CNO Financial Group Annual Report 2020

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FY2020 Annual Report · CNO Financial Group

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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

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

Consolidated Financial Statements

Exhibits and Financial Statement Schedules

Exhibits and Financial Statement Schedules
Directors of CNO Financial Group, Inc.

Directors of CNO Financial Group, Inc.

Investor Information

134

133

145

141

146

142

A Letter to Shareholders from CEO Gary C. Bhojwani

To our shareholders:

Like most business leaders, I generally seek to separate my personal emotions from my business or professional obligations. In fact, I suspect most of us
were taught to keeep separate those facets of our lives. As I look back at 2020, one of the key learnings was the need to bring our personal and professional
lives together. Indeed, it was an imperative in 2020—and perhaps beyond.

When I wrote to you at this time last year, we had just moved nearly all of our associates to work from home in response to COVID-19. In the following
months, the pandemic deepened into a global humanitarian and economic crisis, and social injustice was confronted in communities across the world,
including cities that CNO calls home. We faced these challenges as work colleagues, but also as loved ones, citizens and neighbors. We listened, learned
and supported each other.

We drew deeper on our courage, commitment and, most importantly, our

compassion for one another.

The events of 2020 sharpened the focus on our purpose. We don’t just provide insurance. Our associates and agents secure the future of middle-income
America. It’s why CNO exists, and we relish the role we play.

The goal of any company is to grow profitably and deliver shareholder value. Some say a higher purpose and profits are not compatible. I disagree.

We believe that long-term performance can be best sustained by first focusing on associates, customers and communities. Provide meaningful jobs, offer
products that make our customers’ lives better, help improve communities and the environment, and stand up for a just society—these are necessary parts
of a company’s responsibility. Never have we been so forcefully reminded of these principles than in 2020.

I am tremendously proud of how we came together in 2020 to deliver on our promises to consumers and shareholders. Early in the pandemic, CNO was
identified as an essential business, a fact that underscores the importance and value of the insurance and financial services we provide to individuals,
families and businesses. We prioritized the health and safety of our customers and workforce. Within a week, we transitioned nearly 97% of associates to
remote work and agents quickly pivoted to virtual client appointments. As a result, we successfully navigated 2020 from a position of strength.

I start by thanking the 5,000 exclusive agents who work in our branches, our 4,000 independent partner agents, and our business-essential associates and
branch office administrators that kept operations running. To our associates who transitioned to remote work under unprecedented circumstances, thank
you for your dedication over the past 12 months. We also extend our deepest sympathies to everyone who lost a loved one to this virus, including members
of the CNO family.

As I look back at 2020, our people and purpose made the difference during difficult times. Highlights of our year include:

•

Paid $1.9 billion in claims to our policyholders

Ranked as the top-performing life insurance stock of 2020

• Grew operating earnings per share (EPS) 37% from 2019

• Generated operating return on equity (ROE) , as adjusted, of 12.9%

•

Returned $330 million to shareholders in the form of share repurchases and dividends

Earned the Great Place to Work® certification

• Named a 2020 Best Employers for Diversity by Forbes

•

Ranked second on the Healthiest 100 Workplaces in America

I extend our appreciation to Board Chair Dan Maurer and the full CNO Board of Directors for their continued stewardship and steady guidance in a
challenging year. We were pleased to welcome Steve Shebik to our Board of Directors in November 2020. Steve is the former vice chair of The Allstate
Corporation and Allstate Insurance Company, and former chief executive officer of Allstate Life Insurance. I also recognize Chet Ragavan, who is
nominated to stand for election to our Board at our annual shareholders' meeting on May 7, 2021. Chet is the former executive vice president and chief
risk officer of Voya Financial.

Before I provide perspective on our performance, I pay tribute to Alex Trebek, who passed away in 2020. Alex was our close friend and spokesperson for
Colonial Penn for more than 25 years. He believed in our purpose and held a personal connection with many of our customers and associates. His legacy
will always be an important part of CNO.

2020 Performance

In January 2020, we announced our strategic transformation. By March, COVID-19 had significantly altered day-to-day life in America—how we live, work,
shop, and receive healthcare. While we could not have anticipated COVID’s full impact, transforming our operating model before the pandemic was critical
to our success in 2020. The pandemic only accelerated the need for, and pace of, the execution of our transformation strategy.

Our exclusive agent distribution force is among the largest in the industry, and we operate a top 5 direct-to-consumer life insurer. Unifying these
channels within our Consumer Division enabled cross-channel efficiencies that unlock significant value for us. Life insurance customers now can
seamlessly transact with us online, over the phone, in person with a local agent, or some combination of the three.

Our ability to provide customers with this type of hybrid experience—an integrated blend of virtual and local service—is key to how we think about
serving our market. It allows us to build deeper, more meaningful relationships with our clients and establish a level of trust that is difficult to duplicate.
Importantly, this collaboration between the channels resulted in higher customer conversion rates and lower customer acquisition costs.

2020 also saw us launch a similar multi-channel sales and service experience for the Medicare market. In October, we introduced myHealthPolicy.com, our
online health insurance marketplace. During 2020’s Medicare Annual Enrollment Period, consumers were able to purchase Medicare products from us
online, over the phone, or from a local field agent.

Our January 2020 transformation created a dedicated Worksite Division and formalized our commitment to the workforce benefits solutions market. The
effort started in 2019 by adding Web Benefits Design and its best-in-class benefits enrollment technology to CNO.

Our Worksite business began 2020 with significant momentum. We delivered record sales in 2019 and were on track to deliver another double-digit quarter
before the pandemic set in. Understandably, employers quickly diverted their attention to COVID-19 crisis response. They limited office visitation, and in
most cases, closed offices altogether. This severely pressured our Worksite sales, which have historically relied heavily on face-to-face contact at the worksite.

In response, we accelerated implementation of virtual sales tools and training. Generating new group sales was challenging; however, our agents successfully
engaged with existing employer groups and employees to drive incremental sales. While new sales have been soft, the profile of our existing employer
groups translated to strong levels of policy persistency.

As employers continue to reduce benefits and shift more of their healthcare costs and decisions to employees, we believe the demand for our supplementary
products and services will only grow. Last month we announced the acquisition of DirectPath, a leading national provider of employee benefits management
services. This acquisition is a natural next step in the evolution of our Worksite business. Building our capabilities gets us deeper into the employer/employee
value chain and strengthens our position to capture future growth.

Operating and Financial Results

We entered 2020 having completed six consecutive quarters of growth in Life and Health new annualized premium (NAP). Our direct-to-consumer and
Worksite businesses posted record sales in 2019. COVID-19 quickly changed the trajectory of our business.

The pandemic’s impact was felt most heavily in the second quarter, when shelter-in-place orders and other restrictions limited our agents from meeting with
customers in their homes. Health sales were pressured as these products typically rely on face-to-face interactions. At the same time, the pandemic increased
demand for life insurance products among consumers. Consumer buying behavior rapidly shifted online in most industries, including insurance. Demand
for life insurance, particularly within our direct-to-consumer channels, increased meaningfully. The diversity of our product portfolio and distribution
channels helped us navigate the pandemic and deliver strong results.

For the full year, Life sales were up 12%. Direct-to-consumer Life sales were up 21%. Health sales remained challenged, down 21%. Persistency remained
strong across both Divisions, demonstrating the critical value our consumers attribute to our protection products and the mix of stable industries we serve.
Collected Life and Health premiums were up 0.5%. Annuity collected premiums were down 11% for the year, but finished strong, u p 6% in the fourth quarter.

Our Health margins improved as consumers deferred healthcare treatments during the pandemic, more than offsetting the adverse mortality impact of
COVID on our Life margin. Net investment income also improved, driven primarily by outperformance in alternative investments and opportunistic trading.

Operating earnings per share1 were up 37% for the full year. Book value per diluted share1 grew 8% to $23.95, excluding the unrealized gains and losses
from our investment portfolio that are generated with interest rate movements. Our Operating ROE1 , as adjusted, expanded to 12.9% from 10.7% in 2019.

Investments and Capital Management

We continue to operate in an environment of historically low interest rates. This means that we are investing each new dollar in lower yielding assets. It
pressures our overall returns and creates earnings headwinds.

Credit markets were more stable in the second half of 2020 than was anticipated during the spring, and considerably more so than in previous periods of
market disruption due to Federal Reserve intervention. In 2020, our investments outperformed the majority of the benchmarks we use, with minimal levels
of credit impairments.

We ended the year on solid footing. Statutory capital and surplus were $1.8 billion, and the consolidated RBC ratio of our insurance subsidiaries was 411%.
We generated $387 million of free cash flow in 2020, the highest level in CNO’s recent history. This reflects 107% of our operating earnings, which is
among the highest cash flow conversion rates in our peer group.

We returned $330 million to shareholders in 2020, including $263 million in the form of share repurchases and $67 million in dividends. This comprised
12% of our market capitalization at the beginning of 2020. In the past 10 years, we returned $3 billion to shareholders in the form of securities
repurchases ($2.6 billion) and dividends ($0.4 billion) and reduced our share count by 46% during this time. In 2020, we raised our dividend to $0.12 per
share per quarter, our eighth consecutive annual increase.

We remain squarely focused on controlling our operating expenses. One example is our approach to reimagining our workspace. We expect to reduce our
real estate footprint by as much as 50%, while creating the type of flexible work environment that is better suited to the future. Of course, we continue to
balance our investments to accelerate growth against the near-term strain on our earnings per share growth.

Why Invest in CNO

CNO offers an exceptional investment opportunity. We offer middle-income American consumers among the broadest product suites in the industry,
including a unique combination of insurance and securities offerings. Consumers engage with us online, over the phone, face-to-face, or in some
combination of all three. The ability to leverage our exclusive field agents with our two direct-to-consumer online platforms is an important differentiator in
the marketplace. The resiliency of our business model and the benefits from our diverse product portfolio and distribution channels create a natural hedge.

CNO operates in a space with tremendous demographic tailwinds. We focus on the growing, yet underserved, health, income and retirement needs of
middle-income Americans. Our customers need the products and services we offer more than ever.

We manufacture straightforward and profitable products designed specifically with our middle-income consumers in mind. Our ability to reach and build
lasting relationships with these individuals and families is unmatched.

Our balance sheet is solid, and our investment portfolio is well-positioned for the current climate. Cash flow generation remains robust and we have
demonstrated strong capital stewardship.

ESG and Associate Commitments

As I mentioned earlier in this letter, we believe that long-term profits and our commitment to environmental, social and governance (ESG) principles
are not mutually exclusive. T o the cont rary. In 2020, we made significant progress in our ESG journey. Our Corporate Social Responsibility report
highlights many of our accomplishments and the 2020 report will be available on our website CNOinc.com this spring.

Fostering an inclusive, representative workforce remains a priority for CNO. We believe diversity, equity and inclusion (DE&I) make us a stronger, better
company. In 2020, we continued our commitment by adding a full-time DE&I leader to CNO to further embed our talent development and associate
engagement strategy throughout the organization. I am proud to represent CNO and our associates on the CEO Action for Racial Equality Governing
Committee that was formed in 2020. We have also been a signatory to the CEO Action for Diversity & Inclusion™ pledge since 2018.

We strengthened our commitment to our associates in 2020, including:

• Augmenting our award-winning associate well-being program with expanded mental health programs, virtual fitness and caregiver resources

•

Expanding our paid time off (PTO) program to help address COVID-19 illness or COVID-related family caregiving

• Donating $300,000 to a financial assistance fund to help CNO associates and agents impacted by COVID-19 or other personal financial emergencies

•

Providing up to $500 to associates working remotely to help furnish a work-from-home office

• Offering every full-time associate a performance-based cash bonus to share in our success (this program is now in its third year)

What to Expect in 2021

COVID-19 will continue to impact our financial performance throughout 2021. The extent will depend largely on our country’s pandemic recovery. Our 2020
results have proven the strength and resiliency of our model. We enter 2021 well-prepared for the financial challenges and the opportunities that will arise
as the economy reopens.

Unlike airlines, restaurants and hospitality firms, COVID’s impact on insurers may be more acute in 2021 than in 2020. CNO will be no exception. The sales
slowdown we experienced in 2020 will negatively affect our earnings in 2021, and the favorable earnings impact in 2020 from the deferral of healthcare will
likely not persist in 2021. However, as I shared in our fourth quarter earnings call: the lack of short-term visibility should not detract from the long-term
view of our prospects.

The ambitions of our transformation remain unchanged: to meet customers where and how and when they wish. Our strategy includes the continued
development of our online health marketplace, myHealthPolicy.com, and optimization of our online life insurance platform.

I couldn’t be more optimistic about the future of this company and our ability to capitalize on the opportunities before us. The source of my optimism is
my confidence in our associates and agents who go to work every day to help secure the future of middle-income America. Armed with a clear purpose, I am
confident CNO will deliver sustained growth, profitability and shareholder value.

In closing, I extend my gratitude to Charlie Jacklin, who decided to retire as a member of the CNO Board of Directors this coming May. Charlie joined
the CNO Board in 2015 and serves as chair of the Investment Committee and as a member of the Audit and Enterprise Risk Committee. He brought an
experienced investment perspective to CNO at a pivotal time in our history. He is a true leader, advisor and friend. On behalf of my fellow directors and the
CNO management team, we offer our thanks for Charlie’s many contributions.

Please continue to stay healthy and safe. 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 19, 2021

1 A non-GAAP measure. Information related to non-GAAP measures are set forth in our periodic filings with the Securities and Exchange Commission.

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, 2020

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 E Junior Participating Preferred Stock
5.125% Subordinated Debentures due 2060

Trading Symbol Name of each exchange on which registered

CNO

CNOpA

New York Stock Exchange
New York Stock Exchange
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.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment
of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act
(15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act):

Emerging growth company

Smaller reporting company

Non-accelerated filer

✔

At June 30, 2020, 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 $2.2 billion.

Shares of common stock outstanding as of February 9, 2021: 134,644,290

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant’s definitive proxy statement for the 2021 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
10

Item 1.
Business of CNO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

PART II

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

Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

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

Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Item 8.
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132

PART III

133
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

PART IV

134
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

CNO FINANCIAL GROUP, INC. - Form 10-KCautionary 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:

• the ongoing COVID-19 pandemic and the resulting financial
market, economic and other impacts could adversely affect our
business, results of operations, financial condition and liquidity;

• 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;

• potential continuation of

interest rate environment
low
negatively impacting our results of operations, financial position
and cash flow;

• changes to future investment earnings may diminish the value
of our invested assets and negatively impact our profitability,
our financial condition and our liquidity;

• 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;

• 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;

• 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;

CNO FINANCIAL GROUP, INC. - Form 10-K

Cautionary Statement Regarding Forward-Looking Statements

• 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;

• 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 or
potential adverse impacts from global warming;

• 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 risk-based capital measures is not intended
for the purpose of ranking any insurance company or for use
in connection with any marketing, advertising or promotional
activities.

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 exclusive
agents, independent producers (some of whom sell one or more
of our product lines exclusively) and direct marketing. As of
December 31, 2020, we had shareholders’ equity of $5.5 billion
and assets of $35.3 billion. For the year ended December 31, 2020,
we had revenues of $3.8 billion and net income of $301.8 million.
See our consolidated financial statements and accompanying
footnotes for additional financial information about the Company
and its segments.

Prior to 2020, the Company managed its business through
the following operating segments: Bankers Life, Washington
National and Colonial Penn, which were defined on the basis of
product distribution; long-term care in run-off; and corporate
operations, comprised of holding company activities and certain
noninsurance company businesses.

In January 2020, we announced a new operating model that
changes how we view our operating segments. Instead of the
operating business segments described above, we view our
operations as three insurance product lines (annuity, health and
life) and the investment and fee revenue segments. The new
structure creates a leaner, more integrated, customer-centric
organization that better positions us for long-term success and
shareholder value creation. Our new segments are aligned based on
their common characteristics, comparability of profit margins and
the way management makes operating decisions and assesses the
performance of the business. We began reporting under the new
segment structure in the first quarter of 2020. Prior period results
have been reclassified to conform to the new reporting structure.

Under our new operating model, we market our insurance
products through the Consumer and Worksite Divisions that
reflect the customers served by the Company. The Consumer
Division serves individual consumers, engaging with them on the
phone, online, face-to-face with agents, or through a combination
of sales channels. The Worksite Division focuses on worksite and
group sales for businesses, associations, and other membership
groups, interacting with customers at their place of employment.

We have centralized 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 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.

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. Except for the documents specifically incorporated by
reference into this Annual Report on Form 10-K, information

contained on our website or that can be accessed through our
website is not incorporated by reference in this Annual Report
on Form 10-K. Reference to our website is made as an inactive
textual reference.

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

CNO FINANCIAL GROUP, INC. - Form 10-K

PART i
ITEM 1 Business of CNO

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 2020, 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 2020 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, 2020 (as the context implies), unless otherwise
indicated.

Marketing and Distribution

Our insurance subsidiaries develop, market and administer health
insurance, annuity, individual life insurance and other insurance
products. We sell these products through exclusive agents,
independent producers (some of whom sell one or more of our
product lines exclusively) and direct marketing. We had premium
collections of $3.7 billion, $3.8 billion and $3.8 billion in 2020,
2019 and 2018, 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
2020 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.

In 2020, we consolidated our sales organization into two divisions
– the Consumer and Worksite Divisions that reflect the customers
served by the Company.

Consumer Division:

The Consumer Division serves individual consumers, engaging
with them on the phone, online, through the mail, 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.

Exclusive Agents. At December 31, 2020, we had an exclusive agency
force of approximately 5,000 producing agents and financial
representatives working from over 260 branch and satellite offices
in the field as well as dedicated tele-sales agents who conduct sales
over the phone. The field agents establish one-on-one contact with
potential policyholders and promote strong personal relationships
with existing policyholders. Field agents sell Medicare supplement,
supplemental health and long-term care insurance policies, life
insurance and annuities. These agents also sell Medicare Advantage
third-party
plans

through distribution arrangements with

insurance companies. After the sale of an insurance policy, the
agent serves as a contact person for policyholder questions, claims
assistance and additional insurance needs. The tele-sales agents are
primarily engaged in the sale of our graded benefit life insurance
policies and the sale of Medicare Advantage plans of third-party
insurance companies using direct response marketing techniques.
New policyholder leads are generated primarily from television,
print advertising, direct response mailings and the internet.

Independent Producers. Supplemental health and life insurance
products are also 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.

Worksite Division:

The Worksite Division focuses 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 are bringing a sharper
focus to this high-growth business while further capitalizing on
the strength of our recent acquisitions of Web Benefits Design
Corporation (“WBD”) in April 2019 and DirectPath, LLC
(“DirectPath”) in February 2021 (as further discussed in the note
to the consolidated financial statements entitled “Subsequent
Event”). Sales in the Worksite Division have been particularly
adversely impacted by the novel coronavirus (“COVID-19”)
pandemic given the challenges of interacting with customers at
their place of employment.

Exclusive Agents. At December 31, 2020, we had approximately
250 exclusive producing agents working in states across the United
States. These agents establish one-on-one contact with potential
policyholders at their place of employment and primarily sell
supplemental health and life insurance products.

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

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.

Annuities:

Fixed index annuities
Fixed interest annuities
Other annuities
Total annuities

Health:

Supplemental health
Medicare supplement
Long-term care
Total health

Life:

Interest-sensitive life
Traditional life

Total life

TOTAL PREMiUM COLLECTiONS

Annuities

During 2020, we collected annuity premiums of $1,165.0 million,
or 32 percent, of our total premiums collected. Annuity products
include fixed index annuity, traditional fixed rate annuity and
single premium immediate 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
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 $1,122.1 million, or 30 percent, of
our total premium collections during 2020. The account value (or
“accumulation value”) of these annuities is credited in an amount
that is based on changes in a particular index during a specified
period of time. Within each contract issued, each fixed index
annuity specifies:

• The index to be used.

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

CNO FINANCIAL GROUP, INC. - Form 10-K

Total premium collections

The Consumer and Worksite Divisions are primarily focused
on marketing insurance products (including annuity, health and
life products), several types of which are sold in both divisions
and underwritten in the same manner. The following table
summarizes premium collections by segment for the years ended
December 31, 2020, 2019 and 2018 (dollars in millions):

2020

2019

2018

1,122.1
37.3
5.6
1,165.0

677.2
750.5
263.9
1,691.6

206.5
633.1
839.6
3,696.2 $

1,242.0 $
56.9
7.5
1,306.4

663.1
776.0
269.1
1,708.2

201.3
609.9
811.2
3,825.8 $

1,113.1
43.6
7.8
1,164.5

642.8
782.1
400.9
1,825.8

193.1
601.7
794.8
3,785.1

• 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 2020, a significant portion of our new annuity sales were
“premium bonus” products. These products typically specify a
bonus rate, applied to the premium deposited, of 3 percent for the
first policy year only. The premium bonus vests over a number
of years.

Fixed Interest Annuities

These products include fixed rate single-premium deferred
annuities (“SPDAs”) and flexible premium deferred annuities
(“FPDAs”). These products accounted for $37.3 million, or
1 percent, of our total premium collections during 2020. 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 recently are 1.0 percent, and the guaranteed
rates on all policies inforce range from 1.0 percent to 5.5 percent.
As of December 31, 2020, 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 five to 10 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.

Other Annuities

These products include single premium immediate annuities
(“SPIAs”). SPIAs accounted for $5.6 million of our total premiums
collected in 2020. 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

PART i
ITEM 1 Business of CNO

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, 2020. Other annuities also include
closed blocks of structured settlements.

Health

Supplemental Health

Supplemental health collected premiums were $677.2 million
during 2020, or 18 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 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 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 sold by
our exclusive agents primarily relate to a critical illness product
that was introduced in 2012 and to a smaller degree a hospital
indemnity product introduced in 2018. The 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. The hospital indemnity
product provides payment in the event of a hospital stay. The
product is designed to help cover expenses which may not be
covered by private insurance or Medicare such as deductibles and
co-payments.

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

Medicare Supplement

Medicare supplement collected premiums were $750.5 million
during 2020, or 20 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
63 percent of new sales of Medicare supplement policies in 2020
were to individuals who had recently reached the age of 65.

