CNO Financial Group Annual Report 2019

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ANNUAL
REPORT

CNO Financial Group, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032
(317) 817-6100

CNOinc.com

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

145

153

154

Investor Information

Meeting of Shareholders
Our annual meeting of shareholders will be held via live webcast
at 8:00 a.m. (EDT) on May 8, 2020. Information on the virtual
meeting, including how to vote your shares, is included in the
meeting notice, proxy statement, and form of proxy sent to each
shareholder with this annual report.

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’s
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
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.

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:

It is late at night, and I am putting the finishing touches on this letter from my home office. As of this writing, almost all CNO associates—including
me—have been working from our homes for at least the last week due to the coronavirus (COVID-19) pandemic. Despite being in the insurance industry for
the past 30 years, I have never before been so forcefully reminded of the critical role that our associates, our agents, our products and our services play in
safeguarding the hopes, the dreams and the lives of everyday Americans.

Nothing is more important to us than ensuring our ability to keep the promises we make with every product we sell. We know the responsibility that rests
with us, and we take it very seriously.

The balance of this letter is written with an eye toward the normalcy that we all hope and pray will soon return. It’s important to me that we report to you,
our shareholders, on the progress of your company. But I also think it is important to acknowledge the unprecedented circumstances under which we all
are operating.

At CNO, we provide insurance and financial solutions that help protect the health and retirement needs of middle-income Americans. In times of heightened
uncertainty and market volatility, our job—and our industry—is more important than ever. We deliver on the promises of our life and health insurance
and annuities for our consumers. Particularly as we navigate through the current challenges together, customer focus is at the forefront of everything we
do—from answering coverage questions to providing financial security guidance in the face of market volatility.

Changing consumer expectations are driving our recently announced strategic transformation. We are transforming our business model to strengthen how
we serve our consumers and deliver our customer experience. In doing so, we will maximize our profitability and create long-term shareholder value (more
on that later).

Using a methodical and sequenced approach over the past two years, we delivered significant operational and financial accomplishments. Highlights of
our 2019 successes include:

•

Increased all five of our growth scorecard metrics for the full year.

• Paid $2 billion in claims to policyholders.

•

Upgraded by S&P and Fitch to A- (Excellent). All of our insurance companies are now rated investment grade by all four leading rating agencies.

• Returned $319 million to shareholders.

• Acquired Web Benefits Design (WBD), a leading benefits enrollment technology firm.

• Ranked #1 on a list of the 2019 Healthiest 100 Workplaces in America.

•

Issued our first Corporate Social Responsibility report.

I am proud of the results delivered by our associates, agents and leadership team. I believe in the promise and potential of CNO, our workforce and our
responsibility to the underserved middle-income market. As I have shared in previous letters, CNO’s promise is one reason why I chose to join the company
in 2016. It is also why I continue to believe that CNO is an unparalleled investment opportunity. However, before turning to why to invest in CNO, I begin by
acknowledging and welcoming several groups of people.

I wish to first thank our policyholders and shareholders for the trust they place in CNO Financial Group. I also extend my thanks to our 3,000 full-time
associates and more than 5,000 insurance agents nationwide who deliver on the promises of our financial protection and insurance products. Many of us
know a family that has received proceeds from a life insurance policy or a loved one who has created a reliable retirement income stream through an annuity
purchase. The work of our associates and agents changes our consumers’ lives for the better.

I was pleased to welcome David Foss to the board of directors in November of 2019. David is president and chief executive officer of Jack Henry & Associates,
Inc., a leading provider of technology solutions to the financial services industry. He brings a wealth of technology and public company leadership experience
to our board, including 30 years of experience in the financial services industry. I look forward to working with David in 2020 and beyond.

I also wish to recognize our Board Chair Dan Maurer and the full CNO board of directors for their stewardship. Many of CNO’s 2019 accomplishments
are rooted in the board’s support of and trust in management, their advocacy for our middle-income consumers and a demonstrated commitment to our
associates and shareholders.

Finally, I had the pleasure of welcoming three accomplished leaders to CNO’s executive leadership group this year: Chief Actuary Karen DeToro, Chief
Financial Officer Paul McDonough and Chief Marketing Officer Rocco Tarasi. With the addition of Karen, Paul and Rocco to our already-strong management
team, I am confident we have the right leadership in place as CNO enters the next chapter in our growth story.

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2019 Performance

I view our 2019 performance from three perspectives: operating and financial results, investment performance and capital management.

Operating and Financial Results

We continued to execute well against our strategic priorities and delivered strong operational and financial performance despite the challenges of a low and
volatile interest rate environment:

• All growth scorecard metrics up for the full year.

• Total collected premiums up 1% for the full year.

• Operating income per share up 6% (adjusted for the 2018 long-term care transaction).

• Net income of $409.4 million (including $194 million, or $1.23 per share, tax benefit related to a tax planning strategy).

• Book value per common share was $31.58, up 52% from $20.78 at December 31, 2018.

Investments in growth initiatives implemented over the past few years and ongoing technology expenditures continue to bear fruit. Our producing career
agent count was up 6% for the full year, which is especially impressive because unemployment rates were at historic lows through 2019. Importantly, agent
growth is a key leading indicator for sales growth.

Sales momentum also continued. Life and health NAP was up 5% for the full year, which included record sales in our worksite and direct-to-consumer
businesses. Annuity collected premiums were up 12% for the full year, despite a challenging fourth quarter due to the low interest rate environment. Fee
revenue was up 76%. Highlights include:

• Our Broker-Dealer and Registered Investment Advisor (BD/RIA) businesses also continue to grow. Client assets increased 37% to $1.5 billion.

• Washington National delivered strong sales growth, with life and health sales up 12% and total collected premiums up 3% over prior year.

• Worksite sales were up 15% for the year, reflecting six consecutive quarters of growth.

•

Colonial Penn, our direct-to-consumer business, delivered record sales, up 7% year-over-year. The direct-to-consumer channel also had 2.4 million
unique visitors to our website, logged 1.2 million telesales interactions and completed 34,000 web chat sessions.

We are acutely aware that our solid topline momentum has not yet translated to bottomline earnings growth. During my 30 years in the insurance industry, I have
not seen a company that can simultaneously grow sales, cut expenses, overcome unprecedented interest rate declines and grow earnings all at the same time.

Resources and results need to be sequenced, which is the methodical approach we continue to take at CNO. Prior to 2017, we were in our “fix and focus”
phase. In 2017, we pivoted to growth. In late 2019, our concentration squarely turned to capturing efficiencies and expense control.

In 2019, we took a hard look at our cost structure and identified significant opportunities to streamline and drive efficiencies. In November 2019, we
announced a strategic technology partnership expected to deliver $20 million in savings over five years. Not only will the partnership deliver savings, but we
expect it to help transform how we deliver technology services within our business.

Our transformation and strategic realignment is expected to generate $22 million in gross annual savings beginning in 2021. We plan to invest approximately
$11 million of these annual savings back into the business to support technology and growth initiatives. To be clear, consumer behavior is driving our
transformation. However, expense management is a secondary benefit that also serves to mitigate some of the impact from the low interest rate environment.

Investment Performance

Almost all insurance relies heavily—if not primarily—on investment income. We take in premiums today, invest them prudently and promise to pay in the
future. Unexpected shocks to investment returns can put stress on an otherwise simple business model.

Investment income headwinds were a significant obstacle in 2019. Despite a 5% decline in net investment income, our solid underwriting performance and
expense control, coupled with thoughtful and disciplined capital management, enabled us to deliver operating earnings per share that were down only 2%,
excluding significant items.

Our investments area—alongside the entire industry—continues to manage through an extremely challenging environment. Net investment income, driven
largely by fixed income securities, is the main driver of our earnings. In 4Q2018, the benchmark 10-year Treasury yield averaged 3.0%, and the forward curve
at the time suggested it would go higher from there. In the second half of 2019, the average dropped to 1.8%. And as recently as March 9, 2020, it closed at
0.50%. Although still volatile, it thankfully has recovered a bit as of this writing. In spite of this, in 2019 our investments outperformed the majority of the
benchmarks we use as a measure of relative performance.

Besides the pressure from rapidly declining and volatile interest rates, geopolitical risks (such as the oil market turbulence and the global COVID-19
pandemic) are creating extreme disruption in the equity and bond markets.

Even as global financial markets are in a condition of unprecedented volatility and turmoil, we are confident that our investment capabilities will continue
to strongly differentiate CNO from other carriers. Our senior investment team has more than 200 years of collective experience. Together, they navigated
through the financial crises following the September 11 attacks, the recessions of the 2000s and the 2008-2009 financial crisis.

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Of course, we prefer not to be forced to retest our investment team’s ability to navigate crises. But when presented with today’s challenges, this proven
leadership is crucially important. Our experience protecting your capital is reflected by our relatively low level of impairments over the past 10 years, while
generating yields in excess of most benchmarks.

Early in 2019, we proactively de-risked our portfolio, positioning it for an eventual change in the credit cycle. This exemplified our far-sighted and disciplined
portfolio management approach, with a bias toward steady and predictable results. This portfolio repositioning decreased our short-term profits. But, more
importantly, it allowed us to exit 2019 more conservatively positioned. The events of early 2020 suggest that trading near-term returns in 2019 for long-term
safety in 2020 and beyond was a prudent decision.

Of course, we are not immune to the forces roiling the markets in late 2019 and early 2020. While we expect to earn less today on our assets than in previous
years, we have a disciplined and experienced team at the helm, and a very strong portfolio that will enable us to meet our commitments to our policyholders
and shareholders.

Capital Management

Our balance sheet remains strong, we continue to generate robust levels of free cash flow and we are committed to good capital stewardship. In 2019, we
generated $327 million in gross free cash flow and $287 million after investments in growth. This compares to operating income of $282.1 million, excluding
significant items, which reflects cash flow conversion rates of 116% and 102%, respectively. These cash flow conversion rates are among the highest in our
peer group.

We also remain committed to allocating capital wisely and opportunistically. Since 2017, we have returned more than $700 million to shareholders in the
form of share repurchases and dividends. This reflects 26% of our market capitalization as of December 31, 2019. In 2019, we returned $319 million to
shareholders, reducing our share count by 9%. This represents the largest, single-year return in more than four years. I am pleased to note that we delivered
this level of shareholder returns in the same year that we completed the $66 million acquisition of Web Benefits Design, which added a best-in-class
technology offering to our fast-growing Worksite platform.

A Customer-Centric Transformation

Consumer behaviors and expectations are changing across all industries, including insurance. As a result, new distribution models are emerging that better
serve customers and meet them how and when they wish to purchase insurance.

CNO has a unique set of highly valuable distribution assets. Bankers Life has a Top 5 national captive agency force with deep and established customer
relationships. Agent distribution of this size is virtually impossible to replicate. Colonial Penn is a Top 5 direct-to-consumer insurance platform with significant
brand awareness and a highly leverageable platform. Washington National has a fast-growing worksite business, and its niche consumer organization adds
breadth and depth to our agency force capabilities. Previously, these segments operated primarily in silos. Brought together, the opportunity to deliver a
new customer experience is significant.

In January 2020, we announced a transformation to create a leaner, more integrated, customer-centric organization by uniting these disparate distribution
capabilities. Our new operating model transforms our three operating businesses into two divisions that center on the customers we serve: the Consumer
Division and the Worksite Division.

Consumers today expect to be served seamlessly across channels, regardless of whether they want to talk on the phone, research on the web, order online,
engage with a salesperson face-to-face, or some combination of these access points. By realigning into two divisions, we are responding to these changing
consumer behaviors and building the capability for consumers to easily move among our brands, legal entities and sales channels.

Our commitment to the middle-income market remains unchanged. Consumers and agents will continue to engage with the CNO family of brands in the
marketplace. As an outcome of the transformation, we expect to:

• Deliver an enhanced customer experience.

• Allocate capital more efficiently.

• Drive more efficient customer acquisition.

• Streamline our cost structure.

• Generate faster decision-making.

• Provide more transparent financial disclosures.

Why Invest in CNO

I offer this perspective when asked: “Why invest in CNO?” Consider the secular tailwinds supporting our growth, niche market focus and unrivaled market
access capabilities. Then, add our solid balance sheet, resilient financial performance, balanced investment approach and strong cash generation. I do not
believe there are many other opportunities that check all these boxes and offer the same assets that we do at CNO.

First, CNO is operating in a space with tremendous demographic tailwinds. Baby Boomers still turn age 65 at a rate of about 10,000 per day. The youngest
Baby Boomers will only turn age 56 in 2020. They still have more than a decade to go before reaching the Social Security Administration’s retirement age
of 67 to receive full benefits. We are serving a market that will continue to grow for some time. Within this growing market is a niche of customers—the
middle-income market—that need the products and services we offer more than ever before as they have fewer options to prepare for their retirement.

Second, no one is as close to the middle-income consumer as CNO. We manufacture simple, safe and profitable products designed specifically with
middle-income consumers in mind. With a unique combination of face-to-face, direct-to-consumer and worksite distribution, our ability to reach and build

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lasting relationships with these consumers is unmatched. Our new operating model will enable us to further unlock the inherent synergies among these
capabilities to accelerate our growth and improve our financial performance.

Finally, we maintain a solid balance sheet and conservative investment portfolio, generate robust free cash flow and have demonstrated good capital stewardship.
We enter 2020 well-positioned and motivated to maintain steady, profitable growth for the benefit of our consumers, associates, agents and shareholders.

Commitment to Corporate Social Responsibility

Investors are increasingly considering environmental, social and governance (ESG) factors into their investment decisions. At CNO, helping others comes
naturally to us. It is part of our DNA and central to our overall business strategy.

We know that our long-term success is tied to the well-being of our customers, associates, neighbors and the way we conduct our business. We are proud
to have published CNO’s first Corporate Social Responsibility report in 2019 to highlight the work of our associates and agents to positively effect change in
our communities. Our efforts focus on six key areas that are most relevant to our business:

• Ethics and governance.

• Serving our customers.

• Employee well-being.

• Investing prudently.

• Philanthropy and community relations.

• Environmental responsibility.

The report is available on our website at CNOinc.com.

In 2019, we invested further in developing our associates and building a workforce culture that champions our people, embraces diversity and inclusion and
aspires to be a force for good.

•

Our award-winning associate well-being program provides all associates with low-cost or free access to onsite health clinics, health coaching, financial
wellness programs, and extensive mental health and well-being resources.

We completed our second year of an enhanced incentive compensation program. Since 2018, every single associate is eligible for a performance-based
cash bonus to boost their financial rewards and promote ownership in our success.

Our Diversity and Inclusion (D&I) initiatives also expanded, adding three new Business Resource Groups (BRGs) to our workplace community. Our
associates now lead Women’s, Black/African American, LGBTQ+, and Veterans and Families BRGs at CNO.

What to Expect in 2020

As we turn to 2020 and beyond, we are squarely focused on maintaining our recent growth momentum while maximizing profitability. We will continue to
execute against our sequenced and methodical approach to take our businesses to scale and realize greater operating leverage. At the same time, our strategic
transformation is building an integrated delivery model and reshaping our customer experience while generating cost savings and revenue synergies.

In an effort to maximize shareholder value at all times, CNO has demonstrated our ability to balance sales growth and profitability. We have also implemented
expense cuts and other mechanisms to mitigate the negative impacts of the current interest rate environment. We will continue to pursue this approach in
concert with a commitment to earnings per share (EPS) growth, prudent capital allocation and enhanced transparency.

We cannot predict the challenges that the future will bring—new record-low interest rates, the evolving COVID-19 situation, recession or other disruptions.
However, I know for certain that CNO, our associates and our agents will be there for our policyholders when they need us most. We are in this business to
help ensure that our middle-market customers can rest easy knowing that their futures are secure. I am confident that as a company and a nation, we will
come out of this stronger.

In closing, I would like to add my sincere thanks to a board member who has been committed to our company and consumers for nearly two decades. Neal
Schneider will retire as a member of the CNO board of directors in May. Neal’s contributions to the board during his years of service are immeasurable. He
was board chair from 2011 to May 2018. Since then, he has continued to serve as a member of the Audit and Enterprise Risk Committee and the Governance
and Nominating Committee. Neal has been a counselor, a sounding board, an advocate and a friend. On behalf of my fellow directors and the CNO
management team, I extend our gratitude for his steadfast commitment to CNO.

Thank you for your continued support of, and interest in, CNO Financial Group.

Regards,

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

March 21, 2020

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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, 2019

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

Rights to purchase Series D Junior Participating Preferred Stock

Trading Symbol Name of each exchange on which registered

CNO

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 every Interactive Data File
required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit such files).
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, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of
the Registrant’s common equity held by nonaffiliates was approximately $2.6 billion.

Shares of common stock outstanding as of February 10, 2020: 146,280,557

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant’s definitive proxy statement for the 2020 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

PART II

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

Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

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

Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Item 8.
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143

PART III

144
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 144
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

PART IV

145
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 145

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, 2019,
we had shareholders’ equity of $4.7 billion and assets of
$33.6 billion. For the year ended December 31, 2019, we had
revenues of $4.0 billion and net income of $409.4 million.
See our consolidated financial statements and accompanying
footnotes for additional financial information about the
Company and its segments.

supplement

interest-sensitive

Bankers Life, which underwrites, markets and distributes
Medicare
life
insurance,
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”). 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 underwrites, 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

CNO FINANCIAL GROUP, INC. - Form 10-K

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: (i) the long-term care
business that was recaptured due to the termination of certain
reinsurance agreements effective September 30, 2016 (such
business is not actively marketed and was issued or acquired
by Washington National and Bankers Conseco Life Insurance
Company (“BCLIC”)); and (ii) certain legacy (prior to 2003)
comprehensive and nursing home long-term care policies which
were ceded to Wilton Reassurance Company (“Wilton Re”) in
September 2018 (such business was not actively marketed and
was issued by Bankers Life).

In January 2020, we announced a new operating model that
realigns the Company from the operating business segments
described above into two divisions - Consumer and Worksite.
The new structure will create a leaner, more integrated, customer-
centric organization that better positions us for long-term success
and shareholder value creation. Under the new structure, we
will be organized around two business divisions that reflect the
customers served by the Company.

The Consumer Division will serve individual consumers,
engaging with them on the phone, online, face-to-face with
agents, or through a combination of sales channels. This structure
unifies consumer capabilities into a single division and integrates
the strength of our agent sales forces and industry-leading direct-
to-consumer business with proven experience in advertising, web/
digital and call center support.

The Worksite Division will focus on worksite and group sales
for businesses, associations, and other membership groups,
interacting with customers at their place of employment. By

PART I
ITEM 1 Business of CNO

creating a dedicated Worksite Division, we will bring a sharper
focus to this high-growth business while further capitalizing on
the strength of our recent acquisition of Web Benefits Design
Corporation (“WBD”).

our three primary brands: Bankers Life, Washington National
and Colonial Penn. All policy, contract, and certificate terms,
conditions, and benefits remain unchanged.

We will begin reporting under a different segment structure
focused on product types beginning in the first quarter of 2020
based on the way management will make operating decisions and
assess performance going forward. Prior period results will be
reclassified to conform to the new reporting structure.

Other Information

Our executive offices are located at 11825 N. Pennsylvania Street,
Carmel, Indiana 46032, and our telephone number is (317)
817-6100. Our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments
to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act are available free of charge
on our website at www.CNOinc.com as soon as reasonably
practicable after they are electronically filed with, or furnished
to, the Securities and Exchange Commission (the “SEC”). These
filings are also available on the SEC’s website at www.sec.gov.
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 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 2019, 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
2019 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, 2019 (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 $3.8 billion, $3.8 billion and $3.7 billion in 2019, 2018 and
2017, respectively.

Our insurance subsidiaries collectively hold licenses to market our
insurance products in all fifty states, the District of Columbia,
and certain protectorates of the United States. Sales to residents
of the following states accounted for at least five percent of our
2019 collected premiums: Florida (11 percent), Pennsylvania
(6 percent) and Texas (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 approximately 4,400
producing agents working from over 260 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 2019, the Bankers
Life segment had total collected premiums related to this
distribution channel of $2.8 billion, or 73 percent, of our total
collected premiums. These agents sell Bankers Life policies,
as well as Medicare Advantage plans through distribution
arrangements with third-party insurance companies, 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.

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

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 2019, this distribution channel accounted
for $711.0 million, or 19 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 using direct response marketing techniques. New
policyholder leads are generated primarily from television, print
advertising, direct response mailings and the internet. In 2019,
this channel accounted for $308.3 million, or 8 percent, of our
total collected premiums.

Products

The following table summarizes premium collections by major category and segment for the years ended December 31, 2019, 2018 and
2017 (dollars in millions):

TOTAL PREMIUM COLLECTIONS

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

2019

1,020.2
673.2
1.3
13.5
1,708.2

1,305.4
1.0
1,306.4

467.4
36.8
307.0
811.2
3,825.8

2018

2017

1,019.0 $
659.3
1.7
145.8
1,825.8

1,163.2
1.3
1,164.5

466.0
32.2
296.6
794.8
3,785.1 $

1,025.1
642.5
2.0
205.2
1,874.8

1,030.6
.9
1,031.5

462.4
30.0
289.6
782.0
3,688.3

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

2019

733.9
40.9
1.2
776.0

255.6
13.5
269.1

24.9
630.7
655.6

2018

734.3 $
46.3
1.5
782.1

255.1
145.8
400.9

23.6
611.3
634.9

5.8
1.6
.1
7.5
1,708.2

6.0
1.7
.2
7.9
1,825.8 $

2017

739.4
51.6
1.9
792.9

257.0
205.2
462.2

22.6
589.1
611.7

6.1
1.8
.1
8.0
1,874.8

Medicare Supplement

Long-Term Care

Medicare supplement collected premiums were $776.0 million
during 2019, 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 2019 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 $269.1 million during
2019, or 7 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.

As further described in the note to the consolidated financial
statements entitled “Summary of Significant Accounting
Policies - Reinsurance”, Bankers Life entered into an agreement
in September 2018 to cede all of its legacy (prior to 2003)
comprehensive and nursing home long-term care policies (with
statutory reserves of $2.7 billion) through 100% indemnity
coinsurance. We continue to sell long-term care insurance
through the Bankers Life career agent distribution channel.
The business currently being sold is underwritten using stricter
underwriting and pricing standards and has shorter benefit
periods than the long-term care policies that were ceded pursuant
to a reinsurance transaction completed in September 2018.
During 2019, 98 percent of new sales of long-term care products
in the Bankers Life segment had benefit periods of two years or
less and 25 percent of all new sales are reinsured with a third
party. At December 31, 2019, 94 percent of the long-term care
policies in the Bankers Life segment have benefit periods of less
than four years and 57 percent of such long-term care policies have
benefit periods of one year or less. In the third quarter of 2018,
we ceased sales of home health care only long-term care policies.
In addition, we ceased sales of comprehensive and nursing home
long-term care policies with benefit periods exceeding three years.
Comprehensive policies cover both nursing home care and home
healthcare. Home healthcare benefits included in comprehensive

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

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. 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.

Supplemental Health Products

Supplemental health collected premiums were $655.6 million
during 2019, 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.

Approximately 74 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,

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

collected

annuity premiums

During 2019, we
of
$1,306.4 million, or 34 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, our major

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 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 $7.5 million
during 2019. 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.

2019

2018

1,241.2
.8
1,242.0

64.2
.2
64.4
1,306.4

1,112.0 $
1.1
1,113.1

51.2
.2
51.4
1,164.5 $

2017

964.7
.6
965.3

65.9
.3
66.2
1,031.5

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 following describes the major annuity products:

Fixed Index Annuities
These products accounted for $1,242.0 million, or 32 percent,
of our total premium collections during 2019. The account value
(or “accumulation value”) of these annuities is credited in an

CNO FINANCIAL GROUP, INC. - Form 10-K

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.

In 2019, a significant portion of our new annuity sales were “bonus
interest” products. These products typically specify a bonus
interest rate that generally ranges from 3 percent to 4 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 is established.

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 $64.4 million, or 2 percent, of
our total premium collections during 2019, of which SPDAs
and FPDAs comprised $56.9 million. Our fixed rate SPDAs and
FPDAs typically have a crediting rate that is guaranteed by the
Company for the first policy year, after which we have the ability
to change the crediting rate to any rate not below a guaranteed
minimum rate. The guaranteed rates on annuities written

PART I
ITEM 1 Business of CNO

recently are 1.75 percent, and the guaranteed rates on all policies
inforce range from 1.0 percent to 5.5 percent. As of December 31,
2019, the average crediting rate on our outstanding traditional
annuities was 3 percent.

The initial crediting rate is largely a function of:

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

new annuity fund deposits;

• the costs related to marketing and maintaining the annuity

products; and

• the rates offered on similar products by our competitors.

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

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 $7.5 million of our total premiums collected
in 2019. 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
6.6 percent at December 31, 2019.

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 2019, we collected life insurance premiums of
$811.2 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
$201.3 million, or 5 percent, of our total collected premiums in
2019. 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 $609.9 million, or 16 percent, of
our total collected premiums in 2019. 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

2019

173.9
27.2
.2
201.3

293.5
9.6
306.8
609.9
811.2

2018

170.8 $
22.1
.2
193.1

295.2
10.1
296.4
601.7
794.8 $

2017

162.5
19.1
.2
181.8

299.9
10.9
289.4
600.2
782.0

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
$39.4 million of our total collected premiums in 2019.

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 $25.3 billion of assets (at fair value)
under management at December 31, 2019, of which $25.2 billion
were our assets (including investments held by variable interest

entities (“VIEs”) that are included on our consolidated balance
sheet) and $.1 billion were assets managed for third parties. Our
general account investment strategies are to:

• provide largely stable investment income from a diversified high

quality fixed income portfolio;

CNO FINANCIAL GROUP, INC. - Form 10-K

PART I
ITEM 1 Business of CNO

• 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

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

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.

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

Competition

The markets in which we operate are competitive. Compared
to CNO, many companies in the financial services industry
are larger, have greater capital, technological and marketing
resources, have greater access to capital and other sources of
liquidity at a lower cost, offer broader and more diversified
product lines, have greater brand recognition, have larger staffs
and higher ratings. 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 basis 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

• 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 reduce the profitability of
the fixed index products, cause us to lower participation rates,
or both. 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.

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
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 and subsidiaries
of Globe Life Inc. 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 Globe Life Inc.

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

individual long-term care insurance in 2018 with a market share
of approximately 7 percent, the top four writers of individual
long-term care insurance had new annualized premiums with a
combined market share of approximately 75 percent during the
period. In addition, while, based on a 2018 Medicare Supplement
Loss Ratios report, we ranked seventh in direct premiums earned
for Medicare supplement insurance in 2018 with a market share
of 2.5 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.

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,

CNO FINANCIAL GROUP, INC. - Form 10-K

An important competitive factor for life insurance companies
is the financial strength 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 sales of supplemental health and life products to consumers
at the worksite. Financial strength ratings provided by A.M. Best
Company (“A.M. Best”), S&P Global Ratings (“S&P”), Fitch
Ratings (“Fitch”) 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 current financial strength ratings of our primary insurance
subsidiaries from A.M. Best, S&P, Fitch and Moody’s are “A-”,
“A-”, “A-” and “A3”, respectively. For a description of these ratings
and additional information on these ratings, see “Management’s
Discussion and Analysis of Consolidated Financial Condition
and Results of Operations - Consolidated Financial Condition -
Financial Strength Ratings of our Insurance Subsidiaries”.

there have been significant regulatory changes with respect to
underwriting certain types of health insurance. An increasing
number of states prohibit underwriting and/or charging
higher premiums for substandard risks. We 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.

PART I
ITEM 1 Business of CNO

We underwrite group
the
characteristics of the group and its past claim experience.
Graded benefit life insurance policies are issued without medical

insurance policies based on

examination or evidence of insurability. There is minimal
underwriting on annuities.

Liabilities for Insurance Products

At December 31, 2019, the total balance of our liabilities
for insurance products was $24.4 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

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

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
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.

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, 2019, the policy risk retention limit of
our insurance subsidiaries was generally $.8 million or less.
Reinsurance ceded by CNO represented 11 percent of gross
combined life insurance inforce and reinsurance assumed
represented .4 percent of net combined life insurance inforce.
Our principal reinsurers at December 31, 2019 were as follows
(dollars in millions):

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

Reinsurance receivables Ceded life insurance inforce
1,050.6
$
$
593.4
101.4
655.5
537.9
72.7
192.6
3,204.1

3,035.2
1,243.9
292.5
4.2
3.5
1.2
205.2
4,785.7

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

(a) In addition to the life insurance business, Wilton Re has assumed certain long-term care business through a 100% indemnity coinsurance agreement. Such business

had total insurance policy liabilities of $2.8 billion at December 31, 2019.

(b) 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 $1.0 billion at December 31, 2019.

(c) RGA Reinsurance Company has assumed a portion of the long-term care business of Bankers Life on a coinsurance basis.
(d) No other single reinsurer represents more than 1 percent of the reinsurance receivables balance or has assumed greater than 2 percent of the total ceded life insurance

business inforce.

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

Employees

At December 31, 2019, we had approximately 3,300 full time
employees, including 1,300 employees supporting our Bankers
Life segment, 300 employees supporting our Colonial Penn
segment and 1,700 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;

• 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

CNO FINANCIAL GROUP, INC. - Form 10-K

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.

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
financial strength 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.

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”) adopted a new cybersecurity
regulation. 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

PART I
ITEM 1 Business of CNO

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.

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 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 financial statements
prepared in accordance with GAAP. These regulations generally
permit dividends to be paid by the insurance company if such
dividends are not in excess of unassigned surplus and, for any
12-month period, are in amounts less than 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 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

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

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
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
2019 statutory annual statements of each of our insurance
subsidiaries reflect total adjusted capital in excess of the levels that
would subject our 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

CNO FINANCIAL GROUP, INC. - Form 10-K

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
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, 2019.

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. 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. Further, numerous state regulatory
bodies are focused on privacy requirements for all companies
that collect personal information and have proposed and enacted
legislation and regulations regarding enhanced privacy standards
and protocols. For example, the State of California enacted the
California Consumer Privacy Act in June 2018, which became
effective January 1, 2020, providing for enhanced privacy rights
and consumer protections for consumers in California and
new operational requirements for covered companies. These
regulations, and any corresponding state legislation, affect our
administration, marketing and sale of our products, and how
we collect, store, use and disseminate personal information.
Federal and state lawmakers and regulatory bodies may consider
additional or more detailed regulation regarding these subjects
and the privacy and security of personal information.

