investment, the effective
yield is recalculated on a prospective basis. Under this method, the
amortized cost basis in the security is not immediately adjusted
and a new yield is applied prospectively. For all other structured
and asset-backed securities, the effective yield is recalculated when
changes in assumptions are made, and reflected in our income
on a retrospective basis. Under this method, the amortized cost
basis of the investment in the securities is adjusted to the amount
that would have existed had the new effective yield been applied
since the acquisition of the securities. Such adjustments were not
significant in 2013.

The following table sets forth the par value, amortized cost and estimated fair value of structured securities, summarized by interest rates
on the underlying collateral at December 31, 2013 (dollars in millions):

Below 4 percent
4 percent – 5 percent
5 percent – 6 percent
6 percent – 7 percent
7 percent – 8 percent
8 percent and above

TOTAL STRUcTURED SEcURITIES

Par value
981.3
830.8
2,532.4
759.2
116.7
43.9
5,264.3

Amortized
cost
912.5
785.0
2,389.0
714.7
119.1
45.2
4,965.5

Estimated
fair value
927.8
804.0
2,546.6
773.5
129.5
46.0
5,227.4

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe amortized cost and estimated fair value of structured securities at December 31, 2013, summarized by type of security, were as follows
(dollars in millions):

Type
Pass-throughs, sequential and equivalent securities
Planned amortization classes, target amortization classes and accretion-directed bonds
Commercial mortgage-backed securities
Asset-backed securities
Collateralized debt obligations
Other

TOTAL STRUcTURED SEcURITIES

Estimated fair value

Amount
1,469.9
357.5
1,609.0
1,462.1
294.0
34.9
5,227.4

Percent of fixed
maturities

6.3%
1.6
6.9
6.3
1.3
.2
22.6%

Amortized cost
1,398.8
336.9
1,517.1
1,393.4
287.0
32.3
4,965.5

Pass-throughs, sequentials and equivalent securities have unique
prepayment variability characteristics. Pass-through securities
typically return principal to the holders based on cash payments
from the underlying mortgage obligations. Sequential securities
return principal to tranche holders in a detailed hierarchy. Planned
amortization classes, targeted amortization classes and accretion-
directed bonds adhere to fixed schedules of principal payments as
long as the underlying mortgage loans experience prepayments
within certain estimated ranges. In most circumstances, changes
in prepayment rates are first absorbed by support or companion
classes insulating the timing of receipt of cash flows from the
consequences of both faster prepayments (average life shortening)
and slower prepayments (average life extension).

securities are

Commercial mortgage-backed
secured by
commercial real estate mortgages, generally income producing
properties that are managed for profit. Property types include
multi-family dwellings including apartments, retail centers, hotels,
restaurants, hospitals, nursing homes, warehouses, and office
buildings. While most commercial mortgage-backed securities
have call protection features whereby underlying borrowers may
not prepay their mortgages for stated periods of time without
incurring prepayment penalties, recoveries on defaulted collateral
may result in involuntary prepayments.

During 2013, we sold $477.5 million of fixed maturity investments
which resulted in gross investment losses (before income taxes) of
$11.4 million. We sell securities at a loss for a number of reasons
including, but not limited to: (i) changes in the investment
environment; (ii) expectation that the fair value could deteriorate

further; (iii) desire to reduce our exposure to an asset class, an
issuer or an industry; (iv) changes in credit quality; or (v) changes
in expected liability cash flows. As discussed in the notes to our
consolidated financial statements, the realization of gains and losses
affects the timing of the amortization of insurance acquisition
costs related to interest-sensitive life and annuity products.

Other Investments

At December 31, 2013, we held commercial mortgage loan
investments with a carrying value of $1,729.5 million (or 6.4 percent
of total invested assets) and a fair value of $1,749.5 million. We
had no mortgage loans that were in the process of foreclosure at
December 31, 2013. During 2013, 2012 and 2011, we recognized
$.8 million, $5.4 million and $11.8 million, respectively, of
writedowns of commercial mortgage loans resulting from declines
in fair value that we concluded were other than temporary.
Our commercial mortgage loan portfolio is comprised of large
commercial mortgage loans. We do not hold groups of smaller-
balance homogeneous loans. Our loans have risk characteristics
that are individually unique. Accordingly, we measure potential
losses on a loan-by-loan basis rather than establishing an allowance
for losses on mortgage loans. Approximately 12 percent, 8 percent,
6 percent, 5 percent, 5 percent, 5 percent and 5 percent of the
mortgage loan balance were on properties located in California,
Texas, Minnesota, Georgia, Maryland, Colorado and Illinois,
respectively. No other state comprised greater than five percent of
the mortgage loan balance.

The following table shows the distribution of our commercial mortgage loan portfolio by property type as of December 31, 2013 (dollars
in millions):

Retail
Office building
Industrial
Multi-family
Other

TOTAL cOMMERcIAL MORTgAgE LOANS

100

Number of loans carrying value
571.1
493.8
201.4
365.1
98.1
1,729.5

187
57
31
29
6
310

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KPART II
IteM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations

The following table shows our commercial mortgage loan portfolio by loan size as of December 31, 2013 (dollars in millions):

Under $5 million
$5 million but less than $10 million
$10 million but less than $20 million
Over $20 million

TOTAL cOMMERcIAL MORTgAgE LOANS

Number of loans carrying value
313.9
416.5
446.0
553.1
1,729.5

196
59
33
22
310

The following table summarizes the distribution of maturities of our commercial mortgage loans as of December 31, 2013 (dollars
in millions):

2014
2015
2016
2017
2018
after 2018

TOTAL cOMMERcIAL MORTgAgE LOANS

Number of loans carrying value
7.5
78.1
85.8
183.7
207.4
1,167.0
1,729.5

11
19
27
37
51
165
310

The following table provides the carrying value and estimated fair value of our outstanding mortgage loans and the underlying collateral
as of December 31, 2013 (dollars in millions):

Loan-to-value ratio(a)
Less than 60%
60% to 70%
Greater than 70% to 80%
Greater than 80% to 90%
Greater than 90%

TOTAL

Estimated fair value

carrying value Mortgage loans

744.4 $
386.0
420.0
141.6
37.5
1,729.5 $

779.8 $
386.4
409.5
141.4
32.4
1,749.5 $

collateral
2,254.5
592.4
563.8
164.9
40.6
3,616.2

(a) Loan-to-value ratios are calculated as the ratio of: (i) the carrying value of the commercial mortgage loans; to (ii) the estimated fair value of the underlying collateral.

At December 31, 2013, we held $247.6 million of trading securities.
We carry trading securities at estimated fair value; changes in fair
value are reflected in the statement of operations. Our trading
securities include: (i) investments purchased with the intent of
selling in the near term to generate income; (ii) investments
supporting certain insurance liabilities (including investments
backing the market strategies of our multibucket annuity
products) and certain reinsurance agreements; and (iii) certain
fixed maturity securities containing embedded derivatives for
which we have elected the fair value option. Prior to June 30, 2011,
certain of our trading securities were held to offset the income
statement volatility caused by the effect of interest rate fluctuations
on the value of embedded derivatives related to our fixed index
annuity products. During the second quarter of 2011, we sold
this trading portfolio. See the note to the consolidated financial
statements entitled “Summary of Significant Accounting Policies
- Accounting for Derivatives” for further discussion regarding
the embedded derivatives and the trading accounts. Investment
income from trading securities backing certain insurance liabilities
and certain reinsurance agreements is substantially offset by the
change in insurance policy benefits related to certain products

and agreements. The trading account also includes certain fixed
maturity securities containing embedded derivatives for which we
have elected the fair value option. The change in value of these
securities is recognized in realized investment gains (losses). In
addition, the trading account includes investments backing the
market strategies of our multibucket annuity products.

Other invested assets also include options backing our fixed index
products, COLI, credit default swaps and certain nontraditional
investments, including investments in limited partnerships,
promissory notes, hedge funds and real estate investments held
for sale.

At December 31, 2013, we held investments with an amortized cost
of $1,045.1 million and an estimated fair value of $1,046.7 million
related to variable interest entities that we are required to
consolidate. The investment portfolio held by the variable interest
entities is primarily comprised of commercial bank loans, the
borrowers for which are almost entirely rated below-investment
grade. Refer to the note to the consolidated financial statements
entitled “Investments in Variable Interest Entities” for additional
information on these investments.

101

CNO FINANCIAL GROUP, INC. - Form 10-KConsolidated Financial Condition

Changes in the Consolidated balance sheet

Changes in our consolidated balance sheet between December 31,
2013 and December 31, 2012, primarily reflect: (i) our net income
for 2013; (ii) changes in the fair value of our fixed maturity
securities, available for sale; and (iii) common stock repurchases
of $118.4 million.

In accordance with GAAP, we record our fixed maturity securities,
available for sale, equity securities and certain other invested assets
at estimated fair value with any unrealized gain or loss (excluding
impairment losses, which are recognized through earnings),
net of tax and related adjustments, recorded as a component of
shareholders’ equity. At December 31, 2013, we increased the
carrying value of such investments by $1.3 billion as a result of this
fair value adjustment.

Our capital structure as of December 31, 2013 and 2012 was as follows (dollars in millions):

Total capital:

Corporate notes payable
Shareholders’ equity:
Common stock
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings (accumulated deficit)

Total shareholders’ equity
TOTAL cAPITAL

December 31, 2013

December 31, 2012

856.4

1,004.2

2.2
4,092.8
731.8
128.4
4,955.2
5,811.6

2.2
4,174.7
1,197.4
(325.0)
5,049.3
6,053.5

The following table summarizes certain financial ratios as of and for the years ended December 31, 2013 and 2012:

Book value per common share
Book value per common share, excluding accumulated other comprehensive income(a)
Ratio of earnings to fixed charges
Debt to total capital ratios:

Corporate debt to total capital
Corporate debt to total capital, excluding accumulated other comprehensive income(a)

December 31, 2013
$

22.49
19.17
1.87X

December 31, 2012
$

22.80
17.39
1.40X

14.7%
16.9%

16.6%
20.7%

(a) This non-GAAP measure differs from the corresponding GAAP measure presented immediately above, because accumulated other comprehensive income has been
excluded from the value of capital used to determine this measure. Management believes this non-GAAP measure is useful because it removes the volatility that arises
from changes in accumulated other comprehensive income. Such volatility is often caused by changes in the estimated fair value of our investment portfolio resulting
from changes in general market interest rates rather than the business decisions made by management. However, this measure does not replace the corresponding
GAAP measure.

Contractual Obligations

The Company’s significant contractual obligations as of December 31, 2013, were as follows (dollars in millions):

Payment due in

Insurance liabilities(a)
Notes payable(b)
Investment borrowings(c)
Borrowings related to variable interest entities(d)
Postretirement plans(e)
Operating leases and certain other contractual commitments(f )

TOTAL

Total

$ 53,294.9 $
1,063.5
2,023.4
1,234.3
234.3
146.2

$ 57,996.6 $

2014
3,683.1 $
97.8
95.8
25.7
6.0
43.4
3,951.8 $

2015-2016

7,590.5 $
212.7
981.4
51.4
12.6
55.0
8,903.6 $

2017-2018 Thereafter
6,731.3 $ 35,290.0
310.1
72.6
959.5
201.8
11.2
8,296.0 $ 36,845.2

442.9
873.6
197.7
13.9
36.6

(a) These cash flows represent our estimates of the payments we expect to make to our policyholders, without consideration of future premiums or reinsurance recoveries.
These estimates are based on numerous assumptions (depending on the product type) related to mortality, morbidity, lapses, withdrawals, future premiums, future
deposits, interest rates on investments, credited rates, expenses and other factors which affect our future payments. The cash flows presented are undiscounted for
interest. As a result, total outflows for all years exceed the corresponding liabilities of $24.9 billion included in our consolidated balance sheet as of December 31, 2013.
As such payments are based on numerous assumptions, the actual payments may vary significantly from the amounts shown.

102

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsIn estimating the payments we expect to make to our policyholders, we considered the following:

•

For products such as immediate annuities and structured settlement annuities without life contingencies, the payment obligation is fixed and determinable based
on the terms of the policy.

For products such as universal life, ordinary life, long-term care, supplemental health and fixed rate annuities, the future payments are not due until the occurrence
of an insurable event (such as death or disability) or a triggering event (such as a surrender or partial withdrawal). We estimated these payments using actuarial
models based on historical experience and our expectation of the future payment patterns.

For short-term insurance products such as Medicare supplement insurance, the future payments relate only to amounts necessary to settle all outstanding claims,
including those that have been incurred but not reported as of the balance sheet date. We estimated these payments based on our historical experience and our
expectation of future payment patterns.

The average interest rate we assumed would be credited to our total insurance liabilities (excluding interest rate bonuses for the first policy year only and excluding
the effect of credited rates attributable to variable or fixed index products) over the term of the contracts was 4.5 percent.

(b) Includes projected interest payments based on interest rates, as applicable, as of December 31, 2013. Refer to the note to the consolidated financial statements entitled

“Notes Payable - Direct Corporate Obligations” for additional information on notes payable.

(d) These borrowings represent the securities issued by VIEs and include projected interest payments based on interest rates, as applicable, as of December 31, 2013.

(e) Includes benefits expected to be paid pursuant to our deferred compensation plan and postretirement plans based on numerous actuarial assumptions and interest

credited at 4.75 percent.

(f) Refer to the notes to the consolidated financial statements entitled “Commitments and Contingencies” for additional information on operating leases and certain other

contractual commitments.

It is possible that the ultimate outcomes of various uncertainties could affect our liquidity in future periods. For example, the following events could have a material
adverse effect on our cash flows:

•

An adverse decision in pending or future litigation.

An inability to obtain rate increases on certain of our insurance products.

Worse than anticipated claims experience.

Lower than expected dividends and/or surplus debenture interest payments from our insurance subsidiaries (resulting from inadequate earnings or capital or
regulatory requirements).

An inability to meet and/or maintain the covenants in our Senior Secured Credit Agreement.

A significant increase in policy surrender levels.

A significant increase in investment defaults.

An inability of our reinsurers to meet their financial obligations.

While we actively manage the relationship between the duration
and cash flows of our invested assets and the estimated duration
and cash flows of benefit payments arising from contract liabilities,
there could be significant variations in the timing of such cash
flows. Although we believe our current estimates properly project
future claim experience, if these estimates prove to be wrong, and
our experience worsens (as it did in some prior periods), our future
liquidity could be adversely affected.

Liquidity for Insurance Operations

Our insurance companies generally receive adequate cash flows
from premium collections and investment income to meet their
obligations. Life insurance, long-term care insurance and annuity
liabilities are generally long-term in nature. Life and annuity
policyholders may, however, withdraw funds or surrender their
policies, subject to any applicable penalty provisions; there are
generally no withdrawal or surrender benefits for long-term care
insurance. We actively manage the relationship between the
duration of our invested assets and the estimated duration of
benefit payments arising from contract liabilities.

103

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K

Three of the Company’s insurance subsidiaries (Conseco Life,
Washington National and Bankers Life) are members of the FHLB.
As members of the FHLB, Conseco Life, Washington National
and Bankers Life have the ability to borrow on a collateralized
basis from the FHLB. Conseco Life, Washington National and
Bankers Life are required to hold certain minimum amounts of
FHLB common stock as a condition of membership in the FHLB,
and additional amounts based on the amount of the borrowings.
At December 31, 2013, the carrying value of the FHLB common

stock was $93.5 million. As of December 31, 2013, collateralized
borrowings from the FHLB totaled $1.9 billion and the proceeds
were used to purchase fixed maturity securities. The borrowings
are classified as investment borrowings in the accompanying
consolidated balance sheet. The borrowings are collateralized
by investments with an estimated fair value of $2.4 billion at
December 31, 2013, which are maintained in custodial accounts
for the benefit of the FHLB. The following summarizes the terms
of the borrowings (dollars in millions):

Amount borrowed
$

67.0
50.0
150.0
100.0
146.0
100.0
100.0
75.0
100.0
50.0
50.0
57.7
100.0
50.0
75.0
100.0
37.0
50.0
50.0
50.0
50.0
22.0
100.0
50.0
50.0
21.8
27.5
20.5
1,899.5

Maturity date
February 2014
September 2015
October 2015
November 2015
November 2015
December 2015
June 2016
June 2016
October 2016
November 2016
November 2016
June 2017
July 2017
August 2017
August 2017
October 2017
November 2017
November 2017
January 2018
January 2018
February 2018
February 2018
May 2018
July 2018
August 2018
June 2020
March 2023
June 2025

Interest rate at December 31, 2013
Fixed rate – 1.830%
Variable rate – 0.538%
Variable rate – 0.517%
Variable rate – 0.318%
Fixed rate – 5.300%
Fixed rate – 4.710%
Variable rate – 0.605%
Variable rate – 0.407%
Variable rate – 0.426%
Variable rate – 0.511%
Variable rate – 0.635%
Variable rate – 0.598%
Fixed rate – 3.900%
Variable rate – 0.441%
Variable rate – 0.388%
Variable rate – 0.674%
Fixed rate – 3.750%
Variable rate – 0.747%
Variable rate – 0.596%
Variable rate – 0.579%
Variable rate – 0.548%
Variable rate – 0.567%
Variable rate – 0.617%
Variable rate – 0.708%
Variable rate – 0.361%
Fixed rate – 1.960%
Fixed rate – 2.160%
Fixed rate – 2.940%

State laws generally give state insurance regulatory agencies broad
authority to protect policyholders in their jurisdictions. Regulators
have used this authority in the past to restrict the ability of our
insurance subsidiaries to pay any dividends or other amounts
without prior approval. We cannot be assured that the regulators
will not seek to assert greater supervision and control over our
insurance subsidiaries’ businesses and financial affairs.

During 2013, the financial statements of four of our insurance
subsidiaries prepared in accordance with statutory accounting
practices prescribed or permitted by regulatory authorities
reflected asset adequacy or premium deficiency reserves. Total

asset adequacy and premium deficiency reserves for Conseco Life,
Washington National, Bankers Conseco Life and Bankers Life were
$305.9 million, $89.0 million, $19.0 million and $18.0 million,
respectively, at December 31, 2013. Due to differences between
statutory and GAAP insurance liabilities, we were not required to
recognize a similar asset adequacy or premium deficiency reserve
in our consolidated financial statements prepared in accordance
with GAAP. The determination of the need for and amount
of asset adequacy or premium deficiency reserves is subject to
numerous actuarial assumptions, including the Company’s ability
to change NGEs related to certain products consistent with
contract provisions.

104

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsFinancial strength Ratings of our Insurance
subsidiaries

Financial strength ratings provided by Moody’s, A.M. Best, Fitch
and S&P are the rating agency’s opinions of the ability of our
insurance subsidiaries to pay policyholder claims and obligations
when due. As summarized below, all four of these rating agencies
have upgraded the financial strength ratings of our primary
insurance subsidiaries, except Conseco Life, over the last two years.

On February 6, 2014, the “Baa3” financial strength ratings of our
primary insurance subsidiaries, except Conseco Life, were placed
on review for upgrade by Moody’s. Moody’s also affirmed the
financial strength rating of “Ba1” of Conseco Life with a stable
outlook. A rating under review indicates that a rating is under
consideration for a change in the near term. Most rating reviews
are completed within 45 to 180 days; however, some reviews are
completed more quickly and many require considerably more time.
On August 29, 2012, Moody’s upgraded the financial strength
ratings of our primary insurance subsidiaries, except Conseco Life,
to “Baa3” from “Ba1”. A “stable” designation means that a rating is
not likely to change. Moody’s financial strength ratings range from
“Aaa” to “C”. These ratings may be supplemented with numbers
“1”, “2”, or “3” to show relative standing within a category. In
Moody’s view, an insurer rated “Baa” offers adequate financial
security, however, certain protective elements may be lacking
or may be characteristically unreliable over any great length of
time. In Moody’s view, an insurer rated “Ba” offers questionable
financial security and, often, the ability of these companies to
meet policyholders’ obligations may be very moderate and thereby
not well safeguarded in the future. Moody’s has twenty-one
possible ratings. There are nine ratings above the “Baa3” rating
of our primary insurance subsidiaries, other than Conseco Life,
and eleven ratings that are below the rating. There are ten ratings
above the “Ba1” rating of Conseco Life and ten ratings that are
below that rating.

On September 27, 2013, A.M. Best affirmed the financial strength
rating of “B++” of our primary insurance subsidiaries as well as
the “B-” rating of Conseco Life and the outlook for all of these
ratings is stable. On September 4, 2012, A.M. Best upgraded the
financial strength ratings of our primary insurance subsidiaries,
except Conseco Life, to “B++” from “B+”. A.M. Best also affirmed
the financial strength rating of “B-” of Conseco Life. The outlook
for all ratings is stable. A “stable” designation means that there is
a low likelihood of a rating change due to stable financial market
trends. The “B++” rating is assigned to companies that have a good
ability, in A.M. Best’s opinion, to meet their ongoing obligations
to policyholders. A “B-” rating is assigned to companies that have a
fair ability, in A.M. Best’s opinion, to meet their current obligations
to policyholders, but are financially vulnerable to adverse changes
in underwriting and economic conditions. A.M. Best ratings
for the industry currently range from “A++ (Superior)” to “F
(In Liquidation)” and some companies are not rated. An “A++”
rating indicates a superior ability to meet ongoing obligations to
policyholders. A.M. Best has sixteen possible ratings. There are

four ratings above the “B++” rating of our primary insurance
subsidiaries, other than Conseco Life, and eleven ratings that are
below that rating. There are seven ratings above the “B-” rating of
Conseco Life and eight ratings that are below that rating.

On September 20, 2013, Fitch affirmed the financial strength
ratings of “BBB” of our primary insurance subsidiaries as well
as the “BB+” rating of Conseco Life and the outlook for all of
these ratings is stable. On February 3, 2012, Fitch upgraded the
financial strength ratings of our primary insurance subsidiaries,
except Conseco Life, to “BBB” (from “BBB-” or “BB+” depending
on the company). Fitch also affirmed the financial strength rating
of “BB+” of Conseco Life. A “BBB” rating, in Fitch’s opinion,
indicates that there is currently a low expectation of ceased or
interrupted payments. The capacity to meet policyholder and
contract obligations on a timely basis is considered adequate,
but adverse changes in circumstances and economic conditions
are more likely to impact this capacity. A “BB” rating, in Fitch’s
opinion, indicates that there is an elevated vulnerability to ceased
or interrupted payments, particularly as the result of adverse
economic or market changes over time. However, business or
financial alternatives may be available to allow for policyholder
and contract obligations to be met in a timely manner. Fitch
ratings for the industry range from “AAA Exceptionally Strong”
to “C Distressed” and some companies are not rated. Pluses and
minuses show the relative standing within a category. Fitch has
nineteen possible ratings. There are eight ratings above the “BBB”
rating of our primary insurance subsidiaries, other than Conseco
Life, and ten ratings that are below that rating. There are ten
ratings above the “BB+” rating of Conseco Life and eight ratings
that are below that rating.

On May 3, 2013, S&P upgraded the financial strength ratings
of our primary insurance subsidiaries, except Conseco Life, to
“BBB-” from “BB+”. On July 24, 2013, S&P again upgraded the
financial strength ratings of our primary insurance subsidiaries,
except Conseco Life, to “BBB” from “BBB-”. Also, on July 24,
2013, S&P downgraded the financial strength rating of Conseco
Life to “B” from “B+”. The outlook for all ratings is stable. A
“stable” outlook means that a rating is not likely to change. S&P
financial strength ratings range from “AAA” to “R” and some
companies are not rated. An insurer rated “BBB” or higher is
regarded as having financial security characteristics that outweigh
any vulnerabilities, and is highly likely to have the ability to
meet financial commitments. An insurer rated “BBB”, in S&P’s
opinion, has good financial security characteristics, but is more
likely to be affected by adverse business conditions than are higher
rated insurers. Pluses and minuses show the relative standing
within a category. In S&P’s view, an insurer rated “B” has weak
financial security characteristics and adverse business conditions
will likely impair its ability to meet financial commitments. S&P
has twenty-one possible ratings. There are eight ratings above the
“BBB” rating of our primary insurance subsidiaries, other than
Conseco Life, and twelve ratings that are below that rating. There
are fourteen ratings above the “B” rating of Conseco Life and
six ratings that are below that rating.

105

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KRating agencies have increased the frequency and scope of their
credit reviews and requested additional information from the
companies that they rate, including us. They may also adjust
upward the capital and other requirements employed in the
rating agency models for maintenance of certain ratings levels.
We cannot predict what actions rating agencies may take, or what
actions we may take in response. Accordingly, downgrades and
outlook revisions related to us or the life insurance industry may
occur in the future at any time and without notice by any rating
agency. These could increase policy surrenders and withdrawals,
adversely affect relationships with our distribution channels,
reduce new sales, reduce our ability to borrow and increase our
future borrowing costs.

Liquidity of the Holding Companies

Availability and Sources and Uses of Holding
company Liquidity; Limitations on Ability of
Insurance Subsidiaries to Make Dividend and
Surplus Debenture Interest Payments to the Holding
companies; Limitations on Holding company
Activities

At December 31, 2013, CNO, CDOC and our other non-
insurance subsidiaries held: (i) unrestricted cash and cash
equivalents of $133.5 million; (ii) fixed income investments of
$53.7 million; and (iii) equity securities and other invested assets
totaling $121.8 million. CNO and CDOC are holding companies
with no business operations of their own; they depend on their
operating subsidiaries for cash to make principal and interest
payments on debt, and to pay administrative expenses and income
taxes. CNO and CDOC receive cash from insurance subsidiaries,
consisting of dividends and distributions, interest payments on
surplus debentures and tax-sharing payments, as well as cash from
non-insurance subsidiaries consisting of dividends, distributions,
loans and advances. The principal non-insurance subsidiaries that
provide cash to CNO and CDOC are 40|86 Advisors, which
receives fees from the insurance subsidiaries for investment services,
and CNO Services, LLC which receives fees from the insurance
subsidiaries for providing administrative services. The agreements
between our insurance subsidiaries and CNO Services, LLC and
40|86 Advisors, respectively, were previously approved by the
domestic insurance regulator for each insurance company, and any
payments thereunder do not require further regulatory approval.

The following table sets forth the aggregate amount of dividends (net of capital contributions) and other distributions that our insurance
subsidiaries paid to us in each of the last three fiscal years (dollars in millions):

Dividends from insurance subsidiaries, net of contributions
Surplus debenture interest
Fees for services provided pursuant to service agreements

TOTAL DIVIDENDS AND OTHER DISTRIBUTIONS PAID
By INSURANcE SUBSIDIARIES

The following summarizes the current ownership structure of CNO’s primary subsidiaries:

years ended December 31,

2013
236.8
63.7
72.9

2012
265.0
58.9
99.4

2011
209.0
59.1
78.6

373.4

423.3

346.7

CNO

CNO Service,
LLC

40/86 Advisors

CDOC

Washington
National

Conseco Life

Conseco Life
of Texas

Bankers Life

Colonial Penn

Bankers
Conseco Life

The ability of our insurance subsidiaries to pay dividends is
subject to state insurance department regulations and is based on
the financial statements of our insurance subsidiaries prepared
in accordance with statutory accounting practices prescribed or
permitted by regulatory authorities, which differ from GAAP.

These regulations generally permit dividends to be paid from
statutory earned surplus of the insurance company for any
12-month period in amounts equal to the greater of (or in a few
states, the lesser of): (i) statutory net gain from operations or net
income for the prior year; or (ii) 10 percent of statutory capital and

106

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationssurplus as of the end of the preceding year. This type of dividend
is referred to as an “ordinary dividend”. Any dividend in excess of
these levels or from an insurance company that has negative earned
surplus requires the approval of the director or commissioner
of the applicable state insurance department and is referred to
as an “extraordinary dividend”. Each of the direct insurance
subsidiaries of CDOC has significant negative earned surplus and
any dividend payments from the subsidiaries of CDOC would
be considered extraordinary dividends and, therefore, require the
approval of the director or commissioner of the applicable state
insurance department. In 2013, our insurance subsidiaries paid
extraordinary dividends to CDOC totaling $236.8 million. We
expect to receive regulatory approval for future dividends from
our subsidiaries, but there can be no assurance that such payments
will be approved or that the financial condition of our insurance
subsidiaries will not change, making future approvals less likely.

We generally maintain capital and surplus levels in our insurance
subsidiaries in an amount that is sufficient to maintain a minimum
consolidated RBC ratio of 350 percent and will typically seek
to have our insurance subsidiaries pay ordinary dividends or
request regulatory approval for extraordinary dividends when the
consolidated RBC ratio exceeds such level and we have concluded

the capital level in each of our insurance subsidiaries is adequate
to support their business and projected growth. The consolidated
RBC ratio of our insurance subsidiaries was 410 percent at
December 31, 2013.

CDOC holds surplus debentures from Conseco Life of Texas
with an aggregate principal amount of $749.6 million. Interest
payments on those surplus debentures do not require additional
approval provided the RBC ratio of Conseco Life of Texas exceeds
100 percent (but do require prior written notice to the Texas
state insurance department). The RBC ratio of Conseco Life of
Texas was 336 percent at December 31, 2013. CDOC also holds
a surplus debenture from Colonial Penn with an outstanding
principal balance of $160.0 million. Interest payments on that
surplus debenture require prior approval by the Pennsylvania state
insurance department. Dividends and other payments from our
non-insurance subsidiaries, including 40|86 Advisors and CNO
Services, LLC, to CNO or CDOC do not require approval by
any regulatory authority or other third party. However, insurance
regulators may prohibit payments by our insurance subsidiaries to
parent companies if they determine that such payments could be
adverse to our policyholders or contractholders.

The insurance subsidiaries of CDOC receive funds to pay dividends primarily from: (i) the earnings of their direct businesses; (ii) tax
sharing payments received from subsidiaries (if applicable); and (iii) with respect to Conseco Life of Texas, dividends received from
subsidiaries. At December 31, 2013, the subsidiaries of Conseco Life of Texas had earned surplus (deficit) as summarized below (dollars
in millions):

Subsidiary of cDOc
Subsidiaries of Conseco Life of Texas:

Bankers Life
Colonial Penn

Earned surplus
(deficit)

Additional
information

358.3
(263.4)

(a)
(b)

(a) Bankers Life paid ordinary dividends of $90 million to Conseco Life of Texas in 2013.

(b) The deficit is primarily due to transactions which occurred several years ago, including a tax planning transaction and the fee paid to recapture a block of business

previously ceded to an unaffiliated insurer.

A significant deterioration in the financial condition, earnings or
cash flow of the material subsidiaries of CNO or CDOC for any
reason could hinder such subsidiaries’ ability to pay cash dividends
or other disbursements to CNO and/or CDOC, which, in turn,
could limit CNO’s ability to meet debt service requirements and
satisfy other financial obligations. In addition, we may choose
to retain capital in our insurance subsidiaries or to contribute
additional capital to our insurance subsidiaries to strengthen their

surplus, and these decisions could limit the amount available at
our top tier insurance subsidiaries to pay dividends to the holding
companies. In the past, we have made capital contributions to
our insurance subsidiaries to meet debt covenants and minimum
capital levels required by certain regulators and it is possible we
will be required to do so in the future. The holding companies
made no capital contributions to its insurance subsidiaries in 2013.

The scheduled principal and interest payments on our direct corporate obligations are as follows (dollars in millions):

2014
2015
2016
2017
2018
2019
2020

(a) Based on interest rates as of December 31, 2013.

Principal
59.4
79.3
64.0
4.2
378.1
—
275.0
860.0

Interest(a)
38.4
36.0
33.4
32.2
28.4
17.6
17.5
203.5

107

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KOn March 28, 2013, the Company completed the Offer for
an aggregate purchase price of $124.8 million. The Offer
was conducted as part of our previously announced securities
repurchase program. Pursuant to the terms of the Offer, holders of
the 7.0% Debentures who tendered their 7.0% Debentures prior
to the expiration date, received, for each $1,000 principal amount
of such 7.0% Debentures, a cash purchase price (the “Purchase
Price”) equal to the sum of: (i) the average volume weighted average
price of our common stock (as defined in the Offer) ($11.2393 at
the close of trading on March 27, 2013) multiplied by 183.5145;
plus (ii) a fixed cash amount of $61.25. The final Purchase Price
per $1,000 principal amount of 7.0% Debentures was $2,123.82.
In addition to the Purchase Price, holders received accrued and
unpaid interest on any 7.0% Debentures that were tendered to, but
excluding, the settlement date of the Offer.

In May 2013, we repurchased $4.5 million principal amount of the
7.0% Debentures for an aggregate purchase price of $9.4 million.

On July 1, 2013, the Company issued a conversion right
termination notice to holders of the 7.0% Debentures. The
Company elected to terminate the right to convert the 7.0%
Debentures into shares of its common stock, par value $0.01 per
share, effective as of July 30, 2013. Holders of the 7.0% Debentures
were able to exercise their conversion right at any time on or prior
to the close of business on July 30, 2013. Holders exercising their
conversion right received 184.3127 shares of common stock per
$1,000 principal amount of 7.0% Debentures converted. The 7.0%
Debentures submitted for conversion were deemed paid in full
and the Company has no further obligation with respect to such
7.0% Debentures. Holders of $25.7 million in aggregate principal
amount of the 7.0% Debentures exercised their conversion right
and received 4.7 million shares of our common stock. As of
December 31, 2013, $3.5 million in aggregate principal amount of
the 7.0% Debentures remained outstanding.