Long-Term Care

Long-term care collected premiums were $263.9 million during
2020, 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 and Casualty Company
(“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 exclusive
agent distribution channel. The business currently being sold is
priced using stricter standards and has shorter benefit periods
than the long-term care policies that were ceded pursuant to the
reinsurance transaction completed in September 2018. During
2020, 98 percent of new sales of long-term care products had
benefit periods of two years or less. Since 2009, we have ceded
25 percent of most new sales with a third party. At December
31, 2020, 93 percent of our long-term care policies have benefit
periods of less than four years and 58 percent of such long-term
care policies have benefit periods of one year or less. After entering
into the reinsurance agreement in 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 policies
cover incurred charges after a deductible or elimination period
and are subject to a weekly or monthly maximum dollar amount,

CNO FINANCIAL GROUP, INC. - Form 10-K

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.

Life

Life products include traditional and interest-sensitive life insurance
products. During 2020, we collected life insurance premiums of
$839.6 million, or 23 percent, of our total collected premiums.

Interest-Sensitive Life

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 $206.5 million,
or 6 percent, of our total collected premiums in 2020. These
products are marketed by independent producers and our exclusive
agents (including independent producers and exclusive 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 $633.1 million, or 17 percent, of
our total collected premiums in 2020. Traditional life policies,
including whole life, graded benefit life, term life and single
premium whole life products, are marketed through independent
producers, exclusive agents and direct response marketing.
Under 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 that may be 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
five, 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, with limited or
no 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. We market guaranteed issue graded
benefit life policies under the Colonial Penn brand name using
direct response marketing techniques. New policyholder leads
are generated primarily from television, print advertisements,
direct response mailings and the internet. Our Bankers Life and
Washington National brands market simplified issue graded
benefit life policies via exclusive and independent agents.

Investments

40|86 Advisors, Inc. (“40|86 Advisors”, a registered investment
advisor and wholly owned subsidiary of CNO) manages the
investment portfolios of our insurance subsidiaries. 40|86
Advisors had approximately $28.5 billion of assets (at fair value)
under management at December 31, 2020, of which $28.3 billion
were our assets (including investments held by variable interest
entities (“VIEs”) that are included on our consolidated balance
sheet) and $.2 billion were assets managed for third parties. Our
general account investment strategies are to:

• provide largely stable investment income from a diversified high

quality fixed income portfolio;

• maximize and maintain a stable spread between our investment

income and the yields we pay on insurance products;

• sustain adequate liquidity levels to meet operating cash
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

Competition

PART i
ITEM 1 Business of CNO

Traditional life products also include single premium whole life
insurance. This product requires one initial lump sum payment
in return for providing life insurance protection for the insured’s
entire lifetime. Single premium whole life products accounted for
$45.0 million of our total collected premiums in 2020.

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:

• purchasing options on equity indices with similar payoff

characteristics; and

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

The 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.

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 organizations.

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

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
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
Worksite Division include AFLAC, subsidiaries of Allstate,
Colonial Life and Accident Company and subsidiaries of Globe
Life Inc.

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 fourth in new annualized premiums of
individual long-term care insurance in 2019 with a market share
of approximately 8 percent, the top three writers of individual
long-term care insurance had new annualized premiums with a
combined market share of approximately 70 percent during the
period. In addition, while, based on a 2019 Medicare Supplement
Loss Ratios report, we ranked seventh in direct premiums earned
for Medicare supplement insurance in 2019 with a market share
of 2.3 percent, the top writer of Medicare supplement insurance
had direct premiums with a market share of 34 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
traditional
insurance companies, enabling
banks and

Insurance Underwriting

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.

Our direct to consumer channel 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 our direct to consumer
campaigns fluctuates from period to period and 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.

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 biggest 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”), Fitch
Ratings (“Fitch”), S&P Global Ratings (“S&P”) and Moody’s
Investor Services, Inc. (“Moody’s”) are the rating agency’s
opinions of the ability of our insurance subsidiaries to pay
policyholder claims and obligations when due. They are not
directed toward the protection of investors, and such ratings
are not recommendations to buy, sell or hold securities. The
current financial strength ratings of our primary insurance
subsidiaries from A.M. Best, Fitch, S&P 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.”

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.

CNO FINANCIAL GROUP, INC. - Form 10-K

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

Liabilities for Insurance Products

At December 31, 2020, the total balance of our liabilities
for insurance products was $25.1 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

PART i
ITEM 1 Business of CNO

life

insurance products

Our
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 prescription history, 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.

insurance policies based on

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

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 use 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.

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

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

As of December 31, 2020, 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, 2020 were as follows (dollars in millions):

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

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

Reinsurance receivables Ceded life insurance inforce
979.4
$
539.7
98.2
530.4
655.6
66.9
172.2
3,042.4

2,867.6 $
1,177.7
339.1
3.9
3.4
1.2
191.4
4,584.3 $

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 $2.6 billion at December 31, 2020.

(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 $.9 billion at December 31, 2020.

(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.

Human Capital

At December 31, 2020, we employed approximately 3,400 full-
time associates, all of whom are located in the United States.
Currently, none of our employees are represented under collective
bargaining agreements and we enjoy generally favorable employee
relations.

CNO associates are among our most important resources.
They are critical to achieving our mission to secure the future
of middle-income America by providing insurance and financial
services that help protect their health, income and retirement
needs, while building enduring value for all our stakeholders.

We focus significant attention on attracting and retaining
talented, experienced individuals to serve our customers and
manage and support our operations. The Human Resource and
Compensation Committee of our Board of Directors is actively
engaged in the oversight of our human resource initiatives and
receives regular updates from management on progress and
developments. Our commitment to our associates is demonstrated
through several areas of focus:

• Associate Development and Engagement CNO provides a
supportive environment designed to encourage all associates to
pursue their professional goals and career objectives through
coaching, continuing education, professional education and
training. We also regularly collect associate feedback through
surveys to better learn and understand associates’ needs,
priorities and issues of concern.

• Compensation At CNO, we strive for a culture of strong
performance. We believe in developing associates through a
challenging work environment coupled with extensive support
and training. Our compensation philosophy is focused on
pay-for-performance. We reward overall and
individual
performance that drives long-term success for associates and
the company.

• Health and Well-being Supporting our associates’ physical,
mental and financial well-being is at the center of how we
engage our workforce. Our benefits package for associates
includes medical, dental and vision insurance coverage as

well as an employee well-being program. Associate well-being
programs encourage healthy lifestyle choices and completing
preventive exams and screenings.

• Ethical Business Practices CNO’s Code of Conduct outlines
our expectations surrounding key issues and business practices,
including anti-money laundering, political activities and
contributions, conflicts of interest, fraud prevention, data
security, confidentiality, gift giving and fair competition.

• Diversity, Equity and Inclusion Diversity, Equity and
Inclusion (“DE&I”) is one of CNO’s five corporate values. We
are committed to creating an inclusive culture that encourages,
supports, celebrates, and values the diverse voices of our
associates and customers. CNO’s Diversity Council brings
together leaders from across the company in support of DE&I.
Our four associate-led Business Resource Groups focus on
mentoring, education and community outreach. CNO’s Chief
Executive Officer signed the CEO Action for Diversity &
Inclusion™ pledge in 2018 and joined the newly formed CEO
Action for Racial Equality Governing Committee in 2020.

• Community Involvement CNO is committed to supporting
community organizations that address the health and financial
wellness of middle-income Americans and to providing ways for
our associates to give back through our Team CNO volunteer
program.

During 2020, in response to the COVID-19 pandemic, CNO
focused on the health and safety of our customers, associates and
agents, and the continuity of service to the policyholders who
depend on us. Protocols we have implemented include complying
with social distancing and other health and safety standards as
required by federal, state and local government agencies, taking
into consideration guidelines from the Centers for Disease
Control and Prevention and other public health authorities.
In March 2020, we moved 97% of our corporate associates to
work remotely. By adapting quickly, our customer service and
agent support teams have been delivering consistent service with
minimal disruption. For business-critical associates whose jobs do

CNO FINANCIAL GROUP, INC. - Form 10-K

PART i
ITEM 1 Business of CNO

not allow them to work remotely, we have taken significant steps
to safeguard their health and safety at the office. We also further
strengthened our existing well-being programs with additional

resources, including additional personal time off, 100% of
all COVID-19 related costs covered by CNO medical plans,
augmented mental well-being programs and caregiver resources.

Governmental Regulation

Insurance Regulation and Oversight

• codification of insurance accounting principles;

Overview

Our insurance subsidiaries are licensed to transact insurance
business and are subject to extensive regulation and supervision
by insurance regulators of the jurisdictions in which they operate.
Collectively, our insurance subsidiaries are licensed in all 50 states
of the United States, the District of Columbia and in four United
States territories. The extent of regulation by jurisdiction varies,
but most jurisdictions have laws and regulations governing the
financial aspects and business conduct of insurers. This regulation
and supervision is primarily for the benefit and protection of
customers, and not for the benefit of our investors or creditors.
State laws generally establish supervisory agencies that have broad
regulatory authority, including the power to:

• grant and revoke business licenses;

• define acceptable accounting principles;

• prescribe the form and content of required financial statements

and reports;

• establish reserve requirements;

• determine the reasonableness and adequacy of statutory capital

and surplus;

• regulate the types and amounts of permitted investments;

• regulate and supervise sales practices;

• approve policy forms;

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

• perform financial, market conduct and other examinations;

• establish guaranty associations; and

• license agents.

The NAIC is the United States standard-setting and regulatory
support organization created and governed by the chief insurance
regulators from the 50 states, the District of Columbia and five
U.S. territories. The NAIC assists state insurance regulators
in their mission to serve the public interest and achieve their
regulatory goals. State insurance regulators establish standards
and best practices for insurers. They coordinate their regulatory
oversight through the NAIC, and they work with the NAIC to
regularly re-examine existing insurance laws and regulations. The
NAIC develops model laws and regulations, many of which are
adopted by state legislatures or insurance regulators, relating to:

• reserve requirements;

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

• risk management;

• group capital;

• investment restrictions;

• corporate governance;

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

• credit for reinsurance; and

• product illustrations.

The Company’s insurance subsidiaries are required to file
detailed annual reports, in accordance with prescribed statutory
accounting rules, with regulatory authorities in each of the
jurisdictions in which they do business. As part of their routine
oversight process, state insurance departments conduct periodic
detailed examinations, generally once every three to five years,
of the books, records and accounts of insurers domiciled in their
states. These examinations are generally coordinated under the
direction of the lead state regulator and typically include all
insurers operating in a holding company system pursuant to
guidelines promulgated by the NAIC.

insurance companies to

Since March of 2020, state insurance regulators have issued
bulletins, directives and guidance in response to the economic
impacts of the COVID-19 pandemic, which encouraged,
requested or directed
implement
policyholder accommodations, such as waiving cost-sharing
for COVID-19 testing, providing extended grace periods for
premium payments, forbearing on the cancellation or non-renewal
of policies due to non-payment of premium, and providing other
accommodations. For example, the New York State Department
of Financial Services (“NYDFS”) required life insurance- or
annuity- authorized insurers to extend premium and fee payment
grace periods to 90 days for policyholders who demonstrated
COVID-19 pandemic-related financial hardship. The NYDFS
also prohibited New York licensed insurers from imposing any
late fees on or reporting policyholders to a credit reporting or
debt collection agency for failure to timely pay any life or annuity
premiums, and required such insurers to allow policyholders to
pay the premium over a 12-month period. An insurer was required
to accept a policyholder’s written attestation as proof of financial
hardship as a result of the COVID-19 pandemic.

NAIC

The NAIC’s mandate is to benefit state insurance regulators and
consumers by creating model insurance laws and regulations for
adoption by the states that address insurance company financial
regulation, such as capital requirements, corporate governance
and risk management practices, and statutory accounting and
financial reporting.

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

The NAIC has adopted a valuation manual containing a
principle-based approach for the calculation of life insurance
reserves. Principle-based reserving replaced the prior formulaic
approach to determining policy reserves with a design that
more closely reflects the risks of life insurance and annuity
products. The principle-based reserving approach has been
adopted by the domiciliary states of our insurance subsidiaries,
which was effective for life insurance issued on or after January
1, 2020. In addition, requirements for additional products are
expected to be implemented over time. Although the impact
of implementing the approach on certain life insurance
products has not been significant to date, the ultimate impact
is unknown.

The NAIC adopted the Risk Management and Own Risk and
Solvency Assessment Model Act (“ORSA”), which has been
enacted by the domiciliary states of our insurance subsidiaries.
ORSA requires insurers to maintain a risk management
framework and conduct an internal own risk and solvency
assessment of an 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.

Our insurance subsidiaries’ domiciliary states have also
adopted the NAIC’s Corporate Governance Annual Disclosure
Model Act (“CGAD”). CGAD requires an annual filing by an
insurer or insurance group that provides detailed information
regarding their governance practices as well as sample
documentation on their corporate governance structure and
policies.

The NAIC has been focused on a macro-prudential initiative
since 2017 which is intended to enhance risk identification
efforts by building on the state-based regulation system. In
December 2020, the NAIC adopted amendments to the Model
Holding Company Act and Regulation, which are discussed
below, that implement requirements related to a liquidity
stress-testing framework for certain large U.S. life insurers
and insurance groups. Life insurers will be subject to these
requirements if they satisfy criteria related to the amounts of
certain types of business written or material exposure to certain
investment transactions, such as derivatives and securities
lending. Insurance regulators will use the liquidity stress-
testing framework as a regulatory tool. The holding company
amendments now have to be adopted by state legislatures to
become effective.

The NAIC has also developed a group capital calculation tool
using an RBC aggregation methodology for all entities within
the insurance holding company system. The goal is to provide
state insurance regulators with a method to aggregate the
available capital and minimum capital of each entity in a group
in a way that applies to all groups regardless of their structure.
In December 2020, the NAIC adopted the group capital
calculation template and instructions as well as amendments
to the Model Holding Company Act and Regulation. These
amendments implement the annual filing requirement for the
group capital calculation and they now have to be adopted
by state legislatures to become effective, as noted above. We
cannot predict what impact such regulatory tool may have on
our business.

CNO FINANCIAL GROUP, INC. - Form 10-K

Insurance Regulatory Examinations and Other
Activities

State insurance departments periodically examine the books,
records, accounts, and business practices of their domiciled
insurers, as previously noted. State insurance departments may
also conduct examinations of non-domiciliary insurers licensed
in their states.

industry groups have
State regulatory authorities and
developed several
initiatives regarding market conduct,
including the form and content of disclosures to consumers,
advertising, sales practices and complaint handling. Various
state
the
insurance departments periodically examine
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 whether an insurer’s
operations are consistent with the laws and regulations of the
state conducting the examination. Market conduct has also
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 the review
of an 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
have provided retrospective refunds and or prospective rate
reductions when the mandated minimum benefit ratios have
not been maintained.

Guaranty Associations

Our insurance subsidiaries are required by the guaranty fund laws
of the jurisdictions in which they transact business to participate
in guaranty associations that are organized to pay certain
contractual insurance benefits owed pursuant to insurance
policies issued by impaired, insolvent or failed insurers. These
laws require insurers 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.

Insurance Holding Company Regulations

U.S. state insurance holding company laws and regulations are
generally based on the NAIC Model Holding Company Act
and Regulation. These vary from jurisdiction to jurisdiction,
but generally require a controlled insurance company (i.e.,
insurers that are subsidiaries of insurance holding companies)
to register and file reports with state regulatory authorities on its
capital structure, ownership, financial condition, intercompany
transactions and general business operations. They also require
the ultimate controlling person of a U.S. insurer to file an
annual enterprise risk report with the lead state regulator of the
insurance holding company system. This report identifies the
material risks within the insurance holding company system
that could pose enterprise risk to the insurer or its insurance
holding company system as a whole. Each of our insurance
subsidiaries’ domiciliary states has enacted laws to implement
these requirements, including the enterprise risk reporting
requirement.

involving

insurance companies and

The insurance holding company laws and regulations also
regulate the terms of surplus debentures and transactions
between or
their
affiliates. 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. The Company
and its insurance subsidiaries are registered as a holding
company system pursuant to these laws and regulations in our
domiciliary states.

In addition, the insurance company laws and regulations
regulate the acquisition (or sale) of control of insurance
companies. Generally, these regulations provide that no person,
corporation or other entity may acquire control of a domestic
insurance company, or any parent company of such domestic
insurer, without the prior approval of the insurance company’s
domiciliary state regulator. Any person acquiring, directly or
indirectly, 10 percent or more of the voting securities of an
insurance company is generally presumed to have acquired
“control” of the company. This statutory presumption may be
rebutted by a showing that control does not exist in fact. State
insurance regulators, however, may find that “control” exists in
circumstances in which a person owns or controls, directly or
indirectly, less than 10 percent of the voting securities. The laws
and regulations regarding acquisition of control transactions
may discourage potential acquisition proposals or may delay
or prevent a change of control involving us, including through
unsolicited transactions that some of our shareholders might
consider desirable.

State insurance holding company laws and regulations also
regulate the payment of dividends or other payments by our
insurance subsidiaries to parent companies. A state insurance
regulator may prohibit a dividend payment if such regulator
determines that such payment could be adverse to an insurer’s
policyholders or contract holders. The ability of our insurance
subsidiaries to pay dividends is based on the financial statements
of our insurance subsidiaries that are prepared in accordance
with statutory accounting practices prescribed or permitted by

PART i
ITEM 1 Business of CNO

regulatory authorities, which differ from financial statements
prepared in accordance with GAAP. These regulations generally
permit an insurer to pay a dividend from earned surplus without
regulatory approval if the amount of the dividend, together with
other dividends made within the preceding 12-month period,
does not exceed the greater of (or in some states, the lesser of):

• statutory net gain from operations of such insurer for the prior

calendar year; or

• 10 percent of such insurer’s surplus as regards policyholders at

the end of the preceding calendar year.

If an insurance company has negative earned surplus, any dividend
payments require the prior approval of its domiciliary state
regulator. 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.

In accordance with an order from the Florida Office of Insurance
Regulation, Washington National
Insurance Company
(“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.

Long-Term Care Regulation

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

Surplus and Capital Requirements

Insurers are required to maintain their capital and surplus at or
above minimum levels prescribed by the laws of their respective
jurisdictions. Regulators generally have discretionary authority to
limit or prohibit an insurer’s sales to policyholders if the insurer
has not maintained a minimum surplus or capital or if they find
that the further transaction of business will be hazardous to
policyholders.

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

IRIS Ratios

The NAIC annually calculates certain statutory financial
ratios for most insurance companies in the U.S. to assist state
regulators in monitoring the financial condition of insurance
companies. These calculations are known as the Insurance
Regulatory Information System, or “IRIS,” ratios. There are 12
IRIS ratios for life insurers and each ratio has an established
“usual range” of results as a benchmark. An insurance company
may fall out of the usual range for one or more ratios because of
specific transactions that are immaterial or they are 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.

Risk-Based Capital

The NAIC’s RBC requirements provide a tool for insurance
regulators to assess the level of risk inherent in an insurance
company’s business and determine whether an insurer has
sufficient capital, which could lead to regulatory intervention.
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.

The trend test 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 2020 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
holding company. The ability of our insurance subsidiaries to pay

CNO FINANCIAL GROUP, INC. - Form 10-K

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.

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, 2020.

Privacy and Cybersecurity 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, use, maintenance, disclosure and
destruction of such information and their practices relating to
protecting the security, confidentiality, integrity, and availability
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,
information,
and other unique identifiers. 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, as
amended, relating to standardized electronic transaction formats,
code sets, the privacy of member health information, and the
implementation of data security controls to safeguard electronic
protected health information.

financial

Further, numerous state regulatory bodies are focused on security
and privacy requirements for all companies that collect personal
information and have proposed and enacted legislation and
regulations regarding data protection standards and protocols.
For example, in February 2017, NYDFS announced the adoption
of a cybersecurity regulation, which became effective on
March 1, 2019. The NYDFS requires a company’s cybersecurity
program to include robust controls regarding: access privileges,
application security, policies and procedures for the disposal of
nonpublic information, regular cybersecurity awareness training,
encryption of nonpublic information, third-party due diligence
and an incident response plan. Companies must also implement
and maintain written policies approved by a senior officer of
the company to protect its information systems and nonpublic
information, appoint a chief information security officer and
perform periodic risk assessments. We are required to file an
annual Certification of Compliance with the NYDFS regarding
our cybersecurity program.

The area of cybersecurity has also come under increased scrutiny
by insurance regulators. In October 2017, the NAIC adopted the
Insurance Data Security Model Law (“Data Security Model Law”).
The Data Security Model Law establishes standards to protect
the confidentiality, integrity and availability of certain nonpublic
information, including certain notification requirements in
the event of a breach. It imposes significant regulatory burdens
intended to protect the confidentiality, integrity and availability
of information systems. As of December 31, 2020, 11 states had
adopted the model law, including one of our domiciliary states.

In addition, in 2018, California enacted the California Consumer
Privacy Act (“CCPA”), which became effective January 1, 2020.
CCPA provides for enhanced privacy rights for consumers in
California, including the right to know what personal information
a business has collected and/or shared with third parties, the right
to delete personal information held by a business, and the right
to limit certain processing or use of such information. CCPA
provides for a private right of action with potentially significant
statutory damages, whereby a business that fails to implement
reasonable security measures to protect against breaches of
personal information could be liable to affected consumers.
Certain data processing which is otherwise regulated, including
under the Gramm-Leach-Bliley Act, is excluded from the CCPA;
however, this is not an entity-wide exclusion.

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.

Federal Initiatives

The U.S. federal government does not directly regulate the
business of insurance, although 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. The Dodd-Frank
Act created the Federal Insurance Office (“FIO”) within the U.S.
Treasury Department to monitor all aspects of the insurance
industry and its authority extends to most lines of insurance that
are written by the Company, although the FIO is not empowered
with any general regulatory authority over insurers. The director
of the FIO serves in an advisory capacity to the Financial Stability
Oversight Council (“FSOC”), which was also established
pursuant to the Dodd-Frank Act, and the FSOC has 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.

Since 2013, the FSOC has designated several insurance-related
companies and other companies under this authority, and has
also subsequently rescinded its designations of several companies
under this authority. The FSOC has issued rules, guidance and
procedures for reviewing nonbanking financial companies for
potential designation, including in an updated final rule and
interpretive guidance for such designations in December 2019.