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
subsidiaries have adopted anti-money laundering (“AML”)
programs that include policies, procedures and controls to detect
and prevent money laundering, have designated compliance
officers to oversee the programs, provide for on-going employee
training and ensure periodic independent testing of the programs.
CNO’s and the insurance subsidiaries’ AML programs, to the
extent required, also establish and enforce customer identification
programs and provide for the monitoring and the reporting to the
Department of the Treasury of certain suspicious transactions.

In addition, the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the “Dodd-Frank Act”) generally provides
for enhanced federal supervision of financial institutions,
including insurance companies in certain circumstances, and
financial activities that represent a systemic risk to financial
stability or the U.S. economy. Under the Dodd-Frank Act, a
Federal Insurance Office has been established within the U.S.
Treasury Department to monitor all aspects of the insurance
industry and its authority will likely extend to most lines of
insurance that are written by the Company, although the Federal
Insurance Office is not empowered with any general regulatory
authority over insurers. The director of the Federal Insurance
Office serves in an advisory capacity to the newly established
Financial Stability Oversight Council and will have the ability to
recommend that an insurance company or an insurance holding
company be subject to heightened prudential standards by the
Federal Reserve, if it is determined that financial distress at the
company could pose a threat to financial stability in the U.S.
The Dodd-Frank Act also provides for the preemption of state
laws when inconsistent with certain international agreements,
and would streamline the state-level regulation of reinsurance
and surplus lines insurance. Under certain circumstances, the
FDIC can assume the role of a state insurance regulator and
initiate liquidation proceedings under state law.

Federal Income Taxation

PART I
ITEM 1 Business of CNO

Investment Adviser and Broker-Dealer Regulations

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 is the principal
regulator of our asset management operations.

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.

Numerous regulatory bodies are focused on enacting regulations
requiring investment advisers, broker-dealers and/or agents to meet
a higher standard of care when providing advice to their clients and
to provide enhanced disclosure of conflicts of interest. For example,
the SEC’s Regulation Best Interest enhances the broker-dealer
standard of conduct beyond existing suitability obligations and
requires broker-dealers to act in the best interest of the customer
when making a recommendation of any securities transaction or
investment strategy involving securities to a retail customer. In
addition, the new Form CRS Relationship Summary will require
registered investment advisers and broker-dealers to provide retail
investors with simple, easy-to-understand information about
the nature of their relationship with their financial professional.
Regulation Best Interest and Form CRS became effective in
September 2019 and include a transition period for compliance
until June 30, 2020. In addition to the SEC rules, the NAIC and
several states have proposed and/or enacted laws and regulations
requiring investment advisers, broker-dealers and/or agents to
disclose conflicts of interest to clients and/or to meet a higher
standard of care when providing advice to their clients.

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 Internal Revenue Code (the “Code”)
including individual and corporate reforms and numerous
changes to U.S. international tax provisions. The Tax Reform Act
reduced the corporate tax rate to 21 percent and made significant
changes to the taxation of life insurance companies. Among
other things, the Tax Reform Act modified the computation
of life insurance reserves, increased the capitalization rate and
extended the amortization period for policy acquisition costs,
imposed limitations on the deductibility of performance-based
compensation to “covered employees” and interest expense, and
allowed 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. Our

net deferred tax assets and liabilities were revalued at the newly
enacted U.S. corporate rate, and the impact was recognized in our
tax expense in 2017, the year of enactment.

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

CNO FINANCIAL GROUP, INC. - Form 10-KITEM 1A. Risk Factors.

PART I
ITEM 1 Business of CNO

for annuities and life insurance is provided in the Code and is
generally followed in all states and other United States taxing
jurisdictions.

which reduces statutory earnings and surplus and, accordingly,
decreases the amount of cash dividends that may be paid by the
life insurance subsidiaries.

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

Our insurance company subsidiaries are taxed under the life
insurance company provisions of the Code. Provisions in
the Code require a portion of the expenses incurred in selling
insurance products to be deducted over a period of years, as
opposed to immediate deduction in the year incurred. This
provision increases the tax for statutory accounting purposes,

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
(the “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.

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.

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, 2019 (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

CNO FINANCIAL GROUP, INC. - Form 10-K

Fixed interest and fixed
index annuities
.3
27.0
731.5
1,522.8
1,904.1
5,172.7
9,358.4

Universal
life
9.4
263.9
42.0
229.3
27.6
453.2
1,025.4

Total
9.7
290.9
773.5
1,752.1
1,931.7
5,625.9
10,383.8

1.60%

2.55%

1.69%

At December 31, 2019, $8.9 billion and $.3 billion of our annuity
and universal life account values, respectively, net of amounts
ceded, were at minimum guaranteed crediting rates. The
weighted average crediting rates at December 31, 2019, related
to such annuity and universal life account values, that were at
the minimum guaranteed crediting rate were .78 percent and
1.67 percent, respectively.

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 2019, we completed a comprehensive
review of interest rate assumptions on all of our products which
were updated to reflect the projected returns on our investment
portfolio. 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 3.65 percent to
4.85 percent for one year (previously ranged from 4.65 percent
to 5.67 percent) and then grade over 5 years from these levels
to an ultimate new money rate ranging from 4.98 percent
to 5.75 percent (previously ranged from 5.23 percent to
6.00 percent), 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 blocks 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 (based on our 2019
comprehensive actuarial review):

• 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 $15 million would occur if assumed spreads
related to our interest-sensitive life and annuity products
immediately and permanently decreased by 10 basis points.

• A second scenario assumes that new money rates remain at their
current level indefinitely. We estimate that this scenario would
result in a pre-tax charge of approximately $8 million related
to an increase in deficiency reserves related to life contingent

PART I
ITEM 1A Risk Factors

payout annuities and the long-term care in run-off block and
reduce future margins for all non-interest sensitive products by
approximately $153 million.

• The third scenario assumes current new money rates increase
modestly such that our current portfolio yield remains level.
We estimate that this scenario would result in no charges, but
would reduce margins for all non-interest sensitive products by
approximately $56 million.

• The fourth scenario assumes that new money rates decrease
approximately 100 basis points and remain at that level
indefinitely. We estimate that this scenario would result in a pre-
tax charge of approximately $29 million related to an increase
in deficiency reserves related to life contingent payout annuities
and our long-term care in run-off business. For all non-interest
sensitive products combined, this scenario would reduce future
margins by $341 million.

The long-term care reinsurance transaction entered into in
September 2018 significantly reduced our exposure to adverse
experience from this business. However, the retained blocks are
still vulnerable to a variety of factors including lower interest
rates, higher morbidity and higher persistency. Our 2019
comprehensive actuarial review of our retained long-term care
blocks (the retained blocks in the Bankers Life and Long-term
care in run-off segments) reflects the reduced exposure and
updates to key assumptions including morbidity, mortality,
voluntary termination rates, and interest rate assumptions. Such
review indicated margins increased by $13 million in 2019 to
approximately $255 million, or approximately 11 percent of
related insurance liabilities net of insurance intangibles (such
margins in the retained Bankers Life block increased $16 million
to approximately $251 million, or approximately 13 percent of
related insurance liabilities net of insurance intangibles). Given
the potential interest rate exposure in these blocks of business,
we are separately disclosing the results of the three hypothetical
scenarios summarized above for these blocks only to illustrate the
sensitivity of changes in interest rates on long-term care products
(based on our 2019 comprehensive actuarial review):

• One scenario assumes that the new money rates available to
invest cash flows from our retained long-term care blocks
remain at their current level indefinitely. This scenario would
result in a charge of $2 million and reduce margins in the blocks
by approximately $47 million.

• A second scenario assumes that current new money rates
available to invest cash flows from the retained long-term care
blocks immediately decrease by approximately 100 basis points
and remain at that level indefinitely. This scenario would result
in a charge of $17 million and reduce margins in the blocks by
approximately $118 million.

• An additional scenario assumes that current new money rates
available to invest cash flows from our long-term care blocks
immediately decrease by approximately 200 basis points and
remain at that level indefinitely. This scenario would result in
a charge of $32 million and reduce margins in the blocks by
approximately $195 million.

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

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

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.

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.
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.

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,

CNO FINANCIAL GROUP, INC. - Form 10-K

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. Further, reductions in interest rates
could result in an acceleration of the amortization of deferred
acquisition costs and the present value of future profits and a
reduction in our projected loss recognition testing margins.

• 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.

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. 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 the long-term care block in the Long-term care in run-off
segment and a portion of the Bankers Life long-term care block
have 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, these blocks experienced benefit ratios well in excess
of 100 percent. For example, for 2019, 2018 and 2017, the
annual benefit ratios in the Bankers Life segment ranged from
116.2 percent to 121.7 percent and the annual benefit ratios on
the long-term care block in the Long-term care in run-off segment
ranged from 163.3 percent to 234.6 percent.

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.

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

PART I
ITEM 1A Risk Factors

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 and Long-term care in run-off segments. The
insurance policy benefits incurred for our long-term care products
in our Bankers Life segment were $309.5 million, $304.3 million
and $302.4 million in 2019, 2018 and 2017, respectively. The

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

benefit ratios for our long-term care products in our Bankers
Life segment were 121.7 percent, 119.0 percent and 116.2 percent
in 2019, 2018 and 2017, respectively. The insurance policy
benefits incurred for our long-term care products in our Long-
term care in run-off segment were $32.5 million, $271.3 million
and $344.2 million in 2019, 2018 and 2017, respectively. The
benefit ratios for our long-term care products in our Long-term
care in run-off segment were 234.6 percent, 182.8 percent and
163.6 percent in 2019, 2018 and 2017, 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 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 Financial 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, 2019,
approximately 20 percent of our total insurance liabilities,
or approximately $4.9 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

CNO FINANCIAL GROUP, INC. - Form 10-K

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, 2019, the vast
majority of our products with contractual guaranteed minimum
rates had crediting rates set at the minimum. In addition,
approximately 17 percent of our insurance liabilities were subject
to interest rates that may be reset annually; 49 percent had a fixed
explicit interest rate for the duration of the contract; 31 percent
had credited rates that approximate the income we earn; and the
remainder had no explicit interest rates. Second, if interest rate
changes produce an unanticipated increase in surrenders of our
spread-based products, we may be forced to sell invested assets
at a loss in order to fund such surrenders. Third, the profits from
many non-spread-based insurance products, such as long-term
care policies, can be adversely affected when interest rates decline
because we may be unable to reinvest the cash from premiums
received at the interest rates anticipated when we sold the policies.
Finally, changes in interest rates can have significant effects on
the fair value and performance of our investments in general such
as the timing of cash flows on many structured securities due
to changes in the prepayment rate of the loans underlying such
securities.

We employ asset/liability strategies that are designed to mitigate
the effects of interest rate changes on our profitability but do
not currently extensively employ derivative instruments for
this purpose. We may not be successful in implementing these
strategies and 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, 2019, 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
$335 million if interest rates were to increase by 10 percent from
rates as of December 31, 2019. 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.

Additionally, on July 27, 2017, the United Kingdom’s (“U.K.”)
Financial Conduct Authority announced that it will no longer
persuade or compel banks to submit rates for the calculation of
the LIBOR rates after 2021, which is expected to result in these
widely used reference rates no longer being available. At this time,
it is not possible to predict the effect of any such changes, any
establishment of alternative reference rates or any other reforms to
LIBOR that may be enacted in the U.K. or elsewhere. Uncertainty
as to the nature of such potential changes, alternative reference
rates or other reforms may adversely affect the trading market for
LIBOR-based securities, including those held in our investment
portfolio. Also, some of our liabilities reference LIBOR including
our revolving credit agreement, borrowings from the Federal
Home Loan Bank (“FHLB”) and borrowings related to VIEs.

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.

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 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

PART I
ITEM 1A Risk Factors

vary significantly. As of December 31, 2019, our reinsurance
receivables and ceded life insurance inforce totaled $4.8 billion
and $3.2 billion, respectively. Such reinsurance receivables also
include long-term care and annuity blocks of business that have
been ceded. Our six largest reinsurers (which are currently rated
“A+” by A.M. Best) accounted for 94 percent of our ceded life
insurance inforce and 96 percent of our reinsurance receivables.
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.

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.

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 10 percent of the
cost basis of our available for sale fixed maturity investments as
of December 31, 2019; and

• changes in the estimated timing of receipt of cash flows.
For example, our structured securities, which comprised
27.3 percent of our available for sale fixed maturity investments
at December 31, 2019, are generally 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: $12.4 million
in 2019; $2.6 million in 2018; and $22.8 million in 2017. 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.

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

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

Because a substantial portion of our operating results are derived
from returns on our investment portfolio, significant losses in
the portfolio may have a direct and materially adverse impact on
our results of operations. In addition, losses on our investment
portfolio could reduce the investment returns that we are able to
credit to our customers of certain products, thereby impacting our
sales and eroding our financial performance. Investment losses
may also reduce the capital of our insurance subsidiaries, which
may cause us to make additional capital contributions to those
subsidiaries or may limit the ability of the insurance subsidiaries
to make dividend payments to CNO.

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

In June 2016, the Financial Accounting Standards Board issued
authoritative guidance related to the measurement of credit
losses on financial instruments. Such guidance is effective
for the Company on January 1, 2020. Refer to the note to
the consolidated financial statements entitled “Summary of
Significant Accounting Policies - Recently Issued Accounting
Standards” for further information.

CNO FINANCIAL GROUP, INC. - Form 10-K

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.

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.
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, 2019 and 2018, our total unrealized net investment
gains before adjustments for insurance intangibles and deferred
income taxes were $2.1 billion and $.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.

PART I
ITEM 1A Risk Factors

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.

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

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 2019 statutory annual statements of each of
our insurance subsidiaries reflect RBC ratios in excess of the levels
that would subject our 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 broker-dealers and investment advisors when those
entities provide personalized investment advice about securities

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.

to
Insurance companies historically have been subject
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

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

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.

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

CNO FINANCIAL GROUP, INC. - Form 10-K

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
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.

We depend heavily on our telecommunication, information
technology and other operational systems and on the integrity
and timeliness of data we use to run our businesses and service
our customers. These systems may fail to operate properly or
become disabled as a result of events or circumstances which

may be wholly or partly beyond our control. Further, we face the
risk of operational and technology failures by others, including
financial intermediaries, vendors and parties that provide services
to us. If these parties do not perform as anticipated, we may
experience operational difficulties, increased costs and other
adverse effects on our business. Despite our implementation
of a variety of security measures, our information technology
and other systems have been and may continue to be subject to
attacks and unauthorized access, such as physical or electronic
break-ins, unauthorized tampering or other security breaches,
which could in turn compromise the security, confidentiality or
privacy of sensitive data, including personal financial and health
information relating to customers. There can be no assurance that
a future breach will not occur or, if any does occur, that it can be
promptly detected and sufficiently remediated without materially
impacting our business or our operations.

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.

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.

PART I
ITEM 1A Risk Factors

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

As of December 31, 2019, we had an aggregate principal amount
of indebtedness of $1,000.0 million (comprised of $500.0 million
of 5.250% Senior Notes due 2025 and $500.0 million of
5.250% Senior Notes due 2029 (collectively, the “Notes”)). Our
indebtedness will require approximately $53 million in cash to
service in 2020 (based on the principal amounts outstanding and
applicable interest rates as of December 31, 2019). Our substantial
indebtedness and the obligations under our debt agreements may
restrict our ability to take advantage of business, strategic or
financing opportunities.

In addition, the Company has entered into a $250.0 million
unsecured revolving credit agreement which matures on October
13, 2022 (the “Revolving Credit Agreement”). There were
no amounts drawn under the Revolving Credit Agreement at
December 31, 2019.

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.

The Revolving Credit Agreement and the Indentures
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, we 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

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

that could lead to an event of default under the Revolving Credit
Agreement, as described below.

all commitments outstanding under the Revolving Credit
Agreement.

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 (such ratio was 23.3 percent at
December 31, 2019); (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 408 percent at December 31,
2019); 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 $3,304.5 million at
December 31, 2019 compared to the minimum requirement of
$2,691.3 million).

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, KeyBank National Association (as the
administrative agent) may accelerate the amounts and terminate

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 Indentures for the Notes provide 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 trustees 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.

A decline in 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 senior unsecured debt ratings are currently “bbb-”, “BBB-”,
“BBB-” and “Baa3” from A.M. Best, S&P, Fitch and Moody’s,
respectively. 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 credit ratings 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 FINANCIAL GROUP, INC. - Form 10-K

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 2019, our insurance subsidiaries paid dividends
of $186.3 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

PART I
ITEM 1A Risk Factors

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 346 percent at December 31, 2019.
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, 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.

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.

Our business may be adversely affected if we fail to
maintain effective controls over financial reporting.

We face the risk that, notwithstanding our efforts to maintain
effective controls over financial reporting, we may discover
a material weakness 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, 2019, we had approximately $2.5 billion of
federal tax NOLs resulting in deferred tax assets of approximately
$.5 billion (of which $2.0 billion expires in years 2023 through

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

2035 and $.5 billion has no expiration date). 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.

federal long-term tax exempt rate (1.59 percent at December 31,
2019), and the annual restriction could limit 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.

We regularly monitor ownership changes (as calculated for
purposes of Section 382) based on available information and, as
of December 31, 2019, our analysis indicated that we were below
the 50 percent ownership change threshold that could 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 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 limit our ability to use our NOLs. CNO’s
shareholders approved amendments and extensions of the
Original Section 382 Charter Amendment in 2013, 2016 and
2019 (the “2019 Section 382 Charter Amendment”). The 2019
Section 382 Charter Amendment became effective July 31, 2019
and is scheduled to expire on July 31, 2022.

See the note to the consolidated financial statements entitled
“Income Taxes” for further information regarding the Amended
Section 382 Rights Agreement, the 2019 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

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, 2019, we had net deferred tax assets of
$428.9 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.

The value of our net deferred tax assets as of December 31,
2019 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.

CNO FINANCIAL GROUP, INC. - Form 10-K

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 financial strength 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 A.M. Best, S&P, Fitch and Moody’s are “A-”,
“A-”, “A-” and “A3”, respectively. 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. S&P has twenty-one possible ratings. There are six
ratings above the “A-” rating of our primary insurance subsidiaries
and fourteen ratings that are below that rating. Fitch has nineteen
possible ratings. There are six ratings above the “A-” rating of our
primary insurance subsidiaries and twelve ratings that are below
that rating. Moody’s has twenty-one possible ratings. There
are six ratings above the “A3” rating of our primary insurance
subsidiaries and fourteen ratings that are below that rating.

PART I
ITEM 1A Risk Factors

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

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

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

In some of our product lines, such as life insurance and fixed
annuities, we have a relatively small market share. Even in
some of the lines in which we are one of the top writers, our
market share is relatively small. For example, while, based on
an Individual Long-Term Care Insurance Survey, our Bankers
Life subsidiary ranked fifth in new annualized premiums of
individual long-term care insurance in 2018 with a market share
of approximately 7 percent, the top four writers of individual
long-term care insurance had new annualized premiums with a
combined market share of approximately 75 percent during the
period. In addition, while, based on a 2018 Medicare Supplement
Loss Ratios report, we ranked seventh in direct premiums earned
for Medicare supplement insurance in 2018 with a market share
of 2.5 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.

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

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
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

During recent years, the health
industry has
experienced substantial changes, including those caused by
healthcare legislation. Recent federal and state legislation and
pending legislative proposals concerning healthcare reform
contain features that could severely limit, or eliminate, our ability
to vary pricing terms or apply medical underwriting standards to
individuals, thereby potentially increasing our benefit ratios and
adversely impacting our financial results. In particular, Medicare
reform could affect our ability to price or sell our products or
profitably maintain our blocks inforce. For example, the Medicare
Advantage program provides incentives for health plans to offer

CNO FINANCIAL GROUP, INC. - Form 10-K

managed care plans to seniors. The growth of managed care
plans under this program has decreased sales of the traditional
Medicare supplement products we sell. Some current proposals
contain government provided long-term care insurance which
could affect the sales of our long-term care products.

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

On July 21, 2010, the Dodd-Frank Act was enacted and signed
into law. The Dodd-Frank Act made extensive changes to the laws
regulating financial services firms and requires various federal
agencies to adopt a broad range of new rules and regulations.
Among other provisions, the Dodd-Frank Act provides for a
new framework of regulation of over-the-counter derivatives
markets. This 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

PART I
ITEM 1A Risk Factors

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.

We may not be able to protect our intellectual property
and may be subject to infringement claims.

We rely on a combination of contractual rights and copyright,
trademark and trade secret laws to establish and protect our
intellectual property. Although we use a broad range of measures
to protect our intellectual property rights, third parties may
infringe or misappropriate our intellectual property. We may
have to litigate to enforce and protect our copyrights, trademarks,
trade secrets and know-how or to determine their scope, validity
or enforceability, which represents a diversion of resources that
may be significant in amount and may not prove successful. The
loss of intellectual property protection or the inability to secure
or enforce the protection of our intellectual property assets could
adversely impact our business and its ability to compete effectively.

We also may be subject to costly litigation in the event that
another party alleges our operations or activities infringe upon
that party’s intellectual property rights. We may also be subject
to claims by third parties for breach of copyright, trademark,
trade secret or license usage rights. Any such claims and any
resulting litigation could result in significant expense and liability
for damages or we could be enjoined from providing certain
products or services to our customers or utilizing and benefiting
from certain methods, processes, copyrights, trademarks, trade
secrets or licenses, or alternatively, we could be required to enter
into costly licensing arrangements with third parties, all of which
could have a material adverse effect on our business, results of
operations and financial condition.

the system of insurance regulation in the United States, including
by increased national uniformity through either a federal charter
or effective action by the states.

Federal agencies have been given significant discretion in drafting
the rules and regulations that will implement the Dodd-Frank
Act. Consequently, many of the details and much of the impact
of the Dodd-Frank Act may not be known for some time. In
addition, this legislation mandated multiple studies and reports
for Congress, which could result in additional legislative or
regulatory action.

We cannot predict the requirements of the regulations ultimately
adopted, 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
new regulations, 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

CNO FINANCIAL GROUP, INC. - Form 10-KPART I
ITEM 1B Unresolved Staff Comments

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 450,000 square feet of space.

Our Bankers Life segment is primarily administered from
downtown Chicago, Illinois. We currently lease approximately
135,000 square feet of office space under an agreement which
expires in 2023. We also lease 262 sales offices in various states

totaling approximately 892,000 square feet. These leases generally
are short-term in length, with remaining lease terms expiring
between 2020 and 2027.

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-K

PART 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 K. Baude, 55

2012

Gary C. Bhojwani, 52

2016

Karen J. DeToro, 48

2019

Yvonne K. Franzese, 61

2017

Scott L. Goldberg, 49

2004

Michael D. Heard, 54

2013

Eric R. Johnson, 59

1997

John R. Kline, 62

1990

Paul H. McDonough, 55

2019

Rocco F. Tarasi, 48

2017

Joel H. Schwartz, 56

2014

Matthew J. Zimpfer, 52

1998

Positions with CNO, Principal Occupation and Business Experience(b)
Since July 2012, 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 September 2019, chief actuary of CNO. From 2013 to 2019 held executive leadership
positions at New York Life. From 2011 to 2013, principal at Deloitte Consulting.
Since November 2017, 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 September 2013, president of Bankers Life. Mr. Goldberg has held various other positions
since joining CNO in 2004.
Since March 2017, president of Washington National. From 2013 to March 2017, senior vice
president of enterprise operations for CNO.
Since September 2003, chief investment officer of CNO and president and chief executive officer
of 40|86 Advisors, CNO's wholly-owned registered investment advisor. 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, chief accounting officer. Mr. Kline has served in various accounting and finance
capacities with CNO since 1990.
Since March 2019, chief financial officer of CNO. From 2005 to 2017, executive vice president
and chief financial officer of OneBeacon Insurance Group.
Since March 2019, chief marketing officer. From 2017 to March 2019, vice president of finance
and operations for Bankers Life. Prior to joining CNO, he held various positions from October
2011 until September 2016, including interim chief financial officer beginning in August 2015
and chief financial officer beginning in January 2016, with ITT Financial Services, Inc., which
filed for Chapter 7 Bankruptcy in September 2016.
Since March 2017, president of Colonial Penn. From 2014 to March 2017, Mr. Schwartz held
various positions with Colonial Penn. Prior to joining CNO, he spent nine years with Lincoln
Financial Group.
Since June 2008, 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-KPart II

ITEM 5. Market for Registrant’s Common Equity,

Related Stockholder Matters and Issuer
Purchases of Equity Securities.

Market Information and Dividends

The Company’s common stock is listed and traded on the
New York Stock Exchange under the symbol “CNO”.

As of February 4, 2020, there were approximately 20,000 holders
of the outstanding shares of common stock, including individual
participants in securities position listings.

We commenced the payment of a dividend on our common stock
in the second quarter of 2012. The dividend on our common stock
is declared each quarter by our Board of Directors. In determining
dividends, our Board of Directors takes into consideration our
financial condition, including current and expected earnings and
projected cash flows.

Performance Graph

The performance graph below compares CNO’s cumulative
total shareholder return on its common stock for the period
from December 31, 2014 through December 31, 2019 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, 2014 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-K

COMPARISON 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

$200

$180

$160

$140

$120

$100

$80

$60

$40

$20

$-
12/14

12/15

12/16

12/17

12/18

12/19

CNO Financial Group, Inc.

S&P 500

S&P Life & Health Insurance

S&P MidCap 400

$100 invested on 12/31/14 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

12/14
100.00 $
100.00
100.00
100.00

12/15
112.52 $
101.38
93.69
97.82

12/16
114.84 $
113.51
116.98
118.11

12/17
150.46 $
138.29
136.20
137.30

12/18
92.50
132.23
107.91
122.08

12/19
115.70
173.86
132.92
154.07

Issuer Purchases of Equity Securities

Period (in 2019)
October 1 through October 31
November 1 through November 30
December 1 through December 31

tOtaL

total number
of shares
(or units)
1,470,999 $
1,255,415
1,654,818
4,381,232

average price
paid per share
(or unit)
15.41
17.66
18.12
17.08

total number of shares
(or units) purchased as
part of publicly announced
plans or programs
1,470,990
1,253,774
1,649,912
4,374,676

Maximum number (or approximate dollar
value) of shares (or units) that may yet be
purchased under the plans or programs(a)
(dollars in millions)
84.6
562.5
532.3
532.3

(a) In May 2011, the Company announced a securities repurchase program. In November 2019, the Company’s Board of Directors authorized the repurchase of an

additional $500.0 million of the Company’s outstanding securities.

PART IIITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesCNO FINANCIAL GROUP, INC. - Form 10-KPart II
ITEM 6 Selected Consolidated Financial Data

Equity Compensation Plan Information

The following table summarizes information, as of December 31, 2019, relating to our common stock that may be issued under the CNO
Financial Group, Inc. Amended and Restated Long-Term Incentive Plan.

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

tOtaL

Number of securities to
be issued upon exercise
of outstanding options
and rights
6,015,433 $

—

6,015,433 $

Weighted-average
exercise price of
outstanding options
and rights
18.59
—
18.59

Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in first column)
4,670,235
—
4,670,235

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 (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
PER SHARE DATA
Net income (loss), basic
Net income (loss), 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,

2019

2018

2017

2016

2015

2,480.8 $
1,362.9
28.2
4,015.8
152.3
3,741.6
274.2
(135.2)
409.4

2.62 $
2.61
.43
31.58
156.0
157.1
148.1

25,580.9 $
33,630.9
989.1
28,953.9
4,677.0

1,696.6 $
295.9
1,992.5

2,593.1 $
1,306.2
352.1
4,313.5
149.8
4,578.3
(264.8)
50.2
(315.0)

(1.90) $
(1.90)
.39
20.78
165.5
165.5
162.2

22,995.4 $
31,439.8
916.8
28,068.9
3,370.9

1,652.8 $
233.3
1,886.1

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

(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-K

ITEM 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, 2019, 2018 and 2017 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;

• 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, changes in the health care market and other factors
which may affect the profitability of our insurance products;

• changes in our assumptions related to deferred acquisition costs

or the present value of future profits;

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

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

filings will not be successfully challenged by the IRS;

• changes in accounting principles and the interpretation thereof;

• 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;

• our ability to continue to recruit and retain productive agents

and distribution partners;

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K• customer response to new products, distribution channels and

marketing initiatives;

• our ability to maintain 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 performance of third party service providers and potential

difficulties arising from outsourcing arrangements;

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

and assets;

Overview

• 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.

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 related
to reinsurance transaction, net realized investment gains
(losses), fair value changes in embedded derivative liabilities
(net of related amortization), fair value changes related to the
agent deferred compensation plan, loss on extinguishment of
debt, income taxes and other non-operating items consisting
primarily of 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 related to reinsurance transaction, net realized
investment gains (losses), fair value changes in embedded
derivative liabilities (net of related amortization), fair value
changes related to the agent deferred compensation plan, loss
on extinguishment of debt, and other non-operating items
consisting primarily of 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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe Company’s insurance segments are described below:

supplement

interest-sensitive

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

(prior to 2003) comprehensive and nursing home long-term care
policies which were ceded in September 2018 (such business was
not actively marketed and was issued by Bankers Life).

The Consumer Division will serve
individual consumers,
engaging with them on the phone, online, face-to-face with
agents, or through a combination of sales channels. This structure
unifies consumer capabilities into a single division and integrates
the strength of our agent sales forces and industry-leading direct-
to-consumer business with proven experience in advertising, web/
digital and call center support.

The Worksite Division will focus on worksite and group sales for
businesses, associations, and other membership groups, interacting
with customers at their place of employment. By creating a
dedicated Worksite Division, we will bring a sharper focus to this
high-growth business while further capitalizing on the strength of
our recent WBD acquisition.

