CNO Financial Group Annual Report 2017

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FY2017 Annual Report · CNO Financial Group

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Table of Contents

A Letter to Shareholders from CEO Gary C. Bhojwani

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

Exhibits and Financial Statement Schedules

Directors of CNO Financial Group, Inc.

Investor Information

158

163

164

ANNUAL
REPORT

Investor Information

Meeting of Shareholders

Ways to Learn More About Us

Our annual meeting of shareholders will be held at

Investor Hotline: Call (800) 426-6732 or (317) 817-2893

8:00 a.m. (EDT) on May 9, 2018, in the auditorium of CNO Financial

to receive annual reports, Form 10-Ks, Form 10-Qs, and

Group headquarters at 11825 N. Pennsylvania Street, Carmel,

other documents by mail or to speak with an

investor

Indiana. This information is included in the meeting notice,

relations representative.

Email: Contact us at ir@CNOinc.com to ask questions or

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 Financial

transfer agent, American Stock Transfer & Trust Company LLC,

at (800) 937-5449 or (718) 921-8124. Shareholders may reach

American Stock Transfer at astfinancial.com, by email to

help@astfinancial.com, or by mail:

AST

Operations Center

6201 15th Avenue

Brooklyn, NY 11219

request materials.

Quarterly Reporting

investor.CNOinc.com.

Copies of this Report

To receive CNO Financial quarterly results as soon as they

are announced, please sign up for CNO Financial mailing

list by contacting the investor relations department or visit

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 common stock is listed on the

New York Stock Exchange (trading symbol: CNO).

CNO Financial Group, Inc.

11825 N. Pennsylvania Street

Carmel, IN 46032

(317) 817-6100

CNOinc.com

(03/18) 183885

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Table of Contents

A Letter to Shareholders from CEO Gary C. Bhojwani

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

Exhibits and Financial Statement Schedules

Directors of CNO Financial Group, Inc.

Investor Information

158

165

166

Investor Information

Meeting of Shareholders
Our annual meeting of shareholders will be held at
8:00 a.m. (EDT) on May 9, 2018, in the auditorium of CNO Financial
Group 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.

if you would

Shareholder Services
If you are a registered shareholder and have a question
about your account, or
like to report a
change in your name or address, please call CNO Financial
transfer agent, American Stock Transfer & Trust Company LLC,
at (800) 937-5449 or (718) 921-8124. Shareholders may reach
American Stock Transfer at astfinancial.com, by email to
help@astfinancial.com, or by mail:

AST
Operations Center
6201 15th Avenue
Brooklyn, NY 11219

Ways to Learn More About Us
Investor Hotline: Call (800) 426-6732 or (317) 817-2893
to receive annual reports, Form 10-Ks, Form 10-Qs, and
other 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 Financial quarterly results as soon as they
are announced, please sign up for CNO Financial 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 common stock is listed on the
New York Stock Exchange (trading symbol: CNO).

A Letter to Shareholders from CEO Gary C. Bhojwani

To our shareholders:

CNO Financial Group posted another strong year in 2017, marked by many achievements as well as some opportunities. Highlights include:

•

Recorded total shareholder return of 31%.

Grew operating earnings per share 19%.

Returned $227 million to shareholders.

Fulfilled the needs of customers holding nearly 3.5 million policies.

Paid $2.3 billion in claims to our policyholders.

Received the Best Employers for Healthy Lifestyles® Platinum award from the National Business Group on Health® for the third
consecutive year.

Continued our local support of health and wellness initiatives as the title sponsor of the CNO Financial Indianapolis Monumental
Marathon in our corporate hometown.

Supported our dedicated associates who contributed more than 10,000 hours in community service to 190 organizations, including to
our philanthropic partners at the Alzheimer’s Association® and the American Cancer Society®. 2018 will bring additional enhancements
that will give our associates a larger voice in how we allocate our corporate charitable donations.

I begin by recognizing the career of Ed Bonach, who retired as our chief executive officer on December 31, 2017, after 10 years with the
company. As CEO and CFO prior to that, Ed led the company through our “fix and focus” phase that contributed to significant financial
returns. He successfully led the CNO team through the financial crisis, fortified the balance sheet and laid the foundation for our continued
success and growth. We wish Ed, his wife, Peggy, and the rest of their family all the best!

Next, I wish to thank our Chairman Neal Schneider and the entire Board of Directors for their commitment to CNO, our customers, our
associates, our agents and, of course, our shareholders. Their dedication to our mission and the time they commit is exemplary. On a
personal level, I also wish to thank Neal and the Board for entrusting me with the opportunity to serve as CEO.

Why CNO Financial Group?

Why do I believe in this leadership team and in this company? This is the first question I ask myself when I am considering any personal financial
investment. This question may be relevant for you today as well, in particular, because CNO Financial is under new leadership with my appointment.

I obviously wish to share with you why I continue to invest and believe in CNO. However, my views will be most credible if you have the
context that informs these views. Even though I joined CNO as president in 2016 and became CEO on January 1, 2018, I have not directly
interacted with many of you. Therefore, I also would like to share with you a bit about my experiences so you have the context surrounding
my perspectives about CNO.

I have been in the insurance industry since 1990. The first third of my career was spent leading distribution organizations (i.e., insurance
agencies and brokers). The next third of my career saw me leading property and casualty underwriting firms (i.e., P&C insurance
companies). And for the last decade, I have had the privilege of leading life/annuity and global insurance organizations.

As I assess CNO through the lens of nearly 30 years of very diverse experiences, I see in CNO great promise and many truly unique
attributes and strengths:

• Market Focus: We have the privilege—and obligation—of helping those Americans who need our services most: the middle market.
These Americans have an annual household income between $30,000 and $100,000 and less than $500,000 in investable assets. The
size, forward growth prospects and needs of this segment are well documented. Even so, because most life insurers focus on the more
affluent markets, our space is less crowded. Finally, I have a personal connection with, and affection for, these customers and families;
as the child of first-generation immigrants, the home I grew up in represents our target market.

•

Distribution: Most insurance firms are direct writers, work with independent agents or have a career agency force. We have the
unique combination of all three: Colonial Penn is our direct writer, Washington National works with a combination of wholly owned
and independent distribution and Bankers Life distributes products through a network of career agents. Having started my insurance
career in distribution, I have a deep appreciation for how this combination allows us to learn and get the best of all worlds, while being
able to accommodate numerous consumer preferences.

• Health and Wealth Solutions: Life insurance, annuities and long-term care insurance are all discretionary purchases. At Bankers Life,

we manufacture and distribute the closest thing to a nonvoluntary product in our space: Medicare Supplement insurance. Because a

high percentage of our target market purchases this product, we have a very valuable entry point with our clients, which then leads to

numerous cross-sell opportunities for discretionary products to meet their needs. Product development represents the intersection of

the technical and relationship sides of our business. My technical education combined with my sales experience cause me to be very

passionate about product development as a key component of our growth strategy.

•

Insurance and Securities Solutions: My time in the U.S. and global life insurance space has given me a first-hand view into the urgent and

growing need for income security solutions for our market. This observation is echoed by industry research and studies we’ve conducted

through the Bankers Life Center for a Secure Retirement and underscores the fact that our customers need access to both insurance and

securities products for their retirement. The recent launch of our broker-dealer uniquely positions us to meet our clients’ needs.

The opportunities within the middle-income market are vast, and we have the focus and infrastructure to reach them. The above

combination of unique attributes defines the strength of our position. But the real question is: What do we do with these strengths? I think

the answer is simple—grow!

As discussed at our June 2017 Investor Day, it is now time for CNO to pivot to the growth phase of our evolution. To be clear, growth has long

been an objective for the enterprise and we have grown in many of the areas that we targeted. The difference now is that the material financial and

operational challenges of the past are largely behind us, and we have the opportunity to make growth the primary thrust of the organization.

External View

Macro-economic factors influence our business daily and how we manage it. Right now, popular opinion suggests that the global

marketplace is generally strong. This proved particularly true in the United States in 2017 as demonstrated by generally low interest rates,

financial market volatility, unemployment and inflation.

Publicly-traded life insurance companies experienced record gains in 2017, and it would be quite an encore to even come close to those returns

in 2018. Fundamentals for the sector were admittedly good, but not commensurate with the recorded share price increases. Overall, the life

insurance sector looks healthy, outside of the well-reported long-term care reserve strengthening (more on that later). The central focus for not

only us, but for the entire sector, is a return of revenue growth that has been noticeably absent in this great bull run. Some may attribute this to

insurance being a “mature” and saturated market, but counter to that is the well-reported fact that most Americans are underinsured.

One factor that could keep this record expansion cycle continuing is the recently enacted tax reform. Unfortunately for the insurance sector,

much of the near-term cash benefits were offset by changes to the code as a “pay for” of tax reform. Specifically, provisions on how certain

life insurance sector expenses, including policyholder reserving and deferred acquisition cost amortization, were adjusted to increase near-

term taxable income. These adjustments wholly or partially offset the benefits of the reduced tax rate. Tax reform will still be a positive to us

and our peers; however, it may take several years for the full cash benefit to be realized.

From the consumer perspective, the shift from employer-provided pensions to more individual responsibility for funding retirement

continues to drive consumer need. The fear of dying too soon is being overtaken by the fear of living too long and outliving one’s savings at

a time when nursing home and health care costs are outpacing inflation.

To help with these sometimes conflicting forces, our industry is working to cost effectively manage risks and provide assurance to our

customers. As an example, to address income longevity risk concerns, CNO recently launched guaranteed income annuity products and

investment advice solutions. When we as insurers can offer more value-added product options and solutions to our customers, top-line

growth will return to the industry.

Bankers Life 2017 Results

annuity account values.

I’m pleased to report that we were able to grow two of the most meaningful production metrics at Bankers Life: collected premium and

Agent recruiting continues to be the most significant challenge at Bankers Life. Persistent low unemployment and alternatives to

commission-based career opportunities have decreased the pool of agent candidates. We recognize and have discussed publicly the need to

transform our recruiting practices to more selectively target new agents and increase our veteran agents (those in their third year or later).

Those efforts are ongoing and we have seen promising results; however, it is likely that our agent metrics will continue to be strained as

we test and migrate to a new model. The career agent model continues to be an asset to Bankers Life and, while we wish to modernize our

approach, there are no plans to pivot away from our career agent model.

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3/22/18 3:41 PM

A Letter to Shareholders from CEO Gary C. Bhojwani

To our shareholders:

CNO Financial Group posted another strong year in 2017, marked by many achievements as well as some opportunities. Highlights include:

Recorded total shareholder return of 31%.

Grew operating earnings per share 19%.

Returned $227 million to shareholders.

Fulfilled the needs of customers holding nearly 3.5 million policies.

Paid $2.3 billion in claims to our policyholders.

•

Received the Best Employers for Healthy Lifestyles® Platinum award from the National Business Group on Health® for the third

consecutive year.

Marathon in our corporate hometown.

Continued our local support of health and wellness initiatives as the title sponsor of the CNO Financial Indianapolis Monumental

Supported our dedicated associates who contributed more than 10,000 hours in community service to 190 organizations, including to

our philanthropic partners at the Alzheimer’s Association® and the American Cancer Society®. 2018 will bring additional enhancements

that will give our associates a larger voice in how we allocate our corporate charitable donations.

I begin by recognizing the career of Ed Bonach, who retired as our chief executive officer on December 31, 2017, after 10 years with the

company. As CEO and CFO prior to that, Ed led the company through our “fix and focus” phase that contributed to significant financial

returns. He successfully led the CNO team through the financial crisis, fortified the balance sheet and laid the foundation for our continued

success and growth. We wish Ed, his wife, Peggy, and the rest of their family all the best!

Next, I wish to thank our Chairman Neal Schneider and the entire Board of Directors for their commitment to CNO, our customers, our

associates, our agents and, of course, our shareholders. Their dedication to our mission and the time they commit is exemplary. On a

personal level, I also wish to thank Neal and the Board for entrusting me with the opportunity to serve as CEO.

Why CNO Financial Group?

Why do I believe in this leadership team and in this company? This is the first question I ask myself when I am considering any personal financial

investment. This question may be relevant for you today as well, in particular, because CNO Financial is under new leadership with my appointment.

I obviously wish to share with you why I continue to invest and believe in CNO. However, my views will be most credible if you have the

context that informs these views. Even though I joined CNO as president in 2016 and became CEO on January 1, 2018, I have not directly

interacted with many of you. Therefore, I also would like to share with you a bit about my experiences so you have the context surrounding

my perspectives about CNO.

I have been in the insurance industry since 1990. The first third of my career was spent leading distribution organizations (i.e., insurance

agencies and brokers). The next third of my career saw me leading property and casualty underwriting firms (i.e., P&C insurance

companies). And for the last decade, I have had the privilege of leading life/annuity and global insurance organizations.

As I assess CNO through the lens of nearly 30 years of very diverse experiences, I see in CNO great promise and many truly unique

attributes and strengths:

• Market Focus: We have the privilege—and obligation—of helping those Americans who need our services most: the middle market.

These Americans have an annual household income between $30,000 and $100,000 and less than $500,000 in investable assets. The

size, forward growth prospects and needs of this segment are well documented. Even so, because most life insurers focus on the more

affluent markets, our space is less crowded. Finally, I have a personal connection with, and affection for, these customers and families;

as the child of first-generation immigrants, the home I grew up in represents our target market.

•

Distribution: Most insurance firms are direct writers, work with independent agents or have a career agency force. We have the

unique combination of all three: Colonial Penn is our direct writer, Washington National works with a combination of wholly owned

and independent distribution and Bankers Life distributes products through a network of career agents. Having started my insurance

career in distribution, I have a deep appreciation for how this combination allows us to learn and get the best of all worlds, while being

able to accommodate numerous consumer preferences.

• Health and Wealth Solutions: Life insurance, annuities and long-term care insurance are all discretionary purchases. At Bankers Life,
we manufacture and distribute the closest thing to a nonvoluntary product in our space: Medicare Supplement insurance. Because a
high percentage of our target market purchases this product, we have a very valuable entry point with our clients, which then leads to
numerous cross-sell opportunities for discretionary products to meet their needs. Product development represents the intersection of
the technical and relationship sides of our business. My technical education combined with my sales experience cause me to be very
passionate about product development as a key component of our growth strategy.

•

Insurance and Securities Solutions: My time in the U.S. and global life insurance space has given me a first-hand view into the urgent and
growing need for income security solutions for our market. This observation is echoed by industry research and studies we’ve conducted
through the Bankers Life Center for a Secure Retirement and underscores the fact that our customers need access to both insurance and
securities products for their retirement. The recent launch of our broker-dealer uniquely positions us to meet our clients’ needs.

The opportunities within the middle-income market are vast, and we have the focus and infrastructure to reach them. The above
combination of unique attributes defines the strength of our position. But the real question is: What do we do with these strengths? I think
the answer is simple—grow!

As discussed at our June 2017 Investor Day, it is now time for CNO to pivot to the growth phase of our evolution. To be clear, growth has long
been an objective for the enterprise and we have grown in many of the areas that we targeted. The difference now is that the material financial and
operational challenges of the past are largely behind us, and we have the opportunity to make growth the primary thrust of the organization.

External View

Macro-economic factors influence our business daily and how we manage it. Right now, popular opinion suggests that the global
marketplace is generally strong. This proved particularly true in the United States in 2017 as demonstrated by generally low interest rates,
financial market volatility, unemployment and inflation.

Publicly-traded life insurance companies experienced record gains in 2017, and it would be quite an encore to even come close to those returns
in 2018. Fundamentals for the sector were admittedly good, but not commensurate with the recorded share price increases. Overall, the life
insurance sector looks healthy, outside of the well-reported long-term care reserve strengthening (more on that later). The central focus for not
only us, but for the entire sector, is a return of revenue growth that has been noticeably absent in this great bull run. Some may attribute this to
insurance being a “mature” and saturated market, but counter to that is the well-reported fact that most Americans are underinsured.

One factor that could keep this record expansion cycle continuing is the recently enacted tax reform. Unfortunately for the insurance sector,
much of the near-term cash benefits were offset by changes to the code as a “pay for” of tax reform. Specifically, provisions on how certain
life insurance sector expenses, including policyholder reserving and deferred acquisition cost amortization, were adjusted to increase near-
term taxable income. These adjustments wholly or partially offset the benefits of the reduced tax rate. Tax reform will still be a positive to us
and our peers; however, it may take several years for the full cash benefit to be realized.

From the consumer perspective, the shift from employer-provided pensions to more individual responsibility for funding retirement
continues to drive consumer need. The fear of dying too soon is being overtaken by the fear of living too long and outliving one’s savings at
a time when nursing home and health care costs are outpacing inflation.

To help with these sometimes conflicting forces, our industry is working to cost effectively manage risks and provide assurance to our
customers. As an example, to address income longevity risk concerns, CNO recently launched guaranteed income annuity products and
investment advice solutions. When we as insurers can offer more value-added product options and solutions to our customers, top-line
growth will return to the industry.

Bankers Life 2017 Results

I’m pleased to report that we were able to grow two of the most meaningful production metrics at Bankers Life: collected premium and
annuity account values.

Agent recruiting continues to be the most significant challenge at Bankers Life. Persistent low unemployment and alternatives to
commission-based career opportunities have decreased the pool of agent candidates. We recognize and have discussed publicly the need to
transform our recruiting practices to more selectively target new agents and increase our veteran agents (those in their third year or later).
Those efforts are ongoing and we have seen promising results; however, it is likely that our agent metrics will continue to be strained as
we test and migrate to a new model. The career agent model continues to be an asset to Bankers Life and, while we wish to modernize our
approach, there are no plans to pivot away from our career agent model.

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The broker-dealer and registered investment advisor (BD/RIA) initiative that launched nearly 18 months ago is gaining traction among
customers as well as helping retain our most productive and tenured agents. Today, one in 10 of our agents at Bankers Life has a securities
license; we believe we can take that ratio to one in five. We exceeded our registered advisor recruitment goal in 2017 and experienced
healthy gains in both assets under administration and assets under management. Both asset aggregation metrics are important, but for
somewhat different reasons.

Assets under management represent direct economics to the business through continual fee income and generally higher client retention.
Assets under advisement is more nuanced, but no less important. We do realize favorable economics on this business, but the fee structure is
prone to fluctuations and difficult to predict. Most consumers view insurance products as expenses to be minimized, whereas they view income
and growth products as investments to grow and maximize. This simple fact encourages our securities clients to stay with us longer.

Bankers Life’s 2017 adjusted earnings before interest and taxes (EBIT) grew 5% on a reported basis and 20% when removing nonrecurring,
significant items. Much of the outperformance was due to favorable investment income (driven by outsized call and prepayment activity). The
actuarial experience for all major lines of business came in at or near expectation, with the few outsized actuarial impacts mostly breaking positively.

The Bankers Life business continues to generate significant earnings and cash flow with some challenges on the production side of the
business that we are proactively addressing. Overall, we are pleased with the progress, but not yet satisfied with the results.

Washington National 2017 Results

I am pleased to announce that Washington National achieved record new annualized premium (NAP) in 2017. We overcame considerable
headwinds caused by the hurricanes that devastated communities where our customers and agents live and work. This also affected
production in Puerto Rico and South Florida during the back half of the year. The new management team who took over in early 2017
deserves the credit for our success despite these challenges.

Technology investments implemented over the last several years are also opening doors for growth and giving Washington National a
differentiated product suite to offer our worksite customers. The consumer division has lagged the worksite division recently; however, we
are making progress on our geographic expansion initiative that should make a difference in 2018 and beyond.

For the full year, total NAP of $102 million was up 3%. This was driven by a record year for our wholly owned PMA distribution channel. In
addition, the PMA Worksite channel achieved its fourth consecutive year of double-digit growth.

Colonial Penn 2017 Results

Colonial Penn’s results showed a reduction in NAP, but this was the anticipated result of our pricing discipline. Direct response television
(DRTV) marketing costs continue to be elevated and did not materially decline in 2017 following the 2016 election cycle. In response, we
maintained our discipline with marketing investments and pulled back on TV advertising when returns did not meet our threshold; the net
effect was a reduction in Colonial Penn’s NAP.

As a result, though, the anticipated positive effect of our decision to pull back on marketing spend was that those dollars naturally fell
to the bottom line. Reported Colonial Penn adjusted EBIT was $23 million, exceeding our original guidance of $5 to $15 million set in
December 2016.

The natural question is then: “What should shareholders expect moving forward?”

That is a very difficult question to answer absent certainty on where advertising costs will be in the future. As a rule, we will invest as long as
pricing allows us to meet our strict, internal return requirements. A parallel to the DRTV investment conversation is the continued work to
diversify our lead generation sources. I’m happy to report that we are seeing success with our web initiatives, where we nearly doubled the
contribution of digital lead sources in 2017 from 2016. We continue to strategically invest when and where appropriate to grow those lead
sources with the aspirations that it will match (or even exceed) our TV lead generation capabilities.

What to Expect in 2018

CNO’s strategic priorities remain unchanged. As we enter 2018, we continue to serve the middle-income market through a diverse set
of distribution and products. We will continue to grow the franchise by introducing new products and services and expanding to attract
younger and slightly more affluent customers that can also benefit from our product solutions. CNO also remains committed to reducing
our relative long-term care exposure.

Capital return has been a core investing thesis for shareholders of CNO over the last several years. Most of that return has been in the
form of common stock buybacks, which was certainly appropriate when the stock was trading below book value per share (excluding

accumulated other comprehensive income or AOCI). That conversation becomes more complicated as the share price has moved above

book value per share (BVPS) as it has over the last six months. To be clear, our growth over book value should be celebrated and is a

testament to the hard work and achievements of the organization, but it does cause us to rethink our pursuit of buybacks.

We are often asked: “Where does CNO’s share repurchase and capital return story go from here?” Part of the answer to that question

depends on how our share price trades relative to our reported BVPS (excluding AOCI). Another significant determinant in our capital

deployment strategy has to do with the alternative uses of capital available to the enterprise at that time. We have a bias to invest in the

growth of the firm; however, our overriding goal is to maximize the long-term return to shareholders no matter if that investment is made

back into the business, used to repurchase stock, used for common stock dividends, or to fund mergers and acquisitions (M&A). We

consistently reassess the capital deployment options on hand and adjust from the current course accordingly.

We remain committed to addressing our legacy long-term care insurance exposure and further de-risking the balance sheet. As this Board

and management team have repeatedly indicated, we will only transact if the deal economics make sense.

We have actively managed our exposure to these long-term care policies and the composition of our business is far different than the larger

and more widely discussed blocks of our peers. The net effect is a significantly reduced likelihood of a reserve-strengthening event for us. Of

course, there is no question that legacy blocks of comprehensive long-term care still pose a higher level of tail risk than we prefer. Hence,

our ongoing efforts to reduce this exposure.

Our production focus in 2018 for all three of our businesses may appear straightforward and unsurprising, but that does not mean that it is easy

or certain. Hard work and clear leadership will increase our chances for success—but we will need to remain vigilant as conditions change.

For Bankers Life, 2018 will be about continuing to reshape our agent recruiting and retention processes, to introduce new products, to drive

“moving to the right,” and to market and grow the BD/RIA business. Washington National’s key thrusts will be in geographic expansion,

new product expansion and capitalizing on recent investments in distribution technology. Colonial Penn will look to continue to increase

sales productivity, diversify lead generation and pursue new product expansion.

Capital deployment, reducing our relative long-term care exposure and growing all three businesses by executing on our strategic vision are

all components of a broader management goal to improve return on equity (ROE). We are committed to increasing ROE over time—rest

assured this will remain an area of continued focus into the future.

CNO Financial Group is well positioned for 2018 and the future. Our team is qualified, focused and motivated to deliver value and

exceptional customer service to our current and future customers. Our strategy is sound and our market opportunity is considerable.

Execution is the key to our success.

I thank you for your continued support of, and interest in, CNO.

Regards,

Gary C. Bhojwani

Chief Executive Officer

CNO Financial Group, Inc.

March 8, 2018

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The broker-dealer and registered investment advisor (BD/RIA) initiative that launched nearly 18 months ago is gaining traction among

customers as well as helping retain our most productive and tenured agents. Today, one in 10 of our agents at Bankers Life has a securities

license; we believe we can take that ratio to one in five. We exceeded our registered advisor recruitment goal in 2017 and experienced

healthy gains in both assets under administration and assets under management. Both asset aggregation metrics are important, but for

somewhat different reasons.

Assets under management represent direct economics to the business through continual fee income and generally higher client retention.

Assets under advisement is more nuanced, but no less important. We do realize favorable economics on this business, but the fee structure is

prone to fluctuations and difficult to predict. Most consumers view insurance products as expenses to be minimized, whereas they view income

and growth products as investments to grow and maximize. This simple fact encourages our securities clients to stay with us longer.

Bankers Life’s 2017 adjusted earnings before interest and taxes (EBIT) grew 5% on a reported basis and 20% when removing nonrecurring,

significant items. Much of the outperformance was due to favorable investment income (driven by outsized call and prepayment activity). The

actuarial experience for all major lines of business came in at or near expectation, with the few outsized actuarial impacts mostly breaking positively.

The Bankers Life business continues to generate significant earnings and cash flow with some challenges on the production side of the

business that we are proactively addressing. Overall, we are pleased with the progress, but not yet satisfied with the results.

Washington National 2017 Results

I am pleased to announce that Washington National achieved record new annualized premium (NAP) in 2017. We overcame considerable

headwinds caused by the hurricanes that devastated communities where our customers and agents live and work. This also affected

production in Puerto Rico and South Florida during the back half of the year. The new management team who took over in early 2017

deserves the credit for our success despite these challenges.

Technology investments implemented over the last several years are also opening doors for growth and giving Washington National a

differentiated product suite to offer our worksite customers. The consumer division has lagged the worksite division recently; however, we

are making progress on our geographic expansion initiative that should make a difference in 2018 and beyond.

For the full year, total NAP of $102 million was up 3%. This was driven by a record year for our wholly owned PMA distribution channel. In

addition, the PMA Worksite channel achieved its fourth consecutive year of double-digit growth.

Colonial Penn 2017 Results

Colonial Penn’s results showed a reduction in NAP, but this was the anticipated result of our pricing discipline. Direct response television

(DRTV) marketing costs continue to be elevated and did not materially decline in 2017 following the 2016 election cycle. In response, we

maintained our discipline with marketing investments and pulled back on TV advertising when returns did not meet our threshold; the net

effect was a reduction in Colonial Penn’s NAP.

As a result, though, the anticipated positive effect of our decision to pull back on marketing spend was that those dollars naturally fell

to the bottom line. Reported Colonial Penn adjusted EBIT was $23 million, exceeding our original guidance of $5 to $15 million set in

December 2016.

The natural question is then: “What should shareholders expect moving forward?”

That is a very difficult question to answer absent certainty on where advertising costs will be in the future. As a rule, we will invest as long as

pricing allows us to meet our strict, internal return requirements. A parallel to the DRTV investment conversation is the continued work to

diversify our lead generation sources. I’m happy to report that we are seeing success with our web initiatives, where we nearly doubled the

contribution of digital lead sources in 2017 from 2016. We continue to strategically invest when and where appropriate to grow those lead

sources with the aspirations that it will match (or even exceed) our TV lead generation capabilities.

What to Expect in 2018

CNO’s strategic priorities remain unchanged. As we enter 2018, we continue to serve the middle-income market through a diverse set

of distribution and products. We will continue to grow the franchise by introducing new products and services and expanding to attract

younger and slightly more affluent customers that can also benefit from our product solutions. CNO also remains committed to reducing

our relative long-term care exposure.

Capital return has been a core investing thesis for shareholders of CNO over the last several years. Most of that return has been in the

form of common stock buybacks, which was certainly appropriate when the stock was trading below book value per share (excluding

accumulated other comprehensive income or AOCI). That conversation becomes more complicated as the share price has moved above
book value per share (BVPS) as it has over the last six months. To be clear, our growth over book value should be celebrated and is a
testament to the hard work and achievements of the organization, but it does cause us to rethink our pursuit of buybacks.

We are often asked: “Where does CNO’s share repurchase and capital return story go from here?” Part of the answer to that question
depends on how our share price trades relative to our reported BVPS (excluding AOCI). Another significant determinant in our capital
deployment strategy has to do with the alternative uses of capital available to the enterprise at that time. We have a bias to invest in the
growth of the firm; however, our overriding goal is to maximize the long-term return to shareholders no matter if that investment is made
back into the business, used to repurchase stock, used for common stock dividends, or to fund mergers and acquisitions (M&A). We
consistently reassess the capital deployment options on hand and adjust from the current course accordingly.

We remain committed to addressing our legacy long-term care insurance exposure and further de-risking the balance sheet. As this Board
and management team have repeatedly indicated, we will only transact if the deal economics make sense.

We have actively managed our exposure to these long-term care policies and the composition of our business is far different than the larger
and more widely discussed blocks of our peers. The net effect is a significantly reduced likelihood of a reserve-strengthening event for us. Of
course, there is no question that legacy blocks of comprehensive long-term care still pose a higher level of tail risk than we prefer. Hence,
our ongoing efforts to reduce this exposure.

Our production focus in 2018 for all three of our businesses may appear straightforward and unsurprising, but that does not mean that it is easy
or certain. Hard work and clear leadership will increase our chances for success—but we will need to remain vigilant as conditions change.

For Bankers Life, 2018 will be about continuing to reshape our agent recruiting and retention processes, to introduce new products, to drive
“moving to the right,” and to market and grow the BD/RIA business. Washington National’s key thrusts will be in geographic expansion,
new product expansion and capitalizing on recent investments in distribution technology. Colonial Penn will look to continue to increase
sales productivity, diversify lead generation and pursue new product expansion.

Capital deployment, reducing our relative long-term care exposure and growing all three businesses by executing on our strategic vision are
all components of a broader management goal to improve return on equity (ROE). We are committed to increasing ROE over time—rest
assured this will remain an area of continued focus into the future.

CNO Financial Group is well positioned for 2018 and the future. Our team is qualified, focused and motivated to deliver value and
exceptional customer service to our current and future customers. Our strategy is sound and our market opportunity is considerable.
Execution is the key to our success.

I thank you for your continued support of, and interest in, CNO.

Regards,

Gary C. Bhojwani
Chief Executive Officer
CNO Financial Group, Inc.

March 8, 2018

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K
✔ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017

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

For the transition period from ______ to ______

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 C Junior Participating Preferred Stock

New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.

YES

✔

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, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ✔ Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Emerging growth company

Smaller reporting company

Non-accelerated filer

✔

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

✔

At June 30, 2017, 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 $3.5 billion.

Shares of common stock outstanding as of February 8, 2018: 166,876,131

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant’s definitive proxy statement for the 2018 annual meeting of shareholders are incorporated by reference into
Part III of this report.

CNO FINANCIAL GROUP, INC. - Form 10-K

Table of Contents

PART I

Page
8

Item 1.
Business of CNO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and

Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

Item 6.
Item 7. Management’s Discussion and Analysis of Consolidated Financial Condition and

Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Item 8.
Consolidated Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .156
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .156
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .156

PART III

157
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 157
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

PART IV

158
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 158

CNO FINANCIAL GROUP, INC. - Form 10-KPART 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, 2017, we had shareholders’
equity of $4.8 billion and assets of $33.1 billion. For the year
ended December 31, 2017, we had revenues of $4.3 billion and
net income of $175.6 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; and corporate operations, comprised of holding
company activities and certain noninsurance company businesses.
In the fourth quarter of 2016, we began reporting the long-term
care block recaptured from Beechwood Re Ltd. (“BRe”) effective
September 30, 2016, as an additional business segment.

The Company’s insurance segments are described below:

insurance,

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, financial

interest-sensitive

life

and investment advisors, 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 has
various distribution and marketing agreements with other
insurance companies to use Bankers Life’s career agents to
distribute Medicare Advantage and prescription drug plans
(“PDP”) products in exchange for a fee.

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, 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”). This segment’s business
also includes certain closed blocks of annuities and Medicare
supplement policies which are no longer being actively
marketed by this segment and were primarily issued or acquired
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 (“Colonial Penn”).

Long-term care in run-off consists of the long-term care
business that was recaptured due to the termination of certain
reinsurance agreements effective September 30, 2016. This
business is not actively marketed and was issued or acquired
by Washington National and Bankers Conseco Life Insurance
Company (“BCLIC”).

Our Strategic Direction

Our mission remains unchanged: to enrich lives by providing
insurance solutions that help protect the health and retirement
needs of middle-income Americans, while building enduring
value for all our stakeholders. Our corporate strategy is rooted in
CNO’s unique customer focus. Our focus on the unique financial
security needs of our middle-income customers is essential to our
growth strategy. Our diverse ability to connect with customers

through captive agents, independent channels or direct marketing
is a key strength of CNO. We believe that our product portfolio
mix is well-aligned to the retirement healthcare, supplemental
health and income accumulation needs of working-age customers
as well as those in and near retirement. Unlike most insurers, we
provide solutions for both health risks and wealth opportunities.
As Americans live longer into their retirement years, our customers

CNO FINANCIAL GROUP, INC. - Form 10-K

need holistic retirement income planning, which includes both
our insurance and annuity solutions, and the investments offered
by our broker-dealer and growing force of registered investment
advisors. Specifically, we are focused on the following priorities:

Growth

•

Maximize our product portfolio to ensure it meets our
customers’ needs for integrated products and advice covering
a broad range of their financial needs
Position marketing and our distribution channels to respond
effectively to evolving customer preferences
Expand and enhance elements of our broker-dealer and
registered investment advisor program
Increase the speed-to-market for new products that are a
good fit for our customers
Make strategic, measured changes to our business practices
to improve our competitive advantage
Continue to invest in technology partnerships that will
support our field force and relationships with our customers

Other Information

PART I
ITEM 1 Business of CNO

Increase profitability and return on equity

•

Maintain our strong capital position and favorable financial
metrics

• Work to increase our return on equity
• Maintain pricing discipline

Effectively manage risk and deploy capital

• Maintain an active enterprise risk management process
• Utilize excess cash flow to maximize returns
• Maintain a competitive dividend payout ratio
• Reduce relative legacy long-term care exposure

Continue to invest in talent

•

Attract, retain and develop the best talent to help us drive
sustainable growth, and provide them with development
opportunities

• Recruit, develop and retain our agent force

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 2017, 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
2017 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, 2017 (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 $3.7 billion,
$3.6 billion and $3.4 billion in 2017, 2016 and 2015, 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

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

of the following states accounted for at least five percent of our
2017 collected premiums: Florida (10 percent), Pennsylvania
(6 percent), Texas (6 percent) and California (5 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 3,900 producing agents
working from over 275 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 2017, this distribution channel accounted for
$2.7 billion, or 73 percent, of our total collected premiums. These
agents sell Bankers Life policies, as well as Medicare Advantage
plans primarily through distribution arrangements with Humana,
Inc. 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.

Products

Independent Producers. The products of the Washington National
segment are primarily sold through our wholly-owned marketing
organization, PMA. In addition, Washington National’s
products 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 2017, this distribution channel accounted
for $673.4 million, or 18 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.

Direct Marketing. This distribution channel is engaged primarily in
the sale of graded benefit life insurance policies through Colonial
Penn. In 2017, this channel accounted for $291.6 million, or
8 percent, of our total collected premiums.

The following table summarizes premium collections by major category and segment for the years ended December 31, 2017, 2016 and
2015 (dollars in millions):

TOTAL PREMIUM COLLECTIONS

2017

2016

2015

1,213.4
642.5
2.0
16.9
1,874.8

1,030.6
.9
1,031.5

462.4
30.0
289.6
782.0
3,688.3

1,235.3 $
628.4
2.4
4.7
1,870.8

970.0
1.5
971.5

461.1
29.4
277.8
768.3
3,610.6 $

1,242.3
619.6
3.0
—
1,864.9

803.0
2.4
805.4

446.0
27.7
259.9
733.6
3,403.9

Health:

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off

Total health

Annuities:

Bankers Life
Washington National

Total annuities

Life:

Bankers Life
Washington National
Colonial Penn
Total life

TOTAL PREMIUM COLLECTIONS

CNO FINANCIAL GROUP, INC. - Form 10-K

Our collected premiums by product and segment were as follows:

Health

HEALTH PREMIUM COLLECTIONS (DOLLARS IN MILLIONS)

Medicare supplement:

Bankers Life
Washington National
Colonial Penn

Total

Long-term care:
Bankers Life
Long-term care in run-off

Total

Supplemental health:

Bankers Life
Washington National
Total
Other:

Bankers Life
Washington National
Colonial Penn

Total

TOTAL HEALTH PREMIUM COLLECTIONS

The following describes our major health products:

PART I
ITEM 1 Business of CNO

2017

739.4
51.6
1.9
792.9

445.3
16.9
462.2

22.6
589.1
611.7

2016

739.3 $
61.0
2.3
802.6

468.6
4.7
473.3

21.2
565.5
586.7

6.1
1.8
.1
8.0
1,874.8

6.2
1.9
.1
8.2
1,870.8 $

2015

739.4
72.6
2.7
814.7

476.6
—
476.6

19.2
544.8
564.0

7.1
2.2
.3
9.6
1,864.9

Medicare Supplement

Long-Term Care

Medicare supplement collected premiums were $792.9 million
during 2017, or 21 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 61 percent of new sales of Medicare supplement
policies in 2017 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 2012 to focus on the sale of supplemental health products.

Long-term care collected premiums were $462.2 million during
2017, or 13 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 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 appropriate,
apply for actuarially justified rate increases in the jurisdictions
in which we sell such products. Regulatory approval is required
before we can increase our premiums on these products.

A small portion of our long-term care business is included in
the Long-term care in run-off 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 this long-term care business to an unaffiliated

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

reinsurer. In September 2016, we recaptured this business as
further described in “Management’s Discussion and Analysis of
Consolidated Financial Condition and Results of Operations -
Consolidated Financial Condition - Termination of Long-Term
Care Reinsurance Agreements and Recapture of Related Long-
Term Care Business in Run-off”.

Our legacy long-term care insurance block is not expected to
generate significant future profits and could produce volatile
earnings if experience deteriorates. We continue to sell long-
term care insurance through the Bankers Life career agent
distribution channel. However, the business currently being sold
is underwritten using stricter underwriting and pricing standards
and generally has shorter benefit periods than the older long-term
care business in Bankers Life.

Supplemental Health Products

Supplemental health collected premiums were $611.7 million
during 2017, or 17 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.

Annuities

ANNUITY PREMIUM COLLECTIONS (DOLLARS IN MILLIONS)

Fixed index annuity:

Bankers Life
Washington National

Total fixed index annuity premium collections

Other fixed interest annuity:

Bankers Life
Washington National

Total fixed interest annuity premium collections
TOTAL ANNUITY PREMIUM COLLECTIONS

Approximately 73 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 primarily 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 $8.0 million
during 2017. This category includes various other health products
such as disability income products which are sold in small amounts
and other products such as major medical health insurance which
are no longer actively marketed.

2017

964.7
.6
965.3

65.9
.3
66.2
1,031.5

2016

868.1 $
1.2
869.3

101.9
.3
102.2
971.5 $

2015

706.6
1.9
708.5

96.4
.5
96.9
805.4

During 2017, we collected annuity premiums of $1,031.5 million,
or 28 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. Washington National no longer actively sells annuity
products. 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,
CNO FINANCIAL GROUP, INC. - Form 10-K

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 interest annuity products
has fluctuated due to volatility in the financial markets in recent
periods. In addition, premium collections from Bankers Life’s
fixed rate annuity products have been negatively impacted by low
market interest rates in recent periods.

PART I
ITEM 1 Business of CNO

The following describes the major annuity products:

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

Fixed Index Annuities

These products accounted for $965.3 million, or 26 percent, of
our total premium collections during 2017. 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. In 2016, we began offering
a guaranteed lifetime income annuity, which allows policyholders
to opt to receive a guaranteed income stream for life, without
having to annuitize their policy.

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.

Other Fixed Interest Annuities

These products include fixed rate single-premium deferred
annuities (“SPDAs”), flexible premium deferred annuities
(“FPDAs”) and single-premium immediate annuities (“SPIAs”).
These products accounted for $66.2 million, or 2 percent, of
our total premium collections during 2017, of which SPDAs
and FPDAs comprised $57.5 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 are 1.0 percent, and the
guaranteed rates on all policies inforce range from 1.0 percent
to 5.5 percent. The initial crediting rate is largely a function of:

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 2017, a significant portion of our new annuity sales were “bonus
interest” products. The initial credited rate on these products
generally specifies a bonus crediting rate of up to .5 percent 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, 2017, the average crediting rate, excluding bonuses, on our
outstanding traditional annuities was 3 percent.