PART i
ITEM 1 Business of CNO

The Dodd-Frank Act also provides for the preemption of state
laws when they are inconsistent with agreements with non-U.S.
governments or regulatory authorities, and the Dodd-Frank Act
streamlines the state-level regulation of reinsurance and surplus
lines insurance. In addition, under certain circumstances, the
FDIC can assume the role of a state insurance regulator and
initiate liquidation proceedings under state law.

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.

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 requires 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. The compliance date for Regulation Best
Interest and Form CRS was 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

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

clients and/or to meet a higher standard of care when providing
advice to their clients. In January 2020, the NAIC finalized a
revised Suitability in Annuity Transactions Model Regulation
that added a “best interest” standard for the sale of annuities.
The amended model regulation has not yet been adopted by our
insurance subsidiaries’ domiciliary states. The NYDFS issued an

amended version of Regulation 187 that adopts a “best interest”
standard for recommendations regarding the sale of life insurance
and annuity products in New York. Regulation 187, as amended,
took effect on August 1, 2019 with respect to annuity sales and on
February 1, 2020 for life insurance sales in New York.

Federal Income Taxation

The Tax Cuts and Job Act (the “Tax Reform Act”), which was
effective in 2018, eliminated a company’s ability to carryback
losses to prior years for losses realized in 2018 and beyond. In
addition, the utilization of these net operating loss carryforwards
(“NOLs”) to offset income in 2018 and subsequent years was
limited to 80 percent of taxable income. The Coronavirus Aid,
Relief, and Economic Security (“CARES”) Act, a tax-and-
spending package intended to provide economic relief to address
the impact of the COVID-19 pandemic, was signed into law in
March 2020. Provisions in the CARES Act permit NOLs arising
in a taxable year beginning after December 31, 2017, and before
January 1, 2021 to be allowed as a carryback to each of the five
taxable years preceding the taxable year of such loss. Accordingly,
we are able to carryback the NOL created in 2018 related to
the long-term care reinsurance transaction to 2017 and 2016
resulting in a $34.0 million tax benefit from the difference in tax
rates between the current enacted rate of 21% and the enacted
rate in 2016 and 2017 of 35%. This provision also accelerated
the utilization of approximately $375 million of life NOLs and
restored approximately $130 million of non-life NOLs. Further,
the CARES Act temporarily repeals the 80 percent limitation for
taxable years beginning before January 1, 2021 (as required under
the Tax Reform Act). This provision resulted in the acceleration
of approximately $105 million of life NOLs and restored
approximately $35 million of non-life NOLs.

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

ITEM 1A. Risk Factors.

to the methods used for some other investments which tend to
accelerate taxable income into earlier years. The tax advantage for
annuities and life insurance is provided in the Internal Revenue
Code (the “Code”) and is generally followed in all states and other
United States taxing jurisdictions.

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

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

Our income tax expense includes deferred income taxes arising
from temporary differences between the financial reporting and
tax bases of assets and liabilities, capital loss carryforwards and
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 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.

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 on pages 8 and 9 of this Form 10-K.

CNO FINANCIAL GROUP, INC. - Form 10-K

COVID-19 Pandemic Risk

The COVID-19 pandemic has adversely impacted
our business, and the ultimate effect on our business,
results of operations and financial condition will
depend on future developments that are highly
uncertain, including the scope and duration of the
pandemic, actions taken by governmental authorities
in response to the pandemic and the unknown long-
term health impacts of COVID-19.

The COVID-19 pandemic has negatively impacted the U.S.
and global economy, created significant volatility and disruption
in the capital markets, dramatically increased unemployment
levels and has fueled concerns that it will lead to another global
recession. In addition, the pandemic has resulted in temporary,
and in some cases permanent, closures of many businesses and
schools and the institution of social distancing and sheltering
in place requirements in many states and local communities.
As a result, our ability to sell products through our regular
channels and the demand for our products and services has
been significantly impacted. In 2020, our sales of health and life
insurance products (measured by new annualized premiums)
decreased by 6 percent compared to 2019. Premiums collected
on annuity products decreased 11 percent in 2020, compared to
2019. The lower sales in 2020 will adversely impact our earnings
in future periods. The extent to which the COVID-19 pandemic
impacts our business, results of operations or financial condition
will depend on the effectiveness of the measures already in place
and actions taken, as well as on future developments which are
highly uncertain and cannot be predicted, including the scope
and duration of the pandemic and actions taken by governmental
authorities and other third parties in response to the pandemic,
and could continue to cause us to revise financial targets or other
guidance we have previously provided.

While we have implemented risk management and contingency
plans and taken other precautions with respect to the
COVID-19 pandemic, such measures may not adequately
protect our business from the full impacts of the pandemic.
Currently, most of our employees are working remotely with
only a few operationally critical employees working at certain
of our facilities for business continuity purposes. This extended
period of remote work arrangements could strain our business
introduce additional operational risk,
continuity plans,
including but not limited to cybersecurity risks, and impair
our ability to effectively manage our business. The frequency
and sophistication of attempts at unauthorized access to our
technology systems and fraud may increase, and COVID-19
pandemic conditions may impair our cybersecurity efforts and
risk management. We also outsource a variety of functions to
third parties, including certain of our administrative operations.
As a result, we rely upon the successful implementation and
execution of the business continuity planning of such entities
in the current environment. While we closely monitor the
business continuity activities of these third parties, successful
implementation and execution of their business continuity
strategies are largely outside our control. If one or more of the
third parties to whom we outsource certain critical business
activities experience operational failures, or is otherwise

PART i
ITEM 1A Risk Factors

unable to perform, as a result of the impacts from the spread
of COVID-19 and governmental reactions thereto, it could
adversely impact our business, results of operations or financial
condition.

We have experienced higher claims on our life insurance products
due to the COVID-19 pandemic which have unfavorably
impacted our results of operations. We may experience additional
claims on our life and certain health insurance products due to
the deferral of care and possible long-term health complications
from COVID-19. In 2020, our margin on life insurance products
reflects an estimated $38 million of adverse mortality impact
related to COVID-19. We expect COVID-19 to continue to
adversely impact our life insurance margin in future quarters.
In addition, economic uncertainty and unemployment resulting
from the impacts of the spread of COVID-19 and governmental
reactions thereto may also result in policyholders seeking sources
of liquidity and withdrawing at rates greater than we previously
expected. In addition, many state insurance departments have
required insurers to offer flexible premium payment plans, relax
payment dates, waive late fees and penalties in order to avoid
canceling or non-renewing polices. If policyholder lapse and
surrender rates or premium waivers significantly exceed our
expectations, we may need to change our assumptions, models
or reserves. The cost of reinsurance to us for these policies could
increase, and we may encounter decreased availability of such
reinsurance. Each of these could have a material adverse effect on
our business, financial condition, results of operations, liquidity
and cash flows. Such events or conditions could also have an
adverse effect on product sales.

Our investment portfolio may be adversely affected as a result of
the COVID-19 pandemic and uncertainty regarding its outcome
(specifically, the increased risk of defaults, downgrades, volatility
in the valuations of certain investment assets we hold and lowered
variable investment income and returns). Moreover, volatility
in equity markets and sustained lower interest rates, reduced
liquidity or a continued slowdown in the United States or in
global economic conditions may also adversely affect the values
and cash flows of these assets. Our investments in mortgages and
commercial mortgage-backed securities may be negatively affected
by delays or failures of borrowers to make payments of principal
and interest when due or delays or moratoriums on foreclosures,
enforcement actions with respect to delinquent or defaulted
mortgages imposed by governmental authorities or the failure of
tenants to pay rent or tenants’ demands for lease modifications.
Further, severe market volatility may leave us unable to react to
market events in a prudent manner consistent with our historical
investment practices. Market dislocations, decreases in observable
market activity or unavailability of information, in each case,
arising from the spread of COVID-19, may restrict our access to
key inputs used to derive certain estimates and assumptions made
in connection with financial reporting or otherwise. Restricted
access to such inputs may make our financial statement balances
and estimates and assumptions used to run our business subject
to greater variability and subjectivity.

Additionally, COVID-19 could negatively affect our internal
controls over financial reporting as the vast majority of our
employees are required to work from home and onsite locations
remain closed, and therefore new processes, procedures, and
controls have been required to respond to changes in our business

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

environment. Further, should any key employees become ill
from COVID-19 and unable to work, our ability to operate our
internal controls may be adversely impacted.

resulted in substantial changes in realized and/or unrealized
losses. Future adverse capital market conditions could result in
additional realized and/or unrealized losses.

Any of the direct or indirect effects of the COVID-19 pandemic
may cause litigation or regulatory, investor, media, or public
inquiries. We may face increased workplace safety costs and risks,
lose access to critical employees, and face increased employment-
related claims and employee-relations challenges. These costs and
risks may increase when our employees begin to return to our
workplaces. Our costs to manage and effectively respond to these
matters, and to address them in settlement or other ways, may
increase.

Any uncertainty as a result of any of these events may require
us to change our estimates, assumptions, models or reserves.
Refer to “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Results of
Operations - Changes in Actuarial Assumptions” for further
information related to changes in certain actuarial assumptions
and their impact on our operating results in 2020. Authorities
may not accurately report population and impact data, such as
death rates, infections, morbidity, hospitalizations, or illness
that we use in our estimates, assumptions and models. Further,
the speed at which these events are occurring increases the
uncertainty of our estimates, assumptions and models. Any
of these events could cause or contribute to the risks and
uncertainties enumerated in Item 1A. Risk Factors included
herein and could materially adversely affect our business, results
of operations or financial condition. For additional forward-
looking information and risks related to the impact of the
pandemic, refer to Liquidity and Capital Resources - Potential
Impacts of COVID-19 Pandemic included in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.

Economic Conditions, Market Conditions
and Investments

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

General factors such as the availability of credit, consumer
spending, business investment, capital market conditions and
inflation affect our business. For example, in an economic
downturn, higher unemployment, lower family income, lower
corporate earnings,
lower
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

CNO FINANCIAL GROUP, INC. - Form 10-K

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

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,
approximately 60 percent of our fixed interest annuities and
universal life 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.

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. We are generally able to change
the participation rate at the beginning of each index period
(typically on each policy anniversary date), subject to contractual
minimums. At December 31, 2020, $1.3 billion of our fixed index
annuity account values were at contractual minimum guarantees
or participation rates.

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 future
periods. The remaining profit margins for the life contingent
payout annuities are extremely
future
unfavorable changes to our assumptions are more likely to reduce
earnings in the period such changes occur.

low. Accordingly,

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 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. These factors include, but
are not limited to, the following: (i) changes in interest rates and

PART i
ITEM 1A Risk Factors

credit spreads, which can reduce the value of our investments;
(ii) changes in patterns of relative liquidity in the capital markets
for various asset classes; (iii) 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, 2020; (iv) changes
in the estimated timing of receipt of cash flows. For example,
our structured securities, which comprised 24.2 percent of our
available for sale fixed maturity investments at December 31,
2020, are generally subject to variable prepayment on the assets
underlying such securities, such as mortgage loans. When asset-
backed securities, agency residential mortgage-backed securities,
non-agency residential mortgage-backed securities, collateralized
loan obligations and commercial mortgage-backed securities,
(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; and (v) 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.

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

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

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.

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 our insurance subsidiaries
to make dividend payments to CNO.

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

The determination of the allowance for credit losses
related to our investments is highly subjective and
could have a material adverse effect on our operating
results and financial condition.

The determination of the amount of allowances and impairments
varies by investment type and is based upon our periodic
evaluation and assessment of known and inherent risks associated
with the respective asset class. Such evaluations and assessments
require significant judgment and are revised as conditions change
and new information becomes available. Additional impairments
may need to be taken or allowances provided for in the future,
and the ultimate loss may exceed our current loss estimates.

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.
During periods of market disruption, it may be difficult to value
certain securities if trading becomes less frequent and/or market
data becomes less observable. There may be certain asset classes
that were in active markets with significant observable data that
become illiquid due to the current financial environment. In
such cases, the valuation process may require more subjectivity
and management judgment. Rapidly changing market conditions
could materially impact the valuation of securities and the
period-to-period changes in value could vary significantly.

The elimination of the London Inter-Bank Offered
Rate (“LIBOR”) may affect the value of certain
investments and the profitability of certain borrowing
activity.

It is anticipated that LIBOR will be discontinued no later than
June 2023 and that one or more alternative rates will be used
instead. As a result, we anticipate a valuation risk around the
potential discontinuation event. Additionally, the elimination of
LIBOR or changes to other reference rates or any other changes
or reforms to the determination or supervision of reference rates
may adversely affect the amount of interest payable or interest
receivable on certain of our investments. These changes may
also impact the market liquidity and market value of these
investments. Any changes to LIBOR or any alternative rate, or
any further uncertainty in relation to the timing and manner of
implementation of such changes, could have an adverse effect on

CNO FINANCIAL GROUP, INC. - Form 10-K

the value of LIBOR-based securities, including those held in our
investment portfolio. It may also adversely affect our liabilities
as some of our liabilities reference LIBOR including our $250.0
million unsecured revolving credit agreement which matures on
October 13, 2022 (the “Revolving Credit Agreement”).

Insurance Risk

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 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 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. 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, 2020,
approximately $4.4 billion of our total insurance liabilities
could be surrendered by the policyholder without penalty. The

PART i
ITEM 1A Risk Factors

surrender charges that are imposed on our fixed rate annuities
typically decline during a penalty period, which ranges from
five to twelve years after the date the policy is issued. Surrender
charges are eliminated after the penalty period. Surrenders and
redemptions could require us to dispose of assets earlier than
we had planned, possibly at a loss. Moreover, surrenders and
redemptions require faster amortization of either the acquisition
costs or the commissions associated with the original sale of a
product, thus reducing our net income. We believe policyholders
are generally more likely to surrender their policies if they
believe the issuer is having financial difficulties, or if they are
able to reinvest the policy’s value at a higher rate of return in an
alternative insurance or investment product.

We face risk with respect to our reinsurance
agreements.

We transfer exposure to certain risks to others through
reinsurance arrangements. Under these arrangements, other
insurers assume a portion of our losses and expenses associated
with reported and unreported claims in exchange for a portion
of policy premiums. The availability, amount and cost of
reinsurance depend on general market conditions and may
vary significantly. As of December 31, 2020, our reinsurance
receivables and ceded life insurance inforce totaled $4.6 billion
and $3.0 billion, respectively. Our six largest reinsurers (which
are currently rated “A” or higher by A.M. Best) accounted for
94 percent of our ceded life insurance inforce and 96 percent
of our reinsurance receivables. Such reinsurance receivables also
include long-term care and annuity blocks of business that have
been ceded. We face credit risk with respect to reinsurance. When
we obtain reinsurance, we are still liable for those transferred
risks even if the reinsurer defaults on its obligations. The failure,
insolvency, inability or unwillingness of one or more of the
Company’s reinsurers to perform in accordance with the terms
of its reinsurance agreement could negatively impact our earnings
or financial position. In addition, it is possible that reinsurance
may not be available or affordable in the future, or may not be
adequate to protect us against losses.

Liquidity Risk

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

As of December 31, 2020, we had an aggregate principal amount of
indebtedness of $1,150.0 million (comprised of $500.0 million of
5.250% Senior Notes due 2025, $500.0 million of 5.250% Senior
Notes due 2029 (collectively, the “Notes”)) and $150.0 million of
5.125% Subordinated Debentures due 2060 (the “Debentures”).
Our indebtedness will require approximately $61 million in cash
to service in 2021 (based on the principal amounts outstanding
and applicable interest rates as of December 31, 2020). In
addition, the Company has entered into the Revolving Credit
Agreement. There were no amounts drawn under the Revolving
Credit Agreement at December 31, 2020. See the note to the
consolidated financial statements entitled “Notes Payable - Direct
Corporate Obligations” for more information.

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

If we fail to pay interest or principal on our other indebtedness,
including the Notes, we will be in default under the indentures
governing such indebtedness, which could also lead to a
default under agreements governing our existing and future
indebtedness, including under the Revolving Credit Agreement.
If the repayment of the related indebtedness were to be accelerated
after any applicable notice or grace periods, we likely may 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 and Debentures contain various
restrictive covenants and required financial ratios that
could 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, the Notes and the
Debentures to be due and payable.

Certain of the agreements governing our indebtedness contain a
number of restrictive covenants and require financial ratios that
impose operating and financial restrictions on us and may limit
our ability to engage in acts that may be in our long-term best
interest, including restrictions on our ability to: incur additional
indebtedness and guarantee indebtedness; pay dividends or make
other distributions or repurchase or redeem our capital stock;
prepay, redeem or repurchase subordinated debt; sell assets; incur
liens; enter into transactions with affiliates; and consolidate,
merge, sell or otherwise dispose of our assets.

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 26.4 percent at
December 31, 2020); (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 411 percent at December 31, 2020); 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 $3,298.1 million at December 31, 2020 compared to the
minimum requirement of $2,700.5 million).

These covenants place 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. In addition, an event of default under
the Revolving Credit Agreement would permit our lenders to
terminate commitments to extend further credit. See the note to
the consolidated financial statements entitled “Notes Payable -
Direct Corporate Obligations” 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 an insurer to pay dividends from statutory
earned surplus without regulatory approval if the amount of
the dividend, together with other dividends made within the
preceding 12-month period does not exceed the greater of (or in
some states, the lesser of): (i) statutory net gain from operations
of such insurer for the prior calendar year; or (ii) 10 percent of
such insurer’s surplus as regards to policyholders at the end of
the preceding calendar 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 2020, our insurance subsidiaries paid dividends
of $294.1 million to CDOC. CNO expects to receive regulatory
approval for future dividends from our insurance subsidiaries, but

PART i
ITEM 1A Risk Factors

there can be no assurance that such payments will be approved or
that the financial condition of our insurance subsidiaries will not
deteriorate, making future approvals less likely.

“Management’s Discussion and Analysis of Financial Condition
and Results of Operations-Liquidity of the Holding Companies”
for more information.

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 352 percent at December 31,
2020. CDOC also holds a surplus debenture from Colonial
Penn Life Insurance Company (“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.

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, Fitch, S&P 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

Taxation, Laws and Regulation

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.

As of December 31, 2020, we had approximately $1.6 billion
of federal tax NOLs resulting in deferred tax assets of
approximately $.3 billion (which expires in years 2023
through 2035). Section 382 of the Code imposes limitations
on a corporation’s ability to use its NOLs when it undergoes
a 50 percent “ownership change” over a three year period.
Although we underwent an ownership change in 2003 as the
result of our reorganization, the timing and manner in which
we will be able to utilize our NOLs is not currently limited by
Section 382.

We regularly monitor ownership changes (as calculated for
purposes of Section 382) based on available information and, as
of December 31, 2020, 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. CNO’s Board of Directors adopted a Section
382 Rights Agreement designed to protect shareholder value by
preserving the value of our NOLs. To further protect against
the possibility of triggering an ownership change under Section
382, CNO’s shareholders approved an amendment to CNO’s
certificate of incorporation designed to prevent certain transfers
of common stock which could limit our ability to use our NOLs.
See the note to the consolidated financial statements entitled
“Income Taxes” for more information about the Section 382
Rights Agreement and the amendment to CNO’s certificate of
incorporation.

If an ownership change were to occur for purposes of Section 382,
we would be required to calculate an annual limitation on the
use of our NOLs to offset future taxable income. The annual
restriction would be calculated based upon the value of CNO’s
equity at the time of such ownership change, multiplied by a
federal long-term tax exempt rate (.99 percent at December 31,
2020), 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.

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

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, 2020, we had net deferred tax assets of
$109.4 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,
2020 reflects the current Federal corporate income tax rate of
21 percent. Changes in tax laws, including changes regarding the
utilization of NOLs, could cause a writedown of our net deferred
tax assets, which may have an adverse effect on our results of
operations and financial condition.

Changes in tax laws could increase our tax costs and
reduce sales of our insurance and annuity products.

The insurance and annuity products we issue receive favorable
tax treatment under current U.S. federal income tax laws.
Changes in U.S. Federal income tax laws could reduce or
eliminate the tax advantages of certain of our products,
making these products less attractive to our customers. This
may lead to a reduction in sales which may adversely impact
our profitability. In addition, we benefit from certain tax items,
including but not limited to, dividends received deductions,
tax credits, tax-exempt bond interest and insurance reserve
deductions. From time to time, the U.S. Congress, as well
as state and local governments, consider legislative changes
that could reduce or eliminate the benefits associated with
these and other tax items. We continue to evaluate the impact
potential tax reform proposals may have on our future 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.

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

Our insurance business is subject to extensive regulation
and supervision in the jurisdictions in which we operate. See
“Business of CNO - Governmental Regulation.” Our insurance
subsidiaries are subject to state insurance laws that establish
supervisory agencies. The regulations issued by state insurance
agencies can be complex and subject to differing interpretations.
If a state insurance regulatory agency determines that one
of our insurance company subsidiaries is not in compliance
with applicable regulations, the subsidiary is subject to various
potential administrative remedies including, without limitation,
monetary penalties, restrictions on the subsidiary’s ability to do
business in that state and a return of a portion of policyholder
premiums. In addition, regulatory action or investigations could
cause us to suffer significant reputational harm, which could have
an adverse effect on our business, financial condition and results
of operations.

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

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

CNO FINANCIAL GROUP, INC. - Form 10-K

degrees of regulatory action depending upon the magnitude of
the deficiency. The 2020 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.

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.

“Business

as described

above under

of
Furthermore,
CNO-Governmental Regulation,” the SEC has adopted new
regulations relating to the standard of conduct applicable to broker-
dealers when making certain recommendations involving securities
to retail customers and requiring registered investment advisors
and broker-dealers to provide new disclosures to retail investors. In
addition, the NAIC and several states have proposed and/or enacted
laws and regulations related to required disclosures and/or standards
of conduct when providing advice to clients. These regulations and
similar regulatory initiatives could have an impact on Company
operations and the manner in which broker-dealers and investment
advisors distribute the Company’s products.