In May 2011, the Company announced a security repurchase
program of up to $100.0 million. In February 2012, June 2012,
December 2012 and December 2013, the Company’s Board of
Directors approved, in aggregate, an additional $800.0 million to
repurchase the Company’s outstanding securities. During 2013,
we repurchased 8.9 million shares of common stock for $118.4
million under the securities repurchase program. The Company
purchased $63.8 million aggregate principal amount of our 7.0%
Debentures in 2013 for $134.2 million, as further discussed above.
Such repayments were made pursuant to our securities repurchase
program. The Company had remaining repurchase authority of
$397.4 million as of December 31, 2013. We currently anticipate
repurchasing a total of approximately $225 million to $300 million
of securities during 2014, absent compelling alternatives. The
amount and timing of the securities repurchases (if any) will be
based on business and market conditions and other factors.

In May 2012, we initiated a common stock dividend program.
In 2013 and 2012 dividends paid on common stock totaled
$24.4 million ($0.11 per common share) and $13.9 million
($0.06 per common share), respectively.

In May 2013, we amended our Senior Secured Credit Agreement.
Pursuant to the amended terms, the applicable interest rates were
decreased. The new interest rates with respect to loans under: (i) the
six-year term loan facility are, at the Company’s option, equal
to a eurodollar rate, plus 2.75% per annum, or a base rate, plus

1.75% per annum, subject to a eurodollar rate “floor” of 1.00%
and a base rate “floor” of 2.25% (previously a eurodollar rate, plus
3.75% per annum, or a base rate, plus 2.75% per annum, subject
to a eurodollar rate “floor” of 1.25% and a base rate “floor” of
2.25%); (ii) the four-year term loan facility are, at the Company’s
option, equal to a eurodollar rate, plus 2.25% per annum, or a base
rate, plus 1.25% per annum, subject to a eurodollar rate “floor”
of .75% and a base rate “floor” of 2.00% (previously a eurodollar
rate, plus 3.25% per annum, or a base rate, plus 2.25% per annum,
subject to a eurodollar rate “floor” of 1.00% and a base rate
“floor” of 2.00%); and (iii) the revolving credit facility will be,
at the Company’s option, equal to a eurodollar rate, plus 3.00%
per annum, or a base rate, plus 2.00% per annum, in each case,
with respect to revolving credit facility borrowings only, subject
to certain step-downs based on the debt to total capitalization
ratio of the Company (previously a eurodollar rate, plus 3.50%
per annum, or a base rate, plus 2.50% per annum, subject to
certain step-downs based on the debt to total capitalization ratio
of the Company). At December 31, 2013, the interest rates on the
six-year term loan facility and the four-year term loan facility were
3.75% and 3.00%, respectively.

Other changes made in May 2013 to the Senior Secured Credit
Agreement included modifications of mandatory prepayments
resulting from certain restricted payments made (including any
common stock dividends and share repurchases) as defined in
the Senior Secured Credit Agreement. Pursuant to the amended
terms, the amount of the mandatory prepayment is: (a) 100% of
the amount of certain restricted payments provided that if, as of
the end of the fiscal quarter immediately preceding such restricted
payment, the debt to total capitalization ratio is: (x) equal to or less
than 25.0% but greater than 20.0%, the prepayment requirement
shall be reduced to 33.33% (previously less than or equal to 22.5%
but greater than 17.5%); or (y) equal to or less than 20.0%, the
prepayment requirement shall not apply (previously equal to or
less than 17.5%).

In the first six months of 2013, we made mandatory prepayments
of $20.4 million in an amount equal to 33.33% of our share
repurchases and common stock dividend payments, as required
under the terms of our Senior Secured Credit Agreement. No
mandatory prepayments were required in the second half of 2013
as our debt to total capitalization ratio, as defined in the Senior
Secured Credit Agreement, was below 20.0 percent. We also
made additional payments of $42.7 million in 2013 to cover the
remaining portion of the scheduled quarterly principal payments
due under the Senior Secured Credit Agreement.

Mandatory prepayments of the Senior Secured Credit Agreement
will be required, subject to certain exceptions, in an amount equal
to: (i) 100% of the net cash proceeds from certain asset sales or
casualty events; (ii) 100% of the net cash proceeds received by
the Company or any of its restricted subsidiaries from certain
debt issuances; and (iii) 100% of the amount of certain restricted
payments made (including any common stock dividends and share
repurchases) as defined in the Senior Secured Credit Agreement
provided that if, as of the end of the fiscal quarter immediately
preceding such restricted payment, the debt to total capitalization
ratio is: (x) equal to or less than 25.0%, but greater than 20.0%, the
prepayment requirement shall be reduced to 33.33%; or (y) equal
to or less than 20.0%, the prepayment requirement shall not apply.

108

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsNotwithstanding the foregoing, no mandatory prepayments
pursuant to item (i) in the preceding paragraph shall be required
if: (x) the debt to total capitalization ratio is equal or less than
20% and (y) either (A) the financial strength rating of certain
of the Company’s insurance subsidiaries is equal or better than
A- (stable) from A.M. Best or (B) the Senior Secured Credit
Agreement is rated equal or better than BBB- (stable) from S&P
and Baa3 (stable) by Moody’s.

The Senior Secured Credit Agreement requires the Company
to maintain (each as calculated in accordance with the Senior
Secured Credit Agreement): (i) a debt to total capitalization
ratio of not more than 27.5 percent (such ratio was 17.0 percent
at December 31, 2013); (ii) an interest coverage ratio of not less
than 2.50 to 1.00 for each rolling four quarters (or, if less, the
number of full fiscal quarters commencing after the effective
date of the Senior Secured Credit Agreement) (such ratio was
8.53 to 1.00 for the period ended December 31, 2013); (iii) an
aggregate ratio of total adjusted capital to company action level
risk-based capital for the Company’s insurance subsidiaries of not
less than 250 percent (such ratio was 410 percent at December
31, 2013); and (iv) a combined statutory capital and surplus for
the Company’s insurance subsidiaries of at least $1,300.0 million
(combined statutory capital and surplus at December 31, 2013,
was $1,945.8 million).

Under the 6.375% Indenture, the Company can make Restricted
Payments (as such term is defined in the 6.375% Indenture) up
to a calculated limit, provided that the Company’s pro forma
risk-based capital ratio exceeds 225% after giving effect to
the Restricted Payment and certain other conditions are met.
Restricted Payments include, among other items, repurchases
of common stock and cash dividends on common stock (to the
extent such dividends exceed $30 million in the aggregate in any
calendar year).

The limit of Restricted Payments permitted under the 6.375%
Indenture is the sum of (x) 50% of the Company’s “Net Excess
Cash Flow” (as defined in the 6.375% Indenture) for the period
(taken as one accounting period) from July 1, 2012 to the end of the
Company’s most recently ended fiscal quarter for which financial
statements are available at the time of such Restricted Payment,
(y) $175.0 million and (z) certain other amounts specified in
the 6.375% Indenture. Based on the provisions set forth in the
6.375% Indenture and the Company’s Net Excess Cash Flow for
the period from July 1, 2012 through December 31, 2013, the
Company could have made additional Restricted Payments under
this 6.375% Indenture covenant of approximately $242 million
as of December 31, 2013. This limitation on Restricted Payments
does not apply if the Debt to Total Capitalization Ratio (as defined
in the 6.375% Indenture) as of the last day of the Company’s most
recently ended fiscal quarter for which financial statements are
available that immediately precedes the date of any Restricted
Payment, calculated immediately after giving effect to such
Restricted Payment and any related transactions on a pro forma
basis, is equal to or less than 17.5%.

On February 6, 2014, our “Ba3” issuer credit and senior secured
debt ratings were placed on review for upgrade by Moody’s. A
rating under review indicates that a rating is under consideration
for a change in the near term. Most rating reviews are completed
within 45 to 180 days; however, some reviews are completed more
quickly and many require considerably more time. In Moody’s

view, obligations rated “Ba” are judged to have speculative elements
and are subject to substantial credit risk. A rating is supplemented
with numerical modifiers “1”, “2” or “3” to show the relative
standing within a category. Moody’s has a total of 21 possible
ratings ranging from “Aaa” to “C”. There are twelve ratings above
CNO’s “Ba3” rating and eight ratings that are below its rating.

On September 27, 2013, A.M. Best affirmed our issuer credit and
senior secured debt ratings of “bb” and revised the outlook for
these ratings to positive from stable. In A.M. Best’s view, an issuer
rated “bb” has speculative credit characteristics generally due to
a moderate margin of principal and interest payment protection
and vulnerability to economic changes. Pluses and minuses show
the relative standing within a category. A.M. Best has a total of
22 possible ratings ranging from “aaa (Exceptional)” to “d (In
Default)”. There are eleven ratings above CNO’s “bb” rating and
ten ratings that are below its rating.

On May 3, 2013, S&P upgraded our issuer credit and senior
secured debt ratings to “BB-” from “B+”. On July 24, 2013, S&P
again upgraded such ratings to “BB” from “BB-” and the outlook
is stable. In S&P’s view, an obligation rated “BB” is less vulnerable
to nonpayment than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to the obligor’s
inadequate capacity to meet its financial commitment on the
obligation. Pluses and minuses show the relative standing within
a category. S&P has a total of 22 possible ratings ranging from
“AAA (Extremely Strong)” to “D (Payment Default)”. There are
eleven ratings above CNO’s “BB” rating and ten ratings that are
below its rating.

As part of our investment strategy, we may enter into repurchase
agreements to increase our investment return. Pursuant to such
agreements, the Company sells securities subject to an obligation
to repurchase the same securities. Under these arrangements,
the Company may transfer legal control over the assets but still
retain effective control through an agreement that both entitles
and obligates the Company to repurchase the assets. As a result,
these repurchase agreements are accounted for as collateralized
financing arrangements (i.e., secured borrowings) and not as
a sale and subsequent repurchase of securities. We had no such
borrowings outstanding at December 31, 2013 and 2012.

We believe that the existing cash available to the holding company,
the cash flows to be generated from operations and other transactions
will be sufficient to allow us to meet our debt service obligations,
pay corporate expenses and satisfy other financial obligations.
However, our cash flow is affected by a variety of factors, many of
which are outside of our control, including insurance regulatory
issues, competition, financial markets and other general business
conditions. We cannot provide assurance that we will possess
sufficient income and liquidity to meet all of our debt service
requirements and other holding company obligations.

Outlook

109

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kinsurance regulatory issues, competition, financial markets and
other general business conditions. We cannot provide assurance
that we will possess sufficient income and liquidity to meet all

of our debt service requirements and other holding company
obligations. For additional discussion regarding the liquidity and
other risks that we face, see “Risk Factors”.

Market-sensitive Instruments and Risk Management

Our spread-based insurance business is subject to several inherent
risks arising from movements in interest rates, especially if we fail
to anticipate or respond to such movements. First, interest rate
changes can cause compression of our net spread between interest
earned on investments and interest credited on customer deposits,
thereby adversely affecting our results. Second, if interest rate
changes produce an unanticipated increase in surrenders of our
spread-based products, we may be forced to sell invested assets
at a loss in order to fund such surrenders. Many of our products
include surrender charges, market interest rate adjustments or
other features to encourage persistency; however at December 31,
2013, approximately 29 percent of our total insurance liabilities,
or approximately $7.2 billion, could be surrendered by the
policyholder without penalty. Finally, changes in interest rates
can have significant effects on the performance of our investment
portfolio as a result of changes in the prepayment rate of various
securities. We use asset/liability strategies that are designed to
mitigate the effect of interest rate changes on our profitability.
However, there can be no assurance that management will be
successful in implementing such strategies and achieving adequate
investment spreads.

We seek to invest our available funds in a manner that will fund
future obligations to policyholders, subject to appropriate risk
considerations. We seek to meet this objective through investments
that: (i) have similar cash flow characteristics with the liabilities
they support; (ii) are diversified (including by types of obligors);
and (iii) are predominantly investment-grade in quality.

Our investment strategy is to maximize, over a sustained period
and within acceptable parameters of risk, investment income and
total investment return through active investment management.
Accordingly, our entire portfolio of fixed maturity securities is
available to be sold in response to: (i) changes in market interest
rates; (ii) changes in relative values of individual securities and
asset sectors; (iii) changes in prepayment risks; (iv) changes in
credit quality outlook for certain securities; (v) liquidity needs;
and (vi) other factors. From time to time, we invest in securities for
trading purposes, although such investments are a relatively small
portion of our total portfolio.

The profitability of many of our products depends on the spread
between the interest earned on investments and the rates credited
on our insurance liabilities. In addition, changes in competition
and other factors, including the level of surrenders and withdrawals,
may limit our ability to adjust or to maintain crediting rates at
levels necessary to avoid narrowing of spreads under certain
market conditions. As of December 31, 2013, approximately
35 percent of our insurance liabilities had interest rates that may
be reset annually; 42 percent had a fixed explicit interest rate
for the duration of the contract; 17 percent had credited rates
which approximate the income earned by the Company; and the
remainder had no explicit interest rates. At December 31, 2013,
the average yield, computed on the cost basis of our fixed maturity
portfolio, was 5.6 percent, and the average interest rate credited or

110

CNO FINANCIAL GROUP, INC. - Form 10-K

accruing to our total insurance liabilities (excluding interest rate
bonuses for the first policy year only and excluding the effect of
credited rates attributable to variable or fixed index products) was
4.5 percent.

We simulate the cash flows expected from our existing insurance
business under various interest rate scenarios. These simulations
help us to measure the potential gain or loss in fair value of our
interest rate-sensitive investments and to manage the relationship
between the interest sensitivity of our assets and liabilities. When
the estimated durations of assets and liabilities are similar, a change
in the value of assets should be largely offset by a change in the
value of liabilities. At December 31, 2013, the adjusted modified
duration of our fixed income securities (as modified to reflect
payments and potential calls) was approximately 8.2 years and the
duration of our insurance liabilities was approximately 8.1 years.
We estimate that our fixed maturity securities and short-term
investments (net of corresponding changes in insurance acquisition
costs) would decline in fair value by approximately $390 million
if interest rates were to increase by 10 percent from their levels at
December 31, 2013. This compares to a decline in fair value of
$230 million based on amounts and rates at December 31, 2012.
Our simulations incorporate numerous assumptions, require
significant estimates and assume an immediate change in interest
rates without any management of the investment portfolio in
reaction to such change. Consequently, potential changes in
value of our financial instruments indicated by the simulations
will likely be different from the actual changes experienced under
given interest rate scenarios, and the differences may be material.
Because we actively manage our investments and liabilities, our
net exposure to interest rates can vary over time.

We are subject to the risk that our investments will decline in value.
This has occurred in the past and may occur again, particularly if
interest rates rise from their current low levels. During 2013, we
recognized net realized investment gains of $33.4 million, which
were comprised of $51.8 million of net gains from the sales of
investments (primarily fixed maturities); the decrease in fair value
of certain fixed maturity investments with embedded derivatives
of $6.8 million; and $11.6 million of writedowns of investments
for other than temporary declines in fair value recognized through
net income. During 2012, we recognized net realized investment
gains of $81.1 million, which were comprised of $98.8 million of
net gains from the sales of investments (primarily fixed maturities);
the increase in fair value of certain fixed maturity investments
with embedded derivatives of $20.1 million; and $37.8 million
of writedowns of investments for other than temporary declines
in fair value recognized through net income. During 2011, we
recognized net realized investment gains of $61.8 million, which
were comprised of $96.4 million of net gains from the sales of
investments (primarily fixed maturities) and $34.6 million of
writedowns of investments for other than temporary declines in

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationsfair value recognized through net income ($39.9 million, prior
to the $5.3 million of impairment losses recognized through
accumulated other comprehensive income).

The Company is subject to risk resulting from fluctuations in
market prices of our equity securities. In general, these investments
have more year-to-year price variability than our fixed maturity
investments. However, returns over longer time frames have been
consistently higher. We manage this risk by limiting our equity
securities to a relatively small portion of our total investments.

Our investment in options backing our equity-linked products
is closely matched with our obligation to fixed index annuity
holders. Fair value changes associated with that investment are
substantially offset by an increase or decrease in the amounts
added to policyholder account balances for fixed index products.

Inflation

Inflation rates may impact the financial statements and operating
results in several areas. Inflation influences interest rates, which
in turn impact the fair value of the investment portfolio and
yields on new investments. Inflation also impacts a portion of our
insurance policy benefits affected by increased medical coverage
costs. Operating expenses, including payrolls, are impacted to a
certain degree by the inflation rate.

IteM 7A. Quantitative and Qualitative Disclosures About

Market Risk.

The information included under the caption “Market-Sensitive Instruments and Risk Management” in Item 7. “Management’s Discussion
and Analysis of Consolidated Financial Condition and Results of Operations” is incorporated herein by reference.

111

PART IIITEM 7A Quantitative and Qualitative Disclosures About Market RiskCNO FINANCIAL GROUP, INC. - Form 10-KIteM 8. Consolidated Financial statements

Index to Consolidated Financial statements

Page
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
Consolidated balance sheet at December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113
Consolidated statement of Operations for the years ended December 31, 2013, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
Consolidated statement of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . .116
Consolidated statement of shareholders’ equity for the years ended December 31, 2013, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
Consolidated statement of Cash Flows for the years ended December 31, 2013, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118
Notes to Consolidated Financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of CNO Financial
Group, Inc.:

In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, comprehensive
income, shareholders’ equity and cash flows present fairly, in all
material respects, the financial position of CNO Financial Group,
Inc. and its subsidiaries at December 31, 2013 and 2012, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 2013 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting
as of December 31, 2013, based on criteria established in Internal
Control - Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for these financial
statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in Management’s
Report on Internal Control Over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on these
financial statements and on the Company’s internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included

obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in
the circumstances. We believe that our audits provide a reasonable
basis for our opinions.

A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors
of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material
effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

/s/PricewaterhouseCoopers LLP

Indianapolis, Indiana

February 24, 2014

112

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsConsolidated Balance Sheet

December 31, 2013 and 2012

(Dollars in millions)
ASSETS
Investments:

Fixed maturities, available for sale, at fair value (amortized cost: 2013 - $21,860.6; 2012 - $21,626.8)
Equity securities at fair value (cost: 2013 - $237.9; 2012 - $167.1)
Mortgage loans
Policy loans
Trading securities
Investments held by variable interest entities
Other invested assets
Total investments

Cash and cash equivalents - unrestricted
Cash and cash equivalents held by variable interest entities
Accrued investment income
Present value of future profits
Deferred acquisition costs
Reinsurance receivables
Income tax assets, net
Assets held in separate accounts
Other assets

TOTAL ASSETS

(CONTINUED ON NEXT PAGE)
The accompanying notes are an integral part of the consolidated financial statements.

2013

2012

23,178.3
249.3
1,729.5
277.0
247.6
1,046.7
423.3
27,151.7
699.0
104.3
286.9
679.3
968.1
3,392.1
1,147.2
10.3
341.7
34,780.6

24,614.1
171.4
1,573.2
272.0
266.2
814.3
248.1
27,959.3
582.5
54.2
286.2
626.0
629.7
2,927.7
716.9
14.9
334.0
34,131.4

113

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KConsolidated Balance Sheet, continued

December 31, 2013 and 2012

(Dollars in millions)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:

Liabilities for insurance products:
Policyholder account balances
Future policy benefits
Liability for policy and contract claims
Unearned and advanced premiums
Liabilities related to separate accounts

Other liabilities
Payable to reinsurer
Investment borrowings
Borrowings related to variable interest entities
Notes payable – direct corporate obligations

Total liabilities

Commitments and Contingencies (Note 7)
Shareholders’ equity:

Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding:
2013 – 220,323,823; 2012 – 221,502,371)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings (accumulated deficit)

Total shareholders’ equity
TOTAL LIAbILITIES AND ShArEhOLDErS’ EqUITy

The accompanying notes are an integral part of the consolidated financial statements.

2013

2012

12,776.4
11,222.5
566.0
300.6
10.3
590.6
590.3
1,900.0
1,012.3
856.4
29,825.4

2.2
4,092.8
731.8
128.4
4,955.2
34,780.6

12,913.1
11,319.4
559.3
282.8
14.9
570.6
—
1,650.8
767.0
1,004.2
29,082.1

2.2
4,174.7
1,197.4
(325.0)
5,049.3
34,131.4

114

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIItem 8 Consolidated Financial StatementsConsolidated Statement of Operations

for the years ended December 31, 2013, 2012 and 2011

(Dollars in millions, except per share data)
Revenues:

Insurance policy income
Net investment income (loss):

General account assets
Policyholder and reinsurer accounts and other special-purpose portfolios

Realized investment gains (losses):

Net realized investment gains, excluding impairment losses
Other-than-temporary impairment losses:

Total other-than-temporary impairment losses
Portion of other-than-temporary impairment losses recognized in accumulated
other comprehensive income
Net impairment losses recognized

Total realized gains
Fee revenue and other income

Total revenues
Benefits and expenses:

Insurance policy benefits
Loss related to reinsurance transaction (see note 2 - “Reinsurance”)
Interest expense
Amortization
Loss on extinguishment of debt
Other operating costs and expenses

Total benefits and expenses

Income before income taxes

Income tax expense:

Tax expense on period income
Valuation allowance for deferred tax assets and other tax items

NET INCOME

Earnings per common share:

Basic:

Weighted average shares outstanding
NET INCOME

Diluted:

Weighted average shares outstanding
NET INCOME

The accompanying notes are an integral part of the consolidated financial statements.

2013

2012

2011

2,744.7

2,755.4

2,690.5

1,405.8
258.2

45.0

(11.6)

—
(11.6)
33.4
34.0
4,476.1

2,839.7
98.4
105.3
296.3
65.4
766.2
4,171.3
304.8

128.3
(301.5)
478.0

1,398.5
87.9

118.9

(37.8)

—
(37.8)
81.1
19.8
4,342.7

2,763.9
—
114.6
289.0
200.2
819.3
4,187.0
155.7

106.2
(171.5)
221.0

1,360.7
(6.6)

96.4

(39.9)

5.3
(34.6)
61.8
18.2
4,124.6

2,699.0
—
114.1
297.4
3.4
704.5
3,818.4
306.2

113.5
(143.0)
335.7

221,628,000
2.16

233,685,000
.95

247,952,000
1.35

232,702,000
2.06

281,427,000
.83

304,081,000
1.15

115

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KConsolidated Statement of Comprehensive Income

2013
478.0

2012
221.0

2011
335.7

(1,627.4)
175.2

1,336.2
(107.1)

1,357.7
(167.1)

774.2

(531.0)

(271.0)

(39.8)

(68.7)

(101.0)

1.6
(716.2)
.8
(715.4)
249.8
(465.6)
12.4

6.5
635.9
.4
636.3
(220.5)
415.8
636.8

5.4
824.0
(.6)
823.4
(294.5)
528.9
864.6

for the years ended December 31, 2013, 2012 and 2011

(Dollars in millions)
Net income
Other comprehensive income, before tax:
Unrealized gains (losses) for the period
Amortization of present value of future profits and deferred acquisition costs
Amount related to premium deficiencies assuming the net unrealized gains
had been realized
Reclassification adjustments:

For net realized investment gains included in net income
For amortization of the present value of future profits and deferred acquisition costs
related to net realized investment gains included in net income

Unrealized gains (losses) on investments
Change related to deferred compensation plan
Other comprehensive income (loss) before tax

Income tax (expense) benefit related to items of accumulated other comprehensive income

Other comprehensive income (loss), net of tax
COMPrEhENSIvE INCOME

The accompanying notes are an integral part of the consolidated financial statements.

116

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIItem 8 Consolidated Financial StatementsConsolidated Statement of Shareholders’ Equity

(Dollars in millions)
Balance, December 31, 2010

Net income
Change in unrealized appreciation (depreciation) of investments
(net of applicable income tax expense of $294.4)
Change in noncredit component of impairment losses
on fixed maturities, available for sale (net of applicable income
tax expense of $.1)
Cost of shares acquired
Stock options, restricted stock and performance units

Balance, December 31, 2011

Net income
Change in unrealized appreciation (depreciation) of investments
(net of applicable income tax expense of $216.1)
Change in noncredit component of impairment losses
on fixed maturities, available for sale (net of applicable income
tax expense of $4.4)
Extinguishment of beneficial conversion feature related to the repurchase
of convertible debentures
Cost of shares acquired
Dividends on common stock
Stock options, restricted stock and performance units

Balance, December 31, 2012

Net income
Change in unrealized appreciation (depreciation) of investments
(net of applicable income tax benefit of $248.7)
Change in noncredit component of impairment losses
on fixed maturities, available for sale (net of applicable income
tax benefit of $1.1)
Extinguishment of beneficial conversion feature related
to the repurchase of convertible debentures
Cost of shares acquired
Dividends on common stock
Conversion of convertible debentures
Stock options, restricted stock and performance units

bALANCE, DECEMbEr 31, 2013

Common stock
and additional
paid-in capital
4,426.7
$
—

Accumulated other
comprehensive
income
252.7
—

retained
earnings
(accumulated
deficit)
(867.8) $
335.7

Total
3,811.6
335.7

—

528.7

—

528.7

—
(69.8)
7.4
4,364.3
—

—

(24.0)
(180.2)
—
16.8
4,176.9
—

—

(12.6)
(118.4)
—
24.9
24.2
4,095.0

.2
—
—
781.6
—

407.8

8.0

—
—
—
—
1,197.4
—

(463.7)

(1.9)

—
—
—
—
—
731.8

—
—
—
(532.1)
221.0

—

—
—
(13.9)
—
(325.0)
478.0

—

—
—
(24.6)
—
—
128.4

.2
(69.8)
7.4
4,613.8
221.0

407.8

8.0

(24.0)
(180.2)
(13.9)
16.8
5,049.3
478.0

(463.7)

(1.9)

(12.6)
(118.4)
(24.6)
24.9
24.2
4,955.2

The accompanying notes are an integral part of the consolidated financial statements.

117

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KConsolidated Statement of Cash Flows

for the years ended December 31, 2013, 2012 and 2011

(Dollars in millions)
Cash flows from operating activities:

Insurance policy income
Net investment income
Fee revenue and other income
Insurance policy benefits
Interest expense
Deferrable policy acquisition costs
Other operating costs
Taxes

NET CASh PrOvIDED by OPErATING ACTIvITIES

Cash flows from investing activities:

Sales of investments
Maturities and redemptions of investments
Purchases of investments
Net sales of trading securities
Change in cash and cash equivalents held by variable interest entities
Other

NET CASh USED by INvESTING ACTIvITIES

Cash flows from financing activities:

Issuance of notes payable, net
Payments on notes payable
Expenses related to extinguishment of debt
Amount paid to extinguish the beneficial conversion feature associated with repurchase
of convertible debentures
Issuance of common stock
Payments to repurchase common stock
Common stock dividends paid
Amounts received for deposit products
Withdrawals from deposit products
Issuance of investment borrowings:

Federal Home Loan Bank
Related to variable interest entities
Payments on investment borrowings:

Federal Home Loan Bank
Related to variable interest entities and other

Investment borrowings - repurchase agreements, net

NET CASh PrOvIDED (USED) by FINANCING ACTIvITIES
Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year
CASh AND CASh EqUIvALENTS, END OF yEAr

The accompanying notes are an integral part of the consolidated financial statements.

2013

2012

2011

2,464.9
1,387.7
34.0
(2,093.8)
(95.9)
(222.8)
(745.7)
(8.0)
720.4

2,315.8
2,491.9
(5,367.1)
30.0
(50.1)
(23.0)
(602.5)

—
(126.9)
(61.6)

(12.6)
15.1
(118.4)
(24.4)
1,298.1
(1,464.4)

500.0
376.3

(250.5)
(132.1)
—
(1.4)
116.5
582.5
699.0

2,419.7
1,385.8
19.8
(2,096.5)
(109.0)
(191.7)
(786.7)
(6.5)
634.9

2,057.6
1,967.4
(4,271.1)
60.4
20.2
(31.6)
(197.1)

944.5
(810.6)
(183.0)

(24.0)
3.1
(180.2)
(13.9)
1,296.7
(1,544.9)

375.0
246.7

(375.0)
(.9)
(24.8)
(291.3)
146.5
436.0
582.5

2,382.8
1,418.6
18.2
(2,044.9)
(95.5)
(216.7)
(684.3)
(3.4)
774.8

5,504.5
1,093.5
(8,156.1)
300.2
(47.6)
(32.5)
(1,338.0)

—
(144.8)
—

—
2.2
(69.8)
—
1,693.5
(1,664.3)

717.0
236.4

(267.0)
(100.7)
24.8
427.3
(135.9)
571.9
436.0

118

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIItem 8 Consolidated Financial StatementsNotes to Consolidated Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

CNO Financial Group, Inc., a Delaware corporation (“CNO”), is
a holding company for a group of insurance companies operating
throughout the United States that develop, market and administer
health insurance, annuity, individual life insurance and other
insurance products. The terms “CNO Financial Group, Inc.”,
“CNO”, the “Company”, “we”, “us”, and “our” as used in these
financial statements refer to CNO and its subsidiaries. Such terms,
when used to describe insurance business and products, refer to the
insurance business and products of CNO’s insurance subsidiaries.

We focus on serving middle-income pre-retiree and retired
Americans, which we believe are attractive, underserved, high
growth markets. We sell our products through three distribution
channels: career agents, independent producers (some of whom sell
one or more of our product lines exclusively) and direct marketing.

life

insurance,

interest-sensitive

• Bankers Life, which markets and distributes Medicare
supplement
insurance,
traditional life insurance, fixed annuities and long-term
care insurance products to the middle-income senior market
through a dedicated field force of career agents and sales
managers supported by a network of community-based
sales offices. The Bankers Life segment includes primarily
the business of Bankers Life and Casualty Company
(“Bankers Life”). Bankers Life also markets and distributes
Medicare Advantage plans primarily through distribution
arrangements with Humana, Inc. and United HealthCare
and Medicare Part D prescription drug plans (“PDP”)
primarily through a distribution arrangement with Coventry
Health Care (“Coventry”).

These products are marketed through Performance Matters
Associates, Inc., a wholly owned subsidiary, and through
independent marketing organizations and insurance agencies
including worksite marketing. The products being marketed
are underwritten by Washington National Insurance Company
(“Washington National”).

• Other CNO Business, which consists of blocks of interest-
sensitive life insurance, traditional life insurance, annuities,
long-term care insurance and other supplemental health
products. These blocks of business are not actively marketed and
were primarily issued or acquired by Conseco Life Insurance
Company (“Conseco Life”) and Washington National.

We prepare our financial statements
in accordance with
accounting principles generally accepted in the United States of
America (“GAAP”).

The accompanying financial statements include the accounts of
the Company and its subsidiaries. Our consolidated financial
statements exclude transactions between us and our consolidated
affiliates, or among our consolidated affiliates.

When we prepare financial statements in conformity with
GAAP, we are required to make estimates and assumptions
that significantly affect reported amounts of various assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses
during the reporting periods. For example, we use significant
estimates and assumptions to calculate values for deferred
acquisition costs, the present value of future profits, fair value
measurements of certain investments (including derivatives), other-
than-temporary impairments of investments, assets and liabilities
related to income taxes, liabilities for insurance products, liabilities
related to litigation and guaranty fund assessment accruals. If our
future experience differs from these estimates and assumptions,
our financial statements would be materially affected.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments

We classify our fixed maturity securities into one of two categories:
(i) “available for sale” (which we carry at estimated fair value with
any unrealized gain or loss, net of tax and related adjustments,

recorded as a component of shareholders’ equity); or (ii) “trading”
(which we carry at estimated fair value with changes in such value
recognized as net investment income (classified as investment
income from policyholder and reinsurer accounts and other
special-purpose portfolios)).

119

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KEquity securities include investments in common stock and
non-redeemable preferred stock. We carry these investments at
estimated fair value. We record any unrealized gain or loss, net of
tax and related adjustments, as a component of shareholders’ equity.

Mortgage loans held in our investment portfolio are carried at
amortized unpaid balances, net of provisions for estimated losses.
Interest income is accrued on the principal amount of the loan
based on the loan’s contractual interest rate. Payment terms
specified for mortgage loans may include a prepayment penalty for
unscheduled payoff of the investment. Prepayment penalties are
recognized as investment income when received.

Policy loans are stated at current unpaid principal balances.

Our trading securities include: (i) investments purchased with
the intent of selling in the near term to generate income; and
(ii) investments supporting certain insurance liabilities (including
investments backing the market strategies of our multibucket
annuity products) and certain reinsurance agreements. The
change in fair value of these securities is recognized in income from
policyholder and reinsurer accounts and other special-purpose
portfolios (a component of net investment income). Investment
income from trading securities backing certain insurance liabilities
and certain reinsurance agreements is substantially offset by the
change in insurance policy benefits related to certain products
and agreements. The trading account also includes certain fixed
maturity securities containing embedded derivatives for which we
have elected the fair value option. The change in value of these
securities is recognized in realized investment gains (losses). Prior
to June 30, 2011, certain of our trading securities were held to offset
the income statement volatility caused by the effect of interest
rate fluctuations on the value of embedded derivatives related
to our fixed index annuity products. During the second quarter
of 2011, we sold this trading portfolio. See the section of this
note entitled “Accounting for Derivatives” for further discussion
regarding these embedded derivatives. The change in value of
these securities is recognized in realized investment gains (losses).
Our trading securities totaled $247.6 million and $266.2 million
at December 31, 2013 and 2012, respectively.

Other invested assets include: (i) call options purchased in an effort
to offset or hedge the effects of certain policyholder benefits
related to our fixed index annuity and life insurance products;
(ii) Company-owned life insurance (“COLI”); and (iii) certain
non-traditional investments. We carry the call options at estimated
fair value as further described in the section of this note entitled
“Accounting for Derivatives”. We carry COLI at its cash surrender
value which approximates its net realizable value. Non-traditional
investments include investments in certain limited partnerships,
which are accounted for using the equity method; promissory notes,
which are accounted for using the cost method; and investments
in certain hedge funds that are carried at estimated fair value. In
applying the equity method of accounting, we consistently use
the most recently available financial information provided by the
general partner or manager of each of these investments, which is
one to three months prior to the end of our reporting period.