Withdrawals from fixed interest 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 fixed interest annuities of up to
10 percent of either premiums or account value are available in
most fixed interest annuities after the first year of the annuity’s
term.

Some fixed interest 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 $8.7 million of our total premiums collected
in 2017. SPIAs are designed to provide a series of periodic
payments for a fixed period of time or for life, 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 fixed rate 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
6.7 percent at December 31, 2017.

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

Life Insurance

LIFE INSURANCE PREMIUM COLLECTIONS (DOLLARS IN MILLIONS)

Interest-sensitive life products:

Bankers Life
Washington National
Colonial Penn

Total interest-sensitive life premium collections

Traditional life:
Bankers Life
Washington National
Colonial Penn

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 2017, we collected life insurance premiums of
$782.0 million, or 21 percent, of our total collected premiums.

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
$181.8 million, or 5 percent, of our total collected premiums in
2017. These products are marketed by independent producers
and 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 $600.2 million, or 16 percent, of
our total collected premiums in 2017. 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

Investments

2017

162.5
19.1
.2
181.8

299.9
10.9
289.4
600.2
782.0

2016

175.0 $
18.0
.3
193.3

286.1
11.4
277.5
575.0
768.3 $

2015

169.1
15.6
.2
184.9

276.9
12.1
259.7
548.7
733.6

whole life policies, the policyholder generally pays a level
premium 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.

Traditional life products also include graded benefit life insurance
products. 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, direct response mailings and the internet.

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
$45.4 million of our total collected premiums in 2017.

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 $27.2 billion of assets (at fair value)
under management at December 31, 2017, of which $27.0 billion

were our assets (including investments held by variable interest
entities (“VIEs”) that are included on our consolidated balance
sheet) and $.2 billion were assets managed for third parties. Our
general account investment strategies are to:

CNO FINANCIAL GROUP, INC. - Form 10-K

• provide largely stable investment income from a diversified high

quality fixed income portfolio;

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

• maximize and maintain a stable spread between our investment

• purchasing options on equity indices with similar payoff

income and the yields we pay on insurance products;

characteristics; and

PART I
ITEM 1 Business of CNO

• sustain adequate liquidity levels to meet operating cash
for potential adverse

including a margin

requirements,
developments;

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

• maximize total return through active strategic asset allocation

and 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, 2017, the average yield, computed on the cost basis
of our fixed maturity portfolio, was 5.3 percent, 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 4.6 percent.

Competition

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

The prices of the options we purchase to manage the equity-
based risk component of our fixed index annuities vary based on
market conditions. All other factors held constant, the prices of
the options generally increase 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.

Our invested assets are predominately fixed rate in nature and
their value fluctuates with changes in market rates, among other
factors (such as changes in the overall compensation for risk
required by the market as well as issuer specific changes in credit
quality). 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, absent other factors, a change in
the value of assets related to changes in interest rates 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, 2017, the estimated
duration of our fixed income securities (as modified to reflect
estimated prepayments and call premiums) and the estimated
duration of our insurance liabilities were approximately 8.6 years
and 8.4 years, respectively.

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. 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
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
“Governmental Regulation” for additional information. In
addition to competing with the products of other insurance
companies, commercial banks, 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 Northwestern Mutual, Mutual of Omaha and New York

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

Life. Our main competitors for agent-sold Medicare supplement
insurance products include Blue Cross and Blue Shield Plans,
United HealthCare and Mutual of Omaha. Our main competitors
for life insurance sold through direct marketing channels include
Gerber Life, Mutual of Omaha, New York Life, Massachusetts
Mutual Life Insurance Company and subsidiaries of Torchmark
Corporation. 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 Corporation.

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 fifth in annualized new premiums of individual long-
term care insurance in the first half of 2017 with a market share
of approximately 6 percent, the top four writers of individual
long-term care insurance had annualized new premiums with a
combined market share of approximately 65 percent during the
period. In addition, while, based on a 2016 Medicare Supplement
Loss Ratios report, we ranked sixth in direct premiums earned
for Medicare supplement insurance in 2016 with a market share
of 2.8 percent, the top writer of Medicare supplement insurance
had direct premiums with a market share of 35 percent during
the period.

Most of our major competitors have higher financial strength
ratings than we do. 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.

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.

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 fluctuates
from period to period and will impact the average cost to generate
a TV lead.

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 Fitch Ratings (“Fitch”), S&P Global Ratings (“S&P”), A.M.
Best Company (“A.M. Best”) 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. The most recent ratings actions are described
below.

On August 15, 2017, Fitch affirmed its “BBB+” financial strength
ratings of our primary insurance subsidiaries. The outlook
for these ratings is stable. 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. 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 seven ratings above the “BBB+” rating of our
primary insurance subsidiaries and eleven ratings that are below
that rating.

On June 23, 2017, S&P affirmed the financial strength ratings
of “BBB+” of our primary insurance subsidiaries and revised the
outlook for these ratings to stable from negative. 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. S&P has twenty-one possible ratings.
There are seven ratings above the “BBB+” rating of our primary
insurance subsidiaries and thirteen ratings that are below that
rating.

On February 8, 2017, A.M. Best affirmed the financial strength
ratings of “A-” of our primary insurance subsidiaries and the
outlook for these ratings is stable. The “A-” rating is assigned to
companies that have an excellent ability, in A.M. Best’s opinion,
to meet their ongoing obligations to policyholders. 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 three ratings above the “A-” rating of our primary insurance
subsidiaries and twelve ratings that are below that rating.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART I
ITEM 1 Business of CNO

On May 9, 2016, Moody’s affirmed the financial strength ratings
of “Baa1” of our primary insurance subsidiaries and the outlook
for these ratings is stable. 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. Moody’s has twenty-one possible ratings. There
are seven ratings above the “Baa1” rating of our primary insurance
subsidiaries and thirteen 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.

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

Liabilities for Insurance Products

substandard risks. We 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.

Our life insurance products include policies that are underwritten
individually and low face-amount life insurance products that
utilize standardized underwriting procedures. 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.

At December 31, 2017, the total balance of our liabilities
for insurance products was $23.5 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

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 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 claims. Many factors can affect these reserves
and liabilities, such as economic and social conditions, inflation,
hospital and pharmaceutical costs, changes in doctrines of

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

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.

Reinsurance

Consistent with the general practice of the life insurance industry,
our subsidiaries enter into indemnity reinsurance agreements
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, 2017, the policy risk retention limit of
our insurance subsidiaries was generally $.8 million or less.
Reinsurance ceded by CNO represented 13 percent of gross
combined life insurance inforce and reinsurance assumed
represented .5 percent of net combined life insurance inforce. Our
principal reinsurers at December 31, 2017 were as follows (dollars
in millions):

Name of Reinsurer
Jackson National Life Insurance Company (“Jackson”)(a)
Wilton Reassurance Company (“Wilton Re”)
RGA Reinsurance Company(b)
Munich American Reassurance Company
Swiss Re Life and Health America Inc.
SCOR Global Life USA Reinsurance Company
All others(c)

Reinsurance receivables Ceded life insurance inforce
696.3
$
$
1,215.5
101.3
494.8
628.1
86.0
230.6
3,452.6

1,408.2
305.5
228.0
3.6
2.9
1.4
225.6
2,175.2

A.M. Best rating
A+
A+
A+
A+
A+
A+

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

business had total insurance policy liabilities of $1.1 billion at December 31, 2017.

(b) RGA Reinsurance Company has assumed a portion of the long-term care business of Bankers Life on a coinsurance basis.
(c) No other single reinsurer represents more than 3 percent of the reinsurance receivables balance or has assumed greater than 2 percent of the total ceded life insurance

business inforce.

Employees

At December 31, 2017, we had approximately 3,300 full time
employees, including 1,280 employees supporting our Bankers
Life segment, 220 employees supporting our Colonial Penn
segment and 1,800 employees supporting our shared services

and our Washington National, long-term care in run-off 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

Insurance Regulation and Oversight

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.

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 coordinated under
the direction of the lead state and typically include all insurers
operating in a holding company system pursuant to guidelines
promulgated by the NAIC.

The NAIC has developed a principle-based reserving approach
for life insurance products which will replace the current
formulaic approach to determining policy reserves with an
approach that more closely reflects the risks of the products. The
principle-based approach became effective on January 1, 2017,
and there is a three-year transition period where the approach is
optional until it is required to be used for all life insurance products
issued on or after January 1, 2020. The new approach will impact
the financial statements of our insurance subsidiaries prepared
under statutory accounting principles prescribed or permitted by
regulatory authorities. The Company is implementing the new
approach to its reserves on new life insurance products as they are
introduced through the transition period.

PART I
ITEM 1 Business of CNO

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. 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.

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 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 NAIC has adopted the Risk Management and Own Risk
and Solvency Assessment Model Act (“ORSA”), which has
been enacted by each of our insurance subsidiaries’ domiciliary
states. ORSA requires that insurers maintain a risk management
framework and conduct an internal own risk and solvency
assessment of the insurer’s material risks in normal and stressed
environments. The assessment must be documented in an annual
summary report, a copy of which must be submitted to insurance
regulators as required or upon request.

The NAIC has adopted the Corporate Governance Annual
Disclosure Model Act (“CGAD”), which has been enacted by our
lead state insurance regulator. CGAD requires an annual filing
by an insurer or insurance group that provides a detailed narrative
and sample documentation on corporate governance structure
and policies and practices.

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

The NAIC has adopted a model law governing cybersecurity
consumer protections in 2017 with enactment by states thereafter.
In addition, effective March 1, 2017, the New York Department
of Financial Services (the “NYDFS”) has a new cybersecurity
regulation which includes transitional phase-in periods up to
two years. An annual Certification of Compliance involving our
cybersecurity program is required to be filed with the NYDFS.

Insurance Holding Company Regulations

All U.S. jurisdictions in which our insurers conduct business,
except the Virgin Islands, have 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. Generally, all transactions between an insurance
company and an affiliate must be fair and reasonable. 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.

All U.S. jurisdictions in which our insurers conduct business,
except the Virgin Islands, have also enacted legislation or
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.

• 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.

If an insurance company has negative earned surplus, any
dividend payments require the prior approval of the director or
commissioner of the applicable state insurance department.

In accordance with an order from the Florida Office of Insurance
Regulation, Washington National may not distribute funds to
any affiliate or shareholder, except pursuant to agreements with
affiliates that have been approved, 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.

Insurance regulations require an annual enterprise risk report
that identifies the material risks within the insurance holding
company system that could pose enterprise risk to the insurer and
which must be submitted to insurance regulators as required.

Long-Term Care Regulations

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 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.

Capital Requirements

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-K

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 basis of
the system is a formula that applies prescribed factors to various
risk elements in an insurer’s business to report a minimum capital
requirement proportional to the amount of risk assumed by the
insurer. The life and health insurer RBC formula is designed to
measure annually: (i) the risk of loss from asset defaults and asset
value fluctuations; (ii) the risk of loss from adverse mortality and
morbidity experience; (iii) the risk of loss from mismatching of
assets and liability cash flow due to changing interest rates; and
(iv) business risks.

In addition, the RBC requirements currently provide for a 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. 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 to the regulatory authority proposing
corrective actions aimed at improving its capital position. The
2017 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.

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 is working to develop a group capital measure to be
utilized as an analytical tool to supplement the existing holding
company analysis as opposed to a capital standard. The measure
is expected to be based on the aggregation of existing regulatory
capital calculations for all entities within the insurance holding
company system.

Regulation of Investments

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

PART I
ITEM 1 Business of CNO

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 complied in all material respects with such
investment regulations as of December 31, 2017.

Other Federal and State Laws and Regulations

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.

The USA PATRIOT Act of 2001 seeks to promote cooperation
among financial institutions, regulators and law enforcement
entities in identifying parties that may be involved in terrorism,
money laundering or other illegal activities. To the extent required
by applicable laws and regulations, CNO and its insurance
laundering (“AML”)
subsidiaries have adopted anti-money
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.

In April 2016, the U.S. Department of Labor (“DOL”) issued a
final regulation that expands the range of activities considered to
be fiduciary investment advice under the Employee Retirement
Income Security Act of 1974 and the Internal Revenue Code (the
“Code”). The DOL also issued a new “best interest contract”
prohibited transaction exemption regarding how such advice
can be provided to retirement investors. These regulations
focus in large part on conflicts of interest related to investment

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

financial advisors,

recommendations made by
registered
investment advisors, insurance agents and other investment
professionals to retirement investors, how financial advisors are
able to discuss IRA rollovers, as well as how financial advisors and
affiliates can transact with retirement investors. These regulations
primarily impact our Bankers Life segment. Most provisions
of these regulations became effective in June 2017. However,
certain of the regulations including the “best interest contract”
exemption were scheduled to become effective on January 1,
2018. In November 2017, the DOL delayed the applicability date
of these provisions to July 1, 2019. We continue to monitor the
status of the remaining provisions.

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

Federal Income Taxation

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. In April 2017, the Trump
Administration issued a Presidential Memorandum that calls for
a comprehensive review of the Dodd-Frank Act. Such review
may result in the Dodd-Frank Act being modified, repealed or
replaced.

The asset management activities of 40|86 Advisors and our
other investment advisory subsidiary 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.

Broker-Dealer and Securities Regulation

We have a broker-dealer subsidiary that is registered under the
Securities Exchange Act of 1934 and is subject to federal and state
regulation, including, but not limited to, the Financial Industry
Regulatory Authority (“FINRA”). Agents and employees
registered or associated with our broker-dealer subsidiary are
subject to the Securities Exchange Act of 1934 and to examination
requirements and regulation by the SEC, FINRA and state
securities commissioners. The SEC and other governmental
agencies, as well as state securities commissions in the U.S.,
have the power to conduct administrative proceedings that can
result in censure, fines, the issuance of cease-and-desist orders or
suspension and termination or limitation of the activities of the
regulated entity or its employees.

On December 22, 2017, President Trump signed into law the
“Tax Cuts and Jobs Act” (the “Tax Reform Act”) which enacted
a broad range of changes to the Code including individual and
corporate reforms and numerous changes to U.S. international
tax provisions. The Tax Reform Act reduces the corporate tax
rate to 21 percent and makes significant changes to the taxation
of life insurance companies. Among other things, the Tax Reform
Act modifies the computation of life insurance reserves, increases
the capitalization rate and extends the amortization period for
policy acquisition costs, imposes limitations on the deductibility
of performance-based compensation to “covered employees” and
interest expense, and allows for the expensing of certain capital
expenditures. For net operating losses (“NOLs”) arising after
December 31, 2017, the Tax Reform Act limits the ability to
utilize NOL carryforwards to 80% of taxable income. In addition,
NOLs arising after 2017 can be carried forward indefinitely, but
carryback is prohibited. We do not expect the Tax Reform Act
to have a material impact to our projection of cash taxes prior
to 2024 due to the impact the Tax Reform Act will have on the
timing of certain deductions and the impacts of our existing non-
life NOLs. Beginning in 2018, we expect our effective tax rate to
be in the 21 to 23 percent range. Our net deferred tax assets and
liabilities have been revalued at the newly enacted U.S. corporate

rate, and the impact has been recognized in our tax expense in
2017, the year of enactment. We continue to examine the impact
this tax legislation may have on our business.

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 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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART I
ITEM 1A Risk Factors

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 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 positions we have taken
in previously filed tax returns and that we plan to take in future
tax returns. Accordingly, with respect to our deferred tax assets,
we assess the need for a valuation allowance on an ongoing basis.

As of December 31, 2017, 2016 and 2015, we have established a
valuation allowance equal to the portion of the net deferred tax
assets whose realization is uncertain. The determination of the
amount of valuation allowance established is made by assessing
the effects of limitations or issues on the value of our net deferred
tax assets expected to be fully recognized in the future.

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.
Investment income is also an important component of the
profitability of our health products, especially long-term care and
supplemental health policies. In addition, interest rates impact
the liability for the benefits we provide under our agent deferred
compensation plan (as it is our policy to immediately recognize
changes in assumptions used to determine this liability).

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 assumptions, 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.

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

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, 2017 (dollars in millions):

Guaranteed rate
> 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.

In the fourth quarter of 2017, we completed a comprehensive
review of interest rate assumptions on all of our products. The
new money rate is the rate of return we receive on cash flows
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 current projections assume new money
rates ranging from 4.65 percent to 5.42 percent for one year
(previously ranged from 4.90 percent to 5.67 percent) and then
grade over 5 years from these levels to an ultimate new money
rate ranging from 5.73 percent to 6.50 percent (unchanged from
the prior year), depending on the specific product. While subject
to many uncertainties, we believe our assumptions for future new
money rates are reasonable.

The remaining profit margins for the life contingent payout
annuities in the Colonial Penn and Washington National
segments and for the long-term care block in run-off are extremely
low. Accordingly, future unfavorable changes to our assumptions
are more likely to reduce earnings in the period such changes
occur.

The following hypothetical scenarios illustrate the sensitivity of
changes in interest rates to our products:

• The first hypothetical scenario assumes immediate and
permanent reductions to current interest rate spreads on
interest-sensitive products. We estimate that a pre-tax charge
of approximately $42 million would occur if assumed spreads
related to our interest-sensitive life and annuity products
immediately and permanently decreased by 10 basis points.

CNO FINANCIAL GROUP, INC. - Form 10-K

Fixed interest and fixed
index annuities
.4
32.2
924.3
2,120.9
801.8
4,668.8
8,548.4

Universal
life
13.4
281.9
47.3
206.5
21.6
352.6
923.3

Total
13.8
314.1
971.6
2,327.4
823.4
5,021.4
9,471.7

1.79%

2.78%

1.88%

• A second scenario assumes that new money rates remain at their
current level indefinitely. We estimate that this scenario would:
(i) result in a pre-tax charge of approximately $2 million related
to an increase in deficiency reserves related to life contingent
payout annuities; and (ii) reduce the margins in the long-term
care block in run-off by approximately $8 million but not result
in a charge because margins would continue to be positive
(based on our 2017 comprehensive actuarial review).

• The third hypothetical scenario assumes current new money
rates increase such that our current portfolio yield remains
level. We estimate that this scenario would: (i) result in a pre-
tax charge of approximately $1 million related to an increase in
deficiency reserves related to life contingent payout annuities;
and (ii) reduce the margins in the long-term care block in
run-off by approximately $4 million but not result in a charge
because margins would continue to be positive (based on our
2017 comprehensive actuarial review).

While we expect the long-term care business in our Bankers Life
segment to generate future net profits, the margins are relatively
small and are vulnerable to a variety of factors including lower
interest rates, higher morbidity and higher persistency. In addition,
our projections of estimated future profits (losses) indicates that
profits will be recognized in earlier periods, followed by losses
in later periods, which has required us to establish a future loss
reserve for this business. Our 2017 comprehensive actuarial
review of this long-term care business indicated margins slightly
decreased by $5 million in 2017 to approximately $315 million,
or approximately 7 percent of related insurance liabilities net of
insurance intangibles. Given the concentration of exposure to
interest rates in this block of business, we modeled the following
additional hypothetical scenarios to illustrate the sensitivity of
additional changes in interest rates on long-term care products in
the Bankers Life segment:

• One scenario assumes that the new money rates available
to invest cash flows from our long-term care block in
the Bankers Life segment remain at their current level of
5.42 percent indefinitely. This scenario would reduce margins
by approximately $105 million but would not result in a charge
because margins would continue to be positive (based on our
2017 comprehensive actuarial review).

PART I
ITEM 1A Risk Factors

• An additional scenario assumes that current new money
rates available to invest cash flows from our long-term care
block in the Bankers Life segment immediately decrease to
approximately 3.50 percent and remain at that level indefinitely.
This scenario would reduce margins in this block by
approximately $410 million and would result in a pre-tax charge
of approximately $95 million (based on our 2017 comprehensive
actuarial review).

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 hypothetical revisions described in the scenarios
summarized above 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.

A long-term care reinsurance transaction could
adversely impact our financial position, results of
operations and/or cash flows.

We have previously disclosed that our strategic priorities include a
reduction of our relative long-term care exposure. To achieve this
goal, it is likely that we will need to transfer the risks of a portion
of this business through one or more reinsurance transactions.
The comprehensive, nursing home and home health care long-
term care business written before 2003 has negative margins.
In order to meaningfully reduce the risk associated with our
long-term care block, a substantial ceding commission would
be paid by the Company to transfer long-term care risk through
reinsurance. Such a reduction of our long-term care exposure
would result in the recognition of a loss. Due to our current tax
position, it is likely that a portion of the tax benefit recognized
on the loss would not be realized and we may be required to
increase our valuation allowance for deferred tax assets. Although
we believe reducing our exposure to the risk of long-term care
business would benefit the Company in the long term, such
reduction could initially adversely impact certain aspects of our
financial position, results of operations and/or cash flow.

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 contraction 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.

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
lower
corporate earnings,
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.

investment and

lower business

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 the past by changes in market conditions which
resulted in substantial changes in realized and/or unrealized
losses. 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
diminish our ability to sell policies and attract assets from new
and existing customers, which would result in lower sales and
fee revenues.

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

Claims experience on our long-term care products
could negatively impact our operations if actual
experience diverges from historical patterns and
our expectations.

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 historical claims experience may not
be indicative of future 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. Improvements
in actual mortality compared to our pricing assumptions have
adversely affected the profitability of long-term care products and
if such trends continue, further losses may be realized.

Our Bankers Life segment has offered long-term care insurance
since 1985. In recent years, the claims experience and persistency
on some of Bankers Life long-term care blocks has generally been
higher than our pricing expectations which has resulted in higher
benefit ratios and adversely affected our profitability. While we
have received regulatory approvals for numerous premium rate
increases in recent years pertaining to these blocks, there can
be no assurance that future requests will be approved. Even with
the rate increases that have been approved, this block experienced
benefit ratios of 132.3 percent in 2017, 135.0 percent in 2016 and
139.2 percent in 2015.

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 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.

CNO FINANCIAL GROUP, INC. - Form 10-K

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 or 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 most
of our insurance policies. 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.

If 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 allow
their policies to lapse, while policies of less healthy policyholders
continue inforce. This would reduce our premium income and
profitability in future periods.

Our Medicare supplement 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 Medicare supplement 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. 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.

In some cases, we offer long-term care policyholders the
opportunity to reduce their coverage amounts or accept non-
forfeiture benefits as alternatives to increasing their premium
rates. The financial impact of these alternatives could also result
in policyholder anti-selection, meaning that policyholders who
are less likely to incur claims may reduce their benefits, while
policyholders who are more likely to incur claims may maintain
full coverage and accept their rate increase.

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 and
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 segment. The insurance
policy benefits incurred for our long-term care products in our
Bankers Life segment were $599.3 million, $636.1 million and
$669.0 million in 2017, 2016 and 2015, respectively. The benefit
ratios for our long-term care products in our Bankers Life
segment were 132.3 percent, 135.0 percent and 139.2 percent in
2017, 2016 and 2015, 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 future claims
are higher than our assumptions, 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 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

PART I
ITEM 1A Risk Factors

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 may 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, 2017,
approximately 23 percent of our total insurance liabilities,
or approximately $5.4 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, 2017, the vast
majority of our products with contractual guaranteed minimum
rates had crediting rates set at the minimum. In addition,
approximately 21 percent of our insurance liabilities were subject
to interest rates that may be reset annually; 50 percent had a fixed
explicit interest rate for the duration of the contract; 26 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

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

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 sustaining 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, the effect of changes
in market interest rates shall have largely offsetting effects on the
value of the related assets and liabilities. At December 31, 2017, the
estimated durations of our fixed income securities (as modified to
reflect estimated prepayments and call premiums) and insurance
liabilities were approximately 8.6 years and 8.4 years, respectively.
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
$445 million if interest rates were to increase by 10 percent from
rates as of December 31, 2017. 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.

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.

CNO FINANCIAL GROUP, INC. - Form 10-K

We use derivatives in an effort to hedge higher potential returns
to our fixed index annuity policyholders based on the increase in
the value of a particular index. For derivative positions we hold
that are in-the-money, we are exposed to credit risk in the event
of default of our counterparty.

In addition, our investment borrowings from the Federal Home
Loan Bank (“FHLB”) are secured by collateral, the fair value of
which can be significantly impacted by general market conditions.
If the fair value of pledged collateral falls below specific levels, we
would be required to pledge additional eligible collateral or repay
all or a portion of the investment borrowings.

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,
2017, our reinsurance receivables and ceded life insurance inforce
totaled $2.2 billion and $3.5 billion, respectively. Our six largest
reinsurers accounted for 93 percent of our ceded life insurance
inforce. We face credit risk with respect to reinsurance. When
we obtain reinsurance, we are still liable for those transferred
risks even if the reinsurer defaults on its obligations. The failure,
insolvency, inability or unwillingness of one or more of the
Company’s reinsurers to perform in accordance with the terms
of its reinsurance agreement could negatively impact our earnings
or financial position.

In December 2013, two of our insurance subsidiaries with long-
term care business (Washington National and BCLIC) entered
into 100% coinsurance agreements ceding $495 million of long-
term care reserves to BRe, a reinsurer domiciled in the Cayman
Islands. BRe was formed in 2012 and was focused on specialized
insurance including long-term care. BRe is a reinsurer that is not
licensed or accredited by the states of domicile (Indiana and New
York, respectively) of the insurance subsidiaries ceding the long-
term care business and BRe is not rated by A.M. Best. As a result
of its non-accredited status, BRe was required to provide collateral
which met the regulatory requirements of the states of domicile
in order for our insurance subsidiaries to obtain full credit in
their statutory financial statements for the reinsurance receivables
due from BRe. Such collateral was held in market value trusts
subject to 7% over collateralization, investment guidelines and
periodic true-up provisions. In September 2016, we terminated
the reinsurance agreements with BRe and recaptured the ceded
business as further described in “Management’s Discussion and
Analysis of Consolidated Financial Condition and Results of
Operations - Consolidated Financial Condition - Termination
of Long-Term Care Reinsurance Agreements and Recapture of
Related Long-Term Care Business in Run-off”.

PART I
ITEM 1A Risk Factors

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 and our liquidity.

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.

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 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 perceived or actual 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 13 percent of the
cost basis of our available for sale fixed maturity investments as
of December 31, 2017; and

• changes in the estimated timing of receipt of cash flows. For
example, our structured securities, which comprised 25 percent
of our available for sale fixed maturity investments at December
31, 2017, are subject 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:
$22.8 million in 2017; $32.3 million in 2016 ($35.9 million,
prior to the $3.6 million of impairment losses recognized through
accumulated other comprehensive income); and $39.9 million in
2015 ($42.9 million, prior to the $3.0 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.

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 impact the value of our investments and such
changes, if material, could lead us to determine that writedowns
are appropriate.

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 investment 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
judgment
and future events may occur, or additional information may
become available, which may necessitate changes in our ongoing
assessments which may impact the level of future impairments of
securities in our portfolio. Historical trends may not be indicative
of future other-than-temporary impairments.

impairments requires significant

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.

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
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

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.

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

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, 2017 and 2016, our total unrealized net investment
gains before adjustments for insurance intangibles and deferred
income taxes were $2.2 billion and $1.3 billion, respectively.

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
residential mortgage-backed securities 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 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 required to comply with statutory
accounting principles (“SAP”). SAP (including principles that
impact the calculation of RBC and our insurance liabilities)
are subject to continued review by the NAIC in an effort to
address emerging issues and improve financial reporting. Various
proposals are currently being considered by the NAIC, some
of which, if enacted, would negatively impact our insurance
subsidiaries.

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 2017 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.

for

In addition to the RBC requirements, certain states have
established minimum capital requirements
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. All of our insurance
subsidiaries currently exceed these standards, if applicable.

Our broker-dealer and investment advisor subsidiaries are
subject to regulation and supervision by the SEC, FINRA and
certain state regulatory bodies. The SEC, FINRA and other
governmental agencies, as well as state securities commissions,
may examine or investigate the activities of broker-dealers and
investment advisors. These examinations or
investigations
often focus on the activities of the registered representatives
and registered investment advisors doing business through such
entities and the entities’ supervision of those persons. It is possible
that any examination or investigation could lead to enforcement
action by the regulator and/or may result in payments of fines and
penalties, payments to customers, or both, as well as changes in
systems or procedures of such entities, any of which could have a
material adverse effect on the Company’s financial condition or
results of operations.

Furthermore, the SEC is reviewing the standard of conduct
applicable to brokers, dealers and investment advisors when those
entities provide personalized investment advice about securities
to retail customers. FINRA has also issued a report addressing
how its member firms might identify and address conflicts of
interest including conflicts related to the introduction of new
products and services and the compensation of the member
firms’ associated persons. These regulatory initiatives could have

CNO FINANCIAL GROUP, INC. - Form 10-K

an impact on Company operations and the manner in which
broker-dealers and investment advisors distribute the Company’s
products.

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.

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
the classification of our career agents as independent contractors,
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
CNO and our insurance subsidiaries.

PART I
ITEM 1A Risk Factors

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.

Managing operational risks may not be effective in
mitigating risk and loss to us.

We are subject to operational risks including, among other
things, fraud, errors, failure to document transactions properly
or to obtain proper internal authorization, failure to comply with
regulatory requirements or obligations under our agreements,
information technology failures including cyber security attacks
and failure of our service providers (such as investment custodians
and information technology and policyholder service providers)
to comply with our services agreements. The associates and
agents who conduct our business, including executive officers
and other members of management, sales managers, investment
professionals, product managers, sales agents and other associates,
do so in part by making decisions and choices that involve exposing
us to risk. These include decisions involving numerous business
activities such as setting underwriting guidelines, product design
and pricing, investment purchases and sales, reserve setting, claim
processing, policy administration and servicing, financial and tax
reporting and other activities, many of which are very complex.

We seek to monitor and control our exposure to risks arising out
of these activities through a risk control framework encompassing
a variety of reporting systems, internal controls, management
review processes and other mechanisms. However, these
processes and procedures may not effectively control all known
risks or effectively identify unforeseen risks. Management of

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

operational risks can fail for a number of reasons including design
failure, systems failure, cyber security attacks, human error or
unlawful activities. If our controls are not effective or properly
implemented, we could suffer financial or other loss, disruption
of our business, regulatory sanctions or damage to our reputation.
Losses resulting from these failures may have a material adverse
effect on our financial position or results of operations.

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

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 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.

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 cyber attacks (including the risk of undetected
attacks) and unauthorized access, such as 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.

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. Depending on the nature of the information
compromised, in the event of a data breach or other unauthorized
access to our customer data, we may also have obligations to
notify customers about the incident and we may need to provide
some form of remedy, such as a subscription to a credit monitoring
service, for the individuals affected by the incident. A growing
number of legislative and regulatory bodies have adopted consumer
notification requirements in the event of unauthorized access
to or acquisition of certain types of personal data. Such breach
notification laws continue to evolve and may be inconsistent from
one jurisdiction to another. Complying with these obligations
could cause us to incur substantial costs (including fines) and
could increase negative publicity surrounding any incident that
compromises customer data. While we maintain insurance
coverage that, subject to policy terms and conditions and a self-
insured retention, is designed to address certain aspects of cyber
risks, such insurance coverage may be insufficient to cover all
losses or all types of claims that may arise in the continually
evolving area of cyber risk.

Third parties to whom we outsource certain of our functions
are also subject to the risks outlined above, and failures in their
systems could adversely affect 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

Our business could be interrupted or compromised
if we experience difficulties arising from outsourcing
relationships.

We outsource certain information technology and policy
administration operations to third-party service providers. If
we fail to maintain an effective outsourcing strategy or if third-
party providers do not perform as contracted, we may experience
operational difficulties, increased costs and a loss of business that
could have a material adverse effect on our results of operations.
In the event that one or more of our third-party service providers
becomes unable to continue to provide services, we may suffer
financial loss and other negative consequences.

CNO FINANCIAL GROUP, INC. - Form 10-K

We have substantial indebtedness which may restrict
our ability to take advantage of business, strategic or
financing opportunities.

As of December 31, 2017, we had an aggregate principal amount of
indebtedness of $925.0 million. CNO’s indebtedness will require
approximately $45 million in cash to service in 2018 (based on
the principal amounts outstanding and applicable interest rates
as of December 31, 2017). Our substantial indebtedness and the
obligations under our debt agreements may restrict our ability to
take advantage of business, strategic or financing opportunities.

In conjunction with the refinancing of its existing debt in 2015,
the Company entered into a $150.0 million four-year unsecured
revolving credit agreement on May 19, 2015, and made an initial
drawing of $100.0 million, resulting in $50.0 million available
for additional borrowings. On October 13, 2017, the Company
entered into an amendment and restatement agreement (the
“Amendment Agreement”) with respect to its revolving credit
agreement (as amended by the Amendment Agreement, the
“Revolving Credit Agreement”). The Amendment Agreement,
among other things, increased the total commitments available
under the revolving credit facility from $150.0 million to
$250.0 million, increased the aggregate amount of additional
incremental loans the Company may incur from $50.0 million to
$100.0 million and extended the maturity date of the revolving
credit facility from May 19, 2019 to the earlier of October 13,
2022 and the date that is six months prior to the maturity date
of the 2020 Notes, which is November 30, 2019. The amount
drawn under the Revolving Credit Agreement continues to be
$100.0 million. On May 19, 2015, the Company also issued
$325.0 million aggregate principal amount of 4.500% Senior
Notes due 2020 (the “2020 Notes”) and $500.0 million aggregate
principal amount of 5.250% Senior Notes due 2025 (together with
the 2020 Notes, the “Notes”). The Revolving 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
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 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 Notes, we will be in default under the indenture
governing such indebtedness, which could also lead to a
default under agreements governing our existing and future
indebtedness, including under the Revolving 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.

PART I
ITEM 1A Risk Factors

The Revolving Credit Agreement and the Indenture
for the 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 Revolving Credit
Agreement and the Notes to be due and payable.

Pursuant to the Revolving 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 may be affected by events
beyond our control. There are several conditions or circumstances
that could lead to an event of default under the Revolving Credit
Agreement, as described below.

The Revolving Credit Agreement contains certain financial,
affirmative and negative covenants. The negative covenants in the
Revolving Credit Agreement include restrictions that relate to,
among other things and subject to customary baskets, exceptions
and limitations for facilities of this type:

• subsidiary debt;

• liens;

• restrictive agreements;

• restricted payments during the continuance of an event of

default;

• disposition of assets and sale and leaseback transactions;

• transactions with affiliates;

• change in business;

• fundamental changes;

• modification of certain agreements; and

• changes to fiscal year.

The Revolving Credit Agreement requires the Company to
maintain (each as calculated in accordance with the Revolving
Credit Agreement): (i) a debt to total capitalization ratio of not
more than 35.0 percent (30.0 percent prior to the Amendment
Agreement) (such ratio was 20.3 percent at December 31, 2017);
(ii) 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 estimated to be 446 percent
at December 31, 2017); and (iii) a minimum consolidated net worth
of not less than the sum of (x) $2,674 million plus (y) 50.0% of the
net equity proceeds received by the Company from the issuance
and sale of equity interests in the Company (the Company’s
consolidated net worth was $3,635.4 million at December 31,
2017 compared to the minimum requirement of $2,684.9 million).
Certain formulas used to calculate risk-based capital have embedded
tax rate assumptions that will not change to be consistent with the
Tax Reform Act until actions are taken by the NAIC. Although no
action was taken by the NAIC for the 2017 calculation of the RBC
ratio, it is possible that changes will be made for future periods. We
estimate that the full impact of changing these embedded tax rate

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

assumptions to be consistent with the Tax Reform Act is an increase
to required capital of approximately $80 million (equivalent to a
65 percentage point decrease to the RBC ratio).

The Revolving Credit Agreement provides for customary events
of default (subject in certain cases to customary grace and cure
periods), which include, without limitation, the following:

• non-payment;

• breach of representations, warranties or covenants;

• cross-default and cross-acceleration;

• bankruptcy and insolvency events;

• judgment defaults;

• actual or asserted invalidity of documentation with respect to

the Revolving Credit Agreement;

• change of control; and

• customary ERISA defaults.

If an event of default under the Revolving Credit Agreement
occurs and is continuing, the Agent may accelerate the amounts
and terminate all commitments outstanding under the Revolving
Credit Agreement.

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 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
Revolving Credit Agreement elect to accelerate the amounts due,
the holders of the 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.

The Indenture contains covenants that restrict the Company’s
ability, with certain exceptions, to:

• incur certain subsidiary indebtedness without also guaranteeing

the Notes;

• create liens;

• enter into sale and leaseback transactions;

• issue, sell, transfer or otherwise dispose of any shares of capital
stock of any Insurance Subsidiary (as defined in the Indenture);
and

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

or substantially all of the Company’s assets.

The 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 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, Wilmington
Trust, National Association or holders of at least 25% in principal
amount of the then outstanding Notes may declare the principal
of and accrued but unpaid interest, including any additional
interest, on all of the Notes to be due and payable.

CNO FINANCIAL GROUP, INC. - Form 10-K

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 unsecured 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
unsecured debt ratings, as well as conditions in the credit markets
generally, could restrict our access to such capital and adversely
affect its cost. Disruptions, volatility and uncertainty in the
financial markets, and our below investment grade rating could
limit our ability to access external capital markets at times and on
terms which allow us to meet our capital and liquidity needs. See
“Management’s Discussion and Analysis of Financial Condition
and Results of Operations-Liquidity of the Holding Companies”
for more information.

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, Inc. (“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 some 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.

However, as each of the immediate insurance subsidiaries of
CDOC has negative earned surplus, any dividend payments from
the insurance subsidiaries to CNO require the prior approval of
the director or commissioner of the applicable state insurance
department. In 2017, our insurance subsidiaries paid dividends
of $357.7 million to CDOC. 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 from Conseco Life Insurance
Company of Texas (“CLTX”) 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
CLTX exceeds 100 percent (but do require prior written notice to
the Texas state insurance department). The estimated RBC ratio of
CLTX was 383 percent at December 31, 2017. CDOC also holds a
surplus debenture from Colonial Penn with a principal balance of
$160.0 million. Interest payments on that surplus debenture require
prior approval by the Pennsylvania state insurance department.
from our non-insurance
Dividends and other payments
subsidiaries, including 40|86 Advisors and CNO Services, LLC
(“CNO Services”), 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 the RBC compliance
requirements under the Revolving Credit Agreement. CNO made
no capital contributions to its insurance subsidiaries in 2017.

In addition, Washington National may not distribute funds to
any affiliate or shareholder, except pursuant to agreements with
affiliates that have been approved, without prior notice to the
Florida Office of Insurance Regulation, in accordance with an
order from the Florida Office of Insurance Regulation.

PART I
ITEM 1A Risk Factors

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 which were subsequently remediated. 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.

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
Revolving Credit Agreement.

As of December 31, 2017, we had approximately $2.3 billion of
federal tax NOLs resulting in deferred tax assets of approximately
$.5 billion, expiring in years 2023 through 2035. 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, 2017, 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,
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 has been amended
and extended by the CNO Board of Directors on three occasions.
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

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

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
in 2010 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. CNO’s shareholders approved
amendments and extensions of the Original Section 382 Charter
Amendment in 2013 and in 2016 (the “2016 Section 382 Charter
Amendment”). The 2016 Section 382 Charter Amendment became
effective July 31, 2016 and is scheduled to expire on July 31, 2019.

See the note to the consolidated financial statements entitled
“Income Taxes” for further information regarding the Amended
Section 382 Rights Agreement, the 2016 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 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 (1.96 percent at December 31,
2017), and the annual restriction could 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 Revolving 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, 2017, we had net deferred tax assets of
$376.2 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 carryforwards 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 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.

CNO FINANCIAL GROUP, INC. - Form 10-K

The value of our net deferred tax assets as of December 31,
2017 reflects the current Federal corporate income tax rate of
21 percent. A reduction in the corporate income tax rate would
cause a writedown of our net 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.

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.

We have implemented or are in the process of implementing
several initiatives to improve operating results, including:
(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; (iv) using third party service providers to
improve service and reduce expenses; and (v) 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.