We will also centralize certain functional areas previously housed
in the three business segments, including marketing, business unit
finance, sales training and support, and agent recruiting, among
others. We will continue to market our products under our three
primary brands: Bankers Life, Washington National and Colonial
Penn. All policy, contract, and certificate terms, conditions, and
benefits remain unchanged.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe following summarizes our earnings for the three years ending December 31, 2019 (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 from sales and impairments (net of related amortization)
Net change in market value of investments recognized in earnings
Fair value changes in embedded derivative liabilities (net of related amortization)
Fair value changes related to agent deferred compensation plan
Loss related to reinsurance transaction
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 (LOSS)

Per diluted share:

Net operating income
Net realized investment gains from sales and impairments (net of related amortization and taxes)
Net change in market value of investments recognized in earnings (net of taxes)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
Fair value changes related to agent deferred compensation plan (net of taxes)
Loss related to 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 (LOSS)

2019

2018

2017

300.7
111.2
14.3
12.0
438.2
(17.5)
420.7
(52.4)
368.3
78.3
290.0
2.1
25.5
(81.4)
(20.4)
—
(7.3)
(12.6)
(94.1)

(19.8)
(193.7)
119.4
409.4

1.85
.01
.13
(.41)
(.10)
—
(.04)
1.23
(.06)
2.61

340.6
121.9
14.8
22.9
500.2
(71.0)
429.2
(48.0)
381.2
78.1
303.1
37.9
(48.8)
55.5
11.9
(704.2)
—
1.7
(646.0)

(135.7)
107.8
(618.1)
(315.0)

1.83
.18
(.23)
.27
.06
(4.00)
—
(.02)
.01
(1.90)

367.5
98.3
22.6
53.1
541.5
(40.3)
501.2
(46.5)
454.7
153.8
300.9
34.3
15.0
(2.5)
(12.2)
—
—
(8.8)
25.8

9.0
142.1
(125.3)
175.6

1.75
.13
.06
(.01)
(.05)
—
—
(.83)
(.03)
1.02

(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 related to reinsurance transaction, including impact of taxes; (ii) net realized investment gains or losses from sales and impairments, net of related
amortization and taxes; (iii) net change in market value of investments recognized in earnings, net of taxes; (iv) 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; (v) fair value changes related to the agent
deferred compensation plan, net of taxes; (vi) loss on extinguishment of debt; (vii) changes in the valuation allowance for deferred tax assets and other tax items; and
(viii) other non-operating items consisting primarily of earnings attributable to VIEs. 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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations
At CNO, our mission is to enrich lives by providing financial
solutions that help protect the health and retirement needs of
middle-income Americans, while building enduring value for all
our stakeholders. We remain committed to our strategic priorities
to grow the franchise; engage consumers with valuable products,
services and experiences; expand to the right to reach slightly
younger, wealthier consumers within the middle market; and
deploy excess capital to its highest and best use.

Our middle-market focus and diverse distribution are key strengths
and opportunities for CNO. We have career agents at Bankers
Life, wholly-owned and independent distributors at Washington
National and a direct-to-consumer business at Colonial Penn
to reach consumers according to their buying preferences. Our
product portfolio mix is well-aligned to the retirement, healthcare,
supplemental health and income accumulation needs of working-
age consumers as well as those in and near retirement. As
Americans live longer into their retirement years, consumers need
holistic retirement income planning, which includes our insurance
and annuity solutions, and the investment choices offered by our
broker-dealer and growing force of registered investment advisors.
Specifically, we are focused on the following priorities:

•

Expand and enhance elements of our broker-dealer and
registered investment advisor program
Continue our strategy to reach slightly younger and
wealthier consumers within the middle-income market
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 to support agent
productivity and our customer experience

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 long-term returns
Maintain a competitive dividend payout ratio

Growth
•

Maximize our product portfolio to ensure it meets our
customers’ needs for integrated products and advice covering
a broad range of their financial goals
Respond effectively to evolving customer preferences

•

Continue to invest in talent
•

Attract, retain and develop the best talent to help us drive
sustainable profitable growth
Recruit, develop and retain our agent force

•

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 various assets and liabilities
and disclosure of contingent assets and liabilities at the date of
the financial statements and 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”.

Investment Valuation

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.

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. We categorize our financial instruments carried at fair
value into a three-level hierarchy based on the observability of
inputs. The three-level hierarchy for fair value measurements is
described in the note to the consolidated financial statements
entitled “Fair Value Measurements.”

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe following summarizes our investments on our consolidated balance sheet carried at fair value by pricing source and fair value
hierarchy level as of December 31, 2019 (dollars in millions):

Priced by third-party pricing services
Priced by independent broker quotations
Priced by matrices
Priced by other methods(a)
tOtaL
Percent of Total

Quoted prices in
active markets for
identical assets
(Level 1)
31.3
—
—
—
31.3

Significant
observable inputs
(Level 2)
21,937.9
109.3
649.6
34.2
22,731.0

Significant
unobservable inputs
(Level 3)

— $

32.9
24.3
156.1
213.3

total fair value
21,969.2
142.2
673.9
190.3
22,975.6

.1%

98.9%

1.0%

100.0%

(a) Represents primarily securities benchmarked to comparable securities to compute fair value.

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.

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 regularly evaluate all of our investments with unrealized losses
for possible impairment. Our assessment of whether unrealized
losses are “other than temporary” requires significant judgment.
Factors considered include: (i) the extent to which fair value is
less than the cost basis; (ii) the length of time that the fair value
has been less than cost; (iii) whether the unrealized loss is event
driven, credit-driven or a result of changes in market interest
rates or risk premium; (iv) the near-term prospects for specific
events, developments or circumstances likely to affect the value
of the investment; (v) the investment’s rating and whether the
investment is investment-grade and/or has been downgraded since
its purchase; (vi) whether the issuer is current on all payments
in accordance with the contractual terms of the investment and
is expected to meet all of its obligations under the terms of the
investment; (vii) whether we intend to sell the investment or it is
more likely than not that circumstances will require us to sell the
investment before recovery occurs; (viii) the underlying current and
prospective asset and enterprise values of the issuer and the extent
to which the recoverability of the carrying value of our investment
may be affected by changes in such values; (ix) projections of,
and unfavorable changes in, cash flows on structured securities
including mortgage-backed and asset-backed securities; (x) our
best estimate of the value of any collateral; and (xi) other objective
and subjective factors.

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

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.

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

CNO FINANCIAL GROUP, INC. - Form 10-K

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

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, 2019 as follows:
11 percent in 2020, 9 percent in 2021, 8 percent in 2022, 7 percent
in 2023 and 7 percent in 2024.

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 $.6 million, $(.4) million
and $1.0 million during the years ended December 31, 2019, 2018
and 2017, respectively. We also adjust insurance acquisition costs
for the change in amortization that would have been recorded if
fixed maturity securities, available for sale, had been sold at their
stated aggregate fair value and the proceeds reinvested at current
yields. Such adjustments are commonly referred to as “shadow
adjustments” and may include adjustments to: (i) deferred
acquisition costs; (ii) the present value of future profits; (iii) loss
recognition reserves; and (iv) income taxes. We include the impact
of this adjustment in accumulated other comprehensive income
(loss) within shareholders’ equity. The total pre-tax impact of such
adjustments on accumulated other comprehensive income was
a decrease of $343.3 million at December 31, 2019 (including
$135.5 million for premium deficiencies that would exist on
certain blocks of business 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, 2018 was a decrease of $45.3 million
(including $2.5 million for premium deficiencies that would exist
on certain blocks of business 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, 2019, the balance of insurance acquisition costs
was $1.5 billion. 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. The
long-term care business in the Long-term care in run-off segment
is not expected to generate significant future profits. While we
expect the long-term care business in the Bankers Life segment
to generate future profits, the margins are relatively thin.
Accordingly, both of these long-term care blocks 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

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kinsurance 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
5% decrease to assumed mortality
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)

(24)
25
(10)
10
(7)
7
(15)
17

(62)
74
(8)
8
(43)
42

(24)
(10)
(8)

(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.

The following summarizes the persistency of our major blocks of insurance business summarized by segment and line of business:

Years ended December 31,

2019

2018

2017

84.4%
90.2%
90.7%
82.3%
89.5%

84.8%
88.9%
92.2%

82.9%
90.4%

85.1%
90.1%
90.9%
83.0%
88.5%

84.9%
89.3%
91.8%

83.1%
90.7%

85.0%
89.9%
91.2%
85.2%
87.5%

85.3%
89.2%
90.6%

83.4%
91.2%

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)

Long-term care in run-off (1)

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

CNO FINANCIAL GROUP, INC. - Form 10-K

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

2019

2018

3,876.9
1,461.7
75.5

217.9
5,632.0
3,087.6
2,544.4

3,873.3
1,404.6
—

211.7
5,489.6
3,030.3
2,459.3

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.

The significant assumptions used to calculate the reserves for the
present value of amounts not yet due on claims include future
benefit payments, interest rates and claim continuance patterns.
Interest rates are used to determine the present value of the future
benefit payments and are based on the investment yield of assets
supporting the reserves. Claim continuance assumptions are
estimates of the expected period of time that claim payments will
continue before termination due to recovery, death or attainment
of policy maximum benefits. These estimates are based on
historical claim experience for similar policy and coverage types.
Our estimates of benefit payments, interest rates and claim
continuance are reviewed regularly and updated to consider
current portfolio investment yields and recent claims experience.

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 2018 claim
reserve redundancy for long-term care claim reserves in our
Bankers Life segment, as measured at December 31, 2019, was
approximately $2.0 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 2019
related to our long-term care business would have resulted in an
immediate decrease in our earnings of approximately $13 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.

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.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KWe evaluate the need to establish a valuation allowance for our
deferred income tax assets on an ongoing basis using a deferred tax
valuation model. 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, the recapture of business
previously ceded and tax planning strategies. Our estimates of
future taxable income are based on evidence we consider to be
objective and verifiable. At December 31, 2019, our projection of
future taxable income for purposes of determining the valuation
allowance is based on our adjusted average annual baseline taxable
income which is assumed to increase by approximately 3.5% for
the next five years, and level taxable income thereafter, plus the
incremental increase to non-life taxable income associated with a
tax planning strategy. Based on our assessment, we have concluded
that it is more likely than not that all our deferred tax assets of
$428.9 million will be realized through future taxable earnings.
its remaining valuation
Therefore, the Company released
allowance of $193.7 million in the fourth quarter of 2019.

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). This
limitation is the primary reason a valuation allowance for NOLs
is required. 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).

Pursuant to the Tax Reform Act, NOLs generated subsequent to 2017 do not have an expiration date. We have $2.5 billion of federal
NOLs as of December 31, 2019, as summarized below (dollars in millions):

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

Total federal non-life NOLs

Post 2017 life NOLs with no expiration

tOtaL FEDEraL NOLs

Net operating loss
carryforwards
1,424.3
85.2
149.9
10.8
80.3
213.2
.3
.2
44.4
.6
.9
.8
2,010.9
523.6
2,534.5

The loss on the reinsurance transaction that was completed in
September 2018 resulted in a life NOL. The life NOL is expected
to be used to offset 80 percent of our future life insurance company
taxable income due to limitations prescribed in the Tax Reform
Act. Our life NOL has no expiration date and we expect it to be
fully utilized over the next two years, depending on the level of
life taxable income during such period. Our non-life NOLs can
be used to offset 35 percent of remaining life insurance company
taxable income after application of the life NOLs, until all non-life
NOLs are utilized or expire.

Liabilities for Insurance Products

At December 31, 2019, the total balance of our liabilities for
insurance products was $24.4 billion. These liabilities are generally
payable over an extended period of time and the profitability of the
related products is dependent on the pricing of the products and
other factors. Differences between our expectations when we sold
these products and our actual experience could result in future losses.

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

CNO FINANCIAL GROUP, INC. - Form 10-K

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

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 related to reinsurance transactions:

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

Earnings attributable to VIEs:

Corporate operations

Net revenue pursuant to transition services agreement, net of taxes:

Corporate operations

Fair value changes related to agent deferred compensation plan:

Corporate operations

Other 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 (LOSS) BEFOrE INCOME taXES

2019

2018

2017

300.7
111.2
14.3
12.0
(69.9)
368.3

—
—

26.2
24.2
3.4
(6.5)
(19.7)
27.6

(80.5)
(.9)
(81.4)

2.1

1.2

(20.4)

(15.9)

(7.3)

246.4
134.5
17.7
5.5
(129.9)
274.2

340.6
121.9
14.8
22.9
(119.0)
381.2

(704.2)
(704.2)

13.5
(9.9)
(2.4)
(4.5)
(7.6)
(10.9)

55.0
.5
55.5

1.6

367.5
98.3
22.6
53.1
(86.8)
454.7

—
—

29.8
11.7
—
10.8
(3.0)
49.3

(2.7)
.2
(2.5)

(8.8)

—

11.9

(12.2)

—

409.1
112.5
12.4
18.4
(817.2)
(264.8)

—

394.6
110.2
22.6
63.9
(110.8)
480.5

(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 related to
reinsurance transaction, net realized investment gains (losses), fair value changes in embedded derivative liabilities, net of related amortization, fair value changes
related to the agent deferred compensation plan, loss on extinguishment of debt, net revenue pursuant to transition services agreement, earnings attributable to VIEs
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.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThese 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 related to reinsurance transaction, realized investment gains (losses), fair value changes
in embedded derivative liabilities, net of related amortization, fair value changes related to the agent deferred compensation plan, loss on extinguishment of debt, net
revenue pursuant to transition services agreement and earnings attributable to VIEs. 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 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. We also
have a Long-term care in run-off segment that consists of: (i) the
long-term care business that was recaptured due to the termination

of certain reinsurance agreements effective September 30, 2016
(such business is not actively marketed and was issued or acquired
by Washington National and BCLIC); and (ii) certain legacy (prior
to 2003) comprehensive and nursing home long-term care policies
that were ceded in September 2018 (such business was not actively
marketed and was issued by Bankers Life). Beginning in the fourth
quarter of 2018, the earnings of this segment only reflect the long-
term care business that was recaptured in September 2016 as the
legacy long-term care business was ceded under a 100% indemnity
coinsurance agreement in September 2018.

CNO FINANCIAL GROUP, INC. - Form 10-K

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

Premium collections:

Annuities
Medicare supplement and other supplemental health
Life

Total collections

Average liabilities for insurance products:

Fixed index annuities
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

Broker dealer and registered investment advisor client assets:

Net new client assets(a)

Brokerage
Advisory
Total

Client assets at end of period(b)

Brokerage
Advisory
Total
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 liabilities:

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
Commission expense and distribution fees
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

2019

2018

2017

1,305.4
1,020.2
467.4
2,793.0

6,607.4
2,272.6

139.5
140.8

2,012.0
309.7
62.5

882.5
1,224.1
13,651.1

32.9
144.2
177.1

982.9
532.1
1,515.0

1,457.3

782.2
147.5
75.2
2,462.2

1,163.2
1,019.0
466.0
2,648.2

5,788.9
2,590.1

147.9
144.1

1,907.1
314.3
59.8

829.1
1,159.8
12,941.1

40.5
157.0
197.5

794.1
310.8
1,104.9

1,458.5

804.4
(41.5)
51.9
2,273.3

1,030.6
1,025.1
462.4
2,518.1

5,139.6
2,899.5

160.5
149.0

1,805.1
334.9
55.9

778.2
1,089.9
12,412.6

35.0
116.0
151.0

831.3
171.3
1,002.6

1,473.7

764.7
153.5
44.1
2,436.0

1,157.6

1,175.3

1,151.6

93.7
98.8
149.2
176.3
32.3
72.3
381.3
2,161.5

300.7
26.9
(.7)
26.2
(100.7)
20.2
(80.5)
246.4

98.1
81.4
(42.9)
171.3
29.7
60.9
358.9
1,932.7

340.6
13.2
.3
13.5
66.7
(11.7)
55.0
409.1

105.0
63.7
154.6
153.3
19.8
55.7
364.8
2,068.5

367.5
30.8
(1.0)
29.8
(3.4)
.7
(2.7)
394.6

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(c)

Medicare supplement:

Insurance policy benefits
Benefit ratio(c)

A 1% change in the annual Medicare supplement benefit ratio is approximately
equivalent to a $7.6 million change in insurance policy benefits.

Long-term care:

Insurance policy benefits
Benefit ratio(c)
Interest-adjusted benefit ratio(d)

2019

2018

2017

871.7
85.8%

562.2

73.8%

309.5
121.7%
77.1%

876.1
85.6%

571.8
74.5%

304.3
119.0%
76.0%

853.0

82.2%

550.6

70.8%

302.4
116.2%
75.0%

A 1% change in the annual long-term care interest-adjusted benefit ratio is
approximately equivalent to a $2.4 million change in insurance policy benefits.

(a) Net new client assets includes total inflows of cash and securities into brokerage and managed advisory accounts less outflows. Inflows include interest and dividends

and exclude changes due to market fluctuations.

(b) Client assets include cash and securities in brokerage and managed advisory accounts.
(c) We calculate benefit ratios by dividing the related product’s insurance policy benefits by insurance policy income.
(d) 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
$113.4 million, $110.1 million and $107.1 million in 2019, 2018 and 2017, respectively.

Bankers Life is the marketing brand of various affiliated companies
of CNO Financial Group including, Bankers Life and Casualty
Company, Bankers Life Securities, Inc., and Bankers Life Advisory
Services, Inc. Non-affiliated insurance products are offered
through Bankers Life General Agency, Inc. (dba BL General
Insurance Agency, Inc., AK, AL, CA, NV, PA). Agents who are
financial advisors are registered with Bankers Life Securities, Inc.

Securities and variable annuity products and services are offered
by Bankers Life Securities, Inc. Member FINRA/SIPC, (dba BL
Securities, Inc., AL, GA, IA, IL, MI, NV, PA). Advisory products
and services are offered by Bankers Life Advisory Services, Inc.
SEC Registered Investment Adviser (dba BL Advisory Services,
Inc., AL, GA, IA, MT, NV, PA). Home Office: 111 East Wacker
Drive, Suite 1900, Chicago, IL 60601.

Total premium collections were $2,793.0 million in 2019,
up 5.5 percent from 2018, and $2,648.2 million in 2018, up
5.2 percent from 2017, primarily driven by sales of fixed index
annuities. See “Premium Collections” for further analysis of
Bankers Life’s premium collections.

Average liabilities for insurance products, net of reinsurance
ceded were $13.7 billion in 2019, up 5.5 percent from 2018 and
$12.9 billion in 2018, up 4.3 percent from 2017. The increase in
average liabilities for insurance products is primarily due to new
sales and the amounts added to policyholder account liabilities on
interest-sensitive products.

Broker dealer and registered investment advisor client assets
totaled $1,515.0 million and $1,104.9 million at December 31,
2019 and 2018, respectively, with net inflows of $177.1 million
and $197.5 million in 2019 and 2018, respectively.

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) decreased
2.8 percent, to $782.2 million, in 2019 and increased 5.2 percent,
to $804.4 million, in 2018. The decrease in 2019 reflects: (i) lower
investment income from alternative investments; (ii) lower

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations
prepayment income (including call premiums); and (iii) lower
investment yields partially offset by higher average investments in
this segment. The lower yields in 2019 are primarily due to lower
market yields in general, as well as repositioning a portion of our
portfolio into higher rated investments in the first quarter of 2019.
Alternative investments are typically reported a quarter in arrears.
Alternative investments earned satisfactory returns in 2019 relative
to our expectations, but were less than 2018. Investment income
from alternative investments was $41.8 million, $48.7 million and
$26.2 million in 2019, 2018 and 2017 respectively. In addition,
prepayment income (including call premiums) was $11.5 million,
$18.6 million and $27.7 million in 2019, 2018 and 2017,
respectively.

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 $147.5 million, $(41.5) million and $153.5 million in 2019,
2018 and 2017, respectively. Such amounts were substantially
offset by the corresponding charge (credit) to amounts added
to policyholder account liabilities - 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 liabilities 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 $75.2 million, $51.9 million
and $44.1 million in 2019, 2018 and 2017, respectively. We
recognized fee income of $57.1 million, $35.5 million and
$30.8 million in 2019, 2018 and 2017, respectively, pursuant
to distribution and marketing agreements to sell third-party
products (primarily Medicare Advantage) of other insurance
companies. The increase in fee income in 2019 from the sales of
third-party products primarily reflects increased sales and changes
in the assumptions used to estimate revenues on these sales. Such
assumptions are based on a larger pool of historical information
related to renewal patterns and resulted in the recognition of
$11.3 million of additional fee revenue and $4.8 million of
additional distribution expense in the fourth quarter of 2019. The
remaining increase in fee revenue in 2019 and 2018 is primarily
attributable to fee income earned by our broker-dealer and
registered investment advisor subsidiaries.

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 2019, we completed our comprehensive
review of actuarial assumptions. Such review resulted in a decrease
to reserves of $1.4 million and an increase in amortization of
$12.2 million including the impact from changes in earned rate,
credited rate, mortality rate and surrender rate assumptions related
to fixed index and fixed interest annuities and interest-sensitive
life products. In the fourth quarter of 2018, our comprehensive
review resulted in a decrease to reserves of $5.2 million and an
increase in amortization of $8.3 million including the net impact

from changes to spread and persistency assumptions related to
fixed index and fixed interest annuities. In the fourth quarter of
2017, our comprehensive 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.

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
73.8 percent, 74.5 percent and 70.8 percent in 2019, 2018 and
2017, respectively. Beginning in 2018, our margins reflect the
expansion of the use of the Medicare crossover claims process for
all of this segment’s Medicare supplement business. The Medicare
crossover process is a claims payment platform that provides for
straight through processing of provider claims. As expected, this
new process increased the reporting of smaller claims, resulting in
higher benefit ratios in 2019 and 2018. Annually, we review our
loss experience on these products and when appropriate, apply for
actuarially justified rate increases. The next effective date for rate
increases for the majority of these policies is January 1, 2020. Our
insurance policy benefits reflected favorable reserve developments
of prior period claim reserves of approximately $1.8 million,
$.7 million and $6.0 million in 2019, 2018 and 2017, respectively.
Excluding the effects of prior period claim reserve redundancies
and deficiencies, our benefit ratios would have been 74.1 percent,
74.5 percent and 71.5 percent in 2019, 2018 and 2017, respectively.
The benefit ratio in 2019 on this Medicare supplement business
was in line with our previously announced expectations which
were in the range of 73 percent to 77 percent for 2019.

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 121.7 percent, 119.0 percent and 116.2 percent in 2019, 2018
and 2017, respectively. The interest-adjusted benefit ratio on this
business was 77.1 percent, 76.0 percent and 75.0 percent in 2019,
2018 and 2017, respectively. The interest-adjusted benefit ratio in
2017 was favorably impacted by $3.4 million of one-time reserve
releases which was comprised of: (i) $1.9 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) $.9 million related to an out-of-period adjustment
that reduced reserves; and (iii) $.6 million related to the impact
of policyholder decisions to surrender or reduce coverage
following rate increases. The interest-adjusted benefit ratio in
2017, excluding such favorable reserve releases, was 76.3 percent.
The interest-adjusted benefit ratio in 2019 on this long-term care

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kbusiness was in line with our previously announced expectations
which were in the range of 74 percent to 79 percent for 2019.

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. 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 liabilities - cost
of interest credited to policyholders were $93.7 million,
$98.1 million and $105.0 million in 2019, 2018 and 2017,
respectively. The weighted average crediting rates for these
products was 2.9 percent in 2019 and 2.8 percent in both 2018
and 2017. The average liabilities of the fixed interest annuity block
were $2.3 billion, $2.6 billion and $2.9 billion in 2019, 2018 and
2017, 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 liabilities 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 other products,
we amortize insurance acquisition costs in relation to actual and
expected premium revenue, and amortization is only adjusted if
expected premium revenue changes or if we determine the balance
of these costs is not recoverable from future profits. Amortization
was 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 is primarily due to higher interest rates
on the variable rate investment borrowings.

CNO FINANCIAL GROUP, INC. - Form 10-K

Commission expense and distribution fees were higher in 2019
due to higher sales of insurance products, including the sales of
third-party Medicare Advantage policies.

Other operating costs and expenses in our Bankers Life segment
were $381.3 million in 2019, up 6.2 percent from 2018, and were
$358.9 million in 2018, down 1.6 percent from 2017. The increase
in other operating expenses in 2019 was primarily due to higher
expenses related to growth initiatives.

Net realized investment gains (losses) fluctuate each period.
During 2019, we recognized net realized investment gains of
$26.9 million, which were comprised of: (i) $17.2 million of net
gains from the sales of investments; (ii) a $9.5 million favorable
change in the fair value of equity securities; (iii) the increase in
fair value of certain fixed maturity investments with embedded
derivatives of $5.6 million; and (iv) $5.4 million of writedowns
of investments for other than temporary declines in fair value
recognized through net income. During 2018, we recognized net
realized investment gains of $13.2 million, which were comprised
of: (i) $43.7 million of net gains from the sales of investments;
(ii) a $24.1 million unfavorable change in the fair value of equity
securities; (iii) the decrease in fair value of certain fixed maturity
investments with embedded derivatives of $6.0 million; and
(iv) $.4 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.
During 2017, we recognized net realized investment gains of
$30.8 million, which were comprised of: (i) $22.1 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.

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 $.7 million, $(.3) million and $1.0 million in
2019, 2018 and 2017, 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. Over
the life of an annuity policy, the fair value changes in the
embedded derivative related to such policy are classified as
non-operating earnings and will net to zero. These changes
solely reflect fluctuations in the discount rate used to determine
the embedded derivative liability and do not reflect the actual
costs of the options purchased to support the benefits accruing
to the fixed index annuity.

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.

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 liabilities:

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
Commission expense
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

2019

632.3
40.9
36.8
1.0
711.0

252.0
81.8

214.2
272.1
4.6

3,005.7
17.9
10.1

149.1
162.4
4,169.9

700.8

255.5
4.5
—
14.2
975.0

550.9

12.4
4.5
4.4
58.5
12.4
84.1
136.6
863.8

111.2
24.1
.1
24.2
(2.6)
1.7
(.9)
134.5

2018

613.0
46.3
32.2
1.3
692.8

283.3
90.3

219.5
270.6
4.8

2,867.5
20.7
11.8

149.2
166.6
4,084.3

687.6

261.1
(1.5)
.2
.9
948.3

540.9

12.8
4.6
(1.8)
55.8
10.8
73.9
129.4
826.4

121.9
(10.0)
.1
(9.9)
1.6
(1.1)
.5
112.5

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
69.8
128.3
844.3

98.3
11.7
—
11.7
.5
(.3)
.2
110.2

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)

A 1% change in the annual interest-adjusted benefit ratio is approximately
equivalent to a $6.3 million change in insurance policy benefits.

Medicare supplement:

Insurance policy benefits
Benefit ratio(a)

2019

2018

2017

496.4
78.8%
54.8%

28.9
71.4%

486.0
79.5%
55.4%

489.8
83.2%
59.1%

32.8
68.9%

37.0
68.1%

(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
$151.5 million, $147.2 million and $141.7 million in 2019, 2018 and 2017, respectively.

Total premium collections were $711.0 million in 2019,
up 2.6 percent from 2018, and $692.8 million in 2018, up
3.2 percent from 2017, 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 $4,169.9 million in 2019, up 2.1 percent from
2018, and $4,084.3 million in 2018, up 1.8 percent from 2017,
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 $255.5 million in 2019, $261.1 million in 2018
and $257.5 million in 2017. Net investment income on general
account invested assets in 2019 reflects lower investment income
from alternative investments as well as lower investment yields,
as compared to 2018. The lower yields in 2019 are primarily
due to lower market yields in general, as well as repositioning a

portion of our portfolio into higher rated investments in the first
quarter of 2019. Alternative investments are typically reported
a quarter in arrears. Alternative investments earned satisfactory
returns in 2019 relative to our expectations, but were less than
2018. Investment income from alternative investments was
$10.8 million, $12.4 million and $7.3 million in 2019, 2018
and 2017, respectively. Prepayment income (including call
premiums) was $4.7 million, $3.8 million and $5.9 million in
2019, 2018 and 2017, respectively.

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 $4.5 million, $(1.5) million and $9.0 million
in 2019, 2018 and 2017, respectively. Such amounts were
substantially offset by the corresponding charge to amounts
added to policyholder account liabilities - 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 liabilities
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

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations
rates of cash value growth based on the experience of a particular
market strategy. The income on our trading account securities
is designed to substantially offset certain amounts included in
insurance policy benefits related to the aforementioned annuity
products.

Fee revenue and other income increased in 2019 due to the
fee income recognized by WBD subsequent to its acquisition
as further described in the note to the consolidated financial
statements entitled “Business and Basis of Presentation”.

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 2019, we completed our comprehensive
annual review of actuarial assumptions. Such review resulted
in a decrease in amortization of $2.2 million, partially offset
by an increase in reserves of $1.4 million, primarily related
to fixed index annuities. In the fourth quarter of 2018,
our comprehensive annual review resulted in a decrease in
amortization of $2.4 million, partially offset by an increase in
reserves of $.2 million, primarily related to interest-sensitive
life products. In the fourth quarter of 2017, our comprehensive
review resulted in a $1 million increase in amortization of
deferred acquisition costs related to interest-sensitive life
products.

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
$133.2 million, $125.3 million and $98.7 million in 2019,
2018 and 2017, respectively. The increase in margin on this
block of business in 2019 reflects the growth in the block and
lower claims experience. The increase in margin on this block

of business in 2018, compared to 2017, reflects higher insurance
policy income due to higher sales and growth in the block, as
well as favorable claims and favorable development of prior
period claim reserves. The benefit ratio on these products was
78.8 percent, 79.5 percent and 83.2 percent in 2019, 2018 and
2017, respectively. The interest-adjusted benefit ratio on this
supplemental health business was 54.8 percent, 55.4 percent and
59.1 percent in 2019, 2018 and 2017, respectively. The interest-
adjusted benefit ratio in 2019 on this supplemental health
business was slightly better than our previously announced
expectations which were in the range of 55 percent to 58 percent
for 2019.

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 $11.6 million, $14.8 million and
$17.4 million in 2019, 2018 and 2017, respectively. Such decrease
reflects the run-off of this block of business.

Amounts added to policyholder account liabilities - cost
of interest credited to policyholders were $12.4 million,
$12.8 million and $12.9 million in 2019, 2018 and 2017,
respectively.

Amounts added to policyholder account liabilities 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 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
$12.4 million, $10.8 million and $6.3 million of interest
expense on collateralized borrowings in 2019, 2018 and 2017,
respectively, as further described in the note to the consolidated
statements entitled “Summary of Significant
financial

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KAccounting Policies - Investment Borrowings”. The increase in
interest expense is due to higher interest rates on the variable
rate investment borrowings.

Commission expense was $84.1 million, $73.9 million and
$69.8 million in 2019, 2018 and 2017, respectively. The increase
in commission expense is consistent with the growth in the
supplemental health block.

Other operating costs and expenses were $136.6 million,
$129.4 million and $128.3 million in 2019, 2018 and 2017,
respectively. The increase in other operating costs and expenses
in 2019 is primarily due to the expenses recognized by WBD
subsequent to its acquisition as further described in the note
to the consolidated financial statements entitled “Business and
Basis of Presentation”.