We defer any fees received or costs incurred when we originate
investments. We amortize fees, costs, discounts and premiums
as yield adjustments over the contractual lives of the investments

without anticipation of prepayments. We consider anticipated
prepayments on mortgage-backed securities in determining
estimated future yields on such securities.

When we sell a security (other than trading securities), we
report the difference between the sale proceeds and amortized
cost (determined based on specific identification) as a realized
investment gain or loss.

We regularly evaluate our investments for possible impairment
as further described in the note to the consolidated financial
statements entitled “Investments”.

When a security defaults (including mortgage loans) or securities
(other than structured securities) are other-than-temporarily
impaired, our policy is to discontinue the accrual of interest and
eliminate all previous interest accruals, if we determine that such
amounts will not be ultimately realized in full.

Cash and Cash Equivalents

Cash and cash equivalents include commercial paper, invested
cash and other investments purchased with original maturities of
less than three months. We carry them at amortized cost, which
approximates estimated fair value.

Deferred Acquisition Costs

When we realize a gain or loss on investments backing our interest-
sensitive life or annuity products, we adjust the amortization to
reflect the change in estimated gross profits from the products due
to the gain or loss realized and the effect on future investment
yields. We also adjust deferred acquisition costs for the change in
amortization that would have been recorded if our fixed maturity
securities, available for sale, had been sold at their stated aggregate
fair value and the proceeds reinvested at current yields. We limit
the total adjustment related to the impact of unrealized losses
to the total of costs capitalized plus interest related to insurance
policies issued in a particular year. We include the impact of this
adjustment in accumulated other comprehensive income (loss)
within shareholders’ equity.

We regularly evaluate the recoverability of the unamortized
balance of the deferred acquisition costs. We consider estimated
future gross profits or future premiums, expected mortality or
morbidity, interest earned and credited rates, persistency and
expenses in determining whether the balance is recoverable.
If we determine a portion of the unamortized balance is not
recoverable, it is charged to amortization expense. In certain cases,
the unamortized balance of the deferred acquisition costs may not
be deficient in the aggregate, but our estimates of future earnings
indicate that profits would be recognized in early periods and losses
in later periods. In this case, we increase the amortization of the

120

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIItem 8 Consolidated Financial Statementsdeferred acquisition costs over the period of profits, by an amount
necessary to offset losses that are expected to be recognized in the
later years.

Refer to the caption “Recently Issued Accounting Standards -
Accounting Standard Adopted on a Retrospective Basis” for further
information regarding the impact of adoption.

Present Value of Future Profits

The present value of future profits is the value assigned to the right
to receive future cash flows from policyholder insurance contracts
existing at September 10, 2003 (the “Effective Date”, the effective
date of the bankruptcy reorganization of Conseco, Inc., an Indiana
corporation (our “Predecessor”)). The discount rate we used to
determine the present value of future profits was 12 percent. The
balance of this account is amortized and evaluated for recovery in
the same manner as described above for deferred acquisition costs.
We also adjust the present value of future profits for the change in
amortization that would have been recorded if the fixed maturity
securities, available for sale, had been sold at their stated aggregate
fair value and the proceeds reinvested at current yields, similar
to the manner described above for deferred acquisition costs. We
limit the total adjustment related to the impact of unrealized losses
to the total present value of future profits plus interest.

Assets Held in Separate Accounts

Separate accounts are funds on which investment income and
gains or losses accrue directly to certain policyholders. The assets
of these accounts are legally segregated. They are not subject to the
claims that may arise out of any other business of CNO. We report
separate account assets at fair value; the underlying investment risks
are assumed by the contractholders. We record the related liabilities
at amounts equal to the separate account assets. We record the fees
earned for administrative and contractholder services performed
for the separate accounts in insurance policy income.

Recognition of Insurance Policy Income and
Related Benefits and Expenses on Insurance
Contracts

For interest-sensitive life and annuity contracts that do not involve
significant mortality or morbidity risk, the amounts collected
from policyholders are considered deposits and are not included in
revenue. Revenues for these contracts consist of charges for policy
administration, cost of insurance charges and surrender charges
assessed against policyholders’ account balances. Such revenues
are recognized when the service or coverage is provided, or when
the policy is surrendered.

We establish liabilities for annuity and interest-sensitive life
products equal to the accumulated policy account values, which
include an accumulation of deposit payments plus credited interest,
less withdrawals and the amounts assessed against the policyholder
through the end of the period. In addition, policyholder account
values for certain interest-sensitive life products are impacted by
our assumptions related to changes of certain non-guaranteed
elements that we are allowed to make under the terms of the policy,

such as cost of insurance charges, expense loads, credited interest
rates and policyholder bonuses. Sales inducements provided to
the policyholders of these products are recognized as liabilities
over the period that the contract must remain in force to qualify
for the inducement. The options attributed to the policyholder
related to our fixed index annuity products are accounted for
as embedded derivatives as described in the section of this note
entitled “Accounting for Derivatives”.

Premiums from individual life products (other than interest-
sensitive life contracts), and health products are recognized
when due. When premiums are due over a significantly shorter
period than the period over which benefits are provided, any
gross premium in excess of the net premium (i.e., the portion
of the gross premium required to provide for all expected future
benefits and expenses) is deferred and recognized into revenue in
a constant relationship to insurance in force. Benefits are recorded
as an expense when they are incurred.

We establish liabilities for traditional life, accident and health
insurance, and life contingent payment annuity products
using mortality tables in general use in the United States,
which are modified to reflect the Company’s actual experience
when appropriate. We establish liabilities for accident and
health insurance products using morbidity tables based on the
Company’s actual or expected experience. These reserves are
computed at amounts that, with additions from estimated
future premiums received and with interest on such reserves at
estimated future rates, are expected to be sufficient to meet our
obligations under the terms of the policy. Liabilities for future
policy benefits are computed on a net-level premium method
based upon assumptions as to future claim costs, investment
yields, mortality, morbidity, withdrawals, policy dividends and
maintenance expenses determined when the policies were issued
(or with respect to policies inforce at August 31, 2003, the
Company’s best estimate of such assumptions on the Effective
Date). We make an additional provision to allow for potential
adverse deviation for some of our assumptions. Once established,
assumptions on these products are generally not changed unless
a premium deficiency exists. In that case, a premium deficiency
reserve is recognized and the future pattern of reserve changes is
modified to reflect the relationship of premiums to benefits based
on the current best estimate of future claim costs, investment
yields, mortality, morbidity, withdrawals, policy dividends
and maintenance expenses, determined without an additional
provision for potential adverse deviation.

We establish claim reserves based on our estimate of the loss to
be incurred on reported claims plus estimates of incurred but
unreported claims based on our past experience.

Accounting for Long-term Care Premium Rate
Increases

121

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Kbenefits. In addition, our policyholders could choose to reduce
their coverage amounts and premiums in the same proportion,
when permitted by our contracts or as required by regulators. The
following describes how we account for these policyholder options:

• Premium rate increases - If premium rate increases reflect a
change in our previous rate increase assumptions, the new
assumptions are not reflected prospectively in our reserves.
Instead, the additional premium revenue resulting from the
rate increase is recognized as earned and original assumptions
continue to be used to determine changes to liabilities for
insurance products unless a premium deficiency exists.

• Benefit reductions - A policyholder may choose reduced
coverage with a proportionate reduction in premium, when
permitted by our contracts. This option does not require
additional underwriting. Benefit reductions are treated as a
partial lapse of coverage, and the balance of our reserves and
deferred insurance acquisition costs is reduced in proportion
to the reduced coverage.

Accounting for Marketing and Reinsurance
Agreements with Other Parties

• We also pay commissions to our agents who sell the plans.
These payments are deferred and amortized over the term of
the contract.

Prior to its termination in August 2013, we had a quota-share
reinsurance agreement with an insurance company that provided
Bankers Life with 50 percent of the net premiums and related
policy benefits of certain PDP business sold through Bankers Life’s
career agency force. We accounted for the quota-share agreement
as follows:

• We recognized premium revenue evenly over the period of the

underlying Medicare Part D contracts.

• We recognized policyholder benefits and assumed commission

expense as incurred.

• We recognized risk-share premium adjustments consistent
with Coventry’s risk-share agreement with the Centers for
Medicare and Medicaid Services.

Reinsurance

In the normal course of business, we seek to limit our loss exposure
on any single insured or to certain groups of policies by ceding
reinsurance to other insurance enterprises. We currently retain
no more than $.8 million of mortality risk on any one policy.
We diversify the risk of reinsurance loss by using a number of
reinsurers that have strong claims-paying ratings. In each case, the
ceding CNO subsidiary is directly liable for claims reinsured in
the event the assuming company is unable to pay.

The cost of reinsurance on life and health coverages is recognized
over the life of the reinsured policies using assumptions consistent
with those used to account for the underlying policy. The cost
of reinsurance ceded totaled $212.1 million, $220.0 million
and $238.1 million in 2013, 2012 and 2011, respectively. We
deduct this cost from insurance policy income. Reinsurance
recoveries netted against insurance policy benefits totaled
$196.2 million, $210.2 million and $204.9 million in 2013, 2012
and 2011, respectively.

From time-to-time, we assume insurance from other companies.
Any costs associated with the assumption of insurance are
amortized consistent with the method used to amortize deferred
acquisition costs described above. Reinsurance premiums
assumed totaled $37.4 million, $69.4 million and $80.4 million
in 2013, 2012 and 2011, respectively. Reinsurance premiums
included amounts assumed pursuant to marketing and quota-
share agreements with Coventry of $19.7 million, $49.9 million
and $58.1 million in 2013, 2012 and 2011, respectively. As
further described above, we received a notice of Coventry’s intent
to terminate the PDP quota-share reinsurance agreement in
August 2013.

In December 2013, two of our insurance subsidiaries with long-
term care business in the Other CNO Business segment entered
into 100% coinsurance agreements ceding $495 million of long-
term care reserves to Beechwood Re Ltd. (“BRe”). Pursuant to
the agreements, the insurance subsidiaries will pay an additional
premium of $96.9 million to BRe and an amount equal to the
related net liabilities. The insurance subsidiaries’ ceded reserve
credits will be secured by assets in market-value trusts subject
investment guidelines and
to a 7% over-collateralization,
periodic true-up provisions. Future payments into the trusts to

122

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIItem 8 Consolidated Financial Statementsmaintain collateral requirements are the responsibility of BRe.
All required regulatory approvals for the transaction have been
received. We evaluate this block separately to determine whether
aggregate liabilities are deficient. We recognized a pre-tax loss of
$98.4 million to reflect: (i) the known loss (or premium deficiency)
on the business, as we will not be recognizing additional income
in future periods to recover the unamortized additional premium
which will be paid to BRe; and (ii) other transaction costs.

See the section of this note entitled “Accounting for Derivatives”
for a discussion of the derivative embedded in the payable related
to certain modified coinsurance agreements.

Income Taxes

Our income tax expense includes deferred income taxes arising
from temporary differences between the financial reporting and
tax bases of assets and liabilities, capital loss carryforwards and
net operating loss carryforwards (“NOLs”). Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply in the years in which temporary differences are expected to
be recovered or paid. The effect of a change in tax rates on deferred
tax assets and liabilities is recognized in earnings in the period
when the changes are enacted.

A reduction of the net carrying amount of deferred tax assets by
establishing a valuation allowance is required if, based on the
available evidence, it is more likely than not that such assets will
not be realized. In assessing the need for a valuation allowance, all
available evidence, both positive and negative, shall be considered
to determine whether, based on the weight of that evidence,
a valuation allowance for deferred tax assets is needed. This
assessment requires significant judgment and considers, among
other matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the duration
of carryforward periods, our experience with operating loss and
tax credit carryforwards expiring unused, and tax planning
strategies. We evaluate the need to establish a valuation allowance
for our deferred tax assets on an ongoing basis. The realization
of our deferred tax assets depends upon generating sufficient
future taxable income during the periods in which our temporary
differences become deductible and before our capital loss
carryforwards and NOLs expire.

At December 31, 2013, our valuation allowance for our net deferred
tax assets was $294.8 million, as we have determined that it is
more likely than not that a portion of our deferred tax assets will
not be realized. This determination was made by evaluating each
component of the deferred tax assets and assessing the effects of
limitations and/or interpretations on the value of such component
to be fully recognized in the future.

Investments in Variable Interest Entities

We have concluded that we are the primary beneficiary with
respect to certain variable interest entities (“VIEs”), which are
consolidated in our financial statements. The following is a
description of our significant investments in VIEs:

All of the VIEs are collateralized loan trusts that were established
to issue securities to finance the purchase of corporate loans and
other permitted investments (including new VIEs which were
consolidated in the first quarters of 2013 and 2012). The assets
held by the trusts are legally isolated and not available to the
Company. The liabilities of the VIEs are expected to be satisfied
from the cash flows generated by the underlying investments held
by the trusts, not from the assets of the Company. The Company
has no further commitments to the VIEs.

The investment portfolios held by the VIEs are primarily
comprised of commercial bank loans to corporate obligors which
are almost entirely rated below-investment grade. Refer to the note
to the consolidated financial statements entitled “Investments in
Variable Interest Entities” for additional information about VIEs.

Investment Borrowings

Three of the Company’s insurance subsidiaries (Conseco Life,
Washington National and Bankers Life) are members of the
Federal Home Loan Bank (“FHLB”). As members of the FHLB,
Conseco Life, Washington National and Bankers Life have
the ability to borrow on a collateralized basis from the FHLB.
Conseco Life, Washington National and Bankers Life are required
to hold certain minimum amounts of FHLB common stock as a
condition of membership in the FHLB, and additional amounts
based on the amount of the borrowings. At December 31, 2013, the
carrying value of the FHLB common stock was $93.5 million. As
of December 31, 2013, collateralized borrowings from the FHLB
totaled $1.9 billion and the proceeds were used to purchase fixed
maturity securities. The borrowings are classified as investment
borrowings in the accompanying consolidated balance sheet. The
borrowings are collateralized by investments with an estimated fair
value of $2.4 billion at December 31, 2013, which are maintained
in a custodial account for the benefit of the FHLB. Substantially
all of such investments are classified as fixed maturities, available
for sale, in our consolidated balance sheet. Interest expense of
$27.9 million, $28.0 million and $25.7 million in 2013, 2012 and
2011, respectively, was recognized related to the borrowings.

123

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe following summarizes the terms of the borrowings (dollars
in millions):

Amount
borrowed
$

Interest rate at
December 31, 2013
Fixed rate – 1.830%
Variable rate – 0.538%
Variable rate – 0.517%
Variable rate – 0.318%
Fixed rate – 5.300%
Fixed rate – 4.710%
Variable rate – 0.605%
Variable rate – 0.407%
Variable rate – 0.426%
Variable rate – 0.511%
Variable rate – 0.635%
Variable rate – 0.598%
Fixed rate – 3.900%
Variable rate – 0.441%
Variable rate – 0.388%
Variable rate – 0.674%
Fixed rate – 3.750%
Variable rate – 0.747%
Variable rate – 0.596%
Variable rate – 0.579%
Variable rate – 0.548%
Variable rate – 0.567%
Variable rate – 0.617%
Variable rate – 0.708%
Variable rate – 0.361%
Fixed rate – 1.960%
Fixed rate – 2.160%
Fixed rate – 2.940%

67.0
50.0
150.0
100.0
146.0
100.0
100.0
75.0
100.0
50.0
50.0
57.7
100.0
50.0
75.0
100.0
37.0
50.0
50.0
50.0
50.0
22.0
100.0
50.0
50.0
21.8
27.5
20.5
1,899.5

The variable rate borrowings are pre-payable on each interest
reset date without penalty. The fixed rate borrowings are pre-
payable subject to payment of a yield maintenance fee based on
current market interest rates. At December 31, 2013, the aggregate
yield maintenance fee to prepay all fixed rate borrowings was
$48.5 million.

The primary risks associated with short-term collateralized
borrowings are: (i) a substantial decline in the market value of the
margined security; and (ii) that a counterparty may be unable to
perform under the terms of the contract or be unwilling to extend
such financing in future periods especially if the liquidity or value
of the margined security has declined. Exposure is limited to any
depreciation in value of the related securities.

124

CNO FINANCIAL GROUP, INC. - Form 10-K

At December 31, 2013, investment borrowings consisted of:
(i) collateralized borrowings from the FHLB of $1.9 billion; and
(ii) other borrowings of $.5 million.

At December 31, 2012, investment borrowings consisted of:
(i) collateralized borrowings from the FHLB of $1.7 billion; and
(ii) other borrowings of $.8 million.

Accounting for Derivatives

Our fixed index annuity products provide a guaranteed minimum
rate of return and a higher potential return that is based on a
percentage (the “participation rate”) of the amount of increase
in the value of a particular index, such as the Standard & Poor’s
500 Index, over a specified period. Typically, on each policy
anniversary date, a new index period begins. We are generally able
to change the participation rate at the beginning of each index
period during a policy year, subject to contractual minimums. We
typically buy call options (including call spreads) referenced to the
applicable indices in an effort to offset or hedge potential increases
to policyholder benefits resulting from increases in the particular
index to which the policy’s return is linked. We reflect changes
in the estimated fair value of these options in net investment
income (classified as investment income from policyholder and
reinsurer accounts and other special-purpose portfolios). Net
investment gains (losses) related to fixed index products were
$177.5 million, $25.5 million and $(21.2) million in 2013, 2012
and 2011, respectively. These amounts were substantially offset
by a corresponding change to insurance policy benefits. The
estimated fair value of these options was $156.2 million and
$54.4 million at December 31, 2013 and 2012, respectively. We
classify these instruments as other invested assets.

The Company accounts for the options attributed to the
policyholder for the estimated life of the annuity contract as
embedded derivatives. The Company purchases options to hedge
liabilities for the next policy period approximately on each policy
anniversary date and must estimate the fair value of the forward
embedded options related to the policies. These accounting
requirements often create volatility in the earnings from these
products. We record the changes in the fair values of the embedded
derivatives in earnings as a component of insurance policy
benefits. The fair value of these derivatives, which are classified
as “liabilities for interest-sensitive products”, was $903.7 million
and $734.0 million at December 31, 2013 and 2012, respectively.
Prior to June 30, 2011, we maintained a specific block of
investments in our trading securities account (which we carried
at estimated fair value with changes in such value recognized as
investment income from policyholder and reinsurer accounts and
other special-purpose portfolios) to offset the income statement
volatility caused by the effect of interest rate fluctuations on the
value of embedded derivatives related to our fixed index annuity
products. During the second quarter of 2011, we sold this trading
portfolio. We recognized an increase (decrease) to earnings of
$35.4 million, $(2.8) million and $(20.4) million in 2013, 2012
and 2011, respectively, from the volatility caused by the accounting
requirements to record embedded options at fair value.

If the counterparties for the call options we hold fail to meet their
obligations, we may have to recognize a loss. We limit our exposure
to such a loss by diversifying among several counterparties

PART IIItem 8 Consolidated Financial Statementsbelieved to be strong and creditworthy. At December 31, 2013,
substantially all of our counterparties were rated “BBB+” or higher
by Standard & Poor’s Corporation (“S&P”).

Certain of our reinsurance payable balances contain embedded
derivatives. Such derivatives had an estimated fair value of
$1.8 million and $5.5 million at December 31, 2013 and 2012,
respectively. We record the change in the fair value of these
derivatives as a component of investment income (classified as
investment income from policyholder and reinsurer accounts and
other special-purpose portfolios). We maintain the investments
related to these agreements in our trading securities account,
which we carry at estimated fair value with changes in such value
recognized as investment income (also classified as investment
income from policyholder and reinsurer accounts and other
special-purpose portfolios). The change in value of these trading
securities offsets the change in value of the embedded derivatives.

We purchase certain fixed maturity securities that contain
embedded derivatives that are required to be bifurcated from the
instrument and held at fair value on the consolidated balance
sheet. For certain of these securities, we have elected the fair value
option to carry the entire security at fair value with changes in fair
value reported in net income for operational ease. Such securities
totaled $180.6 million and $196.6 million at December 31, 2013
and 2012, respectively.

Multibucket Annuity Product

The Company’s multibucket annuity is an annuity product that
credits interest based on the experience of a particular market
strategy. Policyholders allocate their annuity premium payments
to several different market strategies based on different asset
classes within the Company’s investment portfolio. Interest is
credited to this product based on the market return of the given
strategy, less management fees, and funds may be moved between
different strategies. The Company guarantees a minimum return
of premium plus approximately 3 percent per annum over the life
of the contract. The investments backing the market strategies of
these products are designated by the Company as trading securities.
The change in the fair value of these securities is recognized as
investment income (classified as income from policyholder and
reinsurer accounts and other special-purpose portfolios), which
is substantially offset by the change in insurance policy benefits
for these products. We hold insurance liabilities of $45.8 million
and $47.8 million related to multibucket annuity products as of
December 31, 2013 and 2012, respectively.

Fair Value Measurements

addition, we disclose fair value for certain financial instruments,
including mortgage loans and policy loans, insurance liabilities for
interest-sensitive products, investment borrowings, notes payable
and borrowings related to VIEs.

Valuation Hierarchy

There is a three-level hierarchy for valuing assets or liabilities at
fair value based on whether inputs are observable or unobservable.

125

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Kwhich includes embedded derivatives (including embedded
derivatives related to our fixed index annuity products and to
a modified coinsurance arrangement) since their values include
significant unobservable inputs including actuarial assumptions.

which may not be reflective of an active market. For certain
investments, we use a matrix or model process to develop a
security price where future cash flow expectations are discounted
at an estimated market rate. The pricing matrix incorporates term
interest rates as well as a spread level based on the issuer’s credit
rating and other factors relating to the issuer and the security’s
maturity. In some instances issuer-specific spread adjustments,
which can be positive or negative, are made based upon internal
analysis of security specifics such as liquidity, deal size, and time
to maturity.

As the Company is responsible for the determination of fair value,
we have control processes designed to ensure that the fair values
received from third-party pricing sources are reasonable and the
valuation techniques and assumptions used appear reasonable
and consistent with prevailing market conditions. Additionally,
when inputs are provided by third-party pricing sources, we have
controls in place to review those inputs for reasonableness. As part
of these controls, we perform monthly quantitative and qualitative
analysis on the prices received from third parties to determine
whether the prices are reasonable estimates of fair value. The
Company’s analysis includes: (i) a review of the methodology used
by third party pricing services; (ii) where available, a comparison
of multiple pricing services’ valuations for the same security;
(iii) a review of month to month price fluctuations; (iv) a review to
ensure valuations are not unreasonably dated; and (v) back testing
to compare actual purchase and sale transactions with valuations
received from third parties. As a result of such procedures, the
Company may conclude the prices received from third parties are
not reflective of current market conditions. In those instances, we
may request additional pricing quotes or apply internally developed
valuations. However, the number of instances is insignificant and
the aggregate change in value of such investments is not materially
different from the original prices received.

The categorization of the fair value measurements of our
investments priced by independent pricing services was based
upon the Company’s judgment of the inputs or methodologies
used by the independent pricing services to value different asset
classes. Such inputs include: benchmark yields, reported trades,
broker dealer quotes, issuer spreads, benchmark securities, bids,
offers and reference data. The Company categorizes such fair
value measurements based upon asset classes and the underlying
observable or unobservable inputs used to value such investments.

126

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIItem 8 Consolidated Financial StatementsThe categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at
December 31, 2013 is as follows (dollars in millions):

quoted prices in active
markets for identical
assets or liabilities
(Level 1)

Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total

— $

15,313.8

359.6

$ 15,673.4

ASSETS:

Fixed maturities, available for sale:

Corporate securities
United States Treasury securities and obligations of United States
government corporations and agencies
States and political subdivisions
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations

Total fixed maturities, available for sale

Equity securities - corporate securities
Trading securities:

Corporate securities
United States Treasury securities and obligations of United States
government corporations and agencies
States and political subdivisions
Asset-backed securities
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations
Equity securities

Total trading securities

Investments held by variable interest entities - corporate securities
Other invested assets - derivatives
Assets held in separate accounts

TOTAL ASSETS CArrIED AT FAIr vALUE by CATEGOry
LIABILITIES:

Liabilities for insurance products:

Interest-sensitive products - embedded derivatives associated with
fixed index annuity products
Interest-sensitive products - embedded derivatives associated with
modified coinsurance agreement
Total liabilities for insurance products

TOTAL LIAbILITIES CArrIED AT FAIr vALUE by CATEGOry

—
—
—
—
—
—
—
—
79.6

—

—
—
—
—
—
—
2.4
2.4
—
.6
—
82.6

73.1
2,204.4
1,419.9
47.3
1,609.0
11.8
1,848.9
22,528.2
145.2

—
—
42.2
246.7
—
1.6
—
650.1
24.5

73.1
2,204.4
1,462.1
294.0
1,609.0
13.4
1,848.9
23,178.3
249.3

45.2

—

45.2

4.6
14.1
24.3
125.8
.1
31.1
—
245.2
1,046.7
156.2
10.3
24,131.8

—
—
—
—
—
—
—
—
—
—
—
674.6

4.6
14.1
24.3
125.8
.1
31.1
2.4
247.6
1,046.7
156.8
10.3
$ 24,889.0

—

—
—
— $

—

903.7

—
—
— $

1.8
905.5
905.5

127

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at
December 31, 2012 is as follows (dollars in millions):

quoted prices in active
markets for identical
assets or liabilities
(Level 1)

Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total

— $

16,498.6

355.5 $

16,854.1

ASSETS:

Fixed maturities, available for sale:

Corporate securities
United States Treasury securities and obligations of United States
government corporations and agencies
States and political subdivisions
Debt securities issued by foreign governments
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations

Total fixed maturities, available for sale

Equity securities:

Corporate securities
Venture capital investments
Total equity securities

Trading securities:

Corporate securities
United States Treasury securities and obligations of United States
government corporations and agencies
States and political subdivisions
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations
Equity securities

Total trading securities

Investments held by variable interest entities - corporate securities
Other invested assets - derivatives
Assets held in separate accounts

TOTAL ASSETS CArrIED AT FAIr vALUE by CATEGOry
LIABILITIES:

Liabilities for insurance products:

Interest-sensitive products - embedded derivatives associated with
fixed index annuity products
Interest-sensitive products - embedded derivatives associated with
modified coinsurance agreement
Total liabilities for insurance products

TOTAL LIAbILITIES CArrIED AT FAIr vALUE by CATEGOry

128

CNO FINANCIAL GROUP, INC. - Form 10-K

—
—
—
—
—
—
—
—
—

49.7
—
49.7

—

—
—
—
—
—
—
—
.9
.9
—
—
—
50.6

99.5
2,115.0
.8
1,416.9
—
1,471.2
19.9
2,230.6
23,852.5

118.8
—
118.8

46.6

4.8
14.0
50.1
—
93.3
.1
41.2
1.5
251.6
814.3
54.4
14.9
25,106.5

—
13.1
—
44.0
324.0
6.2
1.9
16.9
761.6

.1
2.8
2.9

—

99.5
2,128.1
.8
1,460.9
324.0
1,477.4
21.8
2,247.5
24,614.1

168.6
2.8
171.4

46.6

—
.6
—
7.3
—
—
5.8
—
13.7
—
—
—

4.8
14.6
50.1
7.3
93.3
.1
47.0
2.4
266.2
814.3
54.4
14.9
778.2 $ 25,935.3

—

—
—
— $

—

734.0

—
—
— $

5.5
739.5
739.5 $

5.5
739.5
739.5

PART IIItem 8 Consolidated Financial StatementsFor those financial instruments disclosed at fair value, we use the
following methods and assumptions to determine the estimated
fair values:

Mortgage loans and policy loans. We discount future expected cash
flows for loans included in our investment portfolio based on
interest rates currently being offered for similar loans to borrowers
with similar credit ratings. We aggregate loans with similar
characteristics in our calculations. The fair value of policy loans
approximates their carrying value.

Company-owned life insurance is backed by a series of mutual
funds and is carried at cash surrender value which approximates
estimated fair value.

Hedge fund investments are carried at their net asset values which
approximates estimated fair value.

Liabilities for policyholder account balances. We discount future
expected cash flows based on interest rates currently being offered
for similar contracts with similar maturities.

Investment borrowings, notes payable and borrowings related to
variable interest entities. For publicly traded debt, we use current
fair values. For other notes, we use discounted cash flow analyses
based on our current incremental borrowing rates for similar types
of borrowing arrangements.

The fair value measurements for our financial instruments disclosed at fair value on a recurring basis are as follows (dollars in millions):

December 31, 2013

quoted prices in active
markets for identical
assets or liabilities
(Level 1)

Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
estimated
fair value

Total
carrying
amount

Assets:

Mortgage loans
Policy loans
Other invested assets:
Company-owned life insurance
Hedge funds
Cash and cash equivalents:
Unrestricted
Held by variable interest entities

Liabilities:

Policyholder account balances(a)
Investment borrowings
Borrowings related to variable interest entities
Notes payable – direct corporate obligations

Assets:

Mortgage loans
Policy loans
Other invested assets:

Company-owned life insurance
Hedge funds

Cash and cash equivalents:

Unrestricted
Held by variable interest entities

Liabilities:

Policyholder account balances(a)
Investment borrowings
Borrowings related to variable interest entities
Notes payable – direct corporate obligations

— $
—

1,749.5 $ 1,749.5 $ 1,729.5
277.0

277.0

—
—

457.8
104.3

—
—
—
—

144.8
67.6

241.2
—

—
1,948.5
993.7
872.5

—
—

144.8
67.6

699.0
104.3

144.8
67.6

699.0
104.3

12,776.4
—
—
—

12,776.4 12,776.4
1,900.0
1,948.5
1,012.3
993.7
856.4
872.5

December 31, 2012

quoted prices in active
markets for identical
assets or liabilities
(Level 1)

Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
estimated
fair value

Total
carrying
amount

— $
—

1,682.1 $ 1,682.1 $ 1,573.2
272.0

272.0

—
—

432.3
54.2

—
—
—
—

123.0
16.1

150.2
—

—
1,702.0
752.2
1,100.3

—
—

123.0
16.1

582.5
54.2

123.0
16.1

582.5
54.2

12,913.1
—
—
—

12,913.1 12,913.1
1,650.8
1,702.0
767.0
752.2
1,004.2
1,100.3

(a) The estimated fair value of insurance liabilities for policyholder account balances was approximately equal to its carrying value at December 31, 2013 and 2012. This
was because interest rates credited on the vast majority of account balances approximate current rates paid on similar products and because these rates are not generally
guaranteed beyond one year.

129

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which we
have utilized significant unobservable (Level 3) inputs to determine fair value for the year ended December 31, 2013 (dollars in millions):

December 31, 2013

Total
realized and
unrealized
gains
(losses)
included in
net income

Total realized
and unrealized
gains (losses)
included in
accumulated
other
comprehensive
income (loss)

beginning
balance as of
December 31,
2012

Purchases,
sales,
issuances and
settlements,
net (b)

Transfers
into
Level 3

Transfers
out of
Level 3 (a)

Ending
balance as of
December 31,
2013

Amount of total gains
(losses) for the year
ended December 31,
2013 included in our
net income relating to
assets and liabilities
still held as of the
reporting date

ASSETS:

Fixed maturities,
available for sale:.

Corporate securities
States and political
subdivisions
Asset-backed securities
Collateralized debt
obligations
Commercial
mortgage-backed
securities
Mortgage pass-
through securities
Collateralized
mortgage obligations

Total fixed
maturities, available
for sale

Equity securities:

Corporate securities
Venture capital
investments

Total equity
securities

Trading securities:

States and political
subdivisions
Collateralized debt
obligations
Collateralized
mortgage obligations

Total trading
securities
LIABILITIES:

Liabilities for insurance
products:

Interest-sensitive
products - embedded
derivatives associated
with fixed index
annuity products
Interest-sensitive
products - embedded
derivatives associated
with modified
coinsurance agreement
Total liabilities for
insurance products

355.5 $

34.0 $

(.3) $

(9.8) $

13.2 $

(33.0) $

359.6 $

13.1
44.0

—
1.6

324.0

(85.4)

6.2

1.9

16.9

—

(.3)

—

761.6

(50.1)

2.8

2.9

7.3

5.8

13.7

24.5

—

24.5

—

(7.7)

—

(7.7)

—
.1

—

(2.5)

—

—
(3.6)

7.9

—

—
.1

—

(13.1)
—

—
42.2

—

246.7

(6.2)

—

(16.9)

—

1.6

—

(5.5)

13.3

(69.2)

650.1

(.1)

(.3)

(.4)

—

(.2)

—

(.2)

—

(.6)

—

(5.8)

(6.4)

24.5

—

24.5

—

—
—

—

(.2)

—

(.2)

(734.0)

(219.0)

49.3

—

(903.7)

49.3

(5.5)

3.7

(739.5)

(215.3)

—

49.3

—

(1.8)

(905.5)

—

49.3

(a) For our fixed maturity securities, the majority of our transfers out of Level 3 are the result of obtaining a valuation from an independent pricing service which utilized

observable inputs at the end of the period, whereas a broker quote was used as of the beginning of the period.