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

Insurance companies historically have been subject
to
substantial litigation. In addition to the traditional policy claims
associated with their businesses, insurance companies like ours
face class action suits and derivative suits from policyholders
and/or shareholders. We also face significant risks related
to regulatory investigations and proceedings. The litigation
and regulatory matters we are, have been, or may become,
subject to include matters related to the classification of our
exclusive agents as independent contractors, sales, marketing

PART i
ITEM 1A Risk Factors

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

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. 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.

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

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
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.

Proposals that have been made 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 became law. The Dodd-
Frank Act makes extensive changes to the laws regulating
financial services firms and requires various federal agencies to
adopt a broad range of new implementation rules and regulations,
including those surrounding the use of derivatives. Regulations
that have been implemented under the Dodd-Frank Act have
imposed additional requirements that may affect both the
Company and its derivatives counterparties, including in the areas
of reporting, recordkeeping, the mandatory exchange execution
and clearing of certain derivatives, position limits with respect to
certain derivatives, regulatory initial margin and variation margin
requirements, and limitations on the ability to close out certain
derivative transactions with certain counterparties upon the
bankruptcy of such counterparties. These and other regulations
under the Dodd-Frank Act could pose limitations and burdens
on the Company and its derivatives counterparties, and could
thus also result in increased costs to the Company in connection
with its derivatives transactions. Uncertainty remains regarding
the continued implementation of and potential adjustments to
the Dodd-Frank Act and it is uncertain whether changes to the
Dodd-Frank Act will result in a material effect on our business
operations.

State insurance regulators, federal regulators and the NAIC
continually reexamine existing laws and regulations and may
impose changes in the future. The passage of new legislation
or new interpretations of existing laws may impact our sales,
profitability or financial strength. The NAIC regularly reviews
and updates its U.S. statutory reserve and RBC requirements.

CNO FINANCIAL GROUP, INC. - Form 10-K

Changes to these requirements have resulted in an increase to the
amount of reserves and capital we are required to hold and may
adversely impact the ability of our insurance subsidiaries to pay
dividends to the holding company.

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.

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

General Business Risk

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 cybersecurity attacks
and failure of our service providers (such as investment custodians
and information technology and policyholder service providers)
to comply with our services agreements. The associates and
agents who conduct our business, including executive officers
and other members of management, sales managers, investment
professionals, product managers, sales agents and other associates,
do so in part by making decisions and choices that involve exposing
us to risk. These include decisions involving numerous business
activities such as setting underwriting guidelines, product design
and pricing, investment purchases and sales, reserve setting, claim
processing, policy administration and servicing, financial and tax
reporting and other activities, many of which are very complex.

We seek to monitor and control our exposure to risks arising
out of these activities through a risk control framework
encompassing a variety of reporting systems, internal controls,
management review processes and other mechanisms. However,

these processes and procedures may not effectively control all
known risks or effectively identify unforeseen risks. Management
of operational risks can fail for a number of reasons including
design failure, systems failure, cybersecurity 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 and
man-made disasters, including earthquakes, hurricanes, floods,
tornadoes, acts of terrorism and military actions, the impacts
of climate change and pandemics. For example, a natural or
man-made disaster or a pandemic, such as the COVID-19
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.

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

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

PART i
ITEM 1A Risk Factors

denial of service, viruses or other malicious activities. 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. We have
implemented, and we require our vendors to implement, a variety
of security measures to protect the confidentiality, availability, and
integrity of our information systems and data. However, failure
to maintain a reasonable and effective cybersecurity program,
or any compromise of the security, confidentiality, integrity,
or availability of our information systems and the sensitive,
proprietary, and confidential data on such systems could lead to
additional costs and liabilities, as well as damage our reputation
or deter people from purchasing our products. 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, integrity or availability of sensitive, confidential or
proprietary data residing on such systems, whether due to actions
by us, our vendors, 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 technical, legal and other expenses,
lead to a loss of customers, revenues and opportunities, or
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 or acquisition of our customer data,
we may also have obligations to notify customers and federal and
state government regulators 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.
All fifty states, as well as a growing number of regulatory bodies
have adopted consumer notification requirements in the event
of the actual or suspected 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.

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 addition, enhanced regulatory and other standards for the

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

oversight of vendors and other service providers could result in
higher costs and other potential exposures. 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.

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, Fitch, S&P
and Moody’s are “A-”, “A-”, “A-” and “A3”, respectively. For a
description of these ratings, see “Management’s Discussion
and Analysis of Consolidated Financial Condition and Results
of Operations - Liquidity and Capital Resources - Financial
Strength Ratings of our Insurance Subsidiaries”.

If our ratings are downgraded, we may experience declining sales
of certain of our insurance products, defections of our independent
and exclusive 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.

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. 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.
Furthermore, changes in federal law have narrowed the historical
separation between banks and insurance companies, enabling
traditional banking institutions to enter the insurance and

CNO FINANCIAL GROUP, INC. - Form 10-K

annuity markets and further increase competition. This increased
competition may harm our ability to maintain or improve our
profitability.

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 exclusive agents and sales managers and
through our wholly owned marketing organization and other
independent marketing organizations. 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.

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.

PART i
ITEM 1A Risk Factors

Changes in accounting standards may adversely
affect our reported results of operation and financial
condition.

Our consolidated financial statements are prepared in conformity
with GAAP. From time to time, we are required to adopt new
accounting standards issued by the Financial Accounting
Standards Board (the “FASB”). The required adoption of future
accounting standards may adversely affect our reported results of
operations and financial condition. In August 2018, the FASB

issued final guidance on targeted improvements to the accounting
for long-duration insurance contracts. The guidance will become
effective for us on January 1, 2023. As we progress through our
implementation, we will be able to better assess the impact to
our consolidated financial statements; however, we expect it will
significantly change how we account for many of our insurance
and annuity products and it could negatively impact our reported
results. In addition, the required adoption of new accounting
standards may result in significant costs associated with the
initial implementation and ongoing compliance.

ITEM 1B. Unresolved Staff Comments.

None.

ITEM 2. Properties.

Our headquarters and the administrative operations of our
Worksite Division 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 Consumer Division
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. Our WBD business is located in a 34,000 square

foot leased office in Orlando, Florida. This agreement runs until
2024 with options for early termination in 2022. We also lease
263 sales offices in various states totaling approximately 900,000
square feet. These leases generally are short-term in length, with
remaining lease terms expiring between 2021 and 2027.

Our direct to consumer products are primarily 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.

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.

ITEM 4. Mine Safety Disclosures.

Not applicable.

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

Executive Officers of the Registrant

Officer Name and Age(a) With CNO Since
Gary C. Bhojwani, 53

2016

Bruce K. Baude, 56

Michael B. Byers, 59

2012

2021

Karen J. DeToro, 49

2019

Yvonne K. Franzese, 62

2017

Scott L. Goldberg, 50

2004

Michael D. Heard, 55

2013

Eric R. Johnson, 60

1997

John R. Kline, 63

1990

Paul H. McDonough, 56

2019

Rocco F. Tarasi, 49

2017

Matthew J. Zimpfer, 53

1998

Positions with CNO, Principal Occupation and Business Experience(b)
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 was a member of the
board of management of Allianz SE and Chairman of Allianz of America, Allianz Life Insurance
Company, and Fireman’s Fund Insurance Company from 2012 to 2015. From 2007 to 2012, he
served as chief executive officer of Allianz Life Insurance Company of North America and was
president of Commercial Business, Fireman’s Fund Insurance Company from 2004 to 2007.
Since July 2012, chief operations and technology officer. From 2008 to 2012, Mr. Baude was chief
operating officer at Univita Health.
Since February 2021, co-president, Worksite Division. Prior to joining CNO, Byers was chairman
and chief executive officer of DirectPath from 2018 to February 2021 and executive chairman
from 2015 to 2018.
Since September 2019, chief actuary of CNO and since June 2020, chief risk officer 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 January 2020, president, Consumer Division. From September 2013 to January 2020, president
of Bankers Life. Mr. Goldberg has held various other positions since joining CNO in 2004.
Since February 2021, co-president, Worksite Division. From January 2020 to February 2021,
president, Worksite Division. From March 2017 to January 2020, 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 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-K

Part II

ITEM 5. Market for Registrant’s Common Equity,

Related Stockholder Matters and Issuer
Purchases of Equity Securities.

Market Information and Dividends

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

As of February 5, 2021, there were approximately 23,500 holders
of the outstanding shares of common stock, including individual
participants in securities position listings.

Performance Graph

The performance graph below compares CNO’s cumulative
total shareholder return on its common stock for the period
from December 31, 2015 through December 31, 2020 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

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.

December 31, 2015 in each of CNO common stock, the stocks
included in the S&P 500 Index, the stocks included in the S&P
Life and Health Insurance Index and the stocks included in the
S&P MidCap 400 Index and that all dividends were reinvested.
The stock performance shown in this graph represents past
performance and should not be considered an indication of
future performance of CNO’s common stock.

CNO FINANCIAL GROUP, INC. - Form 10-KCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among CNO Financial Group, Inc., the S&P 500 Index, the S&P 500 Life & Health Insurance Index, and the S&P 400 Mid Cap Index

$250

$200

$150

$100

$50

$-
12/15

12/16

12/17

12/18

12/19

12/20

CNO Financial Group, Inc.

S&P 500

S&P Life & Health Insurance

S&P MidCap 400

$100 invested on 12/31/15 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

12/15
100.00 $
100.00
100.00
100.00

12/16
102.06 $
111.96
124.86
120.74

12/17
133.72 $
136.40
145.37
140.35

12/18
82.20 $
130.42
115.17
124.80

12/19
102.83
171.49
141.88
157.49

12/20
129.55
203.04
128.43
179.00

Issuer Purchases of Equity Securities

Period (in 2020)
October 1 through October 31
November 1 through November 30(b)
December 1 through December 31

tOtaL

total number
of shares
(or units)

1,079 $

889,621
3,545,771
4,436,471

average price
paid per share
(or unit)
18.18
22.06
22.74
22.60

total number of shares
(or units) purchased as
part of publicly announced
plans or programs
—
878,476
3,544,994
4,423,470

Maximum number (or approximate dollar
value) of shares (or units) that may yet be
purchased under the plans or programs(a)
(dollars in millions)
369.3
349.9
269.3
269.3

(a)

In May 2011, the Company announced a securities repurchase program. Since that date, the Company’s Board of Directors has authorized additional repurchases
from time to time, most recently in November 2019 when it authorized the repurchase of an additional $500.0 million of the Company’s outstanding securities.

(b) This includes 10,000 shares of common stock purchased at an average of $20.85 per share by Paul H. McDonough, an affiliated purchaser. This purchase was made

to transfer shares between accounts of Mr. McDonough who had previously effected a sale of an equal number of shares.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesEquity Compensation Plan Information

The following table summarizes information, as of December 31, 2020, relating to our common stock that may be issued under the CNO
Financial Group, Inc. Amended and Restated Long-Term Incentive Plan.

Part II
ITEM 6 Selected Consolidated Financial Data

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

tOtaL

Number of securities to
be issued upon exercise
of outstanding options
and rights
4,544,204 $

—

4,544,204 $

Weighted-average
exercise price of
outstanding options
and rights
19.01
—
19.01

Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in first column)
8,789,098
—
8,789,098

ITEM 6. Selected Consolidated Financial Data.

Reserved.

(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-KITEM 7. Management’s Discussion and Analysis of

Consolidated Financial Condition and Results
of Operations.

In this section, we review the consolidated financial condition of CNO and its consolidated results of operations for the years ended
December 31, 2020, 2019 and 2018 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.

Overview

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

Prior to 2020, the Company managed its business through the
following operating segments: Bankers Life, Washington National
and Colonial Penn, which were defined on the basis of product
distribution; long-term care in run-off; and corporate operations,
comprised of holding company activities and certain noninsurance
company businesses.

Our insurance product line segments (including annuity, health
and life) include marketing, underwriting and administration
of the policies our insurance subsidiaries sell. Under our new
operating model, the business written in each of the three product
categories through all of our insurance subsidiaries is aggregated
allowing management and investors to assess the performance
of each product category. When analyzing profitability of these
segments, we use insurance product margin as the measure of
profitability, which is: (i) insurance policy income; and (ii) net
investment income allocated to the insurance product lines; less
(i) insurance policy benefits and interest credited to policyholders;
and (ii) amortization, non-deferred commissions and advertising
expense. Net investment income is allocated to the product lines
using the book yield of investments backing the block of business,
which is applied to the average insurance liabilities, net of insurance
intangibles, for the block in each period.

CNO FINANCIAL GROUP, INC. - Form 10-K

Income from insurance products is the sum of the insurance
margins of the annuity, health and life product lines, less expenses
allocated to the insurance lines. It excludes the income from our
fee income business, investment income not allocated to product
lines, net expenses not allocated to product lines (primarily holding
company expenses) and income taxes. Management believes
insurance product margin and income from insurance products
help provide a better understanding of the business and a more
meaningful analysis of the results of our insurance product lines.

Under our new structure, we market our insurance products
through the Consumer and Worksite Divisions that reflect the
customers served by the Company.

The Consumer Division serves 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 focuses 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 are bringing a sharper
focus to this high-growth business while further capitalizing on
the strength of our recent acquisitions of WBD and DirectPath.
Sales in the Worksite Division have been particularly adversely
impacted by the COVID-19 pandemic given the challenges of
interacting with customers at their place of employment.

The Consumer and Worksite Divisions are primarily focused on
marketing insurance products, several types of which are sold in
both divisions and underwritten in the same manner. Sales of
group underwritten policies are currently not significant, but are
expected to increase within the Worksite Division.

We have also centralized certain functional areas previously housed
in the three business segments, including marketing, business unit
finance, sales training and support, and agent recruiting, among
others. 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 Operationsrepresents net investment income less: (i) equity returns credited
to policyholder account balances; (ii) the investment income
allocated to our product lines; (iii) interest expense on notes payable
and investment borrowings; and (iv) certain expenses related
to benefit plans that are offset by special-purpose investment
income. Investment income not allocated to product lines includes
investment income on investments in excess of average insurance
liabilities, investments held by our holding companies, the spread we
earn from the FHLB investment borrowing program and variable
components of investment income (including call and prepayment
income, adjustments to returns on structured securities due to cash

flow changes, income (loss) from Company-owned life insurance
(“COLI”) and alternative investment income not allocated to
product lines), net of interest expense on corporate debt.

Our fee and other revenue segment includes the earnings generated
from sales of third-party insurance products, services provided by
WBD (our wholly owned on-line benefit administration firm)
and the operations of our broker-dealer and registered investment
advisor.

Expenses not allocated to product lines include the expenses of our
corporate operations, excluding interest expense on debt.

The following summarizes our earnings for the three years ending December 31, 2020 (dollars in millions, except per share data):

Insurance product margin

Annuity margin
Health margin
Life margin

Total insurance product margin
Allocated expenses
Income from insurance products
Ceded long-term care block
Fee income
Investment income not allocated to product lines
Expenses not allocated to product lines
Operating earnings before taxes
Income tax expense on operating income
Net operating income(a)
Net realized investment gains (losses) from sales, impairments and change in allowance for credit losses
(net of related amortization)
Net change in market value of investments recognized in earnings
Fair Value Changes Related to Agent Deferred Compensation Plan
Fair value changes in embedded derivative liabilities (net of related amortization)
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 Non-Operating Income (Loss)

NEt INCOME (LOSS)

2020

2019

2018

296.7
459.8
165.0
921.5
(557.7)
363.8
—
16.7
167.1
(83.8)
463.8
(101.5)
362.3

(31.1)
(2.7)
(16.3)
(79.1)
—
—
9.7
(119.5)

(25.0)
(34.0)
(60.5)
301.8

2.53
(.42)
2.11

230.1 $
362.9
196.1
789.1
(543.0)
246.1
—
23.5
152.1
(53.4)
368.3
(78.3)
290.0

2.1
25.5
(20.4)
(81.4)
—
(7.3)
(12.6)
(94.1)

(19.8)
(193.7)
119.4
409.4 $

1.85 $
.76
2.61 $

213.6
351.1
204.4
769.1
(521.2)
247.9
19.5
10.4
183.7
(80.3)
381.2
(78.1)
303.1

37.9
(48.8)
11.9
55.5
(704.2)
—
1.7
(646.0)

(135.7)
107.8
(618.1)
(315.0)

1.83
(3.73)
(1.90)

(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, impairments and change in allowance
for credit losses, 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 (“net operating income”). 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, net operating income is not a
measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities, as measures of liquidity, or as
an alternative to net income as measures of our operating performance or any other measures of performance derived in accordance with GAAP. In addition, net operating
income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Net operating income has limitations as an
analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under GAAP. Our definition and
calculation of net operating income are not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-K
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 related to fixed index annuity products. 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. 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.”

The 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, 2020 (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)
104.6
—
—
—
104.6

Significant
observable inputs
(Level 2)
24,684.3 $
149.7
5.8
16.0
24,855.8 $

.4%

98.7 %

Significant
unobservable inputs
(Level 3)

— $

157.5
—
55.0

212.5 $
.9%

total fair value
24,788.9
307.2
5.8
71.0
25,172.9

100.0%

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

Effective January 1, 2020, when an available for sale fixed
maturity security’s fair value is below the amortized cost, the
security is considered impaired. If a portion of the decline is due to
credit-related factors, we separate the credit loss component of the
impairment from the amount related to all other factors. The credit
loss component is recorded as an allowance and reported in net
realized investment gains (losses) (limited to the difference between
estimated fair value and amortized cost). The impairment related
to all other factors (non-credit factors) is reported in accumulated
other comprehensive income along with unrealized gains related to
fixed maturity investments, available for sale, net of tax and related
adjustments. The allowance is adjusted for any additional credit
losses and subsequent recoveries. When recognizing an allowance
associated with a credit loss, the cost basis is not adjusted. When
we determine a security is uncollectable, the remaining amortized
cost will be written off.

In determining the credit loss component, we discount the
estimated cash flows on a security by security basis. We consider
the impact of macroeconomic conditions on inputs used to measure
the amount of credit loss. 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 by considering asset type, rating, time
to maturity, and applying an expected loss rate.

If we intend to sell an impaired fixed maturity security, available
for sale, or identify an impaired fixed maturity security, available
for sale, for which is it more likely than not we will be required
to sell before anticipated recovery, the difference between the fair
value and the amortized cost is included in net realized investment
gains (losses) and the fair value becomes the new amortized cost.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe new cost basis is not adjusted for any subsequent recoveries
in fair value.

cash flows over the expected remaining life of the security, except
when the security was in default or considered nonperforming.

Prior to January 1, 2020, we regularly evaluated all of our investments
with unrealized losses for possible impairment. Our assessment of
whether unrealized losses were “other than temporary” required
significant judgment. Factors considered included: (i) the extent
to which fair value was less than the cost basis; (ii) the length
of time that the fair value had been less than cost; (iii) whether
the unrealized loss was 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 was investment-grade and/or had
been downgraded since its purchase; (vi) whether the issuer was
current on all payments in accordance with the contractual terms
of the investment and was expected to meet all of its obligations
under the terms of the investment; (vii) whether we intend to sell
the investment or it was more likely than not that circumstances
would 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 would 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.

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

We estimated 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 was 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
varied depending on the type of security.

For most structured securities, cash flow estimates were
based on bond-specific facts and circumstances that included
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 were 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 became the security’s new
cost basis. We accreted the new cost basis to the estimated future

The remaining noncredit impairment, which was recorded in
accumulated other comprehensive income, was 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
represented 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 was
relatively greater as such securities were generally unsecured and
often subordinated to other indebtedness of the issuer. Also, issuers
of below-investment grade corporate debt securities frequently had
higher levels of debt relative to investment-grade issuers, hence, all
other things being equal, were generally more sensitive to adverse
economic conditions. The Company attempted 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.

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.

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, 2020 as follows:
10 percent in 2021, 9 percent in 2022, 8 percent in 2023, 7 percent
in 2024 and 6 percent in 2025.

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

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-Kthan 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 $(2.4)
million, $.6 million and $(.4) million during the years ended
December 31, 2020, 2019 and 2018, 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 $665.7 million
at December 31, 2020 (including $339.5 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

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):
Level new money rates for investment earnings rate

adjustments on accumulated other comprehensive income at
December 31, 2019 was a decrease of $343.3 million (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).

At December 31, 2020, the balance of insurance acquisition costs
was $1.3 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 table presented below summarizes our estimates of cumulative
adjustments to insurance acquisition costs or premium deficiency
reserves (when the deficiency exceeds the balance of insurance
acquisition costs) resulting from hypothetical revisions to certain
assumptions. Although such hypothetical revisions are not
currently required or anticipated, we believe they could occur
based on past variances in experience and our expectations of the
ranges of future experience that could reasonably occur. We have
assumed that revisions to assumptions resulting in the adjustments
summarized below would occur equally among policy types, ages
and durations within each product classification. Any actual
adjustment would be dependent on the specific policies affected
and, therefore, may differ from the estimates summarized below.
In addition, the impact of actual adjustments would reflect the
net effect of all changes in assumptions during the period.

Estimated adjustment to income before income
taxes based on revisions to certain assumptions
(dollars in millions)

(24)
25
(10)
10
(7)
7
(14)
16

(46)
53
(8)
8
(58)
41

(13)

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

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe following hypothetical scenarios illustrate the sensitivity of changes in interest rates to our products based on our 2020 comprehensive
actuarial review (including the impacts of the changes on insurance acquisition costs, premium deficiency reserves and the valuation of
the embedded derivatives related to our fixed index products):

• The first hypothetical scenario assumes immediate and
permanent reductions to current interest rate spreads on
interest-sensitive products. We estimate that a pre-tax charge
of approximately $25 million would occur if we increased
credited rates related to our interest-sensitive life and annuity
products immediately and permanently by 10 basis points due
to an increase in the rate credited to account values (or an
equivalent increase to the amount allocated to the cost of
options for our fixed index annuity products) with no change
to assumed earned rates.

• The second scenario assumes that new money rates decrease
to an overall average of 3.00 percent immediately and remain
at that level indefinitely on non-interest sensitive products. We
estimate that this scenario would not result in a pre-tax charge
but would reduce future margins on non-interest sensitive
products by approximately $205 million.

• The third scenario assumes that new money rates decrease to
an overall average of 2.00 percent immediately and remain at
that level indefinitely on non-interest sensitive products. We
estimate that this scenario would result in a pre-tax charge
of approximately $2 million on our life contingent payout
annuity block and reduce the future margins on non-interest
sensitive products by approximately $452 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 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.