Net realized investment gains (losses) fluctuate each period.
During 2019, we recognized net realized investment gains of
$24.1 million, which were comprised of: (i) $14.6 million
of net gains from the sales of investments; (ii) a $1.6 million
favorable change in the fair value of equity securities; (iii) an
increase in fair value of certain fixed maturity investments with
embedded derivatives of $2.6 million; and (iv) the increase
in fair value of embedded derivatives related to a modified
coinsurance agreement of $5.3 million. During 2018, we
recognized net realized investment losses of $10.0 million,
which were comprised of: (i) $1.8 million of net gains from the
sales of investments; (ii) a $7.5 million unfavorable change in
the fair value of equity securities; (iii) an increase in fair value of
certain fixed maturity investments with embedded derivatives
of $.9 million; (iv) the decrease in fair value of embedded
derivatives related to a modified coinsurance agreement of
$5.1 million; and (v) $.1 million of writedowns of investments
for other than temporary declines in fair value which were
recorded in earnings. 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.

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

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. Over
the life of an annuity policy, the fair value changes in the
embedded derivative related to such policy are classified as non-
operating earnings and will net to zero. These changes solely
reflect fluctuations in the discount rate used to determine the
embedded derivative liability and do not reflect the actual costs
of the options purchased to support the benefits accruing to the
fixed index annuity.

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 OperationsColonial 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
Commission expense
Other operating costs and expenses

Total benefits and expenses

Income before net realized investment losses and income taxes

Net realized investment gains (losses)
INCOME BEFORE INCOME TAXES

2019

307.0
1.3
308.3

67.5

4.2
3.2

12.0
751.2
838.1

308.8
42.2
1.5
352.5

209.1
.6
18.6
1.5
1.3
107.1
338.2
14.3
3.4
17.7

2018

296.6 $
1.7
298.3 $

2017

289.6
2.0
291.6

69.6 $

73.0

5.0
3.7

14.7
739.8
832.8 $

298.6 $
44.6
1.8
345.0

206.6
.6
17.8
1.4
1.4
102.4
330.2
14.8
(2.4)
12.4 $

5.7
4.1

15.5
717.5
815.8

291.8
44.4
1.3
337.5

199.0
.6
16.3
.9
1.4
96.7
314.9
22.6
—
22.6

This segment’s results are significantly impacted by the accounting
standard related to deferred acquisition costs. We are not able to defer
most of Colonial Penn’s direct response advertising costs although
such costs generate predictable sales and future inforce profits. We
plan to continue to invest in this segment’s business, including the
development of new products and markets. The amount of our
investment in new business during a particular period will have a
significant impact on this segment’s results. This segment’s earnings
(before net realized investment gains (losses) and income taxes)
in 2019 were in line with our previously announced expectations
which were in the range of $12 million to $16 million for 2019.

collections

Total premium
to
$308.3 million, in 2019 and 2.3 percent, to $298.3 million, in
2018. The increase was driven by recent sales activity and steady
persistency. See “Premium Collections” for further analysis of
Colonial Penn’s premium collections.

increased 3.4 percent,

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 business 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
decreased in 2019 primarily due to lower investment yields
compared to 2018.

Insurance policy benefits reflect growth in this segment. In
addition, insurance policy benefits in 2018 reflect a $1.1 million
out-of-period adjustment which increased reserves on a closed
block of payout annuities in the first quarter of 2018. Insurance
policy benefits in 2017 reflect favorable changes to liabilities
for insurance products including a $2.5 million out-of-period
adjustment and a $.5 million refinement to the calculation.

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

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kwere higher in 2019 as compared to 2018. The demand and cost
of television advertising appropriate for Colonial Penn’s campaigns
has fluctuated widely in certain periods. 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 2019, we recognized net realized investment gains of
$3.4 million, which were comprised of: (i) $3.1 million of net gains
from the sales of investments; (ii) a $.2 million favorable change in
the fair value of equity securities; and (iii) the increase in fair value
of certain fixed maturity investments with embedded derivatives
of $.1 million. During 2018, we recognized net realized investment
losses of $2.4 million, which were comprised of: (i) $1.8 million of
net losses from the sales of investments; (ii) the decrease in fair value
of certain fixed maturity investments with embedded derivatives
of $.2 million; and (iii) a $.4 million unfavorable change in the fair
value of equity securities. During 2017, we recognized net realized
investment gains of nil, which was 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.

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.

Recognizing 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):

2019

2018

2017

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

CNO FINANCIAL GROUP, INC. - Form 10-K

257.2
43.7
300.9

177.2
17.0
34.9
229.1
71.8

51.6
—
51.6

32.5
1.6
75.0
109.1
(57.5)

308.8
43.7
352.5

209.7
18.6
109.9
338.2
14.3

251.6
46.4
298.0

178.6
17.2
36.4
232.2
65.8

47.0
—
47.0

28.6
.6
68.8
98.0
(51.0) $

298.6
46.4
345.0

207.2
17.8
105.2
330.2
14.8

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

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe Adjusted EBIT from in-force business in the Colonial
Penn segment increased in 2019, as compared to 2018, reflecting
growth in the block. The Adjusted EBIT from new business
in the Colonial Penn segment in 2019 primarily reflects higher

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.

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

The long-term care in run-off segment consists of: (i) the
long-term care business that was recaptured due to the
termination of certain reinsurance agreements effective
September 30, 2016 (such business is not actively marketed and
was issued or acquired by Washington National and BCLIC);
and (ii) certain legacy (prior to 2003) comprehensive and nursing
home long-term care policies that were ceded in September

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
Amortization
Commission expense
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)

2018 (such business is not actively marketed and was issued
by Bankers Life). Beginning in the fourth quarter of 2018, the
earnings of this segment only reflect the long-term care business
that was recaptured in September 2016 as the legacy long-term
care business was ceded under a 100% indemnity coinsurance
agreement in September 2018.

2019

13.5

570.1

13.9
33.0
46.9

32.5
—
.4
2.0
34.9
12.0
(6.5)
5.5

32.6
234.6%
35.4%

2018

145.8

2,857.7

148.4
172.7
321.1

271.3
7.0
1.3
18.6
298.2
22.9
(4.5)
18.4

271.3
182.8%
79.1%

2017

205.2

3,754.7

210.4
223.7
434.1

344.2
10.3
1.8
24.7
381.0
53.1
10.8
63.9

344.2
163.6%
69.1%

(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 $27.7 million,
$153.9 million and $198.8 million in 2019, 2018 and 2017, respectively.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K
Average liabilities for long-term care products decreased as a
result of the legacy long-term care business which was ceded under
a 100% indemnity coinsurance agreement in September 2018. In
addition, the average liabilities were increased by $75.5 million
and $130 million in 2019 and 2017, 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.

Insurance policy benefits were $32.5 million, $271.3 million
and $344.2 million in 2019, 2018 and 2017, respectively. The
interest-adjusted benefit ratio on the business in this segment
was 35.4 percent, 79.1 percent and 69.1 percent in 2019, 2018
and 2017, respectively. Our 2019 comprehensive actuarial review
of this block reflected relatively low margins. Accordingly, this
segment’s results can be volatile from period to period. This block
of business is particularly sensitive to changes in assumptions.

Net realized investment losses fluctuated each period.
During 2019, we recognized net realized investment losses of
$6.5 million, which were comprised of: (i) $3.0 million of net
losses from the sales of investments; (ii) a $.5 million favorable
change in the fair value of equity securities; and (iii) $4.0 million
of writedowns of investments for other than temporary declines
in fair value recognized through net income. During 2018, we
recognized net realized investment losses of $4.5 million, which
were comprised of: (i) $.3 million of net losses from the sales
of investments; (ii) a $1.9 million unfavorable change in the
fair value of equity securities; (iii) the decrease in fair value of
certain fixed maturity investments with embedded derivatives of
$.2 million; and (iv) $2.1 million of writedowns of investments
for other than temporary declines in fair value recognized
through net income. During 2017, we recognized net realized
investment gains of $10.8 million, which were comprised of:
(i) $29.1 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.

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
Other operating costs and expenses

Loss before net realized investment losses, earnings attributable to VIEs, fair value
changes related to agent deferred compensation plan, loss related to reinsurance
transaction, net revenue pursuant to transition services agreement, loss on
extinguishment of debt and income taxes

Net realized investment losses
Earnings attributable to VIEs
Fair value changes related to agent deferred compensation plan
Net revenue pursuant to transition services agreement
Other expenses
Loss related to reinsurance transaction
Loss on extinguishment of debt

LOSS BEFORE INCOME TAXES

2019

2018

2017

(52.4)

(48.0)

(46.5)

5.0

15.0
7.6
8.8
37.5
(91.4)

(69.9)
(19.7)
2.1
(20.4)
1.2
(15.9)
—
(7.3)
(129.9)

6.6

(17.8)
(2.7)
8.3
6.7
(72.1)

(119.0)
(7.6)
1.6
11.9
.1
—
(704.2)
—
(817.2)

5.6

17.4
3.4
9.1
8.5
(84.3)

(86.8)
(3.0)
(8.8)
(12.2)
—
—
—
—
(110.8)

Interest expense on corporate debt was $52.4 million,
$48.0 million and $46.5 million in 2019, 2018 and 2017,
respectively. Our average corporate debt outstanding was
$966.1 million in 2019 and $925.0 million in both 2018 and
2017. The average interest rate on our debt was 5.1 percent,
4.8 percent and 4.8 percent in 2019, 2018 and 2017, respectively.
Average corporate debt outstanding and the average interest rate
were impacted by the debt refinancing transaction completed in
June 2019 (as further discussed in the note to the consolidated
financial statements entitled “Notes Payable - Direct Corporate
Obligations”) along with the mix of interest rates on the related
outstanding borrowings.

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; and (iii) income (loss) from
Company-owned life insurance (“COLI”) equal to the difference
between the return on these investments (representing the change

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationsin value of the underlying investments) and our overall portfolio
yield. 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 related to the COLI
in 2017. At December 31, 2019, our COLI assets had a carrying
value of $194.0 million. Since this segment’s earnings reflect the
changes in values of the underlying investments supporting the
insurance contracts (including mutual funds investing in bonds,
common stock and real estate) and any death benefits received,
such income can be volatile.

Fee 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. In addition, other
income in 2019 reflected the favorable impact of legal recoveries
from settlements with third parties.

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 legal, consulting and regulatory
expenses which often vary from period to period and were higher
in 2019.

Net realized investment losses often fluctuate each period.
During 2019, net realized investment losses in this segment
were $19.7 million and were comprised of: (i) a $.1 million
favorable change in the fair value of equity securities (none of
which was recognized by the VIEs); (ii) $11.7 million of net
losses from the sales of investments (including $12.4 million of
net losses recognized by the VIEs and $.7 million of net gains
on other investment sales); (iii) $5.1 million of losses related to
the dissolution of a VIE; and (iv) $3.0 million of writedowns
of investments held by VIEs due to other-than-temporary
declines in value. During 2018, net realized investment losses
in this segment were $7.6 million and were comprised of: (i)
a $4.3 million unfavorable change in the fair value of equity
securities (none of which was recognized by the VIEs); and
(ii) $3.3 million of net losses from the sales of investments
(including $3.6 million of net losses recognized by the VIEs and
$.3 million of net gains on other investment sales). 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 a VIE; and
(iii) $2.5 million of writedowns of investments held by VIEs due
to other-than-temporary declines in value.

Earnings attributable to VIEs represent the earnings attributable
to VIEs that we are required to consolidate, net of affiliated
amounts. Such earnings are not indicative of, and are unrelated to,
the Company’s underlying fundamentals.

Fair value changes related to agent deferred compensation
plan relate to changes in the underlying actuarial assumptions
used to value liabilities for our agent deferred compensation plan.

Net revenue pursuant to transition services agreement
represents the difference between the fees we receive from Wilton
Re and the overhead costs incurred to provide such services under
the agreement in connection with the completion of a long-term
care reinsurance transaction in September 2018.

Other expenses in 2019 include one-time expenses associated with:
(i) the new operating model announced in early January 2020 to
create a more customer-centric structure and improve operating
performance; and (ii) a new strategic technology partnership
with two leading, global technology solutions providers for our
application development, maintenance and testing functions
as well as IT infrastructure and cybersecurity services. The
new operating model is expected to reduce run rate expenses
by approximately $11 million per year beginning in 2021. The
technology partnership is expected to deliver approximately
$20 million in savings over five years with insignificant savings in
the early years grading up to $8 million annually by 2024.

Loss related to reinsurance transaction in 2018 resulted from
ceding our legacy (prior to 2003) comprehensive and nursing
home long-term care policies in September 2018 through 100%
indemnity coinsurance. We recognized a pre-tax loss related to the
reinsurance transaction of $704.2 million (net of realized gains on
the transfer of assets related to the transaction of $363.4 million)
as further described in the note to the consolidated financial
statements entitled “Summary of Significant Accounting
Policies - Reinsurance”.

Loss on extinguishment of debt in 2019 of $7.3 million consisted
of: (i) a premium of $6.1 million due to the redemption of the
4.500% Senior Notes due May 2020 (the “2020 Notes”); and
(ii) $1.2 million related to the write-off of unamortized issuance
costs due to the redemption of the 2020 Notes.

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.

financial strength ratings of our primary insurance subsidiaries
from A.M. Best, S&P, Fitch and Moody’s are “A-”, “A-”, “A-” and
“A3”, 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.

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

Total premium collections were $3,825.8 million in 2019, up
1.1 percent from 2018, and $3,785.1 million in 2018, up 2.6 percent
from 2017. First year collected premiums were $1,626.4 million in
2019, up 9.6 percent from 2018, and $1,484.5 million in 2018, up
8.0 percent from 2017. Total premiums collected are summarized
as follows (dollars in millions):

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

2019

1,497.8
76.9
51.7
1,626.4

1,295.2
634.1
256.6
13.5
2,199.4
3,825.8

2018

2017

1,361.1
76.5
46.9
1,484.5

1,287.1
616.3
251.4
145.8
2,300.6
3,785.1

1,245.6
78.4
50.1
1,374.1

1,272.5
595.0
241.5
205.2
2,314.2
3,688.3

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:

2019

2018

2017

1,241.2
59.1
5.1
64.2
1,305.4

60.2
673.7
733.9
18.9
236.7
255.6
4.5
20.4
24.9
.8
5.0
5.8
1,020.2

68.4
225.1
293.5
44.7
129.2
173.9
467.4

1,112.0 $
45.8
5.4
51.2
1,163.2

61.9
672.4
734.3
15.6
239.5
255.1
4.4
19.2
23.6
.8
5.2
6.0
1,019.0

71.6
223.6
295.2
49.0
121.8
170.8
466.0

964.7
59.8
6.1
65.9
1,030.6

69.3
670.1
739.4
16.0
241.0
257.0
5.0
17.6
22.6
.8
5.3
6.1
1,025.1

82.6
217.3
299.9
47.4
115.1
162.5
462.4

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

TOTAL COLLECTIONS ON INSURANCE PRODUCTS

Annuities in this segment include fixed index and other fixed
interest annuities sold to the senior market. Annuity collections in
this segment increased 12 percent, to $1,305.4 million in 2019 and
13 percent, to $1,163.2 million, in 2018. The increase in premium
collections from our fixed index products in 2019 and 2018 is
primarily due to the general stock market performance which
made these products attractive to certain customers. Premium
collections from our other fixed interest products reflect consumer
preference for fixed index products in the current low interest rate
environment.

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.

1,497.8
1,295.2
2,793.0

1,361.1
1,287.1
2,648.2 $

1,245.6
1,272.5
2,518.1

Collected premiums on Medicare supplement policies in the
Bankers Life segment were $733.9 million, $734.3 million and
$739.4 million in 2019, 2018 and 2017, respectively.

Premiums collected on Bankers Life’s long-term care policies
increased .2 percent, to $255.6 million in 2019 and decreased
.7 percent, to $255.1 million in 2018.

Life products in this segment include traditional and interest-
sensitive life products. Life premiums collected in this segment
increased .3 percent, to $467.4 million, in 2019 and .8 percent, to
$466.0 million, in 2018.

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:

2019

2018

2017

40.9
67.9
562.8
630.7
.3
1.3
1.6
673.2

.6
9.0
9.6
8.1
19.1
27.2
36.8

—
.8
.8
.2
1.0

46.3
70.2
541.1
611.3
.2
1.5
1.7
659.3

.6
9.5
10.1
5.4
16.7
22.1
32.2

.1
1.0
1.1
.2
1.3

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

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

TOTAL COLLECTIONS ON INSURANCE PRODUCTS

76.9
634.1
711.0

76.5
616.3
692.8

78.4
595.0
673.4

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.

in
Collected premiums on Medicare supplement policies
the Washington National segment decreased 12 percent, to
$40.9 million, in 2019 and 10 percent, to $46.3 million, in 2018
due to the run-off of this block of business.

Premiums collected on supplemental health products (including
specified disease, accident and hospital indemnity insurance

products) increased 3.2 percent, to $630.7 million, in 2019 and
3.8 percent, to $611.3 million, in 2018. Such increases are due to
new sales and persistency.

Life premiums collected in the Washington National segment
increased 14 percent, to $36.8 million, in 2019 and 7.3 percent,
to $32.2 million, in 2018. Such increases are due to new sales in
recent periods and persistency.

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

2019

2018

2017

51.7
255.1
306.8
.2
307.0

1.2
.1
1.3

46.9
249.5
296.4
.2
296.6

1.5
.2
1.7

51.7
256.6
308.3

46.9
251.4
298.3

50.1
239.3
289.4
.2
289.6

1.9
.1
2.0

50.1
241.5
291.6

Life products in this segment are sold primarily to the senior
market. Life premiums collected in this segment increased
3.5 percent, to $307.0 million, in 2019 and 2.4 percent, to
$296.6 million, in 2018. 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.
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)

2019

2018

2017

13.5

145.8

205.2

The Long-term care in run-off segment only includes the premiums collected from: (i) the long-term care business that was recaptured
due to the termination of certain reinsurance agreements effective September 30, 2016 (such business is not actively marketed and
was issued or acquired by Washington National and BCLIC); and (ii) certain legacy (prior to 2003) comprehensive and nursing home
long-term care policies which were ceded in September 2018 (such business was not actively marketed and was issued by Bankers Life).
Such collected premiums have decreased as the legacy long-term care business was ceded under a 100% indemnity coinsurance agreement
in September 2018.

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 89 percent of
our $25.6 billion investment portfolio at December 31, 2019. The
remainder of the invested assets was trading securities, investments
held by VIEs, COLI, 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, 2019 (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
21,295.2
44.1
1,566.1
124.5
243.9
1,188.6
194.0
924.5
25,580.9

Percent of total
investments

83%
—
6
—
1
5
1
4
100%

The 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

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

Fixed Maturities, Available for Sale

2019
21,986.0
1,112.9

2018
23,668.0
1,282.8

2017
$ 23,819.5
1,290.3

5.06%

5.42 %

5.42%

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, 2019 (dollars in millions):

Asset-backed securities
States and political subdivisions
Commercial mortgage-backed securities
Banks
Insurance
Utilities
Healthcare/pharmaceuticals
Collateralized mortgage obligations
Energy
Food/beverage
Brokerage
Technology
Transportation
Cable/media
Real estate/REITs
Telecom
Collateralized debt obligations
Capital goods
Chemicals
Aerospace/defense
U.S. Treasury and Obligations
Other

TOTAL FIXED MATURITIES, AVAILABLE FOR SALE $

CNO FINANCIAL GROUP, INC. - Form 10-K

Carrying value
2,520.3
2,246.7
1,887.0
1,532.3
1,430.1
1,407.2
1,182.0
1,003.6
932.1
853.2
655.8
642.1
528.0
512.7
448.2
417.8
400.8
361.2
354.6
232.0
204.6
1,542.9
21,295.2

Percent of fixed
maturities

11.8% $
10.5
8.9
7.2
6.7
6.6
5.5
4.7
4.4
4.0
3.1
3.0
2.5
2.4
2.1
2.0
1.9
1.7
1.7
1.1
1.0
7.2

100.0% $

Gross unrealized
losses
2.0
1.5
1.0
.2
1.0
—
.6
.8
4.3
.4
.1
.3
1.0
.5
—
—
3.4
.1
.1
—
.1
3.7
21.1

Percent of gross
unrealized losses

9.4%
6.9
4.9
.8
4.6
—
2.8
3.8
20.4
1.8
.5
1.4
4.8
2.4
—
—
16.1
.7
.6
—
.3
17.8
100.0%

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, 2019 (dollars in millions):

Below-investment grade

B+ and below

Investment grade

AAA/AA/A

Energy
Collateralized debt obligations
Asset-backed securities
States and political subdivisions
Consumer products
Commercial mortgage-backed securities
Autos
Transportation
Insurance
Other

TOTAL FIXED MATURITIES,
AVAILABLE FOR SALE

— $
3.4
1.0
1.3
1.0
.9
—
—
—
1.0

8.6 $

BBB
2.5
—
.2
.2
.1
.1
.7
1.0
1.0
2.2

8.0

BB
1.8 $
—
.8
—
—
—
.3
—
—
1.0

3.9 $

Total gross
unrealized losses
4.3
3.4
2.0
1.5
1.1
1.0
1.0
1.0
1.0
4.8

— $
—
—
—
—
—
—
—
—
.6

21.1

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, 2019, classified by
ratings (dollars in millions):

Investment rating
AAA
AA
A
BBB+
BBB
BBB-

Investment grade

BB+
BB
BB-
B+ and below

Below-investment grade

TOTAL FIXED MATURITY SECURITIES

Estimated fair value

Amount
1,796.9
2,407.4
6,455.2
2,514.8
3,916.6
2,179.5
19,270.4
241.3
284.1
251.9
1,247.5
2,024.8
21,295.2

Percent of fixed
maturities

9%
11
30
12
18
10
90
1
2
1
6
10
100%

Amortized cost
1,747.6
2,148.4
5,681.2
2,188.8
3,520.8
2,044.6
17,331.4
233.1
274.6
241.7
1,098.7
1,848.1
19,179.5

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 historical and
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 2019, we recognized
net realized investment gains of $28.2 million, which were
comprised of: (i) $20.2 million of net gains from the sales of
investments; (ii) $5.1 million of losses on the dissolution of a
VIE; (iii) $11.9 million of gains related to equity securities,
including the change in fair value; (iv) the increase in fair
value of certain fixed maturity investments with embedded
derivatives of $8.3 million; (v) the increase in fair value of
embedded derivatives related to a modified coinsurance
agreement of $5.3 million; and (vi) $12.4 million of writedowns
of investments for other than temporary declines in fair value
recognized through net income.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KDuring 2019, we sold $971.2 million of fixed maturity
investments which resulted in gross investment losses (before
income taxes) of $55.5 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.

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.

As of December 31, 2019, we had $6.9 million of fixed maturity
securities and mortgage loans that were in substantive default
(i.e., in default due to nonpayment of interest or principal). There
were no other investments about which we had serious doubts as
to the recoverability of the carrying value of the investment.

When a security defaults or securities (other than structured
securities) are other-than-temporarily impaired, our policy is to
discontinue the accrual of interest and eliminate all previous
interest accruals, if we determine that such amounts will not be
ultimately realized in full.

Other Investments

At December 31, 2019, we held commercial mortgage
loan investments with a carrying value of $1,453.8 million
(or 5.7 percent of total invested assets) and a fair value of
$1,538.9 million. We had one mortgage loan that was in the
process of foreclosure at December 31, 2019. During 2019, 2018
and 2017, we recognized nil, $2.1 million and $5.2 million,
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
13 percent, 12 percent, 8 percent, 6 percent and 6 percent
of the mortgage loan balance were on properties located in
California, Texas, Maryland, Georgia and North Carolina,
respectively. No other state comprised greater than five percent
of the mortgage loan balance. At December 31, 2019, we held
residential mortgage loan investments with a carrying value of
$112.3 million and a fair value of $112.5 million.

The following table shows the distribution of our commercial mortgage loan portfolio by property type as of December 31, 2019
(dollars in millions):

Retail
Industrial
Multi-family
Office building
Other

TOTAL COMMERCIAL MORTGAGE LOANS

Number of loans Carrying value
252.4
306.6
485.9
245.8
163.1
1,453.8

64
36
32
27
21
180 $

The following table shows our commercial mortgage loan portfolio by loan size as of December 31, 2019 (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
150.1
392.7
627.5
283.5
1,453.8

67
58
43
12
180 $

The following table summarizes the distribution of maturities of our commercial mortgage loans as of December 31, 2019 (dollars
in millions):

2020
2021
2022
2023
2024
after 2024

TOTAL COMMERCIAL MORTGAGE LOANS

CNO FINANCIAL GROUP, INC. - Form 10-K

Number of loans Carrying value
7.4
10.4
85.4
157.5
209.9
983.2
1,453.8

5
6
13
13
22
121
180

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe following table provides the carrying value and estimated fair value of our outstanding commercial mortgage loans and the
underlying collateral as of December 31, 2019 (dollars in millions):

Loan-to-value ratio(a)
Less than 60%
60% to less than 70%
70% to less than 80%
80% to less than 90%

TOTAL

Estimated fair value

Carrying value Mortgage loans

1,065.5 $
229.1
117.6
41.6
1,453.8 $

1,127.4 $
242.6
123.7
45.2
1,538.9 $

Collateral
2,708.0
360.3
160.8
48.4
3,277.5

(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, 2019, we held $243.9 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 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 include options backing our fixed index
annuity and life insurance products, COLI, FHLB common stock
and certain nontraditional investments, including investments
in limited partnerships, hedge funds and real estate investments
held for sale.

At December 31, 2019, we held investments with an amortized
cost of $1,206.3 million and an estimated fair value of
$1,188.6 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

Changes in our consolidated balance sheet between December 31, 2019 and December 31, 2018, primarily reflect: (i) our net income
for 2019; (ii) changes in the fair value of our fixed maturity securities, available for sale; and (iii) payments to repurchase common
stock of $252.3 million.

Our capital structure as of December 31, 2019 and December 31, 2018 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, 2019 December 31, 2018

989.1

916.8

1.5
2,767.3
1,372.5
535.7
4,677.0
5,666.1

1.6
2,995.0
177.7
196.6
3,370.9
4,287.7

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 certain financial ratios as of and for the years ended December 31, 2019 and December 31, 2018:

Book value per common share
Book value per common share, excluding accumulated other comprehensive income(a)
Debt to total capital ratios:

Corporate debt to total capital
Corporate debt to total capital, excluding accumulated other comprehensive income(a)

December 31, 2019
$

31.58
22.32

December 31, 2018
$

20.78
19.69

17.5%
23.0%

21.4%
22.3%

(a) This non-GAAP measure differs from the corresponding GAAP measure presented immediately above, because accumulated other comprehensive income has been
excluded from the value of capital used to determine this measure. Management believes this non-GAAP measure is useful because it removes the volatility that arises from
changes in accumulated other comprehensive income. Such volatility is often caused by changes in the estimated fair value of our investment portfolio resulting from changes
in general market interest rates rather than the business decisions made by management. However, this measure does not replace the corresponding GAAP measure.

Contractual Obligations

The Company’s significant contractual obligations as of December 31, 2019, 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
Commitments to purchase/fund investments
Other contractual commitments(f )

TOTAL

Total
54,353.5
1,395.7
1,745.4
1,363.4
261.8
76.2
102.3
251.6
59,549.9

2020
3,184.4
53.1
58.5
44.3
7.6
23.9
102.3
89.0
3,563.1

Payment due in
2021-2022
7,001.2
106.2
942.1
209.2
16.0
34.6
—
103.2
8,412.5

2023-2024
6,318.2
105.0
727.0
711.4
17.2
15.7
—
59.4
7,953.9

Thereafter
37,849.7
1,131.4
17.8
398.5
221.0
2.0
—
—
39,620.4

(a) These cash flows represent our estimates of the payments we expect to make to our policyholders, without consideration of future premiums or reinsurance recoveries.
These estimates are based on numerous assumptions (depending on the product type) related to mortality, morbidity, lapses, withdrawals, future premiums, future
deposits, interest rates on investments, credited rates, expenses and other factors which affect our future payments. The cash flows presented are undiscounted for
interest. As a result, total outflows for all years exceed the corresponding liabilities of $24.4 billion included in our consolidated balance sheet as of December 31, 2019.
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.

(b) Includes projected interest payments based on interest rates, as applicable, as of December 31, 2019. 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, 2019.

(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 3.25 percent.

(f) Includes obligations to third parties for information technology services, software maintenance and license agreements, consulting services and sponsorship agreements.

CNO FINANCIAL GROUP, INC. - Form 10-K

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

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.

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.

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.

Our estimated consolidated statutory RBC ratio was 408 percent
at December 31, 2019, up from 393 percent at December 31,
2018. The ratio at December 31, 2019 reflects asset reallocation
activities that increased the quality of our investment portfolio
and reduced our equity-type investments. For example, we
reduced our allocation of fixed maturity investments rated 2 by
the NAIC to 39 percent of the portfolio at December 31, 2019
from 45 percent at December 31, 2018, and sold a significant
portion of our equity securities in 2019. In 2019, our estimated
consolidated statutory net income was $291.4 million and
insurance company dividends of $186.3 million were paid to
the holding company. Statutory net income in 2019 includes a
$46.0 million tax benefit to be received from CNO (resulting
from the implementation of a tax planning strategy). Such
amount is offset by an accrued dividend of $46.0 million payable
to the non-life parent of the insurance subsidiaries. Accordingly,
there was no impact on capital and surplus in 2019 related to
these transactions.

During 2019, the financial statements of two 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 and BCLIC were $123.0 million and $39.5 million,
respectively, at December 31, 2019. Due to differences between
statutory and GAAP insurance liabilities, we were not required
to recognize a similar asset adequacy or premium deficiency
reserve in our consolidated financial statements prepared in
accordance with GAAP. The determination of the need for
and amount of asset adequacy or premium deficiency reserves
is subject to numerous actuarial assumptions, including the
Company’s ability to change NGEs related to certain products
consistent with contract provisions.

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, S&P, Fitch
and Moody’s and are the rating agency’s opinions of the ability
of our insurance subsidiaries to pay policyholder claims and
obligations when due.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KOn January 29, 2020, A.M. Best affirmed its “A-” financial
strength ratings of our primary insurance subsidiaries. The
outlook for these ratings remain 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.

On June 21, 2019, S&P upgraded the financial strength ratings
of our primary insurance subsidiaries to “A-” from “BBB+” and
the outlook for these ratings is stable. S&P financial strength
ratings range from “AAA” to “R” and some companies are
not rated. An insurer rated “A”, in S&P’s opinion, has strong
financial security characteristics, but is somewhat more likely to
be affected by adverse business conditions than are insurers with
higher ratings. Pluses and minuses show the relative standing
within a category. S&P has twenty-one possible ratings. There
are six ratings above the “A-” rating of our primary insurance
subsidiaries and fourteen ratings that are below that rating.