In the event one or more of our third party service providers to
whom we outsource certain of our functions becomes unable
to continue to provide services or experiences a failure in their
systems, our business could be adversely impacted.

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 from Fitch, S&P, A.M. Best and Moody’s are “BBB+”,
“BBB+”, “A-” and “Baa1”, respectively. Fitch has nineteen possible
ratings. There are seven ratings above our “BBB+” rating and
eleven ratings that are below our rating. S&P has twenty-one
possible ratings. There are seven ratings above our “BBB+” rating
and thirteen ratings that are below our rating. A.M. Best has
sixteen possible ratings. There are three ratings above our “A-”
rating and twelve ratings that are below our rating. Moody’s has
twenty-one possible ratings. There are seven ratings above our
“Baa1” rating and thirteen ratings that are below our rating.

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.

Our principal competitors vary by product line. Our main
competitors for agent-sold long-term care insurance products
include Northwestern Mutual, Mutual of Omaha and New York
Life. Our main competitors for agent-sold Medicare supplement
insurance products include Blue Cross and Blue Shield Plans,
United HealthCare and Mutual of Omaha. Our main competitors
for life insurance sold through direct marketing channels include
Gerber Life, Mutual of Omaha, New York Life, Massachusetts
Mutual Life Insurance Company and subsidiaries of Torchmark
Corporation. 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 Corporation.

PART I
ITEM 1A Risk Factors

Term Care Insurance Survey, our Bankers Life segment ranked fifth
in annualized new premiums of individual long-term care insurance
in the first half of 2017 with a market share of approximately
6 percent, the top four writers of individual long-term care insurance
had annualized new premiums with a combined market share of
approximately 65 percent during the period. In addition, while,
based on a 2016 Medicare Supplement Loss Ratios report, we
ranked sixth in direct premiums earned for Medicare supplement
insurance in 2016 with a market share of 2.8 percent, the top writer
of Medicare supplement insurance had direct premiums with a
market share of 35 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.

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
fluctuates from period to period and this will impact the average
cost to generate a TV lead.

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
marketing organizations
(in our Washington National
segment). We must attract and retain agents, sales managers and
independent marketing organizations to sell our products through

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

those distribution channels. We compete with other insurance
companies, financial services companies and other entities 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.
In recent periods, our Bankers Life segment has faced challenges
in retaining new agents, which has impacted sales of its products.

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

insurance

industry has
During recent years, the health
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.

In April 2016, the DOL issued a final regulation that expands
the range of activities considered to be fiduciary investment
advice under the Employee Retirement Income Security Act of
1974 and the Code. The DOL also issued a new “best interest
contract” prohibited transaction exemption regarding how such
advice can be provided to retirement investors. These regulations
focus in large part on conflicts of interest related to investment
recommendations made by
registered
investment advisors, insurance agents and other investment
professionals to retirement investors, how financial advisors are
able to discuss IRA rollovers, as well as how financial advisors and
affiliates can transact with retirement investors. These regulations
primarily impact our Bankers Life segment. Most provisions
of these regulations became effective in June 2017. However,
certain of the regulations including the “best interest contract”
exemption were scheduled to become effective on January 1, 2018.

financial advisors,

CNO FINANCIAL GROUP, INC. - Form 10-K

In November 2017, the DOL delayed the applicability date of
these provisions to July 1, 2019. We continue to monitor the
status of the remaining provisions.

The NAIC has developed a principle-based reserving approach for
life insurance products which will replace the current formulaic
approach to determining policy reserves with an approach that
more closely reflects the risks of the products. The principle-
based approach became effective on January 1, 2017, and there
is a three-year transition period where the approach is optional
until it is required to be used for all life insurance products issued
on or after January 1, 2020. The new approach will impact
the financial statements of our insurance subsidiaries prepared
under statutory accounting principles prescribed or permitted by
regulatory authorities. The Company is implementing the new
approach to its reserves on new life insurance products as they are
introduced through the transition period.

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 requires 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
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. In April 2017, the Trump Administration
issued a Presidential Memorandum that calls for a comprehensive
review of the Dodd-Frank Act. Such review may result in the
Dodd-Frank Act being modified, repealed or replaced.

PART I
ITEM 3. Legal Proceedings

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 effect 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.

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.

ITEM 1B. Unresolved Staff Comments.

None.

ITEM 2. Properties.

Our headquarters and the administrative operations of our
Washington National segment 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 five buildings on the campus
with approximately 430,000 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 276 sales offices in
various states totaling approximately 885,000 square feet. These
leases generally are short-term in length, with remaining lease
terms expiring between 2018 and 2024.

Our Colonial Penn segment is administered from a Company-
owned office building in Philadelphia, Pennsylvania, with
approximately 127,000 square feet. We occupy approximately
45 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 the note to the
consolidated financial statements entitled “Litigation and Other Legal Proceedings” 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) With CNO Since
Bruce Baude, 53

2012

Gary C. Bhojwani, 50

2016

Yvonne K. Franzese, 59

2017

Erik M. Helding, 45

2004

Eric R. Johnson, 57

1997

John R. Kline, 60

1990

Christopher J. Nickele, 61

2005

Matthew J. Zimpfer, 50

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.
Since January 2018, chief executive officer. From April 2016 to December 2017, president of
CNO. From April 2015 until joining CNO, chief executive officer of GCB, LLC, an insurance
and financial services consulting company that he founded. Mr. Bhojwani served as a member of
the board of management at Allianz SE, Chairman of Allianz of America, Allianz Life Insurance
Company, and Fireman’s Fund Insurance Company from 2012 to January 1, 2015. From 2007 to
2012, he served as president of Allianz Life Insurance Company of North America.
Since November 2017, executive vice president and chief human resources officer of CNO.
From 2016 until joining CNO, chief human capital officer of TCF Bank. From 2007 to 2016,
Ms. Franzese held various human resource positions at Allianz, including the chief human
resources role for Allianz of North America.
Since April 2016, executive vice president and chief financial officer. From August 2012
to April 2016, senior vice president, treasury and investor relations. Prior to August 2012,
Mr. Helding was vice president, financial planning and analysis and he has held various finance
positions since joining CNO in 2004.
Since September 2003, executive vice president and chief investment officer of CNO and president
and chief executive officer of 40|86 Advisors, CNO's wholly-owned registered investment advisor.
Since January 2018, executive in charge of corporate development activities. 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 August 2014, executive vice president and chief actuary. From October 2005 until
August 2014, executive vice president, product management and from May 2010 until
March 2014, president, Other CNO Business.
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, 2016.

Period
2016:

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2017:

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Market price
High

Dividends declared
and paid

Low

18.71 $
20.55
18.70
19.89

21.70 $
22.60
23.94
25.83

14.66
16.00
14.30
14.65

18.54
19.38
20.69
23.15

0.07
0.08
0.08
0.08

0.08
0.09
0.09
0.09

As of February 12, 2018, there were approximately 24,000 holders
of the outstanding shares of common stock, including individual
participants in securities position listings.

dividends, our Board of Directors takes into consideration our
financial condition, including current and expected earnings and
projected cash flows.

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

Performance Graph

The performance graph below compares CNO’s cumulative
total shareholder return on its common stock for the period
from December 31, 2012 through December 31, 2017 with the
cumulative total return of the Standard & Poor’s 500 Composite
Stock Price Index (the “S&P 500 Index”), the Standard & Poor’s
Life and Health Insurance Index (the “S&P Life and Health
Insurance Index”) and the Standard & Poor’s MidCap 400 Index
(the “S&P MidCap 400 Index”). The comparison for each of the

periods assumes that $100 was invested on December 31, 2012 in
each of CNO common stock, the stocks included in the S&P 500
Index, the stocks included in the S&P Life and Health Insurance
Index and the stocks included in the S&P MidCap 400 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, the S&P Life & Health Insurance Index, and the S&P MidCap 400 Index

$300

$250

$200

$150

$100

$50

$-
12/12

12/13

12/14

12/15

12/16

12/17

CNO Financial Group, Inc.

S&P 500

S&P Life & Health Insurance

S&P MidCap 400

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

CNO Financial Group, Inc.
S&P 500 Index
S&P Life & Health Insurance Index
S&P MidCap 400 Index

12/12
100.00 $
100.00
100.00
100.00

12/13
191.14 $
132.39
163.48
133.50

12/14
188.63 $
150.51
166.66
146.54

12/15
212.24 $
152.59
156.14
143.35

12/16
216.62
170.84
194.96
173.08

12/17
283.81
208.14
226.98
201.20

Issuer Purchases of Equity Securities

Period (in 2017)
October 1 through October 31
November 1 through November 30
December 1 through December 31

tOtaL

total number
of shares
(or units)

33,200 $
663,003
411,576
1,107,779

average price
paid per share
(or unit)
24.10
24.01
25.00
24.38

total number of shares
(or units) purchased as
part of publicly announced
plans or programs
33,200
662,263
411,576
1,107,039

Maximum number (or approximate dollar
value) of shares (or units) that may yet be
purchased under the plans or programs(a)
(dollars in millions)
411.8
395.9
385.6
385.6

(a) In May 2011, the Company announced a securities repurchase program of up to $100.0 million. In February 2012, June 2012, December 2012, December 2013,
November 2014, November 2015 and May 2017, the Company’s Board of Directors approved, in aggregate, an additional $1,900.0 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 SecuritiesEquity Compensation Plan Information

The following table summarizes information, as of December 31, 2017, relating to our common stock that may be issued under the CNO
Financial Group, Inc. Amended and Restated Long-Term Incentive Plan.

Part II
ITEM 6 Selected Consolidated Financial Data

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
and rights
5,120,818 $

—

5,120,818 $

Weighted-average
exercise price of
outstanding options
and rights
15.95
—
15.95

Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in first column)
7,488,231
—
7,488,231

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,

2017

2016

2015

2014

2013

2,647.3
1,551.3
50.3
4,297.2
123.7
3,816.7
480.5
304.9
175.6

1.03
1.02
.35
29.05
170.0
172.1
166.9

27,854.1
33,110.3
914.6
28,262.8
4,847.5

1,904.4
246.8
2,151.2

2,601.1
1,325.2
8.3
3,985.1
116.4
3,631.9
353.2
(5.0)
358.2

2.03
2.01
.31
25.82
176.6
178.3
173.8

26,237.6
31,975.2
912.9
27,488.3
4,486.9

1,956.8
253.3
2,210.1

2,556.0
1,233.6
(36.6)
3,811.9
94.9
3,444.2
367.7
97.0
270.7

1.40
1.39
.27
22.49
193.1
195.2
184.0

24,487.1
31,125.1
911.1
26,986.6
4,138.5

1,739.2
196.9
1,936.1

2,629.7
1,427.4
36.7
4,144.7
92.8
3,969.6
175.1
123.7
51.4

.24
.24
.24
23.06
212.9
217.7
203.3

24,908.3
31,155.9
780.3
26,467.7
4,688.2

1,654.4
203.1
1,857.5

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
34,750.2
838.0
29,795.0
4,955.2

1,711.9
233.9
1,945.8

(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, 2017, 2016 and 2015 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,” “guidance,” “outlook” 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 and
uncertainties, including the performance and fluctuations 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 non-

guaranteed elements of our life insurance products;

CNO FINANCIAL GROUP, INC. - Form 10-K

• 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;

• changes to our estimates of the impact of comprehensive federal

tax legislation related to the Tax Reform Act;

• 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;

• 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;

• our ability to generate sufficient liquidity to meet our debt service

obligations and other cash needs;

• changes in capital deployment opportunities;

• our ability to maintain effective controls over financial reporting;

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations• our ability to continue to recruit and retain productive agents

• the growth rate of sales, collected premiums, annuity deposits

and distribution partners;

and assets;

• 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;

• regulatory changes or actions, including: those relating to
regulation of the financial affairs of our insurance companies,
such as the calculation of risk-based capital and minimum capital
requirements, and 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;

• 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;

• availability and effectiveness of reinsurance arrangements, as well
as the impact of any defaults or failure of reinsurers to perform;

• the amount we may need to pay to a reinsurer and the earnings
charge we may incur in connection with a long-term care
reinsurance transaction;

• the performance of third party service providers and potential

difficulties arising from outsourcing arrangements;

• interruption in telecommunication, information technology or
other operational systems or failure to maintain the security,
confidentiality or privacy of sensitive data on such systems;

• events of terrorism, cyber attacks, natural disasters or other
catastrophic events, including losses from a disease pandemic;

• ineffectiveness of risk management policies and procedures in

identifying, monitoring and managing risks; and

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

filings with the SEC.

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.

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.

We measure segment performance by excluding the loss on
reinsurance transaction, net realized investment gains (losses),
fair value changes in embedded derivative liabilities (net of related
amortization), fair value changes and amendment related to the
agent deferred compensation plan, loss on extinguishment of debt,
income taxes and other non-operating items consisting primarily
of equity in earnings of certain non-strategic investments and
earnings attributable to VIEs (“pre-tax operating earnings”)
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.

The loss on reinsurance transaction, net realized investment
gains (losses), fair value changes in embedded derivative
liabilities (net of related amortization), fair value changes and
amendment related to the agent deferred compensation plan,
loss on extinguishment of debt and other non-operating items
consisting primarily of equity in earnings of certain non-strategic
investments and earnings attributable to VIEs 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. In the fourth quarter of 2016,
we began reporting the long-term care block recaptured from
BRe as further described in “Management’s Discussion and
Analysis of Consolidated Financial Condition and Results of
Operations - Consolidated Financial Condition - Termination
of Long-Term Care Reinsurance Agreements and Recapture of
Related Long-Term Care Business in Run-off” as an additional
business segment.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThese 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. This segment’s
business also includes certain closed blocks of annuities and
Medicare supplement policies which are no longer being
actively marketed by this segment and were primarily issued or
acquired 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.

• Long-term care in run-off consists of the long-term care
business that was recaptured due to the termination of certain
reinsurance agreements effective September 30, 2016. This
business is not actively marketed and was issued or acquired by
Washington National and BCLIC.

The Company’s insurance segments are described below:

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, financial
and investment advisors, 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 also has various distribution
and marketing agreements with other insurance companies
to use Bankers Life’s career agents to distribute Medicare
Advantage and PDP products in exchange for a fee.

• 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.

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 for the three years ending December 31, 2017 (dollars in millions, except per share data):

Adjusted EBIT (a non-GAAP financial measure)(a):

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off

Adjusted EBIT from business segments

Corporate Operations, excluding corporate interest expense

Adjusted EBIT

Corporate interest expense

Operating earnings before taxes

Tax expense on operating income

Net operating income

Net realized investment gains (losses) (net of related amortization)
Fair value changes in embedded derivative liabilities (net of related amortization)
Fair value changes and amendment related to agent deferred compensation plan
Loss on reinsurance transaction(b)
Loss on extinguishment of debt
Other

Non-operating income (loss) before taxes

Income tax expense (benefit):

On non-operating income (loss)
Valuation allowance for deferred tax assets and other tax items

Net non-operating income (loss)

NEt INCOME

Per diluted share:

Net operating income
Net realized investment gains (losses) (net of related amortization and taxes)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
Fair value changes and amendment related to agent deferred compensation plan (net of taxes)
Loss on reinsurance transaction (net of taxes)
Loss on extinguishment of debt (net of taxes)
Valuation allowance for deferred tax assets and other tax items
Other

NEt INCOME

2017

2016

2015

418.9
98.3
22.6
1.7
541.5
(40.3)
501.2
(46.5)
454.7
153.8
300.9
49.3
(2.5)
(12.2)
—
—
(8.8)
25.8

9.0
142.1
(125.3)
175.6

1.75
.19
(.01)
(.05)
—
—
(.83)
(.03)
1.02

397.9
102.9
1.7
(3.9)
498.6
(42.5)
456.1
(45.8)
410.3
147.8
262.5
7.6
9.6
3.1
(75.4)
—
(2.0)
(57.1)

(20.0)
(132.8)
95.7
358.2

1.47
.03
.04
.01
(.27)
—
.74
(.01)
2.01

369.6
111.5
5.6
—
486.7
(18.9)
467.8
(45.0)
422.8
148.1
274.7
(36.1)
11.9
15.1
—
(32.8)
(13.2)
(55.1)

(18.6)
(32.5)
(4.0)
270.7

1.41
(.12)
.04
.05
—
(.11)
.17
(.05)
1.39

(a) Management believes that an analysis of net operating income provides a clearer comparison of the operating results of the Company from period to period because
it excludes: (i) loss on reinsurance transaction, including impact of taxes; (ii) net realized investment gains or losses, net of related amortization and taxes; (iii) fair
value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization
and taxes; (iv) fair value changes and amendment related to the agent deferred compensation plan, net of taxes; (v) loss on extinguishment of debt, net of taxes;
(vi) changes in the valuation allowance for deferred tax assets and other tax items; and (vii) other non-operating items consisting primarily of equity in earnings of
certain non-strategic investments and earnings attributable to variable interest entities. 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. Adjusted EBIT is presented as net operating income excluding corporate interest expense and income tax expense. The table above reconciles the
non-GAAP measure to the corresponding GAAP measure.
In addition, management uses these non-GAAP financial measures 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 apparent. However, Adjusted EBIT and net
operating income are not measurements of financial performance under GAAP and should not be considered as alternatives to cash flow from operating activities,
as measures of liquidity, or as alternatives to net income as measures of our operating performance or any other measures of performance derived in accordance
with GAAP. In addition, Adjusted EBIT and net operating income should not be construed as an inference that our future results will be unaffected by unusual
or non-recurring items. Adjusted EBIT and net operating income have limitations as analytical tools, and you should not consider such measures either in isolation
or as substitutes for analyzing our results as reported under GAAP. Our definitions and calculation of Adjusted EBIT and net operating income are not necessarily
comparable to other similarly titled measures used by other companies due to different methods of calculation.

(b) In September 2016, we terminated the reinsurance agreements with BRe and recaptured the ceded business as further described in “Management’s Discussion
and Analysis of Consolidated Financial Condition and Results of Operations - Consolidated Financial Condition - Termination of Long-Term Care Reinsurance
Agreements and Recapture of Related Long-Term Care Business in Run-off ”.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K
Our mission remains unchanged: to enrich lives by providing
insurance solutions that help protect the health and retirement
needs of middle-income Americans, while building enduring
value for all our stakeholders. Our corporate strategy is rooted in
CNO’s unique customer focus. Our focus on the unique financial
security needs of our middle-income customers is essential to our
growth strategy. Our diverse ability to connect with customers
through captive agents, independent channels or direct marketing
is a key strength of CNO. We believe that our product portfolio
mix is well-aligned to the retirement healthcare, supplemental
health and income accumulation needs of working-age customers
as well as those in and near retirement. Unlike most insurers, we
provide solutions for both health risks and wealth opportunities.
As Americans live longer into their retirement years, our customers
need holistic retirement income planning, which includes both our
insurance and annuity solutions, and the investments offered by our
broker-dealer and growing force of registered investment advisors.
Specifically, we are focused on the following priorities:

Growth

•

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, 2017, the carrying value of our investment
portfolio was $27.9 billion.

Interest income on fixed maturity securities is recognized when
earned using a constant effective yield method giving effect to
amortization of premiums and accretion of discounts. Prepayment
fees are recognized when earned. Dividends on equity securities
are recognized when declared.

CNO FINANCIAL GROUP, INC. - Form 10-K

•

Increase the speed-to-market for new products that are a
good fit for our customers
Make strategic, measured changes to our business practices
to improve our competitive advantage
Continue to invest in technology partnerships that will
support our field force and relationships with our customers

Increase profitability and return on equity

•

•
•

Maintain our strong capital position and favorable financial
metrics
Work to increase our return on equity
Maintain pricing discipline

Effectively manage risk and deploy capital

•
•
•
•

Maintain an active enterprise risk management process
Utilize excess cash flow to maximize returns
Maintain a competitive dividend payout ratio
Reduce relative legacy long-term care exposure

Continue to invest in talent

•

Attract, retain and develop the best talent to help us drive
sustainable growth, and provide them with development
opportunities
Recruit, develop and retain our agent force

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.

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.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsFuture 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.

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
overcollateralization, 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.

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, 2017, other-
than-temporary impairments included in accumulated other
comprehensive income totaled $1.0 million (before taxes and
related amortization).

derivatives, separate account assets and embedded derivatives.
We carry our Company-owned life insurance policy (“COLI”),
which is invested in a series of mutual funds, at its cash surrender
value which approximates fair value. In addition, we disclose fair
value for certain financial instruments, including mortgage loans,
policy loans, cash and cash equivalents, 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.

Valuation Hierarchy

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 cash
equivalents and exchange traded securities.

• 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 credit rating, maturity,
corporate credit spreads, reported trades and other inputs that
are observable or derived from observable information in the
marketplace or are supported by transactions executed in the
marketplace. Financial assets in this category primarily include:
certain publicly registered 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 investments; most short-term investments;
and non-exchange-traded derivatives such as call options.
Financial
investment
in this category
borrowings, notes payable and borrowings related to VIEs.

liabilities

include

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kinclude 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.
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. During 2017, we sold $427.6 million of fixed
maturity investments which resulted in gross investment losses
(before income taxes) of $24.2 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, the effect of changes in market interest rates shall have
largely offsetting effects on the value of the related assets and
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.

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, 2017 as follows:
11 percent in 2018, 10 percent in 2019, 9 percent in 2020, 7 percent
in 2021 and 7 percent in 2022.

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
generally 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 (decreased)
amortization expense for such changes by $1.0 million, $.7 million
and $(.5) million during the years ended December 31, 2017, 2016
and 2015, 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

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationsrecognition reserves; and (iv) income taxes. We include the impact
of this adjustment in accumulated other comprehensive income
(loss) within shareholders’ equity. The total pre-tax impact of such
adjustments on accumulated other comprehensive income was
a decrease of $682.4 million at December 31, 2017 (including
$514.5 million for premium deficiencies that would exist on certain
blocks of business (primarily 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, 2016
was a decrease of $343.2 million (including $204.0 million for
premium deficiencies that would exist on certain blocks of business
(primarily 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, 2017, 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
evaluations 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. 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
20% increase to assumed lapses
20% decrease to assumed lapses

Fixed index and fixed interest 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
No increase in new money rate assumption after one year

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

(dollars in millions)

(29)
29
(11)
11
(9)
9
(10)
11

(74)
91
(7)
7
(33)
33

(11)
(2)

(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.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe 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)

Years ended December 31,

2017

85.0%
90.3%
91.2%
85.2%
87.5%

85.3%
89.2%
90.6%

83.4%

2016

2015

85.9%
90.0%
91.5%
85.8%
87.1%

85.8%
89.2%
91.2%

83.0%

86.3%
90.4%
91.2%
85.1%
87.3%

83.7%
89.0%
91.8%

82.6%

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

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 our Bankers Life and Long-term Care
in Run-off segments.

(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 assuming net unrealized gains had been realized

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

Reinsurance receivables

LONG-tErM CarE rESErVES, NEt OF rEINSUraNCE rECEIVaBLES

2017

2016

3,846.0
1,366.9
190.0
266.1

200.1
5,869.1
221.5
5,647.6

3,816.4
1,338.4
191.3
—

187.5
5,533.6
194.3
5,339.3

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.

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.

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

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,

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationspersistency, premium rates, maintenance expense and investment
yields, which estimates are generally updated annually. During
2017, we decreased the future loss reserves related to our long-term
care blocks of business by $1.3 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 2016 claim reserve redundancy
for long-term care claim reserves in our Bankers Life segment, as
measured at December 31, 2017, was $6.4 million.

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). As an example, an increase in the loss
ratio of 5 percentage points for claims incurred in 2017 related to
our long-term care business in our Bankers Life segment would have
resulted in an immediate decrease in our earnings of approximately
$23 million. 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 certain marketing agreements

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 Life 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 fee 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

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 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

2017

24.6
3.3
27.9
10.9
17.0

2016

23.2 $
3.1
26.3
9.3
17.0 $

2015

23.1
3.2
26.3
9.4
16.9

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 NOLs expire.

Based on our assessment, it appears more likely than not that
$376.2 million of our total deferred tax assets of $465.3 million
will be realized through future taxable earnings. Accordingly, we
have established a deferred tax valuation allowance of $89.1 million
at December 31, 2017 ($77.4 million of which relates to our net
federal operating loss carryforwards and $11.7 million relates to
state deferred tax assets). We will continue to assess the need for
a valuation allowance in the future. If future results are less than
projected, an increase to the 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.

We use a deferred tax valuation model to assess the need for a
valuation allowance. Our model is adjusted to reflect changes
in our projections of future taxable income including changes
resulting from the Tax Reform Act, investment strategies, the
impact of the sale or reinsurance of business and the recapture of
business previously ceded. Our estimates of future taxable income
are based on evidence we consider to be objective and verifiable.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KAt December 31, 2017, our projection of future taxable income
for purposes of determining the valuation allowance is based on
our adjusted average annual taxable income which is assumed
to increase by 3 percent for the next five years, and level taxable
income is assumed thereafter. In the projections used for our
analysis, our adjusted average taxable income of approximately
$345 million consisted of $85 million of non-life taxable income
and $260 million of life taxable income.

Based on our assessment, we recognized a decrease to the
allowance for deferred tax assets of $151.1 million in 2017. We have
evaluated the recovery of our deferred tax assets and assessed the
effect of limitations and/or interpretations on their value and have
concluded that it is more likely than not that the value recognized
will be fully realized in the future.

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

Balance, December 31, 2014

Decrease in 2015

Balance, December 31, 2015

Increase in 2016

Balance, December 31, 2016

Decrease in 2017
Cumulative effect of accounting change

BaLaNCE, DECEMBEr 31, 2017

246.0
(32.5)(a)
213.5
26.7(b)
240.2
(166.8)(c)
15.7(d)
89.1

(a) The 2015 reduction to the deferred tax valuation allowance primarily resulted from higher actual and projected non-life income.
(b) The 2016 increase to the deferred tax valuation allowance primarily resulted from additional non-life NOLs due to the settlement with the IRS.
(c)

The 2017 decrease to the deferred tax valuation allowance includes: (i) $138.1 million related to a reduction in the federal corporate income tax rate and other changes from
the Tax Reform Act; (ii) $13.4 million of reductions to the deferred tax valuation allowance primarily related to the recognition of capital gains; and (iii) $15.3 million of
reductions in the deferred tax valuation allowance reflecting higher current year taxable income than previously reflected in our deferred tax valuation model.

(d) Effective January 1, 2017, the Company adopted new authoritative guidance related to several aspects of the accounting for share-based payment transactions, including
the income tax consequences. Under the new guidance, any excess tax benefits are recognized as an income tax benefit in the income statement. The new guidance is applied
on a modified retrospective basis through a cumulative-effect adjustment to retained earnings for all tax benefits that were not previously recognized because the related
tax deduction had not reduced taxes payable. The Company had NOL carryforwards of $15.7 million related to deductions for stock options and restricted stock on the
date of adoption. However, a corresponding valuation allowance of $15.7 million was recognized as a result of adopting this guidance. Therefore, there was no impact to
our consolidated financial statements related to the initial adoption of this provision of the new guidance.

Recovery of our deferred tax asset is dependent on achieving
the level of future taxable income projected in our deferred tax
valuation model and failure to do so could 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.

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 NOL 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 (1.96 percent at December 31,
2017), and the annual restriction could limit 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, 2017, we were
below the 50 percent ownership change level that would trigger
further impairment of our ability to utilize our NOLs.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsAs of December 31, 2017, we had $2.3 billion of federal NOLs, (all of which are non-life NOLs). The following table summarizes the
expiration dates of our loss carryforwards (dollars in millions):

Year of expiration
2023
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035

tOtaL FEDEraL NOLS

Net operating loss
carryforwards
1,744.8
85.2
149.9
10.8
80.3
213.2
.3
.2
44.4
.6
.9
.8
2,331.4

We also had deferred tax assets related to NOLs for state income taxes of $9.3 million and $12.3 million at December 31, 2017 and 2016,
respectively. The related state NOLs are available to offset future state taxable income in certain states through 2029.

There were no unrecognized tax benefits in 2017. A reconciliation of the beginning and ending amount of unrecognized tax benefits for
the year ended December 31, 2016 is as follows (dollars in millions):

Balance at beginning of year

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

BaLaNCE at END OF YEar

2016

234.2
3.4
(237.6)
—

In the fourth quarter of 2016, we reached a settlement with the
IRS related to two uncertain tax positions: (i) $280.7 million
of life NOLs and $130.0 million of non-life NOLs related to
the classification of the loss on our investment in Conseco
Senior Health Insurance Company when it was transferred to
an independent trust in 2008; and (ii) $66.7 million of non-life
NOLs related to a bad debt deduction with respect to a stock
purchase loan made by our Predecessor to a member of its board
of directors. The settlement resulted in a reduction to tax expense
of approximately $118.7 million in the fourth quarter of 2016 (the
period in which these matters were settled and the fully executed
documentation was received). The $118.7 million benefit includes:
(i) a $98.2 million tax benefit related to additional life NOLs; (ii) a
$17.1 million tax benefit related to additional non-life NOLs (net
of an increase to the deferred tax valuation allowance of $51.7
million); and (iii) a $3.4 million reduction in interest recognized
in prior periods on alternative minimum tax that will no longer be
required to be paid.

All of the life NOLs were utilized by December 31, 2016.
Accordingly, we began making federal tax payments equal to
the prescribed federal tax rate applied to 65 percent of our life
insurance company taxable income due to the limitations on the
extent to which we can use non-life NOLs to offset life insurance
company taxable income. Under current law, we will continue
to pay tax on 65 percent of our life insurance company taxable
income until all non-life NOLs are utilized or expire.

The IRS is conducting an examination of 2013 and 2014. In
connection with this exam, we have agreed to extend the statute of
limitations for 2013 through September 30, 2018. The Company’s

various state income tax returns are generally open for tax years
beginning in 2014, based on individual state statutes of limitation.
Generally, for tax years which generate NOLs, capital losses
or tax credit carryforwards, the statute remains open until the
expiration of the statute of limitations for the tax year in which such
carryforwards are utilized. The outcome of tax audit cannot be
predicted with certainty. If the Company’s tax audit is not resolved
in a manner consistent with management’s expectations, the
Company may be required to adjust its provision for income taxes.

Liabilities for Insurance Products

At December 31, 2017, the total balance of our liabilities for
insurance products was $23.5 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

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kestablish 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 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. 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.

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 that such legal
actions could have a material adverse effect on the Company’s
consolidated financial condition, operating results or cash flows.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationsbeen 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.

Results of Operations

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

Pre-tax operating earnings (a non-GAAP measure)(a):

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off
Corporate operations

Loss on reinsurance transaction:

Corporate operations

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

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off
Corporate operations

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

Bankers Life
Washington National

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

Corporate operations

Net revenue pursuant to transition and support services agreements, net of taxes:

Corporate operations

Fair value changes and amendment related to agent deferred compensation plan:

Corporate operations

Transition expenses:

Corporate operations

Loss on extinguishment of debt:

Corporate operations

Income (loss) before income taxes:

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off
Corporate operations
INCOME BEFOrE INCOME taXES

2017

2016

2015

418.9
98.3
22.6
1.7
(86.8)
454.7

—
—

33.6
11.7
—
7.0
(3.0)
49.3

(2.7)
.2
(2.5)

(8.8)

—

(12.2)

—

449.8
110.2
22.6
8.7
(110.8)
480.5

397.9
102.9
1.7
(3.9)
(88.3)
410.3

(75.4)
(75.4)

(3.6)
19.4
(.2)
(5.3)
(2.7)
7.6

9.4
.2
9.6

369.6
111.5
5.6
—
(63.9)
422.8

—
—

(16.7)
(9.6)
1.2
—
(11.0)
(36.1)

11.7
.2
11.9

(2.0)

(6.7)

—

3.1

—

403.7
122.5
1.5
(9.2)
(165.3)
353.2

2.5

15.1

(9.0)

(32.8)

364.6
102.1
6.8
—
(105.8)
367.7

(a) These non-GAAP measures as presented in the above table and in the following segment financial data and discussions of segment results exclude the loss on reinsurance
transaction and transition expenses, net realized investment gains (losses), fair value changes in embedded derivative liabilities, net of related amortization, fair value
changes and amendment related to the agent deferred compensation plan, equity in earnings of certain non-strategic investments and earnings attributable to VIEs,
transition expenses, 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 “pre-tax operating earnings” 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 the loss on reinsurance transaction, realized investment gains (losses), fair value changes in
embedded derivative liabilities, net of related amortization, fair value changes and amendment related to the agent deferred compensation plan, equity in earnings

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K
of certain non-strategic investments and earnings attributable to VIEs, transition expenses 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,
fair value changes related to the agent deferred compensation plan and equity in earnings of certain non-strategic investments and earnings attributable to VIEs
depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments. However, “pre-tax operating earnings” 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 apparent. 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 Washington National
segment, which utilizes independent producers and through our
Colonial Penn segment, which utilizes direct response marketing.

In the fourth quarter of 2016, we began reporting as an additional
business segment, the long-term care block recaptured from BRe
as further described in “Management’s Discussion and Analysis
of Consolidated Financial Condition and Results of Operations -
Consolidated Financial Condition - Termination of Long-Term
Care Reinsurance Agreements and Recapture of Related Long-
Term Care Business in Run-off”.

CNO FINANCIAL GROUP, INC. - Form 10-K

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

Premium collections:

Annuities
Medicare supplement and other supplemental health
Life

Total collections

Average liabilities for insurance products:

Fixed index annuities
Fixed interest 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 (losses)
Amortization related to net realized investment gains (losses)

Net realized investment gains (losses), 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 taXES

2017

2016

2015

1,030.6
1,213.4
462.4
2,706.4

5,139.6
2,899.5

160.5
149.0

4,987.4
334.9
55.9

778.2
1,089.9
15,594.9

1,666.6

953.8
153.5
44.1
2,818.0

970.0
1,235.3
461.1
2,666.4

4,527.8
3,188.2

174.9
153.7

4,998.0
336.8
50.3

714.6
1,018.0
15,162.3

1,659.1

909.5
27.3
34.4
2,630.3

803.0
1,242.3
446.0
2,491.3

4,075.5
3,487.8

189.5
153.8

4,916.2
331.0
47.7

643.0
941.5
14,786.0

1,648.7

918.7
(34.0)
27.7
2,561.1

1,448.5

1,417.4

1,442.5

105.0
63.7
154.6
163.6
19.8
443.9
2,399.1

418.9
34.6
(1.0)
33.6
(3.4)
.7
(2.7)
449.8

110.8
66.1
26.3
176.5
13.2
422.1
2,232.4

397.9
(3.2)
(.4)
(3.6)
10.7
(1.3)
9.4
403.7

118.5
60.3
(32.9)
187.1
8.8
407.2
2,191.5

369.6
(17.2)
.5
(16.7)
14.9
(3.2)
11.7
364.6

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)
Long-term care:

2017

2016

2015

1,149.9

93.4%

550.6

70.8%

1,192.3

95.8%

556.2

71.9%

1,205.1

96.3%

536.1

69.6%

636.1
135.0%
76.7%

669.0
139.2%
82.8%

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

599.3
132.3%
71.2%
(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 (which is equal to the tabular interest on the related insurance liabilities). 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 $276.8
million, $274.7 million and $271.2 million in 2017, 2016 and 2015, respectively.

Total premium collections were $2,706.4 million in 2017,
up 1.5 percent from 2016, and $2,666.4 million in 2016, up
7.0 percent from 2015. See “Premium Collections” for further
analysis of Bankers Life’s premium collections.

and a larger average alternative investment portfolio in 2017.
Prepayment income (including call premiums) was $31.5 million,
$13.3 million and $26.5 million in 2017, 2016 and 2015,
respectively.

Average liabilities for insurance products, net of reinsurance
ceded were $15.6 billion in 2017, up 2.9 percent from 2016 and
$15.2 billion in 2016, up 2.5 percent from 2015. Such average
insurance liabilities for certain long-term care products were
increased by $107 million, $184 million and $196 million in 2017,
2016 and 2015, respectively, to reflect the premium deficiencies
that would exist 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. Such increase
is reflected as a reduction of accumulated other comprehensive
income. Excluding the impact of the aforementioned item, the
increase in average liabilities for insurance products was primarily
due to new sales and the amounts added to policyholder account
balances on interest-sensitive 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.

Net investment income on general account invested assets
(which excludes income on policyholder portfolios) increased
4.9 percent, to $953.8 million, in 2017 and decreased 1.0 percent,
to $909.5 million, in 2016. In 2017, net investment income
reflects $17 million of higher investment income from alternative
investments compared to 2016. Such increases reflect higher
returns from credit, private equity, and equity related strategies

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 $153.5 million, $27.3 million and $(34.0) million in 2017,
2016 and 2015, respectively. Such amounts were substantially
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.

Fee revenue and other income was $44.1 million, $34.4 million
and $27.7 million in 2017, 2016 and 2015, respectively. The
increase in 2017 and 2016 is attributable to fee income earned by
our broker-dealer and registered investment advisor subsidiaries.
We recognized fee income of $27.9 million, $26.3 million and
$26.3 million in 2017, 2016 and 2015, respectively, pursuant to
distribution and marketing agreements to sell Medicare Advantage
and PDP products of other insurance companies.

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 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.

In the fourth quarter of 2017, we completed our comprehensive
review of actuarial assumptions. Such review resulted in a decrease
in reserves of $9.0 million and a decrease in amortization of
$1.8 million including the net impact of changes to mortality
assumptions related to interest-sensitive life products. In the fourth
quarter of 2016, our comprehensive review resulted in a decrease
in reserves of $42.6 million and a decrease in amortization of
$3.2 million including the net impact from changes to spread and
persistency assumptions related to fixed index annuities. In the
fourth quarter of 2015, our comprehensive review resulted in a
decrease in reserves of $21.9 million and a decrease in amortization
of $3.9 million primarily reflecting the net impact from changes
in assumptions related to mortality and the spread earned on fixed
index annuities.

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 70.8 percent, 71.9 percent and 69.6 percent in 2017, 2016
and 2015, respectively. Our insurance policy benefits reflected
favorable (unfavorable) reserve developments of prior period claim
reserves of approximately $6.0 million, $(1.9) million and $(1.1)
million in 2017, 2016 and 2015, respectively. Excluding the effects
of prior period claim reserve redundancies and deficiencies, our
benefit ratios would have been 71.5 percent, 71.7 percent and 69.4
percent in 2017, 2016 and 2015, respectively. We currently expect
the benefit ratio on this Medicare supplement business to be in the
range of 71 percent to 74 percent during 2018.

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 132.3 percent, 135.0 percent and 139.2 percent in 2017, 2016
and 2015, respectively. The interest-adjusted benefit ratio on this
business was 71.2 percent, 76.7 percent and 82.8 percent in 2017,
2016 and 2015, respectively. The interest-adjusted benefit ratio in
2017 was favorably impacted by $11.3 million of one-time reserve
releases which was comprised of: (i) $6.5 million related to lower
persistency (including the results of procedures performed to
identify policies that had terminated prior to June 30, 2017 due
to death); (ii) $1.7 million related to an out-of-period adjustment
that reduced reserves; and (iii) $3.1 million related to the impact
of policyholder decisions to surrender or reduce coverage following
rate increases. The interest-adjusted benefit ratio in 2016 and

2015 was favorably impacted by reserve releases of $22 million
and $6.3 million, respectively, related to policyholder decisions
to surrender or reduce coverage following rate increases. The
interest-adjusted benefit ratio in 2017, 2016 and 2015, excluding
such favorable reserve releases, was 73.7 percent, 81.4 percent and
84.1 percent, respectively. The interest-adjusted benefit ratio in
2017 also reflected no increase to the future loss reserve, given
the outcome of the year-end 2016 actuarial review, compared to
increases of $33.0 million and $38.2 million in 2016 and 2015,
respectively.

We currently expect the interest-adjusted benefit ratio on this long-
term care business to be in the range of 75 percent to 80 percent
during 2018. Since the insurance product liabilities we establish
for the 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 $6.4
million, $11.1 million and $16.2 million in 2017, 2016 and 2015,
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).