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

Annuity:

Fixed index annuities(1)
Fixed interest annuities(1)
Other annuities(2)

Health:

Supplemental health(3)
Medicare supplement(3)
Long-term care(3)

Life:

Traditional life(3)
Interest-sensitive life (3)

Years ended December 31,

2020

85.1 %
91.5 %
94.1 %

88.7 %
83.4 %
91.5 %

85.7 %
88.7 %

2019

2018

82.5 %
90.5 %
97.0 %

88.7 %
84.5 %
90.7 %

85.3 %
86.2 %

83.1 %
90.6 %
96.3 %

89.1 %
85.2 %
90.8 %

85.3 %
86.9 %

(1) Based on the total amount of death benefits, surrenders values and partial withdrawals divided by the average account value.
(2) Based on total reserves released at death divided by average account value.
(3) Based on number of inforce policies.

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

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

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

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe following summarizes the components of the reserves related to our long-term care business:

(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

2020

2019

3,935.2
1,351.1
169.5

219.3
5,675.1
3,074.0
2,601.1

3,876.9
1,461.7
75.5

217.9
5,632.0
3,087.6
2,544.4

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 2019 claim reserve redundancy for long-term
care claim reserves, as measured at December 31, 2020, was
approximately $56 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). 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.

We 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, tax planning strategies and the
COVID-19 pandemic. Our estimates of future taxable income
are based on evidence we consider to be objectively verifiable.
At December 31, 2020, our projection of future taxable income
for purposes of determining the valuation allowance was based
on our estimates of such future taxable income through the date
our NOLs expire. Such estimates are subject to the risks and
uncertainties associated with the COVID-19 pandemic and the
extent to which actual impacts differ from the assumptions used
in our deferred tax valuation model. Based on our assessment,
we have concluded that it is more likely than not that all our
deferred tax assets of $109.4 million will be realized through
future taxable earnings.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsRecovery of our deferred tax asset is dependent on achieving
the level of future taxable income projected in our deferred tax
valuation model and failure to do so could result in an increase
in the valuation allowance in a future period. Any future
increase in the valuation allowance may result in additional
income tax expense and reduce shareholders’ equity, and such
an increase could have a significant impact upon our earnings
in the future.

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

We have $1.6 billion of federal NOLs as of December 31, 2020, as summarized below (dollars in millions):

Net operating loss
carryforwards
1,028.7
85.2
149.9
10.8
80.3
213.2
.3
.2
44.4
.6
.9
.8
1,615.3

interest-sensitive life products are impacted by our assumptions
related to changes of certain NGEs that we are allowed to
make under the terms of the policy, such as cost of insurance
charges, expense loads, credited interest rates and policyholder
bonuses. Therefore, our reserves and liabilities are necessarily
based on numerous estimates and assumptions as well as
historical experience. Establishing reserves is an uncertain
process, and it is possible that actual claims will materially
exceed our reserves and have a material adverse effect on our
results of operations and financial condition. Our financial
results depend significantly upon the extent to which our actual
claims experience is consistent with the assumptions we used
in determining our reserves and pricing our products. If our
assumptions with respect to future claims are incorrect, and our
reserves are insufficient to cover our actual losses and expenses,
we would be required to increase our liabilities, which would
negatively affect our operating results. Liabilities for insurance
products are calculated using management’s best judgments,
based on our past experience and standard actuarial tables, of
mortality, morbidity, lapse rates, investment experience and
expense levels.

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

tOtaL FEDEraL NOLs

Our life NOLs were fully utilized in 2020. Our non-life NOLs
can be used to offset 35 percent of life insurance company
taxable income and 100 percent of non-life company taxable
income until all non-life NOLs are utilized or expire.

Liabilities for Insurance Products

At December 31, 2020, the total balance of our liabilities
for insurance products was $25.1 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

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

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

Insurance product margin Annuity:

Insurance policy income
Net investment income
Insurance policy benefits
Interest credited
Amortization and non-deferred commissions

Annuity margin

Health:

Insurance policy income
Net investment income
Insurance policy benefits
Amortization and non-deferred commissions

Health margin

Life:

Insurance policy income
Net investment income
Insurance policy benefits
Interest credited
Amortization and non-deferred commissions
Advertising expense

Life margin

Total insurance product margin
Allocated expenses:

Branch office expenses
Other allocated expenses

Income from insurance products

Ceded long-term care block
Fee income
Investment income not allocated to product lines
Expenses not allocated to product lines

Operating earnings before taxes

Income tax expense on operating income

NEt OPEratING INCOME

2020

2019

2018

18.8
465.1
93.7
(170.6)
(110.3)
296.7

1,699.5
282.3
(1,329.7)
(192.3)
459.8

793.0
139.6
(570.0)
(44.5)
(87.1)
(66.0)
165.0
921.5

(65.0)
(492.7)
363.8
—
16.7
167.1
(83.8)
463.8
(101.5)
362.3

21.1
464.4
(12.8)
(166.9)
(75.7)
230.1

1,701.6
279.9
(1,424.9)
(193.7)
362.9

758.1
138.3
(513.6)
(41.9)
(82.5)
(62.3)
196.1
789.1

(75.8)
(467.2)
246.1
—
23.5
152.1
(53.4)
368.3
(78.3)
290.0

19.9
456.4
(37.1)
(156.5)
(69.1)
213.6

1,699.6
271.8
(1,434.6)
(185.7)
351.1

740.9
135.4
(497.2)
(40.5)
(77.3)
(56.9)
204.4
769.1

(75.3)
(445.9)
247.9
19.5
10.4
183.7
(80.3)
381.2
(78.1)
303.1

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 view
our operations by segments, which consist of insurance product
lines. These products are distributed by our two divisions. The
Consumer Division serves individual consumers, engaging with
them on the phone, online, face-to-face with agents, or through
a combination of sales channels. The Worksite Division focuses
on worksite and group sales for businesses, associations, and
other membership groups, interacting with customers at their
place of employment.

Insurance product margin
is management’s measure of
the profitability of its annuity, health and life product
lines’ performance and consists of premiums plus allocated
investment income less insurance policy benefits, interest
credited, commissions, advertising expense and amortization of
acquisition costs. Income from insurance products is the sum of

the insurance margins of the annuity, health and life product
lines, less expenses allocated to the insurance lines. It excludes
the income from our fee income business, investment income not
allocated to product lines, net expenses not allocated to product
lines (primarily holding company expenses) and income taxes.
Management believes insurance product margin and income
from insurance products help provide a better understanding of
the business and a more meaningful analysis of the results of our
insurance product lines.

Investment income is allocated to the product lines using the
book yield of investments backing the block of business, which
is applied to the average insurance liabilities, net of insurance
intangibles, for the block in each period. Investment income
not allocated to product lines represents net investment income
less: (i) equity returns credited to policyholder account balances;
(ii) the investment income allocated to our product lines; (iii)
interest expense on notes payable and investment borrowings;
and (iv) certain expenses related to benefit plans that are offset

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationsby special-purpose investment income. Investment income
not allocated to product lines includes investment income on
investments in excess of average insurance liabilities, investments
held by our holding companies, the spread we earn from the
FHLB investment borrowing program and variable components
of investment income (including call and prepayment income,
adjustments to returns on structured securities due to cash flow
changes, income (loss) from COLI and alternative investment
income not allocated to product lines), net of interest expense
on corporate debt.

Management believes that an analysis of Net income applicable to
common stock before: (i) loss related to reinsurance transaction,
including impact of taxes; (ii) net realized investment gains
(losses) from sales, impairments and change in allowance for
credit losses, 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, net of
taxes; (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,
net of taxes (“Net operating income,” a non-GAAP financial
measure) is important to evaluate the financial performance of
the company, and is a key measure commonly used in the life
insurance industry. Management uses this measure to evaluate
performance because the items excluded from net operating
income can be affected by events that are unrelated to the
company’s underlying fundamentals.

in Actuarial Assumptions: We update

Changes
the
assumptions and experience underlying the expected gross
margins for policies accounted for as investment contracts
annually in the fourth quarter of each year. In addition, we also

review and update our assumptions on a more frequent basis to
the extent current conditions or circumstances warrant changes
that could be significant to our operating results. The impacts
of these unlocking exercises have had a significant impact on
our earnings.

In the second quarter of 2020, our expectation regarding
future new money interest rates changed and we performed
an actuarial unlocking exercise to reflect our assumption that
average new money rates would remain flat at 4 percent for the
long-term. This change and the related impacts to persistency
assumptions had a $45.6 million unfavorable impact on pre-tax
earnings. As part of the actuarial unlocking exercise, we also
changed our assumptions related to the future option costs we
incur in providing benefits on fixed index annuities which had
a favorable impact on pre-tax earnings of $91.5 million. These
future option costs represent the estimated cost we will incur 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.
When interest rates decrease, we are permitted (subject to
policy minimums) to decrease this benefit, lowering the option
costs. The magnitude of the offsetting impacts of the change
in new money rate and the change in future option costs had
significantly different impacts on our results in 2020. These
results are consistent with the different accounting requirements
for insurance intangibles and the embedded derivatives related to
the future option budgets for our fixed index annuity products.

The actuarial unlocking exercise completed in the second quarter
of 2020 did not replace our comprehensive annual review of all
assumptions for our insurance products, which we completed
in the fourth quarter of 2020. In the fourth quarter of 2020,
we updated various assumptions including, but not limited
to, earned rates and persistency which favorably impacted our
annuity margins by $16.1 million and unfavorably impacted
our life margin by $4.3 million.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe following tables summarize the impacts of our unlocking exercises in the second and fourth quarters of 2020 and the annual unlocking
exercises in 2019 and 2018 (dollars in millions):

Line of business
2020

Fixed index annuities:

Second quarter unlocking:

Impact of change in new money rate assumptions
Impact of change in future option costs

Total second quarter unlocking impacts

Fourth quarter annual unlocking impacts

Total unlocking impacts for fixed index annuities

Fixed interest annuities:

Second quarter unlocking:

Impact of change in new money rate assumptions

Fourth quarter annual unlocking impacts

Total unlocking impacts for fixed interest annuities

Interest-sensitive life:

Second quarter unlocking:

Impact of change in new money rate assumptions

Fourth quarter annual unlocking impacts

Total unlocking impacts for interest-sensitive life

Favorable (unfavorable) impact on pre-tax operating income

2019

Fixed index annuities
Fixed interest annuities
Interest-sensitive life
Favorable (unfavorable) impact on pre-tax operating income

2018

Fixed index annuities
Fixed interest annuities
Interest-sensitive life
Favorable (unfavorable) impact on pre-tax operating income

Impact of COVID-19 on Insurance Product Margin:
COVID-19 had a significant impact on our insurance product
margin in 2020. Our life margin reflected approximately $38
million of adverse mortality related to increased deaths caused by
COVID-19. Our health margin reflected a favorable COVID-19
impact of approximately $97 million driven by the deferral of heath
care. The annuity margin reflected an unfavorable net COVID-19
impact of approximately $4 million, primarily reflecting higher
persistency.

Summary of Operating Results: Net operating income was
$362.3 million in 2020, compared to $290.0 million in 2019 and
$303.1 million in 2018.

The fee income segment is summarized below (dollars in millions):

Fee income
Distribution and commission expenses
TOTAL

Insurance policy
benefits

Amortization of
insurance intangibles

Total

(5.0)
104.8
99.8
24.5
124.3

—
—
—

(7.4)
(1.8)
(9.2)
115.1

11.4
—
(11.4)
—

6.4
—
(1.4)
5.0

(25.6)
(13.3)
(38.9)
(7.7)
(46.6)

(9.4)
(.7)
(10.1)

1.8
(2.5)
(.7)
(57.4)

(5.5)
(6.2)
1.7
(10.0)

(13.3)
3.8
3.6
(5.9)

(30.6)
91.5
60.9
16.8
77.7

(9.4)
(.7)
(10.1)

(5.6)
(4.3)
(9.9)
57.7

5.9
(6.2)
(9.7)
(10.0)

(6.9)
3.8
2.2
(.9)

Insurance product margin for 2020, was significantly impacted
by: (i) changes in our actuarial assumptions as further described
above under the caption “Changes in Actuarial Assumptions”;
and (ii) pandemic-related impacts including lower health claims
reflecting the deferral of health care, net of higher mortality
claims, as further described above under the caption “Impact of
COVID-19 on Insurance Product Margin”.

Allocated expenses were higher in 2020 and 2019 primarily due to
investing in growth initiatives, higher costs associated with various
compliance requirements and managing cybersecurity.

2020
106.0
89.3
16.7

2019
88.7 $
65.2
23.5 $

2018
52.0
41.6
10.4

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe higher fee income in 2020 and 2019, relative to 2018,
primarily reflects changes in assumptions used to estimate revenues
on the sales of third-party products, net of related distribution
expenses. Fee income in 2020 also reflects additional expenses of
$13.1 million related to an initiative to sell third-party Medicare
Advantage policies through direct-to-consumer channels.

Investment income not allocated to product lines generally
fluctuates with variable investment income including income (loss)
on alternative investments and prepayment and call income.

Expenses not allocated to product lines were higher in 2020, due
to a $23.5 million increase (recognized in the second quarter of

2020) in our liability for claims and interest pursuant to the Global
Resolution Agreement as the third-party auditor has provided
information that we have processed and verified allowing us to
more accurately estimate the ultimate liability pursuant to the
agreement. See the note to the consolidated financial statements
entitled “Litigation and Other Legal Proceedings - Regulatory
Examinations and Fines” for further information about the
Global Resolution Agreement. In addition, expenses not allocated
to product lines in 2020 included a $3.7 million charge related
to asset impairments. Expenses not allocated to product lines in
2019 included a $20 million expense reduction related to the net
favorable impact from legal and regulatory matters.

The following summarizes total allocated and unallocated expenses adjusted for the significant items summarized above (dollars in millions):

Expenses allocated to product lines
Expenses not allocated to product lines

Total

Increase to liability for the Global Resolution Agreement
Charge related to asset impairments
Net favorable impact from legal and regulatory matters

ADJUSTED TOTAL

Margin from Annuity Products (dollars in millions):

Annuity margin:
Fixed index annuities

Insurance policy income
Net investment income
Insurance policy benefits
Interest credited
Amortization and non-deferred commissions

Margin from fixed index annuities

Average net insurance liabilities

Margin/average net insurance liabilities

Fixed interest annuities

Insurance policy income
Net investment income
Insurance policy benefits
Interest credited
Amortization and non-deferred commissions

Margin from fixed interest annuities

Average net insurance liabilities

Margin/average net insurance liabilities

Other annuities

Insurance policy income
Net investment income
Insurance policy benefits
Interest credited
Amortization and non-deferred commissions

Margin from other annuities
Average net insurance liabilities

Margin/average net insurance liabilities

Total annuity margin
Average net insurance liabilities
Margin/average net insurance liabilities

$
$

2020
557.7
83.8
641.5
(23.5)
(3.7)
—
614.3

2019
543.0
53.4
596.4
—
—
20.0
616.4

2018
521.2
80.3
601.5
—
—
—
601.5

2020

2019

2018

11.3
332.1
108.8
(110.1)
(91.3)
250.8
7,123.4

3.52%

.9
105.6
(.6)
(57.4)
(18.7)
29.8
2,069.1

1.44%

6.6
27.4
(14.5)
(3.1)
(.3)
16.1
531.7

3.03%

296.7
9,724.2

3.05%

$
$

11.6
310.6
14.2
(99.8)
(57.2)
179.4
6,480.3

2.77%

1.5
123.2
(.4)
(63.3)
(18.4)
42.6
2,305.7

1.85%

8.0
30.6
(26.6)
(3.8)
(.1)
8.1
571.2

1.42%

230.1
9,357.2

2.46%

$
$

11.0
284.0
(10.4)
(81.2)
(58.1)
145.3
5,731.2

2.54%

2.2
140.1
(1.3)
(71.4)
(10.4)
59.2
2,623.4

2.26%

6.7
32.3
(25.4)
(3.9)
(.6)
9.1
591.7

1.54%

213.6
8,946.3

2.39%

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KMargin from fixed index annuities was $250.8 million in 2020,
compared to $179.4 million in 2019, and $145.3 million in 2018.
The increase in margin in 2020 is primarily due to: (i) the favorable
impact of actuarial assumption changes previously discussed; and
(ii) growth in the block, net of (iii) decreases in margin due to
lower yields on investments. Average net insurance liabilities (total
insurance liabilities less: (i) amounts related to reinsured business;
(ii) deferred acquisition costs; (iii) present value of future profits;
and (iv) the value of unexpired options credited to insurance
liabilities) were $7,123.4 million, $6,480.3 million and $5,731.2
million in 2020, 2019 and 2018, respectively, driven by deposits
and reinvested returns in excess of withdrawals. The increase in
net insurance liabilities results in higher net investment income
allocated, however, the earned yield was 4.66 percent in 2020,
down from 4.79 percent in 2019, and 4.96 percent 2018, reflecting
lower market yields and resulting in spread compression. In 2020,
we experienced higher persistency in the fixed index annuity
block. We believe such higher persistency was indirectly related to
COVID-19 as policyholders continue to hold on to their current
products due to lower yields on competing products and avoiding
meeting with agents to discuss alternative products.

Net investment income and interest credited exclude the change in
market values of the underlying options supporting the fixed index
annuity products and corresponding offsetting amount credited to

Margin from Health Products (dollars in millions):

policyholder account balances. Such amounts were $32.3 million,
$135.1 million and $(39.7) million in 2020, 2019 and 2018,
respectively.

Margin from fixed interest annuities was $29.8 million in 2020,
compared to $42.6 million in 2019, and $59.2 million in 2018.
The decrease in margins in 2020 and 2019 is primarily due to:
(i) the fluctuations resulting from actuarial assumption changes
previously discussed; (ii) lower margins due to lower yields on
investments; and (iii) a reduction in the size of the block. Average
net insurance liabilities were $2,069.1 million, $2,305.7 million
and $2,623.4 million in 2020, 2019 and 2018, respectively, driven
by withdrawals in excess of deposits and reinvested returns. The
decrease in net insurance liabilities results in lower net investment
income allocated. The earned yield was 5.10 percent in 2020, down
from 5.34 percent in both 2019 and 2018, reflecting lower market
yields.

Margin from other annuities in 2020 reflects favorable mortality
compared to the prior years. We experienced higher than usual
annuitant mortality related to contracts with life contingencies
which resulted in a decrease in insurance liabilities and insurance
policy benefits of $9.8 million in 2020.

2020

2019

2018

679.4
140.9
(520.9)
(112.7)
186.7

27%

754.7
4.9
(505.0)
(66.3)
188.3

25%

265.4
136.5
(303.8)
(13.3)
84.8

32%

459.8

27%

660.4
138.7
(507.1)
(111.3)
180.7

27%

773.0
4.4
(576.0)
(68.9)
132.5

17%

268.2
136.8
(341.8)
(13.5)
49.7

19%

362.9

21%

641.2
138.5
(497.3)
(98.1)
184.3

29%

787.0
4.0
(588.3)
(71.8)
130.9

17%

271.4
129.3
(349.0)
(15.8)
35.9

13%

351.1

21%

Health margin:
Supplemental health

Insurance policy income
Net investment income
Insurance policy benefits
Amortization and non-deferred commissions

Margin from supplemental health
Margin/insurance policy income

Medicare supplement

Insurance policy income
Net investment income
Insurance policy benefits
Amortization and non-deferred commissions

Margin from Medicare supplement
Margin/insurance policy income

Long-term care margin

Insurance policy income
Net investment income
Insurance policy benefits
Amortization and non-deferred commissions

Margin from long-term care
Margin/insurance policy income

Total health margin
Margin/insurance policy income

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsMargin from supplemental health business was $186.7 million
in 2020, compared to $180.7 million in 2019, and $184.3 million
in 2018. The margin as a percentage of insurance policy income
was 27% in 2020, compared to 27% in 2019 and 29% in 2018.
Insurance policy benefits in 2020 reflected better claims experience
than expected which is attributable to policyholders deferring
health care during the pandemic which is expected to normalize
in future periods. This favorable impact was offset by higher than
expected persistency which resulted in a lower release of reserves.
Accordingly, we estimate that the supplemental health margin
in 2020 was favorably impacted by approximately $11 million
primarily driven by these items relative to our expectations and
previous experience prior to COVID-19. Insurance policy income
has increased due to new sales in recent periods.

Margin from Medicare supplement business was $188.3 million
in 2020, compared to $132.5 million in 2019, and $130.9 million in
2018. The increase in margin on the Medicare supplement business
in 2020 reflects favorable claim experience. Such favorable claim
experience in 2020 is attributable to policyholders deferring health
care during the pandemic which is expected to normalize and may
lead to higher claim costs in future periods. Based on actual claims
incurred and persistency relative to our expectations and previous
experience prior to COVID-19, we estimate that the Medicare
supplement margin was favorably impacted by approximately
$50 million in 2020. Insurance policy income was $754.7 million
in 2020, compared to $773.0 million in 2019, and $787.0 million
in 2018, reflecting lower sales in recent periods partially offset by
premium rate increases.

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

Medicare supplement business consists of both individual and
group policies. Government regulations generally require we
attain and maintain a ratio of total benefits incurred to total
premiums earned (excluding changes in policy benefits reserves
which is a component of Insurance policy benefits) of not less than
65 percent on individual products and not less than 75 percent on
group products. The ratio is determined after three years from the
original issuance of the policy and over the lifetime of the policy
and measured 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. Changes to our estimates are
reflected in Insurance policy benefits in the period the change is
determined.

Margin from Long-term care products was $84.8 million in
2020, compared to $49.7 million in 2019, and $35.9 million in 2018.
The margin as a percentage of insurance policy income increased
to 32% in 2020, compared to 19% in 2019 and 13% in 2018. The
margin in 2020 benefited from lower claims incurred attributable
to policyholders deferring health care during the pandemic which is
expected to normalize in future periods. In addition, an increase in
policyholder deaths attributable to the pandemic resulted in higher
than expected reserve releases. Based on actual claims incurred and
persistency relative to our expectations and previous experience
prior to COVID-19, we estimate that the long-term care margin
was favorably impacted by approximately $36 million in 2020.