On June 14, 2019, Fitch upgraded the financial strength ratings
of our primary insurance subsidiaries to “A-” from “BBB+”
and the outlook for these ratings is stable. An insurer rated
“A”, in Fitch’s opinion, indicates a low expectation of ceased
or interrupted payments and indicates strong capacity to meet
policyholder and contract obligations. This capacity may,
nonetheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher ratings. 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 six ratings above the “A-”
rating of our primary insurance subsidiaries and twelve ratings
that are below that rating.

On October 4, 2018, Moody’s upgraded the financial strength
ratings of our primary insurance subsidiaries to “A3” from
“Baa1” and the outlook for these ratings is stable. Moody’s actions
resulted from the Company’s announcement that Bankers Life
had closed on its agreement to cede certain long-term care
policies. 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 “A” offers good financial security, however,

certain elements may be present which suggests a susceptibility
to impairment sometime in the future. Moody’s has twenty-one
possible ratings. There are six ratings above the “A3” rating of
our primary insurance subsidiaries and fourteen 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.

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, 2019, CNO, CDOC and our other
non-insurance subsidiaries held unrestricted cash and cash
equivalents of $186.7 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.

The 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):

Net dividends (contributions) from/to insurance subsidiaries
Surplus debenture interest
Fees for services provided pursuant to service agreements

TOTAL DIVIDENDS AND OTHER DISTRIBUTIONS PAID
BY INSURANCE SUBSIDIARIES

CNO FINANCIAL GROUP, INC. - Form 10-K

Years ended December 31,

2019
186.3
59.9
115.5

2018
(51.1)
58.2
108.9

2017
357.7
56.8
108.1

361.7

116.0

522.6

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe following summarizes the current ownership structure of CNO’s primary subsidiaries:

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 2019, our insurance subsidiaries
paid dividends to CDOC totaling $186.3 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 346 percent at December 31,
2019. 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.

The insurance subsidiaries of CDOC receive funds to pay dividends primarily from: (i) the earnings of their direct businesses; (ii) tax
sharing payments received from subsidiaries (if applicable); and (iii) with respect to CLTX, dividends received from subsidiaries. At
December 31, 2019, the subsidiaries of CLTX had earned surplus (deficit) as summarized below (dollars in millions):

Subsidiary of CLTX
Bankers Life
Colonial Penn

Earned surplus
(deficit)
198.1
(349.6)

Additional
information
(a)
(b)

(a) Bankers Life paid dividends of $155.0 million to CLTX in 2019. Bankers Life may pay dividends without regulatory approval or prior notice for any 12-month period
if such dividends are less than the greater of: (i) statutory net income for the prior year; or (ii) 10 percent of statutory capital and surplus as of the end of the preceding
year. Dividends in excess of these levels require 30 days prior notice.

(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, and these decisions could
limit the amount available at our top tier insurance subsidiaries
to pay dividends to the holding companies.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KOn June 12, 2019, the Company executed the Indenture, dated
as of June 12, 2019 and the First Supplemental Indenture, dated
as of June 12, 2019, between the Company and U.S. Bank
National Association, as trustee (the “Trustee”) pursuant to
which the Company issued $500.0 million aggregate principal
amount of 5.250% Senior Notes due 2029 (the “2029 Notes”).

The Company used the net proceeds from the offering of the
2029 Notes to: (i) repay all amounts outstanding under its
existing Revolving Credit Agreement; (ii) redeem and satisfy
and discharge all of its outstanding 4.500% Senior Notes
due May 2020; and (iii) pay fees and expenses related to the
foregoing. The remaining proceeds were used for general
corporate purposes. The following table sets forth the sources
and uses of cash from the transaction (dollars in millions):

Sources:

2029 Notes

Uses:

Repayment of Revolving Credit Agreement
Repayment of 2020 Notes, including redemption premium
Accrued interest
Debt issuance costs
General corporate purposes

TOTAL USES

500.0

100.0
331.1
.6
5.8
62.5

500.0

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 October 13, 2022. As described above,
all amounts outstanding under the Revolving Credit Agreement
were repaid in connection with the issuance of the 2029 Notes.
There were no amounts outstanding under the Revolving Credit
Agreement at December 31, 2019.

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

2020
2021
2022
2023
2024
2025 and thereafter

(a) Based on interest rates as of December 31, 2019.
(b) The maturity date of the Revolving Credit Agreement is October 13, 2022.

Free cash flow is a measure of holding company liquidity and
is calculated as: (i) dividends, management fees and surplus
debenture interest payments received from our subsidiaries;
plus (ii) earnings on corporate investments; less (iii) interest
expense, corporate expenses and net tax payments. In 2019, we
generated $287 million of such free cash flow. The Company
is committed to deploying 100 percent of its free cash flow
into investment opportunities to accelerate profitable growth,
common stock dividends and share repurchases. The amount
and timing of the securities we repurchase (if any) will be based
on business and market conditions and other factors including,
but not limited to, available free cash flow, the current price
of our common stock and investment opportunities. In 2019,
we repurchased 15.4 million shares of common stock for
$252.3 million under our securities repurchase program. The
Company had remaining repurchase authority of $532.3 million
as of December 31, 2019. Also, in the second quarter of 2019,
the Company purchased WBD (as further described in the note
to the consolidated financial statements entitled “Business and
Basis of Presentation”) utilizing $66.7 million of free cash flow.

CNO FINANCIAL GROUP, INC. - Form 10-K

Principal
—
—
—(b)
—
—
1,000.0
1,000.0

Interest(a)
53.1
53.1
53.1
52.5
52.5
131.4
395.7

On January 29, 2020, A.M. Best affirmed its “bbb-” issuer credit
and senior unsecured debt ratings. The outlook for these ratings
remain 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 June 21, 2019, S&P upgraded our senior unsecured debt
rating to “BBB-” from “BB+” and the outlook for these ratings
is stable. In S&P’s view, an obligation rated “BBB” exhibits

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationsadequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor 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 nine ratings above CNO’s “BBB-
” rating and twelve ratings that are below its rating.

to cede certain long-term care policies. In Moody’s view,
obligations rated “Baa” are subject to moderate credit risk
and may possess certain speculative characteristics. 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 nine
ratings above CNO’s “Baa3” rating and eleven ratings that are
below its rating.

On June 14, 2019, Fitch upgraded our senior unsecured debt
rating to “BBB-” from “BB+” and the outlook for these ratings
is stable. In Fitch’s view, an obligation rated “BBB” indicates
that expectations of default risk are currently low. The capacity
for payment of financial commitments is considered adequate
but adverse business or economic conditions are more likely
to impair this capacity. 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 nine ratings
above CNO’s “BBB-” rating and eleven ratings that are below
its rating.

On October 4, 2018, Moody’s upgraded our senior unsecured
debt rating to “Baa3” from “Ba1” and the outlook for these
ratings is stable. Moody’s actions resulted from the Company’s
announcement that Bankers Life had closed on its agreement

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, 2019, approximately 20 percent of
our total insurance liabilities, or approximately $4.9 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.

We seek to invest our available funds in a manner that will
fund future obligations to policyholders, subject to appropriate
risk considerations. We seek to meet this objective through
investments that: (i) have similar cash flow characteristics with
the liabilities they support; (ii) are diversified (including by
types of obligors); and (iii) are predominantly investment-grade
in quality.

Our investment strategy is to maximize, over a sustained period
and within acceptable parameters of 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.

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, 2019,
approximately 17 percent of our insurance liabilities had interest
rates that may be reset annually; 49 percent had a fixed explicit
interest rate for the duration of the contract; 31 percent had
credited rates which approximate the income earned by the
Company; and the remainder had no explicit interest rates. At
December 31, 2019, the weighted average yield, computed on
the cost basis of our fixed maturity portfolio, was 4.8 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 4.5 percent.
Refer to “Part 1 - Item 1A. Risk Factors - 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” for additional information on interest
rate risks.

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

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kvalue 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, 2019, 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 $335 million if
interest rates were to increase by 10 percent from their levels
at December 31, 2019. 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.

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 liabilities for fixed index products.

Inflation

Inflation rates may impact the financial statements and
operating results in several areas. Inflation influences interest
rates, which in turn impact the fair value of the investment
portfolio and yields on new investments. Inflation also impacts
a portion of our insurance policy benefits affected by increased
medical coverage costs. Operating expenses, including payrolls,
are impacted to a certain degree by the inflation rate.

ITEM 7A. Quantitative and Qualitative Disclosures About

Market Risk.

The information included under the caption “Market-Sensitive Instruments and Risk Management” in Item 7. “Management’s
Discussion and Analysis of Consolidated Financial Condition and Results of Operations” is incorporated herein by reference.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7A. Quantitative and Qualitative Disclosures About Market RiskITEM 8. Consolidated Financial Statements.

Index to Consolidated Financial Statements

Page
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Consolidated Balance Sheet at December 31, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Consolidated Statement of Operations for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Consolidated Statement of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . . . . 88
Consolidated Statement of Shareholders' Equity for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . . . . . . . 89
Consolidated Statement of Cash Flows for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of CNO Financial
Group, Inc.

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 (the
“Company”) as of December 31, 2019 and 2018, and the
related consolidated statements of operations, of comprehensive
income, of shareholders’ equity and of cash flows for each
of the three years in the period ended December 31, 2019,
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, 2019, 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, 2019 and 2018,
and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2019 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, 2019, based on
criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.

Basis for Opinions

for

responsible

The Company’s management
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,
included in Management’s Report on Internal Control Over
Financial Reporting appearing under Item 9A. 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
the risks of material
to assess
performing procedures
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 regarding 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

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Kand 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.

Critical Audit Matters

The critical audit matter communicated below is a matter
arising from the current period audit of the consolidated
financial statements that was communicated or required to be
communicated to the audit committee and that (i) relates to
accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging,
subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on
the consolidated financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on
the accounts or disclosures to which it relates.
Valuation of Embedded Derivatives Associated with
Fixed Index Annuity Products

As described in Notes 2 and 4 to the consolidated financial
statements, the Company issues fixed index annuity products,
which 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. The Company accounts for the
options attributed to the policyholder for the estimated life
of the contract as embedded derivatives. As of December 31,
2019, the value of embedded derivatives associated with fixed
index annuity products is $1.6 billion, which is included in
policyholder account liabilities. The accounting requirement
is to record these embedded derivatives at estimated fair value.
The value of the embedded derivatives is determined based on
the present value of the estimated discounted future options
costs. As described by management, in estimating the fair

value of the embedded derivatives associated with fixed index
annuity products, management used significant unobservable
inputs with respect to projected portfolio yields, discount rates
and surrender rates. The discount rate is based on risk-free
rates adjusted for management’s non-performance risk and risk
margins for non-capital market inputs. Increases (decreases)
in the discount rates would lead to a lower (higher) fair value
measurement.

The principal considerations for our determination that
performing procedures relating to the valuation of embedded
derivatives associated with fixed index annuity products is
a critical audit matter are there was significant judgment by
management in estimating the fair value of embedded derivatives,
specifically the significant unobservable inputs to the discount
rate, which included management’s non-performance risk and
risk margins for non-capital market inputs. This in turn led to
a high degree of auditor judgment, subjectivity and effort in
performing procedures and evaluating audit evidence relating
to management’s discount rate assumption. Also, the audit
effort involved the use of professionals with specialized skill and
knowledge to assist in performing procedures and evaluating
the audit evidence obtained from these procedures.

Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These
procedures included testing the effectiveness of controls relating
to management’s valuation of embedded derivatives associated
with fixed index annuity products, including controls over the
Company’s development of the significant assumption. These
procedures also included, among others, the involvement of
professionals with specialized skill and knowledge to assist in
testing management’s process for determining the fair value of
the embedded derivatives associated with fixed index annuities.
This included testing the completeness and accuracy of the data
provided by management, evaluating the appropriateness of the
valuation method and the reasonableness of the discount rate
assumption. Evaluating the significant assumption related to
the discount rate involved evaluating whether management’s
non-performance risk and risk margins for non-capital market
significant unobservable inputs were reasonable considering
relevant macroeconomic conditions, consistency with external
market and industry data, and current and past policyholder
experience.

/s/ PricewaterhouseCoopers LLP

Indianapolis, Indiana

February 25, 2020

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, 2019 and 2018

(Dollars in millions)
ASSETS
Investments:

Fixed maturities, available for sale, at fair value (amortized cost: 2019 - $19,179.5; 2018 - $18,107.8)
Equity securities at fair value (cost: 2019 - $44.2; 2018 - $319.8)
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.

2019

2018

21,295.2
44.1
1,566.1
124.5
243.9
1,188.6
1,118.5
25,580.9
580.0
74.7
205.9
275.4
1,215.5
4,785.7
432.6
4.2
476.0
33,630.9

18,447.7
291.0
1,602.1
119.7
233.1
1,468.4
833.4
22,995.4
594.2
62.4
205.2
343.6
1,322.5
4,925.4
630.0
4.4
356.7
31,439.8

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsConsolidated Balance Sheet, continued

December 31, 2019 and 2018

(Dollars in millions)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:

Liabilities for insurance products:
Policyholder account liabilities
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:
2019 - 148,084,178; 2018 - 162,201,692)
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.

2019

2018

12,132.3
11,498.5
522.3
260.5
4.2
750.2
1,644.3
1,152.5
989.1
28,953.9

1.5
2,767.3
1,372.5
535.7
4,677.0
33,630.9

11,522.8
11,153.7
521.9
253.9
4.4
632.4
1,645.8
1,417.2
916.8
28,068.9

1.6
2,995.0
177.7
196.6
3,370.9
31,439.8

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsConsolidated Statement of Operations

for the years ended December 31, 2019, 2018 and 2017

(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 gains on the transfer of assets related to reinsurance transaction
Other 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
Loss on dissolution of variable interest entity

Total realized gains
Fee revenue and other income

Total revenues
Benefits and expenses:

Insurance policy benefits
Loss related to reinsurance transactions
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 (loss) before income taxes

Income tax expense (benefit):

Tax expense (benefit) on period income
Valuation allowance for deferred tax assets and other tax items

NET INCOME (LOSS)
Earnings per common share:

Basic:

Weighted average shares outstanding
NET INCOME (LOSS)

Diluted:

Weighted average shares outstanding
NET INCOME (LOSS)

The accompanying notes are an integral part of the consolidated financial statements.

2019

2018

2017

2,480.8

2,593.1

2,647.3

1,105.2
257.7

—
40.6

(12.4)

—
(12.4)
—
28.2
143.9
4,015.8

2,417.0
—
152.3
232.1
7.3
—
932.9
3,741.6
274.2

58.5
(193.7)
409.4

1,279.7
26.5

363.4
(8.7)

(2.6)

—
(2.6)
—
352.1
62.1
4,313.5

2,278.6
1,067.6
149.8
264.3
—
3.8
814.2
4,578.3
(264.8)

(57.6)
107.8
(315.0)

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

156,040,000
2.62

165,457,000
(1.90)

170,025,000
1.03

157,148,000
2.61

165,457,000
(1.90)

172,144,000
1.02

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsConsolidated Statement of Comprehensive Income

for the years ended December 31, 2019, 2018 and 2017

(Dollars in millions)
Net income (loss)
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 (loss)
For amortization of the present value of future profits and deferred acquisition costs
related to net realized investment gains (losses) included in net income (loss)

Other comprehensive income (loss) before tax

Income tax (expense) benefit related to items of accumulated other comprehensive income (loss)

Other comprehensive income (loss), net of tax
COMPREHENSIVE INCOME (LOSS)

2019
409.4

1,830.2
(165.6)

2018

(315.0) $

(1,579.9)
125.5

2017
175.6

959.3
(29.7)

(133.0)

512.0

(310.5)

(6.3)

(356.9)

(40.2)

.6
1,525.9
(331.1)
1,194.8
1,604.2

(.4)
(1,299.7)
281.6
(1,018.1)
(1,333.1) $

1.0
579.9
(195.6)
384.3
559.9

The accompanying notes are an integral part of the consolidated financial statements.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsConsolidated Statement of Shareholders’ Equity

Common stock

Amount

Additional
paid-in
capital

Accumulated
other
comprehensive
income

(Dollars in millions)

Balance, December 31, 2016

Cumulative effect of accounting change

Balance, January 1, 2017

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
Common stock repurchased
Dividends on common stock
Employee benefits plans, net of shares used to
pay tax withholdings
Balance, December 31, 2017

Cumulative effect of accounting change

Balance, January 1, 2018

Net loss
Change in unrealized appreciation (depreciation) of
investments (net of applicable income tax benefit of $281.3)
Change in noncredit component of impairment losses on
fixed maturities, available for sale (net of applicable income
tax benefit of $.3)
Common stock repurchased
Dividends on common stock
Employee benefits plans, net of shares used to pay tax
withholdings

Balance, December 31, 2018

Cumulative effect of accounting change

Balance, January 1, 2019

Net income
Change in unrealized appreciation (depreciation) of
investments (net of applicable income tax expense of $331.1)
Change in noncredit component of impairment
losses on fixed maturities, available for sale
(net of applicable income tax benefit of less than $.1)
Common stock repurchased
Dividends on common stock
Employee benefits plans, net of shares used to
pay tax withholdings

BALANCE, December 31, 2019

173,754
—
173,754
—

—

—
(7,808)
—

912
166,858
—
166,858
—

—

—
(5,486)
—

830
162,202
—
162,202
—

—

—
(15,408)
—

1.7
—
1.7
—

—

—
—
—

—
1.7
—
1.7
—

—

—
(.1)
—

—
1.6
—
1.6
—

—

—
(.1)
—

3,212.1
.9
3,213.0
—

622.4 $
—
622.4
—

—

—
(167.1)
—

27.4
3,073.3
—
3,073.3
—

382.1

2.2

205.4
—
—

—
1,212.1
(16.3)
1,195.8
—

Retained
earnings

Total

650.7 $ 4,486.9
.3
4,487.2
175.6

(.6)
650.1
175.6

—

(205.4)
—
(59.9)

—
560.4
16.3
576.7
(315.0)

382.1

2.2

—
(167.1)
(59.9)

27.4
4,847.5
—
4,847.5
(315.0)

—

(1,017.0)

—

(1,017.0)

—
(100.8)
—

22.5
2,995.0
—
2,995.0
—

(1.1)
—
—

—
177.7
—
177.7
—

—
—
(65.1)

—
196.6
(3.1)
193.5
409.4

(1.1)
(100.9)
(65.1)

22.5
3,370.9
(3.1)
3,367.8
409.4

—

1,194.9

—

1,194.9

—
(252.2)
—

(.1)
—
—

—
—
(67.2)

(.1)
(252.3)
(67.2)

1,290
148,084

—
1.5

24.5
2,767.3

—
1,372.5 $

—

24.5
535.7 $ 4,677.0

The accompanying notes are an integral part of the consolidated financial statements.

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsConsolidated Statement of Cash Flows

for the years ended December 31, 2019, 2018 and 2017

(Dollars in millions)
Cash flows from operating activities:

Insurance policy income
Net investment income
Fee revenue and other income
Insurance policy benefits
Payment to reinsurer pursuant to long-term care business reinsured
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
Other

NET CASH USED BY INVESTING ACTIVITIES

Cash flows from financing activities:

Issuance of notes payable, net
Payments on notes payable
Expenses related to extinguishment of debt
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
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents - unrestricted and held by variable interest entities, beginning of year
CASH AND CASH EQUIVALENTS - UNRESTRICTED AND HELD BY VARIABLE
INTEREST ENTITIES, END OF YEAR

The accompanying notes are an integral part of the consolidated financial statements.

2019

2018

2017

2,326.0
1,122.3
132.6
(1,630.1)
—
(151.2)
(288.7)
(816.6)
2.4
696.7

2,899.2
2,237.7
(5,576.4)
(14.1)
(102.0)
(555.6)

494.2
(425.0)
(6.1)
9.2
(254.5)
(67.1)
1,743.1
(1,363.9)

536.8
—

(538.2)
(271.5)
(143.0)
(1.9)
656.6

2,433.4
1,321.2
62.1
(1,910.7)
(365.0)
(141.1)
(261.8)
(788.5)
(31.8)
317.8

3,210.2
2,469.0
(6,205.8)
25.9
(25.0)
(525.7)

—
—
—
3.9
(108.0)
(64.8)
1,588.5
(1,312.3)

150.0
277.6

(150.9)
(276.8)
107.2
(100.7)
757.3

2,483.2
1,256.3
48.3
(1,973.1)
—
(120.5)
(236.1)
(747.4)
(77.4)
633.3

2,460.7
3,324.6
(6,141.0)
108.9
(23.4)
(270.2)

—
—
—
8.3
(168.3)
(59.6)
1,445.9
(1,232.6)

432.0
981.6

(432.7)
(1,248.6)
(274.0)
89.1
668.2

654.7

656.6

757.3

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.

supplement

interest-sensitive

• Bankers Life, which underwrites, markets and distributes
life
insurance,
Medicare
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”). 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 underwrites, 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. 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.

• Long-term care in run-off consists of: (i) the long-term care
business that was recaptured due to the termination of certain
reinsurance agreements effective September 30, 2016 (such
business is not actively marketed and was issued or acquired
by Washington National and Bankers Conseco Life Insurance
Company (“BCLIC”); and (ii) certain legacy (prior to 2003)
comprehensive and nursing home long-term care policies
which were ceded in September 2018 (such business is not
actively marketed and was issued by Bankers Life).

On April 29, 2019, the Company acquired privately-owned Web
Benefits Design Corporation (“WBD”), a leading online benefits
administration firm with a best-in-class, proprietary technology
platform for employer benefit programs. WBD offers a full-service,
integrated employee benefits administration solution, distributed
through a network of independent brokers and a direct sales force.
Its cloud-based platform provides companies with a customizable
suite of administration, compliance and communications solutions
to manage employee benefits programs while delivering a simple
and straightforward enrollment experience for employees.

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsThe acquisition was accounted for as follows (dollars in millions):

Cash and cash equivalents
Other assets
Goodwill and other intangible assets (classified as other assets)
Other liabilities

Net assets acquired

Consideration:
Cash paid
Estimated additional earn-out if certain financial targets are achieved (classified as other liabilities)
TOTAL CONSIDERATION

.8
6.5
80.4
(6.0 )
81.7

66.7
15.0
81.7

In addition, we recognized advisory and legal expenses of
approximately $2.2 million in connection with the acquisition.
The business of WBD is included in the Washington National
segment.

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 2019 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.

2. 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 investments in common stock, exchange-
traded funds and non-redeemable preferred stock. We carry these
investments at estimated fair value. Effective January 1, 2018,
changes in the fair value of equity securities are recognized in net
income as further described below under the caption “Recently
Issued Accounting Standards - Adopted Accounting Standards”.
Prior to January 1, 2018, changes in the fair value of equity securities
were recorded in “Accumulated other comprehensive income”.

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; 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”); (iii) investments in
the common stock of the Federal Home Loan Bank (“FHLB”);
and (iv) 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. 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.

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

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementsfees are recognized when earned. Dividends on equity securities
are recognized when declared.

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. It is the Company’s policy
to offset negative cash balances with positive balances in other
accounts with the same counterparty when agreements are in
place permitting legal right of offset.

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.

We regularly evaluate the recoverability of the unamortized
balance of the deferred acquisition costs. We consider estimated
future gross profits or future premiums, expected mortality or
morbidity, interest earned and credited rates, persistency and
expenses in determining whether the balance is recoverable.
If we determine a portion of the unamortized balance is not
recoverable, it is charged to amortization expense. In certain cases,
the unamortized balance of the deferred acquisition costs may not
be deficient in the aggregate, but our estimates of future earnings
indicate that profits would be recognized in early periods and losses

in later periods. In this case, we increase the amortization of the
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

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial Statementsbenefits 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.

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

We establish liabilities for traditional life, accident and health
insurance, and life contingent payment annuity products using
mortality tables in general use in the United States, which are
modified to reflect the Company’s actual experience when
appropriate. We establish liabilities for accident and health insurance
products using morbidity tables based on the Company’s actual
or expected experience. These reserves are computed at amounts
that, with additions from estimated future premiums received
and with interest on such reserves at estimated future rates, are
expected to be sufficient to meet our obligations under the terms
of the policy. Liabilities for future policy benefits are computed on
a net-level premium method based upon assumptions as to future
claim costs, investment yields, mortality, morbidity, withdrawals,
policy dividends and maintenance expenses determined when the
policies were issued (or with respect to policies inforce at August
31, 2003, the Company’s best estimate of such assumptions on
the Effective Date). We make an additional provision to allow
for potential adverse deviation for some of our assumptions.
Once established, assumptions on these products are generally
not changed unless a premium deficiency exists. In that case, a
premium deficiency reserve is recognized and the future pattern of
reserve changes is modified to reflect the relationship of premiums
to benefits based on the current best estimate of future claim
costs, investment yields, mortality, morbidity, withdrawals, policy
dividends and maintenance expenses, determined without an
additional provision for potential adverse deviation.

We establish claim reserves based on our estimate of the loss to
be incurred on reported claims plus estimates of incurred but
unreported claims based on our past experience.

Accounting for Long-term Care Premium Rate
Increases

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 - 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

• 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.

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 and incur distribution expenses paid to our agents who
sell such products.

The recognition of fee revenue and the distribution expenses
paid to our agents results from approval of an application by
the third-party insurance companies, which we define as our
customers. We recognize revenue and distribution fees related
to these sales in accordance with the new revenue recognition
guidance which was effective January 1, 2018 (see “Recently
Issued Accounting Standards - Adopted Accounting Standards”
below). This guidance requires us to recognize the net lifetime
revenue expected to be earned on these sales, but only to the extent
that it is probable that a significant reversal in the amount of
cumulative revenue recognized will not occur. Prior to the fourth
quarter of 2019, our revenue recognition was constrained due
to the limited historical data available. In the fourth quarter of
2019, we had accumulated additional historical data with respect
to some Medicare Advantage plan sales, and certain assumptions
and constraints related to our revenue recognition were updated
to reflect this change in estimate. To the extent we make changes
to the assumptions we use to calculate revenue on these products,
we will recognize the impact of the changes in the period in which
the change is made.

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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsWe diversify the risk of reinsurance loss by using a number of
reinsurers that have strong claims-paying ratings. In each case, the
ceding CNO subsidiary is directly liable for claims reinsured in
the event the assuming company is unable to pay.

The cost of reinsurance ceded
totaled $260.6 million,
$144.5 million and $105.0 million in 2019, 2018 and 2017,
respectively. We deduct this cost from
insurance policy
income. Reinsurance recoveries netted against insurance policy
benefits totaled $439.8 million, $173.5 million and $88.6 million
in 2019, 2018 and 2017, respectively.

time

insurance

time, we assume

From
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
$25.1 million, $28.0 million and $30.4 million in 2019, 2018 and
2017, respectively. Insurance policy benefits related to reinsurance
assumed totaled $36.4 million, $36.4 million and $44.7 million
in 2019, 2018 and 2017, respectively.

On September 27, 2018, the Company completed a long-term
care reinsurance transaction pursuant to which its wholly-owned
subsidiary, Bankers Life, entered into an agreement with Wilton
Reassurance Company (“Wilton Re”) to cede all of its legacy
(prior to 2003) comprehensive and nursing home long-term care
policies (with statutory reserves of $2.7 billion) through 100%
indemnity coinsurance. Bankers Life paid a ceding commission of
$825 million to reinsure the block, funded through excess capital
in the insurance subsidiaries and at the holding company. Bankers
Life transferred to Wilton Re assets equal to the statutory liabilities
supporting the block plus the ceding commission (subject to a
customary post-closing adjustment). CNO recognized a charge
related to the transaction of $661.1 million, net of taxes and gains
recognized on the assets transferred to Wilton Re. The charge is
primarily attributable to loss recognition on the block due to the
ceding commission.

In addition to the reinsurance agreement, Bankers Life and
another CNO subsidiary entered into certain other agreements
with Wilton Re, including a trust agreement, an administrative
services agreement and a transition services agreement.

Wilton Re established a trust account for the benefit of Bankers
Life to secure its obligations under the coinsurance agreement. The
trust account is required to hold qualified assets with book values
equal to the statutory liabilities of the block plus an additional
amount, initially $500 million, which declines over time.

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 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.

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
debt obligations, commercial mortgage-backed
securities,
residential mortgage-backed securities and collateralized mortgage
obligations. Our maximum exposure to loss on these securities is
limited to our cost basis in the investment. We have determined
that we are not the primary beneficiary of these structured
securities due to the relative size of our investment in comparison
to the total principal amount of the individual structured securities
and the level of credit subordination which reduces our obligation
to absorb gains or losses.

At December 31, 2019, we held investments in various limited
partnerships and hedge funds, in which we are not the primary
beneficiary, totaling $578.2 million (classified as other invested
assets). At December 31, 2019, we had unfunded commitments to
these partnerships and hedge funds totaling $102.3 million. Our
maximum exposure to loss on these investments is limited to the
amount of our investment.

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsInvestment borrowings

Three of the Company’s insurance subsidiaries (Bankers Life,
Washington National 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. New guidance
effective January 1, 2018, requiring equity investments to be
measured at fair value (as described in the section of this note entitled
“Recently Issued Accounting Standards - Adopted Accounting
Standards”) does not apply to FHLB common stock and prohibits
such investments from being classified as equity securities subject
to the new guidance. Accordingly, our investment in the FHLB
common stock is classified as other invested assets. At December 31,
2019, the carrying value of the FHLB common stock was $71.0
million. As of December 31, 2019, 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 $2.0 billion at December 31, 2019,
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.

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

Amount
borrowed
$

Maturity date
June 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
July 2023
July 2023
February 2024
May 2024
May 2024
May 2024
May 2024
June 2024
July 2024
July 2024
July 2024
July 2024
September 2024
June 2025

Interest rate at
December 31, 2019
Fixed rate – 1.960%
Variable rate – 2.536%
Variable rate – 2.521%
Variable rate – 2.421%
Fixed rate – 2.550%
Variable rate – 2.272%
Variable rate – 2.457%
Variable rate – 2.257%
Variable rate – 2.235%
Variable rate – 2.499%
Variable rate – 2.354%
Variable rate – 2.316%
Variable rate – 2.316%
Variable rate – 2.284%
Variable rate – 2.214%
Variable rate – 2.214%
Fixed rate – 2.160%
Variable rate – 2.130%
Variable rate – 2.127%
Variable rate – 2.213%
Variable rate – 2.215%
Variable rate – 2.265%
Variable rate – 2.290%
Variable rate – 2.335%
Variable rate – 2.271%
Variable rate – 2.395%
Fixed rate – 1.990%
Variable rate – 2.314%
Variable rate – 2.378%
Variable rate – 2.422%
Fixed rate – 2.940%

21.7
100.0
100.0
57.7
28.0
125.0
50.0
22.0
100.0
10.0
50.0
50.0
50.0
50.0
50.0
50.0
23.2
50.0
100.0
50.0
50.0
21.8
100.0
50.0
75.0
100.0
15.5
34.5
15.0
25.0
19.9
1,644.3

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, 2019, the aggregate
yield maintenance fee to prepay all fixed rate borrowings was
$3.6 million.