Amounts added to policyholder account balances - cost of
interest credited to policyholders were $105.0 million, $110.8
million and $118.5 million in 2017, 2016 and 2015, respectively.
The weighted average crediting rates for these products was 2.8
percent in 2017, 2016 and 2015. The average liabilities of the
fixed interest annuity block were $2.9 billion, $3.2 billion and
$3.5 billion in 2017, 2016 and 2015, respectively. The decrease in
the liabilities related to these annuities reflects the lower sales of
these products in the current low interest rate environment and
consumer preference for fixed index products.

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.

Amortization related to operations includes amortization of
deferred acquisition costs and the present value of future profits.
Deferred acquisition costs and the present value of future profits are
collectively referred to as “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

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kother 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.
The lower amortization in 2017 and 2016 generally reflects the
favorable persistency experienced as compared to the prior year.
Amortization was also impacted in each year by our comprehensive
review of actuarial assumptions discussed above under insurance
policy benefits.

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”. The
increase in interest expense in 2017 and 2016 is primarily due to
higher interest rates on the variable rate investment borrowings.

Other operating costs and expenses in our Bankers Life segment
were $443.9 million in 2017, up 5.2 percent from 2016, and were
$422.1 million in 2016, up 3.7 percent from 2015. Such expenses
in 2017 include $3.5 million for estimated future state guaranty
association assessments, net of premium tax offsets, related to the
liquidation of Penn Treaty Network America Insurance Company
(“Penn Treaty”). Other operating costs and expenses include the
following (dollars in millions):

Commission expense and agent manager benefits
Other operating expenses

tOtaL

2017
70.8
373.1
443.9

2016
71.6 $
350.5
422.1 $

2015
64.4
342.8
407.2

Net realized investment gains (losses) fluctuate each period.
During 2017, we recognized net realized investment gains of
$34.6 million, which were comprised of: (i) $25.9 million of
net gains from the sales of investments; and (ii) the increase in
fair value of certain fixed maturity investments with embedded
derivatives of $8.7 million. During 2016, we recognized net
realized investment losses of $3.2 million, which were comprised
of: (i) $17.0 million of net gains from the sales of investments; (ii)
the increase in fair value of certain fixed maturity investments
with embedded derivatives of $.2 million; and (iii) $20.4 million
of writedowns of investments for other than temporary declines
in fair value recognized through net income ($22.9 million,
prior to the $2.5 million of impairment losses recognized in
accumulated other comprehensive income (loss)). During 2015,
we recognized net realized investment losses of $17.2 million,
which were comprised of: (i) $1.2 million of net gains from the
sales of investments; (ii) the decrease in fair value of certain fixed
maturity investments with embedded derivatives of $6.7 million;
and (iii) $11.7 million of writedowns of investments for other than
temporary declines in fair value recognized through net income
($14.0 million, prior to the $2.3 million of impairment losses
recognized in 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, 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 (decrease) in the amortization of insurance
acquisition costs of $1.0 million, $.4 million and $(.5) million in
2017, 2016 and 2015, 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.

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:

Supplemental health and other health
Medicare supplement
Life
Annuity

Total collections

Average liabilities for insurance products:

Fixed index annuities
Fixed interest annuities
SPIAs and supplemental contracts:

Mortality based
Deposit based
Separate Accounts
Health:

Supplemental health
Medicare supplement
Other health

Life:

Interest sensitive life
Non-interest sensitive life
Total average liabilities for insurance products, net of reinsurance ceded

Revenues:

Insurance policy income
Net investment income (loss):

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

Net realized investment gains (losses)
Amortization related to net realized investment gains (losses)

Net realized investment gains (losses), 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 TAXES

2017

589.1
51.6
30.0
.9
671.6

314.2
97.9

232.1
269.5
4.7

2,732.0
24.8
13.5

149.2
175.0
4,012.9

671.4

257.5
9.0
3.7
1.0
942.6

550.7

12.9
4.4
13.1
58.8
6.3
198.1
844.3

98.3
11.7
—
11.7
.5
(.3)
.2
110.2

2016

567.4
61.0
29.4
1.5
659.3

350.2
107.0

248.6
267.2
4.7

2,604.4
28.3
14.1

150.3
179.8
3,954.6

655.8

256.2
1.9
1.2
1.3
916.4

538.2

13.8
5.8
3.9
59.1
3.7
189.0
813.5

102.9
19.7
(.3)
19.4
.6
(.4)
.2
122.5

2015

547.0
72.6
27.7
2.4
649.7

386.0
119.1

258.4
260.5
5.2

2,494.0
30.9
15.0

151.9
185.9
3,906.9

643.8

256.0
(2.2)
(.2)
1.3
898.7

528.4

14.6
6.3
(2.7)
55.2
2.0
183.4
787.2

111.5
(9.6)
—
(9.6)
.8
(.6)
.2
102.1

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

Supplemental health:

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

Medicare supplement:

Insurance policy benefits
Benefit ratio(a)

2017

2016

2015

489.8
83.2%
59.1%

37.0
68.1%

469.3
83.0%
59.0%

42.7
68.4%

455.3
84.0%
59.6%

47.9
65.0%

(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 (which is equal to the tabular interest on the related insurance liabilities). 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
$141.7 million, $135.6 million and $132.6 million in 2017, 2016 and 2015, respectively.

Total premium collections were $671.6 million in 2017, up
1.9 percent from 2016, and $659.3 million in 2016, up 1.5 percent
from 2015, driven by sales and persistency of the segment’s
supplemental health block; partially offset by lower Medicare
supplement collected premiums due to the run-off of this block of
business. This segment no longer markets Medicare supplement
products and no longer actively pursues sales of annuity products.
See “Premium Collections” for further analysis of fluctuations in
premiums collected by product.

Average liabilities for insurance products, net of reinsurance
ceded were $4,012.9 million in 2017, up 1.5 percent from 2016,
and $3,954.6 million in 2016, up 1.2 percent from 2015, reflecting
an increase in the supplemental health block; partially offset by the
run-off of the annuity blocks.

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 consistent with sales; partially
offset by the decrease in Medicare supplement premiums.

Net investment income on general account invested assets
(which excludes income on policyholder portfolios and reinsurer
accounts) was $257.5 million in 2017, $256.2 million in 2016
and $256.0 million in 2015. Prepayment income (including call
premiums) was $5.9 million, $5.1 million and $3.8 million in
2017, 2016 and 2015, respectively.

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 $9.0 million,
$1.9 million and $(2.2) million in 2017, 2016 and 2015, respectively.
Such amounts were substantially offset by the corresponding
charge 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.

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.

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

In the fourth quarter of 2017, we completed our comprehensive
annual review of actuarial assumptions. Such review resulted in
a $1 million increase in amortization of deferred acquisition costs
related to interest-sensitive life products. In the fourth quarter of
2016, our comprehensive review had no material impact on this
segment. In the fourth quarter of 2015, our comprehensive review
resulted in a $1 million decrease in reserves.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations
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) were 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 supplemental health products were $98.7 million,
$96.2 million and $86.4 million in 2017, 2016 and 2015,
respectively. The benefit ratio on these products was 83.2 percent,
83.0 percent and 84.0 percent in 2017, 2016 and 2015, respectively.
The interest-adjusted benefit ratio on this supplemental health
business was 59.1 percent, 59.0 percent and 59.6 percent in 2017,
2016 and 2015, respectively. We currently expect the interest-
adjusted benefit ratio on this supplemental health business to be in
the range of 58 percent to 61 percent during 2018.

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 $17.4 million, $19.8 million and
$25.7 million in 2017, 2016 and 2015, respectively. Such decrease
reflects the run-off of this block of business.

Amounts added to policyholder account balances - cost of interest
credited to policyholders were $12.9 million, $13.8 million and
$14.6 million in 2017, 2016 and 2015, respectively.

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.

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
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. A revision to our
current assumptions could result in increases or decreases to
amortization expense in future periods.

Interest expense on
investment borrowings represents
$6.3 million, $3.7 million and $2.0 million of interest expense
on collateralized borrowings in 2017, 2016 and 2015, respectively,
as further described in the note to the consolidated financial
statements entitled “Summary of Significant Accounting Policies -
Investment Borrowings”. The increase in interest expense in
2017 and 2016 is due to higher interest rates on the variable rate
investment borrowings.

Other operating costs and expenses were $198.1 million,
$189.0 million and $183.4 million in 2017, 2016 and 2015,
respectively. Such expenses in 2017 include $1.3 million for
estimated future state guaranty association assessments, net of
premium tax offsets, related to the liquidation of Penn Treaty.
Other operating costs and expenses also include commission
expense of $69.8 million, $70.2 million and $68.3 million in 2017,
2016 and 2015, respectively. The increase in commission expense
is consistent with the growth in the supplemental health block.

Net realized investment gains (losses) fluctuate each period.
During 2017, we recognized net realized investment gains of
$11.7 million, which were comprised of: (i) $7.4 million of net
gains from the sales of investments; (ii) the increase in fair value of
certain fixed maturity investments with embedded derivatives of
$2.5 million; (iii) the increase in fair value of embedded derivatives
related to a modified coinsurance agreement of $2.8 million; and
(iv) $1.0 million of writedowns of investments for other than
temporary declines in fair value which were recorded in earnings.
During 2016, we recognized net realized investment gains of
$19.7 million, which were comprised of: (i) $24.7 million of net
gains from the sales of investments; (ii) the decrease in fair value
of certain fixed maturity investments with embedded derivatives
of $.5 million; (iii) the increase in fair value of embedded derivatives
related to a modified coinsurance agreement of $.8 million; and
(iv) $5.3 million of writedowns of investments for other than
temporary declines in fair value recognized through net income
($6.4 million, prior to the $1.1 million of impairment losses
recognized in accumulated other comprehensive income (loss)).
During 2015, we recognized $2.8 million of net gains from the sales
of investments; the decrease in fair value of embedded derivatives
related to a modified coinsurance agreement of $7.0 million;
the decrease in fair value of certain fixed maturity investments
with embedded derivatives of $2.1 million; and $3.3 million of

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kwritedowns of investments for other than temporary declines in
fair value recognized through net income ($3.7 million, prior to
the $.4 million of impairment losses recognized in accumulated
other comprehensive income (loss)).

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 nil,
$.3 million and nil in 2017, 2016 and 2015, respectively.

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

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.

Colonial Penn (dollars in millions)

Premium collections:

Life
Medicare supplement and other 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
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

2017

289.6
2.0
291.6

73.0

5.7
4.1

15.5
717.5
815.8

291.8
44.4
1.3
337.5

199.0
.6
16.3
.9
98.1
314.9
22.6
—
22.6

2016

277.8 $
2.4
280.2 $

2015

259.9
3.0
262.9

74.1 $

73.1

6.5
4.2

16.2
689.4
790.4 $

281.4 $
44.2
1.1
326.7

201.2
.7
15.3
.6
107.2
325.0
1.7
(.2)
1.5 $

7.7
4.4

16.5
670.1
771.8

263.5
43.0
1.0
307.5

188.3
.7
14.4
.1
98.4
301.9
5.6
1.2
6.8

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThis 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.
We expect this segment to report earnings (before net realized
investment gains (losses) and income taxes) in 2018 in the range
of $10 million to $20 million, but because of the seasonality of
advertising spend, we expect a loss in the range of $1 million to $3
million in the first quarter of 2018.

Total premium collections increased 4.1 percent, to $291.6
million, in 2017 and 6.6 percent, to $280.2 million, in 2016. The
increase was driven by recent sales activity and steady persistency.
See “Premium Collections” for further analysis of Colonial Penn’s
premium collections.

Average liabilities for insurance products, net of reinsurance
ceded have increased as a result of growth in the core graded
benefit and simplified issue life insurance block 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 graded benefit and
simplified issue life insurance business.

Net investment income on general account invested assets
increased slightly in 2017 and 2016 primarily due to the increase
in invested assets as a result of growth in this segment.

Insurance policy benefits in 2017 reflect: (i) growth in this
segment; (ii) the favorable changes to liabilities for insurance
products including a $2.5 million out-of-period adjustment and
a $.5 million refinement to the calculation; and (iii) favorable
mortality as compared to 2016. Insurance policy benefits in
2016 reflected a $2.5 million increase in reserves related to the
impact of loss recognition on a closed block of payout annuities
resulting from changes in long-term interest rates and mortality
assumptions.

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. Marketing expenses
were lower in 2017 as compared to 2016. The demand and cost of
television advertising appropriate for Colonial Penn’s campaigns
has fluctuated widely in certain periods. In 2017, higher advertising
costs resulted in our decision to lower our planned spending. We
are disciplined with our marketing expenditures and will increase
or decrease our advertising spend depending on prices.

Net realized investment gains (losses) fluctuate each period.
During 2017, we recognized net realized investment gains of nil,
which were comprised of: (i) $.7 million of net gains from the
sales of investments; (ii) the increase in fair value of certain fixed
maturity investments with embedded derivatives of $.3 million;
and (iii) $1.0 million of writedowns of investments for other than
temporary declines in fair value which were recorded in earnings.
During 2016, we recognized net realized investment losses of $.2
million, which were comprised of: (i) $.7 million of net gains from
the sales of investments; (ii) the decrease in fair value of certain
fixed maturity investments with embedded derivatives of $.1
million; and (iii) $.8 million of writedowns of investments for
other than temporary declines in fair value recognized through
net income. During 2015, we recognized $2.2 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 $.4 million; and $.6 million of
writedowns of investments for other than temporary declines in
fair value recognized through net income ($.9 million, prior to the
$.3 million of impairment losses recognized in accumulated other
comprehensive income (loss)).

Management believes that an analysis of Adjusted EBIT for
Colonial Penn, separated between in-force and new business,
provides increased clarity for this segment as the vast majority of
the costs to generate new business in this segment are not deferrable
and Adjusted EBIT will fluctuate based on management’s decisions
on how much marketing costs to incur in each period. Adjusted
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. Adjusted 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.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KRecognizing the accounting standard that requires us to expense
certain direct response advertising costs (rather than deferring such
costs as deferred acquisition costs), the amount of our investment
in new business in the Colonial Penn segment during a particular

period will have a significant impact on the segment results. The
following summarizes our earnings, separated between in-force
and new business for Colonial Penn (dollars in millions):

ADJUSTED 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

Adjusted EBIT from In-force Business
ADJUSTED 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

Adjusted EBIT from New Business

ADJUSTED 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

ADJUSTED EBIT FROM IN-FORCE AND NEW BUSINESS

2017

2016

2015

241.8
45.7
287.5

169.2
15.6
33.9
218.7
68.8

50.0
—
50.0

30.4
.7
65.1
96.2
(46.2)

291.8
45.7
337.5

199.6
16.3
99.0
314.9
22.6

226.5
45.3
271.8

168.5
14.5
34.4
217.4
54.4

54.9
—
54.9

33.4
.8
73.4
107.6
(52.7) $

281.4
45.3
326.7

201.9
15.3
107.8
325.0
1.7

212.0
44.0
256.0

159.4
13.7
29.3
202.4
53.6

51.5
—
51.5

29.6
.7
69.2
99.5
(48.0)

263.5
44.0
307.5

189.0
14.4
98.5
301.9
5.6

The Adjusted EBIT from in-force business in the Colonial
Penn segment in 2017 reflects higher renewal premium income
due to higher sales in recent periods. The Adjusted EBIT from
new business in the Colonial Penn segment in 2017 primarily

reflects lower marketing costs. The vast majority of the costs
to generate new business in this segment are not deferrable and
Adjusted EBIT will fluctuate based on management’s decisions on
how much marketing costs to incur in each period.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsLong-term care in run-off (dollars in millions)

In September 2016, we terminated certain reinsurance agreements
and recaptured the ceded business as further described in
“Management’s Discussion and Analysis of Consolidated Financial
Condition and Results of Operations - Consolidated Financial

Condition - Termination of Long-Term Care Reinsurance
Agreements and Recapture of Related Long-Term Care Business
in Run-off”. The long-term care in run-off segment is comprised
of the long-term care business that was recaptured.

Premium collections:

Long-term care (all renewal)

Average liabilities for insurance products:

Average liabilities for long-term care products, net of reinsurance ceded

Revenues:

Insurance policy income
Net investment income on general account invested assets

Total revenues

Expenses:

Insurance policy benefits
Other operating costs and expenses

Total benefits and expenses

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

Net realized investment gains (losses)

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

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

2017

16.9

572.4

17.5
34.6
52.1

47.3
3.1
50.4
1.7
7.0
8.7

47.3
270.5%
104.1%

2016

4.7

138.4

4.8
9.4
14.2

17.6
.5
18.1
(3.9)
(5.3)
(9.2)

17.6
365.8%
213.5%

(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 this 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 (which is equal to the tabular interest on the related insurance liabilities). 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 $29.1 million and
$7.3 million in 2017 and 2016, respectively.

Average liabilities for long-term care products were increased
by $23 million in 2017 to reflect the premium deficiencies that
would exist 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. Such increase is reflected as a
reduction of accumulated other comprehensive income.

Insurance policy benefits in 2017 were $47.3 million and the
interest-adjusted benefit ratio for this long-term care block was
104.1 percent in 2017. Our 2017 comprehensive actuarial review

of this block reflected relatively low margins. Accordingly, this
segment’s results can be volatile from period to period. Insurance
policy benefits in 2016 included the unfavorable impact of
$2.6 million related to the impact of loss recognition on this
closed block of long-term care business from changes in long-term
interest rates and mortality assumptions. This block of business is
particularly sensitive to changes in assumptions.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K
Net realized investment losses fluctuated each period. During
2017, we recognized net realized investment gains of $7.0 million,
which were comprised of: (i) $25.3 million of net gains from
the sales of investments; and (ii) $18.3 million of writedowns
of investments for other than temporary declines in fair value

recognized through net income. During 2016, we recognized net
realized investment losses of $5.3 million, which were comprised
of: (i) $4.6 million of net losses from the sales of investments;
and (ii) $.7 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.

Corporate 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
Other trading account activities

Fee revenue and other income
Interest expense on investment borrowings
Other operating costs and expenses

Loss before net realized investment losses, equity in earnings of certain non-strategic
investments and earnings attributable to non-controlling interests, fair value changes
and amendment related to agent deferred compensation plan, loss on reinsurance
transaction, transition expenses, loss on extinguishment of debt and income taxes

Net realized investment losses
Equity in earnings of certain non-strategic investments and earnings
attributable to VIEs
Fair value changes and amendment related to agent deferred compensation plan
Loss on reinsurance transaction and transition expenses
Net revenue pursuant to transition and support services agreements
Transition expenses
Loss on extinguishment of debt

LOSS BEFORE INCOME TAXES

2017

2016

2015

(46.5)

(45.8)

(45.0)

5.6

17.4
3.4
9.1
8.5
—
(84.3)

(86.8)
(3.0)

(8.8)
(12.2)
—
—
—
—
(110.8)

4.8

(.3)
1.1
11.0
10.0
—
(69.1)

(88.3)
(2.7)

(2.0)
3.1
(75.4)
—
—
—
(165.3)

6.9

(6.4)
(.1)
10.9
8.6
(.2)
(38.6)

(63.9)
(11.0)

(6.7)
15.1
—
2.5
(9.0)
(32.8)
(105.8)

Interest expense on corporate debt has been primarily
impacted by: (i) the debt refinancing transactions completed in
May 2015; and (ii) the timing and amount of debt repayments
in 2015, along with the mix of interest rates on the related
outstanding borrowings. 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 $925.0 million, $925.0 million
and $888.6 million in 2017, 2016 and 2015, respectively. The
average interest rate on our debt was 4.8 percent, 4.7 percent
and 4.7 percent in 2017, 2016 and 2015, respectively. Interest
expense
in periods subsequent to the debt refinancing
transactions also reflects lower amortization of discount and
issuance costs primarily due to the extended maturity profile of
the debt incurred in our refinancing transactions.

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 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 alternative strategies.
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 recognized death benefits, net
of cash surrender value, of $4.0 million and $1.1 million related to
the COLI in 2017 and 2015, respectively.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsFee revenue and other income includes the fees our wholly-
owned investment advisor earns for managing portfolios of
commercial bank loans for investment trusts. These trusts are
consolidated as VIEs in our consolidated financial statements, but
the fees are reflected as revenues and the fee expense is reflected
in the earnings attributable to VIEs. This fee revenue fluctuates
consistent with the size of the loan portfolios.

Equity in earnings of certain non-strategic investments and
earnings attributable to VIEs include the earnings attributable
to 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 of, and are unrelated to, the
Company’s underlying fundamentals.

Other 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. The increase in such expenses
in 2017, compared to 2016, is due to higher legal expenses
primarily from matters related to the recapture of the long-term
care business in September 2016. The increase in such expenses in
2016, compared to 2015, reflects: (i) higher legal costs (including a
$5.5 million increase to legal reserves related to legacy business of
our predecessor); (ii) higher expenses related to various corporate
initiatives and strategies (including costs to comply with new
DOL requirements); and (iii) higher compensation and benefit
accruals including accelerated stock compensation expense related
to retirement eligible employees, severance costs and performance-
based compensation expense.

Net realized investment losses often fluctuate each period.
During 2017, net realized investment losses in this segment were
$3.0 million and were comprised of: (i) $3.8 million of net gains
from the sales of investments (including $1.2 million of net gains
recognized by the VIEs and $2.6 million of net gains on other
investment sales); (ii) $4.3 million of losses on the dissolution of
VIEs; and (iii) $2.5 million of writedowns of investments held by
VIEs due to other-than-temporary declines in value. During 2016,
net realized investment losses in this segment were $2.7 million
and were comprised of: (i) $5.8 million of net gains from the sales
of investments (including $11.9 million of net losses recognized
by the VIEs and $17.7 million of net gains on other investment
sales); (ii) $7.3 million of losses on the dissolution of a VIE; and
(iii) $1.2 million of writedowns of investments held by VIEs due to
other-than-temporary declines in value. During 2015, net realized
investment losses in this segment included: (i) $2.0 million of net
gains from the sales of investments (including $1.3 million of losses
recognized by the VIEs and $3.3 million of net gains on other
sales of investments); (ii) an $11.3 million gain on the dissolution
of a VIE; (iii) a $7.9 million writedown of a legacy investment
in a private company that was liquidated; and (iv) $16.4 million
of writedowns of investments held by VIEs due to other-than-
temporary declines in value. We no longer have any investment
exposure to legacy private company investments.

Fair value changes and amendment related to agent deferred
compensation plan relate to: (i) changes in the underlying
actuarial assumptions used to value liabilities for our agent deferred
compensation plan; and (ii) an amendment made to the plan in
the third quarter of 2016. The agent deferred compensation plan
was amended to: (i) freeze participation in the plan; (ii) freeze
benefits accrued under the plan; and (iii) add a limited cashout
feature. During the third quarter of 2016, we made lump sum
settlement distributions to plan participants with account balances
that were below a certain threshold consistent with the provision
of the amended plan. We recognized a pre-tax gain of $6.3 million
related to the settlement distributions in the third quarter of 2016.

Loss on reinsurance transaction of $75.4 million in 2016
resulted from the termination of the reinsurance agreements with
BRe and recapture of the ceded business as further described in
“Consolidated Financial Condition - Termination of Long-Term
Care Reinsurance Agreements and Recapture of Related Long-
Term Care Business in Run-off”.

Net revenue pursuant to transition and support services
agreements represents the difference between the fees we received
from Wilton Re and the overhead costs incurred to provide such
services under the agreements subsequent to the sale of a subsidiary
in 2014.

Transition expenses include one-time expenses associated with
our comprehensive agreement with Cognizant for our application
development, maintenance and testing functions as well as select
information technology infrastructure operations.

Loss on extinguishment of debt in 2015 of $32.8 million consisted
of: (i) $15.0 million related to the write-off of unamortized
discount and issuance costs due to the repayment of our previous
senior secured credit agreement and the 6.375% Senior Secured
Notes due October 2020 (the “6.375% Notes”); and (ii) a make-
whole redemption premium of $17.8 million due to the repayment
of the 6.375% Notes. These transactions are further discussed in
the note to the consolidated financial statements entitled “Notes
Payable - Direct Corporate Obligations”.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KPremium 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 wholly-owned 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 sales of supplemental health
and life products to consumers at the worksite. The current
financial strength ratings of our primary insurance subsidiaries

First year:

Bankers Life
Washington National
Colonial Penn

Total first year

Renewal:

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off

Total renewal

TOTAL PREMIUMS COLLECTED

from Fitch, S&P, A.M. Best and Moody’s are “BBB+”, “BBB+”,
“A-” and “Baa1”, respectively. For a description of these ratings
and additional information on our ratings, see “Consolidated
Financial Condition - 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.

Total premium collections were $3.7 billion in 2017, up
2.2 percent from 2016, and $3.6 billion in 2016, up 6.1 percent
from 2015. First year collected premiums were $1,374.1 million in
2017, up 2.2 percent from 2016, and $1,344.8 million in 2016, up
12 percent from 2015. Total premiums collected are summarized
as follows (dollars in millions):

2017

1,245.6
78.4
50.1
1,374.1

1,460.8
595.0
241.5
16.9
2,314.2
3,688.3

2016

2015

1,211.8
78.2
54.8
1,344.8

1,454.6
581.1
225.4
4.7
2,265.8
3,610.6

1,065.7
80.2
51.5
1,197.4

1,425.6
569.5
211.4
—
2,206.5
3,403.9

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsTotal premium collections by segment were as follows:

Bankers Life (dollars in millions)

Premiums collected by product:

Annuities:

Fixed index (first-year)
Other fixed interest (first-year)
Other fixed interest (renewal)

Subtotal - other fixed interest 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

Supplemental health (first-year)
Supplemental health (renewal)

Subtotal – supplemental health

Other health (first-year)
Other health (renewal)

Subtotal - other health

Total health

Life insurance:

Traditional (first-year)
Traditional (renewal)

Subtotal - traditional

Interest-sensitive (first-year)
Interest-sensitive (renewal)

Subtotal - interest-sensitive

Total life insurance
Collections on insurance products:

2017

2016

2015

964.7
59.8
6.1
65.9
1,030.6

69.3
670.1
739.4
16.0
429.3
445.3
5.0
17.6
22.6
.8
5.3
6.1
1,213.4

82.6
217.3
299.9
47.4
115.1
162.5
462.4

868.1 $
95.7
6.2
101.9
970.0

75.6
663.7
739.3
17.4
451.2
468.6
5.5
15.7
21.2
.1
6.1
6.2
1,235.3

78.8
207.3
286.1
70.6
104.4
175.0
461.1

706.6
89.6
6.8
96.4
803.0

80.3
659.1
739.4
16.7
459.9
476.6
6.1
13.1
19.2
.1
7.0
7.1
1,242.3

83.0
193.9
276.9
83.3
85.8
169.1
446.0

Total first-year premium collections on insurance products
Total renewal premium collections on insurance products

TOTAL COLLECTIONS ON INSURANCE PRODUCTS

1,245.6
1,460.8
2,706.4

1,211.8
1,454.6
2,666.4 $

1,065.7
1,425.6
2,491.3

Annuities in this segment include fixed index and other fixed
interest annuities sold to the senior market. Annuity collections
in this segment increased 6.2 percent, to $1,030.6 million in
2017 and 21 percent, to $970.0 million, in 2016. The increase
in premium collections from our fixed index products in 2017
and 2016 is due primarily to sales of annuity contracts with
living benefits following the introduction of that product in the
third quarter of 2016. Premium collections from our fixed index
products were also favorably impacted in 2017 and 2016 by the
general stock market performance which made these products
attractive to certain customers. Premium collections from our
other fixed interest products decreased in 2017 due to lower sales
of these products in the current low interest rate environment and
consumer preference for fixed index products.

Health products include Medicare supplement, 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 were $739.4 million, $739.3 million and
$739.4 million in 2017, 2016 and 2015, respectively.

Premiums collected on Bankers Life’s long-term care policies
decreased 5.0 percent, to $445.3 million in 2017 and 1.7 percent, to
$468.6 million in 2016, reflecting the run-off of this business and a
continuing shift in the mix of new business to shorter duration long-
term care sales, which have lower premiums per policy.

Life products in this segment include traditional and interest-
sensitive life products. Life premiums collected in this segment
increased .3 percent, to $462.4 million, in 2017 and 3.4 percent,
to $461.1 million, in 2016. Collected premiums in 2017 and 2016
reflect strong persistency; partially offset by lower first-year
premiums.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KWashington National (dollars in millions)

Premiums collected by product:

Health:

Medicare supplement (renewal)
Supplemental health (first-year)
Supplemental health (renewal)

Subtotal - supplemental health

Other health (first-year)
Other health (renewal)

Subtotal - other health

Total health

Life insurance:

Traditional (first-year)
Traditional (renewal)

Subtotal - traditional

Interest-sensitive (first-year)
Interest-sensitive (renewal)

Subtotal - interest-sensitive

Total life insurance

Annuities:

Fixed index (first-year)
Fixed index (renewal)

Subtotal - fixed index annuities

Other fixed interest (renewal)

Total annuities

Collections on insurance products:

2017

2016

2015

51.6
73.2
515.9
589.1
.3
1.5
1.8
642.5

.7
10.2
10.9
4.2
14.9
19.1
30.0

—
.6
.6
.3
.9

61.0
72.2
493.3
565.5
.2
1.7
1.9
628.4

.9
10.5
11.4
4.7
13.3
18.0
29.4

.2
1.0
1.2
.3
1.5

72.6
74.9
469.9
544.8
.2
2.0
2.2
619.6

.7
11.4
12.1
4.3
11.3
15.6
27.7

.1
1.8
1.9
.5
2.4

Total first-year premium collections on insurance products
Total renewal premium collections on insurance products

TOTAL COLLECTIONS ON INSURANCE PRODUCTS

78.4
595.0
673.4

78.2
581.1
659.3

80.2
569.5
649.7

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.

Overall, excluding premiums from the Washington National
Medicare supplement and annuity blocks which are in run-off,
collected premiums were up 4.0 percent, to $620.9 million in
2017 as compared to 2016, driven by sales in recent periods and
persistency.

Collected premiums on Medicare supplement policies in the
Washington National segment decreased 15 percent, to $51.6
million, in 2017 and 16 percent, to $61.0 million, in 2016 due to
the run-off of this block of business. We discontinued new sales of
Medicare supplement policies in this segment in 2012.

Premiums collected on supplemental health products (including
specified disease, accident and hospital indemnity insurance
products) increased 4.2 percent, to $589.1 million, in 2017 and
3.8 percent, to $565.5 million, in 2016. Such increases are due to
new sales in recent periods and persistency.

Life premiums collected in the Washington National segment
increased 2.0 percent, to $30.0 million, in 2017 and 6.1 percent,
to $29.4 million, in 2016.

Annuities in this segment include fixed index and other fixed
interest annuities. We are no longer actively pursuing sales of
annuity products in this segment.

CNO FINANCIAL GROUP, INC. - Form 10-K

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

Premiums collected by product:

Life insurance:

Traditional (first-year)
Traditional (renewal)

Subtotal - traditional

Interest-sensitive (all 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

2017

2016

2015

50.1
239.3
289.4
.2
289.6

1.9
.1
2.0

54.8
222.7
277.5
.3
277.8

2.3
.1
2.4

50.1
241.5
291.6

54.8
225.4
280.2

51.5
208.2
259.7
.2
259.9

2.7
.3
3.0

51.5
211.4
262.9

Life products in this segment are sold primarily to the senior
market. Life premiums collected in this segment increased 4.2
percent, to $289.6 million, in 2017 and 6.9 percent, to $277.8
million, in 2016. Premiums collected reflect both recent sales
activity and steady persistency.

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.

Long-term care in run-off (dollars in millions)

Premiums collected by product:

Health:

Long-term care (renewal)

2017

2016

16.9

4.7

The Long-term care in run-off segment only includes the long-term care premiums collected from the business recaptured from BRe in
September 2016 as further described in “Management’s Discussion and Analysis of Consolidated Financial Condition and Results of
Operations - Consolidated Financial Condition - Termination of Long-Term Care Reinsurance Agreements and Recapture of Related
Long-Term Care Business in Run-off”.

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 strategic asset allocation and investment
management. Consistent with this strategy, investments in fixed

maturity securities and mortgage loans made up 88 percent of
our $27.9 billion investment portfolio at December 31, 2017. The
remainder of the invested assets was trading securities, investments
held by variable interest entities, various types of alternative
investments, equity securities, policy loans and other invested
assets.

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 composition of our investment portfolio as of December 31, 2017 (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
22,910.9
511.7
1,650.6
116.0
284.6
1,526.9
182.3
671.1
27,854.1

Percent of total
investments

82%
2
6
—
1
6
1
2
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.

The following table summarizes the carrying values and gross unrealized losses of our fixed maturity securities, available for sale, by
category as of December 31, 2017 (dollars in millions):

Carrying value
3,254.4
2,056.3
1,831.8
1,694.2
1,488.4
1,377.5
1,320.5
1,268.5
1,024.3
742.1
649.2
596.0
573.7
573.1
530.2
486.6
426.4
352.3
296.8
296.5
283.1
259.4
226.3
191.9
1,111.4
22,910.9

Percent of fixed
maturities

14.2% $
9.0
8.0
7.4
6.5
6.0
5.8
5.5
4.5
3.3
2.8
2.6
2.5
2.5
2.3
2.1
1.9
1.5
1.3
1.3
1.2
1.1
1.0
.8
4.9

100.0% $

Gross unrealized
losses
4.1
.4
.4
.1
6.4
10.3
.8
.4
.1
.3
5.8
.1
1.7
.7
.1
.4
1.5
1.3
1.0
.3
—
—
.7
1.8
3.8
42.5

Percent of gross
unrealized losses

9.8%
1.0
1.0
.2
15.0
24.0
1.8
1.0
.3
.7
13.6
.3
3.9
1.6
.3
1.0
3.6
3.0
2.5
.6
—
—
1.6
4.3
8.9
100.0%

Asset-backed securities
States and political subdivisions
Insurance
Utilities
Energy
Commercial mortgage-backed securities
Healthcare/pharmaceuticals
Banks
Food/beverage
Collateralized mortgage obligations
Cable/media
Capital goods
Chemicals
Transportation
Real estate/REITs
Telecom
Technology
Brokerage
Building materials
Autos
Aerospace/defense
Collateralized debt obligations
Retail
Business services
Other

TOTAL FIXED MATURITIES, AVAILABLE FOR SALE $

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, 2017 (dollars in millions):

Below-investment grade

B+ and below

Investment grade

AAA/AA/A

Commercial mortgage-backed securities
Energy
Cable/media
Asset-backed securities
Entertainment/hotels
Business services
Chemicals
Technology
Brokerage
Building materials
Healthcare/pharmaceuticals
Transportation
Retail
Insurance
States and political subdivisions
Telecom
Banks
Collateralized mortgage obligations
Autos
United States Treasury securities and

obligations of United States government
corporations and agencies
Debt securities issued by foreign

governments
Food/beverage
Real estate/REITs
Capital goods
Consumer products
Utilities
Other

8.8 $
—
.1
2.5
—
—
—
—
—
—
—
—
—
—
.1
—
.2
.2
—

.1
—
—
.1
—
.1
.6

BBB
.3
3.1
5.4
.7
.5
—
—
1.5
.7
.4
.1
.2
.3
.4
.3
.4
.2
—
—

—

.1
—
.1
—
—
—
.2

BB
1.2 $
—
.3
.3
1.9
1.8
1.7
—
—
.6
—
.5
—
—
—
—
—
—
.3

—

—
—
—
—
—
—
—

— $
3.3
—
.6
.1
—
—
—
.6
—
.7

Total gross
unrealized losses
10.3
6.4
5.8
4.1
2.5
1.8
1.7
1.5
1.3
1.0
.8
.7
.7
.4
.4
.4
.4
.3
.3

.4
—
—
—
—
.1
—

—

—
.1
—
—
.1
—
—

.2
.1
.1
.1
.1
.1
.8

TOTAL FIXED MATURITIES,
AVAILABLE FOR SALE

13.0 $

14.9

8.6 $

6.0

42.5

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 strategic
asset allocation and 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 8 percent of our total fixed maturity securities
portfolio.

Fair Value of Investments

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, separate account assets and embedded derivatives. We
carry our COLI, which is invested in a series of mutual funds, at
its cash surrender value which approximates fair value. In addition,
we disclose fair value for certain financial instruments, including
mortgage loans, policy loans, cash and cash equivalents, 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-KThe 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.

Valuation Hierarchy

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

liabilities

include

• 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.

CNO FINANCIAL GROUP, INC. - Form 10-K

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. Our Level 2
assets are valued as follows:

• Fixed maturities available for sale, equity securities and trading

securities

Corporate securities are generally priced using market and income
approaches. Inputs generally consist of trades of identical or
similar securities, quoted prices in inactive markets, issuer rating,
benchmark yields, maturity, and credit spreads.

U.S. Treasuries and obligations of U.S. Government corporations
and agencies are generally priced using the market approach.
Inputs generally consist of trades of identical or similar securities,
quoted prices in inactive markets and maturity.

States and political subdivisions are generally priced using the
market approach. Inputs generally consist of trades of identical
or similar securities, quoted prices in inactive markets, new
issuances and credit spreads.

Asset-backed securities, collateralized debt obligations, commercial
mortgage-backed securities, mortgage pass-through securities and
collateralized mortgage obligations are generally priced using
market and income approaches. Inputs generally consist of
quoted prices in inactive markets, spreads on actively traded
securities, expected prepayments, expected default rates, expected
recovery rates, and issue specific information including, but not
limited to, collateral type, seniority and vintage.

Equity
securities (primarily comprised of non-redeemable
preferred stock) are generally priced using the market approach.
Inputs generally consist of trades of identical or similar securities,
quoted prices in inactive markets, issuer rating, benchmark
yields, maturity, and credit spreads.

• Investments held by VIEs

Corporate securities are generally priced using market and income
approaches using pricing vendors. Inputs generally consist of
issuer rating, benchmark yields, maturity, and credit spreads.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations• Other invested assets - derivatives

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 quotes; time value
and volatility factors underlying options; market interest rates;
and non-performance risk.

Third party pricing services normally derive 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.

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 a particular price received from a third
party is not reflective of current market conditions. In those
instances, we may request additional pricing quotes or apply
internally developed valuations. However, the number of such

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 typically include: benchmark yields,
reported trades, broker dealer quotes, issuer spreads, benchmark
securities, bids, offers and other relevant data. The Company
categorizes such fair value measurements based upon asset
classes and the underlying observable or unobservable inputs
used to value such investments.

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 29 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 premiums, projected
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 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, 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.

For certain embedded derivatives, we use actuarial assumptions
in the determination of fair value which we consider to be
Level 3 inputs.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO 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, 2017 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

— $

14,728.0 $

230.4 $ 14,958.4

—
—
—
—
—
—
—
—
—
287.8

—

—
—
—
—
—
2.8
2.8
—
—
—
290.6 $

177.7
2,056.3
79.2
3,230.2
259.4
1,377.5
2.0
742.1
22,652.4
202.7

21.6

.5
95.8
2.7
92.5
68.7
—
281.8
1,522.0
170.2
5.0

24,834.1 $

—
—
3.9
24.2
—
—
—
—
258.5
21.2

177.7
2,056.3
83.1
3,254.4
259.4
1,377.5
2.0
742.1
22,910.9
511.7

—

21.6

—
—
—
—
—
—
—
4.9
—
—

.5
95.8
2.7
92.5
68.7
2.8
284.6
1,526.9
170.2
5.0
284.6 $ 25,409.3

— $

1,334.8 $

1,334.8

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
Trading securities:

Corporate securities
United States Treasury securities and obligations of
United States government corporations and agencies
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed 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:

Future policy benefits - embedded derivatives
associated with fixed index 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 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, 2017 (dollars in millions):

December 31, 2017

Purchases,
sales,
issuances
and
settlements,
net(b)

Beginning
balance as of
December 31,
2016

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 (a)

Transfers
out of
Level 3(a)

Ending
balance
as of
December 31,
2017

Amount of
total gains
(losses) for the
year ended
December 31,
2017 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
Debt securities issued by
foreign governments
Asset-backed securities
Collateralized debt
obligations
Commercial mortgage-
backed securities

Total fixed maturities,
available for sale
Equity securities -
corporate securities
Investments held by
variable interest entities -
corporate securities

LIABILITIES:

Future policy benefits -
embedded derivatives
associated with fixed
index annuity products

258.5

(70.4)

5.8

5.3

31.2

— $

230.4

(8.0)

3.9
60.4

5.4

32.0

360.2

25.2

—
(4.3)

(2.5)

(1.2)

(78.4)

(8.5)

—

4.9

—
—

—

5.9

6.3

—

—
.7

—

(.1)

5.9

(1.8)

—

—
—

—

—
(32.6)

(2.9)

(30.8)

31.2

(66.3)

—

3.9
24.2

—

258.5

21.2

4.9

—
—

—

(8.0)

—

(1,092.3)

(267.5)

25.0

—

(1,334.8)

25.0

(a) Transfers into Level 3 are the result of unobservable inputs utilized within valuation methodologies for assets that were previously valued using observable inputs.
Transfers out of Level 3 are due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that
the Company is able to validate.