130

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIItem 8 Consolidated Financial Statements(b) Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not
represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and
equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing
contracts. The following summarizes such activity for the year ended December 31, 2013 (dollars in millions):

Purchases

Sales

Issuances Settlements

Purchases, sales, issuances
and settlements, net

ASSETS:

Fixed maturities, available for sale:

Corporate securities
Asset-backed securities
Collateralized debt obligations
Mortgage pass-through securities

Total fixed maturities, available for sale

Equity securities - corporate securities
Trading securities - collateralized debt obligations

LIABILITIES:

Liabilities for insurance products:

44.0
22.0
6.0
—
72.0
24.5
—

(10.0) $
(20.4)
(91.4)
(.3)
(122.1)
—
(7.7)

— $
—
—
—
—
—
—

Interest-sensitive products - embedded derivatives associated
with fixed index annuity products
Interest-sensitive products - embedded derivatives associated
with modified coinsurance agreement

Total liabilities for insurance products

(105.6)

—
(105.6)

1.4

3.7
5.1

(156.3)

—
(156.3)

41.5

—
41.5

34.0
1.6
(85.4)
(.3)
(50.1)
24.5
(7.7)

(219.0)

3.7
(215.3)

131

December 31, 2012

Total
realized and
unrealized
gains
(losses)
included in
net income

Total realized
and unrealized
gains (losses)
included in
accumulated
other
comprehensive
income (loss)

Beginning
balance as of
December 31,
2011(a)

Purchases,
sales,
issuances and
settlements,
net(c)

Transfers
into
Level 3

Transfers
out of
Level 3(b)

Ending
balance as of
December 31,
2012

Amount of total gains
(losses) for the year
ended December 31,
2012 included in our
net income relating to
assets and liabilities
still held as of the
reporting date

278.1 $

88.1 $

(.2) $

9.9 $

68.6 $

(89.0) $

355.5 $

AsseTs:

Fixed maturities, available
for sale:

Corporate securities
United states Treasury
securities and obligations of
United states government
corporations and agencies
states and political
subdivisions
Asset-backed securities
Collateralized debt
obligations
Commercial mortgage-
backed securities
Mortgage pass-through
securities
Collateralized mortgage
obligations

Total fixed maturities,
available for sale

equity securities:

Corporate securities
Venture capital investments
Total equity securities

Trading securities:

states and political
subdivisions
Collateralized debt
obligations
Commercial mortgage-
backed securities
Collateralized mortgage
obligations

Total trading securities

LiAbiLiTies:

Liabilities for insurance
products:

interest-sensitive products
- embedded derivatives
associated with fixed index
annuity products
interest-sensitive products
- embedded derivatives
associated with modified
coinsurance agreement
Total liabilities for
insurance products

—

—
—

—

(3.8)
—
(3.8)

—

1.3
1.8

1.6

2.1
79.7

327.3

17.3

2.2

124.8

833.1

6.4
63.5
69.9

—

—
.4

(1.6)

(1.8)
15.2

(24.8)

(2.5)

(.3)

72.5

(3.2)
(34.3)
(37.5)

—

6.9

—

4.5
11.4

(3.8)
(26.0)
(29.8)

—

1.3
1.8

(666.3)

(52.5)

(15.2)

(3.5)

(2.0)

—

(669.8)

(54.5)

(15.2)

—

—
(.3)

—

.9
6.3

21.5

—

(.1)

—

11.9
.5

—

5.7

—

5.0

—

—
(57.4)

—

13.1
44.0

—

324.0

(15.1)

—

(113.0)

(.5)

39.3

91.7

(274.5)

6.2

1.9

16.9

761.6

.1
2.8
2.9

7.3

—

5.8
13.7

.7
(.4)
.3

—

—
—

—

—
—
—

—

—
.5

—

—
—
—

—

(.4)

—
(.4)

—

(734.0)

(15.2)

(5.5)

(739.5)

—

(15.2)

132

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which we

have utilized significant unobservable (Level 3) inputs to determine fair value for the year ended December 31, 2012 (dollars in millions):

December 31, 2012

Total realized

Total

and unrealized

realized and

gains (losses)

Purchases,

unrealized

Beginning

sales,

balance as of

issuances and

gains

(losses)

included in

accumulated

other

Transfers

balance as of

Ending

December 31,

settlements,

included in

comprehensive

into

out of

December 31,

2011(a)

net(c)

net income

income (loss)

Level 3

Level 3(b)

2012

Amount of total gains
(losses) for the year
ended December 31,
2012 included in our
net income relating to
assets and liabilities
still held as of the
reporting date

Corporate securities

278.1 $

88.1 $

(.2) $

9.9 $

68.6 $

(89.0) $

355.5 $

AsseTs:

for sale:

Fixed maturities, available

United states Treasury

securities and obligations of

United states government

corporations and agencies

states and political

subdivisions

Asset-backed securities

Collateralized debt

obligations

Commercial mortgage-

backed securities

Mortgage pass-through

securities

Collateralized mortgage

obligations

Total fixed maturities,

available for sale

equity securities:

Corporate securities

Venture capital investments

Total equity securities

Trading securities:

states and political

subdivisions

Collateralized debt

obligations

Commercial mortgage-

backed securities

Collateralized mortgage

obligations

Total trading securities

LiAbiLiTies:

Liabilities for insurance

products:

interest-sensitive products

- embedded derivatives

associated with fixed index

annuity products

interest-sensitive products

- embedded derivatives

associated with modified

coinsurance agreement

Total liabilities for

insurance products

1.6

2.1

79.7

327.3

17.3

2.2

124.8

833.1

6.4

63.5

69.9

—

(1.6)

(1.8)

15.2

(24.8)

(2.5)

(.3)

72.5

(3.2)

(34.3)

(37.5)

—

6.9

—

4.5

11.4

—

(.3)

—

(3.8)

(26.0)

(29.8)

—

1.3

1.8

(.5)

39.3

91.7

(274.5)

—

13.1

44.0

324.0

6.2

1.9

16.9

761.6

2.8

2.9

7.3

—

5.8

13.7

—

6.3

21.5

—

(.1)

(.4)

—

11.9

—

5.7

—

5.0

—

(57.4)

(15.1)

(113.0)

—

(.4)

—

(.4)

—

—
—

—

(3.8)
—
(3.8)

—

1.3
1.8

(666.3)

(52.5)

(15.2)

(734.0)

(15.2)

(3.5)

(2.0)

—

(669.8)

(54.5)

(15.2)

(5.5)

(739.5)

—

(15.2)

(a) We revised the hierarchy classification of certain fixed maturities, equity securities, trading securities and other invested assets as we believe the observability of the

inputs more closely represent Level 2 valuations.

(b) For our fixed maturity securities, the majority of our transfers out of Level 3 are the result of obtaining a valuation from an independent pricing service at the end of

the period, whereas a broker quote was used as of the beginning of the period.

(c) Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not
represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and
equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing
contracts. The following summarizes such activity for the year ended December 31, 2012 (dollars in millions):

Purchases

Sales

Issuances

Settlements

Purchases, sales, issuances
and settlements, net

AsseTs:

Fixed maturities, available for sale:

Corporate securities
United states Treasury securities and obligations of United
states government corporations and agencies
states and political subdivisions
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations

Total fixed maturities, available for sale

equity securities:

Corporate securities
Venture capital investments
Total equity securities

Trading securities:

Collateralized debt obligations
Collateralized mortgage obligations

Total trading securities

LiAbiLiTies:

Liabilities for insurance products:

interest-sensitive products - embedded derivatives
associated with fixed index annuity products
interest-sensitive products - embedded derivatives
associated with modified coinsurance agreement

Total liabilities for insurance products

110.3

(22.2) $

— $

—
—
19.0
35.4
—
—
11.2
175.9

—
—
—

6.9
4.5
11.4

(103.3)

—
(103.3)

(1.6)
(1.8)
(3.8)
(60.2)
(2.5)
(.3)
(11.0)
(103.4)

(3.2)
(34.3)
(37.5)

—
—
—

59.9

.5
60.4

—
—
—
—
—
—
—
—

—
—
—

—
—
—
—
—
—
—
—

—
—
—

(48.4)

(2.5)
(50.9)

39.3

—
39.3

88.1

(1.6)
(1.8)
15.2
(24.8)
(2.5)
(.3)
.2
72.5

(3.2)
(34.3)
(37.5)

6.9
4.5
11.4

(52.5)

(2.0)
(54.5)

At December 31, 2013, 90 percent of our Level 3 fixed maturities,
available for sale, were investment grade and 38 percent and 55
percent of our Level 3 fixed maturities, available for sale, consisted
of structured securities and corporate securities, respectively.

Realized and unrealized investment gains and losses presented in
the preceding tables represent gains and losses during the time the
applicable financial instruments were classified as Level 3.

within the consolidated statement of operations or accumulated
other comprehensive income within shareholders’ equity based on
the appropriate accounting treatment for the instrument.

The amount presented for gains (losses) included in our net loss
for assets and liabilities still held as of the reporting date primarily
represents impairments for fixed maturities, available for sale,
changes in fair value of trading securities and certain derivatives
and changes in fair value of embedded derivative instruments
included in liabilities for insurance products that exist as of the
reporting date.

133

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe following table provides additional information about the significant unobservable (Level 3) inputs developed internally by the
Company to determine fair value for certain assets and liabilities carried at fair value at December 31, 2013 (dollars in millions):

Fair value at
December 31, 2013

Valuation technique(s)

inputs Range (weighted average)

Unobservable

AsseTs:

Corporate securities(a)
Asset-backed securities(b)
Collateralized debt obligations(c)

260.3
35.1
240.7

Discounted cash flow analysis
Discounted cash flow analysis
Discounted cash flow analysis

equity security(d)
Other assets categorized as Level 3(e)

Total
LiAbiLiTies:

Cost approach
24.5
114.0 Unadjusted third-party price source
674.6

Discount margins
Discount margins
Recoveries
Constant prepayment rate
Discount margins
Annual default rate

1.65% - 2.90% (2.36%)
2.03% - 4.20% (3.09%)
64% - 67% (65.8%)
20%
.95% - 2.00% (1.32%)
1.14% - 5.57% (3.05%)
Portfolio CCC % 1.52% - 21.79% (12.57%)
Not applicable
Not applicable

Historical cost
Not applicable

interest sensitive products(f )

905.5

Discounted projected
embedded derivatives

5.35% - 6.63% (5.60%)
Projected portfolio yields
Discount rates
0.00 - 4.64% (2.47%)
surrender rates 2.80% - 54.60% (14.39%)

(a) Corporate securities - The significant unobservable input used in the fair value measurement of our corporate securities is discount margin added to a riskless market

yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement.

(b) Asset-backed securities - The significant unobservable input used in the fair value measurement of our asset-backed securities is discount margin added to a riskless

market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement.

(c) Collateralized debt obligations - The significant unobservable inputs used in the fair value measurement of our collateralized debt obligations relate to collateral
performance, including default rate, recoveries and constant prepayment rate, as well as discount margins of the underlying collateral. Significant increases (decreases)
in default rate in isolation would result in a significantly lower (higher) fair value measurement. Generally, a significant increase (decrease) in the constant prepayment
rate and recoveries in isolation would result in a significantly higher (lower) fair value measurement. Generally a significant increase (decrease) in discount margin in
isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the annual default rate is accompanied
by a directionally similar change in the assumption used for discount margins and portfolio CCC % and a directionally opposite change in the assumption used for
constant prepayment rate and recoveries. A tranche’s payment priority and investment cost basis could alter generalized fair value outcomes.

(d) Equity security - The significant unobservable input used in the fair value measurement of this equity security is historical cost as that is the amount that would
be required to replace the security with a comparable security. The amount represents an investment in an entity that is currently in the construction phase of a
manufacturing facility. The fair value measurement is sensitive to the construction phase and operational risk of the security.

(e) Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources.

(f) Interest sensitive products - The significant unobservable inputs used in the fair value measurement of our interest sensitive products are projected portfolio yields,
discount rates and surrender rates. Increases (decreases) in projected portfolio yields in isolation would lead to a higher (lower) fair value measurement. The discount
rate is based on the Treasury rate adjusted by a margin. Increases (decreases) in the discount rates would lead to a lower (higher) fair value measurement. Assumed
surrender rates are used to project how long the contracts remain in force. Generally, the longer the contracts are assumed to be in force the higher the fair value of the
embedded derivative.

134

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe following table provides additional information about the significant unobservable (Level 3) inputs developed internally by the
Company to determine fair value for certain assets and liabilities carried at fair value at December 31, 2012 (dollars in millions):

Fair value at
December 31, 2012

Valuation
technique(s)

Unobservable

inputs Range (weighted average)

AsseTs:

Corporate securities(a)
Asset-backed securities(b)
Collateralized debt obligations(c)

248.3
33.3
331.4

Discounted cash flow analysis
Discounted cash flow analysis
Discounted cash flow analysis

Venture capital investments(d)

2.8

Market multiples

Other assets categorized as Level 3(e)

Total
LiAbiLiTies:
interest sensitive products(f )

162.4 Unadjusted third-party price source
778.2

739.5

Discounted projected
embedded derivatives

Discount margins
Discount margins
Recoveries
Constant prepayment rate
Discount margins
Annual default rate

1.90% - 3.25% (2.78%)
2.78% - 3.14% (2.99%)
65% - 66%
20%
.95% - 8.75% (2.02%)
.95% - 5.54% (3.01%)
Portfolio CCC % 1.18% - 21.56% (11.99%)
6.8
ebiTDA multiple
Revenue multiple
1.5
Not applicable
Not applicable

Projected portfolio yields
Discount rates
surrender rates

5.35% - 5.61% (5.55%)
0.0 - 3.6% (1.4%)
4% - 43% (19%)

(a) Corporate securities - The significant unobservable input used in the fair value measurement of our corporate securities is discount margin added to a riskless market

yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement.

(b) Asset-backed securities - The significant unobservable input used in the fair value measurement of our asset-backed securities is discount margin added to a riskless

market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement.

(d) Venture capital investments - The significant unobservable inputs used in the fair value measurement of our venture capital investments are the EBITDA multiple
and revenue multiple. Generally, a significant increase (decrease) in the EBITDA or revenue multiples in isolation would result in a significantly higher (lower) fair
value measurement.

(e) Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources.

Sales Inducements

Out-of-Period Adjustments

Certain of our annuity products offer sales inducements to contract
holders in the form of enhanced crediting rates or bonus payments
in the initial period of the contract. Certain of our life insurance
products offer persistency bonuses credited to the contract holders
balance after the policy has been outstanding for a specified
period of time. These enhanced rates and persistency bonuses
are considered sales inducements in accordance with GAAP.
such amounts are deferred and amortized in the same manner as
deferred acquisition costs. sales inducements deferred totaled $5.0
million, $4.4 million and $11.5 million in 2013, 2012 and 2011,
respectively. Amounts amortized totaled $22.9 million, $27.1
million and $28.7 million in 2013, 2012 and 2011, respectively.
The unamortized balance of deferred sales inducements was
$108.6 million and $126.5 million at December 31, 2013
and 2012, respectively. The balance of insurance liabilities for
persistency bonus benefits was $28.9 million and $34.6 million at
December 31, 2013 and 2012, respectively.

in 2013, we recorded the net effect of out-of-period adjustments
which increased our insurance policy benefits by $4.7 million,
increased amortization expense by $2.1 million, increased other
operating costs and expenses by $1.5 million, decreased tax expense
by $.7 million and decreased our net income by $7.6 million
(or 3 cents per diluted share). We evaluated these adjustments
taking into account both qualitative and quantitative factors and
considered the impact of these adjustments in relation to the 2013
period, as well as the materiality to the periods in which they
originated. The impact of recognizing these adjustments in prior
years was not significant to any individual period. Management
believes these adjustments are immaterial to the consolidated
financial statements and all previously issued financial statements.

135

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KAssets and Liabilities Subject to Offsetting
Disclosure Requirements

Call options

As further described in the section of this note entitled
“Accounting for Derivatives”, we buy call options (including call
spreads) referenced to applicable indices in an effort to offset or
hedge potential increases to policyholder benefits resulting from
increases in the particular index to which the policy’s return is
linked. We limit our exposure to the counterparties failing to meet

their obligation with respect to the call options by diversifying
among several counterparties believed to be strong and credit
worthy. The call options are free-standing derivatives and are
recorded at fair value in the Company’s consolidated balance
sheet. The Company and its subsidiaries are parties to master
netting arrangements with its counterparties related to entering
into various derivative contracts. However, the offsetting of assets
and liabilities is not applicable to the derivative contracts that were
in place at December 31, 2013 or 2012. The counterparties do
not provide collateral to the Company related to their obligations
under the call options.

The following table summarizes information related to call options as of December 31, 2013 and 2012 (dollars in millions):

Gross
amounts of
recognized
assets

Gross
amounts
offset in
the balance
sheet

Net amounts
of assets
presented in
the balance
sheet

Gross amounts not offset in
the balance sheet
Cash
collateral
received

Financial
instruments

Net amount

156.2

— $

156.2

— $

156.2

54.4

—

54.4

—

54.4

December 31, 2013:

Call Options

December 31, 2012:

Call Options

Repurchase agreements

As further described in the section of this note entitled “investment
borrowings”, we may enter into agreements under which we sell
securities subject to an obligation to repurchase the same securities.
These repurchase agreements are accounted for as collateralized
financing arrangements and not as a sale and subsequent repurchase
of securities. The obligation to repurchase the securities is reflected
as investment borrowings in the Company’s consolidated balance
sheet, while the securities underlying the repurchase agreements
remain in the respective investment asset accounts. There is no
offsetting or netting of the investment securities assets with the
repurchase agreement liabilities. in addition, as the Company does
not currently have any outstanding reverse repurchase agreements,
there is no such offsetting to be done with the repurchase
agreements.

The right of setoff for a repurchase agreement resembles a secured
borrowing, whereby the collateral would be used to settle the fair
value of the repurchase agreement should the Company be in
default (e.g., fails to make an interest payment to the counterparty).
if the counterparty were to default (e.g., declare bankruptcy),
the Company could cancel the repurchase agreement (i.e., cease
payment of principal and interest), and attempt collection on the
amount of collateral value in excess of the repurchase agreement
fair value. The collateral is held by a third party financial institution
in the counterparty’s custodial account. The counterparty has
the right to sell or repledge the investment securities. There were
no repurchase agreements outstanding at December 31, 2013
and 2012.

136

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsRecently Issued Accounting Standards

Pending Accounting Standards

in July 2013, the Financial Accounting standards board (the
“FAsb”) issued authoritative guidance regarding the financial
statement presentation of an unrecognized tax benefit when a
net operating loss carryforward, a similar tax loss or a tax credit
carryforward exists. such guidance will require an unrecognized
tax benefit, or a portion of an unrecognized tax benefit, to be
presented in the financial statements as a reduction to a deferred
tax asset for a net operating loss carryforward, a similar tax loss,
or a tax credit carryforward, except under certain circumstances as
further described in the guidance.

such guidance does not require new recurring disclosures. This
guidance is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2013. early adoption
is permitted. The guidance should be applied prospectively to
all unrecognized tax benefits that exist at the effective date.
Retrospective application is permitted. We do not expect the
adoption of this guidance to have a material impact on our
consolidated financial statements.

Accounting Standard Adopted on a Retrospective
Basis

in October 2010, the FAsb issued authoritative guidance
that modified the definition of the types of costs incurred by
insurance entities that could be capitalized in the acquisition of
new and renewal contracts. The guidance impacts the timing
of GAAP reported financial results, but has no impact on cash
flows, statutory financial results or the ultimate profitability of
the business.

The guidance specifies that an insurance entity shall only capitalize
incremental direct costs related to the successful acquisition of
new or renewal insurance contracts. The guidance also states that
advertising costs should be included in deferred acquisition costs
only if the capitalization criteria in the direct-response advertising
guidance is met. The guidance was effective for fiscal years, and
interim periods within those fiscal years, beginning after December
15, 2011, and was adopted by the Company on January 1, 2012.
As permitted by the guidance, we elected to apply the provisions
on a retrospective basis. The guidance reduced the balance of
deferred acquisition costs, its amortization and the amount of costs
capitalized. We are able to defer most commission payments, plus
other costs directly related to the production of new business. The
change did not impact the balance of the present value of future
profits. Therefore, in contrast to the reduction in amortization of
deferred acquisition costs, there was no change in the amortization
of the present value of future profits.

Adopted Accounting Standards

in December 2011, the FAsb issued authoritative guidance
regarding disclosures about offsetting assets and liabilities. The
guidance requires an entity to disclose both gross information
and net information about both instruments and transactions
eligible for offset in the statement of financial position and
instruments and transactions subject to an agreement similar to a

master netting arrangement. The guidance is effective for annual
and interim reporting periods beginning on or after January 1,
2013, with retrospective disclosures required for all comparative
periods presented. in January 2013, the FAsb issued authoritative
guidance that limits the scope of the new balance sheet offsetting
disclosures to derivatives, repurchase agreements and securities
lending transactions to the extent that they are: (i) offset in the
financial statements; or (ii) subject to an enforceable master netting
arrangement or similar agreement. such disclosures are included
in the section of this note entitled “Assets and Liabilities subject to
Offsetting Disclosure Requirements”.

in June 2011, the FAsb issued authoritative guidance to increase
the prominence of items reported in other comprehensive income
by eliminating the option to present components of other
comprehensive income as part of the statement of changes in
shareholders’ equity. such guidance requires that all non-owner
changes in shareholders’ equity be presented either in a single
continuous statement of comprehensive income or in two separate
but consecutive statements. in the two-statement approach, the
first statement should present total net income and its components
followed consecutively by a second statement that should present
total other comprehensive income, the components of other
comprehensive income and the total of comprehensive income.
The guidance was applied retrospectively and is effective for fiscal
years, and interim periods within those years, beginning after
December 15, 2011. The adoption of this guidance resulted in a
change in the presentation of our financial statements but did not
have any impact on our financial condition, operating results or
cash flows.

in May 2011, the FAsb issued authoritative guidance which clarifies
or updates requirements for measuring fair value and for disclosing
information about fair value measurements. The guidance clarifies:
(i) the application of the highest and best use and valuation premise
concepts; (ii) measuring the fair value of an instrument classified
in a reporting entity’s shareholders’ equity; and (iii) disclosure of
quantitative information about the unobservable inputs used in a
fair value measurement that is categorized within Level 3 of the
fair value hierarchy. The guidance changes certain requirements
for measuring fair value or disclosing information about fair value
measurements including: (i) measuring the fair value of financial
instruments that are managed within a portfolio; (ii) application
of premiums and discounts in a fair value measurement; and
(iii) additional disclosures about fair value measurements. such
additional disclosures include a description of the valuation
process used for measuring Level 3 instruments and the sensitivity
of the Level 3 fair value measurement to changes in unobservable
inputs and the interrelationships between those unobservable
inputs, if any. The guidance was effective prospectively for
interim and annual periods beginning after December 15, 2011.
Refer to the note to our consolidated financial statements entitled
“Fair Value Measurements” for additional disclosures required
by this guidance. The adoption of this guidance expanded our
disclosures, but did not have a material impact on our financial
condition, operating results or cash flows.

137

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K3.

INVESTMENTS

At December 31, 2013, the amortized cost, gross unrealized gains and losses, estimated fair value and other-than-temporary impairments
in accumulated other comprehensive income of fixed maturities, available for sale, and equity securities were as follows (dollars in millions):

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair
value

Other-than-temporary
impairments included
in accumulated other
comprehensive income

investment grade(a):

Corporate securities
United states Treasury securities and obligations of United
states government corporations and agencies
states and political subdivisions
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations

Total investment grade fixed maturities, available for sale

below-investment grade(a):

Corporate securities
states and political subdivisions
Asset-backed securities
Collateralized debt obligations
Collateralized mortgage obligations

$ 13,372.9

1,086.2

(120.9) $ 14,338.2 $

71.1
2,130.2
869.9
259.4
1,517.1
12.7
936.2
19,169.5

1,314.5
6.4
523.5
27.6
819.1

2.6
106.8
41.6
7.4
97.7
.7
34.3
1,377.3

53.4
—
34.3
.1
60.9

(.6)
(38.5)
(3.9)
(.1)
(5.8)
—
(1.3)
(171.1)

(32.7)
(.5)
(3.3)
(.4)
(.3)

73.1
2,198.5
907.6
266.7
1,609.0
13.4
969.2
20,375.7

1,335.2
5.9
554.5
27.3
879.7

Total below-investment grade fixed maturities,
available for sale
TOTAL FIXED MATURITIES, AVAILABLE FOR SALE $ 21,860.6 $
237.9 $

EQUITY SECURITIES

2,691.1

148.7
1,526.0 $
16.3 $

(37.2)

2,802.6

(208.3) $ 23,178.3 $

(4.9) $

249.3

—

—
—
—
—
—
—
—
—

—
—
—
—
(4.3)

(4.3)
(4.3)

(a) Investment ratings – Investment ratings are assigned the second lowest rating by Nationally Recognized Statistical Rating Organizations (“NRSROs”) (Moody’s
Investor Services, Inc. (“Moody’s”), S&P or Fitch Ratings (“Fitch”)), or if not rated by such firms, the rating assigned by the National Association of Insurance
Commissioners (the “NAIC”). NAIC designations of “1” or “2” include fixed maturities generally rated investment grade (rated “Baa3” or higher by Moody’s or rated
“BBB-” or higher by S&P and Fitch). NAIC designations of “3” through “6” are referred to as below-investment grade (which generally are rated “Ba1” or lower by
Moody’s or rated “BB+” or lower by S&P and Fitch). References to investment grade or below-investment grade throughout our consolidated financial statements are
determined as described above.

The NAiC evaluates the fixed maturity investments of insurers for
regulatory and capital assessment purposes and assigns securities
to one of six credit quality categories called NAiC designations,
which are used by insurers when preparing their annual
statements based on statutory accounting principles. The NAiC
designations are generally similar to the credit quality designations
of the NRsROs for marketable fixed maturity securities, except
for certain structured securities. However, certain structured
securities rated below investment grade by the NRsROs can be
assigned NAiC 1 or NAiC 2 designations dependent on the cost

basis of the holding relative to estimated recoverable amounts as
determined by the NAiC. The following summarizes the NAiC
designations and NRsRO equivalent ratings:

NAIC Designation
1
2
3
4
5
6

NRSRO Equivalent Rating
AAA/AA/A
bbb
bb
b
CCC and lower
in or near default

A summary of our fixed maturity securities, available for sale, by NAiC designations (or for fixed maturity securities held by non-regulated
entities, based on NRsRO ratings) as of December 31, 2013 is as follows (dollars in millions):

NAIC designation
1
2
3
4
5
6

138

CNO FINANCIAL GROUP, INC. - Form 10-K

Amortized cost
10,215.3
$
10,265.8
1,051.3
297.6
30.6
—
21,860.6

Estimated fair
value
10,926.5
10,852.3
1,066.1
303.4
29.5
.5
23,178.3

Percentage of total
estimated fair value

47.2%
46.8
4.6
1.3
.1
—
100.0%

PART IIITEM 8 Consolidated Financial StatementsAt December 31, 2012, the amortized cost, gross unrealized gains and losses, estimated fair value and other-than-temporary impairments
in accumulated other comprehensive income of fixed maturities, available for sale, and equity securities were as follows (dollars in millions):

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair value

Other-than-temporary
impairments included
in accumulated other
comprehensive income

investment grade:

Corporate securities
United states Treasury securities and obligations of United
states government corporations and agencies
states and political subdivisions
Debt securities issued by foreign governments
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations

Total investment grade fixed maturities, available for sale

below-investment grade:
Corporate securities
states and political subdivisions
Asset-backed securities
Collateralized debt obligations
Collateralized mortgage obligations

$ 13,531.8 $

2,221.4 $

(12.1) $ 15,741.1 $

93.9
1,840.7
.8
1,002.9
311.5
1,325.7
20.6
1,157.7
19,285.6

1,055.8
15.3
360.9
5.5
903.7

5.6
277.3
—
70.9
7.5
152.3
1.2
107.2
2,843.4

65.3
—
31.4
.5
79.6

—
(4.3)
—
(2.8)
(1.0)
(.6)
—
(.7)
(21.5)

(8.1)
(.9)
(2.4)
—
—

99.5
2,113.7
.8
1,071.0
318.0
1,477.4
21.8
1,264.2
22,107.5

1,113.0
14.4
389.9
6.0
983.3

Total below-investment grade fixed maturities,
available for sale
TOTAL FIXED MATURITIES, AVAILABLE FOR SALE

EQUITY SECURITIES

2,341.2
$ 21,626.8 $
167.1 $
$

176.8
3,020.2 $
5.9 $

(11.4)
(32.9) $ 24,614.1 $

2,506.6

(1.6) $

171.4

—

—
—
—
—
—
—
—
(.8)
(.8)

—
—
—
—
(5.2)

(5.2)
(6.0)

Accumulated other comprehensive income is primarily comprised of the net effect of unrealized appreciation (depreciation) on our
investments. These amounts, included in shareholders’ equity as of December 31, 2013 and 2012, were as follows (dollars in millions):

Net unrealized appreciation (depreciation) on fixed maturity securities, available for sale,
on which an other-than-temporary impairment loss has been recognized
Net unrealized gains on all other investments
Adjustment to present value of future profits(a)
Adjustment to deferred acquisition costs
Adjustment to insurance liabilities
Unrecognized net loss related to deferred compensation plan
Deferred income tax liabilities

ACCUMULATED OTHER COMPREHENSIVE INCOME

2013

2012

6.5
1,322.6
(47.7)
(137.0)
—
(7.1)
(405.5)
731.8

9.8
2,986.5
(193.0)
(452.9)
(489.8)
(7.9)
(655.3)
1,197.4

(a) The present value of future profits is the value assigned to the right to receive future cash flows from contracts existing at the Effective Date.

At December 31, 2013, adjustments to the present value of
future profits and deferred tax assets included $(27.8) million
and $9.9 million, respectively, for premium deficiencies that
would exist on certain long-term health products if unrealized
gains on the assets backing such products had been realized and
the proceeds from the sales of such assets were invested at then
current yields.

At December 31, 2012, adjustments to the present value of
future profits, deferred acquisition costs, insurance liabilities and
deferred tax assets included $(162.3) million, $(149.9) million,
$(489.8) million and $288.7 million, respectively, for premium
deficiencies that would exist on certain long-term health products
if unrealized gains on the assets backing such products had been
realized and the proceeds from the sales of such assets were invested
at then current yields.

139

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KBelow-Investment Grade Securities

At December 31, 2013, the amortized cost of the Company’s
below-investment grade fixed maturity securities was $2,691.1
million, or 12 percent of the Company’s fixed maturity portfolio.
The estimated fair value of the below-investment grade portfolio
was $2,802.6 million, or 104 percent of the amortized cost.

below-investment grade corporate debt securities typically have
different characteristics than investment grade corporate debt
securities. based on historical performance, probability of default
by the borrower is significantly greater for below-investment
grade corporate debt securities and in many cases severity of loss
is relatively greater as such securities are generally unsecured and
often subordinated to other indebtedness of the issuer. Also, issuers
of below-investment grade corporate debt securities frequently
have higher levels of debt relative to investment-grade issuers,
hence, all other things being equal, are generally more sensitive to
adverse economic conditions. The Company attempts to reduce

the overall risk related to its investment in below-investment grade
securities, as in all investments, through careful credit analysis,
strict investment policy guidelines, and diversification by issuer
and/or guarantor and by industry.

Contractual Maturity

The following table sets forth the amortized cost and estimated
fair value of fixed maturities, available for sale, at December 31,
2013, by contractual maturity. Actual maturities will differ from
contractual maturities because certain borrowers may have the
right to call or prepay obligations with or without penalties. in
addition, structured securities (such as asset-backed securities,
collateralized debt obligations, commercial mortgage-backed
securities, mortgage pass-through securities and collateralized
mortgage obligations, collectively referred to as “structured
securities”) frequently include provisions for periodic principal
payments and permit periodic unscheduled payments.

(Dollars in millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years

subtotal

structured securities

TOTAL FIXED MATURITIES, AVAILABLE FOR SALE

Net Investment Income

Net investment income consisted of the following (dollars in millions):

Fixed maturities
Trading income related to policyholder and reinsurer accounts and other special-purpose portfolios
equity securities
Mortgage loans
Policy loans
Options related to fixed index products:

Option income
Change in value of options

Other invested assets
Cash and cash equivalents
Gross investment income

Less investment expenses

NET INVESTMENT INCOME

Amortized cost
155.2
$
2,008.5
3,920.6
10,810.8
16,895.1
4,965.5
21,860.6

Estimated fair value
157.4
2,188.6
4,219.0
11,385.9
17,950.9
5,227.4
23,178.3

2013
1,288.9
80.7
8.4
96.3
17.3

77.4
100.1
14.4
.5
1,684.0
20.0
1,664.0

2012
1,280.9
62.4
4.4
99.8
17.1

.4
25.1
14.4
.6
1,505.1
18.7
1,486.4

2011
1,233.8
14.6
1.7
111.7
17.6

36.5
(57.7)
14.5
.4
1,373.1
19.0
1,354.1

The estimated fair value of fixed maturity investments and mortgage loans not accruing investment income totaled $.5 million and $.5
million at December 31, 2013 and 2012, respectively.

140

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsNet Realized Investment Gains (Losses)

The following table sets forth the net realized investment gains (losses) for the periods indicated (dollars in millions):

Fixed maturity securities, available for sale:

Realized gains on sale
Realized losses on sale
impairments:

Total other-than-temporary impairment losses
Other-than-temporary impairment losses recognized in accumulated
other comprehensive income

Net impairment losses recognized
Net realized investment gains from fixed maturities

equity securities
Commercial mortgage loans
impairments of mortgage loans and other investments
Other

NET REALIZED INVESTMENT GAINS

During 2013, we recognized net realized investment gains of
$33.4 million, which were comprised of $51.8 million of net gains
from the sales of investments (primarily fixed maturities) with
proceeds of $2.3 billion, the decrease in fair value of certain fixed
maturity investments with embedded derivatives of $6.8 million
and $11.6 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.