Interest expense of $46.2 million, $41.9 million and $27.0 million
in 2019, 2018 and 2017, 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. We are
required to record the embedded derivatives related to our fixed
index annuity products at estimated fair value.

The value of the embedded derivative is based on the estimated cost
to fulfill our commitment to fixed indexed annuity policyholders to
purchase a series of annual forward options over the duration of the
policy that back the potential return based on a percentage of the
amount of increase in the value of the appropriate index. In valuing
these options, we are required to make assumptions regarding: (i)
future index values to determine both the future notional amounts
at each anniversary date and the future prices of the forward starting
options; (ii) future annual participation rates; and (iii) non-economic
factors related to policy persistency. These assumptions are used to
estimate the future cost to purchase the options.

The value of the embedded derivatives is determined based on the
present value of estimated future option costs discounted using
a risk-free rate adjusted for our non-performance risk and risk
margins for non-capital market inputs. The non-performance risk
adjustment is determined by taking into consideration publicly
available information related to spreads in the secondary market
for debt with credit ratings similar to ours. These observable
spreads are then adjusted to reflect the priority of these liabilities
and the claim paying ability of the issuing insurance subsidiaries.

Risk margins are established to capture non-capital market risks
which represent the additional compensation a market participant
would require to assume the risks related to the uncertainties
regarding the embedded derivatives, including future policyholder
behavior related to persistency. The determination of the risk
margin is highly judgmental given the lack of a market to assume
the risks solely related to the embedded derivatives of our fixed
index annuity products.

The determination of the appropriate risk-free rate and non-
performance risk is sensitive to the economic and interest rate
environment. Accordingly, the value of the derivative is volatile
due to external market sensitivities, which may materially affect
net income. Additionally, changes in the judgmental assumptions
regarding the appropriate risk margin can significantly impact the
value of the derivative.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsWe typically buy call options (including call spreads) referenced
to the applicable indices in an effort to offset or hedge potential
increases to policyholder benefits resulting from increases in the
particular index to which the policy’s return is linked.

We 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.

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 $24.9 million, $11.6 million and $2.0 million during
2019, 2018 and 2017, respectively. Amounts amortized totaled
$7.7 million, $10.6 million and $8.9 million during 2019, 2018
and 2017, respectively. The unamortized balance of deferred sales
inducements was $60.7 million and $43.5 million at December 31,
2019 and 2018, respectively.

Out-of-Period Adjustments

In 2018, we recorded the net effect of out-of-period adjustments
related to the calculation of certain insurance liabilities which
increased insurance policy benefits by $2.5 million (of which,
$1.4 million related to long-term care reserves in the Bankers
Life segment and $1.1 million related to a closed block of payout
annuities in the Colonial Penn segment), decreased tax expense
by $.5 million and increased our net loss by $2.0 million
(or 1 cent per diluted share). 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 June 2016, the Financial Accounting Standards Board (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 requires
financial assets measured at amortized cost basis to be presented at
the net amount expected to be collected. The allowance for credit
losses is a valuation account that is deducted from the amortized
cost basis of the financial asset to present the net carrying value at
the amount expected to be collected on the financial asset. Credit
losses on available for sale debt securities should be measured in a
manner similar to current GAAP. However, the guidance requires
that credit losses be presented as an allowance rather than as a
writedown. The guidance will be effective for the Company on
January 1, 2020. The cumulative effect associated with the
adoption of this guidance is expected to reduce retained earnings
by approximately $18 million on January 1, 2020. This impact
is attributable to recognizing the allowance for losses (primarily
related to mortgage loans and the commercial bank loans held by
VIEs), net of the related increase in deferred tax assets. Refer to
note 17, “Investments in Variable Interest Entities,” for additional
information about the VIEs and the Company’s limited financial
obligation to these entities.

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. 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 August 2018, the FASB issued authoritative guidance that
makes targeted improvements to the accounting for long-
duration contracts. The new guidance: (i) improves the timeliness
of recognizing changes in the liability for future benefits and
modifies the rate used to discount future cash flows; (ii) simplifies
and improves the accounting for certain market-based options or
guarantees associated with deposit (or account balance) contracts;
(iii) simplifies the amortization of deferred acquisition costs;
and (iv) requires enhanced disclosures, including disaggregated
rollforwards of the liability for future policy benefits, policyholder
account liabilities, market risk benefits and deferred acquisition
costs. Additionally, qualitative and quantitative information about
expected cash flows, estimates and assumptions will be required. The
new measurement guidance for traditional and limited-payment
contract liabilities and the new guidance for the amortization of
deferred acquisition costs are required to be adopted on a modified
retrospective transition approach, with an option to elect a full
retrospective transition if certain criteria are met. The transition
approach for deferred acquisition costs is required to be consistent
with the transition applied to the liability for future policyholder
benefits. Under the modified retrospective approach, for contracts
in-force at the transition date, an entity would continue to use
the existing locked-in investment yield interest rate assumption to
calculate the net premium ratio, rather than the upper-medium
grade fixed-income corporate instrument yield. However, for
balance sheet remeasurement purposes, the current upper-medium
grade fixed-income corporate instrument yield would be used at
transition through accumulated other comprehensive income and
subsequently through other comprehensive income. For market
risk benefits, retrospective application is required, with the ability

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial Statementsto use hindsight to measure fair value components to the extent
assumptions in a prior period are unobservable or otherwise
unavailable. In October 2019, the FASB approved a delay for the
effective date of the adoption of this guidance by one year (until
January 1, 2022). 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 2018, the FASB issued authoritative guidance related to
changes to the disclosure requirements for fair value measurement.
The new guidance removes, modifies and adds certain disclosure
requirements. The guidance will be effective for the Company
on January 1, 2020. The adoption of such guidance will impact
certain fair value disclosures, but will not impact our consolidated
financial position, results of operations or cash flows.

Adopted Accounting Standards

In 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 was effective for the Company on January 1,

2019. Based on lease contracts in effect at January 1, 2019, the
impact of implementation of the new leasing guidance was the
recognition of a “right to use” asset (included in other assets) and
a “lease liability” (included in other liabilities) of $72 million and
there was no cumulative effect adjustment to retained earnings
as of January 1, 2019. The Company elected to apply practical
expedients related to the adoption of the new guidance including:
not reassessing whether a contract includes an embedded lease at
adoption; not reassessing the previously determined classification
of a lease as operating or capital; not reassessing our previously
recorded initial direct costs; election of an accounting policy that
permits inclusion of both the lease and non-lease components as
a single component and account for it as a lease; and election of
an accounting policy to exclude lease accounting requirements for
leases that have terms of less than twelve months. Refer to the note
to the consolidated financial statements entitled “Litigation and
Other Legal Proceedings - Leases and Certain Other Long-Term
Commitments” for additional disclosures.

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 was effective for the Company on January 1,
2019. The guidance was applied on a modified retrospective
basis through a cumulative-effect adjustment directly to retained
earnings as of January 1, 2019. The impact of adoption was as
follows (dollars in millions):

Fixed maturities, available for sale
Income tax assets, net
Total assets
Retained earnings
Total shareholders’ equity

Amounts prior
to effect of
adoption of
authoritative
guidance
18,447.7
630.0
31,439.8
196.6
3,370.9

January 1, 2019

Effect of
adoption of
authoritative
guidance

(4.0) $
.9
(3.1)
(3.1)
(3.1)

As adjusted
18,443.7
630.9
31,436.7
193.5
3,367.8

In 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
was effective for the Company on January 1, 2019. Based on
the Company’s current use of derivatives and hedging activities,
the adoption of this guidance had no impact on the Company’s
consolidated financial position, results of operations or cash flows.

In May 2014, 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 was effective for the Company on
January 1, 2018. The adoption of this new guidance impacted
the timing of certain revenues and expenses between quarters of
a calendar year 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. See “Accounting for Certain
Marketing Agreements” above, for a description of our accounting
under this standard. Furthermore, we recognized distribution
expenses in the same period that the associated fee revenue was
earned. Periods prior to the January 1, 2018 adoption date were
not restated to reflect the new guidance.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsIn 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)

(ii)

(iii)

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.

(iv)

(v)

(vi)

Require public business entities to use the exit price notion
when measuring the fair value of financial instruments for
disclosure purposes.

separately

in other
to present
Require an entity
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.

(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.

The guidance was effective for the Company on January 1, 2018. Accordingly, the Company recorded a cumulative effect adjustment to
the balance sheet as of January 1, 2018, related to certain equity investments that are measured at fair value. The impact of adoption was
as follows (dollars in millions):

Accumulated other comprehensive income
Retained earnings
Total shareholders’ equity

January 1, 2018

Amounts prior
to effect of
adoption of
authoritative
guidance
1,212.1
560.4
4,847.5

Effect of
adoption of
authoritative
guidance

(16.3) $
16.3
—

As adjusted
1,195.8
576.7
4,847.5

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 was effective for the
Company on January 1, 2018. The adoption of this guidance
resulted in reclassifications to certain cash receipts and payments
within our consolidated statement of cash flows, but had no
impact on our consolidated financial position, results of operations
or cash flows. Periods prior to the January 1, 2018 adoption date
were restated to reflect the new guidance.

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 are also
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 was
effective for the Company on January 1, 2018. The adoption
of this guidance impacted the presentation of our consolidated
statement of cash flows and related cash flow disclosures, but did
not have an impact on our consolidated financial position, results
of operations or cash flows. Periods prior to the January 1, 2018
adoption date were restated to reflect the new guidance.

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsThe impact of adopting the cash flow guidance described above was as follows (dollars in millions):

2017

Amounts
prior to effect
of adoption of
authoritative
guidance

Restricted
cash

COLI death
benefits

Distributions
received
from equity
method
investments

As adjusted

Cash flows from operating activities:

Net investment income
Other operating costs
Net cash flow from operating activities

Cash flows from investing activities:

1,229.6 $
(740.9)
613.1

— $
—
—

— $

(6.5)
(6.5)

26.7 $
—
26.7

Sales of investments
Change in cash and cash equivalents held by variable interest entities
Other
Net cash provided (used) by investing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents - unrestricted and held by variable interest
entities, beginning of period
Cash and cash equivalents - unrestricted and held by variable interest
entities, end of period

2,487.4
10.4
(29.9)
(239.6)
99.5

478.9

578.4

—
(10.4)
—
(10.4)
(10.4)

189.3

178.9

—
—
6.5
6.5
—

—

(26.7)
—
—
(26.7)
—

—

1,256.3
(747.4)
633.3

2,460.7
—
(23.4)
(270.2)
89.1

668.2

757.3

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
was effective for the Company for fiscal years beginning after
December 15, 2017. Early adoption was permitted, including
adoption in an interim period. The guidance is to be applied
prospectively to an award modified on or after the adoption date.
The adoption of this guidance did not have a material impact to the
Company’s consolidated financial position, results of operations or
cash flows.

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 was effective for the
Company on January 1, 2017. The adoption of this guidance had
no effect on our consolidated financial statements.

100

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsIn 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

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

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)
—
—
—
—
—
—

As adjusted
1,045.9
(255.9)
790.0
31,975.5
3,213.0
650.1
4,487.2
31,975.5

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 was 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.

101

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial Statements3.

INVESTMENTS

At December 31, 2019, 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, 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

—

—
—
—
—
—
—
—
(.2)
(.2)

—
—
—
(.1)
(.1)
(.3)

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

$ 10,802.6

1,516.0

(8.7) $ 12,309.9 $

161.4
2,002.1
82.6
1,493.2
404.1
1,732.2
1.2
652.0
17,331.4

600.9
867.3
80.5
299.4
1,848.1

43.3
246.1
13.0
43.4
.1
72.3
.1
21.3
1,955.6

28.1
118.4
3.0
31.7
181.2
2,136.8 $

(.1)
(1.5)
—
(1.2)
(3.4)
(1.0)
—
(.7)
(16.6)

(3.6)
(.8)
—
(.1)
(4.5)

204.6
2,246.7
95.6
1,535.4
400.8
1,803.5
1.3
672.6
19,270.4

625.4
984.9
83.5
331.0
2,024.8

(21.1) $ 21,295.2 $

Total below-investment grade fixed maturities, available for sale
TOTAL FIXED MATURITIES, AVAILABLE FOR SALE $ 19,179.5 $

(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

102

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsA 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, 2019 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
11,020.8
$
7,394.7
18,415.5
596.4
157.3
1.1
9.2
764.0
19,179.5

Estimated fair
value
12,289.0
8,213.8
20,502.8
620.3
161.8
1.1
9.2
792.4
21,295.2

Percentage of total
estimated fair value

57.7%
38.6
96.3
2.9
.8
—
—
3.7
100.0%

At December 31, 2018, the amortized cost, gross unrealized gains and losses, estimated fair value and other-than-temporary impairments
in accumulated other comprehensive income of fixed maturities, available for sale, and equity securities were as follows (dollars in millions):

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair
value

Other-than-temporary
impairments included
in accumulated other
comprehensive income

Investment grade:

Corporate securities
United States Treasury securities and obligations of
United States government corporations and agencies
States and political subdivisions
Debt securities issued by foreign governments
Asset-backed securities
Collateralized debt obligations
Commercial mortgage-backed securities
Mortgage pass-through securities
Collateralized mortgage obligations

Total investment grade fixed maturities, available for sale

Below-investment grade:
Corporate securities
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

$ 10,306.1 $

402.4 $

(319.2) $ 10,389.3 $

152.9
1,725.8
60.3
1,513.2
325.3
1,445.0
1.5
347.6
15,877.7

22.1
144.6
.9
21.9
—
16.6
.1
11.4
620.0

862.4
1,038.9
12.7
77.9
238.2
2,230.1
$ 18,107.8 $

2.3
108.4
—
.2
32.3
143.2
763.2 $

(.2)
(2.6)
(1.7)
(6.7)
(13.5)
(20.4)
—
(3.9)
(368.2)

(51.0)
(.9)
(1.7)
(1.3)
(.2)
(55.1)

174.8
1,867.8
59.5
1,528.4
311.8
1,441.2
1.6
355.1
16,129.5

813.7
1,146.4
11.0
76.8
270.3
2,318.2

(423.3) $ 18,447.7 $

—

—
—
—
—
—
—
—
(.2)
(.2)

—
—
—
—
(.3)
(.3)
(.5)

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, 2019 and 2018, were as follows (dollars in millions):

Net unrealized appreciation on fixed maturity securities, available for sale, on which
an other-than-temporary impairment loss has been recognized
Net unrealized gains on all other fixed maturity securities, available for sale
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

2019

1.1
2,095.3
(18.9)
(227.9)
(96.5)
(380.6)
1,372.5

2018

1.2
271.3
(4.5)
(38.3)
(2.5)
(49.5)
177.7

(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.

103

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsAt December 31, 2019, adjustments to the present value of future
profits, deferred acquisition costs, insurance liabilities and deferred
tax assets included $(12.2) million, $(26.8) million, $(96.5) million
and $29.4 million, respectively, for premium deficiencies that
would exist on certain blocks of business 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, 2018, adjustments to the insurance liabilities
and deferred tax assets included $(2.5) million and $.5 million,
respectively, for premium deficiencies that would exist on certain
blocks of business 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, 2019, the amortized cost of the Company’s below-
investment grade fixed maturity securities was $1,848.1 million,
or 9.6 percent of the Company’s fixed maturity portfolio. The
estimated fair value of the below-investment grade portfolio was
$2,024.8 million, or 110 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,
2019, 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
282.2
$
1,082.2
1,376.6
10,908.6
13,649.6
5,529.9
19,179.5

Estimated fair value
286.0
1,130.8
1,481.7
12,583.7
15,482.2
5,813.0
21,295.2

2019

2018

2017

952.4
3.2
77.1
8.3
72.5
13.3

8.9

(21.2)
173.1
96.9
1,384.5
21.6
1,362.9

1,100.3
22.8
82.0
8.0
79.2
10.9

1,133.8
22.5
91.5
7.7
47.2
5.9

8.5

12.8

122.3
(165.3)
61.0
1,329.7
23.5
1,306.2

110.3
52.2
90.6
1,574.5
23.2
1,551.3

(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 nil, nil and

$3.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

104

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsAt December 31, 2019, the carrying value of fixed maturities and mortgage loans that were non-income producing during 2019 totaled
$1.0 million and $5.9 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):

2019

2018

2017

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, including change in fair value(a)
Mortgage loans
Impairments of other investments
Loss on dissolution of variable interest entities
Other(a) (b)

Net realized investment gains (losses) before net realized gains on the transfer of assets
related to reinsurance transaction

Net realized gains on the transfer of assets related to reinsurance transaction

NET REALIZED INVESTMENT GAINS

86.5
(55.5)

65.7
(65.8)

(9.4)

—
(9.4)
21.6
11.9
—
(3.0)
(5.1)
2.8

28.2
—
28.2

(.5)

—
(.5)
(.6)
(38.2)
(1.3)
(2.1)
—
30.9

(11.3)
363.4
352.1

68.0
(24.2)

(12.5)

(.9)
(13.4)
30.4
11.6
1.1
(9.4)
(4.3)
20.9

50.3
—
50.3

(a) Changes in the estimated fair value of trading securities that we have elected the fair value option and equity securities (and are still held as of the end of the respective

years) were $12.0 million, $(31.9) million and $12.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

(b) In April 2016, the Company announced that it had invested in a non-controlling minority interest in Tennenbaum Capital Partners, LLC (“TCP”), a Los Angeles-
based investment management firm. In August 2018, Blackrock, Inc. announced the completion of its acquisition of TCP. The sale of our interest in TCP resulted in
a significant portion of the net realized gains in 2018.

During 2019, we recognized net realized investment gains of
$28.2 million, which were comprised of: (i) $20.2 million of
net gains from the sales of investments; (ii) $5.1 million of losses
on the dissolution of a VIE; (iii) $11.9 million of gains related
to equity securities, including the change in fair value; (iv) the
increase in fair value of certain fixed maturity investments with
embedded derivatives of $8.3 million; (v) the increase in fair
value of embedded derivatives related to a modified coinsurance
agreement of $5.3 million; and (vi) $12.4 million of writedowns
of investments for other than temporary declines in fair value
recognized through net income.

During 2019 and 2017, VIEs that were required to be consolidated
were dissolved. We recognized losses of $5.1 million and
$4.3 million during 2019 and 2017, respectively, representing
the difference between the borrowings of such VIEs and the
contractual distributions required following the liquidation of the
underlying assets.

During 2018, we recognized net realized investment gains of
$352.1 million, which were comprised of: (i) $40.1 million of net
gains from the sales of investments; (ii) $363.4 million of gains
on the transfer of assets (substantially all of which were fixed
maturities) related to a reinsurance transaction; (iii) $38.2 million
of losses related to equity securities, including the change in fair
value; (iv) the decrease in fair value of certain fixed maturity
investments with embedded derivatives of $5.5 million; (v) the
decrease in fair value of embedded derivatives related to a modified

coinsurance agreement of $5.1 million; and (vi) $2.6 million of
writedowns of investments for other than temporary declines in
fair value recognized through net income.

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.

At December 31, 2019, there were no fixed maturity investments
in default.

During 2019, the $55.5 million of realized losses on sales of
$971.2 million of fixed maturity securities, available for sale,
included: (i) $48.1 million related to various corporate securities;
(ii) $5.4 million related to collateralized debt obligations; and
(iii) $2.0 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.

105

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsDuring 2019, we recognized $12.4 million of impairment
losses recorded in earnings which included: (i) $9.4 million
related to corporate securities due to issuer specific events; and
(ii) $3.0 million related to commercial bank loans held by the
VIEs.

During 2018, the $65.8 million of realized losses on sales of
$1,295.8 million of fixed maturity securities, available for sale
included: (i) $54.0 million related to various corporate securities;
(ii) $4.1 million related to commercial mortgage-backed
securities; (iii) $4.1 million related to asset-backed securities; and
(iv) $3.6 million related to various other investments.

During 2018, we recognized $2.6 million of impairment losses
recorded in earnings which included: (i) $2.1 million related to
a mortgage loan due to issuer specific events; and (ii) $.5 million
related to a corporate security.

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.

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.

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 2019 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 12 months prior to sale

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.

At date of sale

Number of issuers
8
1
9

Amortized cost
65.0
$
6.1
71.1

Fair value
48.9
4.0
52.9

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.

106

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementsincluding 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, 2019, other-
than-temporary impairments included in accumulated other
comprehensive income totaled $.3 million (before taxes and
related amortization).

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, 2019, 2018 and 2017 (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,

2019
(.2)
—
—
—
—
—

2018
(2.8) $

—
2.6
—
—
—

2017
(5.5)
—
4.7
—
(2.0)
—

(.2)

(.2) $

(2.8)

(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, 2019, 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
2.8
8.7
25.5
503.2
540.2
1,084.9
1,625.1 $

Estimated fair value
2.8
$
8.6
24.4
490.5
526.3
1,077.7
1,604.0

The 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, 2019 (dollars in millions):

Less than 6 months

Number
of issuers

Cost
basis

Unrealized
loss

Estimated
fair value

1 $

3.1

(.7 ) $

2.4

107

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsThe 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, 2019 (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

Less than 12 months

12 months or greater

Total

Fair value

Unrealized
losses

Unrealized

Fair value

losses Fair value

Unrealized
losses

7.0
110.1
3.4
305.5
75.9
220.7
394.2
146.0
$ 1,262.8

(.1)
(1.5)
—
(6.6)
(.4)
(1.1)
(1.0)
(.7)
(11.4)

3.5
—
—
96.8
83.8
115.4
12.8
28.9
341.2

— $
—
—
(5.7)
(1.6)
(2.3)
—
(.1)

10.5
110.1
3.4
402.3
159.7
336.1
407.0
174.9
(9.7) $ 1,604.0

(.1)
(1.5)
—
(12.3)
(2.0)
(3.4)
(1.0)
(.8)
(21.1)

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, 2018 (dollars in millions):

TOTAL FIXED MATURITIES, AVAILABLE FOR SALE

Less than 12 months

12 months or greater

Total

Fair value

Unrealized
losses

Unrealized

Fair value

losses Fair value

Unrealized
losses

2.0
91.3
16.8
4,702.9
572.4
318.9
560.3
46.1
$ 6,310.7

— $

(1.3)
(.7)
(280.9)
(3.6)
(15.2)
(6.3)
(.6)
(308.6)

19.2
33.3
15.1
805.9
238.0
—
281.1
72.4
$ 1,465.0

(.2) $
(1.3)
(1.0)
(89.3)
(4.0)
—
(15.4)
(3.5)

21.2
124.6
31.9
5,508.8
810.4
318.9
841.4
118.5
(114.7) $ 7,775.7

(.2)
(2.6)
(1.7)
(370.2)
(7.6)
(15.2)
(21.7)
(4.1)
(423.3)

Based on management’s current assessment of investments
with unrealized losses at December 31, 2019, the Company
believes the issuers of the securities will continue to meet their
obligations. While we do not have the intent to sell securities
with unrealized losses and it is not more likely than not that
we will be required to sell securities with unrealized losses
prior to their anticipated recovery, our intent on an individual
security may change, based upon market or other unforeseen
developments. In such instances, if a loss is recognized from a
sale subsequent to a balance sheet date due to these unexpected
developments, the loss is recognized in the period in which
we had the intent to sell the security before its anticipated
recovery.

Structured Securities

At December 31, 2019, fixed maturity investments included
structured securities with an estimated fair value of $5.8 billion
(or 27.3 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

108

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementsdecline, 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.

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 2019.

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

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.

The amortized cost and estimated fair value of structured securities at December 31, 2019, summarized by type of security, were as follows
(dollars in millions):

Type
Pass-throughs, sequential and equivalent securities
Planned amortization classes, target amortization classes and accretion-directed bonds
Commercial mortgage-backed securities
Asset-backed securities
Collateralized debt obligations
Other

TOTAL STRUCTURED SECURITIES

Estimated fair value

Amount
794.1
52.3
1,887.0
2,520.3
400.8
158.5
5,813.0

Percent of fixed
maturities

3.7%
.3
8.9
11.8
1.9
.7
27.3%

Amortized cost
751.2
45.2
1,812.7
2,360.5
404.1
156.2
5,529.9

Pass-throughs, sequentials and equivalent securities have
unique prepayment variability characteristics. Pass-through
securities typically return principal to the holders based on cash
payments from the underlying mortgage obligations. Sequential
securities return principal to tranche holders in a detailed
hierarchy. Planned amortization classes, targeted amortization
classes and accretion-directed bonds adhere to fixed schedules
of principal payments as long as the underlying mortgage loans
experience prepayments within certain estimated ranges. In
most circumstances, changes in prepayment rates are first
absorbed by support or companion classes insulating the timing
of receipt of cash flows from the consequences of both faster
prepayments (average life shortening) and slower prepayments
(average life extension).

securities are

Commercial mortgage-backed
secured by
commercial real estate mortgages, generally income producing
properties that are managed for profit. Property types include
multi-family dwellings including apartments, retail centers,
hotels, restaurants, hospitals, nursing homes, warehouses, and
office buildings. While most commercial mortgage-backed
securities have call protection features whereby underlying
borrowers may not prepay their mortgages for stated periods

of time without incurring prepayment penalties, recoveries on
defaulted collateral may result in involuntary prepayments.

Mortgage Loans

At December 31, 2019, the mortgage loan balance was primarily
comprised of commercial mortgage
loans. Approximately
13 percent, 12 percent, 8 percent, 6 percent and 6 percent of the
commercial mortgage loan balance were on properties located
in California, Texas, Maryland, Georgia and North Carolina,
respectively. No other state comprised greater than five percent
of the commercial mortgage loan balance. At December 31,
2019, there was one mortgage loan in process of foreclosure
with a carrying value of $5.9 million. There were no other
mortgage loans that were noncurrent at December 31, 2019.
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, 2019, we held
residential mortgage loan investments with a carrying value of
$112.3 million and a fair value of $112.5 million.

109

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsThe following table provides the carrying value and estimated fair value of our outstanding commercial mortgage loans and the underlying
collateral as of December 31, 2019 (dollars in millions):

Estimated fair value

Loan-to-value ratio(a)
Less than 60%
60% to less than 70%
70% to less than 80%
80% to less than 90%

TOTAL

Carrying value Mortgage loans
1,127.4
$
242.6
123.7
45.2
1,538.9

1,065.5
229.1
117.6
41.6
1,453.8

Collateral
2,708.0
360.3
160.8
48.4
3,277.5

(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 $39.6 million and $39.0 million
at December 31, 2019 and 2018, respectively.

The Company had no fixed maturity investments that were in
excess of 10 percent of shareholders’ equity at December 31, 2019
and 2018.

4. FAIR VALUE MEASUREMENTS

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.

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

110

CNO FINANCIAL GROUP, INC. - Form 10-K

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.

• 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

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

PART IIITEM 8 Consolidated Financial Statementsliability 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. Any transfers between levels are reported
as having occurred at the beginning of the period. There were no
transfers between Level 1 and Level 2 in both 2019 and 2018.

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.

Debt securities issued by foreign governments are generally priced
using the market approach. Inputs generally consist of trades of
identical or similar securities, quoted prices in inactive markets,
new issuances, benchmark yields, credit spreads and issuer
rating.

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 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.

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
22 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

111

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial Statements

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.