(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, 2017 (dollars in millions):

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KPurchases

Sales

Issuances

Settlements

Purchases, sales,
issuances and
settlements, net

ASSETS:

Fixed maturities, available for sale:

Corporate securities
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities

Total fixed maturities, available for sale

Equity securities - corporate securities
Investments held by variable interest entities - corporate securities

LIABILITIES:

Future policy benefits - embedded derivatives associated with
fixed index annuity products

76.6
—
—
—
76.6
—
8.9

$ (147.0) $

(4.3)
(2.5)
(1.2)
(155.0)
(8.5)
(4.0)

— $
—
—
—
—
—
—

(70.4)
(4.3)
(2.5)
(1.2)
(78.4)
(8.5)
4.9

(178.9)

5.4

(159.3)

65.3

(267.5)

At December 31, 2017, 52 percent of our Level 3 fixed maturities,
available for sale, were investment grade and 89 percent of our
Level 3 fixed maturities, available for sale, consisted of corporate
securities.

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.

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 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.

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

Investment ratings are assigned the second lowest rating
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, 2017, classified by
ratings (dollars in millions):

Estimated fair value

Amount
1,552.6
1,770.8
5,678.2
3,354.0
4,291.6
3,410.2
20,057.4
254.5
272.4
293.6
2,033.0
2,853.5
22,910.9

Percent of fixed
maturities

7%
7
25
15
19
15
88
1
1
1
9
12
100%

Amortized cost
1,521.2
1,588.4
4,967.3
2,910.5
3,870.5
3,194.8
18,052.7
244.3
266.7
290.0
1,848.4
2,649.4
20,702.1

Investment rating
AAA
AA
A
BBB+
BBB
BBB-

Investment grade

BB+
BB
BB-
B+ and below

Below-investment grade

TOTAL FIXED MATURITY SECURITIES

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 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 at amortized cost
Net investment income on general account invested assets
Yield earned

2017
23,819.5
1,290.3

2016
22,539.5
1,219.3

2015
21,624.6
1,217.7

5.42%

5.41%

5.63%

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, 2017, the average yield, computed on the cost basis
of our fixed maturity portfolio, was 5.3 percent, 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 4.6 percent.

Fixed Maturities, Available for Sale

Our fixed maturity portfolio at December 31, 2017, included
primarily debt securities of the United States government, various
corporations, and structured securities. Asset-backed securities,
collateralized debt obligations, commercial mortgage-backed
securities, mortgage pass-through securities and collateralized
mortgage obligations are collectively referred to as “structured
securities”.

At December 31, 2017, our fixed maturity portfolio had
$2,251.3 million of unrealized gains and $42.5 million of
unrealized losses, for a net unrealized gain of $2,208.8 million.
Estimated fair values of fixed maturity investments were
determined based on estimates from: (i) nationally recognized
pricing services (93 percent of the portfolio); (ii) broker-dealer
market makers (1 percent of the portfolio); and (iii) internally
developed methods (6 percent of the portfolio).

At December 31, 2017, 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 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
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 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. At December 31, 2017, our below-investment
grade fixed maturity investments had an amortized cost of
$2,649.4 million and an estimated fair value of $2,853.5 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 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 2017, we recognized net realized
investment gains of $50.3 million, which were comprised of:
(i) $63.1 million of net gains from the sales of investments;
(ii) $4.3 million of losses on the dissolution of VIEs; (iii) the
increase in fair value of certain fixed maturity investments with
embedded derivatives of $11.5 million; (iv) the increase in fair
value of embedded derivatives related to a modified coinsurance
agreement of $2.8 million; and (v) $22.8 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.

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 strategic asset
allocation and 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.

As of December 31, 2017, we had $13.4 million of investments in
substantive default (i.e., in default due to nonpayment of interest
or principal). There were no other fixed maturity investments
about which we had serious doubts as to the recoverability of the
carrying value of the investment.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KWhen 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.

At December 31, 2017, fixed maturity investments included
structured securities with an estimated fair value of $5.6 billion (or
25 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.

(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.

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 2017.

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, 2017 (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
2,101.7
1,656.3
1,407.1
286.6
83.0
291.3
5,826.0

Amortized
cost
1,944.8
1,516.0
1,271.8
260.6
83.7
291.1
5,368.0

Estimated
fair value
2,014.9
1,596.5
1,362.6
276.8
92.5
292.1
5,635.4

The amortized cost and estimated fair value of structured securities at December 31, 2017, 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

CNO FINANCIAL GROUP, INC. - Form 10-K

Estimated fair value

Amount
617.2
108.5
1,377.5
3,254.4
259.4
18.4
5,635.4

Percent of fixed
maturities

2.7%
.5
6.0
14.2
1.1
.1
24.6%

Amortized cost
557.7
95.3
1,354.0
3,085.9
257.1
18.0
5,368.0

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsPass-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 2017, we sold $427.6 million of fixed maturity investments
which resulted in gross investment losses (before income taxes)
of $24.2 million. Securities are generally sold at a loss following
unforeseen issue-specific events or conditions or shifts in perceived

relative values. These reasons include but are not limited to:
(i) changes in the investment environment; (ii) expectation that
the market value could deteriorate; (iii) our 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
portfolio cash flows.

Other Investments

At December 31, 2017, we held commercial mortgage
loan investments with a carrying value of $1,613.5 million
(or 5.8 percent of total invested assets) and a fair value of
$1,640.0 million. We had one mortgage loans that was in
the process of foreclosure at December 31, 2017. During
2017, 2016 and 2015, we recognized $5.2 million, nil and nil,
respectively, of impairments on commercial mortgage loans.
Our commercial mortgage loan portfolio is comprised of large
commercial mortgage 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
14 percent, 12 percent, 8 percent, 6 percent and 5 percent of the
mortgage loan balance were on properties located in California,
Texas, Maryland, Florida and Illinois, respectively. No other
state comprised greater than five percent of the mortgage loan
balance. At December 31, 2017, we held residential mortgage
loan investments with a carrying value of $37.1 million and a
fair value of $37.3 million.

The following table shows the distribution of our commercial mortgage loan portfolio by property type as of December 31, 2017 (dollars
in millions):

Retail
Multi-family
Industrial
Office building
Other

TOTAL COMMERCIAL MORTGAGE LOANS

Number of loans Carrying value
376.6
483.9
278.6
290.5
183.9
1,613.5

98
34
33
29
21
215 $

The following table shows our commercial mortgage loan portfolio by loan size as of December 31, 2017 (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
158.2
434.3
574.3
446.7
1,613.5

92
62
42
19
215 $

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 distribution of maturities of our commercial mortgage loans as of December 31, 2017 (dollars in millions):

2018
2019
2020
2021
2022
after 2022

TOTAL COMMERCIAL MORTGAGE LOANS

Number of loans Carrying value
96.5
32.6
30.7
59.5
105.4
1,288.8
1,613.5

21
19
8
10
15
142
215

The following table provides the carrying value and estimated fair value of our outstanding commercial mortgage loans and the underlying
collateral as of December 31, 2017 (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

944.7 $
439.5
138.4
52.3
38.6
1,613.5 $

960.8 $
440.2
145.9
52.9
40.2
1,640.0 $

Collateral
2,330.6
671.3
188.4
60.1
41.7
3,292.1

(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, 2017, we held $284.6 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. 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.

Other invested assets also include options backing our fixed
index products, COLI and certain nontraditional investments,
including investments in limited partnerships, promissory notes
and real estate investments held for sale.

At December 31, 2017, we held investments with an amortized cost
of $1,524.9 million and an estimated fair value of $1,526.9 million
related to VIEs that we are required to consolidate. The investment
portfolio held by the VIEs 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.

Consolidated Financial Condition

Changes in the Consolidated Balance Sheet

in our

consolidated balance

Changes
sheet between
December 31, 2017 and December 31, 2016, primarily reflect:
(i) our net income for 2017; (ii) changes in the fair value of our
fixed maturity securities, available for sale; and (iii) payments to
repurchase common stock of $167.1 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, 2017, the net unrealized
gains on such investments were $2.2 billion.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsOur capital structure as of December 31, 2017 and December 31, 2016 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

Total shareholders’ equity
TOTAL CAPITAL

December 31, 2017

December 31, 2016

914.6

912.9

1.7
3,073.3
1,212.1
560.4
4,847.5
5,762.1

1.7
3,212.1
622.4
650.7
4,486.9
5,399.8

The following table summarizes certain financial ratios as of and for the years ended December 31, 2017 and December 31, 2016:

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, 2017
$

29.05
21.79
2.94X

December 31, 2016
$

25.82
22.24
2.43X

15.9%
20.1%

16.9%
19.1%

(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.

Termination of Long-Term Care Reinsurance
Agreements and Recapture of Related Long-
Term Care Business in Run-off

In December 2013, two of our insurance subsidiaries with long-
term care business (Washington National and BCLIC) entered
into 100% coinsurance agreements ceding $495 million of
long-term care reserves to BRe. BRe was a reinsurer that was not
licensed or accredited by the states of domicile (Indiana and New
York, respectively) of the insurance subsidiaries ceding the long-
term care business and BRe was not rated by A.M. Best. As a result
of its non-accredited status, BRe was required to provide collateral
which met the regulatory requirements of the states of domicile
in order for our insurance subsidiaries to obtain full credit in
their statutory financial statements for the reinsurance receivables
due from BRe. Such collateral was required to be held in market
value trusts subject to 7% over collateralization, investment
guidelines and periodic true-up provisions. In September 2016, we
terminated the reinsurance agreements with BRe and recaptured
the ceded business.

Prior to the recapture, certain irregularities had come to our
attention regarding BRe (including its relationship with Platinum
Partners, LP (“Platinum”) and the valuation and appropriateness

of the collateral deposited in trusts by BRe for Washington
National and BCLIC). As a result, CNO commenced an
independent third-party audit by a forensic accounting firm in
late June 2016 of certain investments deposited in the trusts by
BRe. Such investments included assets valued at that time using
unobservable inputs that contained assumptions determined by
BRe. The initial scope of CNO’s audit was a subset of investments
which had an estimated fair value of approximately $62 million as
of September 30, 2016. In September 2016, Washington National
and BCLIC expanded the scope of the independent audit to
include additional investments for which we estimated the fair
value to be approximately $63 million as of September 30, 2016.

The aforementioned independent audit of these investments was
completed in the fourth quarter of 2016. The audit confirmed that
the assets in the initial scope of the audit bore some connection to
Platinum or to parties that have had past or present associations
with Platinum. Based on information obtained through the audit,
the investments included in the additional scope of the audit did
not appear to have clear connections to Platinum or to parties that
have had past or present associations with Platinum. However,
CNO and the auditor retained by CNO also concluded that many
of the values that had been assigned to these investments by BRe,
and summarized in reports prepared by its valuation firm, were
inaccurate due to the use of flawed methodologies.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KIn addition to the investments subject to the independent audits, Washington National and BCLIC received approximately
$380 million in other investments and cash balances in the recapture. A substantial portion of these investments have been sold
or redeemed since the recapture. The activity since the date of the recapture with respect to the assets received in the recapture is
summarized below (dollars in millions):

Investments
included in
initial scope
of audit
62.2
(13.5)
.4
3.9
53.0
(16.7)
3.2
(1.8)
37.7
.5

(3.1)
(.6)
34.5
(33.5)
7.0
(.9)
7.1
—
(1.0)
1.4
7.5

Investments
included in
additional scope
of audit
62.6
(11.6)
(1.7)
1.9
51.2
(5.5)
(4.5)
1.3
42.5
(14.4)

4.5
(.4)
32.2
(9.1)
(.6)
(.3)
22.2
(8.4)
(1.5)
—
12.3

Investments not
included in scope
of audit

Cash, fixed
maturities and
other invested
assets
379.8
(359.5)
(4.0)
.6
16.9
(8.7)
1.0
(1.4)
7.8
—

—
.3
8.1
(1.3)
.3
(3.0)
4.1
(3.6)
.1
(.3)
.3

Total
investments
504.6
(384.6)
(5.3)
6.4
121.1
(30.9)
(.3)
(1.9)
88.0
(13.9)

1.4
(.7)
74.8
(43.9)
6.7
(4.2)
33.4
(12.0)
(2.4)
1.1
20.1

September 30, 2016 values

Net cash flows(1)
Realized gains (losses) and impairments(2)
Other activity(7)

December 31, 2016 values

Net cash flows(1)
Realized gains (losses) and impairments(3)
Other activity(7)
March 31, 2017 values
Net cash flows(1)

Realized gains (losses) and impairments(4)
Other activity(7)
June 30, 2017 values
Net cash flows(1)
Realized gains (losses) and impairments(5)
Other activity(7)

September 30, 2017 values

Net cash flows(1)
Realized gains (losses) and impairments(6)
Other activity(7)

December 31, 2017 values

A summary of the values for the remaining investments that were included in the aforementioned independent audits as of
December 31, 2017, is summarized below (dollars in millions):

Lease related investments
Mortgage loans secured by real estate
Senior secured loans to companies in the energy sector(8)
Secured term loan issued by Platinum Partners Credit Opportunity Master Fund L.P.

TOTAL INVESTMENTS

Investments
included in
initial scope
of audit
—
—
2.4
5.1
7.5

Investments
included in
additional scope
of audit
1.7
10.6
—
—
12.3

Total
investments
included in
the scope of
audit
1.7
10.6
2.4
5.1
19.8

(1) Net cash inflows from sales and redemptions of investments during the period.
(2) Includes $4.6 million of impairment charges and $.7 million of net realized losses recognized on the sale of transferred investments.
(3) Includes $8.4 million of impairment charges and $8.1 million of net realized gains recognized on the sale of transferred investments.
(4) Includes $3.7 million of impairment charges and $5.1 million of net realized gains recognized on the sale of transferred investments.
(5) Includes $4.7 million of impairment charges and $11.4 million of net realized gains recognized on the sale of transferred investments.
(6) Includes $1.5 million of impairment charges and $.9 million of net realized losses recognized on the sale of transferred investments.
(7) Includes amortization of discount and premium and changes in estimated fair values of investment during the period.
(8) Represents $2.4 million of loans issued by Golden Gate Oil, LLC with a par value of $11.7 million. The issuer of this debt has been referred to in articles regarding

Platinum.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsWe recognized a pre-tax loss of $75.4 million in the third quarter of 2016 related to the termination of the reinsurance agreements and the
recapture of the long-term care business as summarized below (dollars in millions):

Market value of investments
Insurance liabilities
Write-off of reinsurance receivables
Estimated transaction expenses
PRE-TAX LOSS

504.7
(552.2)
(17.9)
(10.0)
(75.4)

As a result of the recapture, related charge and additional capital required to support the assets and liabilities of this business, CNO
contributed $200 million to its insurance subsidiaries on September 30, 2016.

The impact of the recapture on our statutory earnings and surplus at September 30, 2016 is summarized below (dollars in millions):

Impact on surplus:
Market value of investments
Write-off of estimated receivable due from BRe
Insurance liabilities
Expenses incurred
Statutory earnings impact
Impact on admitted investments
Impact on admitted deferred tax assets
STATUTORY SURPLUS IMPACT

Contractual Obligations

504.7
(17.9)
(587.2)
(10.0)
(110.4)
(11.0)
(14.5)
(135.9)

The Company’s significant contractual obligations as of December 31, 2017, were as follows (dollars in millions):

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
59,106.0
1,165.6
1,799.1
1,983.3
267.6

263.4
64,585.0

Payment due in
2019-2020
7,517.6
502.8
789.7
100.6
15.5

2021-2022
7,156.9
52.6
926.8
95.8
16.3

2018
3,619.7
44.5
41.6
50.5
7.4

Thereafter
40,811.8
565.7
41.0
1,736.4
228.4

121.9
3,885.6

109.1
9,035.3

26.0
8,274.4

6.4
43,389.7

(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 $23.5 billion included in our consolidated balance sheet as of December 31, 2017.
As such payments are based on numerous assumptions, the actual payments may vary significantly from the amounts shown.

In 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 4.6 percent.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K

(b) Includes projected interest payments based on interest rates, as applicable, as of December 31, 2017. 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, 2017.

(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 3.75 percent.

(f) Includes amounts related to noncancellable operating leases, sponsorship agreements and commitments to purchase investments. Also included are obligations with

third parties for information technology services, software maintenance and license agreements and consulting services.

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 Revolving 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.

The amount we may need to pay to a reinsurer
in connection with a long-term care reinsurance
transaction.

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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThree of the Company’s insurance subsidiaries (Washington
National, Bankers Life and Colonial Penn) are members of the
FHLB. As members of the FHLB, our insurance subsidiaries have
the ability to borrow on a collateralized basis from the FHLB.
We 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, 2017, the carrying value of the FHLB common

stock was $71.2 million. As of December 31, 2017, collateralized
borrowings from the FHLB totaled $1.6 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 $1.9 billion at
December 31, 2017, which are maintained in custodial accounts
for the benefit of the FHLB.

The following summarizes the terms of the borrowings from the FHLB by our insurance subsidiaries (dollars in millions):

Amount borrowed
$

50.0
50.0
100.0
21.8
15.0
50.0
21.8
25.0
100.0
50.0
75.0
100.0
50.0
100.0
100.0
57.7
28.2
125.0
50.0
22.0
100.0
10.0
50.0
50.0
50.0
50.0
50.0
50.0
24.7
20.5
1,646.7

Maturity date
January 2019
February 2019
March 2019
July 2019
October 2019
May 2020
June 2020
September 2020
September 2020
September 2020
September 2020
October 2020
December 2020
July 2021
July 2021
August 2021
August 2021
August 2021
September 2021
May 2022
May 2022
June 2022
July 2022
July 2022
July 2022
August 2022
December 2022
December 2022
March 2023
June 2025

Interest rate at December 31, 2017
Variable rate – 1.779%
Variable rate – 1.509%
Variable rate – 1.971%
Variable rate – 2.001%
Variable rate – 1.887%
Variable rate – 1.997%
Fixed rate – 1.960%
Variable rate – 2.300%
Variable rate – 2.212%
Variable rate – 2.224%
Variable rate – 1.813%
Variable rate – 1.453%
Variable rate – 2.072%
Variable rate – 1.909%
Variable rate – 1.879%
Variable rate – 1.921%
Fixed rate – 2.550%
Variable rate – 2.032%
Variable rate – 2.002%
Variable rate – 1.829%
Variable rate – 1.780%
Variable rate – 2.150%
Variable rate – 1.726%
Variable rate – 1.745%
Variable rate – 1.758%
Variable rate – 1.782%
Variable rate – 1.795%
Variable rate – 1.795%
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.

the NAIC. Although no action was taken by the NAIC for the
2017 calculation of the RBC ratio, it is possible that changes will
be made for future periods. We estimate that the full impact of
changing the embedded tax rate assumptions to be consistent
with the Tax Reform Act is an increase to required capital of
approximately $80 million (equivalent to a 65 percentage point
decrease to the RBC ratio).

Our estimated consolidated statutory RBC ratio of 446 percent at
December 31, 2017, reflects: (i) estimated consolidated statutory
operating earnings of $362 million; (ii) a $46 million reduction
of statutory admitted deferred tax assets due to the Tax Reform
Act; and (iii) dividends to the holding company of $357.7 million
during 2017. Certain formulas used to calculate risk-based capital
have embedded tax rate assumptions that will not change to be
consistent with the Tax Reform Act until actions are taken by

During 2017, the financial statements of three 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 Washington
National, BCLIC and Bankers Life were $115.0 million,
$34.5 million and $246.6 million, respectively, at December 31,
2017. Due to differences between statutory and GAAP insurance

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kliabilities, 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.

Our insurance subsidiaries transfer exposure to certain risk to
others through reinsurance arrangements. When we obtain
reinsurance, we are still liable for those transferred risks in
the event the reinsurer defaults on its obligations. The failure,
insolvency, inability or unwillingness of one or more of the
Company’s reinsurers to perform in accordance with the terms of
its reinsurance agreement could negatively impact our earnings or
financial position and our consolidated statutory RBC ratio.

Financial Strength Ratings of our Insurance
Subsidiaries

Financial strength ratings provided by A.M. Best, Fitch, S&P
and Moody’s are the rating agency’s opinions of the ability of our
insurance subsidiaries to pay policyholder claims and obligations
when due.

On August 15, 2017, Fitch affirmed its “BBB+” financial strength
ratings of our primary insurance subsidiaries. The outlook for
these ratings is stable. 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. 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 seven ratings above the “BBB+” rating of our primary
insurance subsidiaries and eleven ratings that are below that rating.

On June 23, 2017, S&P affirmed the financial strength ratings
of “BBB+” of our primary insurance subsidiaries and revised the
outlook for these ratings to stable from negative. 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. S&P has twenty-one possible ratings. There are
seven ratings above the “BBB+” rating of our primary insurance
subsidiaries and thirteen ratings that are below that rating.

rating indicates a superior ability to meet ongoing obligations
to policyholders. A.M. Best has sixteen possible ratings. There
are three ratings above the “A-” rating of our primary insurance
subsidiaries and twelve ratings that are below that rating.

On May 9, 2016, Moody’s affirmed the financial strength ratings
of “Baa1” of our primary insurance subsidiaries and the outlook
for these ratings is stable. 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.
Moody’s has twenty-one possible ratings. There are seven ratings
above the “Baa1” rating of our primary insurance subsidiaries and
thirteen ratings that are below that rating.

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, 2017, CNO, CDOC and our other non-insurance
subsidiaries held: (i) unrestricted cash and cash equivalents of
$153.0 million; (ii) fixed income investments of $116.8 million;
and (iii) equity securities of $126.8 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 which receives fees
from the insurance subsidiaries for providing administrative
services. The agreements between our insurance subsidiaries and
CNO Services 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.

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 sets forth the aggregate amount of dividends (net of capital contributions) and other distributions that our insurance
subsidiaries paid to our non-insurance subsidiaries 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,

2017
357.7
56.8
108.1

2016
74.3
56.0
78.6

2015
265.7
60.6
70.1

522.6

208.9

396.4

CNO

CNO Services,
LLC

40|86 Advisors

CDOC

Washington
National

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 without
regulatory approval for any 12-month period in amounts equal to
the greater of (or in some 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 surplus as of the end of the preceding
year. However, as each of the immediate insurance subsidiaries
of CDOC has significant negative earned surplus, any dividend
payments from the insurance subsidiaries require the prior
approval of the director or commissioner of the applicable state
insurance department. In 2017, our insurance subsidiaries paid
dividends to CDOC totaling $357.7 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.

CDOC holds surplus debentures from CLTX 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 CLTX exceeds 100 percent (but do require
prior written notice to the Texas state insurance department). The
estimated RBC ratio of CLTX was 383 percent at December 31,
2017. CDOC also holds a surplus debenture from Colonial Penn
with a 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, 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.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe 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 CLTX, dividends received from subsidiaries. At
December 31, 2017, the subsidiaries of CLTX had earned surplus (deficit) as summarized below (dollars in millions):

Subsidiary of CLTX

Bankers Life
Colonial Penn

Earned surplus
(deficit)
578.2
(304.5)

Additional
information
(a)
(b)

(a) Bankers Life paid dividends of $159.0 million to CLTX in 2017.
(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 maintain or

strengthen their surplus or fund a long-term care reinsurance
transaction, and these decisions could limit the amount available
at our top tier insurance subsidiaries to pay dividends to the
holding companies. As further described above under the caption
“Termination of Long-Term Care Reinsurance Agreements and
Recapture of Related Long-Term Care Business in Run-off”, CNO
made $200.0 million of capital contributions to its insurance
subsidiaries on September 30, 2016.

The scheduled principal and interest payments on our direct corporate obligations are as follows (dollars in millions):

2018
2019
2020
2021
2022
2023 and thereafter

Principal
—
100.0(b)
325.0
—
—
500.0
925.0

Interest(a)
44.5
44.2
33.6
26.3
26.3
65.7
240.6

(a) Based on interest rates as of December 31, 2017.
(b) The maturity date of the Revolving Credit Agreement is the earlier of October 13, 2022 and the date that is six months prior to the maturity date of the Company’s

4.50% senior notes due 2020, which is November 30, 2019.

On October 13, 2017, the Company entered
into the
Amendment Agreement with respect to its Revolving Credit
Agreement. The Amendment Agreement, among other things,
increased the total commitments available under the revolving
credit facility from $150.0 million to $250.0 million, increased
the aggregate amount of additional incremental loans the
Company may incur from $50.0 million to $100.0 million and
extended the maturity date of the revolving credit facility from
May 19, 2019 to the earlier of October 13, 2022 and the date
that is six months prior to the maturity date of the Company’s
4.50% senior notes due 2020, which is November 30, 2019.
The amount drawn under the Revolving Credit Agreement
continues to be $100.0 million.

The interest rate applicable to loans under the Revolving Credit
Agreement continues to be calculated as the eurodollar rate or
the base rate, at the Company’s option, plus a margin based on
the Company’s unsecured debt rating. The margins under the
Revolving Credit Agreement range from 1.375% to 2.125%
(1.75% to 2.25% prior to the Amendment Agreement), in the case
of loans at the eurodollar rate, and 0.375% to 1.125% (.75% to
1.25% prior to the Amendment Agreement), in the case of loans
at the base rate. The commitment fee under the Revolving Credit
Agreement continues to be based on the Company’s unsecured
debt rating.

Additionally, the Revolving Credit Agreement revised the debt to
total capitalization ratio that the Company is required to maintain
from not more than 30.0 percent to not more than 35.0 percent.
The Revolving Credit Agreement continues to contain certain
other restrictive covenants with which the Company must comply.

The Tax Reform Act makes broad and complex changes to the
Code including reducing the federal corporate income tax rate
to 21% from 35% effective January 1, 2018. As a result of the
reduction in the federal corporate income tax rate, we reduced
the value of our net deferred tax assets by $172.5 million which
was recorded as additional income tax expense for the year ended
December 31, 2017. The Tax Reform Act will be an ongoing
benefit with our estimated effective tax rate in the 21 to 23 percent
range. We estimate that tax expense recognized in the future will
be reduced by approximately $60 million per year. However,
we estimate that the amount of cash taxes paid to the IRS will
only decrease by approximately $10 million annually due to the
acceleration of taxable income as a result of certain provisions in
the Tax Reform Act.

In May 2011, the Company adopted a common share repurchase
program. In 2017, we repurchased 7.8 million shares of common
stock for $167.1 million under our securities repurchase
program. The Company had remaining repurchase authority of

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations$385.6 million as of December 31, 2017. CNO continues to expect
free cash flow generation of approximately $300 million per year.
The Company is committed to deploying 100 percent of its free
cash flow into investments to accelerate profitable growth, funding
potential long-term care risk reduction transactions, common
stock dividends and share repurchases. The amount and timing
of the securities repurchases (if any) will be based on business and
market conditions and other factors including, but not limited to,
the current price of our common stock, opportunities to invest
in our business, acquisition transactions or ceding commissions
related to reinsurance transactions.

We have previously disclosed that our strategic priorities include a
reduction of our relative long-term care exposure. To achieve this
goal, it is likely that we will need to transfer the risks of a portion of
this business through one or more reinsurance transactions. The
comprehensive, nursing home and home health care long-term
care business written before 2003 has negative margins. In order
to meaningfully reduce the risk associated with our long-term
care block, a substantial ceding commission would be paid by the
Company to transfer long-term care risk through reinsurance.
Such a reduction of our long-term care exposure would result
in the recognition of a loss. Due to our current tax position, it is
likely that a portion of the tax benefit recognized on the loss would
not be realized and we may be required to increase our valuation
allowance for deferred tax assets. Although we believe reducing
our exposure to the risk of long-term care business would benefit
the Company in the long term, such a transaction could initially
adversely impact certain aspects of our financial position, results of
operations and/or cash flow.

On August 15, 2017, Fitch affirmed its “BB+” rating on our issuer
credit and senior unsecured debt. The outlook for these ratings
is stable. In Fitch’s view, an obligation rated “BB” indicates an
elevated vulnerability to default risk, particularly in the event of
adverse changes in business or economic conditions over time;
however, business or financial flexibility exists which supports the
servicing of financial commitments. Pluses and minuses show the
relative standing within a category. Fitch has a total of 21 possible
ratings ranging from “AAA” to “D”. There are ten ratings above
CNO’s “BB+” rating and ten ratings that are below its rating.

On June 23, 2017, S&P affirmed our issuer credit and unsecured
debt ratings of “BB+” and revised the outlook for these ratings to
stable from negative. 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 ten ratings above CNO’s “BB+” rating and eleven ratings that
are below its rating.

On February 8, 2017, A.M. Best affirmed our issuer credit and
senior unsecured debt ratings of “bbb-” and the outlook for these
ratings is stable. In A.M. Best’s view, a company rated “bbb-” has
an adequate ability to meet the terms of its obligations; however,
the issuer is more susceptible to changes in economic or other
conditions. 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 nine ratings
above CNO’s “bbb-” rating and twelve ratings that are below
its rating.

On May 9, 2016, Moody’s affirmed our issuer credit and senior
unsecured debt ratings of “Ba1” and the outlook for these ratings is
stable. 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 ten
ratings above CNO’s “Ba1” rating and ten ratings that are below
its rating.

Outlook

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. 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,
2017, approximately 23 percent of our total insurance liabilities,
or approximately $5.4 billion, could be surrendered by the
policyholder without penalty. Finally, changes in interest rates
can have significant effects on our investment portfolio. 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 sustaining adequate investment spreads.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KWe 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 quality and risk, investment
income and total investment return through active strategic asset
allocation and 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. 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, 2017, approximately
21 percent of our insurance liabilities had interest rates that may
be reset annually; 50 percent had a fixed explicit interest rate
for the duration of the contract; 26 percent had credited rates
which approximate the income earned by the Company; and the
remainder had no explicit interest rates. At December 31, 2017,
the average yield, computed on the cost basis of our fixed maturity
portfolio, was 5.3 percent, 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
4.6 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, absent
other factors, a change in the value of assets related to changes
in interest rates should be largely offset by a change in the value
of liabilities. At December 31, 2017, the estimated duration
of our fixed income securities (as modified to reflect estimated
prepayments and call premiums) and the estimated duration of our
insurance liabilities were approximately 8.6 years and 8.4 years,
respectively. 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
$445 million if interest rates were to increase by 10 percent from
their levels at December 31, 2017. 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 2017, we
recognized net realized investment gains of $50.3 million, which
were comprised of: (i) $63.1 million of net gains from the sales of
investments; (ii) $4.3 million of losses on the dissolution of VIEs;
(iii) the increase in fair value of certain fixed maturity investments
with embedded derivatives of $11.5 million; (iv) the increase in fair
value of embedded derivatives related to a modified coinsurance
agreement of $2.8 million; and (v) $22.8 million of writedowns
of investments for other than temporary declines in fair value
recognized through net income. During 2016, we recognized net
realized investment gains of $8.3 million, which were comprised
of: (i) $47.5 million of net gains from the sales of investments; (ii) a
$7.3 million loss on the dissolution of a VIE; (iii) the decrease in
fair value of certain fixed maturity investments with embedded
derivatives of $.4 million; (iv) the increase in fair value of
embedded derivatives related to a modified coinsurance agreement
of $.8 million; and (v) $32.3 million of writedowns of investments
for other than temporary declines in fair value recognized through
net income ($35.9 million, prior to the $3.6 million of impairment
losses recognized through accumulated other comprehensive
income). During 2015, we recognized net realized investment
losses of $36.6 million, which were comprised of: (i) $8.2 million
of net gains from the sales of investments; (ii) an $11.3 million
gain on the dissolution of a VIE; (iii) the decrease in fair value of
certain fixed maturity investments with embedded derivatives of
$9.2 million; (iv) the decrease in fair value of embedded derivatives
related to a modified coinsurance agreement of $7.0 million; and
(v) $39.9 million of writedowns of investments for other than
temporary declines in fair value recognized through net income
($42.9 million, prior to the $3.0 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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsITEM 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.

ITEM 8. Consolidated Financial Statements.

Index to Consolidated Financial Statements

Page
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Consolidated Balance Sheet at December 31, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99
Consolidated Statement of Operations for the years ended December 31, 2017, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
Consolidated Statement of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
Consolidated Statement of Cash Flows for the years ended December 31, 2017, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of CNO Financial
Group, Inc.:

Basis for Opinions

Opinions on the Financial Statements and
Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of
CNO Financial Group, Inc. and its subsidiaries as of December 31,
2017 and 2016, and the related consolidated statements of
operations, comprehensive income, shareholders’ equity, and cash
flows for each of the three years in the period ended December 31,
2017, including the related notes and financial statement schedules
listed in the index appearing under item 15(a)2. (collectively
referred to as the “consolidated financial statements”). We also have
audited the Company’s internal control over financial reporting
as of December 31, 2017, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 2017 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, 2017, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the COSO.

The Company’s management is responsible for these consolidated
financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting, appearing under
Item 9A: Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express opinions
on the Company’s consolidated financial statements and on the
Company’s internal control over financial reporting based on
our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material
respects.

Our audits of the consolidated financial statements included
performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Kregarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
consolidated financial statements. 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.

Definition and Limitations of Internal Control
over Financial Reporting

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 23, 2018

We have served as the Company’s auditor since 1983.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsConsolidated Balance Sheet

December 31, 2017 and 2016

(Dollars in millions)
ASSETS
Investments:

Fixed maturities, available for sale, at fair value (amortized cost: 2017 - $20,702.1; 2016 - $19,803.1)
Equity securities at fair value (cost: 2017 - $491.1; 2016 - $580.7)
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.

2017

2016

22,910.9
511.7
1,650.6
116.0
284.6
1,526.9
853.4
27,854.1
578.4
178.9
245.9
359.6
1,026.8
2,175.2
366.9
5.0
319.5
33,110.3

21,096.2
584.2
1,768.0
112.0
363.4
1,724.3
589.5
26,237.6
478.9
189.3
239.6
401.8
1,044.7
2,260.4
789.7
4.7
328.5
31,975.2

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KConsolidated Balance Sheet, continued

December 31, 2017 and 2016

(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
Investment borrowings
Borrowings related to variable interest entities
Notes payable – direct corporate obligations

Total liabilities

Commitments and Contingencies
Shareholders’ equity:

Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding:
2017 - 166,857,931; 2016 - 173,753,614)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings

Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

The accompanying notes are an integral part of the consolidated financial statements.

2017

2016

11,220.7
11,521.3
530.3
261.7
5.0
751.8
1,646.7
1,410.7
914.6
28,262.8

1.7
3,073.3
1,212.1
560.4
4,847.5
33,110.3

10,912.7
10,953.3
500.6
282.5
4.7
611.4
1,647.4
1,662.8
912.9
27,488.3

1.7
3,212.1
622.4
650.7
4,486.9
31,975.2

100

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsConsolidated Statement of Operations

for the years ended December 31, 2017, 2016 and 2015

(Dollars in millions, except per share data)
Revenues:

Insurance policy income
Net investment income:
General account assets
Policyholder and other special-purpose portfolios

Realized investment gains (losses):

Net realized investment gains (losses), excluding impairment losses
Other-than-temporary impairments:

Total other-than-temporary impairment losses
Portion of other-than-temporary impairment losses recognized in accumulated other
comprehensive income

Net impairment losses recognized
Gain (loss) on dissolution of variable interest entities

Total realized gains (losses)
Fee revenue and other income

Total revenues
Benefits and expenses:

Insurance policy benefits
Loss on reinsurance transaction and transition expenses
Interest expense
Amortization
Loss on extinguishment of debt
Loss on extinguishment of borrowings related to variable interest entities
Other operating costs and expenses

Total benefits and expenses

Income before income taxes

Income tax expense (benefit):

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.

2017

2016

2015

2,647.3

2,601.1

2,556.0

1,285.4
265.9

77.4

(21.9)

(.9)
(22.8)
(4.3)
50.3
48.3
4,297.2

2,602.7
—
123.7
239.3
—
9.5
841.5
3,816.7
480.5

162.8
142.1
175.6

1,204.1
121.1

47.9

(35.9)

3.6
(32.3)
(7.3)
8.3
50.5
3,985.1

2,390.5
75.4
116.4
253.3
—
—
796.3
3,631.9
353.2

127.8
(132.8)
358.2

1,203.6
30.0

(8.0)

(42.9)

3.0
(39.9)
11.3
(36.6)
58.9
3,811.9

2,308.3
9.0
94.9
260.0
32.8
—
739.2
3,444.2
367.7

129.5
(32.5)
270.7

170,025,000
1.03

176,638,000
2.03

193,054,000
1.40

172,144,000
1.02

178,323,000
2.01

195,166,000
1.39

101

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KConsolidated Statement of Comprehensive Income

2017
175.6

2016
358.2

2015
270.7

959.3
(29.7)

(310.5)

(40.2)

1.0
579.9
—
579.9
(195.6)
384.3
559.9

424.4
(27.9)

(46.9)

(18.6)

.7
331.7
8.6
340.3
(120.7)
219.6
577.8

(1,337.6)
157.9

495.3

29.6

(.5)
(655.3)
(.1)
(655.4)
232.9
(422.5)
(151.8)

for the years ended December 31, 2017, 2016 and 2015

(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 (losses)
had been realized
Reclassification adjustments:

For net realized investment (gains) losses included in net income
For amortization of the present value of future profits and deferred acquisition costs
related to net realized investment gains (losses) 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 (LOSS)

The accompanying notes are an integral part of the consolidated financial statements.

102

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsConsolidated Statement of Shareholders’ Equity

(Dollars in millions)
Balance, December 31, 2014

Net income
Change in unrealized appreciation (depreciation) of investments
(net of applicable income tax benefit of $231.7)
Change in noncredit component of impairment losses on fixed maturities,
available for sale (net of applicable income tax benefit of $1.2)
Cost of common stock repurchased
Dividends on common stock
Stock options, restricted stock and performance units

Balance, December 31, 2015

Net income
Change in unrealized appreciation (depreciation) of investments
(net of applicable income tax expense of $121.5)
Change in noncredit component of impairment losses on fixed
maturities, available for sale (net of applicable income tax benefit of $.8)
Cost of common stock repurchased
Dividends on common stock
Stock options, restricted stock and performance units

Balance, December 31, 2016

Cumulative effect of accounting change
Net income
Change in unrealized appreciation (depreciation) of investments
(net of applicable income tax expense of $194.4)
Change in noncredit component of impairment losses on fixed
maturities, available for sale (net of applicable income tax expense
of $1.2)
Reclassification of stranded income tax effects from the Tax Cuts and
Jobs Act
Cost of common stock repurchased
Dividends on common stock
Stock options, restricted stock and performance units

BALANCE, DECEMBER 31, 2017

Common stock
and additional
paid-in capital
3,734.4
$
—

Accumulated other
comprehensive
income
825.3
—

Retained
earnings
128.5
270.7

Total
4,688.2
270.7

—

(420.4)

—

(420.4)

—
(365.2)
—
19.4
3,388.6
—

—

—
(203.0)
—
28.2
3,213.8
.9
—

—

—
(167.1)
—
27.4
3,075.0

(2.1)
—
—
—
402.8
—

221.1

(1.5)
—
—
—
622.4
—
—

382.1

2.2

205.4
—
—
—
1,212.1

—
—
(52.1)
—
347.1
358.2

(2.1)
(365.2)
(52.1)
19.4
4,138.5
358.2

—

221.1

—
—
(54.6)
—
650.7
(.6)
175.6

—

(205.4)
—
(59.9)
—
560.4

(1.5)
(203.0)
(54.6)
28.2
4,486.9
.3
175.6

382.1

2.2

—
(167.1)
(59.9)
27.4
4,847.5

The accompanying notes are an integral part of the consolidated financial statements.