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

Life margin:
Interest-sensitive life

Insurance policy income
Net investment income
Insurance policy benefits
Interest credited
Amortization and non-deferred commissions

Margin from interest-sensitive life

Average net insurance liabilities

Interest margin
Interest margin/average net insurance liabilities
Underwriting margin
Underwriting margin/insurance policy income

Traditional life

Insurance policy income
Net investment income
Insurance policy benefits
Interest credited
Amortization and non-deferred commissions
Advertising expense

Margin from traditional life
Margin/insurance policy income
Margin excluding advertising expense/insurance policy income

Total life margin

Margin from interest-sensitive life business was $58.1 million
in 2020, compared to $60.8 million in 2019, and $67.3 million
in 2018. The decrease in margins in 2020 and 2019 is primarily
due to: (i) the unfavorable impact of actuarial assumptions
previously discussed; partially offset by (ii) growth in the block
due to sales in recent periods. In addition, we estimate that the
unfavorable impact from death claims related to COVID-19
on the margin of this block of business was approximately
$9 million in 2020.

The interest margin was $3.6 million in 2020, compared to
$5.6 million in 2019, and $5.8 million in 2018. Net investment
income was comparable between years. The increase in average
net insurance liabilities results in higher net investment income
allocated, however, the decrease in earned yield has resulted in
net investment income being relatively flat compared to prior
years. The earned yield was 5.15 percent in 2020, down from
5.39 percent in 2019, and 5.52 percent 2018. Interest credited
to policyholders may be changed annually but are subject to
minimum guaranteed rates and, as a result, the reduction in
our earned rate was not fully reflected in the rate credited to
policyholders.

Net investment income and interest credited excludes the change
in market values of the underlying options supporting the
fixed index life products and corresponding offsetting amount

2020

2019

2018

158.8
47.4
(76.1)
(43.8)
(28.2)
58.1
920.0
3.6
.39%
54.5

34%

634.2
92.2
(493.9)
(.7)
(58.9)
(66.0)
106.9

17%
27%

165.0

$
$
$

148.6
46.7
(67.6)
(41.1)
(25.8)
60.8
866.3
5.6
.65%
55.2

37%

609.5
91.6
(446.0)
(.8)
(56.7)
(62.3)
135.3

22%
32%

196.1

$
$
$

139.2
45.5
(55.7)
(39.7)
(22.0)
67.3
826.6
5.8
.70%
61.5

44%

601.7
89.9
(441.5)
(.8)
(55.3)
(56.9)
137.1

23%
32%

204.4

$
$
$

credited to policyholder account balances. Such amounts were
$5.5 million, $18.6 million and $(5.8) million in 2020, 2019
and 2018, respectively.

Margin from traditional life business was $106.9 million in
2020, compared to $135.3 million in 2019, and $137.1 million
in 2018. Insurance policy income was $634.2 million in 2020,
compared to $609.5 million in 2019, and $601.7 million in 2018,
reflecting new sales and persistency in the block. Insurance
policy benefits were $493.9 million in 2020, compared to $446.0
million in 2019, and $441.5 million in 2018. We estimate that
the impact from death claims related to COVID-19 increased
insurance policy benefits by approximately $29 million in 2020.

Allocated net investment income was comparable between
years as the growth in the block was offset by lower average
investment yields.

Advertising expense was $66.0 million in 2020, compared to
$62.3 million in 2019, and $56.9 million in 2018. The demand
and cost of television advertising can fluctuate from period to
period. We are disciplined with our marketing expenditures
and will increase or decrease our marketing spend depending
on prices.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsInvestment Income Not Allocated to Product Lines (dollars in millions):

Net investment income
Amount allocated to the reinsured long-term care block prior to being

ceded in the third quarter of 2018
Adjusted net investment income

Allocated to product lines:

Annuity
Health
Life

Equity returns credited to policyholder account balances

Amounts allocated to product lines and credited to policyholder account balances

Amount related to variable interest entities and other non-operating items
Interest expense on debt
Interest expense on investment borrowings
Less amounts credited to deferred compensation plans (offsetting investment income)

Total adjustments

Investment income not allocated to product lines

2020
$ 1,222.5

2019
$ 1,362.9

2018
$ 1,306.2

—
1,222.5

(465.1)
(282.3)
(139.6)
(37.8)
(924.8)
(39.2)
(55.2)
(21.2)
(15.0)
(130.6)
167.1

—
1,362.9

(464.4)
(279.9)
(138.3)
(153.7)
(1,036.3)
(61.6)
(52.4)
(46.2)
(14.3)
(174.5)
152.1

(138.5)
1,167.7

(456.4)
(271.8)
(135.4)
45.5
(818.1)
(71.9)
(48.0)
(41.9)
(4.1)
(165.9)
183.7

The above table reconciles net investment income to investment income not allocated to product lines. Such amount will fluctuate from
period to period based on the level of prepayment income (including call premiums); the performance of our alternative investments (which
are typically reported a quarter in arrears); and the earnings related to the investments underlying our COLI.

Net Non-Operating Income (Loss):

The following summarizes our net non-operating loss for the three years ended December 31, 2020 (dollars in millions):

Net realized investment gains (losses) from sales, impairments and change in allowance

for credit losses (net of related amortization)

Net change in market value of investments recognized in earnings
Fair value changes related to agent deferred compensation plan
Fair value changes in embedded derivative liabilities (net of related amortization)
Loss related to reinsurance transaction
Loss on extinguishment of debt
Other
Net non-operating loss before taxes

2020

(31.1)
(2.7)
(16.3)
(79.1)
—
—
9.7
$ (119.5)

2019

2.1
25.5
(20.4)
(81.4)
—
(7.3)
(12.6)
(94.1)

2018

37.9
(48.8)
11.9
55.5
(704.2)
—
1.7
$ (646.0)

Net realized investment losses, net of related amortization, were
$31.1 million in 2020, including an increase in the allowance
for credit losses and other-than-temporary impairment losses
of $18.5 million. Net realized investment gains, net of related
amortization, were$2.1 million in 2019, net of other-than-temporary
impairment losses of$12.4 million. Net realized investment gains,
net of related amortization, were$37.9 million in 2018, net of other-
than-temporary impairment losses of$2.6 million.

During 2020, 2019 and 2018, we recognized an increase (decrease)
in earnings of$(2.7) million,$25.5 million and $(48.8) million,
respectively, due to the net change in market value of investments
recognized in earnings.

During 2020, 2019 and 2018, we recognized an increase (decrease)
in earnings of$(16.3) million, $(20.4) million and $11.9 million,
respectively, for the mark-to-market change in the agent deferred

compensation plan liability which was impacted by changes in the
underlying actuarial assumptions used to value the liability. We
recognize the mark-to-market change in the estimated value of this
liability through earnings as assumptions change.

During 2020, 2019 and 2018, we recognized an increase (decrease)
in earnings of$(79.1) million, $(81.4) million and $55.5 million,
respectively, resulting from changes in the estimated fair value of
embedded derivative liabilities related to our fixed index annuities,
net of related amortization. Such amounts include the impacts of
changes in market interest rates used to determine the derivative’s
estimated fair value. The discount rate is based on risk-free rates
(U.S. Treasury rates for similar durations) adjusted for non-
performance risk and risk margins for non-capital market inputs.
The significant decrease in U.S. Treasury rates in 2020 and 2019
was the primary factor in the change in estimated fair value of the
embedded derivative liabilities.

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

Other non-operating items include 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. Also, other non-operating items include
the net revenue earned pursuant to a transition services agreement
representing 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. In addition, such
non-operating items in 2019 include $15.9 million of 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.

Premium Collections

In accordance with GAAP, insurance policy income in our
consolidated statement of operations consists of premiums earned
for traditional insurance policies that have life contingencies or
morbidity features. For annuity and interest-sensitive life contracts,
premiums collected are not reported as revenues, but as deposits
to insurance liabilities. We recognize revenues for these products
over time in the form of investment income and surrender or other
charges.

Agents, insurance brokers and marketing organizations who
market our products and prospective purchasers of our products
use the financial strength ratings of our insurance subsidiaries as
an important factor in determining whether to market or purchase.
Ratings have the most impact on our sales of supplemental health
and life products to consumers at the worksite. The current
financial strength ratings of our primary insurance subsidiaries
from A.M. Best, Fitch, S&P 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.

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 were as follows (dollars in millions):

Premiums collected by product:

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

Subtotal - fixed index annuities

Fixed interest (first-year)
Fixed interest (renewal)

Subtotal - fixed interest annuities

Other annuities (first-year)

Total annuities

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

Subtotal – supplemental health
Medicare supplement (first-year)
Medicare supplement (renewal)

Subtotal - Medicare supplement

Long-term care (first-year)
Long-term care (renewal)

Subtotal - long-term care

Total health

Life insurance:
Interest-sensitive (first-year)
Interest-sensitive (renewal)

Subtotal - interest-sensitive

Traditional (first-year)
Traditional (renewal)

Subtotal - traditional
Total life insurance
Collections on insurance products:

2020

2019

2018

1,121.7
.4
1,122.1
33.5
3.8
37.3
5.6
1,165.0

72.7
604.5
677.2
54.2
696.3
750.5
18.3
245.6
263.9
1,691.6

44.3
162.2
206.5
136.9
496.2
633.1
839.6

1,241.2
.8
1,242.0
51.6
5.3
56.9
7.5
1,306.4

73.5
589.6
663.1
60.2
715.8
776.0
18.9
250.2
269.1
1,708.2

52.8
148.5
201.3
120.7
489.2
609.9
811.2

1,112.1
1.0
1,113.1
38.0
5.6
43.6
7.8
1,164.5

75.6
567.2
642.8
61.9
720.2
782.1
15.6
385.3
400.9
1,825.8

54.4
138.7
193.1
119.1
482.6
601.7
794.8

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

TOTAL COLLECTIONS ON INSURANCE PRODUCTS

1,487.2
2,209.0
3,696.2

1,626.4
2,199.4
3,825.8

1,484.5
2,300.6
3,785.1

Annuities include fixed index, fixed interest and other
annuities sold to the senior market. Annuity collections were
$1,165.0 million in 2020, compared to $1,306.4 million
in 2019 and $1,164.5 million in 2018. The decrease in
premium collections from our fixed index products in 2020,
as compared to 2019, primarily reflects our pricing discipline
and current market conditions. We have proactively managed
the participation rates on our fixed index products in order to
balance sales growth and profitability in the current low interest
rate environment. The increase in premium collections from
our fixed index products in 2019, as compared to 2018, was
primarily due to the general stock market performance which
made these products attractive to certain customers. Premium
collections from our fixed interest products reflect consumer
preference for fixed index products in the current low interest
rate environment.

include

Health products
supplemental health, Medicare
supplement and long-term care products. Our profits on health
policies depend on the overall level of sales, the length of time the
business remains inforce, investment yields, claims experience and
expense management.

Premiums collected on supplemental health products (including
specified disease, accident and hospital indemnity insurance
products) were $677.2 million in 2020, compared to $663.1 million
in 2019 and $642.8 million in 2018. Such increases are primarily
due to new sales.

Collected premiums on Medicare supplement policies were
$750.5 million, $776.0 million and $782.1 million in 2020, 2019
and 2018, respectively. The decrease in 2020 is due to lower sales
of such products.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KIn 2018, premiums collected on long-term care policies included
$130.5 million of premiums collected from certain legacy (prior
to 2003) comprehensive and nursing home long-term care policies
which were ceded in September 2018 under a 100% indemnity
coinsurance agreement.

Investments

include

interest-sensitive and traditional

Life products
life
products. Life premiums were $839.6 million, $811.2 million and
$794.8 million in 2020, 2019 and 2018, respectively. Premiums
collected reflect both recent sales activity and steady persistency.

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 90 percent of
our $27.6 billion investment portfolio at December 31, 2020. The
remainder of the invested assets was trading securities, investments
held by VIEs, COLI, equity securities, policy loans and other
invested assets.

The following table summarizes the composition of our investment portfolio as of December 31, 2020 (dollars in millions):

Fixed maturities, available for sale
Equity securities
Mortgage loans
Policy loans
Trading securities
Investments held by variable interest entities
Company-owned life insurance
Other invested assets
TOTAL INVESTMENTS

Carrying value
23,383.6
151.2
1,358.7
123.0
232.0
1,189.4
209.7
936.7
27,584.3

Percent of total
investments

85%
1
5
—
1
4
1
3
100%

The following table summarizes investment yields earned over the past three years on the investments allocated to our product lines.
General account investments exclude the value of options.

Weighted average investments at amortized cost allocated to product lines
Allocated investment income
Average yield on allocated investments

Insurance statutes regulate the types of investments that our
insurance subsidiaries are permitted to make and limit the amount
of funds that may be used for any one type of investment. In
addition, we have internal management compliance limits on
various exposures and activities which are typically more restrictive
than insurance statutes. In light of these statutes and regulations

2020

2019

2018

(dollars in millions)

18,093.0
887.0
4.90%

17,382.6
882.6
5.08%

16,586.9
863.6
5.21%

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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsFixed Maturities, Available for Sale

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, 2020 (dollars in millions):

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

TOTAL FIXED MATURITIES, AVAILABLE FOR SALE

Carrying value

Percent of fixed
maturities

Gross unrealized
losses

Percent of gross
unrealized losses

2,653.9
2,092.6
1,980.2
1,680.7
1,656.9
1,548.0
1,459.6
1,062.1
999.3
876.3
832.7
802.1
580.6
569.6
510.1
492.8
478.5
458.9
406.1
235.5
227.9
1,779.2
23,383.6

11.3% $
8.9
8.5
7.2
7.1
6.6
6.2
4.5
4.3
3.8
3.6
3.4
2.5
2.4
2.2
2.1
2.0
2.0
1.7
1.0
1.0
7.7

100.0% $

1.3
2.1
7.3
.5
1.5
.2
2.1
7.4
.2
—
3.8
—
—
—
.1
—
.7
3.6
—
.2
—
.8
31.8

4.2%
6.6
22.8
1.4
4.8
.7
6.4
23.4
.6
—
12.1
—
—
—
.3
—
2.3
11.4
—
.6
—
2.4
100.0%

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 gross unrealized losses of our fixed maturity securities, available for sale, by category and ratings
category as of December 31, 2020 (dollars in millions):

Asset-backed securities
Commercial mortgage-backed securities
Energy
Collateralized loan obligations
Non-agency residential mortgage-backed

securities

Healthcare/pharmaceuticals
Insurance
States and political subdivisions
Other

TOTAL FIXED MATURITIES,
AVAILABLE FOR SALE

Investment grade

AAA/AA/A

1.8 $
5.5
—
3.6

.2
—
.3
.1
1.2

Below-investment grade

.2 $
.4
3.7
—

B+ and below
2.8
—
—
—

Total gross
unrealized losses
7.4
$
7.3
3.8
3.6

1.1
1.9
—
—
.7

.6
.1
—
—
.1

2.1
2.1
1.5
1.3
2.7

BBB
2.6
1.4
.1
—

.2
.1
1.2
1.2
.7

12.7 $

7.5

8.0 $

3.6

31.8

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, 2020, 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

Amortized cost

1,358.7 $
2,281.4
5,933.4
2,438.5
3,577.7
2,338.1
17,927.8
288.7
290.4
272.2
1,142.0
1,993.3
19,921.1

Amount
1,438.6
2,688.6
7,141.9
3,031.1
4,316.2
2,589.9
21,206.3
317.9
297.3
285.0
1,277.1
2,177.3
23,383.6

Percent of fixed
maturities

6%
12
31
13
18
11
91
1
1
1
6
9
100 %

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. During 2020, we
recognized net realized investment losses of $36.2 million,

which were comprised of: (i) $15.1 million of net losses from
the sales of investments; (ii) $5.1 million of losses related to
equity securities, including the change in fair value; (iii) the
decrease in fair value of certain fixed maturity investments with
embedded derivatives of $.1 million; (iv) the increase in fair
value of embedded derivatives related to a modified coinsurance
agreement of $2.6 million; and (v) an increase in the allowance
for credit losses and other-than temporary impairment losses of
$18.5 million.

During 2020, we sold $507.1 million of fixed maturity
investments which resulted in gross investment losses (before
income taxes) of $53.7 million. Securities are generally
sold at a loss following unforeseen issue-specific events or
conditions or shifts in perceived relative values. These reasons

CNO FINANCIAL GROUP, INC. - Form 10-K

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

The Company reports accrued investment income separately
from fixed maturities, available for sale, and has elected not to
measure an allowance for credit losses for accrued investment
income. Accrued investment income is written off through net
investment income at the time the issuer of the bond defaults or
is expected to default on payments.

As of December 31, 2020, we had fixed maturity securities
with an amortized cost and fair value of $1.0 million and nil,
respectively, 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.

Other Investments

At December 31, 2020, we held commercial mortgage loan
investments with an amortized cost of $1,285.7 million
(or 4.7 percent of total invested assets) and a fair value of
$1,339.9 million. Our commercial mortgage loan portfolio is
comprised of large commercial mortgage loans. Approximately
14 percent, 10 percent, 8 percent and 7 percent of the commercial
mortgage loan balance were on properties located in California,
Texas, Maryland and Wisconsin, respectively. No other state
comprised greater than six percent of the mortgage loan balance.
At December 31, 2020, there were no commercial mortgage loans
in process of foreclosure. At December 31, 2020, we held residential
mortgage loan investments with an amortized cost of $84.8 million
and a fair value of $84.9 million. At December 31, 2020, there were
19 residential mortgage loans that were noncurrent with a carrying
value of $6.1 million (of which, 15 such loans with a carrying value
of $5.1 million were in forbearance and 3 loans with a carrying
value of $.5 million were in foreclosure). The allowance for credit
losses related to mortgage loans was $11.8 million at December 31,
2020, and increased $5.1 million in 2020. During 2019 and 2018,
we recognized nil and $2.1 million, respectively, of impairments on
commercial mortgage loans.

The following table shows the distribution of our commercial mortgage loan portfolio by property type as of December 31, 2020
(dollars in millions):

Retail
Industrial
Multi-family
Office building
Other

TOTAL COMMERCIAL MORTGAGE LOANS

Number of loans

Amortized cost
254.9
247.8
399.9
229.4
153.7
1,285.7

61 $
32
25
26
20
164 $

The following table shows our commercial mortgage loan portfolio by loan size as of December 31, 2020 (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

Amortized cost
179.4
330.9
555.7
219.7
1,285.7

69 $
49
37
9
164 $

The following table summarizes the distribution of maturities of our commercial mortgage loans as of December 31, 2020 (dollars
in millions):

2021
2022
2023
2024
2025
after 2025

TOTAL COMMERCIAL MORTGAGE LOANS

Number of loans

Amortized cost
9.4
79.3
110.5
141.9
100.7
843.9
1,285.7

5 $

10
8
17
15
109
164 $

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe following table provides the amortized cost by year of origination and estimated fair value of our outstanding commercial
mortgage loans and the underlying collateral as of December 31, 2020 (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%
90% or greater

TOTAL

2020
29.0 $
—
18.8
—
—
47.8 $

2019
2018
81.5 $ 139.7
8.6
—
—
—
101.0 $ 148.3

7.3
12.2
—
—

2017
84.1
10.8
—
—
—
94.9

2016
76.7
19.4
—
—
10.0
$ 106.1

Prior
$ 608.0
72.7
43.1
63.8
—
$ 787.6

Total
amortized cost
$

1,019.0 $
118.8
74.1
63.8
10.0
1,285.7 $

Estimated fair value

Mortgage
loans
1,074.4
121.7
73.8
61.2
8.8
1,339.9

Collateral
2,899.3
182.0
101.0
76.5
10.7
3,269.5

(a) Loan-to-value ratios are calculated as the ratio of: (i) the amortized cost of the commercial mortgage loans; to (ii) the estimated fair value of the underlying collateral.

stock and certain nontraditional
including
investments in limited partnerships, hedge funds and real estate
investments held for sale.

investments,

At December 31, 2020, we held
investments with an
amortized cost of $1,211.3 million and an estimated fair
value of $1,189.4 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.

At December 31, 2020, we held $232.0 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
(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 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

Liquidity and Capital Resources

Potential Future Impacts of COVID-19 Pandemic

We expect the potential impact of the pandemic on our future
results will be largely driven by three things which are already
impacting our business, but the duration and severity of which
are currently unknown:

• the impact of the COVID-19 environment on the sales of

some of our insurance products;

• changes in mortality, morbidity, and persistency (or lapse

rates) impacting insurance product margin; and

• general economic impacts, driving: (i) lower net investment
income through lower interest rates; (ii) the impact of credit
deterioration on invested assets and capital; and (iii) potential
impacts to reserves and deferred acquisition costs resulting
from lower interest rates, equity performance, and market
volatility.

Given the ongoing uncertainty related to how the COVID-19
pandemic will impact our results and the continued economic
impact it will have, we continue to model a range of potential
outcomes taking into account these three things. The purpose of
our modeling is not to predict certain outcomes, but to develop
a range of potential outcomes and manage capital and liquidity
in the context of outcomes within the range. We most recently
updated our models for two scenarios in January 2021. These

scenarios incorporate many assumptions. Actual conditions
in future periods may differ materially from the assumptions
used in modeling the two scenarios. In the first scenario, which
assumes that vaccines are sufficient in achieving herd immunity
in 2021 and the impacts of the pandemic trail off through 2021,
we assumed approximately 360,000 additional deaths from the
virus in 2021 in the United States and modest economic growth
in 2021 compared to 2020. In the second scenario, which
assumes that vaccines are insufficient to achieve herd immunity
in 2021, we assumed approximately 500,000 additional deaths
from the virus in 2021 in the United States and recessionary
economic conditions in 2021 compared to 2020.

The COVID-19 pandemic has impacted our consolidated
sales volumes. In 2020, our sales of health and life insurance
products (measured by new annualized premiums) across both
our Consumer and Worksite Divisions decreased by 6 percent
compared to 2019. The lower sales in 2020 will adversely impact
our earnings in future periods.