During 2012, we recognized net realized investment gains of
$81.1 million, which were comprised of $98.8 million of net gains
from the sales of investments (primarily fixed maturities) with
proceeds of $2.1 billion, the increase in fair value of certain fixed
maturity investments with embedded derivatives of $20.1 million
and $37.8 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.

During 2011, we recognized net realized investment gains of
$61.8 million, which were comprised of $96.4 million of net
gains from the sales of investments (primarily fixed maturities)
with proceeds of $5.5 billion and $34.6 million of writedowns
of investments for other than temporary declines in fair value
recognized through net income ($39.9 million, prior to the
$5.3 million of impairment losses recognized through accumulated
other comprehensive income).

At December 31, 2013, fixed maturity securities in default or
considered nonperforming had an aggregate amortized cost and a
carrying value of nil and $.5 million, respectively.

During 2011, we completed the commutation of an investment
made by our Predecessor in a guaranteed investment contract
issued by a bermuda insurance company pursuant to which we
received government agency securities as well as equity interests
in certain corporate investments with an aggregate fair value of
$197.5 million in exchange for our holdings with a book value of
$201.5 million (resulting in a net realized loss of $4.0 million).
During 2011, we recognized impairment charges of $11.5 million
on the underlying invested assets.

During 2013, the $11.6 million of other-than-temporary
impairments we recorded in earnings included: (i) $5.0 million
of losses on a corporate security; (ii) $2.5 million of losses on an

2013

2012

2011

57.7
(11.4)

115.4
(15.4)

(7.1)

—
(7.1)
39.2
4.8
(1.1)
(4.5)
(5.0)
33.4

(1.0)

—
(1.0)
99.0
.1
(3.7)
(36.8)
22.5
81.1

183.1
(59.9)

(19.2)

5.3
(13.9)
109.3
(.2)
(29.3)
(20.7)
2.7
61.8

equity security; and (iii) $4.1 million of losses primarily related to
fixed maturity securities following unforeseen issue-specific events
or conditions.

During 2013, the $11.4 million of realized losses on sales
of $477.5 million of fixed maturity securities, available for
sale, included: (i) $2.5 million of losses related to the sales of
mortgage-backed securities and asset-backed securities; and
(ii) $8.9 million of additional losses primarily related to various
corporate securities. securities are generally sold at a loss following
unforeseen issue-specific events or conditions or shifts in perceived
risks. These reasons include but are not limited to: (i) changes in
the investment environment; (ii) expectation that the market value
could deteriorate further; (iii) desire to reduce our exposure to
an asset class, an issuer or an industry; (iv) prospective or actual
changes in credit quality; or (v) changes in expected cash flows.

During 2012, the $37.8 million of other-than-temporary
impairments we recorded in earnings included: (i) $5.4 million
of losses related to certain commercial mortgage loans; (ii)
$29.9 million of losses on equity securities primarily related to
investments obtained through the commutation of an investment
made by our Predecessor (as further described above); and (iii)
$2.5 million of losses on other investments following unforeseen
issue-specific events or conditions.

During 2012, the $15.4 million of realized losses on sales of $402.5
million of fixed maturity securities, available for sale, included:
(i) $5.2 million of losses related to the sales of mortgage-backed
securities and asset-backed securities; and (ii) $10.2 million of
additional losses primarily related to various corporate securities.

During 2011, the $34.6 million of other-than-temporary
impairments we recorded in earnings included: (i) $11.5 million
on an investment in a guaranteed investment contract as discussed
above; (ii) $11.8 million of losses related to certain commercial
mortgage loans; (iii) $4.3 million related to investments held by a
Vie as a result of our intent to sell such investments; and (iv) $7.0
million of losses on other investments following unforeseen issue-
specific events or conditions.

141

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KDuring 2011, the $59.9 million of realized losses on sales of $1.0
billion of fixed maturity securities, available for sale, included:
(i) $24.1 million of losses related to the sales of mortgage-backed
securities and asset-backed securities; (ii) $13.4 million related to
sales of securities issued by state and political subdivisions; (iii)
$8.9 million related to the partial commutation of a guaranteed
investment contract as discussed above; and (iv) $13.5 million of
additional losses primarily related to various corporate securities.

Our fixed maturity investments are generally purchased in
the context of various long-term strategies, including funding
insurance liabilities, so we do not generally seek to generate
short-term realized gains through the purchase and sale of such
securities. in certain circumstances, including those in which
securities are selling at prices which exceed our view of their
underlying economic value, or when it is possible to reinvest the
proceeds to better meet our long-term asset-liability objectives, we
may sell certain securities.

We regularly evaluate all of our investments with unrealized losses
for possible impairment. Our assessment of whether unrealized
losses are “other than temporary” requires significant judgment.
Factors considered include: (i) the extent to which fair value is
less than the cost basis; (ii) the length of time that the fair value
has been less than cost; (iii) whether the unrealized loss is event
driven, credit-driven or a result of changes in market interest
rates or risk premium; (iv) the near-term prospects for specific
events, developments or circumstances likely to affect the value
of the investment; (v) the investment’s rating and whether the
investment is investment-grade and/or has been downgraded since
its purchase; (vi) whether the issuer is current on all payments
in accordance with the contractual terms of the investment and
is expected to meet all of its obligations under the terms of the
investment; (vii) whether we intend to sell the investment or it is
more likely than not that circumstances will require us to sell the
investment before recovery occurs; (viii) the underlying current and
prospective asset and enterprise values of the issuer and the extent
to which the recoverability of the carrying value of our investment
may be affected by changes in such values; (ix) projections of,
and unfavorable changes in, cash flows on structured securities
including mortgage-backed and asset-backed securities; (x) our
best estimate of the value of any collateral; and (xi) other objective
and subjective factors.

Future events may occur, or additional information may become
available, which may necessitate future realized losses in our
portfolio. significant losses could have a material adverse effect on
our consolidated financial statements in future periods.

impairment losses on equity securities are recognized in net
income. The manner in which impairment losses on fixed
maturity securities, available for sale, are recognized in the
financial statements is dependent on the facts and circumstances

related to the specific security. if we intend to sell a security or it
is more likely than not that we would be required to sell a security
before the recovery of its amortized cost, the security is other-than-
temporarily impaired and the full amount of the impairment is
recognized as a loss through earnings. if we do not expect to recover
the amortized cost basis, we do not plan to sell the security, and
if it is not more likely than not that we would be required to sell a
security before the recovery of its amortized cost, less any current
period credit loss, the recognition of the other-than-temporary
impairment is bifurcated. We recognize the credit loss portion in
net income and the noncredit loss portion in accumulated other
comprehensive income.

For most structured securities, cash flow estimates are based on
bond specific facts and circumstances that may include collateral
characteristics, expectations of delinquency and default rates, loss
severity, prepayment speeds and structural support, including
excess spread, subordination and guarantees. For corporate bonds,
cash flow estimates are derived from scenario-based outcomes of
expected corporate restructurings or the disposition of assets using
bond specific facts and circumstances. The previous amortized
cost basis less the impairment recognized in net income becomes
the security’s new cost basis. We accrete the new cost basis to the
estimated future cash flows over the expected remaining life of
the security, except when the security is in default or considered
nonperforming.

Mortgage loans are impaired when it is probable that we will
not collect the contractual principal and interest on the loan.
We measure impairment based upon the difference between the
carrying value of the loan and the estimated fair value of the
collateral securing the loan less cost to sell.

142

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe following table summarizes the amount of credit losses recognized in earnings on fixed maturity securities, available for sale, held
at the beginning of the period, for which a portion of the other-than-temporary impairment was also recognized in accumulated other
comprehensive income for the years ended December 31, 2013, 2012 and 2011 (dollars in millions):

Credit losses on fixed maturity securities, available for sale, beginning of period

Add: credit losses on other-than-temporary impairments not previously recognized
Less: credit losses on securities sold
Less: credit losses on securities impaired due to intent to sell(a)
Add: credit losses on previously impaired securities
Less: increases in cash flows expected on previously impaired securities

CREDIT LOSSES ON FIXED MATURITY SECURITIES,
AVAILABLE FOR SALE, END OF PERIOD

Year ended December 31,

2013
(1.6)
—
.3
—
—
—

2012
(2.0) $

—
.4
—
—
—

2011
(6.1)
(1.1)
5.2
—
—
—

(1.3)

(1.6) $

(2.0)

(a) Represents securities for which the amount previously recognized in accumulated other comprehensive income was recognized in earnings because we intend to sell the

security or we more likely than not will be required to sell the security before recovery of its amortized cost basis.

Investments with Unrealized Losses

The following table sets forth the amortized cost and estimated fair value of those fixed maturities, available for sale, with unrealized losses
at December 31, 2013, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without penalties. structured securities frequently include provisions for periodic principal
payments and permit periodic unscheduled payments.

(Dollars in millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years

subtotal

structured securities

TOTAL

Amortized cost
18.5
69.8
532.5
2,725.4
3,346.2
691.7
4,037.9 $

Estimated fair value
18.5
$
68.1
515.9
2,550.5
3,153.0
676.6
3,829.6

There was one investment in our portfolio rated below-investment
grade which has been continuously in an unrealized loss position
exceeding 20 percent of the cost basis for greater than or equal to

six months and less than 12 months at December 31, 2013. such
investment had a cost basis, unrealized loss and estimated fair value
of $29.9 million, $9.0 million and $20.9 million, respectively.

The following table summarizes the gross unrealized losses and fair values of our investments with unrealized losses that are not deemed to
be other-than-temporarily impaired, aggregated by investment category and length of time that such securities have been in a continuous
unrealized loss position, at December 31, 2013 (dollars in millions):

Description of securities
United states Treasury securities and obligations
of United states government corporations and agencies
states and political subdivisions
Corporate securities
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations

TOTAL FIXED MATURITIES, AVAILABLE FOR SALE

EQUITY SECURITIES

Less than 12 months

12 months or greater

Total

Fair value

Unrealized
losses

Unrealized

Fair value

losses Fair value

Unrealized
losses

23.8
473.6
2,406.1
308.4
46.7
161.8
1.6
121.8
$ 3,543.8
26.8
$

$
$

(.6)
(30.3)
(132.8)
(6.5)
(.5)
(5.8)
—
(1.6)
(178.1)
(4.9)

— $

79.2
170.3
32.5
—
—
1.6
2.2
285.8

$
— $

$
$

— $

(8.7)
(20.8)
(.7)
—
—
—
—
(30.2)

23.8
552.8
2,576.4
340.9
46.7
161.8
3.2
124.0
$ 3,829.6
26.8

— $

$
$

(.6)
(39.0)
(153.6)
(7.2)
(.5)
(5.8)
—
(1.6)
(208.3)
(4.9)

143

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe following table summarizes the gross unrealized losses and fair values of our investments with unrealized losses that are not deemed to
be other-than-temporarily impaired, aggregated by investment category and length of time that such securities have been in a continuous
unrealized loss position, at December 31, 2012 (dollars in millions):

Less than 12 months

12 months or greater

Total

Description of securities
states and political subdivisions
Corporate securities
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations

TOTAL FIXED MATURITIES, AVAILABLE FOR SALE

EQUITY SECURITIES

Fair value
48.3
$
338.1
41.7
19.4
4.9
—
27.0
479.4
17.8

$
$

Unrealized
losses
(1.8)
(11.2)
(.3)
(.4)
(.1)
—
(.4)
(14.2)
(1.6)

$
$

Fair value
68.7
$
174.5
111.6
32.5
6.2
1.9
33.8
429.2

$
$

$
— $

Unrealized

losses Fair value
117.0
$
(3.4)
512.6
(9.0)
153.3
(4.9)
51.9
(.6)
11.1
(.5)
1.9
—
60.8
(.3)
908.6
(18.7)
17.8

$
— $

Unrealized
losses
(5.2)
(20.2)
(5.2)
(1.0)
(.6)
—
(.7)
(32.9)
(1.6)

$
$

based on management’s current assessment of investments with
unrealized losses at December 31, 2013, the Company believes the
issuers of the securities will continue to meet their obligations (or
with respect to equity-type securities, the investment value will
recover to its cost basis). While we do not have the intent to sell
securities with unrealized losses and it is not more likely than not
that we will be required to sell securities with unrealized losses
prior to their anticipated recovery, our intent on an individual
security may change, based upon market or other unforeseen
developments. in such instances, if a loss is recognized from a
sale subsequent to a balance sheet date due to these unexpected
developments, the loss is recognized in the period in which we had
the intent to sell the security before its anticipated recovery.

Structured Securities

At December 31, 2013 fixed maturity investments included
structured securities with an estimated fair value of $5.2 billion
(or 22.6 percent of all fixed maturity securities). The yield
characteristics of structured securities generally differ in some
respects from those of traditional corporate fixed-income
securities or government securities. For example, interest and
principal payments on structured securities may occur more
frequently, often monthly. in many instances, we are subject to
variability in the amount and timing of principal and interest
payments. For example, in many cases, partial prepayments
may occur at the option of the issuer and prepayment rates are
influenced by a number of factors that cannot be predicted with
certainty, including: the relative sensitivity of prepayments on
the underlying assets backing the security to changes in interest
rates and asset values; the availability of alternative financing; a
variety of economic, geographic and other factors; the timing,
pace and proceeds of liquidations of defaulted collateral; and
various security-specific structural considerations (for example,
the repayment priority of a given security in a securitization
structure). in addition, the total amount of payments for non-
agency structured securities may be affected by changes to
cumulative default rates or loss severities of the related collateral.

144

expected. The yields recognized on structured securities purchased
at a premium will decrease (relative to the stated rate) when the
underlying collateral prepays faster than expected. When interest
rates decline, the proceeds from prepayments may be reinvested at
lower rates than we were earning on the prepaid securities. When
interest rates increase, prepayments may decrease below expected
levels. When this occurs, the average maturity and duration of
structured securities increases, decreasing the yield on structured
securities purchased at discounts and increasing the yield on
those purchased at a premium because of a decrease in the annual
amortization of premium.

For structured securities included in fixed maturities, available for
sale, that were purchased at a discount or premium, we recognize
investment income using an effective yield based on anticipated
future prepayments and the estimated final maturity of the
securities. Actual prepayment experience is periodically reviewed
and effective yields are recalculated when differences arise between
the prepayments originally anticipated and the actual prepayments
received and currently anticipated. For credit sensitive mortgage-
backed and asset-backed securities, and for securities that can be
prepaid or settled in a way that we would not recover substantially
all of our investment, the effective yield is recalculated on a
prospective basis. Under this method, the amortized cost basis in
the security is not immediately adjusted and a new yield is applied
prospectively. For all other structured and asset-backed securities,
the effective yield is recalculated when changes in assumptions are
made, and reflected in our income on a retrospective basis. Under
this method, the amortized cost basis of the investment in the
securities is adjusted to the amount that would have existed had
the new effective yield been applied since the acquisition of the
securities. such adjustments were not significant in 2013.

For purchased credit impaired (“PCi”) securities, at acquisition,
the difference between the undiscounted expected future cash
flows and the recorded investment in the securities represents the
initial accretable yield, which is to be accreted into net investment
income over the securities’ remaining lives on a level-yield basis.
subsequently, effective yields recognized on PCi securities are
recalculated and adjusted prospectively to reflect changes in the
contractual benchmark interest rates on variable rate securities
and any significant increases in undiscounted expected future
cash flows arising due to reasons other than interest rate changes.
significant decreases in expected cash flows arising from credit
events would result in impairment if such security’s fair value is
below amortized cost.

PART IIITEM 8 Consolidated Financial StatementsThe following table sets forth the par value, amortized cost and estimated fair value of structured securities, summarized by interest rates
on the underlying collateral, at December 31, 2013 (dollars in millions):

below 4 percent
4 percent – 5 percent
5 percent – 6 percent
6 percent – 7 percent
7 percent – 8 percent
8 percent and above

TOTAL STRUCTURED SECURITIES

Par value
981.3
830.8
2,532.4
759.2
116.7
43.9
5,264.3

Amortized
cost
912.5
785.0
2,389.0
714.7
119.1
45.2
4,965.5

Estimated
fair value
927.8
804.0
2,546.6
773.5
129.5
46.0
5,227.4

The amortized cost and estimated fair value of structured securities at December 31, 2013, summarized by type of security, were as follows
(dollars in millions):

TOTAL STRUCTURED SECURITIES

Estimated fair value

Amount
1,469.9
357.5
1,609.0
1,462.1
294.0
34.9
5,227.4

Percent of fixed
maturities

6.3%
1.6
6.9
6.3
1.3
.2
22.6%

Amortized cost
1,398.8
336.9
1,517.1
1,393.4
287.0
32.3
4,965.5

Pass-throughs, sequentials and equivalent securities have unique
prepayment variability characteristics. Pass-through securities
typically return principal to the holders based on cash payments
from the underlying mortgage obligations. sequential securities
return principal to tranche holders in a detailed hierarchy. Planned
amortization classes, targeted amortization classes and accretion-
directed bonds adhere to fixed schedules of principal payments as
long as the underlying mortgage loans experience prepayments
within certain estimated ranges. in most circumstances, changes
in prepayment rates are first absorbed by support or companion
classes insulating the timing of receipt of cash flows from the
consequences of both faster prepayments (average life shortening)
and slower prepayments (average life extension).

securities are

not prepay their mortgages for stated periods of time without
incurring prepayment penalties, recoveries on defaulted collateral
may result in involuntary prepayments.

Commercial Mortgage Loans

At December 31, 2013, the mortgage loan balance was primarily
loans. Approximately
comprised of commercial mortgage
12 percent, 8 percent, 6 percent, 5 percent, 5 percent, 5 percent and
5 percent of the mortgage loan balance were on properties located
in California, Texas, Minnesota, Georgia, Maryland, Colorado
and illinois, respectively. No other state comprised greater than
five percent of the mortgage loan balance. None of the commercial
mortgage loan balance was noncurrent at December 31, 2013.
Our commercial mortgage loan portfolio is comprised of large
commercial mortgage loans. We do not hold groups of smaller-
balance homogeneous loans. Our loans have risk characteristics
that are individually unique. Accordingly, we measure potential
losses on a loan-by-loan basis rather than establishing an allowance
for losses on mortgage loans.

The following table provides the carrying value and estimated fair value of our outstanding mortgage loans and the underlying collateral
as of December 31, 2013 (dollars in millions):

Estimated fair value

Loan-to-value ratio(a)
Less than 60%
60% to 70%
Greater than 70% to 80%
Greater than 80% to 90%
Greater than 90%

TOTAL

Carrying value Mortgage loans
779.8
$
386.4
409.5
141.4
32.4
1,749.5

744.4
386.0
420.0
141.6
37.5
1,729.5

Collateral
2,254.5
592.4
563.8
164.9
40.6
3,616.2

(a) Loan-to-value ratios are calculated as the ratio of: (i) the carrying value of the commercial mortgage loans; to (ii) the estimated fair value of the underlying collateral.

145

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KOther Investment Disclosures

Life insurance companies are required to maintain certain
investments on deposit with state regulatory authorities. such assets
had aggregate carrying values of $65.6 million and $67.8 million
at December 31, 2013 and 2012, respectively.

The changes in unrealized appreciation (depreciation) included in
accumulated other comprehensive income are net of reclassification
adjustments for after-tax net gains from the sale of investments
included in net income of approximately $78 million, $5 million
and $38 million for the years ended December 31, 2013, 2012 and
2011, respectively.

CNO had no fixed maturity investments that were in excess of
10 percent of shareholders’ equity at December 31, 2013 and 2012.

4. LIABILITIES FOR INSURANCE PRODUCTS

Our future policy benefits are summarized as follows (dollars in millions):

Long-term care

Traditional life insurance contracts

Accident and health contracts

interest-sensitive life insurance contracts
Annuities and supplemental contracts with
life contingencies
TOTAL

Withdrawal
assumption
Company
experience
Company
experience
Company
experience
Company
experience
Company
experience

Morbidity
assumption
Company
experience
Company
experience
Company
experience
Company
experience
Company
experience

Mortality
assumption
Company
experience

(a)

Company
experience
Company
experience

(b)

Interest rate
assumption

2013

2012

6% $

4,999.7

5,220.6

2,517.5

2,466.8

526.5

2,444.6

2,443.6

513.8

712.0
11,222.5

696.8
11,319.4

(a) Principally, modifications of: (i) the 1965 - 70 and 1975 - 80 Basic Tables; and (ii) the 1941, 1958 and 1980 Commissioners’ Standard Ordinary Tables; as well as

Company experience.

(b) Principally, modifications of: (i) the 1971 Individual Annuity Mortality Table; (ii) the 1983 Table “A”; and (iii) the Annuity 2000 Mortality Table; as well as

Company experience.

Our policyholder account balances are summarized as follows (dollars in millions):

Fixed index annuities
Other annuities
interest-sensitive life insurance contracts
TOTAL

2013
4,093.9
6,013.0
2,669.5
12,776.4

2012
3,779.7
6,400.3
2,733.1
12,913.1

The Company establishes reserves for insurance policy benefits
based on assumptions as to investment yields, mortality, morbidity,
withdrawals, lapses and maintenance expenses. These reserves
include amounts for estimated future payment of claims based on

actuarial assumptions. The balance is based on the Company’s best
estimate of the future policyholder benefits to be incurred on this
business, given recent and expected future changes in experience.

Changes in the unpaid claims reserve (included in claims payable) and disabled life reserves related to accident and health insurance
(included in the liability for future policy benefits) were as follows (dollars in millions):

balance, beginning of the year
incurred claims (net of reinsurance) related to:

Current year
Prior years(a)

Total incurred

interest on claim reserves
Paid claims (net of reinsurance) related to:

Current year
Prior years

Total paid

Net change in balance for reinsurance assumed and ceded
BALANCE, END OF THE YEAR

2013
1,679.3

2012
1,637.3

1,511.1
(162.3)
1,348.8
75.2

870.0
659.9
1,529.9
136.7
1,710.1

1,570.1
(56.4)
1,513.7
77.8

891.3
663.9
1,555.2
5.7
1,679.3

2011
1,543.7

1,545.8
(41.7)
1,504.1
78.4

866.5
626.2
1,492.7
3.8
1,637.3

(a) The reserves and liabilities we establish are necessarily based on estimates, assumptions and prior years’ statistics. Such amounts will fluctuate based upon the
estimation procedures used to determine the amount of unpaid losses. It is possible that actual claims will exceed our reserves and have a material adverse effect on our
results of operations and financial condition.

146

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements5. INCOME TAXES

The components of income tax expense were as follows (dollars in millions):

Current tax expense
Deferred tax expense
Deferred tax benefit on loss related to reinsurance transaction
Deferred tax benefit related to loss on extinguishment of debt
Valuation allowance applicable to current year income

income tax expense calculated based on annual effective tax rate

income tax expense (benefit) on discrete items:

Valuation allowance reduction applicable to income in future years and
utilization of capital loss carryforwards
Valuation allowance reduction applicable to the settlement with the iRs regarding
the classification of a portion of the cancellation of indebtedness income
Valuation allowance reduction resulting from the completion of certain
investment trading strategies resulting in utilization of capital loss carryforwards
Other valuation allowance items
Valuation allowance related to expired capital loss carryforwards
Deferred taxes on expired capital loss carryforwards
Other items

TOTAL INCOME TAX BENEFIT

2013
8.2
160.4
(34.4)
(5.9)
(19.7)
108.6

(141.2)

(71.8)

(64.7)
(15.3)
(159.4)
159.4
11.2
(173.2)

2012
12.5
117.4
—
—
(60.3)
69.6

2011
11.9
101.6
—
—
—
113.5

(111.2)

(143.0)

—

—
—
—
—
(23.7)
(65.3) $

—

—
—
—
—
—
(29.5)

A reconciliation of the U.s. statutory corporate tax rate to the effective rate reflected in the consolidated statement of operations is
as follows:

U.s. statutory corporate rate
Valuation allowance
expired capital loss carryforwards (which were fully offset by a corresponding
reduction in the valuation allowance)
Non-taxable income and nondeductible benefits, net
state taxes
Provision for tax issues, tax credits and other

EFFECTIVE TAX RATE

2013
35.0%

(154.9)

52.3
5.0
1.9
3.9
(56.8)%

2012
35.0%

(110.1)

—
32.3
1.4
(.5)
(41.9)%

The components of the Company’s income tax assets and liabilities are summarized below (dollars in millions):

Deferred tax assets:

Net federal operating loss carryforwards
Net state operating loss carryforwards
Tax credits
Capital loss carryforwards
Deductible temporary differences:

investments
insurance liabilities
Other

Gross deferred tax assets

Deferred tax liabilities:

investments
Present value of future profits and deferred acquisition costs
Accumulated other comprehensive income

Gross deferred tax liabilities
Net deferred tax assets before valuation allowance

Valuation allowance

Net deferred tax assets

Current income taxes accrued

INCOME TAX ASSETS, NET

2013

1,240.2
20.0
43.9
13.4

74.3
723.8
64.7
2,180.3

—
(306.8)
(405.5)
(712.3)
1,468.0
(294.8)
1,173.2
(26.0)
1,147.2

2011
35.0%
(46.7)

—
.7
.9
.5
(9.6)%

2012

1,330.2
16.2
39.2
296.2

—
746.3
86.0
2,514.1

(24.1)
(325.2)
(655.3)
(1,004.6)
1,509.5
(766.9)
742.6
(25.7)
716.9

147

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KOur income tax expense includes deferred income taxes arising
from temporary differences between the financial reporting and tax
bases of assets and liabilities, capital loss carryforwards and NOLs.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply in the years in which temporary differences
are expected to be recovered or paid. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in earnings
in the period when the changes are enacted.

A reduction of the net carrying amount of deferred tax assets by
establishing a valuation allowance is required if, based on the
available evidence, it is more likely than not that such assets will
not be realized. in assessing the need for a valuation allowance, all
available evidence, both positive and negative, shall be considered
to determine whether, based on the weight of that evidence,
a valuation allowance for deferred tax assets is needed. This
assessment requires significant judgment and considers, among
other matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the duration of
carryforward periods, our experience with operating loss and tax
credit carryforwards expiring unused, and tax planning strategies.
We evaluate the need to establish a valuation allowance for our
deferred income tax assets on an ongoing basis. The realization
of our deferred tax assets depends upon generating sufficient
future taxable income of the appropriate type during the periods
in which our temporary differences become deductible and before
our capital loss carryforwards and life and non-life NOLs expire.

based on our assessment, it appears more likely than not that
$1,173.2 million of our deferred tax assets will be realized through
future taxable earnings. Accordingly, we reduced our deferred tax
valuation allowance by $472.1 million in 2013. We will continue
to assess the need for a valuation allowance in the future. if
future results are less than projected, a valuation allowance may
be required to reduce the deferred tax asset, which could have a
material impact on our results of operations in the period in which
it is recorded.

The principal components of the reduction to our valuation
allowance for deferred tax assets are further discussed below. First,
our 2013 taxable income exceeded the amount previously reflected
in our deferred tax valuation model, resulting in a reduction to
the valuation allowance of $19.7 million. in addition, our recent
higher levels of operating income resulted in the projection of
higher levels of future years taxable income based on evidence
we consider to be objective and verifiable. This change is further
described in the following paragraph and resulted in a reduction
to the valuation allowance for deferred tax assets in 2013 of $114.7
million. We reduced our deferred tax valuation allowance by $26.5
million resulting from the utilization of capital loss carryforwards
during 2013. Furthermore, deferred tax assets and the valuation
allowance for deferred tax assets were both reduced by $159.4
million due to the expiration of capital loss carryforwards. As
further described below, we reached an agreement with the
internal Revenue service (the “iRs”) regarding the classification
of cancellation of indebtedness income (“CODi”) related to the
bankruptcy of our Predecessor which resulted in a $71.8 million
reduction to our valuation allowance. in the fourth quarter of 2013,
we completed certain investment trading strategies that resulted in
the realization, for tax purposes only, of unrealized gains in our
investment portfolio of $277 million. such transactions allowed
us to utilize capital loss carryforwards (that would have otherwise
expired) of $277 million to offset such tax gains. Accordingly, we
reduced our valuation allowance for deferred tax assets by $97.1
million. However, as a result of the higher tax basis for these
investments, our future taxable income during the carryforward
period will be lower. As a result, we were required to increase our
valuation allowance for deferred tax assets by $32.4 million.

Our deferred tax valuation model reflects projections of future
taxable income based on a normalized average annual taxable
income for the last three years, plus 3 percent growth for the next
five years and level income thereafter. in our new projections,
our three year average increased to $360 million, compared to
$292 million in our prior projection. We have evaluated each
component of the deferred tax asset and assessed the effect of
limitations and/or interpretations on the value of each component
to be fully recognized in the future.

Changes in our valuation allowance are summarized as follows (dollars in millions):

balance, December 31, 2010

Decrease in 2011

balance, December 31, 2011

Decrease in 2012

balance, December 31, 2012

Decrease in 2013

BALANCE, DECEMBER 31, 2013

1,081.4
(143.0)(a)
938.4
(171.5)(b)
766.9
(472.1)(c)
294.8

(a) The $143.0 million reduction to the deferred tax valuation allowance during 2011 resulted primarily from our recent higher levels of operating income when

projecting future taxable income.

(b) The $171.5 million reduction to the deferred tax valuation allowance during 2012 resulted primarily from: (i) higher taxable income in 2012 (including investment

gains); and (ii) our recent higher levels of operating income when projecting future taxable income.

148

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsRecovery of our deferred tax asset is dependent on achieving the
future taxable income used in our deferred tax valuation model
and failure to do so would result in an increase in the valuation
allowance in a future period. Any future increase in the valuation
allowance may result in additional income tax expense and reduce
shareholders’ equity, and such an increase could have a significant
impact upon our earnings in the future. in addition, the use of
the Company’s NOLs is dependent, in part, on whether the iRs
ultimately agrees with the tax position we have taken in our tax
returns with respect to the classification of the loss we recognized
as a result of the transfer of the stock of our former subsidiary,
Conseco senior Health insurance Company (“CsHi”) to
senior Health Care Oversight Trust, an independent trust (the
“independent Trust”).

The internal Revenue Code (the “Code”) limits the extent to
which losses realized by a non-life entity (or entities) may offset
income from a life insurance company (or companies) to the lesser
of: (i) 35 percent of the income of the life insurance company; or
(ii) 35 percent of the total loss of the non-life entities (including
NOLs of the non-life entities). There is no similar limitation on
the extent to which losses realized by a life insurance entity (or
entities) may offset income from a non-life entity (or entities).
This limitation is the primary reason a valuation allowance for net
operating loss carryforwards is required.

section 382 of the Code imposes limitations on a corporation’s
ability to use its NOLs when the company undergoes an ownership
change. Future transactions and the timing of such transactions
could cause an ownership change for section 382 income tax
purposes. such transactions may include, but are not limited to,
additional repurchases under our securities repurchase program,
issuances of common stock and acquisitions or sales of shares of
CNO stock by certain holders of our shares, including persons
who have held, currently hold or may accumulate in the future five
percent or more of our outstanding common stock for their own
account. Many of these transactions are beyond our control. if an
additional ownership change were to occur for purposes of section
382, we would be required to calculate an annual restriction on
the use of our NOLs to offset future taxable income. The annual
restriction would be calculated based upon the value of CNO’s
equity at the time of such ownership change, multiplied by a federal
long-term tax exempt rate (3.50 percent at December 31, 2013),
and the annual restriction could effectively eliminate our ability
to use a substantial portion of our NOLs to offset future taxable
income. We regularly monitor ownership change (as calculated for
purposes of section 382) and, as of December 31, 2013, we were
below the 50 percent ownership change level that would trigger
further impairment of our ability to utilize our NOLs.

On January 20, 2009, the Company’s board of Directors adopted
a section 382 Rights Agreement designed to protect shareholder
value by preserving the value of our tax assets primarily associated
with tax NOLs under section 382. The section 382 Rights
Agreement was adopted to reduce the likelihood of this occurring
by deterring the acquisition of stock that would create “5 percent
shareholders” as defined in section 382. On December 6, 2011,
the Company’s board of Directors amended the section 382
Rights Agreement to, among other things, (i) extend the final

expiration date of the Amended Rights Agreement to December 6,
2014, (ii) update the purchase price of the rights described below,
(iii) provide for a new series of preferred stock relating to the rights
that is substantially identical to the prior series of preferred stock,
(iv) provide for a 4.99 percent ownership threshold relating to any
Company 382 securities (as defined below), and amend other
provisions to reflect best practices for tax benefit preservation
plans, including updates to certain definitions.

Under the section 382 Rights Agreement, one right was distributed
for each share of our common stock outstanding as of the close of
business on January 30, 2009 and for each share issued after that
date. Pursuant to the Amended section 382 Rights Agreement, if
any person or group (subject to certain exemptions) becomes an
owner of more than 4.99 percent of the Company’s outstanding
common stock (or any other interest in the Company that would
be treated as “stock” under applicable section 382 regulations)
without the approval of the board of Directors, there would be a
triggering event causing significant dilution in the voting power
and economic ownership of that person or group. shareholders
who held more than 4.99 percent of the Company’s outstanding
common stock as of December 6, 2011 will trigger a dilutive event
only if they acquire additional shares exceeding one percent of
our outstanding shares without prior approval from the board
of Directors.