103

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KConsolidated Statement of Cash Flows

for the years ended December 31, 2017, 2016 and 2015

(Dollars in millions)
Cash flows from operating activities:

Insurance policy income
Net investment income
Fee revenue and other income
Cash and cash equivalents received upon recapture of reinsurance
Insurance policy benefits
Interest expense
Deferrable policy acquisition costs
Other operating costs
Income taxes

NET CASH FROM OPERATING ACTIVITIES

Cash flows from investing activities:

Sales of investments
Maturities and redemptions of investments
Purchases of investments
Net sales (purchases) of trading securities
Change in cash and cash equivalents held by variable interest entities
Other

NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES

Cash flows from financing activities:

Issuance of notes payable, net
Payments on notes payable
Expenses related to extinguishment of debt
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.

2017

2016

2015

2,483.2
1,229.6
48.3
—
(1,973.1)
(120.5)
(236.1)
(740.9)
(77.4)
613.1

2,487.4
3,324.6
(6,141.0)
108.9
10.4
(29.9)
(239.6)

—
—
—
8.3
(168.3)
(59.6)
1,445.9
(1,232.6)

432.0
981.6

(432.7)
(1,248.6)
—
(274.0)
99.5
478.9
578.4

2,457.0
1,201.0
50.5
73.6
(1,916.0)
(106.0)
(242.7)
(747.9)
(6.7)
762.8

2,841.8
2,507.2
(6,159.8)
(84.2)
175.1
(22.5)
(742.4)

—
—
—
8.4
(210.0)
(54.8)
1,386.7
(1,181.6)

432.7
493.2

(333.5)
(514.9)
—
26.2
46.6
432.3
478.9

2,423.4
1,205.9
58.9
—
(1,879.4)
(90.0)
(246.4)
(720.5)
(4.1)
747.8

2,177.6
1,853.4
(4,767.2)
(12.3)
(296.1)
(25.0)
(1,069.6)

910.0
(797.1)
(17.8)
6.3
(365.4)
(52.0)
1,241.9
(1,225.0)

475.0
544.7

(425.7)
(132.0)
(20.4)
142.5
(179.3)
611.6
432.3

104

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.

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; long-term
care in run off; and corporate operations, comprised of holding
company activities and certain noninsurance company businesses.
In the fourth quarter of 2016, we began reporting as an additional
business segment, the long-term care block recaptured from
Beechwood Re Ltd. (“BRe”), as further described in the note
to the consolidated financial statements entitled “Summary of
Significant Accounting Policies - Reinsurance”. The Company’s
insurance segments are described below:

life

insurance,

interest-sensitive

• Bankers Life, which markets and distributes Medicare
insurance,
supplement
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, financial
and investment advisors, 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 has
various distribution and marketing agreements with other
insurance companies to use Bankers Life’s career agents to
distribute Medicare Advantage and prescription drug plan
products in exchange for a fee.

• 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
independent marketing
through
Associates,

Inc. and

organizations and insurance agencies including worksite
marketing. The products being marketed are underwritten
by Washington National Insurance Company (“Washington
National”). This segment’s business also includes certain closed
blocks of annuities and Medicare supplement policies which
are no longer being actively marketed by this segment and
were primarily issued or acquired by Washington National.

We prepare our financial statements
in accordance with
accounting principles generally accepted in the United States of
America (“GAAP”). We have reclassified certain amounts from
the prior periods to conform to the 2017 presentation. These
reclassifications have no effect on net income or shareholders’
equity.

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.

105

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments

Fixed maturity securities include available for sale bonds and
redeemable preferred stocks. 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.

Equity securities include available for sale investments in common
stock, exchange-traded funds 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. Policy
loans are collateralized by the cash surrender value of the life
insurance policy. Interest income is recorded as earned using the
contractual interest rate.

Trading securities include: (i) investments purchased with the intent
of selling in the near team to generate income; (ii) investments
supporting certain insurance liabilities (including investments
backing the market strategies of our multibucket annuity
products); and (iii) certain fixed maturity securities containing
embedded derivatives for which we have elected the fair value
option. The change in fair value of the income generating
investments and investments supporting insurance liabilities and
reinsurance agreements is recognized in income from policyholder
and other special-purpose portfolios (a component of net
investment income). The change in fair value of securities with
embedded derivatives is recognized in realized investment gains
(losses). Investment income related to investments supporting
certain insurance liabilities is substantially offset by the change in
insurance policy benefits related to certain products.

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
and hedge funds which are accounted for using the equity
method; and promissory notes, which are accounted for using the
cost method. In accounting for limited partnerships and hedge
funds, 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.

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
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

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.

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.

106

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsWe 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
deferred acquisition costs over the period of profits, by an amount
necessary to offset losses that are expected to be recognized in the
later years.

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.

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
life contingent payment annuity products
insurance, and
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

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

107

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Kassumptions 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.

• 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.

Accounting for Certain Marketing Agreements

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 Life 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.

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.

totaled $105.0 million,
The cost of reinsurance ceded
$123.9 million and $133.6 million in 2017, 2016 and 2015,
respectively. We deduct this cost from insurance policy income.
Reinsurance recoveries netted against insurance policy benefits
totaled $88.6 million, $130.1 million and $167.7 million in 2017,
2016 and 2015, 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. Reinsurance premiums assumed totaled
$30.4 million, $34.0 million and $38.5 million in 2017, 2016 and
2015, respectively. Insurance policy benefits related to reinsurance
assumed totaled $44.7 million, $47.5 million and $48.0 million in
2017, 2016 and 2015, respectively.

In December 2013, two of our insurance subsidiaries entered
into 100% coinsurance agreements ceding $495 million of
long-term care reserves to BRe. Pursuant to the agreements,
the insurance subsidiaries paid an additional premium of
$96.9 million to BRe and an amount equal to the related net
liabilities. The insurance subsidiaries’ ceded reserve credits
were secured by assets in market-value trusts subject to a 7%
overcollateralization, investment guidelines and periodic true-
up provisions. Future payments into the trusts to maintain
collateral requirements were the responsibility of BRe.

In September 2016, we terminated the reinsurance agreements with BRe and recaptured the ceded business. As a result of the recapture,
we were required to value the assets and liabilities as of the date of recapture based on valuation methodologies that are consistent with the
methodologies used by CNO to value its other investments and insurance liabilities. Accordingly, we recognized a loss on the recapture of
the long-term care business as summarized below (dollars in millions):

Market value of investments
Insurance liabilities
Write-off of reinsurance receivables
Estimated transaction expenses

Pre-tax loss

Tax benefit
Increase in valuation allowance for deferred tax assets

AFTER-TAX LOSS

108

CNO FINANCIAL GROUP, INC. - Form 10-K

504.7
(552.2)
(17.9)
(10.0)
(75.4)
26.4
(4.1)
(53.1)

PART IIITEM 8 Consolidated Financial StatementsIncome Taxes

Our income tax expense includes deferred income taxes arising
from temporary differences between the financial reporting
and tax bases of assets and liabilities 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.

At December 31, 2017, our valuation allowance for our net
deferred tax assets was $89.1 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. 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. 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 Company has no financial obligation to the VIEs
beyond its investment in each VIE.

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.

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
securities,
debt obligations, commercial mortgage-backed
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, 2017, we held investments in various limited
partnerships, in which we are not the primary beneficiary, totaling
$371.1 million (classified as other invested assets). At December 31,
2017, we had unfunded commitments to these partnerships
of $276.5 million. Our maximum exposure to loss on these
investments is limited to the amount of our investment.

Investment borrowings

Three of the Company’s insurance subsidiaries (Washington
National, Bankers Life and Colonial Penn) are members of
the Federal Home Loan Bank (“FHLB”). As members of the
FHLB, our insurance subsidiaries have the ability to borrow on
a collateralized basis from the FHLB. We 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, 2017, the
carrying value of the FHLB common stock was $71.2 million. As
of December 31, 2017, collateralized borrowings from the FHLB
totaled $1.6 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 $1.9 billion at December 31, 2017, 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.

109

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe following summarizes the terms of the borrowings from the
FHLB by our insurance subsidiaries (dollars in millions):

Amount
borrowed
$

Interest rate at
December 31, 2017
Variable rate – 1.779%
Variable rate – 1.509%
Variable rate – 1.971%
Variable rate – 2.001%
Variable rate – 1.887%
Variable rate – 1.997%
Fixed rate – 1.960%
Variable rate – 2.300%
Variable rate – 2.212%
Variable rate – 2.224%
Variable rate – 1.813%
Variable rate – 1.453%
Variable rate – 2.072%
Variable rate – 1.909%
Variable rate – 1.879%
Variable rate – 1.921%
Fixed rate – 2.550%
Variable rate – 2.032%
Variable rate – 2.002%
Variable rate – 1.829%
Variable rate – 1.780%
Variable rate – 2.150%
Variable rate – 1.726%
Variable rate – 1.745%
Variable rate – 1.758%
Variable rate – 1.782%
Variable rate – 1.795%
Variable rate – 1.795%
Fixed rate – 2.160%
Fixed rate – 2.940%

50.0
50.0
100.0
21.8
15.0
50.0
21.8
25.0
100.0
50.0
75.0
100.0
50.0
100.0
100.0
57.7
28.2
125.0
50.0
22.0
100.0
10.0
50.0
50.0
50.0
50.0
50.0
50.0
24.7
20.5
1,646.7

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 prevailing
market interest rates. At December 31, 2017, the aggregate
yield maintenance fee to prepay all fixed rate borrowings was
$2.1 million.

Interest expense of $27.0 million, $17.5 million and $10.9 million
in 2017, 2016 and 2015, respectively, was recognized related to
total borrowings from the FHLB.

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. The
Company accounts for the options attributed to the policyholder
for the estimated life of the contract as embedded derivatives. These
accounting requirements often create volatility in the earnings from
these products. 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.

From time to time, we utilize United States Treasury interest rate
futures primarily to hedge interest rate risk related to anticipated
mortgage loan transactions.

We purchase certain fixed maturity securities that contain
embedded derivatives that are required to be held at fair value on
the consolidated balance sheet. We have elected the fair value option
to carry the entire security at fair value with changes in fair value
reported in net income.

Multibucket Annuity Products

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
other special-purpose portfolios), which is substantially offset
by the change in insurance policy benefits for these products.
We hold insurance liabilities of $32.3 million and $32.8 million
related to multibucket annuity products as of December 31, 2017
and 2016, respectively.

Sales Inducements

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 holder’s 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 $2.0 million, $3.4 million and $3.8 million
during 2017, 2016 and 2015, respectively. Amounts amortized
totaled $8.9 million, $11.4 million and $13.8 million during
2017, 2016 and 2015, respectively. The unamortized balance of
deferred sales inducements was $42.5 million and $49.4 million
at December 31, 2017 and 2016, respectively. The balance of
insurance liabilities for persistency bonus benefits was $.3 million
and $.5 million at December 31, 2017 and 2016, respectively.

110

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsOut-of-Period Adjustments

In 2017, we recorded the net effect of out-of-period adjustments
which decreased insurance policy benefits by $4.2 million,
increased other operating costs and expenses by $2.0 million,
increased tax expense by $.8 million and increased our net income
by $1.4 million (or 1 cent 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 each period, as well as 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.

Recently Issued Accounting Standards

Pending Accounting Standards

In May 2014, the Financial Accounting Standards Board (the
“FASB”) issued authoritative guidance for recognizing revenue
from contracts with customers. Certain contracts with customers
are specifically excluded from this guidance, including insurance
contracts. The core principle of the new guidance is that an entity
should recognize revenue when it transfers promised goods or
services in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or
services. The guidance also requires additional disclosures about
the nature, amount, timing and uncertainty of revenue and cash
flows arising from contracts with customers. The guidance will
be effective for the Company on January 1, 2018 and permits
two methods of transition upon adoption; full retrospective and
modified retrospective. Under the full retrospective method,
prior periods would be restated under the new revenue standard,
providing for comparability in all periods presented. Under
the modified retrospective method, prior periods would not be
restated. Instead, revenues and other disclosures for pre-2018
periods would be provided in the notes to the financial statements
as previously reported under the current revenue standard. The
new guidance will impact our accounting for various distribution
and marketing agreements with other insurance companies
pursuant to which Bankers Life’s career agents distribute third
party products
including prescription drug and Medicare
Advantage plans. The revenue associated with these distribution
agreements has been less than 1 percent of our total revenue. Our
annual fee income earned during a calendar year will not change,
but the amount recognized during each quarterly period will vary
based on the sales of such products in each period. Accordingly, the
adoption of this guidance is not expected to have a material impact
on our consolidated financial statements. The Company will
adopt the new guidance using the modified retrospective method.

In January 2016, the FASB issued authoritative guidance related to
the recognition and measurement of financial assets and financial
liabilities which made targeted improvements to GAAP as follows:

(i)

Require equity investments (except those accounted for
under the equity method of accounting or those that
result in consolidation of the investee) to be measured
at fair value with changes in fair value recognized in net
income. However, an entity may choose to measure equity

investments that do not have readily determinable fair
values at cost minus impairment, if any, plus or minus
changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the
same issuer.

Simplify the impairment assessment of equity investments
without readily determinable fair values by requiring a
qualitative assessment to identify impairment. When a
qualitative assessment indicates that impairment exists, an
entity is required to measure the investment at fair value.

Eliminate the requirement for public business entities to
disclose the method(s) and significant assumptions used to
estimate the fair value that is required to be disclosed for
financial instruments measured at amortized cost on the
balance sheet.

Require public business entities to use the exit price notion
when measuring the fair value of financial instruments for
disclosure purposes.

separately

Require an entity
in other
to present
comprehensive income the portion of the total change in
the fair value of a liability resulting from a change in the
instrument-specific credit risk when the entity has elected to
measure the liability at fair value in accordance with the fair
value option for financial instruments.

Require separate presentation of financial assets and
financial liabilities by measurement category and form of
financial asset (that is, securities or loans and receivables) on
the balance sheet or the accompanying notes to the financial
statements.

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

Clarify that an entity should evaluate the need for a valuation
allowance on a deferred tax asset related to available-for-sale
securities in combination with the entity’s other deferred
tax assets.

An entity should apply this guidance by means of a cumulative-
effect adjustment to the balance sheet as of the beginning of
the fiscal year of adoption. The amendments related to equity
securities without readily determinable fair values (including
disclosure requirements) should be applied prospectively to equity
investments that exist as of the date of adoption of the guidance.
The guidance will be effective for the Company for fiscal years
beginning after December 15, 2017, including interim periods
within those fiscal years. The Company currently holds equity
securities classified as available for sale securities that are measured
at fair value with changes in fair value recognized through
accumulated other comprehensive income. Upon adoption of this
guidance, changes in fair value of such equity securities will be
recognized through net income. Based upon the equity securities
held at December 31, 2017, the estimated impact of the new
guidance, assuming it was adopted on January 1, 2018, would be a
cumulative effect adjustment that would increase retained earnings
by approximately $17 million with a corresponding decrease to
accumulated other comprehensive income of approximately
$17 million. The Company may experience an increase in volatility
in the income statement due to the requirement to measure equity
investments at fair value with changes in fair value recognized in
income. In addition, the Company will be required to modify
certain disclosures upon adoption.

111

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KIn February 2016, the FASB issued authoritative guidance related
to accounting for leases, requiring lessees to report most leases on
their balance sheets, regardless of whether the lease is classified as
a finance lease or an operating lease. For lessees, the initial lease
liability is equal to the present value of future lease payments,
and a corresponding asset, adjusted for certain items, is also
recorded. Expense recognition for lessees will remain similar to
current accounting requirements for capital and operating leases.
The accounting applied by a lessor is largely unchanged from that
applied under previous GAAP. In transition, lessees and lessors
are required to recognize and measure leases at the beginning
of the earliest period presented using a modified retrospective
approach. The guidance will be effective for the Company for
fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. Early adoption is permitted. The
Company has not yet determined the expected impact of adoption
of this guidance on its consolidated financial position, results of
operations or cash flows.

In June 2016, the FASB issued authoritative guidance related to
the measurement of credit losses on financial instruments. The
new guidance replaces the incurred loss impairment methodology
with a methodology that reflects expected credit losses and requires
consideration of a broader range of reasonable and supportable
information to form credit loss estimates. The guidance will be
effective for the Company for fiscal years beginning in 2020,
including interim periods within the fiscal year. Early adoption
is permitted as of the fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. The
Company has not yet determined the expected impact of adoption
of this guidance on its consolidated financial position, results of
operations or cash flows.

In August 2016, the FASB issued authoritative guidance related
to how certain cash receipts and cash payments are presented and
classified in the statement of cash flows. The guidance addresses
eight specific cash flow issues including debt prepayment or debt
extinguishment costs, proceeds from the settlement of corporate-
owned life insurance policies, distributions received from equity
method investees, and others. The guidance will be effective
for the Company for fiscal years beginning after December 15,
2017, and interim periods within those fiscal years. Early
adoption is permitted. The adoption of this guidance will result
in reclassifications to certain cash receipts and payments within
our consolidated statement of cash flows, but will have no impact
on our consolidated financial position, results of operations or
cash flows.

In November 2016, the FASB issued authoritative guidance to
address the diversity in practice that currently exists regarding
the classification and presentation of changes in restricted cash
on the statement of cash flows. The new guidance requires that
a statement of cash flows explain the change during the period in
the total of cash, cash equivalents and amounts generally described
as restricted cash or restricted cash equivalents. Therefore,
amounts generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents
when reconciling the beginning-of-period and end-of-period

total amounts shown on the statement of cash flows. Entities will
also be required to disclose information about the nature of their
restricted cash and restricted cash equivalents. Additionally, if cash,
cash equivalents, restricted cash and restricted cash equivalents are
presented in more than one line item in the statement of financial
position, entities will be required to present a reconciliation, either
on the face of the statement of cash flows or disclosed in the notes,
of the totals in the statement of cash flows to the related line item
captions in the statement of financial position. The guidance
will be effective for the Company for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted, including adoption in an interim
period. The adoption of this guidance will impact the presentation
of our consolidated statement of cash flows and related cash flow
disclosures, but will have no impact on our consolidated financial
position, results of operations or cash flows.

In January 2017, the FASB issued authoritative guidance that
removes Step 2 of the goodwill impairment test under current
guidance, which requires a hypothetical purchase price allocation.
The new guidance requires an impairment charge to be recognized
for the amount by which the carrying amount exceeds the reported
unit’s fair value. Upon adoption, the guidance is to be applied
prospectively. The guidance will be effective for the Company on
January 1, 2020, with early adoption permitted. The adoption of
this guidance is not expected to have a material impact on the
Company’s consolidated financial position, results of operations
or cash flows.

In March 2017, the FASB issued authoritative guidance related to
the premium amortization on purchased callable debt securities.
The guidance shortens the amortization period for certain callable
debt securities held at a premium. Specifically, the new guidance
requires the premium to be amortized to the earliest call date. The
guidance does not require an accounting change for securities
held at a discount; the discount continues to be amortized
to maturity. The guidance will be effective for the Company
for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. Early adoption is permitted,
including adoption in an interim period. If an entity early adopts
the guidance in an interim period, any adjustments should be
reflected as of the beginning of the fiscal year that includes that
interim period. The guidance should be applied on a modified
retrospective basis through a cumulative-effect adjustment directly
to retained earnings as of the beginning of the period of adoption.
The Company has not yet determined the expected impact of
adoption of this guidance on our consolidated financial position,
results of operations or cash flows.

In May 2017, the FASB issued authoritative guidance related to
which changes to the terms or conditions of a share-based award
require an entity to apply modification accounting. The guidance
will be effective for the Company in 2018. The guidance is to
be applied prospectively to an award modified on or after the
adoption date. The adoption of this guidance is not expected to
have a material impact to the Company’s consolidated financial
position, results of operations or cash flows.

112

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsIn August 2017, the FASB issued authoritative guidance related
to derivatives and hedging. The new guidance expands and
refines hedge accounting for both nonfinancial and financial
risk components and aligns the recognition and presentation of
the effects of the hedging instruments and the hedged item in
the financial statements. The new guidance also includes certain
targeted improvements to ease the application of current guidance
related to the assessment of hedge effectiveness. The guidance
will be effective for the Company for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years.
Early adoption is permitted, including adoption in an interim
period. The Company has not yet determined the expected impact
of adoption of this guidance on its consolidated financial position,
results of operations or cash flows.

Adopted Accounting Standards

In March 2016, the FASB issued authoritative guidance that
clarifies the requirements for assessing whether contingent call
(put) options that can accelerate the payment of principal on debt
instruments are clearly and closely related to their debt hosts. An
entity performing the assessment under this guidance is required
to assess the embedded call (put) options solely in accordance with
a four-step decision sequence. The guidance is effective for the
Company on January 1, 2017. The adoption of this guidance had
no effect on our consolidated financial statements.

In March 2016, the FASB issued authoritative guidance related to several aspects of the accounting for share-based payment transactions,
including the income tax consequences, accounting policy for forfeiture rate assumptions, classification of awards as either equity or
liabilities and classification on the statement of cash flows. The new guidance requires all income tax effects of stock-based compensation
awards to be recognized in the income statement when the awards vest or are settled. The new guidance also allows an employer to
withhold shares upon settlement of an award to satisfy the employer’s tax withholding requirements up to the highest marginal tax rate
applicable to employees, without resulting in liability classification of the award. Current guidance strictly limits the withholding to
the employer’s minimum statutory tax withholding requirement. The guidance was effective for the Company on January 1, 2017. The
impact of adoption was as follows (dollars in millions):

Income tax assets
Valuation allowance for deferred income tax assets

Income tax assets, net

Total assets
Additional paid-in capital
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity

Cash flows from operating activities:

Other operating costs
Net cash flow from operating activities

Cash flows from financing activities:

Payments to repurchase common stock
Net cash provided by financing activities

Net increase in cash and cash equivalents

January 1, 2017
Effect of Adoption of
Authoritative Guidance
Election to
account for
forfeitures as
they occur
.3
—
.3
.3
.9
(.6)
.3
.3

Recognition
of excess tax
benefits
15.7
(15.7)
—
—
—
—
—
—

Amounts
prior to effect
of adoption of
authoritative
guidance
1,029.9
(240.2)
789.7
31,975.2
3,212.1
650.7
4,486.9
31,975.2

As adjusted
1,045.9
(255.9)
790.0
31,975.5
3,213.0
650.1
4,487.2
31,975.5

December 31, 2016

Amounts prior
to effect of
adoption of
authoritative
guidance

Effect of
adoption of
authoritative
guidance

(751.2) $
759.5

3.3
3.3

(206.7)
29.5
46.6

(3.3)
(3.3)
—

As adjusted

(747.9)
762.8

(210.0)
26.2
46.6

113

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KCash flows from operating activities:

Other operating costs
Net cash flow from operating activities

Cash flows from financing activities:

Payments to repurchase common stock
Net cash provided by financing activities
Net decrease in cash and cash equivalents

December 31, 2015

Amounts prior
to effect of
adoption of
authoritative
guidance

Effect of
adoption of
authoritative
guidance

(724.4) $
743.9

3.9
3.9

(361.5)
146.4
(179.3)

(3.9)
(3.9)
—

As adjusted

(720.5)
747.8

(365.4)
142.5
(179.3)

In October 2016, the FASB issued authoritative guidance to
amend the consolidation guidance on how a reporting entity that
is the single decision maker of a VIE should treat indirect interests
in the entity held through related parties that are under common
control with the reporting entity when determining whether it is
the primary beneficiary of that VIE. The guidance is effective for
the Company on January 1, 2017. The adoption of this guidance
had no impact on our consolidated financial statements.

In February 2018, the FASB issued authoritative guidance that
allows a reclassification from accumulated other comprehensive
income to retained earnings for the stranded tax effects resulting
from the Tax Cuts and Jobs Act (the “Tax Reform Act”) enacted
by the U.S. federal government on December 22, 2017. Such
guidance only relates to the reclassification of the income tax

effects of the Tax Reform Act. The Company early adopted this
guidance and elected to reclassify the income tax effects of the
Tax Reform Act from accumulated other comprehensive income
as of December 31, 2017. As a result of such reclassification,
retained earnings decreased by $205.4 million and accumulated
other comprehensive income increased by $205.4 million. Such
amount represents the decrease in the income tax rate from
35 percent to 21 percent on the net unrealized gains of our fixed
maturity securities, available for sale, equity securities and certain
other invested assets, net of related adjustments, included in
accumulated other comprehensive income. Refer to the note to
the consolidated financial statements entitled “Income Taxes” for
additional information related to the Tax Reform Act.

114

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements3.

INVESTMENTS

At December 31, 2017, 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
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(a) (b):

Corporate securities
States and political subdivisions
Asset-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations

$ 12,419.3

1,670.7

(14.6) $ 14,075.4 $

146.4
1,819.9
79.5
1,730.7
257.1
1,304.1
1.8
293.9
18,052.7

867.0
2.0
1,355.2
49.9
375.3

31.5
234.8
3.8
39.7
2.3
33.2
.2
16.4
2,032.6

28.4
—
132.9
.6
56.8

(.2)
(.4)
(.2)
(3.2)
—
(9.1)
—
(.2)
(27.9)

(12.4)
—
(.9)
(1.2)
(.1)

177.7
2,054.3
83.1
1,767.2
259.4
1,328.2
2.0
310.1
20,057.4

883.0
2.0
1,487.2
49.3
432.0

Total below-investment grade fixed maturities,
available for sale
TOTAL FIXED MATURITIES, AVAILABLE FOR SALE $ 20,702.1 $
491.1 $

EQUITY SECURITIES

2,649.4

218.7
2,251.3 $
23.6 $

(14.6)
(42.5) $ 22,910.9 $

2,853.5

(3.0) $

511.7

—

—
—
—
—
—
—
—
(.2)
(.2)

—
—
—
—
(.8)

(.8)
(1.0)

(a) Investment ratings are assigned the second lowest rating by Nationally Recognized Statistical Rating Organizations (“NRSROs”) (Moody’s Investor Services, Inc.
(“Moody’s”), S&P Global Ratings (“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.

(b) Certain structured securities rated below-investment grade by NRSROs may be assigned a NAIC 1 or NAIC 2 designation based on the cost basis of the security
relative to estimated recoverable amounts as determined by the NAIC. Refer to the table below for a summary of our fixed maturity securities, available for sale, by
NAIC designations.

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 depending 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

115

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KA 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, 2017 is as follows (dollars in millions):

NAIC designation
1
2
Total NAIC 1 and 2 (investment grade)
3
4
5
6
Total NAIC 3,4,5 and 6 (below-investment grade)

Amortized cost
9,923.7
$
9,821.6
19,745.3
676.2
225.0
46.3
9.3
956.8
20,702.1

Estimated fair
value
11,028.5
10,906.2
21,934.7
693.8
225.9
45.9
10.6
976.2
22,910.9

Percentage of total
estimated fair value

48.1%
47.6
95.7
3.0
1.0
.2
.1
4.3
100.0%

At December 31, 2016, 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:

Total investment grade fixed maturities, available for sale

Below-investment grade:
Corporate securities
States and political subdivisions
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Collateralized mortgage obligations

Total below-investment grade fixed maturities, available for sale
TOTAL FIXED MATURITIES, AVAILABLE FOR SALE

EQUITY SECURITIES

$ 11,582.6 $

1,073.9 $

(99.8) $ 12,556.7 $

143.8
1,798.2
37.1
1,169.6
227.5
1,467.2
2.3
304.8
16,733.1

20.5
186.7
.2
29.2
1.0
32.9
.2
14.6
1,359.2

967.3
13.6
1,471.9
2.5
63.8
550.9
3,070.0
$ 19,803.1 $
580.7 $
$

26.1
—
55.1
—
.2
46.8
128.2
1,487.4 $
11.5 $

—
(7.9)
(.4)
(8.7)
(.3)
(26.6)
—
(.2)
(143.9)

(39.2)
(1.7)
(6.8)
—
(1.3)
(1.4)
(50.4)

164.3
1,977.0
36.9
1,190.1
228.2
1,473.5
2.5
319.2
17,948.4

954.2
11.9
1,520.2
2.5
62.7
596.3
3,147.8

(194.3) $ 21,096.2 $

(8.0) $

584.2

—

—
—
—
—
—
—
—
—
—

(3.6)
(3.0)
—
—
—
(1.4)
(8.0)
(8.0)

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, 2017 and 2016, 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
Deferred income tax liabilities

ACCUMULATED OTHER COMPREHENSIVE INCOME

2017

2016

2.6
2,227.3
(94.0)
(292.6)
(295.8)
(335.4)
1,212.1

(1.1)
1,311.9
(106.2)
(223.5)
(13.5)
(345.2)
622.4

(a) The present value of future profits is the value assigned to the right to receive future cash flows from contracts existing at September 10, 2003, the date our Predecessor

emerged from bankruptcy.

116

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsAt December 31, 2017, adjustments to the present value of
future profits, deferred acquisition costs, insurance liabilities and
deferred tax assets included $(83.8) million, $(134.9) million,
$(295.8) million and $111.1 million, respectively, for premium
deficiencies that would exist on certain blocks of business
(primarily long-term care 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, 2016, adjustments to the present value of future
profits, deferred acquisition costs, insurance liabilities and deferred
tax assets included $(94.1) million, $(96.4) million, $(13.5) million
and $72.5 million, respectively, for premium deficiencies that
would exist on certain blocks of business (primarily long-term care
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.

Below-Investment Grade Securities

At December 31, 2017, the amortized cost of the Company’s below-
investment grade fixed maturity securities was $2,649.4 million,
or 13 percent of the Company’s fixed maturity portfolio. The
estimated fair value of the below-investment grade portfolio was
$2,853.5 million, or 108 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, 2017, 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 (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):

General account assets:

Fixed maturities
Equity securities
Mortgage loans
Policy loans
Other invested assets
Cash and cash equivalents

Policyholder and other special-purpose portfolios:

Trading securities(a)
Options related to fixed index products:

Option income (loss)
Change in value of options
Other special-purpose portfolios
Gross investment income

Less investment expenses

NET INVESTMENT INCOME

Amortized cost
328.1
$
1,947.3
1,508.7
11,550.0
15,334.1
5,368.0
20,702.1

Estimated fair value
335.1
2,052.3
1,601.3
13,286.8
17,275.5
5,635.4
22,910.9

2017

2016

2015

1,133.8
25.3
91.5
7.7
44.4
5.9

1,081.4
21.5
91.0
7.3
24.3
2.0

1,090.1
18.3
91.4
7.3
17.4
.8

12.8

12.2

10.7

110.3
52.2
90.6
1,574.5
23.2
1,551.3

(40.1)
69.3
79.7
1,348.6
23.4
1,325.2

36.5
(72.7)
55.5
1,255.3
21.7
1,233.6

(a) Changes in the estimated fair value for trading securities still held as of the end of the respective years and included in net investment income were $3.8 million,

$(.2) million and $.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.

117

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KAt December 31, 2017, the carrying value of fixed maturities and mortgage loans that were non-income producing during 2017 totaled
$2.8 million and $10.6 million, respectively.

Net Realized Investment Gains (Losses)

The following table sets forth the net realized investment gains (losses) for the periods indicated (dollars in millions):

2017

2016

2015

Fixed maturity securities, available for sale:

Gross realized gains on sale
Gross 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 (losses) from fixed maturities

Equity securities
Mortgage loans
Impairments on preferred stock and other investments
Gain (loss) on dissolution of variable interest entities
Other(a)

68.0
(24.2)

137.7
(95.2)

(12.5)

(.9)
(13.4)
30.4
11.6
1.1
(9.4)
(4.3)
20.9
50.3

(15.2)

3.6
(11.6)
30.9
20.9
—
(20.7)
(7.3)
(15.5)
8.3

95.7
(88.4)

(17.9)

3.0
(14.9)
(7.6)
3.7
(2.3)
(25.0)
11.3
(16.7)
(36.6)

NET REALIZED INVESTMENT GAINS (LOSSES)

(a) Changes in the estimated fair value of trading securities that we have elected the fair value option (and are still held as of the end of the respective years) were

$12.8 million, $(.5) million and $(9.2) million for the years ended December 31, 2017, 2016 and 2015, respectively.

During 2017, we recognized net realized investment gains of
$50.3 million, which were comprised of: (i) $63.1 million of net
gains from the sales of investments; (ii) $4.3 million of losses
on the dissolution of VIEs; (iii) the increase in fair value of
certain fixed maturity investments with embedded derivatives of
$11.5 million; (iv) the increase in fair value of embedded derivatives
related to a modified coinsurance agreement of $2.8 million; and
(v) $22.8 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.

During 2017, 2016 and 2015, VIEs that were required to be
consolidated were dissolved. We recognized losses of $4.3 million
and $7.3 million during 2017 and 2016, respectively, and a gain
of $11.3 million during 2015, representing the difference between
the borrowings of such VIEs and the contractual distributions
required following the liquidation of the underlying assets.

During 2016, we recognized net realized investment gains of
$8.3 million, which were comprised of: (i) $47.5 million of
net gains from the sales of investments; (ii) a $7.3 million loss
on the dissolution of a VIE; (iii) the decrease in fair value of
certain fixed maturity investments with embedded derivatives of
$.4 million; (iv) the increase in fair value of embedded derivatives
related to a modified coinsurance agreement of $.8 million; and
(v) $32.3 million of writedowns of investments for other than
temporary declines in fair value recognized through net income
($35.9 million, prior to the $3.6 million of impairment losses
recognized through accumulated other comprehensive income).

During 2015, we recognized net realized investment losses of
$36.6 million, which were comprised of: (i) $8.2 million of net
gains from the sales of investments; (ii) an $11.3 million gain
on the dissolution of a VIE; (iii) the decrease in fair value of
certain fixed maturity investments with embedded derivatives of
$9.2 million; (iv) the decrease in fair value of embedded derivatives
related to a modified coinsurance agreement of $7.0 million; and
(v) $39.9 million of writedowns of investments for other than

temporary declines in fair value recognized through net income
($42.9 million, prior to the $3.0 million of impairment losses
recognized through accumulated other comprehensive income).

At December 31, 2017, there was one fixed maturity investment in
default with an amortized cost and carrying value of $.5 million
and $.4 million, respectively.

During 2017, the $24.2 million of realized losses on sales of
$427.6 million of fixed maturity securities, available for sale,
included: (i) $16.8 million related to various corporate securities;
(ii) $3.6 million related to commercial mortgage-backed securities;
and (iii) $3.8 million related to various other investments.
Securities are generally sold at a loss following unforeseen issuer-
specific events or conditions or shifts in perceived relative values.
These reasons include but are not limited to: (i) changes in the
investment environment; (ii) expectation that the market value
could deteriorate; (iii) our 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 portfolio cash flows.

During 2017, we recognized $22.8 million of impairment
losses recorded in earnings which included: (i) $6.7 million
of writedowns on fixed maturities in the energy sector; (ii)
$5.2 million of writedowns related to a mortgage loan; and
(iii) $10.9 million of writedowns on other investments. Factors
considered in determining the writedowns of investments in 2017
included changes in the estimated recoverable value of the assets
related to each investment and the timing of and complexities
related to the recovery process.

During 2016, the $95.2 million of realized losses on sales of
$790.2 million of fixed maturity securities, available for sale
included: (i) $79.2 million related to various corporate securities
(including $63.5 million related to sales of investments in the energy
sector); (ii) $5.8 million related to commercial mortgage-backed
securities; (iii) $5.7 million related to asset-backed securities; and
(iv) $4.5 million related to various other investments.

118

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsDuring 2016, we recognized $32.3 million of impairment losses
recorded in earnings which included: (i) $9.3 million of writedowns
on fixed maturities in the energy sector; (ii) $3.7 million of
writedowns on a direct loan due to borrower specific events; (iii)
$12.7 million of writedowns on a privately placed preferred stock
of an entity formed to construct and operate a chemical plant;
(iv) $1.2 million of writedowns of investments held by VIEs due
to other-than-temporary declines in value; and (v) $5.4 million
of writedowns on other investments. Factors considered in
determining the writedowns of investments in 2016 included
the subordination status of each investment, the impact of recent
downgrades and issuer specific events, including the impact of low
oil prices on issuers in the energy sector.

During 2015, the $88.4 million of realized losses on sales of
$724.4 million of fixed maturity securities, available for sale,
primarily related to various corporate securities (including
$59.7 million related to sales of investments in the energy sector).

During 2015, we recognized $39.9 million of impairment
losses recorded in earnings which included: (i) $10.2 million
of writedowns on fixed maturities in the energy sector; (ii)
$16.4 million of writedowns on commercial bank loans held by
VIEs; (iii) a $7.9 million writedown of a legacy investment in
a private company that was liquidated; and (iv) $5.4 million of
losses on other investments (primarily fixed maturities). We no
longer have any exposure to legacy private companies related to
investments acquired by our Predecessor.

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.

The following summarizes the investments sold at a loss during 2017 which had been continuously in an unrealized loss position exceeding
20 percent of the amortized cost basis prior to the sale for the period indicated (dollars in millions):

Less than 6 months prior to sale
Greater than or equal to 6 months and less than 12 months prior to sale
Greater than 12 months prior to sale

At date of sale

Number of issuers
4
1
1
6

Amortized cost
17.8
$
2.7
.7
21.2

Fair value
13.0
1.9
.5
15.4

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.

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.

119

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe 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.

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.

The 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, 2017, 2016 and 2015 (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,

2017
(5.5)
—
4.7
—
(2.0)
—

2016
(2.6) $
(3.0)
.1
—
—
—

2015
(1.0)
(2.0)
.4
—
—
—

(2.8)

(5.5) $

(2.6)

(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, 2017, 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
26.9
195.4
108.9
602.0
933.2
1,268.3
2,201.5 $

Estimated fair value
26.9
$
193.3
105.2
580.0
905.4
1,253.6
2,159.0

120

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe following summarizes the investments in our portfolio rated below-investment grade which have been continuously in an unrealized
loss position exceeding 20 percent of the cost basis for the period indicated as of December 31, 2017 (dollars in millions):

Less than 6 months

Number
of issuers
1

$
$

Cost
basis
9.2
9.2

Unrealized
loss
(1.9) $
(1.9) $

$
$

Estimated
fair value
7.3
7.3

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, 2017 (dollars in millions):

Description of securities
United States Treasury securities and obligations of
United States government corporations and agencies
States and political subdivisions
Debt securities issued by foreign governments
Corporate securities
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed 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

28.2
18.3
7.7
470.5
601.4
3.0
276.8
20.5
$ 1,426.4
58.7
$

$
$

(.2)
(.1)
(.1)
(6.8)
(2.0)
—
(1.7)
(.2)
(11.1)
(1.7)

$
$

.7
14.9
5.4
359.7
122.2
—
218.2
11.5
732.6
21.2

$
$

— $
(.3)
(.1)
(20.2)
(2.1)
—
(8.6)
(.1)

28.9
33.2
13.1
830.2
723.6
3.0
495.0
32.0
(31.4) $ 2,159.0
79.9

(1.3) $

$
$

(.2)
(.4)
(.2)
(27.0)
(4.1)
—
(10.3)
(.3)
(42.5)
(3.0)

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

8.0
176.3
18.9
1,907.6
692.9
38.3
525.2
73.6
$ 3,440.8
239.4
$

— $

(7.8)
(.4)
(75.5)
(8.5)
(.1)
(16.6)
(.6)
(109.5)
(8.0)

18.3
—
559.6
262.5
30.8
154.0
34.6
$ 1,059.8
$

$
— $

$
$

— $

(1.8)
—
(63.5)
(7.0)
(.2)
(11.3)
(1.0)

8.0
194.6
18.9
2,467.2
955.4
69.1
679.2
108.2
(84.8) $ 4,500.6
239.4

— $

$
$

—
(9.6)
(.4)
(139.0)
(15.5)
(.3)
(27.9)
(1.6)
(194.3)
(8.0)

Based on management’s current assessment of investments with
unrealized losses at December 31, 2017, 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.

121

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KStructured Securities

At December 31, 2017 fixed maturity investments included
structured securities with an estimated fair value of $5.6 billion (or
25 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.

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 generally 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.

For purchased credit impaired 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 accreted into net investment income over
the securities’ remaining lives on a level-yield basis. Subsequently,
effective yields recognized on purchased credit impaired 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.