In 2020, our Consumer Division health sales (new annualized
premiums) decreased by 16 percent compared to 2019. Sales of
life products increased 19 percent in 2020 compared to 2019.
Collected premiums from our annuity products decreased
11 percent in 2020 compared to 2019. As the economy has

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operationspartially reopened, albeit largely on a work-from-home basis,
and our customers and agents have become more accustomed
to virtual transactions, sales in the Consumer Division have
improved.

Similar to other insurance companies selling insurance products
at the workplace, sales within our Worksite Division have been
significantly below prior year levels. In 2020, our Worksite
Division life and health sales (new annualized premiums)
decreased 43 percent compared to 2019.

With respect to changes in mortality and morbidity, we estimate
that COVID-19 could have a modestly favorable impact on
total insurance product margin during the first half of 2021; a
modestly unfavorable impact in the second half of 2021; and a
neutral impact for the entire year, including the negative impact
on insurance product margin from lower sales in 2020. In 2020,
our margin on life insurance products reflected an estimated
$38 million of adverse mortality impact related to COVID-19.
While higher mortality claims unfavorably impacted our life
product margins, our health product margins have generally
benefited due to lower claims experience. We estimate the
COVID-19 environment
impacted our health
margins by approximately $97 million in 2020 primarily due
to consumers deferring medical care treatments. We expect this
trend to revert to normal over time. Such deferral of care and
possible long-term health complications from COVID-19 may
lead to higher life and health claim costs in future periods.

favorably

The persistency of policies has generally been higher than pre-
COVID-19 periods and we expect persistency to have a neutral
impact going forward in both of our scenarios. However, there
remains a possibility that high unemployment could translate
to an increase in lapse rates in future periods. If higher lapse
rates do occur, we expect that current period earnings would
generally be favorably impacted but earnings in future periods
would be unfavorably impacted, as the base of our inforce
business would be lower.

Regarding our investment portfolio, we have evaluated a range
of potential impacts from the pandemic, including impacts
on credit migration, default levels, net investment income and
capital. We used a range of assumptions which are market-
consistent, or in-line with downside assumptions from rating
agencies and generally consistent with past financial crises.

We believe our earnings over the long-term will be impacted
by lower interest rates consistent with the assumptions reflected
in our actuarial unlocking exercise in the second quarter of
2020 which were further refined by our comprehensive review
of actuarial assumptions completed in the fourth quarter of
2020. Refer to “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations - Results of
Operations - Changes in Actuarial Assumptions” for further
information related to changes in certain actuarial assumptions
and their impact on our operating results in 2020.

With respect to capital, based on the modeling described above,
even with the more adverse impacts of the second scenario, we
believe we would be able to:

• maintain our target RBC levels, debt to capital ratios and

minimum holding company liquidity;

• maintain our quarterly dividend to shareholders; and

• have continued, but modest, capacity for share repurchases.

The two modeling scenarios described above, and the resulting
range of estimated outcomes, are hypothetical and have been
provided to give a general sense of how certain aspects of
our business could be affected by the ongoing COVID-19
pandemic, depending on the duration and severity of the
pandemic and related governmental and social responses
and the economic consequences of the pandemic. There are
many modeling scenarios which could result in materially
different projected outcomes from the two described above
and, accordingly the modeling scenarios described above do
not constitute an exhaustive set of possible outcomes resulting
from the COVID-19 pandemic which could affect our
business, results of operations, financial condition and liquidity.
Similarly, given the unprecedented nature of the COVID-19
pandemic, the assumptions used in these modeling scenarios,
and the related range of outcomes, are based on assumed
facts which are inherently unpredictable and, accordingly, if
the pandemic progresses and updated assumptions were to be
applied to the modeling scenarios the outcome generated by the
application of updated assumptions to these modeling scenarios
may be materially different from those described above. For
example, the actual number of U.S. deaths, the effectiveness of
vaccines and the related economic impacts from the COVID-19
pandemic may differ materially from the assumptions used to
generate the outcomes from the two scenarios. In addition,
policies and actions taken by the U.S. and foreign governments
and central banks have mitigated the impacts of COVID-19 on
the financial markets, investment performance and valuations.
There can be no assurance that these policies or actions will
continue or continue to be effective. If the economic impact of
the COVID-19 pandemic is ultimately worse than contemplated
by our modeled scenarios, the impact to our business, results
of operations, financial condition and liquidity could be
significantly different than described above.

Changes in the Consolidated Balance Sheet

in our consolidated balance

Changes
sheet between
December 31, 2020 and December 31, 2019, primarily reflect:
(i) our net income for 2020; (ii) changes in the fair value of our
fixed maturity securities, available for sale; (iii) the issuance of
the Debentures; and (iv) payments to repurchase common stock
of $263.0 million.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KOur capital structure as of December 31, 2020 and December 31, 2019 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, 2020 December 31, 2019

1,136.2

989.1

1.3
2,544.5
2,186.1
752.3
5,484.2
6,620.4

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

The following table summarizes certain financial ratios as of and for the years ended December 31, 2020 and December 31, 2019:

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, 2020
$

40.54
24.38

December 31, 2019
$

31.58
22.32

17.2 %
25.6 %

17.5 %
23.0 %

(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, 2020, 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
51,920.7
1,800.0
1,686.0
1,245.7
280.2
62.2
91.9
387.0
57,473.7

2021
3,174.7 $
60.8
39.5
49.2
7.8
22.8
91.9
24.8
3,471.5 $

Payment due in

2022-2023

2024-2025

6,614.6 $
120.9
623.7
479.0
16.6
31.3
—
199.9
8,086.0 $

6,493.7 $
607.3
1,022.8
519.4
17.5
7.4
—
162.3
8,830.4 $

Thereafter
35,637.7
1,011.0
—
198.1
238.3
.7
—
—
37,085.8

(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 $25.1 billion included in our consolidated balance sheet as of December 31, 2020.
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 which is consistent with the assumptions used in our loss recognition
testing for these blocks of business.

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 which is consistent with the assumptions used in our loss recognition testing for these blocks of business.

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, 2020. Refer to the note to the consolidated financial statements entitled

“Notes Payable - Direct Corporate Obligations” for additional information on notes payable.

CNO FINANCIAL GROUP, INC. - Form 10-K

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

(d) These borrowings represent the securities issued by VIEs and include projected interest payments based on interest rates, as applicable, as of December 31, 2020.

(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 2.50 percent.

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

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.

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. At
December 31, 2020, the carrying value of the FHLB common

stock was $71.0 million. As of December 31, 2020, 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, 2020, which are maintained in custodial accounts
for the benefit of the FHLB.

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.

statutory RBC

Our estimated consolidated
ratio was
411 percent at December 31, 2020, compared to 408 percent at
December 31, 2019. The increase is primarily due to statutory
operating earnings and the impacts of a change in principle
related to certain reserve calculations, net of dividends paid
to the holding company, which were partially offset by a
24 percentage point decrease due to investment valuation-related
items (of which, 15 percentage points related to credit migration
and 9 percentage points related to changes in carrying values
within our investment portfolio). In 2020, our estimated
consolidated statutory operating earnings were $421 million
and insurance company dividends of $294.1 million were
paid to the holding company. Statutory operating income and
capital and surplus were favorably impacted by $99 million and
$53 million, respectively, related to certain provisions in the
CARES Act. The favorable impact resulted from provisions that
permitted the carryback of net operating losses that were created
after 2017 and the temporary repeal of the 80% limitation on
the utilization of NOLs created after 2017.

During 2020, the financial statements of three of our insurance
subsidiaries prepared in accordance with statutory accounting
practices prescribed or permitted by regulatory authorities
reflected asset adequacy or premium deficiency reserves. Total
asset adequacy and premium deficiency reserves for Bankers
Life, Washington National and Bankers Conseco Life Insurance
Company were $10.0 million, $125.5 million and $39.5 million,
respectively, at December 31, 2020. 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.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KOur insurance subsidiaries transfer exposure to certain risk to
others through reinsurance arrangements. When we obtain
reinsurance, we are still liable for those transferred risks in
the event the reinsurer defaults on its obligations. The failure,
insolvency, inability or unwillingness of one or more of the
Company’s reinsurers to perform in accordance with the terms of
its reinsurance agreement could negatively impact our earnings
or financial position and our consolidated statutory RBC ratio.

Financial Strength Ratings of our Insurance
Subsidiaries

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

On January 28, 2021, A.M. Best affirmed its “A-” financial
strength ratings of our primary insurance subsidiaries and
revised the outlook for these ratings to positive from 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 December 17, 2020, Fitch affirmed its “A-” financial
strength ratings of our primary insurance subsidiaries. The
outlook for these ratings remain 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 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 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, 2020, CNO, CDOC and our other non-
insurance subsidiaries held unrestricted cash and cash equivalents
of $388.1 million. CNO and CDOC are holding companies
with no business operations of their own; they depend on their
operating subsidiaries for cash to make principal and interest
payments on debt, and to pay administrative expenses and
income taxes. CNO and CDOC receive cash from insurance
subsidiaries, consisting of dividends and distributions, interest
payments on surplus debentures and tax-sharing payments,
as well as cash from non-insurance subsidiaries consisting of
dividends, distributions, loans and advances. The principal non-
insurance subsidiaries that provide cash to CNO and CDOC
are 40|86 Advisors, which receives fees from the insurance
subsidiaries for investment services, and CNO Services which
receives fees from the insurance subsidiaries for providing
administrative services. The agreements between our insurance
subsidiaries and CNO Services and 40|86 Advisors, respectively,
were previously approved by the domestic insurance regulator
for each insurance company, and any payments thereunder do
not require further regulatory approval.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe following table sets forth the aggregate amount of dividends (net of capital contributions) and other distributions that our
insurance subsidiaries paid to our non-insurance subsidiaries in each of the last three fiscal years (dollars in millions):

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

Years ended December 31,

2020
294.1
57.4
111.7

2019
186.3
59.9
115.5

2018
(51.1)
58.2
108.9

463.2

361.7

116.0

The 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 2020, our insurance
subsidiaries paid dividends to CDOC totaling $294.1 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 352 percent at
December 31, 2020. CDOC also holds a surplus debenture
from Colonial Penn with a principal balance of $160.0 million.
Interest payments on that surplus debenture require prior
approval by the Pennsylvania state insurance department.
Dividends and other payments from our non-insurance
subsidiaries, including 40|86 Advisors and CNO Services, to
CNO or CDOC do not require approval by any regulatory
authority or other third party. However, insurance regulators
may prohibit payments by our insurance subsidiaries to parent
companies if they determine that such payments could be
adverse to our policyholders or contractholders.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KThe insurance subsidiaries of CDOC receive funds to pay dividends primarily from: (i) the earnings of their direct businesses; (ii) tax
sharing payments received from subsidiaries (if applicable); and (iii) with respect to CLTX, dividends received from subsidiaries. At
December 31, 2020, the subsidiaries of CLTX had earned surplus (deficit) as summarized below (dollars in millions):

Subsidiary of CLTX
Bankers Life
Colonial Penn

Earned surplus
(deficit)
256.1
(367.3)

Additional
information
(a)
(b)

(a) Bankers Life paid dividends of $232.9 million to CLTX in 2020. 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 or fund a long-term care
reinsurance transaction, and these decisions could limit the
amount available at our top tier insurance subsidiaries to pay
dividends to the holding companies.

In November 2020, the Company issued the Debentures. The
terms of the Debentures are set forth in the Indenture, dated as
of June 12, 2019, as supplemented by the Second Supplemental
Indenture, dated as of November 25, 2020, each between the
Company and U.S. Bank National Association, as trustee.

The Debentures bear interest at an annual rate of 5.125%,
payable quarterly in arrears on February 25, May 25, August 25
and November 25 commencing on February 25, 2021. The
Debentures mature on November 25, 2060. The Company
used the net proceeds from the issuance of the Debentures for
general corporate purposes.

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. There were no amounts outstanding
under the Revolving Credit Agreement at December 31, 2020.

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

2021
2022
2023
2024
2025
2026 and thereafter

Principal
—
—(b)
—
—
500.0 (c)
650.0 (d)

1,150.0

Interest(a)
60.8
60.7
60.2
60.2
47.1
361.0
650.0

(a) Based on interest rates as of December 31, 2020.
(b) The maturity date of the Revolving Credit Agreement is October 13, 2022.
(c) Such amount represents our 5.250% Notes due 2025.
(d) Such amount includes $500.0 million of 5.250% Notes due 2029 and the Debentures.

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 2020, we
generated $387 million of such free cash flow. The Company
is committed to deploying 100 percent of its free cash flow
into investments to accelerate profitable growth, common
stock dividends and share repurchases. In late June 2020, we
resumed share repurchase activity after suspending such share
repurchases in mid-March 2020 in light of the uncertainty
related to the COVID-19 pandemic. Our current estimate
of free cash flow generation in 2021, combined with holding

company liquidity existing at December 31, 2020, is expected
to result in share repurchase capacity that exceeds our actual
share repurchase activity in 2020. The amount and timing of
future share repurchases (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 2020, we repurchased
14.5 million shares of common stock for $263.0 million under
our securities repurchase program. The Company had remaining
repurchase authority of $269.3 million as of December 31, 2020.

In 2020, 2019 and 2018, dividends declared on common
stock totaled $67.4 million ($0.47 per common share),
$67.2 million ($0.43 per common share) and $64.8 million

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations($0.39 per common share), respectively. In May 2020, the
Company increased its quarterly common stock dividend to
$0.12 per share from $0.11 per share.

On January 28, 2021, A.M. Best affirmed its “bbb-” issuer
credit and senior unsecured debt ratings and revised the outlook
for these ratings to positive from 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 December 17, 2020, Fitch affirmed its “BBB-” rating on
our senior unsecured debt. The outlook for these ratings remain
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 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
adequate 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.

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 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.

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, 2020, approximately
$4.4 billion of our total insurance liabilities 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, 2020,
approximately 16 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; 33 percent had
credited rates which approximate the income earned by the
Company; and the remainder had no explicit interest rates.

PART IIITEM 7 Management’s Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCNO FINANCIAL GROUP, INC. - Form 10-KPART II
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk

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, 2020 (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

Fixed index annuities
—
—
14.7
611.4
1,557.3
5,580.1
7,763.5

Fixed interest annuities
.3
25.3
648.0
732.9
175.6
411.2
1,993.3

Universal life
8.7
$
257.3
40.1
245.0
29.5
495.7
1,076.3

Total
9.0
282.6
702.8
1,589.3
1,762.4
6,487.0
10,833.1

1.20 %

2.73 %

2.48 %

1.61%

At December 31, 2020, $2.9 billion and $0.3 billion of our
fixed interest 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, 2020, related to such annuity and universal life
account values, that were at the minimum guaranteed crediting
rate were 1.85 percent and 1.59 percent, respectively.

At December 31, 2020, the weighted average yield, computed on
the cost basis of our fixed maturity portfolio, was 4.6 percent,
and the average interest rate credited or accruing to our total
insurance liabilities (excluding interest rate bonuses for the
first policy year only and excluding the effect of credited rates
attributable to variable or fixed index products) was 4.6 percent.
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 value of our
interest rate-sensitive investments and to manage the relationship
between the interest sensitivity of our assets and liabilities. When
the estimated durations of assets and liabilities are similar, absent
other factors, a change in the value of assets related to changes
in interest rates should be largely offset by a change in the value
of liabilities. At December 31, 2020, 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 10.2 years and 9.7 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
$145 million if interest rates were to increase by 10 percent from

their levels at December 31, 2020. 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

ITEM 8. Consolidated Financial Statements.

Index to Consolidated Financial Statements

Page
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Consolidated Balance Sheet at December 31, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Consolidated Statement of Operations for the years ended December 31, 2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Consolidated Statement of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018 . . . . . . . . . . . . . . . 78
Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . 79
Consolidated Statement of Cash Flows for the years ended December 31, 2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

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
sheets of CNO Financial Group, Inc. and its subsidiaries (the
“Company”) as of December 31, 2020 and 2019, 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, 2020, 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, 2020, 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, 2020 and 2019,
and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2020 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, 2020, 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, 2020, 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 company’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 (i) the significant judgment
by management in estimating the fair value of embedded
derivatives, specifically the significant unobservable inputs to
the discount rate, which included company’s non-performance
risk and risk margins for non-capital market inputs; (ii) a
high degree of auditor judgment, subjectivity and effort in
performing procedures and evaluating audit evidence relating
to management’s discount rate assumption; and (iii) the audit
effort involved the use of professionals with specialized skill and
knowledge.

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 company’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 24, 2021

We have served as the Company’s auditor since 1983.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsCNO Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheet

December 31, 2020 and 2019

(Dollars in millions)
ASSETS
Investments:

Fixed maturities, available for sale, at fair value (net of allowance for credit losses: 2020 -
$2.2; amortized cost: 2020 - $19,921.1; 2019 - $19,179.5)
Equity securities at fair value
Mortgage loans (net of allowance for credit losses: 2020 - $11.8)
Policy loans
Trading securities
Investments held by variable interest entities (net of allowance for credit losses: 2020 -
$15.1; amortized cost: 2020 - $1,211.3; 2019 - $1,206.3)
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 (net of allowance for credit losses: 2020 - $4.0)
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.

2020

2019

23,383.6
151.2
1,358.7
123.0
232.0

1,189.4
1,146.4
27,584.3
937.8
54.1
205.8
249.4
1,027.8
4,584.3
199.4
4.2
492.8
35,339.9

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

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

December 31, 2020 and 2019

(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:
2020 - 135,279,119; 2019 - 148,084,178)
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.

2020

2019

12,540.6
11,744.2
561.8
252.6
4.2
821.8
1,642.5
1,151.8
1,136.2
29,855.7

1.3
2,544.5
2,186.1
752.3
5,484.2
35,339.9

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

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsConsolidated Statement of Operations

for the years ended December 31, 2020, 2019 and 2018

(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
Change in allowance for credit losses and other-than-temporary impairment losses(a)

Total realized gains
Fee revenue and other income

Total revenues
Benefits and expenses:

Insurance policy benefits
Loss related to reinsurance transaction
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)

2020

2019

2018

2,511.3

2,480.8

2,593.1

1,079.0
143.5

—
(17.7)
(18.5)
(36.2)
123.5
3,821.1

2,157.9
—
108.8
268.1
—
—
942.0
3,476.8
344.3

76.5
(34.0)
301.8

1,098.0
264.9

—
40.6
(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

1,272.5
33.7

363.4
(8.7)
(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)

142,096,000
2.12

156,040,000
2.62

165,457,000
(1.90)

143,164,000
2.11

157,148,000
2.61

165,457,000
(1.90)

(a) No portion of the other-than-temporary impairments recognized in 2019 and 2018 was included in accumulated other comprehensive income.

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

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

Consolidated Statement of Comprehensive Income

for the years ended December 31, 2020, 2019 and 2018

(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)

2020
301.8

2019
409.4 $

2018
(315.0)

1,332.8
(116.0)

1,830.2
(165.6)

(1,579.9)
125.5

(204.0)

(133.0)

512.0

27.1

(6.3)

(356.9)

(2.4)
1,037.5
(223.9)
813.6
1,115.4

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

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

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

(Dollars in millions)

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

Cumulative effect of accounting change

Balance, January 1, 2020

Net income
Change in unrealized appreciation (depreciation) of
investments (net of applicable income tax expense of $223.9)
Common stock repurchased
Dividends on common stock
Employee benefits plans, net of shares used to pay tax
withholdings

Balance, December 31, 2020

Common stock

Amount

Additional
paid-in
capital

Accumulated
other
comprehensive
income

166,858 $
—
166,858
—

1.7 $
—
1.7
—

3,073.3 $
—
3,073.3
—

1,212.1 $
(16.3)
1,195.8
—

Retained
earnings

Total

560.4 $ 4,847.5
—
4,847.5
(315.0)

16.3
576.7
(315.0)

—

(1,017.0)

—

(1,017.0)

—
(5,486)
—

830
162,202
—
162,202
—

—

—
(15,408)
—

1,290
148,084
—
148,084
—

—
(14,471)
—

—
(.1)
—

—
1.6
—
1.6
—

—

—
(.1)
—

—
1.5
—
1.5
—

—
(.2)
—

—
(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)
—

24.5
2,767.3
—
2,767.3
—

—
(262.8)
—

(.1)
—
—

—
1,372.5
—
1,372.5
—

813.6
—
—

—
—
(67.2)

—
535.7
(17.8)
517.9
301.8

—
—
(67.4)

(.1)
(252.3)
(67.2)

24.5
4,677.0
(17.8)
4,659.2
301.8

813.6
(263.0)
(67.4)

1,666
135,279 $

—
1.3

40.0
2,544.5 $

—
2,186.1 $

—

40.0
752.3 $ 5,484.2

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, 2020, 2019 and 2018

(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.

2020

2019

2018

2,331.0
1,097.4
123.5
(1,582.9)
—
(111.2)
(275.8)
(818.1)
(28.4)
735.5

1,480.0
2,218.3
(4,280.7)
13.8
(39.8)
(608.4)

145.8
—
—
19.0
(268.3)
(67.0)
1,620.1
(1,235.6)

498.0
—

(499.8)
(2.1)
210.1
337.2
654.7

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

991.9

654.7

656.6

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements

Notes to Consolidated Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

CNO Financial Group, Inc., a Delaware corporation (“CNO”),
is a holding company for a group of insurance companies
operating throughout the United States that develop, market and
administer health insurance, annuity, individual life insurance
and other insurance products. The terms “CNO Financial Group,
Inc.”, “CNO”, the “Company”, “we”, “us”, and “our” as used in
these financial statements refer to CNO and its subsidiaries. Such
terms, when used to describe insurance business and products,
refer to the insurance business and products of CNO’s insurance
subsidiaries.

We 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 2020 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), allowance for credit losses
and 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 balance, net of allowance for estimated credit
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. The allowance
for estimated credit losses is measured using a loss-rate method
on an individual asset basis. Inputs used include asset-specific

characteristics, current economic conditions, historical
loss
information and reasonable and supportable forecasts about future
economic conditions.

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

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

When an available for sale fixed maturity security’s fair value is
below the amortized cost, the security is considered impaired.
If a portion of the decline is due to credit-related factors, we
separate the credit loss component of the impairment from the
amount related to all other factors. The credit loss component is
recorded as an allowance and reported in net realized investment
gains (losses) (limited to the difference between estimated fair
value and amortized cost). The impairment related to all other
factors (non-credit factors) is reported in accumulated other
comprehensive income along with unrealized gains related to
fixed maturity investments, available for sale, net of tax and related
adjustments. The allowance is adjusted for any additional credit
losses and subsequent recoveries. When recognizing an allowance
associated with a credit loss, the cost basis is not adjusted. When
we determine a security is uncollectable, the remaining amortized
cost will be written off.