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at
December 31, 2019 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

— $

12,756.5

178.8

$ 12,935.3

—
—
—
—
—
—
—
—
—
31.3

—
—
—
—
—
—
—
31.3

204.6
2,246.7
94.5
2,507.7
400.8
1,887.0
1.3
1,003.6
21,102.7
4.5

80.1
105.5
45.8
231.4
1,188.6
203.8
4.2
22,735.2

—
—
1.1
12.6
—
—
—
—
192.5
8.3

—
12.5
—
12.5
—
—
—
213.3

204.6
2,246.7
95.6
2,520.3
400.8
1,887.0
1.3
1,003.6
21,295.2
44.1

80.1
118.0
45.8
243.9
1,188.6
203.8
4.2
$ 22,979.8

— $

1,565.4

ASSETS:

Fixed maturities, available for sale:

Corporate securities
United States Treasury securities and obligations of
United States government corporations and agencies
States and political subdivisions
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:

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

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:

Embedded derivatives associated with fixed index annuity
products (classified as policyholder account liabilities)

112

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, 2018 is as follows (dollars in millions):

ASSETS:

Fixed maturities, available for sale:

Corporate securities
United States Treasury securities and obligations of
United States government corporations and agencies
States and political subdivisions
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:

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

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:

Embedded derivatives associated with fixed index annuity
products (classified as policyholder account liabilities)

Quoted prices in active
markets for identical
assets or liabilities
(Level 1)

Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total

— $

11,044.4

158.6 $

11,203.0

—
—
—
—
—
—
—
—
—
181.1

—
—
—
—
—
—
—
181.1

174.8
1,867.8
58.5
2,662.8
322.8
1,518.0
1.6
625.4
18,276.1
100.4

86.5
93.6
53.0
233.1
1,468.4
26.6
4.4
20,109.0

—
—
1.0
12.0
—
—
—
—
171.6
9.5

174.8
1,867.8
59.5
2,674.8
322.8
1,518.0
1.6
625.4
18,447.7
291.0

—
—
—
—
—
—
—

86.5
93.6
53.0
233.1
1,468.4
26.6
4.4
181.1 $ 20,471.2

— $

1,289.0 $

1,289.0

The fair value measurements for our financial instruments disclosed at fair value on a recurring basis are as follows (dollars in millions):

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 liabilities
Investment borrowings
Borrowings related to variable interest entities
Notes payable – direct corporate obligations

Quoted prices in active
markets for identical
assets or liabilities
(Level 1)

December 31, 2019
Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
estimated
fair value

Total
carrying
amount

— $
—

1,651.4 $
124.5

1,651.4 $ 1,566.1
124.5

124.5

—

579.9
74.7

—
—
—
—

194.0

.1
—

—
1,647.9
1,142.1
1,117.2

—

—
—

194.0

580.0
74.7

12,132.3
—
—
—

12,132.3
1,647.9
1,142.1
1,117.2

12,132.3
1,644.3
1,152.5
989.1

113

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsAssets:

Mortgage loans
Policy loans
Other invested assets:

Company-owned life insurance

Cash and cash equivalents:

Unrestricted
Held by variable interest entities

Liabilities:

Policyholder account liabilities
Investment borrowings
Borrowings related to variable interest entities
Notes payable – direct corporate obligations

Quoted prices in active
markets for identical
assets or liabilities
(Level 1)

December 31, 2018
Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
estimated
fair value

Total
carrying
amount

— $
—

1,624.5 $ 1,624.5 $ 1,602.1
119.7

119.7

—

594.2
62.4

—
—
—
—

171.7

—
—

—
1,645.9
1,399.8
896.3

—

—
—

171.7

594.2
62.4

11,522.8
—
—
—

11,522.8
1,645.9
1,399.8
896.3

11,522.8
1,645.8
1,417.2
916.8

The 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, 2019 (dollars in millions):

December 31, 2019

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

Beginning
balance as of
December 31,
2018

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,
2019

Amount of
total gains
(losses) for the
year ended
December 31,
2019 included
in our net
income
relating to
assets and
liabilities still
held as of the
reporting date

158.6

(34.3) $

(4.6) $

12.9

46.2

— $

178.8

(4.0)

1.0
12.0

—
(.6)

171.6

(34.9)

9.5

—

—
—

(4.6)

(1.2)

1.6

.1
1.2

—
—

14.2

46.2

—

10.3

—
—

—

1.1
12.6

192.5

8.3

—
—

(4.0)

(1.2)

12.5

1.6

(1,289.0)

(193.5)

(82.9)

—

(1,565.4)

(82.9)

ASSETS:

Fixed maturities,
available for sale:

Corporate securities
Debt securities issued
by foreign governments
Asset-backed securities

Total fixed maturities,
available for sale
Equity securities -
corporate securities
Trading securities -
commercial mortgage-
backed securities

LIABILITIES:

Embedded derivatives
associated with fixed
index annuity products
(classified as policyholder
account liabilities)

(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, 2019 (dollars in millions):

114

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsASSETS:

Fixed maturities, available for sale:

Corporate securities
Asset-backed securities

Total fixed maturities, available for sale

LIABILITIES:

Embedded derivatives associated with fixed
index annuity products (classified as
policyholder account liabilities)

Purchases

Sales

Issuances

Settlements

Purchases, sales, issuances
and settlements, net

20.1 $
—
20.1

(54.4) $
(.6)
(55.0)

— $
—
—

(34.3)
(.6)
(34.9)

(154.9)

7.2

(138.0)

92.2

(193.5)

December 31, 2018

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

Beginning
balance as of
December 31,
2017

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,
2018

Amount of
total gains
(losses) for the
year ended
December 31,
2018 included
in our net
income
relating to
assets and
liabilities still
held as of the
reporting date

230.4 $

(24.6) $

.2 $

(5.3) $

12.7 $

(54.8) $

158.6 $

3.9
24.2

(2.9)
(11.5)

258.5

(39.0)

21.2

(10.9)

4.9

—

(.1)
—

(.8)

—

.1
(.7)

—
—

1.0
12.0

(5.9)

12.7

(54.8)

171.6

—

(4.9)

9.5

—

(.5)

—
—

(.5)

—

(1,334.8)

(62.0)

107.8

—

(1,289.0)

107.8

ASSETS:

Fixed maturities,
available for sale:

Corporate securities
Debt securities issued
by foreign governments
Asset-backed securities

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

LIABILITIES:

Embedded derivatives
associated with fixed
index annuity products
(classified as policyholder
account liabilities)

115

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsPurchases

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

Total fixed maturities, available for sale

Equity securities - corporate securities

LIABILITIES:

32.4 $
3.0
—
35.4
—

(57.0) $
(5.9)
(11.5)
(74.4)
(10.9)

— $
—
—
—
—

Embedded derivatives associated with fixed index annuity
products (classified as policyholder account liabilities)

(177.6)

16.5

16.7

82.4

(24.6)
(2.9)
(11.5)
(39.0)
(10.9)

(62.0)

At December 31, 2019, 86 percent of our Level 3 fixed maturities,
available for sale, were investment grade and 93 percent of our
Level 3 fixed maturities, available for sale, consisted of corporate
securities.

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.

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

The amount presented for gains (losses) included in our net income
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, 2019 (dollars in millions):

Fair value at
December 31, 2019

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:

Embedded derivatives related
to fixed index annuity products
(classified as policyholder
account liabilities)(f )

134.2

Discounted cash flow analysis

1.0
12.6

Recovery method
Discounted cash flow analysis

8.3
Recovery method
57.2 Unadjusted third-party price source
213.3

Discount margins
Percent of recovery
expected
Discount margins
Percent of recovery
expected
Not applicable

1.07% - 8.42% (1.91%)

12.77%
1.66%
59.27% - 100.00%
(59.52%)
Not applicable

1,565.4

Discounted projected embedded
derivatives

Projected portfolio yields
Discount rates

4.71% - 4.98% (4.72%)
1.24% - 3.07% (1.88%)

Surrender rates 1.60% - 31.90% (10.90%)

(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 percentage of recovery expected. Significant

increases (decreases) in percentage of recovery expected in isolation would result in a significantly higher (lower) fair value measurement.

(e) Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources.
(f) Embedded derivatives related to fixed index annuity products (classified as policyholder account liabilities) - 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 risk free rates (U.S. Treasury
rates for similar durations) adjusted for our non-performance risk and risk margins for non-capital market inputs. 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.

116

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe following table provides additional information about the significant unobservable (Level 3) inputs developed internally by the
Company to determine fair value for certain assets and liabilities carried at fair value at December 31, 2018 (dollars in millions):

Fair value at
December 31, 2018

Valuation techniques

Unobservable inputs Range (weighted average)

ASSETS:

Corporate securities(a)

Corporate securities(b)
Asset-backed securities(c)
Equity securities(d)

91.1

4.8
11.9
1.2

Discounted cash flow analysis

Recovery method
Discounted cash flow analysis
Market comparables

Equity securities(e)
Other assets categorized as Level 3(f)

8.3
Recovery method
63.8 Unadjusted third-party price source

Discount margins
Percent of recovery
expected
Discount margins
EBITDA multiples
Percent of recovery
expected
Not applicable

1.55% - 9.52% (4.47%)

61.03%
2.30%
1.1X
59.27% - 100.00%
(59.52%)
Not applicable

Total
LIABILITIES:
Embedded derivatives related to fixed index
annuity products (classified as policyholder
account liabilities)(g)

181.1

1,289.0

Discounted projected embedded
derivatives

Projected portfolio yields
Discount rates
Surrender rates

5.11% - 5.15% (5.11%)
2.20% - 4.02% (2.75%)
1.30% - 37.30% (12.40%)

(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 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) Equity securities - The significant unobservable input used in the fair value measurement of these equity 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.

(f) Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources.
(g) Embedded derivatives related to fixed index annuity products (classified as policyholder account liabilities) - 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 risk free rates (U.S. Treasury
rates for similar durations) adjusted for our non-performance risk and risk margins for non-capital market inputs. 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.

5. 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

2019

2018

6% $

5,414.1

5,277.9

2,505.2

3,079.4

62.1

2,461.6

2,944.5

30.3

437.7
11,498.5

439.4
11,153.7

(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.

117

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KOur policyholder account liabilities are summarized as follows (dollars in millions):

Fixed index annuities
Other annuities
Interest-sensitive life insurance contracts

TOTAL

2019
7,503.1
3,452.2
1,177.0
12,132.3

2018
6,586.5
3,793.8
1,142.5
11,522.8

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

Reserves ceded pursuant to reinsurance transaction
Net balance, end of year

Add reinsurance receivables (payables)

BALANCE, END OF YEAR

2019
1,868.0
(951.1)
916.9

1,233.9
(40.3)
1,193.6
36.2

(843.8)
(374.9)
(1,218.7)
—
928.0
993.2
1,921.2

2018
1,828.2
15.1
1,843.3

1,480.0
(41.5)
1,438.5
71.8

(849.4)
(630.6)
(1,480.0)
(956.7)
916.9
951.1
1,868.0

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

(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

Tax benefit on long-term care reinsurance transaction
Income tax expense on discrete items:

Change in valuation allowance
Impact of federal tax reform
Change in valuation allowance related to federal tax reform
Other items

TOTAL INCOME TAX EXPENSE (BENEFIT)

2019
19.2
39.3
—
58.5
—

(193.7)
—
—
—
(135.2)

2018
(2.8) $
93.1
8.9
99.2
(147.9)

95.7
—
—
3.2
50.2

2017
90.8
72.0
(15.3)
147.5
—

(13.4)
310.6
(138.1)
(1.7)
304.9

On December 22, 2017, the Tax Reform Act was signed into law
and enacted a broad range of changes to the Internal Revenue
Code (the “Code”) including individual and corporate reforms
and numerous changes to U.S. international tax provisions. The
Tax Reform Act reduced the corporate tax rate to 21 percent
from 35 percent effective January 1, 2018, and made significant
changes to the taxation of life insurance companies. Among

other things, the Tax Reform Act modified the computation
of life insurance reserves, increased the capitalization rate and
extended the amortization period for policy acquisition costs,
imposed limitations on the deductibility of performance-based
compensation to “covered employees” and interest expense,
and allowed for the expensing of certain capital expenditures.
For NOLs arising after December 31, 2017, the Tax Reform

118

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsAct 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. 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 (net of the reduction in the valuation allowance
for deferred tax assets) which was recorded as additional income
tax expense for the year ended December 31, 2017.

The $172.5 million adjustment to our net deferred tax assets was
a provisional amount as defined in the Securities and Exchange
Commission’s (the “SEC”) 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 required additional time within the measurement
period permitted under SAB 118 to complete our analysis of
the calculations of life insurance tax reserves and future period
taxable income used to estimate our deferred tax valuation
allowance. We completed our analysis in the fourth quarter
of 2018 and there were no material changes to our previous
estimates.

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

EFFECTIVE TAX RATE

2019
21.0%
(70.6)
(1.0)
1.3
—
—
(49.3)%

2018
21.0%
(39.5)
.6
(1.1)
—
—
(19.0)%

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
Insurance liabilities
Indirect costs allocable to self-constructed real estate assets
Other

Gross deferred tax assets

Deferred tax liabilities:

Investments
Present value of future profits and deferred acquisition costs
Accumulated other comprehensive income

Gross deferred tax liabilities
Net deferred tax assets before valuation allowance

Valuation allowance

Net deferred tax assets

Current income taxes prepaid

INCOME TAX ASSETS, NET

2019

532.3
10.3
351.3
50.3
40.4
984.6

(24.4)
(150.1)
(381.2)
(555.7)
428.9
—
428.9
3.7
432.6

2017
35.0%
(6.0)
(2.0)
.6
64.7
(28.8)
63.5%

2018

685.1
14.5
283.9
—
46.3
1,029.8

(10.1)
(171.1)
(50.2)
(231.4)
798.4
(193.7)
604.7
25.3
630.0

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.

In the fourth quarter of 2019, the Company implemented a tax
planning strategy whereby, pursuant to the Code, the Company
will reflect a change in its method of accounting for indirect costs
allocable to self-constructed real estate assets in its 2019 federal
income tax return filing. Such tax planning strategy is expected
to increase taxable income for the tax years 2019 through 2023.

119

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KWe evaluate the need to establish a valuation allowance for our
deferred income tax assets on an ongoing basis using a deferred tax
valuation model. 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, the recapture of business
previously ceded and tax planning strategies. Our estimates of
future taxable income are based on evidence we consider to be
objective and verifiable. At December 31, 2019, our projection of
future taxable income for purposes of determining the valuation

allowance is based on our adjusted average annual baseline taxable
income which is assumed to increase by approximately 3.5% for
the next five years, and level taxable income thereafter, plus the
incremental increase to non-life taxable income associated with a
tax planning strategy. Based on our assessment, we have concluded
that it is more likely than not that all our deferred tax assets of
$428.9 million will be realized through future taxable earnings.
Therefore, the Company released
its remaining valuation
allowance of $193.7 million in the fourth quarter of 2019.

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

Balance, December 31, 2016

Decrease in 2017
Cumulative effect of accounting change

Balance, December 31, 2017

Increase in 2018

Balance, December 31, 2018

Decrease in 2019

BALANCE, DECEMBER 31, 2019

240.2
(166.8)(a)
15.7(b)
89.1
104.6(c)
193.7
(193.7)(d)
—

(a) 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.

(b) 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.

(c) The 2018 increase to the deferred tax valuation allowance includes: (i) an increase of $104.8 million due to the life NOLs generated by the tax loss on the long-term care
reinsurance transaction; and (ii) other changes netting to $(.2) million. The increase in life company NOLs generated by the tax loss on the reinsurance transaction was
expected to impact our ability to utilize non-life NOLs in the future.

(d) The 2019 decrease to the deferred tax valuation allowance is related to the tax planning strategy discussed above.

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 (1.59 percent at December 31, 2019), 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, 2019, we were below the 50 percent ownership
change level that could limit 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

120

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementsdescribed 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 Third Amended Section 382 Rights
Agreement was approved by the Company’s stockholders 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, 2016
and 2019 (the “2019 Section 382 Charter Amendment”). The
expiration date for the 2019 Section 382 Charter Amendment is
July 31, 2022.

Year of expiration
2023
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Total federal non-life NOLs

Post 2017 life NOLs with no expiration

TOTAL FEDERAL NOLs

We also had deferred tax assets related to NOLs for state income
taxes of $10.3 million and $14.5 million at December 31, 2019 and
2018, respectively. The related state NOLs are available to offset
future state taxable income in certain states through 2033.

Net operating loss
carryforwards

1,424.3
85.2
149.9
10.8
80.3
213.2
.3
.2
44.4
.6
.9
.8
2,010.9
523.6
2,534.5

There were no unrecognized tax benefits in either 2019 or 2018.

The federal statute of limitations remains open with respect
to tax years 2016 through 2019. The Company’s various state
income tax returns are generally open for tax years 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.

121

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K7. NOTES PAYABLE - DIRECT CORPORATE OBLIGATIONS

The following notes payable were direct corporate obligations of the Company as of December 31, 2019 and 2018 (dollars in millions):

4.500% Senior Notes due May 2020
5.250% Senior Notes due May 2025
5.250% Senior Notes due May 2029
Revolving Credit Agreement (as defined below)
Unamortized debt issuance costs

DIRECT CORPORATE OBLIGATIONS

2029 Notes

On June 12, 2019, the Company executed the Indenture, dated
as of June 12, 2019 (the “2019 Base Indenture”) and the First
Supplemental Indenture, dated as of June 12, 2019 (the “2019
Supplemental Indenture” and, together with the 2019 Base
Indenture, the “2019 Indenture”), between the Company and U.S.
Bank National Association, as trustee (the “Trustee”) pursuant to
which the Company issued $500.0 million aggregate principal
amount of 5.250% Senior Notes due 2029 (the “2029 Notes”).

The Company used the net proceeds from the offering of the
2029 Notes to: (i) repay all amounts outstanding under its existing
Revolving Credit Agreement (as defined below); (ii) redeem and
satisfy and discharge all of its outstanding 4.500% Senior Notes
due May 2020 (the “2020 Notes”); and (iii) pay fees and expenses
related to the foregoing. The remaining proceeds were used for
general corporate purposes.

The 2029 Notes mature on May 30, 2029 and interest on the
2029 Notes is payable at 5.250% per annum. Interest on the 2029
Notes is payable semi-annually in cash in arrears on May 30 and
November 30 of each year, commencing on November 30, 2019.

The 2029 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. The 2029
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 2029 Notes are structurally
subordinated to all existing and future indebtedness and other
liabilities of the Company’s subsidiaries.

Prior to February 28, 2029, the Company may redeem some
or all of the 2029 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, 2029, the Company may redeem some or all of the
2029 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 2019 Indenture), the Company will be required
to make an offer to repurchase the 2029 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. In the
event that the 2029 Notes receive investment grade credit ratings,
this covenant will cease to apply.

2019

— $

500.0
500.0
—
(10.9)
989.1

2018
325.0
500.0
—
100.0
(8.2)
916.8

The 2019 Indenture contains covenants that restrict the Company’s
ability, with certain exceptions, to:

• create liens;

• issue, sell, transfer or otherwise dispose of any shares of capital
stock of any Insurance Subsidiary (as defined in the 2019
Indenture); and

• consolidate or merge with or into other companies or transfer

all or substantially all of the Company’s assets.

The 2019 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 2019
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 50% in principal amount
of the then outstanding 2029 Notes may declare the principal of
and accrued but unpaid interest, including any additional interest,
on all of the 2029 Notes to be due and payable.

2020 Notes and 2025 Notes

On May 19, 2015, the Company executed the Indenture, dated as of
May 19, 2015 (the “2015 Base Indenture”) and the First Supplemental
Indenture, dated as of May 19, 2015 (the “2015 Supplemental
Indenture” and, together with the 2015 Base Indenture, the “2015
Indenture”), between the Company and the Trustee pursuant to
which the Company issued $325.0 million aggregate principal
amount of the 2020 Notes and $500.0 million aggregate principal
amount of 5.250% Senior Notes due 2025 (the “2025 Notes”). As
described above, the 2020 Notes were redeemed on June 12, 2019.

The 2025 Notes mature on May 30, 2025. Interest on the 2025
Notes is payable at 5.250% per annum. Interest on the 2025
Notes is payable semi-annually in cash in arrears on May 30 and
November 30 of each year, commencing on November 30, 2015.

The 2025 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 2025 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 2025
Notes are structurally subordinated to all existing and future
indebtedness and other liabilities of the Company’s subsidiaries.

122

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsPrior 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 2015 Indenture), the Company will be required
to make an offer to repurchase the 2025 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.

The 2015 Indenture contains covenants that restrict the Company’s
ability, with certain exceptions, to:

• incur certain subsidiary indebtedness without also guaranteeing

the 2025 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 2015
Indenture); and

• consolidate or merge with or into other companies or transfer

all or substantially all of the Company’s assets.

The 2015 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 2015
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 2025 Notes may declare the principal of
and accrued but unpaid interest, including any additional interest,
on all of the 2025 Notes to be due and payable.

Credit Agreement were repaid in connection with the issuance of
the 2029 Notes. There were no amounts outstanding under the
Revolving Credit Agreement at December 31, 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 percent to
2.125 percent, in the case of loans at the eurodollar rate, and
0.375 percent to 1.125 percent, in the case of loans at the base rate.
In addition, the daily average undrawn portion of the Revolving
Credit Agreement accrues 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.

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;

Revolving Credit Agreement

default;

• restricted payments during the continuance of an event of

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. 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 October 13, 2022. As
described above, all amounts outstanding under the Revolving

• 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.

123

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K(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 $3,304.5 million at December 31, 2019 compared to the
minimum requirement of $2,691.3 million).

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.

Loss on Extinguishment of Debt

In 2019, we recognized a loss on the extinguishment of debt totaling
$7.3 million which consisted of: (i) a premium of $6.1 million
related to the redemption of the 2020 Notes; and (ii) the write-off
of $1.2 million of unamortized issuance costs associated with the
redemption of the 2020 Notes.

Scheduled Repayment of our Direct Corporate Obligations

The scheduled repayment of our direct corporate obligations was as follows at December 31, 2019 (dollars in millions):

Year ending December 31,
2020
2021
2022
2023
2024
Thereafter

—
—
—
—
—
1,000.0
1,000.0

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

124

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementsoutcome of pending appeals or motions; (ii) there are significant
factual issues to be resolved; and/or (iii) there are novel legal issues
presented. Accordingly, the Company cannot reasonably estimate
the possible loss or range of loss in excess of amounts accrued,
if any, or predict the timing of the eventual resolution of these
matters. The Company reviews these matters on an ongoing basis.
When assessing reasonably possible and probable outcomes, the
Company bases its assessment on the expected ultimate outcome
following all appeals.

On September 29, 2016, Washington National and BCLIC
commenced an arbitration proceeding seeking compensatory,
consequential and punitive damages against Beechwood Re
Ltd. (“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, 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 (“Platinum”).
On April 27, 2017, an amended complaint was filed adding
Beechwood Capital Group, LLC as a defendant. On March 13,
2018, the District Court granted defendants’ motion to compel
arbitration of Washington National’s and BCLIC’s claims
pending the outcome of the arbitration. In connection with the
action brought by the PPCO Receiver, discussed below, BCLIC
and Washington National reached agreements in October
2019 to settle all claims between themselves and the parties
to the arbitration and litigation, namely BRe, Feuer, Taylor,
Levy and Beechwood Capital Group, LLC. These settlements
involve BCLIC’s and Washington National’s receipt of financial
consideration and have been approved by the Grand Court of
the Cayman Islands that is presiding over BRe’s winding up
proceedings, as well as by the United States District Court for
the Southern District of New York.

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. On August 10, 2018, the Cayman Islands Monetary
Authority filed a public petition in the Grand Court of the
Cayman Islands to officially wind up BRe, concluding that BRe
was now of doubtful solvency. On November 27, 2018, the Grand

Court of the Cayman Islands granted the petition to officially
wind up BRe and appointed the current Controllers of BRe to be
its Joint Official Liquidators. As noted in the previous paragraph,
the Grand Court of the Cayman Islands has approved BRe’s
settlements with BCLIC and Washington National.

On December 19, 2018, Melanie Cyganowski, as Equity
Receiver
for Platinum Partners Credit Opportunities
Master Fund, LP (“PPCO”) and other Platinum entities
(the “PPCO Receiver”) brought an action in the United
States District Court for the Southern District of New York,
Cyganowski v. Beechwood Re Ltd, et al., alleging, among other
claims, fraud, aiding and abetting fraud, fraudulent transfer and
violation of the Racketeer Influenced and Corrupt Organizations
Act against numerous defendants, including BRe and many of
its affiliates, CNO Financial Group, Inc., BCLIC, Washington
National and 40|86 Advisors, Inc. The PPCO Receiver alleges
that Platinum insiders conspired with BRe and its principals
and affiliates in a massive fraudulent scheme to enrich the
Platinum and BRe insiders to the detriment of Platinum
investors and creditors. The PPCO Receiver alleges that CNO
Financial Group, Inc., BCLIC, Washington National and
40|86 Advisors, Inc. have liability for the fraudulent scheme of
the Platinum and BRe insiders under a theory that they turned a
blind eye to the fraudulent scheme due to their desire to transfer
unprofitable legacy portfolios of long-term care insurance via
the reinsurance transactions with BRe. On January 24, 2019,
the court consolidated the PPCO Receiver action with two
other cases (to which the CNO companies are not parties)
before it for at least discovery purposes. On August 19, 2019, the
court granted in their entirety CNO Financial Group, Inc.’s and
40|86 Advisors, Inc.’s motions to dismiss the PPCO Receiver’s
claims against them. The court granted in part and denied
in part the motions to dismiss of BCLIC and Washington
National, dismissing the PPCO Receiver’s claims for, among
other things, fraud, aiding and abetting fraud, securities
fraud and violation of the Racketeer Influenced and Corrupt
Organizations Act, while denying BCLIC’s and Washington
National’s motions to dismiss the PPCO Receiver’s fraudulent
transfer and unjust enrichment claims. BCLIC and Washington
National have agreed with the PPCO Receiver to fully settle
the Cyganowski case and are preparing a settlement agreement
for approval by the court. Under the settlement, neither BCLIC
nor Washington National will incur any liability or make any
payment to anyone, but instead they will be granted an allowed
claim against PPCO’s estate.

On March 27, 2019, BCLIC and Washington National brought
cross-claims and third-party claims in the PPCO Receiver Action
against BRe and a number of its affiliates, as well as many Platinum
and BRe insiders, alleging that they secretly funded, controlled and
operated the BRe enterprise for the benefit of Platinum. BCLIC
and Washington National have also brought third-party claims
against Lincoln International LLC, which provided valuation
services to the BRe enterprise. In October 2019, in exchange for
their receiving financial consideration, BCLIC and Washington
National agreed to settle many of their cross-claims and third-party
claims against BRe and a number of its affiliates, as well as many
Platinum and BRe insiders. BCLIC and Washington National
have also resolved their claims against Lincoln International LLC.
All of these settlements have been approved by the court.

125

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KOn April 9, 2019, BCLIC and Washington National
commenced an action entitled Bankers Conseco Life Insurance
Company and Washington National Insurance Company v.
Wilmington Trust, National Association, in the Supreme Court
of the State of New York, County of New York, Commercial
Division (the “Wilmington Action”). In the Wilmington
Action, BCLIC and Washington National assert claims against
Wilmington Trust, National Association (“Wilmington”) for
breaching its express contractual obligations under four trust
agreements pursuant to which Wilmington was the trustee in
regard to trust assets ceded as part of reinsurance agreements
with BRe, as well as for breaching its fiduciary duties to BCLIC
and Washington National.

On June 7, 2019, the Joint Official Liquidators of Platinum
Partners Value Arbitrage Fund L.P. (in Official Liquidation)
and Principal Growth Strategies, LLC, commenced suit against,
among others, BCLIC, Washington National, 40|86 Advisors,
Inc. and CNO Financial Group, Inc. (collectively, the “CNO
Parties”) in Delaware Chancery Court. Plaintiffs allege that
the CNO Parties were unjustly enriched when they terminated
BCLIC and Washington National’s reinsurance agreements with
BRe and recaptured assets from reinsurance trusts, in particular,
Agera securities. Plaintiffs contend that the Agera securities
were fraudulently transferred to the Reinsurance Trusts by other
Platinum-related entities and they are seeking to claw back those
Agera securities, or the value of those assets, from the CNO Parties.
The CNO Parties have removed the case to the United States
District Court for the District of Delaware and are vigorously
contesting the plaintiff’s claims. Plaintiffs in this case have moved
to remand the action back to Delaware Chancery Court. That
motion remains pending.

On June 28, 2019, BCLIC and Washington National commenced
an action entitled Bankers Conseco Life Insurance Company and
Washington National Insurance Company v. KPMG LLP, in
the Supreme Court of the State of New York, County of New
York, Commercial Division (the “KPMG Action”). In the
KPMG Action, BCLIC and Washington National assert claims
against KPMG LLP (“KPMG”) for aiding and abetting fraud,
constructive fraud and negligent misrepresentation arising from
KPMG’s alleged role in the Platinum Partners’ scheme to defraud
BCLIC and Washington National into reinsuring its long-term
care business with BRe.

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 (“SSADMF”) 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 41 states and the District of Columbia
participated in this examination. In November 2018, we entered
into a Global Resolution Agreement for compliance with laws
and regulations concerning the identification, reporting and
escheatment of unclaimed contract benefits or abandoned funds.
Under the terms of the Global Resolution Agreement, a third-
party auditor acting on behalf of the signatory jurisdictions
will compare expanded matching criteria to the SSADMF to
identify deceased insureds and contract holders where a valid
claim has not been made.

Guaranty Fund Assessments

The balance sheet at December 31, 2019, included: (i) accruals of
$8.9 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, 2019; and (ii) receivables of $16.8 million
that we estimate will be recovered through a reduction in future
premium taxes as a result of such assessments. At December 31,
2018, such guaranty fund assessment accruals were $10.6 million
and such receivables were $18.0 million. These estimates are
subject to change when the associations determine more precisely
the losses that have occurred and how such losses will be allocated
among the insurance companies. We recognized expense for such
assessments of $2.1 million, $2.3 million and $11.0 million in
2019, 2018 and 2017, respectively.

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 $22.7 million and
$23.5 million at December 31, 2019 and 2018, respectively, and
is included in the caption “Other liabilities” in the consolidated
balance sheet.

126

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsLeases and Certain Other Long-Term
Commitments

Information related to our right of use assets are as follows
(dollars in millions):

The Company rents office space, equipment and computer
software under contractual commitments or noncancellable
operating lease agreements. In addition, the Company has
entered into certain sponsorship agreements which require
future payments. Total expense pursuant to these agreements
was $67.0 million, $67.0 million and $61.4 million in 2019,
2018 and 2017, respectively.

The Company rents office space for certain administrative
operations of our Bankers Life segment under an agreement that
expires in 2023. We lease sales offices in various states which are
generally short-term in length with remaining lease terms expiring
between 2020 and 2027. Many leases include an option to extend
or renew the lease term. The exercise of the renewal option is at the
Company’s discretion. The operating lease liability includes lease
payments related to options to extend or renew the lease term only
if the Company is reasonably certain of exercising those options.
In determining the present value of lease payments, the Company
uses its incremental borrowing rate for borrowings secured by
collateral commensurate with the terms of the underlying lease.

Operating lease expense
Cash paid for operating lease liability
Right of use assets obtained in exchange for lease
liabilities (non-cash transactions)
Total right of use assets

2019
25.0
24.3

22.7
66.5

Maturities of our operating lease liabilities as of December 31,
2019 are as follows (dollars in millions):

2020
2021
2022
2023
2024
Thereafter

Total undiscounted lease payments

Less interest

PRESENT VALUE OF LEASE LIABILITIES

Weighted average remaining lease term (in years)
Weighted average discount rate

23.9
19.1
15.5
11.4
4.3
2.0
76.2
(3.7)
72.5

3.8
2.71%

9. AGENT DEFERRED COMPENSATION PLAN

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. 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 $175.2 million
and $155.7 million at December 31, 2019 and 2018, respectively.
Expenses incurred on this plan were $27.0 million, $(5.2) million
and $18.8 million during 2019, 2018 and 2017, respectively
(including the recognition of gains (losses) of $(20.4) million,
$11.9 million and $(12.2) million in 2019, 2018 and 2017,
respectively, primarily resulting from: (i) changes in the discount
rate assumption used to determine the deferred compensation plan
liability to reflect current investment yields; and (ii) changes in
mortality table assumptions. 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 $194.0 million and $171.7 million at
December 31, 2019 and 2018, 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 (loss) on special-purpose portfolios and
totaled $22.3 million, $(10.6) million and $24.6 million in 2019,
2018 and 2017, respectively.

We used the following assumptions for the deferred compensation
plan to calculate:

Benefit obligations:
Discount rate
Net periodic cost:
Discount rate

2019

2018

3.25%

4.25%

3.75%

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, 2019 were as follows (dollars
in millions):

2020
2021
2022
2023
2024
2025 - 2029

7.6
7.8
8.2
8.5
8.7
45.9

127

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 $41.5 million and $28.4 million at December 31,
2019 and 2018, respectively. Company contribution expense
totaled $5.0 million, $5.5 million and $6.6 million in 2019,
2018 and 2017, 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 $36.2 million and $22.9 million at
December 31, 2019 and 2018, 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 $6.1 million, $5.8 million and $5.5 million
in 2019, 2018 and 2017, 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:

Policyholder account liabilities:

Fixed index products

TOTAL LIABILITIES

Fair value

2019

203.8
(1.2)
202.6

1,565.4
1,565.4

$
$

2018

26.6
(6.5)
20.1

1,289.0
1,289.0

$
$

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
$115 million in underlying investments held by the ceding reinsurer at December 31, 2019.