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
2,101.7
1,656.3
1,407.1
286.6
83.0
291.3
5,826.0

Amortized
cost
1,944.8
1,516.0
1,271.8
260.6
83.7
291.1
5,368.0

Estimated
fair value
2,014.9
1,596.5
1,362.6
276.8
92.5
292.1
5,635.4

122

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe amortized cost and estimated fair value of structured securities at December 31, 2017, summarized by type of security, were as follows
(dollars in millions):

TOTAL STRUCTURED SECURITIES

Estimated fair value

Amount
617.2
108.5
1,377.5
3,254.4
259.4
18.4
5,635.4

Percent of fixed
maturities

2.7%
.5
6.0
14.2
1.1
.1
24.6%

Amortized cost
557.7
95.3
1,354.0
3,085.9
257.1
18.0
5,368.0

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.

Mortgage Loans

At December 31, 2017, the mortgage loan balance was primarily
comprised of commercial mortgage loans. Approximately 14
percent, 12 percent, 8 percent, 6 percent and 5 percent of the
commercial mortgage loan balance were on properties located in
California, Texas, Maryland, Florida and Illinois, respectively. No
other state comprised greater than five percent of the commercial
mortgage loan balance. At December 31, 2017, there was one
mortgage loan in process of foreclosure with a carrying value of
$10.6 million. There were no other mortgage loans that were
noncurrent at December 31, 2017. Our commercial mortgage
loan portfolio is comprised of large commercial mortgage 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. At December 31, 2017, we held residential mortgage loan
investments with a carrying value of $37.1 million and a fair value
of $37.3 million.

The following table provides the carrying value and estimated fair value of our outstanding commercial mortgage loans and the underlying
collateral as of December 31, 2017 (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
960.8
$
440.2
145.9
52.9
40.2
1,640.0

944.7
439.5
138.4
52.3
38.6
1,613.5

Collateral
2,330.6
671.3
188.4
60.1
41.7
3,292.1

(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.

Other Investment Disclosures

Life insurance companies are required to maintain certain
investments on deposit with state regulatory authorities. Such assets
had aggregate carrying values of $38.5 million and $36.7 million
at December 31, 2017 and 2016, respectively.

The Company had no fixed maturity investments that were in
excess of 10 percent of shareholders’ equity at December 31, 2017
and 2016.

123

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K4. FAIR VALUE MEASUREMENTS

Valuation Hierarchy

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 cash equivalents and exchange traded securities.

• 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 credit rating, maturity, corporate credit spreads, reported
trades and other inputs that are observable or derived from
observable information in the marketplace or are supported by
transactions executed in the marketplace. Financial assets in
this category primarily include: certain publicly registered 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
investments; most short-term investments; and non-exchange-
traded derivatives such as call options. Financial liabilities in
this category include investment borrowings, notes payable
and borrowings related to VIEs.

124

CNO FINANCIAL GROUP, INC. - Form 10-K

• 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
interest-sensitive products,
for
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.

insurance

liabilities

• Fixed maturities available for sale, equity securities and trading

securities

Corporate securities are generally priced using market and
income approaches. Inputs generally consist of trades of
identical or similar securities, quoted prices in inactive markets,
issuer rating, benchmark yields, maturity, and credit spreads.

PART IIITEM 8 Consolidated Financial Statements

Asset-backed securities, collateralized debt obligations, commercial
mortgage-backed securities, mortgage pass-through securities and
collateralized mortgage obligations are generally priced using
market and income approaches. Inputs generally consist
of quoted prices in inactive markets, spreads on actively
traded securities, expected prepayments, expected default
rates, expected recovery rates, and issue specific information
including, but not limited to, collateral type, seniority and
vintage.

Equity securities (primarily comprised of non-redeemable
preferred stock) are generally priced using the market approach.
Inputs generally consist of trades of identical or similar securities,
quoted prices in inactive markets, issuer rating, benchmark
yields, maturity, and credit spreads.

• Investments held by VIEs

Corporate securities are generally priced using market and
income approaches using pricing vendors. Inputs generally
consist of issuer rating, benchmark yields, maturity, and credit
spreads.

• Other invested assets - derivatives

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
quotes; time value and volatility factors underlying options;
market interest rates; and non-performance risk.

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 a particular price received from a third
party is not reflective of current market conditions. In those
instances, we may request additional pricing quotes or apply
internally developed valuations. However, the number of such
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 typically include: benchmark yields, reported trades,
broker dealer quotes, issuer spreads, benchmark securities, bids,
offers and other relevant data. The Company categorizes such fair
value measurements based upon asset classes and the underlying
observable or unobservable inputs used to value such investments.

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
29 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 premiums, projected 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 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, 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.

For certain embedded derivatives, we use actuarial assumptions
in the determination of fair value which we consider to be
Level 3 inputs.

125

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at
December 31, 2017 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

— $

14,728.0

230.4

$ 14,958.4

—
—
—
—
—
—
—
—
—
287.8

—

—
—
—
—
—
2.8
2.8
—
—
—
290.6

177.7
2,056.3
79.2
3,230.2
259.4
1,377.5
2.0
742.1
22,652.4
202.7

—
—
3.9
24.2
—
—
—
—
258.5
21.2

177.7
2,056.3
83.1
3,254.4
259.4
1,377.5
2.0
742.1
22,910.9
511.7

21.6

—

21.6

.5
95.8
2.7
92.5
68.7
—
281.8
1,522.0
170.2
5.0
24,834.1

—
—
—
—
—
—
—
4.9
—
—
284.6

.5
95.8
2.7
92.5
68.7
2.8
284.6
1,526.9
170.2
5.0
$ 25,409.3

— $

1,334.8

ASSETS:

Fixed maturities, available for sale:

Total fixed maturities, available for sale

Equity securities - corporate securities
Trading 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:

Future policy benefits - embedded derivatives
associated with fixed index annuity products

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, 2016 is as follows (dollars in millions):

ASSETS:

Fixed maturities, available for sale:

Total fixed maturities, available for sale

Equity securities - corporate securities
Trading 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:

Future policy benefits - embedded derivatives
associated with fixed index annuity products

Quoted prices in active
markets for identical
assets or liabilities
(Level 1)

Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total

— $

13,252.4

258.5 $

13,510.9

—
—
—
—
—
—
—
—
—
359.9

—

—
—
—
—
—
4.9
4.9
—
—
—
364.8

164.3
1,988.9
33.0
2,649.9
225.3
1,504.2
2.5
915.5
20,736.0
199.1

—
—
3.9
60.4
5.4
32.0
—
—
360.2
25.2

164.3
1,988.9
36.9
2,710.3
230.7
1,536.2
2.5
915.5
21,096.2
584.2

19.0

—

19.0

.5
94.3
2.4
163.9
78.4
—
358.5
1,724.3
111.9
4.7
23,134.5

—
—
—
—
—
—
—
—
—
—

.5
94.3
2.4
163.9
78.4
4.9
363.4
1,724.3
111.9
4.7
385.4 $ 23,884.7

— $

1,092.3 $

1,092.3

For 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 based on interest rates currently being offered for similar
loans with similar risk characteristics. 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.

Liabilities for policyholder account balances. The estimated fair
value of insurance liabilities for policyholder account balances was
approximately equal to its carrying value as 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.

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.

127

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe fair value measurements for our financial instruments disclosed at fair value on a recurring basis are as follows (dollars in millions):

Quoted prices in active
markets for identical
assets or liabilities
(Level 1)

December 31, 2017
Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
estimated
fair value

Total
carrying
amount

— $
—

1,677.3 $ 1,677.3 $ 1,650.6
116.0

116.0

—

578.4
178.9

—
—
—
—

182.3

—
—

—
1,648.8
1,432.9
962.3

—

—
—

182.3

578.4
178.9

11,220.7
—
—
—

11,220.7
1,648.8
1,432.9
962.3

11,220.7
1,646.7
1,410.7
914.6

Quoted prices in active
markets for identical
assets or liabilities
(Level 1)

December 31, 2016
Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
estimated
fair value

Total
carrying
amount

— $
—

1,800.1 $ 1,800.1 $ 1,768.0
112.0

112.0

—

473.6
189.3

—
—
—
—

165.0

5.3
—

—
1,650.0
1,675.2
931.9

—

—
—

165.0

478.9
189.3

10,912.7
—
—
—

10,912.7
1,650.0
1,675.2
931.9

10,912.7
1,647.4
1,662.8
912.9

Assets:

Mortgage loans
Policy loans
Other invested assets:

Company-owned life insurance

Cash and cash equivalents:

Unrestricted
Held by variable interest entities

Liabilities:

Policyholder account balances
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

Cash and cash equivalents:

Unrestricted
Held by variable interest entities

Liabilities:

Policyholder account balances
Investment borrowings
Borrowings related to variable interest entities
Notes payable – direct corporate obligations

128

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, 2017 (dollars in millions):

December 31, 2017

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)

Beginning
balance as of
December 31,
2016

Transfers
into
Level 3(a)

Transfers
out of
Level 3(a)

Ending
balance as of
December 31,
2017

Amount of
total gains
(losses) for the
year ended
December 31,
2017 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
Debt securities
issued by foreign
governments
Asset-backed securities
Collateralized debt
obligations
Commercial
mortgage-backed
securities

Total fixed
maturities, available
for sale

Equity securities -
corporate securities
Investments held by
variable interest entities -
corporate securities

LIABILITIES:

Future policy benefits -
embedded derivatives
associated with fixed
index annuity products

258.5 $

(70.4) $

5.8 $

5.3 $

31.2 $

— $

230.4 $

(8.0)

3.9
60.4

5.4

—
(4.3)

(2.5)

32.0

(1.2)

360.2

(78.4)

25.2

(8.5)

—

4.9

—
—

—

5.9

6.3

—

—
.7

—

(.1)

5.9

(1.8)

—

—
—

—

—
(32.6)

(2.9)

(30.8)

31.2

(66.3)

—

3.9
24.2

—

258.5

21.2

4.9

—
—

—

(8.0)

—

(1,092.3)

(267.5)

25.0

—

(1,334.8)

25.0

(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, 2017 (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
Commercial mortgage-backed securities
Total fixed maturities, available for sale

Equity securities - corporate securities

Investments held by variable interest entities -
corporate securities

LIABILITIES:

Future policy benefits - embedded derivatives
associated with fixed index annuity products

76.6 $
—
—
—
76.6
—

(147.0) $
(4.3)
(2.5)
(1.2)
(155.0)
(8.5)

— $
—
—
—
—
—

8.9

(4.0)

—

— $
—
—
—
—
—

—

(70.4)
(4.3)
(2.5)
(1.2)
(78.4)
(8.5)

4.9

(178.9)

5.4

(159.3)

65.3

(267.5)

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, 2016
(dollars in millions):

December 31, 2016

Purchases,
sales,
issuances
and
settlements,
net (b)

Beginning
balance as of
December 31,
2015

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 (a)

Transfers
out of
Level 3 (a)

Ending
balance as
of December
31, 2016

Amount of
total gains
(losses) for the
year ended
December 31,
2016 included
in our net
income
relating to
assets and
liabilities still
held as of the
reporting date

170.4 $

76.5 $

(10.7) $

9.1 $

20.3 $

(7.1) $

258.5 $

(10.9)

—

35.9

—

1.1

4.0

9.7

5.4

16.9

(.1)

—

(.1)

—

2.2

—

26.3

(13.7)

—

13.9

—

3.9

60.4

5.4

32.0

—

207.5

112.4

(10.7)

11.3

60.5

(20.8)

360.2

32.0

5.5

(12.7)

39.9

—

25.2

(39.9)

—

(10.9)

(12.7)

ASSETS:

Fixed maturities,
available for sale:

Corporate securities
Debt securities issued
by foreign
governments
Asset-backed
securities
Collateralized
debt obligations
Commercial
mortgage-backed
securities
Mortgage
pass-through
securities

Total fixed
maturities,
available for sale
Equity securities -
corporate securities
Trading securities -
commercial mortgage-
backed securities

LIABILITIES:

Future policy benefits -
embedded derivatives
associated with fixed index
annuity products

(1,057.1)

(96.0)

60.8

—

(1,092.3)

60.8

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. In addition, such activity includes the investments received upon the recapture of reinsurance agreements with BRe on September 29, 2016. The following
summarizes such activity for the year ended December 31, 2016 (dollars in millions):

Received in
reinsurance
recapture

Purchases

Sales

Issuances

Settlements

Purchases, sales,
issuances and
settlements, net

ASSETS:

Fixed maturities, available for sale:

Corporate securities
Debt securities issued by foreign
governments
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities

Total fixed maturities, available for sale

Equity securities - corporate securities
Trading securities - corporate securities
LIABILITIES:

18.5 $

89.2 $

(31.2) $

— $

4.0
16.9
5.4
17.0
—
61.8
3.3
.2

—
—
—
—
—
89.2
2.2
—

—
(7.2)
—
(.1)
(.1)
(38.6)
—
(.2)

—
—
—
—
—
—
—
—

Future policy benefits - embedded derivatives
associated with fixed index annuity products

(148.3)

—

21.2

(28.9)

60.0

76.5

4.0
9.7
5.4
16.9
(.1)
112.4
5.5
—

(96.0)

At December 31, 2017, 52 percent of our Level 3 fixed maturities,
available for sale, were investment grade and 89 percent of our Level
3 fixed maturities, available for sale, consisted of corporate securities.

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.

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.

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.

The 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, 2017 (dollars in millions):

Fair value at
December 31, 2017

Valuation techniques

Unobservable inputs Range (weighted average)

ASSETS:

Corporate securities(a)

Corporate securities(b)
Asset-backed securities(c)
Equity securities(d)
Other assets categorized as Level 3(e)

Total
LIABILITIES:

Future policy benefits(f )

149.2

Discounted cash flow analysis

Recovery method
2.8
Discounted cash flow analysis
24.2
21.2
Market comparables
87.2 Unadjusted third-party price source
284.6

Discount margins
Percent of recovery
expected
Discount margins
EBITDA multiples
Not applicable

1.45% - 71.29% (6.96%)

0% - 21.73% (18.42%)
1.80% - 3.71% (2.67%)
1.1X - 8.9X (1.1X)
Not applicable

1,334.8

Discounted projected embedded
derivatives

5.15% - 5.61% (5.60%)
Projected portfolio yields
Discount rates
0.92 - 2.51% (2.00%)
Surrender rates 1.20% - 46.40% (12.30%)

(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) Corporate securities - The significant unobservable input used in the fair value measurement of these corporate securities is percentage of recovery expected. Significant

increases (decreases) in percentage of recovery expected in isolation would result in a significantly higher (lower) fair value measurement.

(c) Asset-backed securities - The significant unobservable input used in the fair value measurement of these 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.

131

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K(d) Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is multiples of earnings before interest, taxes,
depreciation and amortization (“EBITDA”). Generally, increases (decreases) in the EBITDA multiples would result in higher (lower) fair value measurements.

(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) Future policy benefits - The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed index annuity
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.

Fair value at
December 31, 2016

Valuation
techniques

Unobservable

inputs Range (weighted average)

ASSETS:

Corporate securities(a)

Corporate securities(b)
Asset-backed securities(c)
Equity securities(d)
Other assets categorized as Level 3(e)

Total
LIABILITIES:
Future policy benefits(f )

148.5

Discounted cash flow analysis

Recovery method
14.8
Discounted cash flow analysis
24.0
Market comparables
25.2
172.9 Unadjusted third-party price source
385.4

Discount margins 1.35% - 27.71% (13.52%)
Percent of recovery
expected
Discount margins
EBITDA multiples
Not applicable

5% - 69% (55%)
2.06% - 3.64% (2.76%)
0.4X - 6.2X (5.9X)
Not applicable

1,092.3

Discounted projected embedded
derivatives

Projected portfolio yields
5.15% - 5.61% (5.59%)
0.18 - 3.06% (2.07%)
Discount rates
Surrender rates 0.94% - 46.48% (13.52%)

(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) Corporate securities - The significant unobservable input used in the fair value measurement of these corporate securities is percentage of recovery expected. Significant

increases (decreases) in percentage of recovery expected in isolation would result in a significantly higher (lower) fair value measurement.

(c) Asset-backed securities - The significant unobservable input used in the fair value measurement of these 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) Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is EBITDA multiples. Generally, increases

(decreases) in EBITDA multiples would result in higher (lower) fair value measurements.

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

2017

2016

6% $

5,669.0

5,346.1

2,401.2

2,812.0

44.9

2,322.1

2,695.6

52.2

594.2
11,521.3

537.3
10,953.3

(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.

132

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsOur policyholder account balances are summarized as follows (dollars in millions):

Fixed index annuities
Other annuities
Interest-sensitive life insurance contracts
TOTAL

2017
5,942.2
4,183.8
1,094.7
11,220.7

2016
5,324.5
4,541.8
1,046.4
10,912.7

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 includes provision for 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 year

Less reinsurance (receivables) payables

Net balance, beginning of year
Incurred claims related to:

Current year
Prior years (a)

Total incurred

Interest on claim reserves
Paid claims related to:

Current year
Prior years

Total paid

Net balance, end of year

Add reinsurance receivables (payables)

BALANCE, END OF YEAR

2017
1,777.6
14.0
1,791.6

1,548.1
(26.7)
1,521.4
78.4

845.5
702.6
1,548.1
1,843.3
(15.1)
1,828.2

2016
1,731.8
(130.0)
1,601.8

1,526.4
96.6
1,623.0
75.3

837.2
671.3
1,508.5
1,791.6
(14.0)
1,777.6

2015
1,679.5
(125.0)
1,554.5

1,481.0
(13.3)
1,467.7
71.0

841.8
649.6
1,491.4
1,601.8
130.0
1,731.8

(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.

6. INCOME TAXES

The components of income tax expense (benefit) were as follows (dollars in millions):

Current tax expense (benefit)
Deferred tax expense
Valuation allowance applicable to current year income

Income tax expense calculated based on annual effective tax rate

Income tax expense on discrete items:

Change in valuation allowance
Impact of federal tax reform
Change in valuation allowance related to federal tax reform
IRS settlement
Other items

TOTAL INCOME TAX EXPENSE (BENEFIT)

2017
90.8
72.0
(15.3)
147.5

(13.4)
310.6
(138.1)
—
(1.7)
304.9

2016
(45.2) $
173.0
(14.0)
113.8

40.7
—
—
(170.4)
10.9
(5.0) $

2015
10.7
118.6
—
129.3

(32.5)
—
—
—
.2
97.0

The $172.5 million adjustment to our net deferred tax assets is
a provisional amount as defined in the SEC’s Staff Accounting
Bulletin No. 118 (“SAB 118”), issued in December 2017 to address
complexities in completing the calculations resulting from the Tax
Reform Act. Although we were able to make a reasonable estimate
of the impact of the Tax Reform Act based on the information
available, we have not analyzed the calculations in sufficient detail
to complete the accounting process, including the analysis of

133

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Kthe calculations of life insurance tax reserves and future taxable
income used to estimate the deferred tax valuation allowance. SAB
118 provides guidance on accounting for the effects of the Tax
Reform Act when our accounting process is incomplete but we are
able to determine a reasonable estimate. A final determination is

required to be made within a measurement period not to extend
beyond one year from the enactment date of the Tax Reform Act.
We will continue to analyze our estimate of the impact of the Tax
Reform Act and expect the process to be completed in the fourth
quarter of 2018.

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
Non-taxable income and nondeductible benefits, net
State taxes
Impact of federal tax reform
Change in valuation allowance related to federal tax reform
Impact of IRS settlement
Other items

EFFECTIVE TAX RATE

2017
35.0%
(6.0)
(2.0)
.6
64.7
(28.8)
—
—
63.5%

2016
35.0%
7.6
(1.1)
2.2
—
—
(48.2)
3.1
(1.4)%

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
Investments
Insurance liabilities
Other

Gross deferred tax assets

Deferred tax liabilities:

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 prepaid (accrued)

INCOME TAX ASSETS, NET

2017

489.6
9.3
4.3
415.8
48.9
967.9

(165.4)
(337.2)
(502.6)
465.3
(89.1)
376.2
(9.3)
366.9

2015
35.0%
(8.8)
(.2)
2.1
—
—
—
(1.7)
26.4%

2016

882.9
12.3
17.8
668.4
66.3
1,647.7

(277.8)
(344.1)
(621.9)
1,025.8
(240.2)
785.6
4.1
789.7

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 NOLs expire.

134

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsWe use a deferred tax valuation model to assess the need for a
valuation allowance. Our model is adjusted to reflect changes
in our projections of future taxable income including changes
resulting from the Tax Reform Act, investment strategies, the
impact of the sale or reinsurance of business and the recapture of
business previously ceded. Our estimates of future taxable income
are based on evidence we consider to be objective and verifiable.

At December 31, 2017, our projection of future taxable income
for purposes of determining the valuation allowance is based on
our adjusted average annual taxable income which is assumed
to increase by 3 percent for the next five years, and level taxable

income is assumed thereafter. In the projections used for our
analysis, our adjusted average taxable income of approximately
$345 million consisted of $85 million of non-life taxable income
and $260 million of life taxable income.

Based on our assessment, we recognized a decrease to the allowance
for deferred tax assets of $151.1 million in 2017, including the
impacts of the Tax Reform Act. We have evaluated the recovery of
our deferred tax assets and assessed the effect of limitations and/
or interpretations on their value and have concluded that it is more
likely than not that the value recognized will be fully realized in
the future.

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

Balance, December 31, 2014

Decrease in 2015

Balance, December 31, 2015

Increase in 2016

Balance, December 31, 2016

Decrease in 2017
Cumulative effect of accounting change

BALANCE, DECEMBER 31, 2017

246.0
(32.5)(a)
213.5
26.7(b)
240.2
(166.8)(c)
15.7(d)
89.1

(the “IRS”).

(c) The 2017 decrease to the deferred tax valuation allowance includes: (i) $138.1 million related to a reduction in the federal corporate income tax rate and other changes from
the Tax Reform Act; (ii) $13.4 million of reductions to the deferred tax valuation allowance primarily related to the recognition of capital gains; and (iii) $15.3 million of
reductions in the deferred tax valuation allowance reflecting higher current year taxable income than previously reflected in our deferred tax valuation model.

(d) Effective January 1, 2017, the Company adopted new authoritative guidance related to several aspects of the accounting for share-based payment transactions, including
the income tax consequences. Under the new guidance, any excess tax benefits are recognized as an income tax benefit in the income statement. The new guidance is
applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings for all tax benefits that were not previously recognized because the
related tax deduction had not reduced taxes payable. The Company had NOL carryforwards of $15.7 million related to deductions for stock options and restricted stock
on the date of adoption. However, a corresponding valuation allowance of $15.7 million was recognized as a result of adopting this guidance. Therefore, there was no
impact to our consolidated financial statements related to the initial adoption of this provision of the new guidance.

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 NOLs
is required.

Section 382 of the Code imposes limitations on a corporation’s
ability to use its NOLs when the company undergoes a 50 percent
ownership change over a three year period. 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 (1.96 percent at December 31, 2017), and the annual
restriction could limit 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, 2017, we were below the 50 percent ownership
change level that would trigger further impairment of our ability
to utilize our NOLs.

In 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 an ownership change occurring
by deterring the acquisition of stock that would create “5 percent
shareholders” as defined in Section 382. The Section 382 Rights
Agreement has been amended three times, most recently effective
November 13, 2017 (the “Third Amended Section 382 Rights
Agreement”). The Third Amended Section 382 Rights Agreement
extended the expiration date of the Section 382 Rights Agreement
to November 13, 2020, updated the purchase price of the rights

135

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Kdescribed below and provided for a new series of preferred stock
relating to the rights that is substantially identical to the prior
series of preferred stock. The Company expects to submit the
Third Amended Section 382 Rights Agreement to the Company’s
stockholders for approval at the Company’s 2018 annual meeting.

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 Third 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.

In 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. The Original Section 382 Charter
Amendment was amended and extended in 2013 and in 2016 (the
“2016 Section 382 Charter Amendment”). The expiration date for
the 2016 Section 382 Charter Amendment is July 31, 2019.

As of December 31, 2017, we had $2.3 billion of federal NOLs (all of which were non-life NOLs). The following table summarizes the
expiration dates of our loss carryforwards (dollars in millions):

Year of expiration
2023
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
TOTAL FEDERAL NOLs

Net operating loss
carryforwards

1,744.8
85.2
149.9
10.8
80.3
213.2
.3
.2
44.4
.6
.9
.8
2,331.4

Balance at beginning of year

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

BALANCE AT END OF YEAR

2016
234.2
3.4
(237.6)
—

purchase loan made by our Predecessor to a member of its
board of directors. The settlement resulted in a reduction to tax
expense of approximately $118.7 million in the fourth quarter
of 2016 (the period in which these matters were settled and the
fully executed documentation was received). The $118.7 million
benefit includes: (i) a $98.2 million tax benefit related to
additional life NOLs; (ii) a $17.1 million tax benefit related to

136

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementsadditional non-life NOLs (net of an increase to the deferred tax
valuation allowance of $51.7 million); and (iii) a $3.4 million
reduction in interest recognized in prior periods on alternative
minimum tax that will no longer be required to be paid.

on the extent to which we can use non-life NOLs to offset life
insurance company taxable income. Under current law, we will
continue to pay tax on 65 percent of our life insurance company
taxable income until all non-life NOLs are utilized or expire.

The additional life NOLs related to the settlement offset our life
taxable income in the third and fourth quarters of 2016 and the
tax gain realized on the recapture of the ceded long-term care
business from BRe. The settlement also reduced the amount of
current income tax accrued at December 31, 2016, as presented
in the components of income tax assets and liabilities schedule
provided in this note to consolidated financial statements by
approximately $50 million.

All of the life NOLs were utilized by December 31, 2016.
Accordingly, we began making estimated federal tax payments
equal to the prescribed federal tax rate applied to 65 percent of
our life insurance company taxable income due to the limitations

The IRS is also conducting an examination of 2013 through
2014. In connection with this exam, we have agreed to extend the
statute of limitations for 2013 through September 30, 2018. The
Company’s various state income tax returns are generally open for
tax years beginning in 2014, based on individual state statutes of
limitation. Generally, for tax years which generate NOLs, capital
losses or tax credit carryforwards, the statute remains open until
the expiration of the statute of limitations for the tax year in which
such carryforwards are utilized. The outcome of tax audits cannot
be predicted with certainty. If the Company’s tax audits are not
resolved in a manner consistent with management’s expectations,
the Company may be required to adjust its provision for income
taxes.

7. NOTES PAYABLE - DIRECT CORPORATE OBLIGATIONS

The following notes payable were direct corporate obligations of the Company as of December 31, 2017 and 2016 (dollars in millions):

4.500% Senior Notes due May 2020
5.250% Senior Notes due May 2025
Revolving Credit Agreement (as defined below)
Unamortized debt issuance costs

DIRECT CORPORATE OBLIGATIONS

Notes

On May 19, 2015, the Company executed the Indenture, dated as
of May 19, 2015 (the “Base Indenture”) and the First Supplemental
Indenture, dated as of May 19, 2015 (the “Supplemental Indenture”
and, together with the Base Indenture, the “Indenture”), between
the Company and Wilmington Trust, National Association, as
trustee (the “Trustee”) pursuant to which the Company issued
$325.0 million aggregate principal amount of 4.500% Senior
Notes due 2020 (the “2020 Notes”) and $500.0 million aggregate
principal amount of 5.250% Senior Notes due 2025 (the “2025
Notes” and, together with the 2020 Notes, the “Notes”).

The Company used the proceeds of the offering of the Notes,
together with borrowings under the Revolving Credit Agreement
(as defined below): (i) to repay all amounts outstanding under our
previous senior secured credit agreement; (ii) to redeem and satisfy
and discharge all of the outstanding 6.375% Senior Secured Notes
due October 2020 (the “6.375% Notes”); and (iii) to pay fees and
expenses related to the offering of the Notes and the foregoing
transactions. The remaining proceeds of the Notes and the
borrowings under the Revolving Credit Agreement were used for
general corporate purposes, including share repurchases.

The 2020 Notes mature on May 30, 2020, and the 2025 Notes
mature on May 30, 2025. Interest on the 2020 Notes is payable
at 4.500% per annum. Interest on the 2025 Notes is payable
at 5.250% per annum. Interest on the Notes is payable semi-
annually in cash in arrears on May 30 and November 30 of each
year, commencing on November 30, 2015.

2017
325.0
500.0
100.0
(10.4)
914.6

2016
325.0
500.0
100.0
(12.1)
912.9

The Notes are the Company’s senior unsecured obligations and
rank equally with the Company’s other senior unsecured and
unsubordinated debt from time to time outstanding, including
obligations under the Revolving Credit Agreement (as defined
below). The Notes are effectively subordinated to all of the
Company’s existing and future secured indebtedness to the extent
of the value of the assets securing such indebtedness. The Notes are
structurally subordinated to all existing and future indebtedness
and other liabilities of the Company’s subsidiaries.

The Company may redeem some or all of the 2020 Notes at any
time or from time to time at a “make-whole” redemption price plus
accrued and unpaid interest to, but not including, the redemption
date.

Prior to February 28, 2025, the Company may redeem some or all
of the 2025 Notes at any time or from time to time at a “make-
whole” redemption price plus accrued and unpaid interest to, but
not including, the redemption date. On and after February 28,
2025, the Company may redeem some or all of the 2025 Notes at
any time or from time to time at a redemption price equal to 100%
of the principal amount thereof plus accrued and unpaid interest
to, but not including, the redemption date.

Upon the occurrence of a Change of Control Repurchase Event (as
defined in the Indenture), the Company will be required to make
an offer to repurchase the Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any,
to, but not including, the date of repurchase.

137

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe Indenture contains covenants that restrict the Company’s
ability, with certain exceptions, to:

• incur certain subsidiary indebtedness without also guaranteeing

the Notes;

• create liens;

• enter into sale and leaseback transactions;

• issue, sell, transfer or otherwise dispose of any shares of capital
stock of any Insurance Subsidiary (as defined in the Indenture);
and

• consolidate or merge with or into other companies or transfer

all or substantially all of the Company’s assets.

The 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 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 Notes may
declare the principal of and accrued but unpaid interest, including
any additional interest, on all of the Notes to be due and payable.

Revolving Credit Agreement

On May 19, 2015, the Company entered into a $150.0 million
four-year unsecured revolving credit agreement with KeyBank
National Association, as administrative agent (the “Agent”), and
the lenders from time to time party thereto. On May 19, 2015, the
Company made an initial drawing of $100.0 million under the
Revolving Credit Agreement, resulting in $50.0 million available
for additional borrowings. On October 13, 2017, the Company
entered into an amendment and restatement agreement (the
“Amendment Agreement”) with respect to its revolving credit
agreement (as amended by the Amendment Agreement, the
“Revolving Credit Agreement”). The Amendment Agreement,
among other things, increased the total commitments available
under the revolving credit facility from $150.0 million to $250.0
million, increased the aggregate amount of additional incremental
loans the Company may incur from $50.0 million to $100.0
million and extended the maturity date of the revolving credit
facility from May 19, 2019 to the earlier of October 13, 2022 and
the date that is six months prior to the maturity date of the 2020
Notes, which is November 30, 2019.

The Revolving Credit Agreement includes an uncommitted
subfacility for swingline loans of up to $5.0 million, and up to
$5.0 million of the Revolving Credit Agreement is available for the
issuance of letters of credit. The Company may incur additional
incremental loans under the Revolving Credit Agreement in an
aggregate principal amount of up to $100.0 million provided that
there are no events of default and subject to certain other terms
and conditions including the delivery of certain documentation.

The interest rates with respect to loans under the Revolving Credit
Agreement are based on, at the Company’s option, a floating base
rate (defined as a per annum rate equal to the highest of: (i) the
federal funds rate plus 0.50%; (ii) the “prime rate” of the Agent;
and (iii) the eurodollar rate for a one-month interest period plus
an applicable margin based on the Company’s unsecured debt

rating), or a eurodollar rate plus an applicable margin based on
the Company’s unsecured debt rating. The margins under the
Revolving Credit Agreement range from 1.375% to 2.125%
(1.75% to 2.25% prior to the Amendment Agreement), in the case
of loans at the eurodollar rate, and 0.375% to 1.125% (.75% to
1.25% prior to the Amendment Agreement), in the case of loans
at the base rate. At December 31, 2017, the interest rate on the
amounts outstanding under the Revolving Credit Agreement was
3.44 percent. In addition, the daily average undrawn portion of
the Revolving Credit Agreement will accrue a commitment fee
payable quarterly in arrears. The applicable margin for, and the
commitment fee applicable to, the Revolving Credit Agreement,
will be adjusted from time to time pursuant to a ratings based
pricing grid. In addition, a fronting fee, in an amount equal
to 0.125% per annum on the aggregate face amount of the
outstanding letters of credit, will be payable to the issuers of such
letters of credit.

The Revolving Credit Agreement contains certain financial,
affirmative and negative covenants. The negative covenants in
the Revolving Credit Agreement include restrictions that relate to,
among other things and subject to customary baskets, exceptions
and limitations for facilities of this type:

• subsidiary debt;

• liens;

• restrictive agreements;

• restricted payments during the continuance of an event of

default;

• disposition of assets and sale and leaseback transactions;

• transactions with affiliates;

• change in business;

• fundamental changes;

• modification of certain agreements; and

• changes to fiscal year.

The Revolving Credit Agreement provides for customary events
of default (subject in certain cases to customary grace and cure
periods), which include, without limitation, the following:

• non-payment;

• breach of representations, warranties or covenants;

138

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements• cross-default and cross-acceleration;

• bankruptcy and insolvency events;

• judgment defaults;

• actual or asserted invalidity of documentation with respect to

the Revolving Credit Agreement;

Loss on Extinguishment of Debt

• change of control; and

• customary ERISA defaults.

In 2015, we recognized a loss on extinguishment of debt totaling
$32.8 million primarily related to: (i) the redemption premium
related to the repayment of the 6.375% Notes; and (ii) the write-
off of unamortized discount and issuance costs associated with the
repayment of our previous senior secured credit agreement and the
6.375% Notes.

Scheduled Repayment of our Direct Corporate Obligations

The scheduled repayment of our direct corporate obligations was as follows at December 31, 2017 (dollars in millions):

Year ending December 31,
2018
2019
2020
2021
2022
Thereafter

—
100.0(a)
325.0
—
—
500.0
925.0

(a) The maturity date of the Revolving Credit Agreement is the earlier of October 13, 2022 and the date that is six months prior to the maturity date of the Company’s

4.50% senior notes due 2020, which is November 30, 2019.

8. LITIGATION AND OTHER LEGAL PROCEEDINGS

Legal Proceedings

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, some
matters 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

139

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Kamounts 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 September 29, 2016, Washington National and BCLIC
commenced an arbitration proceeding seeking compensatory,
consequential and punitive damages against BRe based
upon BRe’s incurable material breaches of the long-term care
reinsurance agreements, conversion, fraud, and breaches of
fiduciary duties and the obligation to deal honestly and in good
faith. BRe filed a counterclaim against Washington National
and BCLIC in the arbitration alleging damages relating to the
reinsurance agreements and their termination. In addition,
on September 29, 2016, a complaint was filed by BCLIC and
Washington National in the United States District Court for
the Southern District of New York, Bankers Conseco Life
Insurance Company and Washington National Insurance
Company v. Moshe M. Feuer, Scott Taylor and David Levy,
Case No. 16-cv-7646, alleging, among other claims, fraud/
fraudulent concealment, and violation of the Racketeer
Influenced and Corrupt Organizations Act. These allegations
relate to the long-term care reinsurance agreements between
BRe and Washington National and BCLIC, respectively, and
emanate from the undisclosed relationships between and among
the defendants (who were the principal owners and officers of
BRe) and Platinum Partners, LP and its affiliates. On April
27, 2017, an amended complaint was filed adding Beechwood
Capital Group, LLC as a defendant. Feuer, Taylor and Levy
have moved to compel arbitration of Washington National’s and
BCLIC’s claims. Washington National and BCLIC intend to
vigorously pursue their claims for damages and other remedies
in the arbitration and the litigation described above.

By public notice dated July 26, 2017, the Cayman Islands
Monetary Authority advised that, effective July 25, 2017, two
individuals (the “Controllers”) had been appointed pursuant
to Section 24(2)(h) of the Cayman Islands Insurance Law to
assume control of the affairs of BRe. According to the public
notice, effective with their appointment, the Controllers
assumed immediate control of the affairs of BRe and have all
the powers necessary to administer the affairs of BRe including
power to terminate its insurance business. The Controllers
are responsible for assessing the financial position of BRe and
submitting a report to the Cayman Islands Monetary Authority
by a date to be specified. We are in the process of assessing the
potential impact of this action on the proceedings described in
the foregoing paragraph.

On July 20, 2007, a complaint was filed in the Hamilton
County, Indiana Circuit Court, Signature Estates of Indiana,
Inc. d/b/a Gordon Marketing, Stephens-Matthews Marketing,
Inc., Shields Brokerage, Inc. and Edwin A. Hildebrand d/b/a
Hildebrand Insurance Services v. Conseco Medical Insurance
Company, Conseco Medical Insurance Company a/k/a Washington
National Insurance Company and Washington National Insurance
Company, Cause No. 29D02- 0707-PL-790. The Plaintiffs
are independent insurance marketing organizations which

previously marketed Conseco Medical Insurance Company
(“CMIC”) individual major medical products and which are
claiming damages for allegedly fraudulent conduct by CMIC in
withdrawing from this business in 2002. The Plaintiffs contend
that they relied on CMIC’s alleged representations that its major
medical business was profitable and that CMIC was committed
to it. The Plaintiffs further allege that when CMIC exited the
market, it caused agents that were previously writing business
through their organizations to cease doing business with
them, thereby causing irreparable damage. CMIC merged into
Washington National, effective July 1, 2003. On December 16,
2016, following a jury trial, verdicts were entered in favor of the
plaintiffs, and compensatory damages aggregating $4.7 million
and punitive damages aggregating $6.0 million were awarded
to the plaintiffs. Washington National filed post-trial motions
requesting the court correct errors, grant a new trial, find that
punitive damages were improper, and reduce both compensatory
and punitive damages. Plaintiffs filed motions requesting pre-
judgment interest and attorney fees. On June 19, 2017, the court
reduced punitive damages by $1.5 million and denied plaintiffs’
motions for pre-judgment interest and attorney fees. Each side
appealed the decision and the case was subsequently settled.

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.

140

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsGuaranty Fund Assessments

The balance sheet at December 31, 2017, included: (i) accruals of
$14.1 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, 2017; and (ii) receivables of $20.0 million
that we estimate will be recovered through a reduction in future
premium taxes as a result of such assessments. At December 31,
2016, such guaranty fund assessment accruals were $24.9 million
and such receivables were $26.7 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 $11.0 million, $2.8 million and $1.2 million in
2017, 2016 and 2015, respectively.

$25.0 million at December 31, 2017 and 2016, 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 pursuant
to these lease and sponsorship agreements was $61.4 million, $56.8
million and $48.8 million in 2017, 2016 and 2015, respectively.
Future required minimum payments as of December 31, 2017,
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 $24.2 million and

2018
2019
2020
2021
2022
Thereafter
Total

9. AGENT DEFERRED COMPENSATION PLAN

33.5
18.2
11.8
8.0
5.6
3.6
80.7

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. In 2016, the agent deferred compensation plan was
amended to: (i) freeze participation in the plan; (ii) freeze benefits
accrued under the plan; and (iii) add a limited cashout feature.
During the third quarter of 2016, we made lump sum settlement
distributions to plan participants with account balances that were
below a certain threshold consistent with the provision of the
amended plan. We recognized a pre-tax gain of $6.1 million related
to the settlement distributions in the third quarter of 2016.

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 $168.2 million
and $156.3 million at December 31, 2017 and 2016, respectively.
Expenses incurred on this plan were $18.8 million, $8.1 million and
$2.2 million during 2017, 2016 and 2015, respectively (including
the recognition of gains (losses) of $(12.2) million, $3.1 million
and $15.2 million in 2017, 2016 and 2015, respectively, primarily
resulting from: (i) changes in the discount rate assumption used to
determine the deferred compensation plan liability to reflect current
investment yields; (ii) changes in mortality table assumptions;
and (iii) the aforementioned settlement distributions in 2016).
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
$182.3 million and $165.0 million at December 31, 2017 and 2016,
respectively. Death benefits related to the COLI and changes in the
cash surrender value (which approximates net realizable value) of
the COLI assets are recorded as net investment income on special-
purpose portfolios and totaled $24.6 million, $6.9 million and $.5
million in 2017, 2016 and 2015, respectively.