The Amended section 382 Rights Agreement was approved by
our shareholders at the Company’s 2012 annual meeting and will
continue in effect until December 6, 2014, unless earlier terminated
or redeemed by the board of Directors. The Company’s Audit and
enterprise Risk Committee will review our NOLs on an annual
basis and will recommend amending or terminating the section
382 Rights Agreement based on its review.

On May 11, 2010, our shareholders approved an amendment to
CNO’s certificate of incorporation designed to prevent certain
transfers of common stock which could otherwise adversely affect
our ability to use our NOLs (the “Original section 382 Charter
Amendment”). subject to the provisions set forth in the Original
section 382 Charter Amendment, transfers of our common
stock would be void and of no effect if the effect of the purported
transfer would be to: (i) increase the direct or indirect ownership
of our common stock by any person or public group (as such term
is defined in the regulations under section 382) from less than 5%
to 5% or more of our common stock; (ii) increase the percentage
of our common stock owned directly or indirectly by a person
or public group owning or deemed to own 5% or more of our
common stock; or (iii) create a new public group.

On May 8, 2013, our shareholders approved an amendment
(the “extended section 382 Charter Amendment”) to CNO’s
certificate of incorporation to: (i) extend the term of the
Original section 382 Charter Amendment for three years until
December 31, 2016, (ii) provide for a 4.99 percent ownership
threshold relating to our stock, and (iii) amend certain other
provisions of the Original section 382 Charter Amendment,
including updates to certain definitions, for consistency with the
Amended section 382 Rights Agreement.

149

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KAs of December 31, 2013, we had $3.5 billion of federal NOLs and $38.2 million of capital loss carryforwards. The following table
summarizes the expiration dates of our loss carryforwards assuming the iRs ultimately agrees with the position we have taken with respect
to the loss on our investment in CsHi (dollars in millions):

Year of expiration

Net operating loss carryforwards

2014
2016
2018
2021
2022
2023
2025
2027
2028
2029
2032
subtotal

Less:

Unrecognized tax benefits

TOTAL

Life

— $
—
314.9
30.0
202.0
742.6
—
—
—
—
—
1,289.5

(379.0)
910.5

Non-life

— $
—
—
—
—
2,199.2
118.6
220.6
.5
272.3
44.0
2,855.2

(222.4)
2,632.8

Capital loss
carryforwards
.2
1.9
—
—
—
—
—
—
—
—
—
2.1

Total loss
carryforwards
.2
1.9
314.9
30.0
202.0
2,941.8
118.6
220.6
.5
272.3
44.0
4,146.8

36.1
38.2 $

(565.3)
3,581.5

in July 2006, the Joint Committee of Taxation accepted the audit
and the settlement which characterized $2.1 billion of the tax
losses on our Predecessor’s investment in Conseco Finance Corp.
as life company losses and the remaining $3.8 billion as non-life
losses prior to the application of the CODi attribute reductions
described below.

The Code provides that any income realized as a result of the
CODi in bankruptcy must reduce NOLs. We realized $2.5 billion
of CODi when we emerged from bankruptcy. Pursuant to the
Company’s interpretation of the tax law, the CODi reductions
were all used to reduce non-life NOLs and this position has been
taken in our tax returns. However, the iRs was not in agreement
with our position. Due to uncertainties with respect to the position
the iRs could take and limitations on our ability to utilize NOLs
based on projected life and non-life income, we had consistently

considered the $631 million of CODi to be a reduction to life
NOLs when determining our valuation allowance. A final closing
agreement was received from the iRs in August 2013. Under
the terms of the agreement, $315 million of the $631 million of
CODi is treated as a reduction to the non-life NOLs resulting in
a reduction to our valuation allowance of $71.8 million which was
recognized in 2013.

We recognized an $878 million ordinary loss on our investment
in CsHi which was worthless when it was transferred to the
independent Trust in 2008. Of this loss, $742 million has been
reported as a life loss and $136 million as a non-life loss. The iRs
has disagreed with our ordinary loss treatment and believes that it
should be treated as a capital loss, subject to a five year carryover.
if the iRs position is ultimately determined to be correct,
$473 million would have expired unused in 2013. Due to this
uncertainty, we have not recognized a tax benefit of $166 million.
However, if this unrecognized tax benefit would have been
recognized, we would also have established a valuation allowance
of $41 million at December 31, 2013.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2013 and 2012 is as
follows (dollars in millions):

balance at beginning of year

increase based on tax positions taken in prior years
Decrease based on tax positions taken in prior years
increase based on tax positions taken in the current year
Decrease in unrecognized tax benefits related to settlements with taxing authorities

BALANCE AT END OF YEAR

Years ended December 31,

2013
310.5
35.6
(27.0)
47.6
(140.0)
226.7

2012
318.2
7.3
(15.0)
—
—
310.5

150

CNO FINANCIAL GROUP, INC. - Form 10-K

income tax expense in the consolidated statement of operations.
such amounts were not significant in each of the three years
ended December 31, 2013. The liability for accrued interest
was $1.8 million and $1.8 million at December 31, 2013 and
2012, respectively.

PART IIITEM 8 Consolidated Financial StatementsDue to the uncertainty in tax law, we were not able to conclude that
a tax position for the repurchase premium related to the repurchase
of our 7.0% Debentures on september 28, 2012 and March 27,
2013, was more likely than not to be sustained. We engaged
outside counsel and received external evidence in July 2013 which
supports our position that deductions with respect to a portion of
the repurchase premium paid in 2012 and 2013 should be allowed
under section 249 of the Code. We recognized a tax benefit of
$14.3 million in 2013, related to the change in facts regarding the
deductibility of a portion of the repurchase premium.

Tax years 2004 and 2008 through 2012 are open to examination
by the iRs. The Company’s various state income tax returns are
generally open for tax years 2010 through 2012 based on the
individual state statutes of limitation. Generally, for tax years which
generate NOLs, capital losses or tax credit carryforwards, the statute
of limitations does not close until the expiration of the statute of
limitations for the tax year in which such carryforwards are utilized.

in accordance with GAAP, we are precluded from recognizing the
tax benefits of any tax windfall upon the exercise of a stock option
or the vesting of restricted stock unless such deduction resulted in
actual cash savings to the Company. because of the Company’s
NOLs, no cash savings have occurred. NOL carryforwards of
$2.9 million related to deductions for stock options and restricted
stock will be reflected in additional paid-in capital if realized.

The iRs is currently examining our 2004 and 2008 through
2010 tax returns. The tax benefit for 2013 reflects an increase to
tax expense of $37.6 million for anticipated adjustments related
to the iRs examination (including $3.1 million reducing the
aforementioned CODi benefit, $32.3 million related to uncertain
tax positions and $2.2 million of net corrections to previously
filed returns).

6. NOTES PAYABLE - DIRECT CORPORATE OBLIGATIONS

The following notes payable were direct corporate obligations of the Company as of December 31, 2013 and 2012 (dollars in millions):

senior secured Credit Agreement (as defined below)
6.375% senior secured Notes due October 2020 (the “6.375% Notes”)
7.0% Debentures
Unamortized discount on senior secured Credit Agreement
Unamortized discount on 7.0% Debentures

DIRECT CORPORATE OBLIGATIONS

2013
581.5
275.0
3.5
(3.6)
—
856.4

2012
644.6
275.0
93.0
(5.0)
(3.4)
1,004.2

in the third quarter of 2012, as further discussed below, we completed a comprehensive recapitalization plan. The following table sets
forth the sources and uses of cash from the recapitalization transactions (dollars in millions):

sources:

senior secured Credit Agreement
issuance of 6.375% Notes
TOTAL SOURCES

Uses:

Cash on hand for general corporate purposes
Repurchase of $200 million principal amount of 7.0% Debentures pursuant to Debenture Repurchase Agreement
Repayment of Previous senior secured Credit Agreement
Repayment of $275.0 million principal amount of 9.0% Notes, including redemption premium
Debt issuance costs
Accrued interest
TOTAL USES

669.5
275.0
944.5

13.7
355.1
223.8
322.7
23.1
6.1
944.5

Senior Secured Credit Agreement

On september 28, 2012, the Company entered into a new senior
secured credit agreement, providing for: (i) a $425.0 million
six-year term loan facility ($394.0 million remained outstanding
at December 31, 2013); (ii) a $250.0 million four-year term loan
facility ($187.5 million remained outstanding at December 31,
2013); and (iii) a $50.0 million three-year revolving credit facility,
with JPMorgan Chase bank, N.A., as administrative agent
(the “Agent”), and the lenders from time to time party thereto
(the “senior secured Credit Agreement”). The senior secured

Credit Agreement is guaranteed by the subsidiary Guarantors
(as defined below) and secured by a first-priority lien (which
ranks pari passu with the liens securing the 6.375% Notes) on
substantially all of the Company’s and the subsidiary Guarantors’
assets. As of December 31, 2013, no amounts have been borrowed
under the revolving credit facility. The net proceeds from the
senior secured Credit Agreement, together with the net proceeds
from the 6.375% Notes, were used to repay other outstanding
indebtedness, as further described below, and for general
corporate purposes.

151

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe revolving credit facility includes an uncommitted subfacility
for swingline loans of up to $5.0 million, and up to $5.0 million
of the revolving credit facility is available for the issuance of letters
of credit. The six-year term loan facility amortizes in quarterly
installments in amounts resulting in an annual amortization of
1% and the four-year term loan facility amortizes in quarterly
installments resulting in an annual amortization of 20% during
the first and second years and 30% during the third and fourth
years. subject to certain conditions, the Company may incur
additional incremental loans under the senior secured Credit
Agreement in an amount of up to $250.0 million.

in May 2013, we amended our senior secured Credit Agreement.
Pursuant to the amended terms, the applicable interest rates were
decreased. The new interest rates with respect to loans under: (i) the
six-year term loan facility are, at the Company’s option, equal
to a eurodollar rate, plus 2.75% per annum, or a base rate, plus
1.75% per annum, subject to a eurodollar rate “floor” of 1.00%
and a base rate “floor” of 2.25% (previously a eurodollar rate, plus
3.75% per annum, or a base rate, plus 2.75% per annum, subject
to a eurodollar rate “floor” of 1.25% and a base rate “floor” of
2.25%); (ii) the four-year term loan facility are, at the Company’s
option, equal to a eurodollar rate, plus 2.25% per annum, or a base
rate, plus 1.25% per annum, subject to a eurodollar rate “floor”
of .75% and a base rate “floor” of 2.00% (previously a eurodollar
rate, plus 3.25% per annum, or a base rate, plus 2.25% per annum,
subject to a eurodollar rate “floor” of 1.00% and a base rate
“floor” of 2.00%); and (iii) the revolving credit facility will be,
at the Company’s option, equal to a eurodollar rate, plus 3.00%
per annum, or a base rate, plus 2.00% per annum, in each case,
with respect to revolving credit facility borrowings only, subject
to certain step-downs based on the debt to total capitalization
ratio of the Company (previously a eurodollar rate, plus 3.50%
per annum, or a base rate, plus 2.50% per annum, subject to
certain step-downs based on the debt to total capitalization ratio
of the Company). At December 31, 2013, the interest rates on the
six-year term loan facility and the four-year term loan facility were
3.75% and 3.00%, respectively.

Other changes made in May 2013 to the senior secured Credit
Agreement included modifications of mandatory prepayments
resulting from certain restricted payments made (including any
common stock dividends and share repurchases) as defined in
the senior secured Credit Agreement. Pursuant to the amended
terms, the amount of the mandatory prepayment is: (a) 100% of
the amount of certain restricted payments provided that if, as of
the end of the fiscal quarter immediately preceding such restricted
payment, the debt to total capitalization ratio is: (x) equal to or less
than 25.0% but greater than 20.0%, the prepayment requirement
shall be reduced to 33.33% (previously less than or equal to 22.5%
but greater than 17.5%); or (y) equal to or less than 20.0%, the
prepayment requirement shall not apply (previously equal to or
less than 17.5%).

in the first six months of 2013, we made mandatory prepayments
of $20.4 million in an amount equal to 33.33% of our share
repurchases and common stock dividend payments, as required
under the terms of our senior secured Credit Agreement. No
mandatory prepayments were required in the second half of 2013
as our debt to total capitalization ratio, as defined in the senior
secured Credit Agreement, was below 20.0 percent. We also

made additional payments of $42.7 million in 2013 to cover the
remaining portion of the scheduled quarterly principal payments
due under the senior secured Credit Agreement.

Mandatory prepayments of the senior secured Credit Agreement
will be required, subject to certain exceptions, in an amount equal
to: (i) 100% of the net cash proceeds from certain asset sales or
casualty events; (ii) 100% of the net cash proceeds received by
the Company or any of its restricted subsidiaries from certain
debt issuances; and (iii) 100% of the amount of certain restricted
payments made (including any common stock dividends and share
repurchases) as defined in the senior secured Credit Agreement
provided that if, as of the end of the fiscal quarter immediately
preceding such restricted payment, the debt to total capitalization
ratio is: (x) equal to or less than 25.0%, but greater than 20.0%,
the prepayment requirement shall be reduced to 33.33%; or (y)
equal to or less than 20.0%, the prepayment requirement shall
not apply.

Notwithstanding the foregoing, no mandatory prepayments
pursuant to item (i) in the preceding paragraph shall be required
if: (x) the debt to total capitalization ratio is equal or less than
20% and (y) either (A) the financial strength rating of certain
of the Company’s insurance subsidiaries is equal or better than
A- (stable) from A.M. best Company or (b) the senior secured
Credit Agreement is rated equal or better than bbb- (stable) from
s&P and baa3 (stable) by Moody’s.

in 2012, as required under the terms of the senior secured Credit
Agreement, we made mandatory prepayments of $28.4 million
due to repurchases of our common stock and payment of a
common stock dividend. We also made an additional payment
of $2.0 million to cover the remaining portion of the scheduled
quarterly principal payments.

The senior secured Credit Agreement contains covenants that
limit the Company’s ability to take certain actions and perform
certain activities, including (each subject to exceptions as set forth
in the senior secured Credit Agreement):

• limitations on debt (including, without limitation, guarantees

and other contingent obligations);

• limitations on issuances of disqualified capital stock;

• limitations on liens and further negative pledges;

• limitations on sales, transfers and other dispositions of assets;

• limitations on transactions with affiliates;

• limitations on changes in the nature of the Company’s business;

• limitations on mergers, consolidations and acquisitions;

• limitations on dividends and other distributions, stock
repurchases and redemptions and other restricted payments;

• limitations on investments and acquisitions;

• limitations on prepayment of certain debt;

• limitations on modifications or waivers of certain debt

documents and charter documents;

• investment portfolio requirements for insurance subsidiaries;

• limitations on restrictions affecting subsidiaries;

152

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements• limitations on holding company activities; and

• limitations on changes in accounting policies.

The senior secured Credit Agreement requires the Company to
maintain (each as calculated in accordance with the senior secured
Credit Agreement): (i) a debt to total capitalization ratio of not more
than 27.5 percent (such ratio was 17.0 percent at December 31,
2013); (ii) an interest coverage ratio of not less than 2.50 to 1.00
for each rolling four quarters (or, if less, the number of full fiscal
quarters commencing after the effective date of the senior secured
Credit Agreement) (such ratio was 8.53 to 1.00 for the four quarters
ended December 31, 2013); (iii) an aggregate ratio of total adjusted
capital to company action level risk-based capital for the Company’s
insurance subsidiaries of not less than 250 percent (such ratio was
410 percent at December 31, 2013); and (iv) a combined statutory
capital and surplus for the Company’s insurance subsidiaries of at
least $1,300.0 million (combined statutory capital and surplus at
December 31, 2013, was $1,945.8 million).

The senior secured Credit Agreement provides for customary
events of default (subject in certain cases to customary grace
and cure periods), which include nonpayment, incorrectness of
any representation or warranty in any material respect, breach of
covenants in the senior secured Credit Agreement or other loan
documents, cross default to certain other indebtedness, certain
events of bankruptcy and insolvency, certain eRisA events, a
failure to pay certain judgments, certain material regulatory
events, the occurrence of a change of control, and the invalidity
of any material provision of any loan document or material lien
or guarantee granted under the loan documents. if an event of
default under the senior secured Credit Agreement occurs and is
continuing, the Agent may accelerate the amounts and terminate
all commitments outstanding under the senior secured Credit
Agreement and may exercise remedies in respect of the collateral.

in connection with the execution of the senior secured Credit
Agreement, the Company and the subsidiary Guarantors entered
into a guarantee and security agreement, dated as of september
28, 2012 (the “Guarantee and security Agreement”), by and
among the Company, the subsidiary Guarantors and the Agent,
pursuant to which the subsidiary Guarantors guaranteed all of
the obligations of the Company under the senior secured Credit
Agreement and the Company and the subsidiary Guarantors
pledged substantially all of their assets to secure the senior secured
Credit Agreement, subject to certain exceptions as set forth in the
Guarantee and security Agreement.

6.375% Notes

On september 28, 2012, we issued $275.0 million in aggregate
principal amount of 6.375% Notes pursuant to an indenture,
dated as of september 28, 2012 (the “6.375% indenture”),
among the Company, the subsidiary guarantors party thereto
(the “subsidiary Guarantors”) and Wilmington Trust, National
Association, as trustee (the “Trustee”) and as collateral agent
(the “Collateral Agent”). The net proceeds from the issuance of
the 6.375% Notes, together with the net proceeds from the senior
secured Credit Agreement, were used to repay other outstanding
indebtedness and for general corporate purposes. The 6.375%
Notes mature on October 1, 2020. interest on the 6.375% Notes
accrues at a rate of 6.375% per annum and is payable semiannually
in arrears on April 1 and October 1 of each year, commencing

on April 1, 2013. The 6.375% Notes and the guarantees
thereof (the “Guarantees”) are senior secured obligations of the
Company and the subsidiary Guarantors and rank equally in
right of payment with all of the Company’s and the subsidiary
Guarantors’ existing and future senior obligations, and senior
to all of the Company’s and the subsidiary Guarantors’ future
subordinated indebtedness. The 6.375% Notes are secured by a
first-priority lien on substantially all of the assets of the Company
and the subsidiary Guarantors, subject to certain exceptions. The
6.375% Notes and the Guarantees are pari passu with respect to
security and in right of payment with all of the Company’s and the
subsidiary Guarantors’ existing and future secured indebtedness
under the senior secured Credit Agreement. The 6.375% Notes
are structurally subordinated to all of the liabilities and preferred
stock of each of the Company’s insurance subsidiaries, which are
not guarantors of the 6.375% Notes.

The Company may redeem all or part of the 6.375% Notes
beginning on October 1, 2015, at the redemption prices set
forth in the 6.375% indenture. The Company may also redeem
all or part of the 6.375% Notes at any time and from time to
time prior to October 1, 2015, at a price equal to 100% of the
aggregate principal amount of the 6.375% Notes to be redeemed,
plus a “make-whole” premium and accrued and unpaid interest
to, but not including, the redemption date. in addition, prior to
October 1, 2015, the Company may redeem up to 35% of the
aggregate principal amount of the 6.375% Notes with the net cash
proceeds of certain equity offerings at a price equal to 106.375%
of the aggregate principal amount of the 6.375% Notes to be
redeemed, plus accrued and unpaid interest to, but not including,
the redemption date.

Upon the occurrence of a Change of Control (as defined in the
6.375% indenture), each holder of the 6.375% Notes may require
the Company to repurchase all or a portion of the 6.375% Notes
in cash at a price equal to 101% of the aggregate principal amount
of the 6.375% Notes to be repurchased, plus accrued and unpaid
interest, if any, to, but not including, the date of repurchase.

The 6.375% indenture contains covenants that, among other
things, limit (subject to certain exceptions) the Company’s ability
and the ability of the Company’s Restricted subsidiaries (as
defined in the 6.375% indenture) to:

• incur or guarantee additional indebtedness or issue preferred

stock;

• pay dividends or make other distributions to shareholders;

• purchase or redeem capital stock or subordinated indebtedness;

• make investments;

• create liens;

• incur restrictions on the Company’s ability and the ability
of its Restricted subsidiaries to pay dividends or make other
payments to the Company;

• sell assets, including capital stock of the Company’s subsidiaries;

• consolidate or merge with or into other companies or transfer

all or substantially all of the Company’s assets; and

• engage in transactions with affiliates.

153

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe 6.375% indenture provides for customary events of default
(subject in certain cases to customary grace and cure periods),
which include nonpayment, breach of covenants in the 6.375%
indenture, failure to pay at maturity or acceleration of other
indebtedness, a failure to pay certain judgments and certain events
of bankruptcy and insolvency. Generally, if an event of default
occurs, the Trustee or holders of at least 25% in principal amount
of the then outstanding 6.375% Notes may declare the principal of
and accrued but unpaid interest, including any additional interest,
on all of the 6.375% Notes to be due and payable.

Under the 6.375% indenture, the Company can make Restricted
Payments (as such term is defined in the 6.375% indenture) up
to a calculated limit, provided that the Company’s pro forma
risk-based capital ratio exceeds 225% after giving effect to
the Restricted Payment and certain other conditions are met.
Restricted Payments include, among other items, repurchases
of common stock and cash dividends on common stock (to the
extent such dividends exceed $30.0 million in the aggregate in any
calendar year).

The limit of Restricted Payments permitted under the 6.375%
indenture is the sum of (x) 50% of the Company’s “Net excess
Cash Flow” (as defined in the 6.375% indenture) for the period
(taken as one accounting period) from July 1, 2012 to the end of the
Company’s most recently ended fiscal quarter for which financial
statements are available at the time of such Restricted Payment,
(y) $175.0 million and (z) certain other amounts specified in
the 6.375% indenture. based on the provisions set forth in the
6.375% indenture and the Company’s Net excess Cash Flow for
the period from July 1, 2012 through December 31, 2013, the
Company could have made additional Restricted Payments under
this 6.375% indenture covenant of approximately $242 million
as of December 31, 2013. This limitation on Restricted Payments
does not apply if the Debt to Total Capitalization Ratio (as defined
in the 6.375% indenture) as of the last day of the Company’s most
recently ended fiscal quarter for which financial statements are
available that immediately precedes the date of any Restricted
Payment, calculated immediately after giving effect to such
Restricted Payment and any related transactions on a pro forma
basis, is equal to or less than 17.5%.

in connection with the issuance of the 6.375% Notes and
execution of the 6.375% indenture, the Company and the
subsidiary Guarantors entered into a security agreement, dated as
of september 28, 2012 (the “security Agreement”), by and among
the Company, the subsidiary Guarantors and the Collateral Agent,
pursuant to which the Company and the subsidiary Guarantors
pledged substantially all of their assets to secure their obligations
under the 6.375% Notes and the 6.375% indenture, subject to
certain exceptions as set forth in the security Agreement.

Pari Passu Intercreditor Agreement

in connection with the issuance of the 6.375% Notes and entry
into the senior secured Credit Agreement, the Agent and the
Collateral Agent, as authorized representative with respect to the
6.375% Notes, entered into a Pari Passu intercreditor Agreement,
dated as of september 28, 2012 (the “intercreditor Agreement”),
which sets forth agreements with respect to the first-priority liens
granted by the Company and the subsidiary Guarantors pursuant
to the 6.375% indenture and the senior secured Credit Agreement.

Under the intercreditor Agreement, any actions that may be taken
with respect to the collateral that secures the 6.375% Notes and the
senior secured Credit Agreement, including the ability to cause
the commencement of enforcement proceedings against such
collateral, to control such proceedings and to approve amendments
to releases of such collateral from the lien of, and waive past
defaults under, such documents relating to such collateral, will
be at the direction of the authorized representative of the lenders
under the senior secured Credit Agreement until the earliest of:
(i) the Company’s obligations under the senior secured Credit
Agreement (or refinancings thereof) are discharged; (ii) the earlier
of (x) the date on which the outstanding principal amount of loans
and commitments under the senior secured Credit Agreement is
less than $25.0 million and (y) the date on which the outstanding
principal amount of another tranche of first-priority indebtedness
exceeds the principal amount of loans and commitments under
the senior secured Credit Agreement; and (iii) 180 days after the
occurrence of both an event of default under the 6.375% indenture
and the authorized representative of the holders of the New Notes
making certain representations as described in the intercreditor
Agreement, unless the authorized representative of the lenders
under the senior secured Credit Agreement has commenced
and is diligently pursuing enforcement action with respect to the
collateral or the grantor of the security interest in that collateral
(whether the Company or the applicable subsidiary Guarantor) is
then a debtor under or with respect to (or otherwise subject to) any
insolvency or liquidation proceeding.

9.0% Notes

On December 21, 2010, we issued $275.0 million aggregate
principal amount of 9.0% senior secured Notes due January 2018
(the “9.0% Notes”). The net proceeds of $267.0 million were used
to repay certain indebtedness. The Company could redeem all or
part of the 9.0% Notes at any time and from time to time prior
to January 15, 2014, at a price equal to 100% of the aggregate
principal amount of the 9.0% Notes to be redeemed plus a “make-
whole” premium and accrued and unpaid interest.

On september 28, 2012, the Company completed the cash
tender offer for $273.8 million aggregate principal amount of the
9.0% Notes and received consents from such holders to proposed
amendments to the indenture governing the 9.0% Notes (the
“9.0% indenture”). in addition, on september 28, 2012 (the
“initial Payment Date”), the Company, the subsidiary Guarantors
and Wilmington Trust, National Association (as successor by
merger to Wilmington Trust Fsb), as trustee, executed a first
supplemental indenture to the 9.0% indenture (the “supplemental
indenture”) that eliminated substantially all of the restrictive
covenants contained in the 9.0% indenture and certain events
of default and related provisions. The supplemental indenture
became effective upon execution, and the amendments to the
9.0% indenture became operative on the initial Payment Date
upon acceptance of and payment for the tendered 9.0% Notes by
the Company.

On the initial Payment Date, the Company paid an aggregate
of $326.3 million (using a portion of the net proceeds from its
offering of the 6.375% Notes, together with borrowings under the
senior secured Credit Agreement) in order to purchase the 9.0%
Notes tendered prior to the initial Payment Date (representing,

154

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementsin the aggregate, tender offer consideration of approximately
$313.1 million, consent payments of approximately $8.2 million
and accrued and unpaid interest to, but not including, the initial
Payment Date of approximately $5.0 million). The remaining $1.2
million of 9.0% Notes were redeemed on October 29, 2012.

Agreement, the Company purchased from each of the Paulson
Holders the 7.0% Debentures held by such Paulson Holders, for
a cash purchase price of $355.1 million that provided for a 2.8%
discount to the estimated fair market value of the 7.0% Debentures
as defined in the Debenture Repurchase Agreement.

7.0% Debentures

From November 2009 through May 2010, we issued $293.0
million aggregate principal amount of our 7.0% senior Debentures
due 2016 (the “7.0% Debentures”). The Company used the net
proceeds from the issuance of the 7.0% Debentures to retire
outstanding indebtedness.

The 7.0% Debentures rank equally in right of payment with all
of the Company’s unsecured and unsubordinated obligations.
The 7.0% Debentures are governed by an indenture dated as of
October 16, 2009 (the “7.0% indenture”) between the Company
and The bank of New York Mellon Trust Company, N.A., as
trustee (“Mellon”). The 7.0% Debentures bear interest at a rate
of 7.0% per annum, payable semi-annually on June 30 and
December 30 of each year, commencing on the interest payment
date immediately succeeding the issuance date of such series. The
7.0% Debentures will mature on December 30, 2016. The 7.0%
Debentures may not be redeemed at the Company’s election prior
to the stated maturity date and the holders may not require the
Company to repurchase the 7.0% Debentures at any time. The
7.0% Debentures were not convertible prior to June 30, 2013,
except under limited circumstances. Commencing on June 30,
2013, the 7.0% Debentures were convertible into shares of our
common stock at the option of the holder at any time, subject
to certain exceptions and subject to our right to terminate such
conversion rights under certain circumstances relating to the sale
price of our common stock. As further described below, we elected
to terminate the conversion rights in July 2013.

The 7.0% indenture provides for customary events of default
(subject in certain cases to customary grace and cure periods),
which include nonpayment, breach of covenants in the 7.0%
indenture, failure to pay at maturity or acceleration of other
indebtedness and certain events of bankruptcy and insolvency.
Generally, if an event of default occurs, Mellon or holders of at
least 50% in principal amount of the then outstanding 7.0%
Debentures may declare the principal of, and accrued but unpaid
interest on all of the 7.0% Debentures to be immediately due and
payable. The 7.0% indenture provides that on and after the date
of the 7.0% indenture, the Company may not: (i) consolidate with
or merge into any other person or sell, convey, lease or transfer
the Company’s consolidated properties and assets substantially as
an entirety to any other person in any one transaction or series of
related transactions; or (ii) permit any person to consolidate with
or merge into the Company, unless certain requirements set forth
in the 7.0% indenture are satisfied.

On september 4, 2012, the Company entered into a Debenture
Repurchase Agreement (the “Debenture Repurchase Agreement”)
with Paulson Credit Opportunities Master Ltd. and Paulson
Recovery Master Fund Ltd. (collectively, the “Paulson Holders”),
funds managed by Paulson & Co. inc., (“Paulson”) that held
$200.0 million in aggregate principal amount of the Company’s
7.0% Debentures. Pursuant to the Debenture Repurchase

On March 28, 2013, the Company completed the cash tender offer
(the “Offer”) for $59.3 million aggregate principal amount of its 7.0%
Debentures for an aggregate purchase price of $124.8 million. The
Offer was conducted as part of our previously announced securities
repurchase program. Pursuant to the terms of the Offer, holders of
the 7.0% Debentures who tendered their 7.0% Debentures prior to
the expiration date, received, for each $1,000 principal amount of
such 7.0% Debentures, a cash purchase price (the “Purchase Price”)
equal to the sum of: (i) the average volume weighted average price of
our common stock (as defined in the Offer) ($11.2393 at the close
of trading on March 27, 2013) multiplied by 183.5145; plus (ii) a
fixed cash amount of $61.25. The final Purchase Price per $1,000
principal amount of 7.0% Debentures was $2,123.82. in addition
to the Purchase Price, holders received accrued and unpaid interest
on any 7.0% Debentures that were tendered to, but excluding, the
settlement date of the Offer.

in May 2013, we repurchased $4.5 million principal amount of the
7.0% Debentures for an aggregate purchase price of $9.4 million.

On July 1, 2013, the Company issued a conversion right
termination notice (the “Conversion Termination Notice”)
to holders of the 7.0% Debentures. The Company elected to
terminate the right to convert the 7.0% Debentures into shares of
its common stock, effective as of July 30, 2013 (the “Conversion
Termination Date”). Holders of the 7.0% Debentures were able to
exercise their conversion right at any time on or prior to the close
of business on July 30, 2013. Holders exercising their conversion
right received 184.3127 shares of common stock per $1,000
principal amount of 7.0% Debentures converted. The 7.0%
Debentures submitted for conversion were deemed paid in full
and the Company has no further obligation with respect to such
7.0% Debentures. Holders of $25.7 million in aggregate principal
amount of the 7.0% Debentures exercised their conversion right
and received 4.7 million shares of our common stock. As of
December 31, 2013, $3.5 million in aggregate principal amount of
the 7.0% Debentures remained outstanding.

Previous Senior Secured Credit Agreement

On December 21, 2010, the Company entered into a $375 million
senior secured term loan facility maturing on september 30, 2016,
pursuant to an agreement among the Company, Morgan stanley
senior Funding, inc., as administrative agent, and the lenders
from time to time party thereto (the “Previous senior secured
Credit Agreement”). The net proceeds of $363.6 million were
used to repay certain indebtedness. The pricing terms for the
Previous senior secured Credit Agreement included upfront fees
of 1.25 percent paid to the lenders. The Previous senior secured
Credit Agreement was guaranteed by our primary non-insurance
company subsidiaries and secured by substantially all of our and
the subsidiary guarantors’ assets.

in May 2011, we amended our Previous senior secured Credit
Agreement. Pursuant to the amended terms, the applicable
interest rate on the Previous senior secured Credit Agreement

155

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Kwas decreased. The new interest rate was, at our option (in most
instances): (i) a eurodollar rate of LibOR plus 5.00 percent subject
to a LibOR “floor” of 1.25 percent (previously LibOR plus 6.00
percent with a LibOR floor of 1.50 percent); or (ii) a base Rate
plus 4.00 percent subject to a base Rate “floor” of 2.25 percent
(previously a base Rate plus 5.00 percent with a base Rate floor
of 2.50 percent).

(i)

(ii)

in 2011, as required under the terms of the Previous senior
secured Credit Agreement, we made mandatory prepayments
totaling $69.8 million due to our repurchase of $69.8 million of
our common stock. in March 2011, we also made a voluntary
prepayment of $50.0 million on our outstanding principal balance
under the Previous senior secured Credit Agreement using
available cash.

in the first nine months of 2012, as required under the terms of the
Previous senior secured Credit Agreement, we made mandatory
prepayments of $31.4 million due to repurchases of our common
stock and payment of a common stock dividend.

(i)

in september 2012, the Company used a portion of the net
proceeds from its offering of the 6.375% Notes, together with
borrowings under the senior secured Credit Agreement to repay
the remaining $223.8 million principal amount outstanding
under its Previous senior secured Credit Agreement.

Senior Health Note

in connection with the Transfer, the Company issued the senior
Health Note due November 12, 2013 (the “senior Health Note”)
payable to senior Health. The senior Health Note was unsecured
and had an interest rate of 6.0 percent payable quarterly, beginning
on March 15, 2009. We were required to make annual principal
payments of $25.0 million beginning on November 12, 2009. The
Company made a $25.0 million scheduled payment on the senior
Health Note in 2011, 2010 and 2009. in March 2012, we paid in
full the remaining $50.0 million principal balance on the senior
Health Note, which had been scheduled to mature in November
2013. The repayment in full of the senior Health Note removed
the previous restriction on our ability to pay cash dividends on our
common stock.