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,
2018
108,830
3,020.5 $

Additions
13,356
3,210.6 $

Maturities/
terminations
(8,534)
(3,064.8) $

December 31,
2019
113,652
3,166.3

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):

Embedded derivative related to modified coinsurance agreement

Insurance policy benefits:

Embedded derivative related to fixed index annuities

TOTAL

2019

2018

2017

151.9

(43.0) $

162.5

5.3

(5.1)

(82.9)
74.3

107.8
59.7

2.8

25.0
190.3

128

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, 2019, all of our
counterparties were rated “A” or higher by S&P.

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, 2019
and 2018 (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

203.8

— $

203.8

— $

203.8

26.6

—

26.6

—

26.6

December 31, 2019:

Fixed index call options

December 31, 2018:

Fixed index call options

11. SHAREHOLDERS’ EQUITY

In May 2011, the Company announced a securities repurchase
program. In 2019, 2018 and 2017, we repurchased 15.4 million,
5.5 million and 7.8 million shares, respectively, for $252.3 million
(including $1.8 million of repurchases settled in the first quarter
of 2020), $100.9 million and $167.1 million, respectively, under
the securities repurchase program. The Company had remaining
repurchase authority of $532.3 million as of December 31, 2019.

In 2019, 2018 and 2017, dividends declared on common stock
totaled $67.2 million ($0.43 per common share), $65.1 million
($0.39 per common share) and $59.6 million ($0.35 per common
share), respectively. In May 2019, the Company increased its
quarterly common stock dividend to $0.11 per share from
$0.10 per share. In May 2018, the Company increased its quarterly
common stock dividend to $0.10 per share from $0.09 per share.
In May 2017, the Company increased its quarterly common stock
dividend to $0.09 per share from $0.08 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, 2019, 4.7 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 options granted in 2010 through 2014 generally
vest on a graded basis over a three years service term and expire
seven years from the date of grant. Our stock options granted in
2015 through 2019 generally vest on a graded basis over a three
years service term and expire ten years from the date of grant. In
2018, one grant of 1.6 million of stock options vests on a graded
basis over a five years service term and expires 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.

A summary of the Company’s stock option activity and related information for 2019 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
17.77
17.25
(9.95)
(19.32)
18.59

Shares
6,539
801
(787)
(538)
6,015
3,517
4,670

Weighted average
remaining life
(in years)

Aggregate
intrinsic value

5.8 $
4.1 $

5.5

38.7
25.8

129

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KA summary of the Company’s stock option activity and related information for 2018 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
15.95
21.03
(10.94)
(20.29)
17.77

Shares
5,121
2,112
(447)
(247)
6,539
3,247
5,296

Weighted average
remaining life
(in years)

Aggregate
intrinsic value

5.8 $
3.5 $

3.1

44.4
26.7

A 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

We recognized compensation expense related to stock options
totaling $3.8 million ($3.0 million after income taxes) in
2019, $5.6 million ($4.5 million after income taxes) in 2018
and $6.3 million ($4.1 million after income taxes) in 2017.
Compensation expense related to stock options reduced both
basic and diluted earnings per share by two cents in 2019, three
cents in 2018 and two cents in 2017. At December 31, 2019,

the unrecognized compensation expense for non-vested stock
options totaled $6.7 million which is expected to be recognized
over a weighted average period of 2.7 years. Cash received by the
Company from the exercise of stock options was $6.9 million,
$3.9 million and $8.3 million during 2019, 2018 and 2017,
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

2019 Grants

2018 Grants

2017 Grants

2.4%
2.4%
26%
6.3
3.90

2.9%
1.9%
27%
6.4
5.49

2.2%
1.5%
32%
6.3
6.20

The risk-free interest rate is based on the U.S. Treasury yield
curve in effect at the time of grant. The dividend yield is based
on the Company’s history and expectation of dividend payouts.
Volatility factors are based on the weekly historical volatility of the

Company’s common stock equal to the expected life of the option.
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 2019, 2018 and 2017.

The following table summarizes information about stock options outstanding at December 31, 2019 (shares in thousands):

Options outstanding

Options exercisable

Range of exercise prices
$10.88 - $16.25
$16.34 - $23.33

Number
outstanding
316
5,699
6,015

Remaining life
(in years)
2.3
6.0

Average exercise
price
12.02
18.95

130

CNO FINANCIAL GROUP, INC. - Form 10-K

Number
exercisable

247 $

3,270
3,517

Average exercise
price
10.93
18.08

PART IIITEM 8 Consolidated Financial StatementsDuring 2019, 2018 and 2017, the Company granted restricted
stock of .5 million, .4 million and .3 million, respectively, to
certain directors, officers and employees of the Company at a
weighted average fair value of $17.07 per share, $22.36 per share
and $20.87 per share, respectively. The fair value of such grants

totaled $8.1 million, $9.7 million and $6.9 million in 2019,
2018 and 2017, 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 2019 is presented below (shares in thousands):

Non-vested shares, beginning of year

Granted
Vested
Forfeited

NON-VESTED SHARES, END OF YEAR

Shares
735
472
(326)
(53)
828

Weighted average grant
date fair value
21.31
17.07
(20.02)
(20.00)
19.49

At December 31, 2019, the unrecognized compensation expense for
non-vested restricted stock totaled $7.6 million which is expected
to be recognized over a weighted average period of 1.8 years. At
December 31, 2018, the unrecognized compensation expense for
non-vested restricted stock totaled $7.7 million. We recognized
compensation expense related to restricted stock awards totaling
$7.2 million, $7.1 million and $6.1 million in 2019, 2018 and
2017, respectively. The fair value of restricted stock that vested
during 2019, 2018 and 2017 was $6.5 million, $4.2 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 2019, 2018 and 2017, the Company granted performance units
totaling 485,830, 319,920 and 452,900, 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 2019, 2018 and
2017 provide for a payout of up to 200 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.

A summary of the Company’s performance units is presented below (shares in thousands):

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

Granted in 2018
Additional shares issued pursuant to achieving certain performance criteria(a)
Shares vested in 2018
Forfeited

Awards outstanding at December 31, 2018

Granted in 2019
Additional shares issued pursuant to achieving certain performance criteria(a)
Shares vested in 2019
Forfeited

AWARDS OUTSTANDING AT DECEMBER 31, 2019

Total
shareholder
return awards
570
226
—
—
(167)
629
160
—
(160)
(61)
568
243
—
—
(260)
551

Operating
return on equity
awards
570
226
30
(144)
(53)
629
160
123
(318)
(26)
568
243
113
(297)
(76)
551

(a) The performance units that vested in 2017, 2018 and 2019 provided for a payout of up to 150 percent, 200 percent and 200 percent, respectively, of the award if

certain performance levels were achieved.

The grant date fair value of the performance units awarded was
$9.4 million and $8.1 million in 2019 and 2018, respectively. We
recognized compensation expense of $7.8 million, $12.0 million
and $9.0 million in 2019, 2018 and 2017, 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

131

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KSection 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 (LOSS) FOR DILUTED EARNINGS PER SHARE
Shares:

Weighted average shares outstanding for basic earnings per share
Effect of dilutive securities on weighted average shares:

Amounts related to employee benefit plans

WEIGHTED AVERAGE SHARES OUTSTANDING FOR DILUTED
EARNINGS PER SHARE

2019
409.4

2018
(315.0) $

2017
175.6

156,040

165,457

170,025

1,108

—

2,119

157,148

165,457

172,144

In 2018, equivalent common shares of 2,104,000 (related to
stock options, restricted stock and performance units) were not
included in the diluted weighted average shares outstanding,
because their inclusion would have been antidilutive due to the
net loss recognized by the Company in such period.

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).

12. 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

2019
4,311.9
25.1
(267.9)
4,069.1
(7.5)

(1,743.1)
2,318.5
162.3
2,480.8

2018
4,150.3
27.8
(156.2)
4,021.9
6.5

(1,588.5)
2,439.9
153.2
2,593.1

2017
4,013.4
30.2
(114.4)
3,929.2
19.0

(1,445.9)
2,502.3
145.0
2,647.3

The three states with the largest shares of 2019 collected premiums were Florida (11 percent), Pennsylvania (6 percent) and Texas
(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

2019
133.6
238.2
561.1
932.9

2018
122.8
233.2
458.2
814.2

2017
115.6
237.3
488.6
841.5

132

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsChanges in deferred acquisition costs were as follows (dollars in millions):

Balance, beginning of year

Additions
Amortization
Effect of reinsurance transaction
Amounts related to changes in unrealized investment gains (losses)
on fixed maturities, available for sale
Other adjustments(a)

BALANCE, END OF YEAR

Changes in the present value of future profits were as follows (dollars in millions):

Balance, beginning of year

Amortization
Effect of reinsurance transaction
Amounts related to changes in unrealized investment gains (losses) on fixed maturities,
available for sale
Other adjustments(a)

BALANCE, END OF YEAR

2019
1,322.5
288.7
(195.4)
—

(189.6)
(10.7)
1,215.5

2019
343.6
(36.7)
—

(14.4)
(17.1)
275.4

2018
1,026.8
261.8
(219.2)
(1.2)

254.3
—
1,322.5

2018
359.6
(45.1)
(60.4)

89.5
—
343.6

2017
1,044.7
236.1
(184.9)
—

(69.1)
—
1,026.8

2017
401.8
(54.4)
—

12.2
—
359.6

(a) These adjustments were recognized in conjunction with the conversion to a new valuation software system for certain non-interest sensitive life insurance business. The

adjustments had no impact on net income since comparable reductions in insurance policy liabilities were also recognized in conjunction with the conversion.

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, 2019 balance of
the present value of future profits in 2020, 9 percent in 2021,
8 percent in 2022, 7 percent in 2023 and 7 percent in 2024. 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, 2019, 2018 and 2017.

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.

13. CONSOLIDATED STATEMENT OF CASH FLOWS

The following disclosures supplement our consolidated statement of cash flows.

The following reconciles net income (loss) to net cash provided by operating activities (dollars in millions):

Cash flows from operating activities:

Net income (loss)
Adjustments to reconcile net income (loss) 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
Net realized gains on the transfer of assets related to reinsurance transaction
Loss related to reinsurance transaction
Payment to reinsurer pursuant to long-term care business reinsured
Loss on extinguishment of borrowings related to variable interest entities
Loss on extinguishment of debt
Other

NET CASH FROM OPERATING ACTIVITIES

2019

2018

2017

409.4

(315.0)

175.6

267.9
(132.8)
632.4
(240.7)
(288.7)
(28.2)
—
—
—
—
7.3
70.1
696.7

292.2
18.4
207.8
14.9
(261.7)
11.3
(363.4)
1,067.6
(365.0)
3.8
—
6.9
317.8

265.4
227.5
464.7
(294.9)
(236.1)
(50.3)
—
—
—
9.5
—
71.9
633.3

133

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe following summarizes the impact of the reinsurance transaction completed on September 27, 2018 (dollars in millions):

Investments transferred
Cash paid to reinsurer
Accrued interest on investments transferred
Present value of future profits and deferred acquisition costs written-off
Reinsurance receivables
Transaction expenses and other
Release of future loss reserve

Subtotal

Realized gains on investments transferred

PRE-TAX LOSS RELATED TO REINSURANCE TRANSACTION

(a) Such non-cash amounts are not included in the consolidated statement of cash flows.

(3,582.1)(a)
(365.0)
(51.6)
(61.6)
2,818.0
(14.6)
189.3
(1,067.6)
363.4
(704.2)

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

2019
19.3

2018
24.7

2017
21.4

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

2019
1,696.6
295.9
420.1
2,412.6

2018
1,652.8
233.3
425.0
2,311.1

Statutory capital and surplus included investments in upstream
affiliates of $42.6 million at both December 31, 2019 and 2018,
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 (loss) (a non-
GAAP measure) of our insurance subsidiaries was $291.4 million,
$(293.3) million (including approximately $541 million loss related
to a reinsurance transaction) and $352.3 million in 2019, 2018 and
2017, respectively. Net income in 2019 includes a $46.0 million
tax benefit to be received from CNO (resulting from the
implementation of a tax planning strategy). Such amount is offset by
an accrued dividend of $46.0 million payable to the non-life parent
of the insurance subsidiaries. Accordingly, there was no impact
on capital and surplus in 2019 related to these transactions. Also
included in net income were net realized capital gains (losses), net of
income taxes, of $(16.6) million, $43.8 million and $(9.9) million
in 2019, 2018 and 2017, respectively. In addition, such net income
included pre-tax amounts for fees and interest paid to CNO or its
non-life subsidiaries totaling $166.3 million, $159.2 million and
$158.3 million in 2019, 2018 and 2017, respectively.

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 2019, our
insurance subsidiaries paid dividends of $186.3 million to CDOC.
In addition, a $46.0 million dividend was accrued at December 31,
2019, as further described above.

The payment of interest on surplus debentures requires either
prior written notice or approval of the director or commissioner
of the applicable state insurance department. 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.

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

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

134

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementshave 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) 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

15. BUSINESS SEGMENTS

long-term care

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;
in run-off; and corporate
operations, comprised of holding company activities and
certain noninsurance company businesses. As further described
in the note to the consolidated financial statements entitled
“Subsequent Event”, the Company announced in January
2020 that its reportable segments will change based on the
way management will make operating decisions and assessing
performance going forward.

We measure segment performance by excluding the loss related
to reinsurance transaction, net realized investment gains (losses),
fair value changes in embedded derivative liabilities (net of related
amortization), fair value changes in the agent deferred compensation
plan, loss on extinguishment of debt, income taxes and other
non-operating items consisting primarily of earnings attributable
to VIEs (“pre-tax operating earnings”) because we believe that this
performance measure is a better indicator of the ongoing business

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 2019 statutory annual statements of each of our
insurance subsidiaries reflect total adjusted capital in excess of the
levels that would subject our 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, 2019, 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.

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 related to reinsurance transaction, net realized investment
gains (losses), fair value changes in embedded derivative liabilities
(net of related amortization), fair value changes in the agent deferred
compensation plan, loss on extinguishment of debt and other
non-operating items consisting primarily of 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.

135

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)

2019

2018

2017

20.3
1,015.9
421.1
929.7
75.2
2,462.2

18.5
1,023.3
416.7
762.9
51.9
2,273.3

20.3
1,038.2
415.2
918.2
44.1
2,436.0

1.0
670.1
29.7
260.0
14.2
975.0

1.5
307.3
42.2
1.5
352.5

13.9
33.0
46.9

1.4
658.9
27.3
259.8
.9
948.3

1.7
296.9
44.6
1.8
345.0

148.4
172.7
321.1

2.1
642.9
26.4
270.2
1.0
942.6

2.1
289.7
44.4
1.3
337.5

210.4
223.7
434.1

36.4
37.5
73.9
3,910.5

(5.6)
6.7
1.1
3,888.8

35.5
8.5
44.0
4,194.2

136

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements(continued from previous page)

2019

2018

2017

1,499.3
176.3
32.3
72.3
381.3
2,161.5

1,311.9
171.3
29.7
60.9
358.9
1,932.7

1,474.9
153.3
19.8
55.7
364.8
2,068.5

Expenses:

Bankers Life:

Insurance policy benefits
Amortization
Interest expense on investment borrowings
Commission expense and distribution fees
Other operating costs and expenses
Total Bankers Life expenses

Washington National:

Insurance policy benefits
Amortization
Interest expense on investment borrowings
Commission expense
Other operating costs and expenses

Total Washington National expenses

Colonial Penn:

Insurance policy benefits
Amortization
Interest expense on investment borrowings
Commission expense
Other operating costs and expenses
Total Colonial Penn expenses

Long-term care in run-off:
Insurance policy benefits
Amortization
Commission expense
Other operating costs and expenses

Total Long-term care in run-off expenses

Corporate operations:

Interest expense on corporate debt
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.

572.2
58.5
12.4
84.1
136.6
863.8

209.7
18.6
1.5
1.3
107.1
338.2

32.5
—
.4
2.0
34.9

556.5
55.8
10.8
73.9
129.4
826.4

207.2
17.8
1.4
1.4
102.4
330.2

271.3
7.0
1.3
18.6
298.2

52.4
91.4
143.8
3,542.2

300.7
111.2
14.3
12.0
(69.9)
368.3

48.0
72.1
120.1
3,507.6

340.6
121.9
14.8
22.9
(119.0)
381.2

581.1
58.8
6.3
69.8
128.3
844.3

199.6
16.3
.9
1.4
96.7
314.9

344.2
10.3
1.8
24.7
381.0

46.5
84.3
130.8
3,739.5

367.5
98.3
22.6
53.1
(86.8)
454.7

137

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)
Net realized gains on the transfer of assets related to reinsurance transaction
Revenues related to earnings attributable to VIEs
Fee revenue related to transition services agreement

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 attributable to VIEs
Fair value changes related to agent deferred compensation plan
Loss on extinguishment of debt
Loss related to reinsurance transaction
Expenses related to transition services agreement
Other expenses

Consolidated expenses
Income (loss) before tax
Income tax expense (benefit):

Tax expense (benefit) on period income (loss)
Valuation allowance for deferred tax assets and other tax items

NET INCOME (LOSS)

Segment balance sheet information was as follows (dollars in millions):

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

2019
3,910.5 $
28.2
—
57.4
19.7
4,015.8
3,542.2
103.3
(21.9)
.6
55.3
20.4
7.3
—
18.5
15.9
3,741.6
274.2

58.5
(193.7)
409.4 $

2018
3,888.8 $
(11.3)
363.4
67.4
5.2
4,313.5
3,507.6
(68.3)
12.8
(.4)
65.8
(11.9)
—
1,067.6
5.1
—
4,578.3
(264.8)

(57.6)
107.8
(315.0) $

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

2019

2018

19,162.5 $
7,789.7
1,097.2
3,481.7
2,099.8
33,630.9 $

16,301.1 $
6,113.6
945.3
3,357.1
2,236.8
28,953.9 $

17,457.0
7,385.0
1,031.3
3,419.9
2,146.6
31,439.8

15,262.0
6,079.2
940.0
3,348.8
2,438.9
28,068.9

138

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
2019

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

TOTAL

2018

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

TOTAL

Present value of
future profits

Deferred
acquisition costs

Insurance
liabilities

58.1
207.1
10.2
—
275.4

86.5
226.9
30.2
—
343.6

755.7
345.6
114.2
—
1,215.5

863.2
342.7
116.6
—
1,322.5

14,648.6
5,580.4
842.0
3,346.8
24,417.8

13,714.6
5,556.1
845.7
3,340.3
23,456.7

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):

2019
Revenues
Income before income taxes
Income tax expense (benefit)
NET INCOME
Earnings per common share:

Basic:

Net income

Diluted:

Net income

2018
Revenues
Income (loss) before income taxes
Income tax expense (benefit)
NET INCOME (LOSS)
Earnings per common share:

Basic:

Net income (loss)

Diluted:

Net income (loss)

1st Qtr.
1,023.0 $
65.6 $
13.8
51.8 $

2nd Qtr.

3rd Qtr.

979.8 $
47.7 $
10.1
37.6 $

944.0 $
53.5 $
11.5
42.0 $

4th Qtr.
1,069.0
107.4
(170.6)
278.0

.32 $

.24 $

.27 $

1.85

.32 $

1st Qtr.
1,007.8 $
108.1 $
23.8
84.3 $

.24 $

.27 $

2nd Qtr.

1,046.3 $
129.8 $
27.6
102.2 $

3rd Qtr.
1,481.2 $
(539.8) $
(10.0)
(529.8) $

1.84
4th Qtr.
778.2
37.1
8.8
28.3

.50 $

.62 $

(3.22) $

.50 $

.61 $

(3.22) $

.17

$
$

139

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 2019 and 2017, VIEs that were required to be
consolidated were dissolved. We recognized losses of $5.1 million
and $4.3 million in 2019 and 2017, respectively, 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: $2.1 million in
2020; $27.6 million in 2021; $99.7 million in 2022; $340.5 million
in 2023; $314.1 million in 2024; $183.3 million in 2025;
$120.1 million in 2026; $63.4 million in 2027; $.8 million in 2028;
and $7.0 million in 2030. The Company has no financial obligation
to the VIEs beyond its investment in each VIE.

Certain of our 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 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 subsidiaries

TOTAL LIABILITIES

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

140

CNO FINANCIAL GROUP, INC. - Form 10-K

December 31, 2019

VIEs

Eliminations

Net effect on
consolidated
balance sheet

1,188.6 $
—
74.7
1.7
8.0
2.8
1,275.8 $

42.8 $

1,152.5
126.1
1,321.4 $

— $

(113.8)
—
—
—
(1.4)
(115.2) $

(4.4) $

—
(126.1)
(130.5) $

1,188.6
(113.8)
74.7
1.7
8.0
1.4
1,160.6

38.4
1,152.5
—
1,190.9

December 31, 2018

VIEs

Eliminations

Net effect on
consolidated
balance sheet

1,468.4 $
—
62.4
2.3
15.3
5.3
1,553.7 $

53.9 $

1,417.2
155.2
1,626.3 $

— $

(142.8)
—
—
—
(2.6)
(145.4) $

(5.3) $

—
(155.2)
(160.5) $

1,468.4
(142.8)
62.4
2.3
15.3
2.7
1,408.3

48.6
1,417.2
—
1,465.8

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

2019

74.3
5.8
80.1

53.7
1.6
55.3
24.8
(20.5)
—
4.3

2018

2017

81.5
7.6
89.1

59.9
2.1
62.0
27.1
(3.6)
(3.8)
19.7

69.8
5.9
75.7

50.2
1.8
52.0
23.7
(5.6)
(9.5)
8.6

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, 2019, such loans had an amortized cost of $1,206.3 million; gross unrealized
gains of $3.9 million; gross unrealized losses of $21.6 million; and an estimated fair value of $1,188.6 million.

The following table sets forth the amortized cost and estimated fair value of the investments held by the VIEs at December 31, 2019, 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 after one year through five years
Due after five years through ten years

TOTAL

Amortized cost
674.2
532.1
1,206.3

Estimated fair value
660.1
528.5
1,188.6

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, 2019, 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 after one year through five years
Due after five years through ten years

TOTAL

Amortized cost
394.2
210.5
604.7

Estimated fair value
378.3
204.8
583.1

During 2019, the VIEs recognized net realized investment losses
of $20.5 million which were comprised of: (i) $12.4 million of
net losses from the sales of fixed maturities; (ii) $5.1 million
of losses on the dissolution of a VIE; and (iii) $3.0 million of
writedowns of investments for other than temporary declines
in fair value recognized through net income. During 2018, the
VIEs recognized net realized investment losses of $3.6 million
from the sales of fixed maturities. 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.

At December 31, 2019, there was one fixed maturity investment
held by the VIEs in default with both an amortized cost and
carrying value of $1.2 million.

During 2019, $280.6 million of investments held by the VIEs
were sold which resulted in gross investment losses (before
income taxes) of $12.6 million. During 2018, $57.2 million of
investments held by the VIEs were sold which resulted in gross

investment losses (before income taxes) of $3.8 million. 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.

At December 31, 2019, the VIEs held: (i) investments with a fair
value of $153.0 million and gross unrealized losses of $3.1 million
that had been in an unrealized loss position for less than twelve
months; and (ii) investments with a fair value of $430.1 million
and gross unrealized losses of $18.5 million that had been in an
unrealized loss position for greater than twelve months.

At December 31, 2018, the VIEs held: (i) investments with
a fair value of $1,315.7 million and gross unrealized losses of
$55.7 million that had been in an unrealized loss position for
less than twelve months; and (ii) investments with a fair value of
$137.6 million and gross unrealized losses of $11.3 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.

141

CNO FINANCIAL GROUP, INC. - Form 10-KPART II
ITEM 9A Controls and Procedures

18. SUBSEQUENT EVENT

In January 2020, we announced a new operating model that
realigns the Company from its current operating business
segments into two divisions - Consumer and Worksite. The new
structure will create a leaner, more integrated, customer-centric
organization that better positions us for long-term success and
shareholder value creation. Under the new structure, we will
be organized around two business divisions that reflect the
customers served by the Company.

The Consumer Division will serve individual consumers,
engaging with them on the phone, online, face-to-face with
agents, or through a combination of sales channels. This
structure unifies consumer capabilities into a single division and
integrates the strength of our agent sales forces and industry-
leading direct-to-consumer business with proven experience in
advertising, web/digital and call center support.

The Worksite Division will focus on worksite and group sales
for businesses, associations, and other membership groups,
interacting with customers at their place of employment. By

creating a dedicated Worksite Division, we will bring a sharper
focus to this high-growth business while further capitalizing on
the strength of our recent WBD acquisition.

We will also centralize certain functional areas previously housed
in the three business segments, including marketing, business
unit finance, sales training and support, and agent recruiting,
among others. We will continue to market our products under
our three primary brands: Bankers Life, Washington National
and Colonial Penn. All policy, contract, and certificate terms,
conditions, and benefits remain unchanged.

We recognized a pre-tax charge of approximately $14 million
in the fourth quarter of 2019, primarily attributed to severance
costs associated with the new operating model and other one-
time expenses related to the previously announced strategic
technology partnership. We will begin reporting under a
different segment structure focused on product types beginning
in the first quarter of 2020 based on the way management
will make operating decisions and assess performance going
forward. Prior period results will be reclassified to conform to
the new reporting structure.

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, 2019, 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
SEC’s 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.

142

CNO FINANCIAL GROUP, INC. - Form 10-K

PART II
ITEM 9B Other Information

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, 2019.

The effectiveness of our internal control over financial reporting as
of December 31, 2019 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, 2019, that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

ITEM 9B. Other Information.

None.

143

CNO FINANCIAL GROUP, INC. - Form 10-KPART 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.

144

CNO FINANCIAL GROUP, INC. - Form 10-K

PART 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, 2019 and 2018 ..............................................................................

Statement of Operations for the years ended December 31, 2019, 2018 and 2017 ........................

Statement of Cash Flows for the years ended December 31, 2019, 2018 and 2017 ........................

Notes to Condensed Financial Information ...................................................................................

Schedule IV — Reinsurance for the years ended December 31, 2019, 2018 and 2017 ......................

Page

147

148

149

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.

145

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 25, 2020
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/ PAUL H. MCDONOUGH
Paul H. McDonough
/s/ JOHN R. KLINE
John R. Kline
/s/ ELLYN L. BROWN
Ellyn L. Brown
/s/ STEPHEN N. DAVID
Stephen N. David
/s/ DAVID B. FOSS
David B. Foss
/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 25, 2020

February 25, 2020

146

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IVSignatureSCHEDULE II Condensed Financial Information of Registrant (Parent Company)

Balance Sheet as of December 31, 2019 and 2018

(Dollars in millions)
ASSETS
Cash and cash equivalents - unrestricted
Equity securities at fair value (cost: 2019 - $-; 2018 - $20.3)
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: 2019 - 148,084,178; 2018 - 162,201,692)
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.

2019

2018

181.9
—
5,501.5
140.9
38.4
.8
5,863.5

989.1
126.8
70.6
1,186.5

2,768.8
1,372.5
535.7
4,677.0
5,863.5

205.9
20.0
4,115.6
137.1
4.6
1.7
4,484.9

916.8
135.7
61.5
1,114.0

2,996.6
177.7
196.6
3,370.9
4,484.9

SCHEDULE II Condensed Financial Information of Registrant (Parent Company)

Statement of Operations for the years ended December 31, 2019, 2018 and 2017

(Dollars in millions)
Revenues:

Net investment income
Net investment income - affiliated
Net realized investment gains (losses)

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 (losses) of subsidiaries (eliminated in consolidation)

NET INCOME (LOSS)

The accompanying notes are an integral part of the condensed financial statements.

2019

13.0
.8
.1
13.9

52.4
3.2
52.6
7.3
115.5
(101.6)
(32.4)
(69.2)
478.6
409.4

2018

14.3
—
(4.3)
10.0

48.0
2.9
40.0
—
90.9
(80.9)
(20.8)
(60.1)
(254.9)
(315.0)

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

147

CNO FINANCIAL GROUP, INC. - Form 10-KPART IVSCHEDULE II Condensed Financial Information of Registrant (Parent Company)SCHEDULE II Condensed Financial Information of Registrant (Parent Company)

Statement of Cash Flows for the years ended December 31, 2019, 2018 and 2017

2019
(77.9)

2018
(107.2)

20.2
—
8.8

194.3
223.3

494.2
(425.0)
(6.1)
9.2
(254.5)
(67.1)
254.9
(175.0)
(169.4)
(24.0)
205.9
181.9

250.1
(30.9)
8.3

(40.1)
187.4

—
—
—
3.9
(108.0)
(64.8)
227.7
(94.2)
(35.4)
44.8
161.1
205.9

2017
(181.8)

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

(Dollars in millions)
Cash flows from operating activities
Cash flows from investing activities:

Sales of investments
Purchases of investments
Net sales of trading securities
Dividends received from consolidated subsidiary, net of capital contributions of nil in 2019;
$265.0 in 2018 and nil in 2017*

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
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.

148

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IVSCHEDULE II Condensed Financial Information of Registrant (Parent Company)SCHEDULE II Notes to Condensed Financial Information

Basis of Presentation

The condensed financial information should be read in conjunction with the consolidated financial statements of CNO Financial Group,
Inc. The condensed financial information includes the accounts and activity of the parent company.

SCHEDULE IV Reinsurance

for the years ended December 31, 2019, 2018 and 2017

(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

2019

2018

2017

28,282.8
107.1
(3,204.1)
25,185.8

.4%

2019

2,537.7
25.1
(244.3)
2,318.5

27,662.8
114.4
(3,321.3)
24,455.9

.5%

2018

2,540.2
28.0
(128.3)
2,439.9

27,154.3
120.5
(3,452.6)
23,822.2

.5%

2017

2,560.5
30.4
(88.6)
2,502.3

1.1%

1.2%

149

CNO FINANCIAL GROUP, INC. - Form 10-KPART IVSCHEDULE II Condensed Financial Information of Registrant (Parent Company)This page intentionally left blank.This page intentionally left blank.This page intentionally left blank.Directors of CNO Financial Group, Inc.

Daniel R. Maurer (Chair)
Retired Executive,
Intuit Inc.

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

David B. Foss
President and Chief Executive Officer,
Jack Henry and Associates, Inc.

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

Neal C. Schneider
Retired Executive,
Arthur Andersen, LLP

Frederick 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

145

153

154

Investor Information

if you would

AST
Operations Center
6201 15th Avenue
Brooklyn, NY 11219

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).

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ANNUAL
REPORT

CNO Financial Group, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032
(317) 817-6100

CNOinc.com