We used the following assumptions for the deferred compensation
plan to calculate:

Benefit obligations:
Discount rate
Net periodic cost:
Discount rate

2017

2016

3.75%

4.25%

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.

The benefits expected to be paid pursuant to our agent deferred
compensation plan as of December 31, 2017 were as follows (dollars
in millions):

2018
2019
2020
2021
2022
2023 - 2027

7.4
7.6
7.9
8.0
8.3
45.2

141

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KOne of our insurance subsidiaries has another unfunded
nonqualified deferred compensation program for qualifying
members of its career agency force. Such agents may defer a certain
percentage of their net commissions into the program. In addition,
annual Company contributions are made based on the agent’s
production and vest over a period of five to 10 years. The liability
recognized in the consolidated balance sheet for this program
was $22.9 million and $11.2 million at December 31, 2017
and 2016, respectively. Company contribution expense totaled
$6.6 million and $4.4 million in 2017 and 2016, respectively.
We purchased Trust-Owned Life Insurance (“TOLI”) as an
investment vehicle to fund the program. The TOLI assets are not

assets of the program, and as a result, are accounted for outside
the program and are recorded in the consolidated balance sheet as
other invested assets. The carrying value of the TOLI assets was
$18.0 million and $5.1 million at December 31, 2017 and 2016,
respectively.

The 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 $5.5 million, $5.3
million and $5.0 million in 2017, 2016 and 2015, respectively.
Employer matching contributions are discretionary.

10. DERIVATIVES

Our freestanding and embedded derivatives, which are not designated as hedging instruments, are held at fair value and are
summarized as follows (dollars in millions):

Assets:

Other invested assets:
Fixed index call options
Reinsurance receivables

TOTAL ASSETS
Liabilities:

Future policy benefits:
Fixed index products
TOTAL LIABILITIES

Fair value
2017

170.2
(1.4)
168.8

1,334.8
1,334.8

$
$

2016

111.9
(4.2)
107.7

1,092.3
1,092.3

$
$

The activity associated with freestanding derivative instruments is measured as either the notional or the number of contracts. The activity
associated with the fixed index annuity embedded derivatives are shown by the number of policies. The following table represents activity
associated with derivative instruments as of the dates indicated:

Fixed index annuities - embedded derivative
Fixed index call options

(a) Dollars in millions.

Measurement
Policies
Notional (a)

December 31,
2016
100,812
2,455.1 $

Additions
11,437
3,021.8 $

Maturities/
terminations
(7,560)
(2,471.1) $

December 31,
2017
104,689
3,005.8

We are required to establish an embedded derivative related to a modified coinsurance agreement pursuant to which we assume the risks of
a block of health insurance business. The embedded derivative represents the mark-to-market adjustment for approximately $126 million
in underlying investments held by the ceding reinsurer.

The following table provides the pre-tax gains (losses) recognized in net income for derivative instruments, which are not designated as
hedges for the periods indicated (dollars in millions):

Net investment income from policyholder and other special-purpose portfolios:

Fixed index call options
Net realized gains (losses):
Interest rate futures
Embedded derivative related to modified coinsurance agreement

TOTAL
Insurance policy benefits:

Embedded derivative related to fixed index annuities

TOTAL

2017

2016

2015

162.5

29.2

(36.2)

—
2.8
2.8

(1.1)
.8
(.3)

25.0
190.3

60.8
89.7

(2.7)
(7.0)
(9.7)

36.3
(9.6)

142

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsDerivative Counterparty Risk

If the counterparties to the call options fail to meet their
obligations, we may recognize a loss. We limit our exposure to
such a loss by diversifying among several counterparties believed
to be strong and creditworthy. At December 31, 2017, all of our
counterparties were rated “A-” or higher by S&P.

From time to time, we enter into exchange-traded interest
rate future contracts. The contracts are marked to market and
margined on a daily basis. The Company has minimal exposure
to credit-related losses in the event of nonperformance.

The Company and its subsidiaries are parties to master netting
arrangements with its counterparties related to entering into
various derivative contracts. Exchange-traded derivatives require
margin accounts which we offset.

The following table summarizes information related to derivatives with master netting arrangements or collateral as of December 31, 2017
and 2016 (dollars in millions):

Gross
amounts
recognized

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

170.2

— $

170.2

— $

170.2

111.9

—

111.9

—

111.9

December 31, 2017:

Fixed index call options

December 31, 2016:

Fixed index call options

11. SHAREHOLDERS’ EQUITY

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
Stock options exercised
Restricted and performance stock vested (a)

BALANCE, END OF YEAR

2017
173,754
(7,808)
725
187
166,858

2016
184,029
(11,688)
978
435
173,754

2015
203,324
(20,582)
769
518
184,029

(a) In 2017, 2016 and 2015, such amount was reduced by 103 thousand, 191 thousand and 237 thousand shares, respectively, which were tendered to the Company for

the payment of required federal and state tax withholdings owed on the vesting of restricted and performance stock.

In May 2011, the Company announced a securities repurchase
program of up to $100.0 million. In February 2012, June 2012,
December 2012, December 2013, November 2014, November
2015 and May 2017, the Company’s Board of Directors approved,
in aggregate, an additional $1,900.0 million to repurchase the
Company’s outstanding securities. In 2017, 2016 and 2015, we
repurchased 7.8 million, 11.7 million and 20.6 million shares,
respectively, for $167.1 million, $203.0 million and $365.2
million, respectively, under the securities repurchase program. The
Company had remaining repurchase authority of $385.6 million
as of December 31, 2017.

In 2017, 2016 and 2015, dividends declared and paid on common
stock totaled $59.6 million ($0.35 per common share), $54.8
million ($0.31 per common share) and $52.0 million ($0.27
per common share), respectively. In May 2017, the Company
increased its quarterly common stock dividend to $0.09 per share
from $0.08 per share. In May 2016, the Company increased its
quarterly common stock dividend to $0.08 per share from $0.07
per share. In May 2015, the Company increased its quarterly
common stock dividend to $0.07 per share from $0.06 per share.

The Company has a long-term incentive plan which permits the
grant of CNO incentive or non-qualified stock options, restricted
stock awards, restricted stock units, 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, 2017, 7.5 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 and a maximum term of
ten years. Our stock option awards granted in 2007 through 2009
generally vested on a graded basis over a three year service term
and expired five years from the date of grant. Our stock options
granted in 2010 through 2014 generally vest on a graded basis over
a three year service term and expire seven years from the date of
grant. Our stock options granted in 2015, 2016 and 2017 generally
vest on a graded basis over a three year service term and expire ten
years from the date of grant. The vesting periods for our awards of
restricted stock and restricted stock units (collectively “restricted
stock”) range from immediate vesting to a period of three years.

143

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KA summary of the Company’s stock option activity and related information for 2017 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
14.73
21.06
(17.81)
(11.43)
15.95

Shares
5,354
729
(237)
(725)
5,121
2,440
7,488

Weighted average
remaining life
(in years)

Aggregate
intrinsic value

5.4 $
3.0 $

5.2

37.2
19.2

A summary of the Company’s stock option activity and related information for 2016 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
13.32
17.45
(8.70)
(20.41)
14.73

Shares
5,199
1,706
(978)
(573)
5,354
2,187
4,620

Weighted average
remaining life
(in years)

Aggregate
intrinsic value

$
$

5.9
2.7

6.1

37.1
15.1

A summary of the Company’s stock option activity and related information for 2015 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
12.04
16.45
(8.20)
(17.70)
13.32

Shares
5,011
1,361
(769)
(404)
5,199
2,399
6,882

Weighted average
remaining life
(in years)

Aggregate
intrinsic value

$
$

4.8
2.5

4.8

38.4
15.3

We recognized compensation expense related to stock options
totaling $6.3 million ($4.1 million after income taxes) in 2017, $12.2
million ($7.9 million after income taxes) in 2016 and $9.6 million
($6.2 million after income taxes) in 2015. Compensation expense
related to stock options reduced both basic and diluted earnings
per share by two cents in 2017, four cents in 2016 and three cents

in 2015. At December 31, 2017, the unrecognized compensation
expense for non-vested stock options totaled $4.2 million which
is expected to be recognized over a weighted average period of 1.5
years. Cash received by the Company from the exercise of stock
options was $8.3 million, $8.4 million and $6.3 million during
2017, 2016 and 2015, 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

144

CNO FINANCIAL GROUP, INC. - Form 10-K

2017 Grants

2016 Grants

2015 Grants

2.2%
1.5%
32%
6.3
6.20

1.4%
1.6%
36%
6.3
5.48

1.7%
1.5%
85%
6.3
10.83

PART IIITEM 8 Consolidated Financial StatementsThe 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.
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 2017, 2016 and 2015.

The following table summarizes information about stock options outstanding at December 31, 2017 (shares in thousands):

Options outstanding

Options exercisable

Range of exercise prices
$6.77 - $7.51
$10.88 - $16.22
$16.42 - $21.48

Number
outstanding
605
683
3,833
5,121

Remaining life
(in years)
0.9
2.3
6.7

Average exercise
price
7.47
11.12
18.15

Number
exercisable

Average exercise
price
7.47
11.02
18.04

605 $
670
1,165
2,440

During 2017, 2016 and 2015, the Company granted restricted
stock of .3 million, .4 million and .1 million, respectively, to
certain directors, officers and employees of the Company at a
weighted average fair value of $20.87 per share, $18.17 per share
and $17.59 per share, respectively. The fair value of such grants

totaled $6.9 million, $7.3 million and $1.7 million in 2017,
2016 and 2015, 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 2017 is presented below (shares in thousands):

Non-vested shares, beginning of year

Granted
Vested
Forfeited

NON-VESTED SHARES, END OF YEAR

Shares
369
330
(147)
(17)
535

Weighted average grant
date fair value
18.10
20.87
(18.38)
(20.59)
19.65

At December 31, 2017, the unrecognized compensation expense for
non-vested restricted stock totaled $5.5 million which is expected
to be recognized over a weighted average period of 1.8 years. At
December 31, 2016, the unrecognized compensation expense for
non-vested restricted stock totaled $5.0 million. We recognized
compensation expense related to restricted stock awards totaling
$6.1 million, $3.1 million and $2.2 million in 2017, 2016 and
2015, respectively. The fair value of restricted stock that vested
during 2017, 2016 and 2015 was $2.7 million, $2.1 million and
$2.7 million, respectively.

Effective January 1, 2017, the Company adopted new authoritative
guidance related to several aspects of the accounting for share-
based payment transactions, including the accounting policy
for forfeiture rate assumptions. Under the new guidance, we
elected to account for forfeitures as they occur. The impact of
adoption of this provision of the guidance increased additional
paid-in capital by $.9 million, decreased retained earnings by
$.6 million and increased income tax assets by $.3 million.
Prior to 2017, authoritative guidance required us to estimate the

amount of unvested stock-based awards that would be forfeited in
future periods and reduce the amount of compensation expense
recognized over the applicable service period to reflect such
estimate.

In 2017, 2016 and 2015 the Company granted performance units
totaling 452,900, 507,976 and 516,660, 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. The performance units granted in 2017, 2016 and 2015
provide for a payout of up to 200 percent of the award if certain
performance thresholds are achieved, and the performance units
granted prior to 2015 provide for a payout of up to 150 percent of
the award if certain performance thresholds are achieved. Unless
antidilutive, the diluted weighted average shares outstanding
would reflect the number of performance units expected to be
issued, using the treasury stock method.

145

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KA summary of the Company’s performance units is presented below (shares in thousands):

Awards outstanding at December 31, 2014

Granted in 2015
Additional shares issued pursuant to achieving certain performance criteria(a)
Shares vested in 2015
Forfeited

Awards outstanding at December 31, 2015

Granted in 2016
Additional shares issued pursuant to achieving certain performance criteria(a)
Shares vested in 2016
Forfeited

Awards outstanding at December 31, 2016

Granted in 2017
Additional shares issued pursuant to achieving certain performance criteria(a)
Shares vested in 2017
Forfeited

AWARDS OUTSTANDING AT DECEMBER 31, 2017

Total
shareholder
return awards
519
258
85
(260)
(53)
549
254
87
(261)
(59)
570
226
—
—
(167)
629

Operating
return on equity
awards
343
258
—
—
(52)
549
254
65
(239)
(59)
570
226
30
(144)
(53)
629

Pre-tax
operating
income awards
176
—
85
(260)
(1)
—
—
—
—
—
—
—
—
—
—
—

(a) The performance units that vested in these years provided for a payout of up to 150 percent of the award if certain performance levels were achieved.

The grant date fair value of the performance units awarded was
$11.2 million and $10.3 million in 2017 and 2016, respectively.
We recognized compensation expense of $9.0 million, $7.7 million
and $5.3 million in 2017, 2016 and 2015, 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
in 2009 and has amended and extended the Section 382
Rights Agreement on three occasions. The Section 382 Rights
Agreement, as amended, 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 Section 382 Rights
Agreement, as amended, each Right entitles the shareholder to
purchase from the Company one one-thousandth of a share of
Series D Junior Participating Preferred Stock, par value $.01 per
share (the “Junior Preferred Stock”) of the Company at a price
of $90.00 per one one-thousandth of a share of Junior Preferred
Stock. The description and terms of the Rights are set forth
in the Section 382 Rights Agreement, as amended. 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 DILUTED EARNINGS PER SHARE

Weighted average shares outstanding for basic earnings per share
Effect of dilutive securities on weighted average shares:
Stock options, restricted stock and performance units

WEIGHTED AVERAGE SHARES OUTSTANDING FOR DILUTED
EARNINGS PER SHARE

2017
175.6

2016
358.2

2015
270.7

170,025

176,638

193,054

2,119

1,685

2,112

172,144

178,323

195,166

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 were
exercised and restricted stock was vested. The dilution from
options and restricted shares is calculated using the treasury

stock method. Under this method, we assume the proceeds from
the exercise of the options (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 (or the vesting of the
restricted stock and performance units).

146

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements12. 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

2017
4,013.4
30.2
(114.4)
3,929.2
19.0

(1,445.9)
2,502.3
145.0
2,647.3

2016
3,942.7
33.8
(132.9)
3,843.6
6.2

(1,386.7)
2,463.1
138.0
2,601.1

2015
3,769.6
38.4
(142.8)
3,665.2
5.9

(1,241.9)
2,429.2
126.8
2,556.0

The four states with the largest shares of 2017 collected premiums were Florida (10 percent), Pennsylvania (6 percent), Texas (6 percent)
and California (5 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

2017
115.6
237.3
488.6
841.5

2016
110.5
231.0
454.8
796.3

Changes in the present value of future profits were as follows (dollars in millions):

Balance, beginning of year

Amortization
Amounts related to changes in unrealized investment gains (losses) on fixed maturities,
available for sale

BALANCE, END OF YEAR

2017
401.8
(54.4)

12.2
359.6

2016
449.0
(62.2)

15.0
401.8

2015
103.8
205.2
430.2
739.2

2015
489.4
(69.1)

28.7
449.0

Based on current conditions and assumptions as to future
events on all policies inforce, the Company expects to amortize
approximately 11 percent of the December 31, 2017 balance of
the present value of future profits in 2018, 10 percent in 2019,
9 percent in 2020, 7 percent in 2021 and 7 percent in 2022. 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, 2017, 2016 and 2015.

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 changes in unrealized investment gains (losses) on fixed maturities,
available for sale

BALANCE, END OF YEAR

2017
1,044.7
236.1
(184.9)

(69.1)
1,026.8

2016
1,083.3
242.7
(191.1)

(90.2)
1,044.7

2015
770.6
246.4
(190.9)

257.2
1,083.3

147

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K13. 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 from operating activities:

Amortization and depreciation
Income taxes
Insurance liabilities
Accrual and amortization of investment income
Deferral of policy acquisition costs
Net realized investment (gains) losses
Loss on reinsurance transactions and transition expenses
Cash and cash equivalents received upon recapture of reinsurance
Loss on extinguishment of borrowings related to variable interest entities
Loss on extinguishment of debt
Other

2017

2016

2015

175.6

358.2

270.7

265.4
227.5
464.7
(321.6)
(236.1)
(50.3)
—
—
9.5
—
78.4
613.1

275.0
(11.7)
332.8
(124.2)
(242.7)
(8.3)
75.4
73.6
—
—
34.7
762.8

283.4
92.9
297.4
(27.6)
(246.4)
36.6
9.0
—
—
32.8
(1.0)
747.8

NET CASH FROM OPERATING ACTIVITIES

Other 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
Market value of investments recaptured in connection with the termination of reinsurance
agreements with BRe

2017
21.4

—

2016
23.0

431.1

2015
17.1

—

14. 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

2017
1,904.4
246.8
487.0
2,638.2

2016
1,956.8
253.3
486.9
2,697.0

Statutory capital and surplus included investments in upstream
affiliates of $42.6 million at both December 31, 2017 and 2016,
which were 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 $352.3
million, $256.6 million (including approximately $110 million
loss on the recapture of long-term care business) and $332.6
million in 2017, 2016 and 2015, respectively. Included in such
net income were net realized capital losses, net of income taxes,
of $9.9 million, $29.7 million and $18.0 million in 2017, 2016
and 2015, respectively. In addition, such net income included
pre-tax amounts for fees and interest paid to CNO or its non-life
subsidiaries totaling $158.3 million, $153.9 million and $154.2
million in 2017, 2016 and 2015, respectively.

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 some 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. However, as each of the immediate
insurance subsidiaries of CDOC, Inc. (“CDOC”, our wholly owned
subsidiary and the immediate parent of Washington National and
Conseco Life Insurance Company of Texas) has negative earned
surplus, any dividend payments from the insurance subsidiaries to
CNO requires the prior approval of the director or commissioner
of the applicable state insurance department. During 2017, our
insurance subsidiaries paid dividends of $357.7 million to CDOC.

148

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe payment of interest on surplus debentures requires either
prior written notice or approval of the director or commissioner
of the applicable state insurance department. Dividends and other
payments from our non-insurance 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, except pursuant to agreements that
have been approved, 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)

15. BUSINESS SEGMENTS

We measure segment performance by excluding the loss on
reinsurance transaction and transition expenses, net realized
investment gains (losses), fair value changes in embedded derivative
liabilities (net of related amortization), fair value changes and
amendment in the agent deferred compensation plan, loss on
extinguishment of debt, income taxes and other non-operating items
consisting primarily of equity in earnings of certain non-strategic
investments and earnings attributable to VIEs (“pre-tax operating
earnings”) 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

if a company’s total adjusted capital is less than 35 percent of its
RBC, the regulatory 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 150 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. The 2017
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, 2017, the consolidated RBC ratio of our
insurance subsidiaries exceeded the minimum RBC requirement
included in our Revolving 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.

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.

The loss on reinsurance transaction and transition expenses, net
realized investment gains (losses), fair value changes in embedded
derivative liabilities (net of related amortization), fair value changes
and amendment in the agent deferred compensation plan, loss on
extinguishment of debt and other non-operating items consisting
primarily of equity in earnings of certain non-strategic investments
and earnings attributable to VIEs 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.

149

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KOperating information by segment was as follows (dollars in millions):

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:

Annuities
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

Long-term care in run-off:

Insurance policy income - health
Net investment income(a)

Total Long-term care in run-off revenues

Corporate operations:

Net investment income
Fee revenue and other income
Total corporate revenues

Total revenues

(continued on next page)

2017

2016

2015

20.3
1,231.1
415.2
1,107.3
44.1
2,818.0

22.0
1,244.1
393.0
936.8
34.4
2,630.3

22.4
1,251.0
375.3
884.7
27.7
2,561.1

2.1
642.9
26.4
270.2
1.0
942.6

2.1
289.7
44.4
1.3
337.5

17.5
34.6
52.1

2.9
627.9
25.0
259.3
1.3
916.4

2.6
278.8
44.2
1.1
326.7

4.8
9.4
14.2

3.0
615.4
25.4
253.6
1.3
898.7

3.0
260.5
43.0
1.0
307.5

—
—
—

35.5
8.5
44.0
4,194.2

16.6
10.0
26.6
3,914.2

11.3
8.6
19.9
3,787.2

150

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements(continued from previous page)

2017

2016

2015

1,771.8
163.6
19.8
443.9
2,399.1

1,620.6
176.5
13.2
422.1
2,232.4

1,588.4
187.1
8.8
407.2
2,191.5

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
Interest expense on investment borrowings
Other operating costs and expenses
Total Colonial Penn expenses

Long-term care in run-off:
Insurance policy benefits
Other operating costs and expenses

Total Long-term care in run-off expenses

Corporate operations:

Interest expense on corporate debt
Interest expense on investment borrowings
Other operating costs and expenses

Total corporate expenses
Total expenses

Pre-tax operating earnings by segment:

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off
Corporate operations

PRE-TAX OPERATING EARNINGS

(a) It is not practicable to provide additional components of revenue by product or services.

581.1
58.8
6.3
198.1
844.3

199.6
16.3
.9
98.1
314.9

47.3
3.1
50.4

46.5
—
84.3
130.8
3,739.5

418.9
98.3
22.6
1.7
(86.8)
454.7

561.7
59.1
3.7
189.0
813.5

201.9
15.3
.6
107.2
325.0

17.6
.5
18.1

45.8
—
69.1
114.9
3,503.9

397.9
102.9
1.7
(3.9)
(88.3)
410.3

546.6
55.2
2.0
183.4
787.2

189.0
14.4
.1
98.4
301.9

—
—
—

45.0
.2
38.6
83.8
3,364.4

369.6
111.5
5.6
—
(63.9)
422.8

151

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KA reconciliation of segment revenues and expenses to consolidated revenues and expenses and net income is as follows (dollars in millions):

Total segment revenues
Net realized investment gains (losses)
Revenues related to certain non-strategic investments and earnings attributable to VIEs
Fee revenue related to transition and support services agreements

CONSOLIDATED REVENUES

Total segment expenses
Insurance policy benefits - fair value changes in embedded derivative liabilities
Amortization related to fair value changes in embedded derivative liabilities
Amortization related to net realized investment gains (losses)
Expenses related to certain non-strategic investments and expenses attributable to VIEs
Fair value changes and amendment related to agent deferred compensation plan
Loss on extinguishment of debt
Loss on reinsurance transaction and transition expenses
Expenses related to transition and support services agreements

CONSOLIDATED EXPENSES
Income before tax
Income tax expense:

Tax expense on period income
Valuation allowance for deferred tax assets and other tax items

NET INCOME

2017
4,194.2 $
50.3
52.7
—
4,297.2
3,739.5
2.9
(.4)
1.0
61.5
12.2
—
—
—
3,816.7
480.5

162.8
142.1
175.6 $

2016
3,914.2 $
8.3
52.6
10.0
3,985.1
3,503.9
(11.3)
1.7
.7
54.6
(3.1)
—
75.4
10.0
3,631.9
353.2

127.8
(132.8)
358.2 $

2015
3,787.2
(36.6)
36.3
25.0
3,811.9
3,364.4
(15.7)
3.8
(.5)
43.0
(15.1)
32.8
9.0
22.5
3,444.2
367.7

129.5
(32.5)
270.7

Segment balance sheet information was as follows (dollars in millions):

2017

2016

21,134.9 $
7,674.3
1,059.3
692.9
2,548.9
33,110.3 $

18,031.6 $
6,101.5
921.0
580.4
2,628.3
28,262.8 $

19,876.4
7,555.7
1,022.9
656.2
2,864.0
31,975.2

17,144.9
6,096.9
898.5
562.2
2,785.8
27,488.3

Assets:

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off
Corporate operations
TOTAL ASSETS

Liabilities:

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off
Corporate operations

TOTAL LIABILITIES

152

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe following table presents selected financial information of our segments (dollars in millions):

Segment
2017

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off

TOTAL

2016

Bankers Life
Washington National
Colonial Penn
Long-term care in run-off

TOTAL

Present value of
future profits

Deferred
acquisition costs

Insurance
liabilities

81.1
243.7
34.8
—
359.6

95.5
266.8
39.5
—
401.8

606.5
310.8
109.5
—
1,026.8

646.2
299.9
98.6
—
1,044.7

16,541.2
5,590.7
834.4
572.7
23,539.0

15,702.8
5,586.7
809.6
554.7
22,653.8

16. 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):

2017
Revenues
Income before income taxes
Income tax expense
NET INCOME (LOSS)
Earnings per common share:

Basic:

Net income (loss)

Diluted:

Net income (loss)

2016
Revenues
Income before income taxes
Income tax expense (benefit)
NET INCOME
Earnings per common share:

Basic:

Net income

Diluted:

Net income

1st Qtr.
1,070.7
96.7
34.4
62.3

2nd Qtr.
1,057.1
128.5
45.1
83.4

$
$

3rd Qtr.
1,079.3
129.9
29.1
100.8

$
$

4th Qtr. (a)
1,090.1
$
125.4
$
196.3
(70.9)

.36

.49

.60

(.42)

.36
1st Qtr.
960.4
40.5
(5.0)
45.5

$
$

.48
2nd Qtr.
1,003.9
82.7
22.8
59.9

$
$

.59
3rd Qtr.
1,015.9
49.3
30.7
18.6

$
$

(.42)
4th Qtr.
1,004.9
180.7
(53.5)
234.2

.25

.34

.11

1.35

.25

.33

.11

1.34

$
$

(a) In the fourth quarter of 2017, our net loss reflected the unfavorable impact of $172.5 million related to the Tax Reform Act which was enacted in December 2017.

153

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K17. 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.

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. 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. During the three years ended December 31, 2017,
VIEs that were required to be consolidated were dissolved. We
recognized losses of $4.3 million and $7.3 million during 2017
and 2016, respectively, and a gain of $11.3 million during 2015,

representing the difference between the borrowings of such VIEs
and the contractual distributions required following the liquidation
of the underlying assets. The scheduled repayment of the remaining
principal balance of the borrowings related to the VIEs are as
follows: $3.0 million in 2018; $3.6 million in 2019; $2.1 million
in 2020; $1.3 million in 2021; $539.9 million in 2028; and
$878.0 million in 2030. The Company has no financial obligation
to the VIEs beyond its investment in each VIE.

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.

The following table provides supplemental information about the assets and liabilities of the VIEs which have been consolidated
(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

154

CNO FINANCIAL GROUP, INC. - Form 10-K

December 31, 2017

VIEs

Eliminations

Net effect on
consolidated
balance sheet

1,526.9 $
—
178.9
2.6
.7
10.0
1,719.1 $

158.3 $

1,410.7
167.6
1,736.6 $

— $

(155.5)
—
(.1)
—
(1.5)
(157.1) $

(4.4) $

—
(167.6)
(172.0) $

1,526.9
(155.5)
178.9
2.5
.7
8.5
1,562.0

153.9
1,410.7
—
1,564.6

December 31, 2016

VIEs

Eliminations

Net effect on
consolidated
balance sheet

1,724.3 $
—
189.3
3.0
6.4
13.1
1,936.1 $

81.8 $

1,662.8
203.3
1,947.9 $

— $

(204.2)
—
(.1)
(1.3)
(1.8)
(207.4) $

(6.4) $

—
(203.3)
(209.7) $

1,724.3
(204.2)
189.3
2.9
5.1
11.3
1,728.7

75.4
1,662.8
—
1,738.2

PART IIITEM 8 Consolidated Financial StatementsPART II
ITEM 8 Consolidated Financial Statement

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 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
Loss on extinguishment of borrowings

INCOME BEFORE INCOME TAXES

2017

69.8
5.9
75.7

50.2
1.8
52.0
23.7
(5.6)
(9.5)
8.6

2016

2015

78.9
6.4
85.3

53.1
1.5
54.6
30.7
(20.4)
—
10.3

62.1
1.6
63.7

38.8
2.0
40.8
22.9
(6.4)
—
16.5

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, 2017, such loans had an amortized cost of $1,524.9 million; gross unrealized gains
of $8.6 million; gross unrealized losses of $6.6 million; and an estimated fair value of $1,526.9 million.

The following table sets forth the amortized cost and estimated fair value of the investments held by the VIEs at December 31, 2017, 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
11.2
541.8
971.9
1,524.9

Estimated fair value
11.2
542.0
973.7
1,526.9

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, 2017, 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
2.4
178.2
299.8
480.4

Estimated fair value
2.4
174.3
297.1
473.8

During 2017, the VIEs recognized net realized investment
losses of $5.6 million, which were comprised of: (i) $1.2 million
of net gains from the sales of fixed maturities; (ii) $4.3 million
of losses on the dissolution of VIEs; and (iii) $2.5 million of
writedowns of investments for other than temporary declines
in fair value recognized through net income. During 2016, the
VIEs recognized net realized investment losses of $20.4 million
which were comprised of: (i) $11.9 million of net losses from the
sales of fixed maturities; (ii) a $7.3 million loss on the dissolution
of a VIE; and (iii) $1.2 million of writedowns of investments for
other than temporary declines in fair value recognized through
net income. During 2015, the VIEs recognized net realized
investment losses of $6.4 million which were comprised of:
(i) $1.3 million of net losses from the sales of fixed maturities;
(ii) an $11.3 million gain on the dissolution of a VIE; and
(iii) $16.4 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.

At December 31, 2017, there were no investments held by the
VIEs that were in default.

During 2017, $109.6 million of investments held by the VIEs
were sold which resulted in gross investment losses (before
income taxes) of $3.0 million. During 2016, $192.2 million

of investments held by the VIEs were sold which resulted in
gross investment losses (before income taxes) of $20.3 million.
During 2015, $46.1 million of investments held by the VIEs
were sold which resulted in gross investment losses (before
income taxes) of $1.8 million.

At December 31, 2017, the VIEs held: (i) investments with a
fair value of $445.4 million and gross unrealized losses of
$4.9 million that had been in an unrealized loss position for
less than twelve months; and (ii) investments with a fair value
of $28.4 million and gross unrealized losses of $1.7 million that
had been in an unrealized loss position for greater than twelve
months.

At December 31, 2016, the VIEs held: (i) investments with a fair
value of $93.8 million and gross unrealized losses of $.9 million
that had been in an unrealized loss position for less than twelve
months; and (ii) investments with a fair value of $143.9 million
and gross unrealized losses of $2.9 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.

155

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, 2017, 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
(2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on our evaluation under the
framework in Internal Control - Integrated Framework (2013), our
management concluded that our internal control over financial
reporting was effective as of December 31, 2017.

The effectiveness of our internal control over financial reporting as
of December 31, 2017 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, 2017, that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

ITEM 9B. Other Information.

None.

156

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.

157

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

for a list of financial statements included in this Report. ....................................................................

2. Financial Statement Schedules:

Schedule II — Condensed Financial Information of Registrant (Parent Company)

Balance Sheet at December 31, 2017 and 2016 ..............................................................................

Statement of Operations for the years ended December 31, 2017, 2016 and 2015 .........................

Statement of Cash Flows for the years ended December 31, 2017, 2016 and 2015 ........................

Notes to Condensed Financial Information ...................................................................................

Schedule IV — Reinsurance for the years ended December 31, 2017, 2016 and 2015 ......................

Page

160

161

162

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.

ITEM 16. Form 10-K Summary.

None.

158

CNO FINANCIAL GROUP, INC. - Form 10-K

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 23, 2018
By: /s/ Gary C. Bhojwani
Gary C. Bhojwani
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/ GARY C. BHOJWANI
Gary C. Bhojwani
/s/ ERIK M. HELDING
Erik M. Helding
/s/ JOHN R. KLINE
John R. Kline
/s/ ELLYN L. BROWN
Ellyn L. Brown
/s/ STEPHEN DAVID
Stephen David
/s/ ROBERT C. GREVING
Robert C. Greving
/s/ MARY R. HENDERSON
Mary R. Henderson
/s/ CHARLES J. JACKLIN
Charles J. Jacklin
/s/ DANIEL R. MAURER
Daniel R. Maurer
/s/ NEAL C. SCHNEIDER
Neal C. Schneider
/s/ FREDERICK J. SIEVERT
Frederick J. Sievert

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 23, 2018

February 23, 2018

159

CNO FINANCIAL GROUP, INC. - Form 10-KPART IVSignatureSCHEDULE II Condensed Financial Information of Registrant (Parent Company)

Balance Sheet as of December 31, 2017 and 2016

(Dollars in millions)

ASSETS
Cash and cash equivalents - unrestricted
Equity securities at fair value (cost: 2017 - $225.7; 2016 - $166.5)
Investment in wholly-owned subsidiaries (eliminated in consolidation)
Income tax assets, net
Receivable from subsidiaries (eliminated in consolidation)
Other assets

TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:

Notes payable
Payable to subsidiaries (eliminated in consolidation)
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: 2017 - 166,857,931; 2016 - 173,753,614)

Accumulated other comprehensive income
Retained earnings

TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

The accompanying notes are an integral part of the condensed financial statements.

2017

2016

161.1
243.6
5,440.7
129.6
6.3
12.7
5,994.0

914.6
143.0
88.9
1,146.5

3,075.0
1,212.1
560.4
4,847.5
5,994.0

106.1
167.9
5,220.3
99.5
2.0
1.8
5,597.6

912.9
128.4
69.4
1,110.7

3,213.8
622.4
650.7
4,486.9
5,597.6

SCHEDULE II Condensed Financial Information of Registrant (Parent Company)

Statement of Operations for the years ended December 31, 2017, 2016 and 2015

(Dollars in millions)
Revenues:

Net investment income
Net realized investment gains
Intercompany losses (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 expense (benefit)

Loss before equity in undistributed earnings of subsidiaries

Equity in undistributed earnings of subsidiaries (eliminated in consolidation)

NET INCOME

The accompanying notes are an integral part of the condensed financial statements.

2017

14.2
2.4
—
16.6

46.5
1.7
75.4
—
123.6
(107.0)
27.4
(134.4)
310.0
175.6

2016

15.6
17.7
—
33.3

45.8
.9
48.2
—
94.9
(61.6)
(54.6)
(7.0)
365.2
358.2

2015

16.9
3.5
(1.5)
18.9

45.2
.4
21.0
32.8
99.4
(80.5)
(37.9)
(42.6)
313.3
270.7

160

CNO FINANCIAL GROUP, INC. - Form 10-K

PART 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, 2017, 2016 and 2015

(Dollars in millions)
Cash flows from operating activities
Cash flows from investing activities:

Sales of investments
Sales of investments - affiliated*
Maturities and redemptions of investments - affiliated*
Purchases of investments
Purchases of investments - affiliated*
Net sales of trading securities
Dividends received from consolidated subsidiary, net of capital contributions of nil in 2017,
$200.0 in 2016 and nil in 2015*

Net cash provided by investing activities

Cash flows from financing activities:

Issuance of notes payable, net
Payments on notes payable
Expenses related to extinguishment of debt
Issuance of common stock
Payments to repurchase common stock
Common stock dividends paid
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 condensed financial statements.

2017
(181.8)

2016
(110.7)

54.9
—
—
(123.6)
—
9.1

363.5
303.9

—
—
—
8.3
(168.3)
(59.6)
—
310.8
(158.3)
(67.1)
55.0
106.1
161.1

305.0
—
—
(198.4)
—
12.0

92.5
211.1

—
—
—
8.4
(210.0)
(54.8)
—
217.1
(83.9)
(123.2)
(22.8)
128.9
106.1

2015
(51.2)

66.5
16.0
8.3
(68.6)
(3.4)
11.8

269.7
300.3

910.0
(797.1)
(17.8)
6.3
(365.4)
(52.0)
(20.4)
234.4
(104.8)
(206.8)
42.3
86.6
128.9

161

CNO FINANCIAL GROUP, INC. - Form 10-KPART IVSCHEDULE II Condensed Financial Information of Registrant (Parent Company)SCHEDULE II Notes to Condensed Financial Information

Directors of CNO Financial Group, Inc.

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, 2017, 2016 and 2015

(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

2017

2016

2015

27,154.3
120.5
(3,452.6)
23,822.2

.5%

2017

2,576.9
30.4
(105.0)
2,502.3

27,048.1
128.7
(3,604.0)
23,572.8

.5%

2016

2,553.0
34.0
(123.9)
2,463.1

25,807.0
137.4
(3,780.8)
22,163.6
.6%

2015

2,524.3
38.5
(133.6)
2,429.2

1.2%

1.4%

1.6%

Neal C. Schneider (Chairman)

Former Chairman of the Board,

PMA Capital Corporation

Gary C. Bhojwani

Chief Executive Officer,

CNO Financial Group, Inc.

Ellyn L. Brown

Retired Principal,

Brown & Associates

Stephen David

Senior Advisor,

The Boston Consulting Group

Robert C. Greving

Retired Executive Vice President,

Chief Financial Officer and Chief Actuary,

Unum Group

Mary R. (Nina) Henderson

Managing Partner,

Henderson Advisory

Charles J. Jacklin

Retired Chairman,

Mellon Capital

Management Corporation

Daniel R. Maurer

Retired Executive,

Intuit Inc.

Fredrick J. Sievert

Retired President,

New York Life Insurance Company

162

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IVSCHEDULE II Condensed Financial Information of Registrant (Parent Company)This page intentionally left blank.

This page intentionally left blank.

Directors of CNO Financial Group, Inc.

Neal C. Schneider (Chairman)
Former Chairman of the Board,
PMA Capital Corporation

Gary C. Bhojwani
Chief Executive Officer,
CNO Financial Group, Inc.

Ellyn L. Brown
Retired Principal,
Brown & Associates

Stephen David
Senior Advisor,
The Boston Consulting Group

Robert C. Greving
Retired Executive Vice President,
Chief Financial Officer and Chief Actuary,
Unum Group

Mary R. (Nina) Henderson
Managing Partner,
Henderson Advisory

Charles J. Jacklin
Retired Chairman,
Mellon Capital
Management Corporation

Daniel R. Maurer
Retired Executive,
Intuit Inc.

Fredrick J. Sievert
Retired President,
New York Life Insurance Company

Table of Contents

A Letter to Shareholders from CEO Gary C. Bhojwani

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

Exhibits and Financial Statement Schedules

Directors of CNO Financial Group, Inc.

Investor Information

158

163

164

Investor Information

if you would

AST
Operations Center
6201 15th Avenue
Brooklyn, NY 11219

Ways to Learn More About Us
Investor Hotline: Call (800) 426-6732 or (317) 817-2893
to receive annual reports, Form 10-Ks, Form 10-Qs, and
investor
other documents by mail or to speak with an
relations representative.

Email: Contact us at ir@CNOinc.com to ask questions or
request materials.

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

CNO Financial Group, Inc.

11825 N. Pennsylvania Street

Carmel, IN 46032

(317) 817-6100

CNOinc.com

(03/18) 183885

ANNUAL

REPORT

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Table of Contents

A Letter to Shareholders from CEO Gary C. Bhojwani

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

Exhibits and Financial Statement Schedules

Directors of CNO Financial Group, Inc.

Investor Information

158

163

164

Investor Information

Meeting of Shareholders

Ways to Learn More About Us

Our annual meeting of shareholders will be held at

Investor Hotline: Call (800) 426-6732 or (317) 817-2893

8:00 a.m. (EDT) on May 9, 2018, in the auditorium of CNO Financial

to receive annual reports, Form 10-Ks, Form 10-Qs, and

Group headquarters at 11825 N. Pennsylvania Street, Carmel,

other documents by mail or to speak with an

investor

Indiana. This information is included in the meeting notice,

relations representative.

Email: Contact us at ir@CNOinc.com to ask questions or

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 Financial

transfer agent, American Stock Transfer & Trust Company LLC,

at (800) 937-5449 or (718) 921-8124. Shareholders may reach

American Stock Transfer at astfinancial.com, by email to

help@astfinancial.com, or by mail:

AST

Operations Center

6201 15th Avenue

Brooklyn, NY 11219

request materials.

Quarterly Reporting

investor.CNOinc.com.

Copies of this Report

To receive CNO Financial quarterly results as soon as they

are announced, please sign up for CNO Financial mailing

list by contacting the investor relations department or visit

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 common stock is listed on the

New York Stock Exchange (trading symbol: CNO).

CNO Financial Group, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032
(317) 817-6100

CNOinc.com

ANNUAL

REPORT

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