Loss on Extinguishment of Debt

$2.9 million related to the amendment of the senior
secured Credit Agreement and the write-off of unamortized
discount and issuance costs associated with prepayments on
the senior secured Credit Agreement; and

$62.5 million as a result of the Offer and repurchase of 7.0%
Debentures described above, the write-off of unamortized
discount and issuance costs associated with the 7.0%
Debentures that were repurchased and other transaction
costs. Additional paid-in capital was also reduced by
$12.6 million to extinguish the beneficial conversion feature
associated with a portion of the 7.0% Debentures that were
repurchased.

in 2012, we recognized a loss on extinguishment of debt totaling
$200.2 million consisting of:

$136.5 million due to our repurchase of $200.0 million
principal amount of 7.0% Debentures pursuant to the
Debenture Repurchase Agreement described above and
the write-off of unamortized discount and issuance costs
associated with the 7.0% Debentures. Additional paid-in
capital was also reduced by $24.0 million to extinguish the
beneficial conversion feature associated with a portion of the
7.0% Debentures that were repurchased. As the Code limits
the deduction to taxable income for losses on the redemption
of convertible debt, a minimal tax benefit was recognized
related to the repurchase of the 7.0% Debentures;

(ii)

(iii)

(iv)

$58.2 million related to the tender offer and consent
solicitation for the 9.0% Notes; the write-off of unamortized
issuance costs related to the 9.0% Notes; and other
transaction costs;

$5.1 million representing the write-off of unamortized
discount and issuance costs associated with repayments of
our Previous senior secured Credit Agreement; and

$.4 million representing the write-off of unamortized
discount and issuance costs associated with payments on our
senior secured Credit Agreement.

in 2011, we recognized an aggregate loss on the extinguishment of
debt totaling $3.4 million representing the write-off of unamortized
discount and issuance costs associated with repayments of the
Previous senior secured Credit Agreement.

in 2013, we recognized a loss on extinguishment of debt totaling
$65.4 million consisting of:

Scheduled Repayment of our Direct Corporate
Obligations

The scheduled repayment of our direct corporate obligations was as follows at December 31, 2013 (dollars in millions):

Year ending December 31,
2014
2015
2016
2017
2018
Thereafter

156

CNO FINANCIAL GROUP, INC. - Form 10-K

59.4
79.3
64.0
4.2
378.1
275.0
860.0

PART IIITEM 8 Consolidated Financial Statements7. LITIGATION AND OTHER LEGAL PROCEEDINGS

Legal Proceedings

Litigation

The Company and its subsidiaries are involved in various legal
actions in the normal course of business, in which claims for
compensatory and punitive damages are asserted, some for
substantial amounts. We recognize an estimated loss from these
loss contingencies when we believe it is probable that a loss has been
incurred and the amount of the loss can be reasonably estimated.
some of the pending matters have been filed as purported class
actions and some actions have been filed in certain jurisdictions
that permit punitive damage awards that are disproportionate to
the actual damages incurred. The amounts sought in certain of
these actions are often large or indeterminate and the ultimate
outcome of certain actions is difficult to predict. in the event
of an adverse outcome in one or more of these matters, there is
a possibility that the ultimate liability may be in excess of the
liabilities we have established and could have a material adverse
effect on our business, financial condition, results of operations
and cash flows. in addition, the resolution of pending or future
litigation may involve modifications to the terms of outstanding
insurance policies or could impact the timing and amount of rate
increases, which could adversely affect the future profitability of
the related insurance policies. based upon information presently
available, and in light of legal, factual and other defenses available
to the Company and its subsidiaries, the Company does not believe
that it is probable that the ultimate liability from either pending
or threatened legal actions, after consideration of existing loss
provisions, will have a material adverse effect on the Company’s
consolidated financial condition, operating results or cash flows.
However, given the inherent difficulty in predicting the outcome
of legal proceedings, there exists the possibility that such legal
actions could have a material adverse effect on the Company’s
consolidated financial condition, operating results or cash flows.

in addition to the inherent difficulty of predicting litigation
outcomes, particularly those that will be decided by a jury, the
matters specifically identified below purport to seek substantial or
an unspecified amount of damages for unsubstantiated conduct
spanning several years based on complex legal theories and
damages models. The alleged damages typically are indeterminate
or not factually supported in the complaint, and, in any event,
the Company’s experience indicates that monetary demands for
damages often bear little relation to the ultimate loss. in some
cases, plaintiffs are seeking to certify classes in the litigation and
class certification either has been denied or is pending and we
have filed oppositions to class certification or sought to decertify
a prior class certification. in addition, for many of these cases:
(i) there is uncertainty as to the outcome of pending appeals or
motions; (ii) there are significant factual issues to be resolved;
and/or (iii) there are novel legal issues presented. Accordingly, the
Company cannot reasonably estimate the possible loss or range of
loss in excess of amounts accrued, if any, or predict the timing of
the eventual resolution of these matters. The Company reviews
these matters on an ongoing basis. When assessing reasonably
possible and probable outcomes, the Company bases its assessment
on the expected ultimate outcome following all appeals.

On October 25, 2012, a purported nationwide class action was
filed in the United states District Court for the Central District
of California, William Jeffrey Burnett and Joe H. Camp v. Conseco
Life Insurance Company, CNO Financial Group, Inc., CDOC,
Inc. and CNO Services, LLC, Case No. EDCV12-01715VAPSPX.
The plaintiffs bring this action under Rule 23(b)(3) on behalf
of various Lifetrend policyholders who since October 2008
have surrendered their policies or had them lapse. Additionally,
plaintiffs seek certification of a subclass of various Lifetrend
policyholders who accepted optional benefits and signed a release
pursuant to a regulatory settlement. The plaintiffs allege breach
of contract and seek declaratory relief, compensatory damages,
attorney fees and costs. On November 30, 2012, Conseco Life
and the other defendants filed a motion to dismiss the complaint.
On November 18, 2013, the court granted the dismissal, with
leave to amend, of CNO Financial Group, inc., CDOC, inc. and
CNO services, LLC, and denied the motion to dismiss Conseco
Life. We believe this case is without merit and intend to defend
it vigorously.

Regulatory Examinations and Fines

insurance companies face significant risks related to regulatory
investigations and actions. Regulatory investigations generally
result from matters related to sales or underwriting practices,
payment of contingent or other sales commissions, claim payments
and procedures, product design, product disclosure, additional
premium charges for premiums paid on a periodic basis, denial
or delay of benefits, charging excessive or impermissible fees on
products, procedures related to canceling policies, changing
the way cost of insurance charges are calculated for certain life
insurance products or recommending unsuitable products to
customers. We are, in the ordinary course of our business, subject
to various examinations, inquiries and information requests from
state, federal and other authorities. The ultimate outcome of
these regulatory actions (including the costs of complying with
information requests and policy reviews) cannot be predicted with
certainty. in the event of an unfavorable outcome in one or more
of these matters, the ultimate liability may be in excess of liabilities
we have established and we could suffer significant reputational
harm as a result of these matters, which could also have a material
adverse effect on our business, financial condition, results of
operations or cash flows.

in August 2011, we were notified of an examination to be done
on behalf of a number of states for the purpose of determining
compliance with unclaimed property laws by the Company
and its subsidiaries. such examination has included inquiries
related to the use of data available on the U.s. social security
Administration’s Death Master File to identify instances where
benefits under life insurance policies, annuities and retained asset
accounts are payable. We are continuing to provide information
to the examiners in response to their requests. A total of 38
states and the District of Columbia are currently participating in
this examination.

157

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KGuaranty Fund Assessments

The balance sheet at December 31, 2013, included: (i) accruals of
$24.0 million, representing our estimate of all known assessments
that will be levied against the Company’s insurance subsidiaries
by various state guaranty associations based on premiums written
through December 31, 2013; and (ii) receivables of $24.9 million
that we estimate will be recovered through a reduction in future
premium taxes as a result of such assessments. At December 31,
2012, such guaranty fund assessment accruals were $30.5 million
and such receivables were $24.0 million. These estimates are
subject to change when the associations determine more precisely
the losses that have occurred and how such losses will be allocated
among the insurance companies. We recognized expense for such
assessments of $2.7 million, $4.3 million and $2.3 million in
2013, 2012 and 2011, respectively.

$26.0 million at December 31, 2013 and 2012, respectively, and
is included in the caption “Other liabilities” in the consolidated
balance sheet.

Leases and Certain Other Long-Term
Commitments

The Company rents office space, equipment and computer
software under noncancellable operating lease agreements. in
addition, the Company has entered into certain sponsorship
agreements which require future payments. Total expense
lease and sponsorship agreements was
pursuant to these
$44.3 million, $47.5 million and $43.5 million in 2013, 2012
and 2011, respectively. Future required minimum payments as of
December 31, 2013, were as follows (dollars in millions):

Guarantees

in accordance with the terms of the employment agreements of
two of the Company’s former chief executive officers, certain
wholly-owned subsidiaries of the Company are the guarantors
of the former executives’ nonqualified supplemental retirement
benefits. The liability for such benefits was $25.9 million and

2014
2015
2016
2017
2018
Thereafter
TOTAL

8. AGENT DEFERRED COMPENSATION PLAN

43.4
31.2
23.8
19.2
17.4
11.2
146.2

For our agent deferred compensation plan, it is our policy to
immediately recognize changes in the actuarial benefit obligation
resulting from either actual experience being different than
expected or from changes in actuarial assumptions.

One of our insurance subsidiaries has a noncontributory,
unfunded deferred compensation plan for qualifying members of
its career agency force. benefits are based on years of service and
career earnings. The actuarial measurement date of this deferred
compensation plan is December 31. The liability recognized in the
consolidated balance sheet for the agent deferred compensation
plan was $142.7 million and $151.7 million at December 31,
2013 and 2012, respectively. The increase (decrease) in expenses
incurred on this plan were $(31.4) million, $20.5 million and
$26.3 million during 2013, 2012 and 2011, respectively (including
the recognition of gains (losses) of $17.2 million, $(7.5) million and
$(16.2) million in 2013, 2012 and 2011, respectively, primarily
resulting from changes in the discount rate assumption used to
determine the deferred compensation plan liability to reflect current
investment yields). The estimated net loss for the agent deferred
compensation plan that will be amortized from accumulated other
comprehensive income (loss) into the net periodic benefit cost
during 2014 is $1.4 million. We purchased COLi as an investment
vehicle to fund the agent deferred compensation plan. The COLi
assets are not assets of the agent deferred compensation plan, and
as a result, are accounted for outside the plan and are recorded
in the consolidated balance sheet as other invested assets. The
carrying value of the COLi assets was $144.8 million and $123.0
million at December 31, 2013 and 2012, respectively. Changes in
the cash surrender value (which approximates net realizable value)

of the COLi assets are recorded as net investment income and
totaled $19.7 million, $9.0 million and $(3.8) million in 2013,
2012 and 2011, respectively.

We used the following assumptions for the deferred compensation
plan to calculate:

benefit obligations:
Discount rate
Net periodic cost:
Discount rate

2013

2012

4.75%

4.00%

4.50%

The discount rate is based on the yield of a hypothetical portfolio
of high quality debt instruments which could effectively settle
plan benefits on a present value basis as of the measurement date.
At December 31, 2013, for our deferred compensation plan for
qualifying members of our career agency force, we assumed a 4.75
percent annual increase in compensation until the participant’s
normal retirement date (age 65 and completion of five years of
service).

The benefits expected to be paid pursuant to our agent deferred
compensation plan as of December 31, 2013 were as follows
(dollars in millions):

2014
2015
2016
2017
2018
2019 - 2023

6.0
6.2
6.4
6.7
7.2
41.9

158

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe Company has a qualified defined contribution plan for which
substantially all employees are eligible. Company contributions,
which match a portion of certain voluntary employee contributions

to the plan, totaled $4.6 million, $4.5 million and $4.5 million
in 2013, 2012 and 2011, respectively. employer matching
contributions are discretionary.

9. SHAREHOLDERS’ EQUITY

in November 2009, we completed the private sale of 16.4
million shares of our common stock and warrants to purchase
5.0 million shares of our common stock to Paulson on behalf
of several investment funds and accounts managed by Paulson.
Concurrently with the completion of the private placement of our
common stock and warrants, we entered into an investor rights
agreement with Paulson, pursuant to which we granted to Paulson,
among other things, certain registration rights with respect to
certain securities and certain preemptive rights, and Paulson

agreed to, among other things, certain restrictions on transfer of
certain securities, certain voting limitations and certain standstill
provisions. The warrants have an exercise price of $6.50 per share
of common stock, subject to customary anti-dilution adjustments.
Prior to June 30, 2013, the warrants were not exercisable, except
under limited circumstances. Commencing on June 30, 2013, the
warrants are exercisable for shares of our common stock at the
option of the holder at any time, subject to certain exceptions. The
warrants expire on December 30, 2016.

Changes in the number of shares of common stock outstanding were as follows (shares in thousands):

balance, beginning of year

Treasury stock purchased and retired
Conversion of 7.0% Debentures
stock options exercised
Restricted and performance stock vested

BALANCE, END OF YEAR

2013
221,502
(8,949)
4,739
2,087

945(a)

2012
241,305
(21,533)
—
1,191

539(a)

220,324

221,502

2011
251,084
(11,120)
—
862
479(a)

241,305

(a) In 2013, 2012 and 2011, such amount was reduced by 472 thousand shares, 237 thousand shares and 200 thousand shares, respectively, which were tendered for the

payment of required federal and state tax withholdings owed on the vesting of restricted stock.

in May 2011, the Company announced a common share
repurchase program of up to $100.0 million. in February 2012,
June 2012, December 2012 and December 2013, the Company’s
board of Directors approved, in aggregate, an additional
$800.0 million to repurchase the Company’s outstanding
securities. in 2013, 2012 and 2011, we repurchased 8.9 million,
21.5 million and 11.1 million shares, respectively, of common
stock for $118.4 million, $180.2 million and $69.8 million,
respectively, under the securities repurchase program. The
Company purchased $63.8 million aggregate principal amount of
our 7.0% Debentures in 2013 as further discussed in the note to the
consolidated financial statements entitled “Notes Payable - Direct
Corporate Obligations”. such repayments were made pursuant to
our securities repurchase program. The Company had remaining
repurchase authority of $397.4 million as of December 31, 2013.

in May 2012, we initiated a common stock dividend program.
in 2013 and 2012 dividends declared and paid on common stock
totaled $24.4 million ($0.11 per common share) and $13.9 million
($0.06 per common share), respectively.

The Company has a long-term incentive plan which permits the
grant of CNO incentive or non-qualified stock options, restricted
stock awards, stock appreciation rights, performance shares or units
and certain other equity-based awards to certain directors, officers
and employees of the Company and certain other individuals who
perform services for the Company. As of December 31, 2013,
9.1 million shares remained available for issuance under the plan.
Our stock option awards are generally granted with an exercise
price equal to the market price of the Company’s stock on the date
of grant. For options granted in 2006 and prior years, our stock
option awards generally vested on a graded basis over a four year
service term and expire ten years from the date of grant. Our stock
option awards granted in 2007 through 2009 generally vested on
a graded basis over a three year service term and expire five years
from the date of grant. Our stock options granted in 2010 through
2013 generally vest on a graded basis over a three year service term
and expire seven years from the date of grant. The vesting periods
for our restricted stock awards range from immediate vesting to a
period of three years.

A summary of the Company’s stock option activity and related information for 2013 is presented below (shares in thousands; dollars in
millions, except per share amounts):

Outstanding at the beginning of the year

Options granted
exercised
Forfeited or terminated

Outstanding at the end of the year
Options exercisable at the end of the year
Available for future grant

Weighted average
exercise price
9.72
11.01
7.27
13.95
10.64

Shares
6,655
1,447
(2,087)
(436)
5,579
2,529
9,099

Weighted average
remaining life
(in years)

Aggregate
intrinsic value

$
$

4.0
2.1

6.0

32.5
13.9

159

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KA summary of the Company’s stock option activity and related information for 2012 is presented below (shares in thousands; dollars in
millions, except per share amounts):

Outstanding at the beginning of the year

Options granted
exercised
Forfeited or terminated

Outstanding at the end of the year
Options exercisable at the end of the year
Available for future grant

Weighted average
exercise price
10.13
7.55
3.14
16.13
9.72

Shares
7,712
1,389
(1,191)
(1,255)
6,655
3,715
9,713

Weighted average
remaining life
(in years)

Aggregate
intrinsic value

3.4 $
1.7 $

2.7

30.2
15.5

A summary of the Company’s stock option activity and related information for 2011 is presented below (shares in thousands; dollars in
millions, except per share amounts):

Outstanding at the beginning of the year

Options granted
exercised
Forfeited or terminated

Outstanding at the end of the year
Options exercisable at the end of the year
Available for future grant

Weighted average
exercise price
10.87
7.38
2.52
14.35
10.13

Shares
9,754
1,262
(862)
(2,442)
7,712
4,135
11,044

Weighted average
remaining life
(in years)

Aggregate
intrinsic value

3.1 $
1.8 $

1.3

31.3
18.0

We recognized compensation expense related to stock options
totaling $7.2 million ($4.7 million after income taxes) in
2013, $6.7 million ($4.4 million after income taxes) in 2012
and $.2 million ($.1 million after income taxes) in 2011.
Compensation expense in 2011 was reduced by $7.4 million to
reflect the true-up of forfeiture estimates for awards with service
conditions. Compensation expense related to stock options
reduced both basic and diluted earnings per share by two cents,

two cents and nil cents in 2013, 2012 and 2011, respectively. At
December 31, 2013, the unrecognized compensation expense for
non-vested stock options totaled $9.3 million which is expected
to be recognized over a weighted average period of 1.9 years. Cash
received by the Company from the exercise of stock options was
$15.2 million, $3.1 million and $2.2 million during 2013, 2012
and 2011, respectively.

The fair value of each stock option grant is estimated on the date of grant using the black-scholes option valuation model with the
following weighted average assumptions:

Weighted average risk-free interest rates
Weighted average dividend yields
Volatility factors
Weighted average expected life (in years)
Weighted average fair value per share

2013 Grants

2012 Grants

2011 Grants

.8%
.7%
107%
4.8
8.02

.9%
—%
108%
4.7
5.76

2.2%
—%
107%
4.8
5.68

The risk-free interest rate is based on the U.s. Treasury yield
curve in effect at the time of grant. The dividend yield is based
on the Company’s history and expectation of dividend payouts.
Volatility factors are based on the weekly historical volatility of the
Company’s common stock equal to the expected life of the option

or since our emergence from bankruptcy in september 2003. The
expected life is based on the average of the graded vesting period
and the contractual terms of the option.

The exercise price was equal to the market price of our stock on
the date of grant for all options granted in 2013, 2012 and 2011.

160

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe following table summarizes information about stock options outstanding at December 31, 2013 (shares in thousands):

Options outstanding

Options exercisable

Range of exercise prices
$1.13
$3.05 - $3.11
$5.78 - $6.77
$7.38 - $7.74
$8.29 - $12.34
$12.74 - $18.97
$20.00 - $25.45

Number
outstanding
76
272
726
1,964
1,415
91
1,035
5,579

Remaining life
(in years)

Average exercise
price
1.13
3.05
6.45
7.46
10.77
16.23
21.62

0.3 $
0.4
3.2
4.8
6.1
4.0
1.2

Number
exercisable

Average exercise
price
1.13
3.05
6.45
7.39
—
18.90
21.62

76 $
272
723
382
—
41
1,035
2,529

During 2013, 2012 and 2011, the Company granted .2 million,
.7 million and .9 million restricted shares, respectively, of CNO
common stock to certain directors, officers and employees
of the Company at a weighted average fair value of $12.00 per
share, $7.35 per share and $6.97 per share, respectively. The
fair value of such grants totaled $2.1 million, $5.0 million and

$6.0 million in 2013, 2012 and 2011, respectively. such amounts
are recognized as compensation expense over the vesting period
of the restricted stock. A summary of the Company’s non-vested
restricted stock activity for 2013 is presented below (shares
in thousands):

Non-vested shares, beginning of year

Granted
Vested
Forfeited

NON-VESTED SHARES, END OF YEAR

At December 31, 2013, the unrecognized compensation expense for
non-vested restricted stock totaled $2.5 million which is expected
to be recognized over a weighted average period of 1.6 years. At
December 31, 2012, the unrecognized compensation expense for
non-vested restricted stock totaled $5.4 million. We recognized
compensation expense related to restricted stock awards totaling
$4.5 million, $4.5 million and $4.3 million in 2013, 2012 and
2011, respectively. The fair value of restricted stock that vested
during 2013, 2012 and 2011 was $5.6 million, $4.4 million and
$3.2 million, respectively.

Authoritative guidance also requires us to estimate the amount of
unvested stock-based awards that will be forfeited in future periods
and reduce the amount of compensation expense recognized
over the applicable service period to reflect this estimate. We
periodically evaluate our forfeiture assumptions to more accurately
reflect our actual forfeiture experience.

Shares
1,162
178
(749)
(70)
521

Weighted average grant
date fair value
7.08
12.00
7.42
6.94
8.29

The Company does not currently recognize tax benefits resulting
from tax deductions in excess of the compensation expense
recognized because of NOLs which are available to offset future
taxable income.

in 2013, 2012 and 2011, the Company granted performance units
totaling 424,400, 406,500 and 416,700, respectively, pursuant to
its long-term incentive plan to certain officers of the Company.
The criteria for payment for such awards are based on certain
company-wide performance levels that must be achieved within a
specified performance time (generally three years), each as defined
in the award. Unless antidilutive, the diluted weighted average
shares outstanding would reflect the number of performance units
expected to be issued, using the treasury stock method.

A summary of the Company’s performance units is presented below (shares in thousands):

Awards outstanding at December 31, 2010

Granted in 2011
Forfeited

Awards outstanding at December 31, 2011

Granted in 2012
Forfeited

Awards outstanding at December 31, 2012

Granted in 2013
Additional shares issued pursuant to achieving certain performance criteria(a)
shares vested in 2013
Forfeited

AWARDS OUTSTANDING AT DECEMBER 31, 2013

Total
shareholder
return awards
—
—
—
—
203
(10)
193
212
—
—
(23)
382

Operating
return on equity
awards
555
—
(555)
—
—
—
—
212
—
—
(8)
204

Pre-tax
operating
income awards
652
417
(233)
836
203
(62)
977
—
223
(668)
(62)
470

(a) The performance units provide for a payout of up to 150 percent of the award if certain performance levels are achieved.

161

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe grant date fair value of the performance units awarded was
$4.4 million and $3.1 million in 2013 and 2012, respectively. We
recognized compensation expense of $3.4 million, $3.8 million
and $2.0 million in 2013, 2012 and 2011, respectively, related to
the performance units.

As further discussed in the footnote to the consolidated financial
statements entitled “income Taxes”, the Company’s board of
Directors adopted the section 382 Rights Agreement on January
20, 2009 and amended and extended the section 382 Rights
Agreement on December 6, 2011. The Amended section 382
Rights Agreement is designed to protect shareholder value by
preserving the value of our tax assets primarily associated with
NOLs. At the time the section 382 Rights Agreement was
adopted, the Company declared a dividend of one preferred
share purchase right (a “Right”) for each outstanding share of
common stock. The dividend was payable on January 30, 2009,

to the shareholders of record as of the close of business on that
date and a Right is also attached to each share of CNO common
stock issued after that date. Pursuant to the Amended section
382 Rights Agreement, each Right entitles the shareholder to
purchase from the Company one one-thousandth of a share of
series b Junior Participating Preferred stock, par value $.01 per
share (the “Junior Preferred stock”) of the Company at a price
of $25.00 per one one-thousandth of a share of Junior Preferred
stock. The description and terms of the Rights are set forth in
the Amended section 382 Rights Agreement. The Rights would
become exercisable in the event any person or group (subject to
certain exemptions) becomes an owner of more than 4.99 percent
of the outstanding stock of CNO (a “Threshold Holder”) without
the approval of the board of Directors or an existing shareholder
who is currently a Threshold Holder acquires additional shares
exceeding one percent of our outstanding shares without prior
approval from the board of Directors.

A reconciliation of net income and shares used to calculate basic and diluted earnings per share is as follows (dollars in millions and shares
in thousands):

Net income for basic earnings per share
Add: interest expense on 7.0% Debentures, net of income taxes

NET INCOME FOR DILUTED EARNINGS PER SHARE

Weighted average shares outstanding for basic earnings per share
effect of dilutive securities on weighted average shares:

7.0% Debentures
stock options, restricted stock and performance units
Warrants

Dilutive potential common shares
WEIGHTED AVERAGE SHARES OUTSTANDING FOR DILUTED
EARNINGS PER SHARE

2013
478.0
1.6
479.6

2012
221.0
12.2
233.2

2011
335.7
14.7
350.4

221,628

233,685

247,952

5,780
2,776
2,518
11,074

44,037
2,762
943
47,742

53,367
2,513
249
56,129

232,702

281,427

304,081

basic earnings per common share is computed by dividing net
income by the weighted average number of common shares
outstanding for the period. Restricted shares (including our
performance units) are not included in basic earnings per share
until vested. Diluted earnings per share reflect the potential
dilution that could occur if outstanding stock options and warrants
were exercised and restricted stock was vested. The dilution from
options, warrants and restricted shares is calculated using the
treasury stock method. Under this method, we assume the proceeds
from the exercise of the options and warrants (or the unrecognized
compensation expense with respect to restricted stock and
performance units) will be used to purchase shares of our common
stock at the average market price during the period, reducing the

dilutive effect of the exercise of the options and warrants (or the
vesting of the restricted stock and performance units). initially,
the 7.0% Debentures were convertible into 182.1494 shares of
our common stock for each $1,000 principal amount of 7.0%
Debentures, which was equivalent to an initial conversion price of
approximately $5.49 per share. The conversion rate was subject to
adjustment following the occurrence of certain events (including
the payment of dividends on our common stock) in accordance
with the terms of the an indenture dated as of October 16,
2009. On July 1, 2013, the Company issued a conversion right
termination notice to holders of the 7.0% Debentures as further
discussed in the note to the consolidated financial statements
entitled “Notes Payable - Direct Corporate Obligations”.

162

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements10. OTHER OPERATING STATEMENT DATA

insurance policy income consisted of the following (dollars in millions):

Direct premiums collected
Reinsurance assumed
Reinsurance ceded

Premiums collected, net of reinsurance

Change in unearned premiums
Less premiums on interest-sensitive life and products without mortality and
morbidity risk which are recorded as additions to insurance liabilities
Premiums on traditional products with mortality or morbidity risk

Fees and surrender charges on interest-sensitive products
INSURANCE POLICY INCOME

2013
3,966.0
38.0
(240.5)
3,763.5
(16.6)

(1,298.1)
2,448.8
295.9
2,744.7

2012
3,883.1
70.4
(237.1)
3,716.4
20.8

(1,296.7)
2,440.5
314.9
2,755.4

2011
4,214.7
87.7
(243.2)
4,059.2
17.2

(1,693.5)
2,382.9
307.6
2,690.5

The four states with the largest shares of 2013 collected premiums were Florida (7.9 percent), Pennsylvania (6.3 percent), Texas
(6.2 percent) and California (6.1 percent). No other state accounted for more than five percent of total collected premiums.

Other operating costs and expenses were as follows (dollars in millions):

Commission expense
salaries and wages
Other
TOTAL OTHER OPERATING COSTS AND EXPENSES

2013
103.8
234.0
428.4
766.2

2012
115.8
226.6
476.9
819.3

2011
131.7
212.2
360.6
704.5

Changes in the present value of future profits were as follows (dollars in millions):

balance, beginning of year
Amortization
Amounts related to fair value adjustment of fixed maturities, available for sale
BALANCE, END OF YEAR

2013
626.0
(92.0)
145.3
679.3

2012
697.7
(93.5)
21.8
626.0

2011
1,008.6
(113.7)
(197.2)
697.7

based on current conditions and assumptions as to future
events on all policies inforce, the Company expects to amortize
approximately 10 percent of the December 31, 2013 balance of the
present value of future profits in 2014, 9 percent in 2015, 8 percent
in 2016, 7 percent in 2017 and 7 percent in 2018. The discount
rate used to determine the amortization of the present value of
future profits averaged approximately 5 percent in the years ended
December 31, 2013, 2012 and 2011.

in accordance with authoritative guidance, we are required to
amortize the present value of future profits in relation to estimated
gross profits for interest-sensitive life products and annuity
products. such guidance also requires that estimates of expected
gross profits used as a basis for amortization be evaluated regularly,
and that the total amortization recorded to date be adjusted by a
charge or credit to the statement of operations, if actual experience
or other evidence suggests that earlier estimates should be revised.

Changes in deferred acquisition costs were as follows (dollars in millions):

balance, beginning of year
Additions
Amortization
Amounts related to fair value adjustment of fixed maturities, available for sale
Other

BALANCE, END OF YEAR

2013
629.7
222.8
(204.3)
315.9
4.0
968.1

2012
797.1
191.7
(195.5)
(163.6)
—
629.7

2011
999.6
216.7
(183.7)
(235.5)
—
797.1

163

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K11. CONSOLIDATED STATEMENT OF CASH FLOWS

The following disclosures supplement our consolidated statement of cash flows.

The following reconciles net income to net cash provided by operating activities (dollars in millions):

Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:

2013

2012

2011

478.0

221.0

335.7

Amortization and depreciation
income taxes
insurance liabilities
Accrual and amortization of investment income
Deferral of policy acquisition costs
Net realized investment gains
Loss related to reinsurance transaction
Loss on extinguishment of debt
Other

NET CASH PROVIDED BY OPERATING ACTIVITIES

324.6
(181.2)
465.8
(276.3)
(222.8)
(33.6)
98.4
65.4
2.1
720.4

315.0
(71.8)
330.0
(100.7)
(191.7)
(81.1)
—
200.2
14.0
634.9

323.6
(32.9)
346.4
64.5
(216.7)
(61.8)
—
3.4
12.6
774.8

Non-cash items not reflected in the investing and financing activities sections of the consolidated statement of cash flows (dollars in
millions):

stock options, restricted stock and performance units

2013
15.1

2012
13.7

2011
5.2

12. STATUTORY INFORMATION (BASED ON NON-GAAP MEASURES)

statutory accounting practices prescribed or permitted by regulatory authorities for the Company’s insurance subsidiaries differ from
GAAP. The Company’s insurance subsidiaries reported the following amounts to regulatory agencies, after appropriate elimination of
intercompany accounts among such subsidiaries (dollars in millions):

statutory capital and surplus
Asset valuation reserve
interest maintenance reserve
TOTAL

statutory capital and surplus included investments in upstream
affiliates of $52.4 million at both December 31, 2013 and 2012,
which was eliminated in the consolidated financial statements
prepared in accordance with GAAP.

statutory earnings build the capital required by ratings agencies
and regulators. statutory earnings, fees and interest paid by the
insurance companies to the parent company create the “cash
flow capacity” the parent company needs to meet its obligations,
including debt service. The consolidated statutory net income
(a non-GAAP measure) of our insurance subsidiaries was
$386.5 million, $350.4 million and $366.8 million in 2013,
2012 and 2011, respectively. included in such net income were
net realized capital gains, net of income taxes, of $19.0 million,
$13.0 million and $3.7 million in 2013, 2012 and 2011, respectively.
in addition, such net income included pre-tax amounts for fees
and interest paid to CNO or its non-life subsidiaries totaling
$159.7 million, $155.3 million and $147.7 million in 2013, 2012
and 2011, respectively.

2013
1,711.9
233.9
582.4
2,528.2

2012
1,560.4
222.2
585.8
2,368.4

insurance regulators may prohibit the payment of dividends or
other payments by our insurance subsidiaries to parent companies
if they determine that such payment could be adverse to our
policyholders or contract holders. Otherwise, the ability of our
insurance subsidiaries to pay dividends is subject to state insurance
department regulations. insurance regulations generally permit
dividends to be paid from statutory earned surplus of the insurance
company without regulatory approval for any 12-month period in
amounts equal to the greater of (or in a few states, the lesser of):
(i) statutory net gain from operations or statutory net income for
the prior year; or (ii) 10 percent of statutory capital and surplus as
of the end of the preceding year. This type of dividend is referred
to as an “ordinary dividend”. Any dividend in excess of these
levels requires the approval of the director or commissioner of
the applicable state insurance department and is referred to as an
“extraordinary dividend”. During 2013, our insurance subsidiaries
paid extraordinary dividends of $236.8 million to CDOC, inc.
(“CDOC”) (our wholly owned subsidiary and the immediate
parent of Washington National, Conseco Life and Conseco Life
insurance Company of Texas). The holding companies made no
capital contributions to its insurance subsidiaries in 2013.

164

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementseach of the immediate insurance subsidiaries of CDOC had
negative earned surplus at December 31, 2013. Accordingly, any
dividend payments from these subsidiaries require the approval
of the director or commissioner of the applicable state insurance
department. The payment of interest on surplus debentures
requires either prior written notice or approval of the director
or commissioner of the applicable state insurance department.
from our non-insurance
Dividends and other payments
subsidiaries to CNO or CDOC do not require approval by any
regulatory authority or other third party.

in accordance with an order from the Florida Office of insurance
Regulation, Washington National may not distribute funds to any
affiliate or shareholder without prior notice to the Florida Office of
insurance Regulation. in addition, the risk-based capital (“RbC”)
and other capital requirements described below can also limit, in
certain circumstances, the ability of our insurance subsidiaries to
pay dividends.

RbC requirements provide a tool for insurance regulators to
determine the levels of statutory capital and surplus an insurer
must maintain in relation to its insurance and investment risks and
the need for possible regulatory attention. The RbC requirements
provide four levels of regulatory attention, varying with the ratio
of the insurance company’s total adjusted capital (defined as the
total of its statutory capital and surplus, asset valuation reserve and
certain other adjustments) to its RbC (as measured on December
31 of each year) as follows: (i) if a company’s total adjusted capital
is less than 100 percent but greater than or equal to 75 percent
of its RbC, the company must submit a comprehensive plan to
the regulatory authority proposing corrective actions aimed at
improving its capital position (the “Company Action Level”); (ii) if
a company’s total adjusted capital is less than 75 percent but greater
than or equal to 50 percent of its RbC, the regulatory authority
will perform a special examination of the company and issue an
order specifying the corrective actions that must be taken; (iii) if a
company’s total adjusted capital is less than 50 percent but greater
than or equal to 35 percent of its RbC, the regulatory authority
may take any action it deems necessary, including placing the
company under regulatory control; and (iv) if a company’s total
adjusted capital is less than 35 percent of its RbC, the regulatory

13. BUSINESS SEGMENTS

authority must place the company under its control. in addition,
the RbC requirements provide for a trend test if a company’s total
adjusted capital is between 100 percent and 125 percent of its
RbC at the end of the year. The trend test calculates the greater
of the decrease in the margin of total adjusted capital over RbC:
(i) between the current year and the prior year; and (ii) for the
average of the last 3 years. it assumes that such decrease could
occur again in the coming year. Any company whose trended total
adjusted capital is less than 95 percent of its RbC would trigger a
requirement to submit a comprehensive plan as described above
for the Company Action Level. in 2011, the NAiC approved an
increase in the RbC requirements that would subject a company
to the trend test if a company’s total adjusted capital is between
100 percent and 150 percent of its RbC at the end of the year
(previously between 100 percent and 125 percent). However, this
change will require the states to modify their RbC law before
it becomes effective for their domiciled insurance companies.
The 2013 statutory annual statements of each of our insurance
subsidiaries reflect total adjusted capital in excess of the levels
subjecting the subsidiaries to any regulatory action.

in addition, although we are under no obligation to do so, we may
elect to contribute additional capital or retain greater amounts of
capital to strengthen the surplus of certain insurance subsidiaries.
Any election to contribute or retain additional capital could
impact the amounts our insurance subsidiaries pay as dividends
to the holding company. The ability of our insurance subsidiaries
to pay dividends is also impacted by various criteria established by
rating agencies to maintain or receive higher ratings and by the
capital levels that we target for our insurance subsidiaries.

At December 31, 2013, the consolidated RbC ratio of our
insurance subsidiaries exceeded the minimum RbC requirement
included in our senior secured Credit Agreement. see the note
to the consolidated financial statements entitled “Notes Payable
- Direct Corporate Obligations” for further discussion of various
financial ratios and balances we are required to maintain. We
calculate the consolidated RbC ratio by assuming all of the assets,
liabilities, capital and surplus and other aspects of the business of
our insurance subsidiaries are combined together in one insurance
subsidiary, with appropriate intercompany eliminations.

The Company manages its business through the following
operating segments: bankers Life, Washington National and
Colonial Penn, which are defined on the basis of product
distribution; Other CNO business, comprised primarily of
products we no longer sell actively; and corporate operations,
comprised of holding company activities and certain noninsurance
company businesses.

We measure segment performance by excluding loss related to
reinsurance transaction, net realized investment gains (losses),
fair value changes in embedded derivative liabilities (net of
related amortization), equity in earnings of certain non-strategic
investments and earnings attributable to non-controlling interests
and loss on extinguishment of debt because we believe that this
performance measure is a better indicator of the ongoing business
and trends in our business. Our primary investment focus is on
investment income to support our liabilities for insurance products

as opposed to the generation of net realized investment gains
(losses), and a long-term focus is necessary to maintain profitability
over the life of the business.

Loss related to reinsurance transaction, net realized investment
gains (losses), fair value changes in embedded derivative liabilities
(net of related amortization), equity in earnings of certain non-
strategic investments and earnings attributable to non-controlling
interests and loss on extinguishment of debt depend on market
conditions or represent unusual items that do not necessarily
relate to the underlying business of our segments. Net realized
investment gains (losses) and fair value changes in embedded
derivative liabilities (net of related amortization) may affect future
earnings levels since our underlying business is long-term in nature
and changes in our investment portfolio may impact our ability to
earn the assumed interest rates needed to maintain the profitability
of our business.

165

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KOperating information by segment was as follows (dollars in millions):

2013

2012

2011

28.9
1,311.2
308.6
1,005.7
19.0
2,673.4

28.4
1,342.7
286.3
838.9
15.2
2,511.5

33.4
1,347.3
231.7
766.3
13.8
2,392.5

586.5
14.2
206.5
.9
808.1

4.3
227.8
40.0
.8
272.9

12.1
24.7
226.4
341.8
5.1
610.1

575.2
15.2
204.1
1.1
795.6

5.2
212.6
40.4
.7
258.9

10.6
26.3
252.9
340.6
—
630.4

569.5
15.6
189.5
1.0
775.6

5.9
197.1
41.1
.9
245.0

12.2
29.4
248.4
344.1
—
634.1

39.8
6.2
46.0
4,410.5

62.4
2.8
65.2
4,261.6

13.1
2.5
15.6
4,062.8

(continued on the next page)

Revenues:

Bankers Life:

Insurance policy income:

Annuities
Health
Life

Net investment income(a)
Fee revenue and other income(a)
Total Bankers Life Revenues

Washington National:

Insurance policy income:

Health
Life

Net investment income(a)
Fee revenue and other income(a)

Total Washington National revenues

Colonial Penn:

Insurance policy income:

Health
Life

Net investment income(a)
Fee revenue and other income(a)

Total Colonial Penn revenues

Other CNO Business:

Insurance policy income:

Annuities
Health
Life

Net investment income(a)
Fee revenue and other income(a)

Total Other CNO Business revenues

Corporate operations:

Net investment income
Fee and other income

Total corporate revenues

Total revenues

166

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIItem 8 Consolidated Financial Statements(continued from previous page)

Expenses:

Bankers Life:

Insurance policy benefits
Amortization
Interest expense on investment borrowings
Other operating costs and expenses
Total Bankers Life expenses

Washington National:

Insurance policy benefits
Amortization
Interest expense on investment borrowings
Other operating costs and expenses

Total Washington National expenses

Colonial Penn:

Insurance policy benefits
Amortization
Other operating costs and expenses
Total Colonial Penn expenses

Other CNO Business:

Insurance policy benefits
Amortization
Interest expense on investment borrowings
Other operating costs and expenses

Total Other CNO Business expenses

Corporate operations:

Interest expense on corporate debt
Interest expense on borrowings of variable interest entities
Interest expense on investment borrowings
Other operating costs and expenses

Total corporate expenses
Total expenses

Income (loss) before loss related to reinsurance transaction, net realized investment
gains (losses), fair value changes in embedded derivative liabilities (net of related
amortization), equity in earnings of certain non-strategic investments and earnings
attributable to non-controlling interests, loss on extinguishment of debt and income taxes:
Bankers Life
Washington National
Colonial Penn
Other CNO Business
Corporate operations
Income before loss related to reInsurance transactIon,
net realIzed Investment gaIns (losses), faIr value changes
In embedded derIvatIve lIabIlItIes (net of related
amortIzatIon), equIty In earnIngs of certaIn non-strategIc
Investments and earnIngs attrIbutable to non-controllIng
Interests, loss on extInguIshment of debt and Income taxes

(a) It is not practicable to provide additional components of revenue by product or services.

2013

2012

2011

1,788.7
187.5
6.7
380.0
2,362.9

1,642.9
187.6
5.3
374.8
2,210.6

1,570.1
206.3
4.8
320.4
2,101.6

470.5
53.8
1.9
161.1
687.3

165.7
14.5
105.2
285.4

469.2
19.9
19.3
76.2
584.6

51.3
.1
—
27.3
78.7
3,998.9

310.5
120.8
(12.5)
25.5
(32.7)

447.1
47.7
2.8
170.9
668.5

161.1
15.0
91.4
267.5

508.4
33.8
19.9
117.1
679.2

66.2
20.0
.4
65.1
151.7
3,977.5

464.5
44.9
.7
169.4
679.5

150.1
15.0
84.6
249.7

479.9
39.8
20.3
78.8
618.8

76.3
11.8
.2
51.3
139.6
3,789.2

300.9
127.1
(8.6)
(48.8)
(86.5)

290.9
96.1
(4.7)
15.3
(124.0)

411.6

284.1 $

273.6

167

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KA reconciliation of segment revenues and expenses to consolidated revenues and expenses is as follows (dollars in millions):

Total segment revenues
Net realized investment gains
Revenues related to certain non-strategic investments and earnings attributable to
non-controlling interests

consolIdated revenues

Total segment expenses
Loss related to reinsurance transaction
Insurance policy benefits - fair value changes in embedded derivative liabilities(a)
Amortization related to fair value changes in embedded derivative liabilities(a)
Amortization related to net realized investment gains
Expenses related to certain non-strategic investments and earnings attributable to
non-controlling interests
Loss on extinguishment of debt

consolIdated exPenses

$
$

2013
4,410.5
33.4

32.2
4,476.1
3,998.9
98.4
(54.4)
19.0
1.6

$
$

2012
4,261.6
81.1

—
4,342.7
3,977.5
—
4.4
(1.6)
6.5

42.4
65.4
4,171.3

—
200.2
4,187.0

2011
4,062.8
61.8

—
4,124.6
3,789.2
—
34.4
(14.0)
5.4

—
3.4
3,818.4

(a) Prior to June 30, 2011, we maintained a specific block of investments in our trading securities account (which we carried at estimated fair value with changes in such
value recognized as investment income from policyholder and reinsurer accounts and other special-purpose portfolios) to offset the income statement volatility caused
by the effect of interest rate fluctuations on the value of embedded derivatives related to our fixed index annuity products. During the second quarter of 2011, we sold
this trading portfolio, which resulted in $35.4 million, $(2.8) million and $(20.4) million of increased (decreased) earnings in 2013, 2012 and 2011, respectively,
since the volatility caused by the accounting requirements to record embedded options at fair value was no longer being offset.

Segment balance sheet information was as follows (dollars in millions):

Assets:

Bankers Life
Washington National
Colonial Penn
Other CNO Business
Corporate operations
total assets

Liabilities:

Bankers Life
Washington National
Colonial Penn
Other CNO Business
Corporate operations

total lIabIlItIes

2013

2012

18,230.2
4,655.3
891.1
8,483.7
2,520.3
34,780.6

15,866.4
3,665.2
766.6
7,531.2
1,996.0
29,825.4

17,637.7
4,499.5
917.8
8,679.5
2,396.9
34,131.4

15,590.1
3,425.6
749.6
7,451.1
1,865.7
29,082.1

The following table presents selected financial information of our segments (dollars in millions):

segment
2013

Bankers Life
Washington National
Colonial Penn
Other CNO Business

total

2012

Bankers Life
Washington National
Colonial Penn
Other CNO Business

total

168

CNO FINANCIAL GROUP, INC. - Form 10-K

Present value of
future profits

deferred
acquisition costs

Insurance
liabilities

263.2
343.2
55.7
17.2
679.3

168.8
375.8
63.6
17.8
626.0

627.8
182.6
67.4
90.3
968.1

332.8
157.3
57.5
82.1
629.7

14,575.0
2,919.0
766.2
6,615.6
24,875.8

14,548.0
2,911.7
763.1
6,866.7
25,089.5

PART IIItem 8 Consolidated Financial Statements14. QUARTERLY FINANCIAL DATA (UNAUDITED)

We compute earnings per common share for each quarter
independently of earnings per share for the year. The sum of the
quarterly earnings per share may not equal the earnings per share
for the year because of: (i) transactions affecting the weighted

average number of shares outstanding in each quarter; and (ii)
the uneven distribution of earnings during the year. Quarterly
financial data (unaudited) were as follows (dollars in millions,
except per share data):

2013
Revenues
Income before income taxes
Income tax expense (benefit)
net Income
Earnings per common share:

Basic:

Net Income

Diluted:

Net income

2012
Revenues
Income (loss) before income taxes
Income tax expense (benefit)
net Income (loss)
Earnings per common share:

Basic:

Net income (loss)

Diluted:

Net income (loss)

1st qtr.
1,142.6
34.6
22.7
11.9

2nd qtr.
1,081.5
114.7
37.6
77.1

$
$

3rd qtr.
1,093.8
114.4
(168.6)
283.0

$
$

4th qtr.
1,158.2
41.1
(64.9)
106.0

$
$

.05

.35

1.27

.48

.05
1st Qtr.
1,123.9
92.3
33.2
59.1

$
$

.34
2nd Qtr.
1,065.0
104.5
38.8
65.7

$
$

1.23
3rd Qtr.
1,093.0
$
(158.8) $
(153.8)

(5.0) $

.47
4th Qtr.
1,060.8
117.7
16.5
101.2

.25

.28

(.02) $

.21

.24

(.02) $

.45

.41

$
$

15. INVESTMENTS IN VARIABLE INTEREST ENTITIES

We have concluded that we are the primary beneficiary with
respect to certain VIEs, which are consolidated in our financial
statements. In consolidating the VIEs, we consistently use the
financial information most recently distributed to investors in
the VIE, which in one case, is less than two months prior to the
end of our reporting period. The following is a description of our
significant investments in VIEs.

All of the VIEs are collateralized loan trusts that were established
to issue securities to finance the purchase of corporate loans and
other permitted investments (including new VIEs which were
consolidated in the first quarters of 2013 and 2012). The assets
held by the trusts are legally isolated and not available to the
Company. The liabilities of the VIEs are expected to be satisfied
from the cash flows generated by the underlying loans held by
the trusts, not from the assets of the Company. The scheduled
repayment of the remaining principal balance of the borrowings

related to the VIEs are as follows: $150.4 million in 2018; $492.0
million in 2022; and $381.8 million in 2024. The Company has
no further commitments to the VIEs.

In the second quarter of 2011, one of the VIEs was liquidated and
its obligations were repaid pursuant to the priority of payments
as defined in the indenture of the VIE. Such liquidation did not
have a material effect on our consolidated financial statements. In
addition, in the second quarter of 2011, certain of our insurance
subsidiaries invested in the formation of a new VIE which has
been consolidated in our financial statements.

Certain of our insurance subsidiaries are noteholders of the VIEs.
Another subsidiary of the Company is the investment manager for
the VIEs. As such, it has the power to direct the most significant
activities of the VIEs which materially impacts the economic
performance of the VIEs.

169

PART IIItem 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe following table provides supplemental information about the assets and liabilities of the VIEs which have been consolidated in
accordance with authoritative guidance (dollars in millions):

ASSETS:

Investments held by variable interest entities
Notes receivable of VIEs held by insurance subsidiaries
Cash and cash equivalents held by variable interest entities
Accrued investment income
Income tax assets, net
Other assets

total assets

LIABILITIES:

Other liabilities
Borrowings related to variable interest entities
Notes payable of VIEs held by insurance subsidiaries

total lIabIlItIes

ASSETS:

total assets

LIABILITIES:

Other liabilities
Borrowings related to variable interest entities
Notes payable of VIEs held by insurance subsidiaries

total lIabIlItIes

december 31, 2013

vIes

eliminations

net effect on
consolidated
balance sheet

1,046.7 $
—
104.3
1.9
5.4
22.6
1,180.9 $

66.0 $

1,012.3
112.5
1,190.8 $

— $

(108.5)
—
—
(2.5)
(.9)
(111.9) $

(4.0) $

—
(112.5)
(116.5) $

1,046.7
(108.5)
104.3
1.9
2.9
21.7
1,069.0

62.0
1,012.3
—
1,074.3

december 31, 2012

vIes

eliminations

net effect on
consolidated
balance sheet

814.3 $
—
54.2
1.8
3.3
9.6
883.2 $

39.9 $
767.0
82.5
889.4 $

— $

(78.5)
—
—
(2.6)
—
(81.1) $

(3.3) $

—
(82.5)
(85.8) $

814.3
(78.5)
54.2
1.8
.7
9.6
802.1

36.6
767.0
—
803.6

The following table provides supplemental information about the revenues and expenses of the VIEs which have been consolidated in
accordance with authoritative guidance, after giving effect to the elimination of our investment in the VIEs and investment management
fees earned by a subsidiary of the Company (dollars in millions):

REVENuES:

Net investment income – policyholder and reinsurer accounts and other special-purpose portfolios
Fee revenue and other income

Total revenues

ExPENSES:

Interest expense
Other operating expenses

Total expenses
Income before net realized investment losses and income taxes

Net realized investment losses

Income before Income taxes

2013

2012

2011

42.3
1.8
44.1

26.0
1.4
27.4
16.7
(1.6)
15.1

31.3
1.6
32.9

20.0
.6
20.6
12.3
(.4)
11.9

18.8
1.2
20.0

11.8
.7
12.5
7.5
(1.3)
6.2

170

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIItem 8 Consolidated Financial StatementsPart II
ITEM 8 Consolidated Financial Statement

The investment portfolios held by the VIEs are primarily comprised
of commercial bank loans to corporate obligors which are almost
entirely rated below-investment grade. At December 31, 2013, such

loans had an amortized cost of $1,045.1 million; gross unrealized
gains of $4.7 million; gross unrealized losses of $3.1 million; and
an estimated fair value of $1,046.7 million.

The following table sets forth the amortized cost and estimated fair value of the investments held by the VIEs at December 31, 2013, by
contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.

(Dollars in millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years

total

amortized cost
6.5
355.8
682.8
1,045.1

estimated fair value
6.5
357.3
682.9
1,046.7

The following table sets forth the amortized cost and estimated fair value of those investments held by the VIEs with unrealized losses at
December 31, 2013, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without penalties.

(Dollars in millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years

total

There were no investments held by the VIEs rated below-
investment grade which have been continuously in an unrealized
loss position exceeding 20 percent of the cost basis as of
December 31, 2013.

During 2013, we recognized net realized investment losses on
the VIE investments of $1.6 million, which were comprised
of $.5 million of net losses from the sales of fixed maturities,
and $1.1 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.
During 2012, we recognized net realized investment losses on
the VIE investments of $.4 million, which were comprised of
$.4 million of net gains from the sales of fixed maturities, and
$.8 million of writedowns of investments for other than temporary
declines in fair value recognized through net income. During
2011, we recognized net realized investment losses on the VIE
investments of $1.3 million, which were comprised of $3.0 million
of net gains from the sales of fixed maturities, and $4.3 million of
writedowns of investments for other than temporary declines in
fair value recognized through net income.

At December 31, 2013, there were no investments held by the
VIEs that were in default.

During 2013, $11.1 million of investments held by the VIEs were
sold which resulted in gross investment losses (before income taxes)
of $.9 million. During 2012, $34.9 million of investments held
by the VIEs were sold which resulted in gross investment losses
(before income taxes) of $.3 million. During 2011, $27.5 million
of investments held by the VIEs were sold which resulted in gross
investment losses (before income taxes) of $2.7 million.

At December 31, 2013, the VIEs held: (i) investments with a fair
value of $355.5 million and gross unrealized losses of $3.1 million
that had been in an unrealized loss position for less than twelve
months; and (ii) investments with a fair value of $7.9 million and
no gross unrealized losses that had been in an unrealized loss
position for greater than twelve months.

amortized cost
2.8
103.1
260.6
366.5

estimated fair value
2.8
102.7
257.9
363.4

At December 31, 2012, the VIEs held: (i) investments with a fair
value of $114.1 million and gross unrealized losses of $.7 million
that had been in an unrealized loss position for less than twelve
months; and (ii) investments with a fair value of $59.1 million
and gross unrealized losses of $.9 million that had been in an
unrealized loss position for greater than twelve months.

The investments held by the VIEs are evaluated for other-than-
temporary declines in fair value in a manner that is consistent with
the Company’s fixed maturities, available for sale.

In addition, the Company, in the normal course of business,
makes passive investments in structured securities issued by VIEs
for which the Company is not the investment manager. These
structured securities include asset-backed securities, collateralized
debt obligations, commercial mortgage-backed
securities,
residential mortgage-backed securities and collateralized mortgage
obligations. Our maximum exposure to loss on these securities is
limited to our cost basis in the investment. We have determined
that we are not the primary beneficiary of these structured
securities due to the relative size of our investment in comparison
to the total principal amount of the individual structured securities
and the level of credit subordination which reduces our obligation
to absorb gains or losses.

At December 31, 2013, we hold investments in various limited
partnerships, in which we are not the primary beneficiary,
totaling $19.7 million (classified as other invested assets). At
December 31, 2013, we had unfunded commitments to these
partnerships of $43.7 million. Our maximum exposure to loss on
these investments is limited to the amount of our investment.

171

CNO FINANCIAL GROUP, INC. - Form 10-KPart II
ITEM 9B Other Information

ITEM 9. Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure.

None.

ITEM 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. CNO’s
management, under the supervision and with the participation
of the Chief Executive Officer and the Chief Financial Officer,
evaluated the effectiveness of CNO’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended). Based on its
evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of December 31, 2013, CNO’s disclosure
controls and procedures were effective to ensure that information
required to be disclosed by CNO in reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in
the Securities and Exchange Commission’s (the “SEC”) rules
and forms. Disclosure controls and procedures are also designed
to reasonably assure that such information is accumulated
and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Controls. Our management,
including our Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls over
financial reporting will prevent all error and fraud. A control
system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system’s
objectives will be met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues
and instances of fraud, if any, have been detected. These inherent
limitations include the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of error or
mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system
of controls is based in part on certain assumptions about the
likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of

compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.

Conclusion Regarding the Effectiveness of Disclosure Controls and
Procedures. Based on our controls evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that as of the end
of the period covered by this annual report, our disclosure controls
and procedures were effective to provide reasonable assurance that:
(i) the information required to be disclosed by us in reports that
we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SEC’s rules and forms; and (ii) material information is accumulated
and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control - Integrated Framework
(1992) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on our evaluation under the
framework in Internal Control - Integrated Framework (1992), our
management concluded that our internal control over financial
reporting was effective as of December 31, 2013.

The effectiveness of our internal control over financial reporting as
of December 31, 2013 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated
in their report which is included herein.

Changes to Internal Control Over Financial Reporting. There were no
changes in the Company’s internal control over financial reporting
(as defined in Rule 13a-15(f) under the Securities Exchange Act
of 1934) during the quarter ended December 31, 2013, that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

ITEM 9B. Other Information.

None.

172

CNO FINANCIAL GROUP, INC. - Form 10-K

Part III

ITEM 10. Directors, Executive Officers and Corporate

Governance.

We will provide information that is responsive to this Item 10 in our definitive proxy statement or in an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated by reference into
this Item 10. Additional information called for by this item is contained in Part I of this Annual Report under the caption “Executive
Officers of the Registrant.”

ITEM 11. Executive Compensation.

We will provide information that is responsive to this Item 11 in our definitive proxy statement or in an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated by reference into
this Item 11.

ITEM 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.

We will provide information that is responsive to this Item 12 in our definitive proxy statement or in an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated by reference into
this Item 12.

ITEM 13. Certain Relationships and Related Transactions,

and Director Independence.

We will provide information that is responsive to this Item 13 in our definitive proxy statement or in an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated by reference into
this Item 13.

ITEM 14. Principal Accountant Fees and Services.

We will provide information that is responsive to this Item 14 in our definitive proxy statement or in an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated by reference into
this Item 14.

173

CNO FINANCIAL GROUP, INC. - Form 10-KPart Iv

ITEM 15. Exhibits and Financial Statement Schedules.

(a)

1. Financial Statements. See Index to Consolidated Financial Statements on page 112 for a list of financial statements included in

this Report.

2. Financial Statement Schedules:

Schedule II -- Condensed Financial Information of Registrant (Parent Company)

Schedule IV -- Reinsurance

All other schedules are omitted, either because they are not applicable, not required, or because the information they contain is included
elsewhere in the consolidated financial statements or notes.

3. Exhibits. See Exhibit Index immediately preceding the Exhibits filed with this report.

174

CNO FINANCIAL GROUP, INC. - Form 10-K

Part Iv
Signature

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

CNO FINANCIAL GROuP, INC.
Dated: February 24, 2014
By: /s/ Edward J. Bonach
Edward J. Bonach
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:

signature
/s/ EDWARD J. BONACH
edward J. bonach
/s/ FREDERICK J. CRAWFORD
frederick J. crawford
/s/ JOHN R. KLINE
John r. Kline
/s/ ELLYN L. BROWN
ellyn l. brown
/s/ ROBERT C. GREVING
robert c. greving
/s/ MARY R. HENDERSON
mary r. henderson
/s/ R. KEITH LONG
r. Keith long
/s/ NEAL C. SCHNEIDER
neal c. schneider
/s/ FREDERICK J. SIEVERT
frederick J. sievert
/s/ MICHAEL T. TOKARZ
michael t. tokarz
/s/ JOHN G. TuRNER
John g. turner

title (capacity)
Director and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Director

Director

date
February 24, 2014

February 24, 2014

175

CNO FINANCIAL GROUP, INC. - Form 10-KPart Iv
Report of Independent Registered Public Accounting Firm on Financial Statement Schedules

Report of Independent Registered Public Accounting Firm
on Financial Statement Schedules

To the Shareholders and Board of Directors of CNO Financial Group, Inc.:

Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting of CNO Financial
Group, Inc. and subsidiaries referred to in our report dated February 24, 2014 appearing under Item 8 of this Form 10-K also included
an audit of the financial statement schedules at December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011
listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements.

/s/PricewaterhouseCoopers LLP

Indianapolis, Indiana
February 24, 2014

176

CNO FINANCIAL GROUP, INC. - Form 10-K

SCHEDULE II Condensed Financial Information of Registrant (Parent Company)

Balance Sheet as of December 31, 2013 and 2012

(Dollars in millions)

assets
Fixed maturities, available for sale, at fair value (amortized cost: 2013 - $51.8; 2012 - $66.3)
Cash and cash equivalents - unrestricted
Equity securities at fair value (cost: 2013 - $65.3; 2012 - $28.5)
Trading securities
Other invested assets
Investment in wholly-owned subsidiaries (eliminated in consolidation)
Income tax assets, net
Other invested assets - affiliated (eliminated in consolidation)
Receivable from subsidiaries (eliminated in consolidation)
Other assets

total assets

lIabIlItIes and shareholders’ equIty

Liabilities:

Notes payable
Payable to subsidiaries (eliminated in consolidation)
Income tax liabilities, net
Other liabilities
Total liabilities

Commitments and Contingencies
Shareholders’ equity:
Common stock and additional paid-in capital ($0.01 par value, 8,000,000,000 shares authorized,
shares issued and outstanding: 2013 - 220,323,823; 2012 – 221,502,371)

Accumulated other comprehensive income
Retained earnings (accumulated deficit)

total shareholders’ equIty
total lIabIlItIes and shareholders’ equIty

The accompanying notes are an integral part of the consolidated financial statements.

2013

2012

51.7
131.1
79.6
2.1
22.2
5,550.9
107.6
19.9
1.7
22.1
5,988.9

856.4
108.7
—
68.6
1,033.7

4,095.0
731.8
128.4
4,955.2
5,988.9

68.5
165.7
30.0
2.3
26.3
6,034.5
—
—
1.4
22.7
6,351.4

1,004.2
110.9
105.6
81.4
1,302.1

4,176.9
1,197.4
(325.0)
5,049.3
6,351.4

SCHEDULE II Condensed Financial Information of Registrant (Parent Company)

Statement of Operations for the years ended December 31, 2013, 2012 and 2011

(Dollars in millions)
Revenues:

Net investment income (loss)
Net realized investment gains
Investment income from subsidiaries (eliminated in consolidation)

Total revenues

Expenses:

Interest expense
Intercompany expenses (eliminated in consolidation)
Operating costs and expenses
Loss on extinguishment of debt

Total expenses
Loss before income taxes and equity in undistributed earnings of subsidiaries

Income tax benefit on period income

Loss before equity in undistributed earnings of subsidiaries

Equity in undistributed earnings of subsidiaries (eliminated in consolidation)

net Income

2013

21.1
.4
1.6
23.1

51.4
.3
26.1
65.4
143.2
(120.1)
(8.8)
(111.3)
589.3
478.0

2012

2011

22.3
1.9
—
24.2

66.6
.4
50.9
200.2
318.1
(293.9)
(59.8)
(234.1)
455.1
221.0

(4.0)
1.0
.2
(2.8)

76.3
.3
53.8
3.4
133.8
(136.6)
(42.2)
(94.4)
430.1
335.7

The accompanying notes are an integral part of the consolidated financial statements.

177177

CNO FINANCIAL GROUP, INC. - Form 10-KPART IVSCHEDULE II Condensed Financial Information of Registrant (Parent Company)SCHEDULE II Condensed Financial Information of Registrant (Parent Company)

Statement of Cash Flows for the years ended December 31, 2013, 2012 and 2011

2013
(65.9)

2012
(95.3)

2011
(85.5)

95.8
—
(119.3)
(10.0)
12.6
242.8
—
221.9

—
(126.9)
15.1
(118.4)
(24.4)
(61.6)

(12.6)
—
222.1
(83.9)
(190.6)
(34.6)
165.7
131.1

159.7
—
(145.0)
—
37.4
245.0
26.0
323.1

944.5
(810.6)
3.1
(180.2)
(13.9)
(183.0)

(24.0)
(24.8)
208.6
(52.0)
(132.3)
95.5
70.2
165.7

1,422.9
10.0
(1,569.5)
(10.0)
(16.5)
236.0
(26.0)
46.9

—
(144.8)
2.2
(69.8)
—
—

—
24.8
169.7
(33.3)
(51.2)
(89.8)
160.0
70.2

(Dollars in millions)
Cash flows used by operating activities
Cash flows from investing activities:

Sales of investments
Sales of investments - affiliated*
Purchases of investments
Purchases of investments - affiliated*
Net sales (purchases) of trading securities
Dividends received from consolidated subsidiary, net of capital contributions*
Change in restricted cash

Net cash provided by investing activities

Cash flows from financing activities:

Issuance of notes payable, net
Payments on notes payable
Issuance of common stock
Payments to repurchase common stock
Common stock dividends paid
Expenses related to extinguishment of debt
Amount paid to extinguish the beneficial conversion feature associated with
repurchase of convertible debentures
Investment borrowings - repurchase agreements, net
Issuance of notes payable to affiliates*
Payments on notes payable to affiliates*
Net cash used by financing activities
Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of the year
cash and cash equIvalents, end of the year

Eliminated in consolidation

The accompanying notes are an integral part of the consolidated financial statements.

178

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IVSCHEDULE II Condensed Financial Information of Registrant (Parent Company)SCHEDULE II Notes to Condensed Financial Information

Basis of Presentation

The condensed financial information should be read in conjunction with the consolidated financial statements of CNO Financial Group,
Inc. The condensed financial information includes the accounts and activity of the parent company.

SCHEDULE IV Reinsurance

for the years ended December 31, 2013, 2012 and 2011

(Dollars in millions)
Life insurance inforce:

Direct
Assumed
Ceded

net Insurance Inforce
Percentage of assumed to net

Insurance policy income:

Direct
Assumed
Ceded

net PremIums
Percentage of assumed to net

2013

2012

2011

53,304.9
305.7
(11,477.6)
42,133.0

.7%

2013

2,623.5
37.4
(212.1)
2,448.8

53,750.8
325.7
(12,392.4)
41,684.1

.8%

2012

2,591.1
69.4
(220.0)
2,440.5

56,540.1
349.3
(13,616.9)
43,272.5

.8%

2011

2,540.6
80.4
(238.1)
2,382.9

1.5%

2.8%

3.4%

179179

CNO FINANCIAL GROUP, INC. - Form 10-KPART IVSCHEDULE II Condensed Financial Information of Registrant (Parent Company)Part Iv
Director of CNO Financial Group, Inc.

directors of cno financial group, Inc.

neal c. schneider (chairman)
Former Chairman of the Board,
PMA Capital Corporation

edward J. bonach
Chief Executive Officer,
CNO Financial Group, Inc.

ellyn l. brown
Retired Principal,
Brown & Associates

robert c. greving
Retired Executive Vice President,
Chief Financial Officer and Chief Actuary,
unum Group

mary r. (nina) henderson
Managing Partner,
Henderson Advisory

r. Keith long
President and Chief Executive Officer,
Otter Creek Management, Inc.

fredrick J. sievert
Retired President,
New York Life Insurance Company

michael t. tokarz
Chairman,
MVC Capital, Inc.

John g. turner
Chairman,
Hillcrest Capital Partners

180

CNO FINANCIAL GROUP, INC. - Form 10-K

This page intentionally left blank.This page intentionally left blank.This page intentionally left blank.table of contents

2013 in Review

To Our Shareholders

Bankers Life

Colonial Penn

Washington National

CNO in Our Community

Annual Report on Form 10-K

Market for Registrant’s Common Equity Related Stockholder
Matters and Issuer Purchases of Equity Securities

Selected Consolidated Financial Data

Management’s Discussion and Analysis of Consolidated
Financial Condition and Results of Operations

Consolidated Financial Statements and Supplementary Data

Exhibits and Financial Statement Schedules

Directors of CNO Financial Group, Inc.

Investor Information

112

174

180

183

Investor Information

Stock Information
CNO Financial Group’s common
stock is listed on the
New York Stock Exchange
(trading symbol: CNO).

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2013
ANNUAL
REPORT

CNO Financial Group, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032

(317) 817-6100

cnoinc.com

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