If we intend to sell an impaired fixed maturity security, available
for sale, or identify an impaired fixed maturity security, available
for sale, for which is it more likely than not we will be required to
sell before anticipated recovery, the difference between the fair value
and the amortized cost is included in net realized investment gains
(losses) and the fair value becomes the new amortized cost. The new
cost basis is not adjusted for any subsequent recoveries in fair value.

The Company reports accrued investment income separately from
fixed maturities, available for sale, and has elected not to measure
an allowance for credit losses for accrued investment income.
Accrued investment income is written off through net investment
income at the time the issuer of the bond defaults or is expected to
default on payments.

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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsPresent Value of Future Profits

The present value of future profits is the value assigned to the right
to receive future cash flows from policyholder insurance contracts
existing at September 10, 2003 (the “Effective Date”, the effective
date of the bankruptcy reorganization of Conseco, Inc., an Indiana
corporation (our “Predecessor”)). The discount rate we used to
determine the present value of future profits was 12 percent. The
balance of this account is amortized and evaluated for recovery in
the same manner as described above for deferred acquisition costs.
We also adjust the present value of future profits for the change in
amortization that would have been recorded if the fixed maturity
securities, available for sale, had been sold at their stated aggregate
fair value and the proceeds reinvested at current yields, similar
to the manner described above for deferred acquisition costs. We
limit the total adjustment related to the impact of unrealized losses
to the total present value of future profits plus interest.

Recognition of Insurance Policy Income and
Related Benefits and Expenses on Insurance
Contracts

For interest-sensitive life and annuity contracts that do not involve
significant mortality or morbidity risk, the amounts collected
from policyholders are considered deposits and are not included in
revenue. Revenues for these contracts consist of charges for policy
administration, cost of insurance charges and surrender charges
assessed against policyholders’ account balances. Such revenues
are recognized when the service or coverage is provided, or when
the policy is surrendered.

We establish liabilities for annuity and interest-sensitive life
products equal to the accumulated policy account values, which
include an accumulation of deposit payments plus credited interest,
less withdrawals and the amounts assessed against the policyholder
through the end of the period. In addition, policyholder account
values for certain interest-sensitive life products are impacted by
our assumptions related to changes of certain non-guaranteed
elements that we are allowed to make under the terms of the policy,
such as cost of insurance charges, expense loads, credited interest
rates and policyholder bonuses. Sales inducements provided to
the policyholders of these products are recognized as liabilities
over the period that the contract must remain in force to qualify
for the inducement. The options attributed to the policyholder
related to our fixed index annuity products are accounted for
as embedded derivatives as described in the section of this note
entitled “Accounting for Derivatives”.

Premiums from individual life products (other than interest-
sensitive life contracts) and health products are recognized
when due. When premiums are due over a significantly shorter
period than the period over which benefits are provided, any
gross premium in excess of the net premium (i.e., the portion
of the gross premium required to provide for all expected future
benefits and expenses) is deferred and recognized into revenue in
a constant relationship to insurance in force. Benefits are recorded
as an expense when they are incurred.

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
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

• 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

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial Statementssignificant 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 and Casualty Company (“Bankers Life”) has entered
into various distribution and marketing agreements with other
insurance companies to use Bankers Life’s exclusive 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 $0.8 million of mortality risk on any one policy.
We diversify the risk of reinsurance loss by using a number of
reinsurers that have strong claims-paying ratings. In each case, the
ceding CNO subsidiary is directly liable for claims reinsured in
the event the assuming company is unable to pay.

The cost of reinsurance ceded
totaled $262.5 million,
$260.6 million and $144.5 million in 2020, 2019 and 2018,
respectively. We deduct this cost from insurance policy income.
Reinsurance recoveries netted against insurance policy benefits
totaled $403.8 million, $439.8 million and $173.5 million in
2020, 2019 and 2018, respectively. The cost of reinsurance
and reinsurance recovered amounts include the impacts of the
reinsurance transaction with Wilton Reassurance Company
(“Wilton Re”) described below.

From time to time, we assume insurance from other companies.
Any costs associated with the assumption of insurance are
amortized consistent with the method used to amortize deferred
acquisition costs. Reinsurance premiums assumed totaled
$23.0 million, $25.1 million and $28.0 million in 2020, 2019 and
2018, respectively. Insurance policy benefits related to reinsurance
assumed totaled $31.4 million, $36.4 million and $36.4 million in
2020, 2019 and 2018, 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
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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementsto determine whether, based on the weight of that evidence,
a valuation allowance for deferred tax assets is needed. This
assessment requires significant judgment and considers, among
other matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the duration of
carryforward periods, our experience with operating loss and tax
credit carryforwards expiring unused, and tax planning strategies.
We evaluate the need to establish a valuation allowance for our
deferred income tax assets on an ongoing basis. The realization
of our deferred tax assets depends upon generating sufficient
future taxable income of the appropriate type during the periods
in which our temporary differences become deductible and before
our NOLs expire.

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, agency
residential mortgage-backed securities, non-agency residential
mortgage-backed
loan obligations
securities, collateralized
and commercial mortgage-backed securities. 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, 2020, we held investments in various limited
partnerships and hedge funds, in which we are not the primary
beneficiary, totaling $562.7 million (classified as other invested
assets). At December 31, 2020, we had unfunded commitments
to these partnerships totaling $91.9 million. Our maximum
exposure to loss on these investments is limited to the amount of
our investment.

Investment Borrowings

Three of the Company’s insurance subsidiaries (Bankers Life,
(“Washington
Washington National
National”) and Colonial Penn Life Insurance Company) are

Insurance Company

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, 2020, the
carrying value of the FHLB common stock was $71.0 million. As
of December 31, 2020, 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, 2020, 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
August 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
May 2025
June 2025
September 2025
October 2025
October 2025
October 2025
November 2025

27.4
22.0
100.0
10.0
50.0
50.0
50.0
50.0
50.0
50.0
22.4
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
21.7
19.5
125.0
100.0
100.0
57.7
50.0
1,642.5

Interest rate at
December 31, 2020
Fixed rate – 2.550%
Variable rate – .574%
Variable rate – .575%
Variable rate – .844%
Variable rate – .591%
Variable rate – .595%
Variable rate – .602%
Variable rate – .603%
Variable rate – .525%
Variable rate – .525%
Fixed rate – 2.160%
Variable rate – .543%
Variable rate – .543%
Variable rate – .541%
Variable rate – .634%
Variable rate – .632%
Variable rate – .633%
Variable rate – .678%
Variable rate – .561%
Variable rate – .544%
Fixed rate – 1.990%
Variable rate – .763%
Variable rate – .663%
Variable rate – .786%
Variable rate – .484%
Fixed rate – 2.940%
Variable rate – .440%
Variable rate – .630%
Variable rate – .635%
Variable rate – .610%
Variable rate – .603%

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsThe 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, 2020, the aggregate yield
maintenance fee to prepay all fixed rate borrowings was $5.8 million.

Interest expense of $21.2 million, $46.2 million and $41.9 million
in 2020, 2019 and 2018, 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.

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

We 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 $14.1 million, $24.9 million and $11.6 million during
2020, 2019 and 2018, respectively. Amounts amortized totaled
$15.4 million, $7.7 million and $10.6 million during 2020, 2019
and 2018, respectively. The unamortized balance of deferred
sales inducements was $59.4 million and $60.7 million at
December 31, 2020 and 2019, 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 and $1.1 million
related to a closed block of payout annuities), decreased tax
expense by $0.5 million and increased our net loss by $2.0 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 August 2018, the Financial Accounting Standards Board
(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

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementsrollforwards 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
through other
comprehensive income. For market risk benefits, retrospective
application is required, with the ability to use hindsight to
measure fair value components to the extent assumptions in a prior
period are unobservable or otherwise unavailable. In November
2020, the FASB issued authoritative guidance which delayed
the effective date of this guidance for the Company by one year
(until January 1, 2023). 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.

income and

subsequently

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

Fixed maturities, available for sale
Mortgage loans
Investments held by variable interest entities
Income tax assets, net
Reinsurance receivables
Total assets
Retained earnings
Total shareholders’ equity

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 $72.0 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 June 2016, the FASB issued authoritative guidance related to
the measurement of credit losses on financial instruments. The
new guidance replaces the incurred loss impairment methodology
with a methodology that reflects expected credit losses and requires
consideration of a broader range of reasonable and supportable
information to form credit loss estimates. The guidance 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 are 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 was effective for the Company on
January 1, 2020. The impact of adoption, using the modified
retrospective approach, was as follows (dollars in millions):

Amounts prior
to effect of
adoption of
authoritative
guidance
21,295.2
1,566.1
1,188.6
432.6
4,785.7
33,630.9
535.7
4,677.0

January 1, 2020

Effect of
adoption of
authoritative
guidance

(2.1) $
(6.7)
(9.9)
4.9
(4.0)
(17.8)
(17.8)
(17.8)

As adjusted
21,293.1
1,559.4
1,178.7
437.5
4,781.7
33,613.1
517.9
4,659.2

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

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

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 exclusive
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.

In January 2016, the FASB issued authoritative guidance related to
the recognition and measurement of financial assets and financial
liabilities which made targeted improvements to GAAP as follows:

(i)

Require equity investments (except those accounted for
under the equity method of accounting or those that
result in consolidation of the investee) to be measured
at fair value with changes in fair value recognized in net
income. However, an entity may choose to measure equity
investments that do not have readily determinable fair
values at cost minus impairment, if any, plus or minus
changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the
same issuer.

(ii)

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.

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

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 was effective for the Company on
January 1, 2020. The adoption of this guidance did not have a
material impact on the Company’s consolidated financial position,
results of operations or cash flows.

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 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 was effective for the Company
on January 1, 2020. The adoption of such guidance impacted
certain fair value disclosures, but did not impact our 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

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements(iii)

(iv)

(v)

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.

(vi)

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.

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

separately

Require an entity
in other
to present
comprehensive income the portion of the total change in
the fair value of a liability resulting from a change in the
instrument-specific credit risk when the entity has elected to
measure the liability at fair value in accordance with the fair
value option for financial instruments.

(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.

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.

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. 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.

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

INVESTMENTS

At December 31, 2020, the amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses and estimated fair
value of fixed maturities, available for sale, were as follows (dollars in millions):

Investment grade(a):

Corporate securities
United States Treasury securities and obligations of United States
government corporations and agencies
States and political subdivisions
Foreign governments
Asset-backed securities
Agency residential mortgage-backed securities
Non-agency residential mortgage-backed securities
Collateralized loan obligations
Commercial mortgage-backed securities

Total investment grade fixed maturities, available for sale

Below-investment grade(a)(b):

Corporate securities
States and political subdivisions
Foreign governments
Asset-backed securities
Non-agency residential mortgage-backed securities
Commercial mortgage-backed securities

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

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Allowance
for credit
losses

Estimated
fair
value

$ 11,243.2 $

2,638.9 $

(3.4) $

(.2) $

13,878.5

163.8
2,284.1
82.2
935.0
52.7
921.0
461.9
1,783.9
17,927.8

71.9
358.9
20.4
42.9
5.7
45.4
.6
114.4
3,299.1

(.2)
(1.3)
—
(4.4)
—
(.4)
(3.6)
(6.9)
(20.2)

811.5
12.5
.2
89.4
992.5
87.2
1,993.3
$ 19,921.1 $

57.4
—
—
2.2
135.8
2.0
197.4
3,496.5 $

(6.5)
—
—
(3.0)
(1.7)
(.4)
(11.6)
(31.8) $

—
(.2)
—
—
—
—
—
—
(.4)

(1.7)
(.1)
—
—
—
—
(1.8)
(2.2) $

235.5
2,641.5
102.6
973.5
58.4
966.0
458.9
1,891.4
21,206.3

860.7
12.4
.2
88.6
1,126.6
88.8
2,177.3
23,383.6

(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

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements

A summary of our fixed maturity securities, available for sale, by NAIC designations (or for fixed maturity securities held by non-regulated
entities, based on NRSRO ratings) as of December 31, 2020 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
10,512.8
$
8,267.9
18,780.7
845.8
272.7
20.9
1.0
1,140.4
19,921.1

Estimated fair
value
12,262.4
9,915.0
22,177.4
908.4
276.5
21.3
—
1,206.2
23,383.6

Percentage of total
estimated fair value

52.4%
42.4
94.8
3.9
1.2
.1
—
5.2
100.0%

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

Investment grade:

Total investment grade fixed maturities, available for sale

Below-investment grade:
Corporate securities
Asset-backed securities
Non-agency residential mortgage-backed securities
Commercial mortgage-backed securities

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

$ 10,802.6 $

1,516.0 $

(8.7) $ 12,309.9 $

161.4
2,002.1
82.6
1,289.0
89.2
768.2
404.1
1,732.2
17,331.4

43.3
246.1
13.0
35.7
5.8
23.3
.1
72.3
1,955.6

600.9
63.9
1,102.8
80.5
1,848.1
$ 19,179.5 $

28.1
1.1
149.0
3.0
181.2
2,136.8 $

(.1)
(1.5)
—
(1.0)
—
(.9)
(3.4)
(1.0)
(16.6)

(3.6)
(.8)
(.1)
—
(4.5)

204.6
2,246.7
95.6
1,323.7
95.0
790.6
400.8
1,803.5
19,270.4

625.4
64.2
1,251.7
83.5
2,024.8

(21.1) $ 21,295.2 $

—

—
—
—
—
—
(.2)
—
—
(.2)

—
—
(.1)
—
(.1)
(.3)

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, 2020 and 2019, 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
Net unrealized gains on investments having no allowance for credit losses
Unrealized losses on investments with an allowance for credit losses
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

2020

2019

—
—
3,466.3
(10.0)
(10.2)
(458.0)
(197.5)
(604.5)
2,186.1

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

(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.

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

At December 31, 2020, adjustments to the present value of future
profits, deferred acquisition costs, insurance liabilities and deferred
tax assets included $(8.6) million, $(133.4) million, $(197.5) million
and $73.7 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, 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.

Below-Investment Grade Securities

At December 31, 2020, the amortized cost of the Company’s below-
investment grade fixed maturity securities, available for sale, was
$1,993.3 million, or 10 percent of the Company’s fixed maturity
portfolio (or $1,140.4 million, or 6 percent, of the Company’s fixed
maturity portfolio measured based on credit quality ratings assigned
by the NAIC). The estimated fair value of the below-investment grade
portfolio was $2,177.3 million, or 109 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, 2020, 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, agency residential mortgage-backed
securities, non-agency residential mortgage-backed securities,
collateralized loan obligations and commercial mortgage-backed
securities, 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
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
388.7
$
987.4
1,540.4
11,681.0
14,597.5
5,323.6
19,921.1

Estimated fair value
396.4
1,052.9
1,715.6
14,566.5
17,731.4
5,652.2
23,383.6

2020

2019

2018

924.8
3.0
79.5
8.5
84.0
2.6

28.1

35.0
4.5
75.9
1,245.9
23.4
1,222.5

952.4
3.2
77.1
8.3
65.3
13.3

1,100.3
22.8
82.0
8.0
72.0
10.9

8.9

8.5

(21.2)
173.1
104.1
1,384.5
21.6
1,362.9

122.3
(165.3)
68.2
1,329.7
23.5
1,306.2

At December 31, 2020, the amortized cost and carrying value of fixed maturities that were non-income producing during 2020 totaled
$1.0 million and nil, respectively.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsNet Realized Investment Gains (Losses)

The following table sets forth the net realized investment gains (losses) for the periods indicated (dollars in millions):

Fixed maturity securities, available for sale:

Gross realized gains on sale
Gross realized losses on sale
Change in allowance for credit losses and other-than-temporary impairment losses(a)

Net realized investment gains (losses) from fixed maturities

Equity securities, including change in fair value(b)
Mortgage loans
Change in allowance for credit losses and impairments of other investments(c)
Loss on dissolution of variable interest entities
Other(d)(e)

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 (LOSSES)

2020

2019

2018

48.6
(53.7)
(8.2)
(13.3)
(5.1)
(1.9)
(10.3)
—
(5.6)

(36.2)
—
(36.2)

86.5
(55.5)
(9.4)
21.6
11.9
—
(3.0)
(5.1)
2.8

28.2
—
28.2

65.7
(65.8)
(.5)
(.6)
(38.2)
(1.3)
(2.1)
—
30.9

(11.3)
363.4
352.1

(a) No portion of the other-than-temporary impairments recognized in 2019 and 2018 was included in accumulated other comprehensive income.

(b) Changes in the estimated fair value of equity securities (and are still held as of the end of the respective years) were $(1.7) million, $3.7 million and $(29.7) million

for the years ended December 31, 2020, 2019 and 2018, respectively.

(d) Changes in the estimated fair value of trading securities that we have elected the fair value option (and are still held as of the end of the respective years) were $0.4

million, $8.3 million and $(2.2) million for the years ended December 31, 2020, 2019 and 2018, respectively.

(e) 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 2020, we recognized net realized investment losses
of $36.2 million, which were comprised of: (i) $15.1 million
of net losses from the sales of investments; (ii) $5.1 million of
losses related to equity securities, including the change in fair
value; (iii) the decrease in fair value of certain fixed maturity
investments with embedded derivatives of $0.1 million; (iv) the
increase in fair value of embedded derivatives related to a modified
coinsurance agreement of $2.6 million; and (v) an increase
in the allowance for credit losses and other-than-temporary
impairment losses of $18.5 million.

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, a VIE that was required to be consolidated was
dissolved. We recognized a loss of $5.1 million in 2019 representing
the difference between the borrowings of such VIE 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.

At December 31, 2020, there were no fixed maturity investments
in default.

During 2020, the $53.7 million of realized losses on sales of
$507.1 million of fixed maturity securities, available for sale,
included: (i) $16.2 million related to various corporate securities;
(ii) $26.1 million related to commercial mortgage-backed
securities; (iii) $9.6 million related to asset-backed securities; and
(iv) $1.8 million related to various other investments. Securities are
generally sold at a loss following unforeseen issuer-specific events
or conditions or shifts in perceived relative values. These reasons
include but are not limited to: (i) changes in the investment
environment; (ii) expectation that the market value could
deteriorate; (iii) our desire to reduce our exposure to an asset class,
an issuer or an industry; (iv) prospective or actual changes in credit
quality; or (v) changes in expected portfolio cash flows.

During 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 loan obligations; and
(iii) $2.0 million related to various other investments.

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) $0.5 million
related to a corporate security.

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 2020 which had been continuously in an unrealized loss position exceeding
20 percent of the amortized cost basis prior to the sale for the period indicated (dollars in millions):

Less than 6 months prior to sale
Greater than or equal to 6 months and less than 12 months prior to sale
Greater than 12 months prior to sale

Prior to January 1, 2020, we regularly evaluated all of our
investments with unrealized losses for possible impairment.
Our assessment of whether unrealized losses were “other than
temporary” required significant judgment. Factors considered
included: (i) the extent to which fair value is less than the cost
basis; (ii) the length of time that the fair value had been less
than cost; (iii) whether the unrealized loss was 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
was investment-grade and/or has been downgraded since its
purchase; (vi) whether the issuer was current on all payments
in accordance with the contractual terms of the investment and
was expected to meet all of its obligations under the terms of the
investment; (vii) whether we intended to sell the investment or it
was more likely than not that circumstances would 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 would 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.

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

CNO FINANCIAL GROUP, INC. - Form 10-K

At date of sale

Number of issuers
18
1
1
20

Amortized cost
51.6
$
3.1
1.1
55.8

Fair value
36.6
1.9
—
38.5

For most structured securities, cash flow estimates were
based on bond-specific facts and circumstances that included
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 were
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 became the security’s new
cost basis. We accreted the new cost basis to the estimated future
cash flows over the expected remaining life of the security, except
when the security was in default or considered nonperforming.

Mortgage loans were impaired when it was probable that we would
not collect the contractual principal and interest on the loan. We
measured 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.

PART IIITEM 8 Consolidated Financial StatementsThe following table summarizes the amount of credit losses recognized in earnings on fixed maturity securities, available for sale, held
at the beginning of the period, for which a portion of the other-than-temporary impairment was also recognized in accumulated other
comprehensive income (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
—
—
—

(.2)

(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, 2020, 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

8.0 $
51.7
86.4
181.3
327.4
1,088.3
1,415.7 $

Estimated fair value
8.0
50.4
84.8
170.6
313.8
1,067.9
1,381.7

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, 2020 (dollars in millions):

Less than 6 months

Number
of issuers

Cost
basis

Unrealized
loss

Estimated
fair value

1 $

14.1

(2.9 ) $

11.2

The following table summarizes the gross unrealized losses and fair values of our investments with unrealized losses for which an allowance
for credit losses has not been recorded, aggregated by investment category and length of time that such securities have been in a continuous
unrealized loss position, at December 31, 2020 (dollars in millions):

Description of securities
Corporate securities
United States Treasury securities and obligations of United
States government corporations and agencies
States and political subdivisions
Asset-backed securities
Non-agency residential mortgage-backed securities
Collateralized loan obligations
Commercial mortgage-backed securities

TOTAL FIXED MATURITIES, AVAILABLE FOR SALE

Less than 12 months

12 months or greater

Total

Fair value
110.0
$

Unrealized
losses
(2.6)

Unrealized

Fair value
5.6
$

losses Fair value
115.6

(.2) $

Unrealized
losses
(2.8)

17.9
8.6
146.9
173.2
151.4
277.0
885.0

(.2)
(.1)
(4.1)
(1.5)
(1.5)
(6.3)
(16.3)

—
—
26.0
42.2
178.7
72.3
324.8

17.9
—
8.6
—
172.9
(3.3)
215.4
(.6)
330.1
(2.1)
(1.0)
349.3
(7.2) $ 1,209.8

(.2)
(.1)
(7.4)
(2.1)
(3.6)
(7.3)
(23.5)

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):

Less than 12 months

12 months or greater

Total

Description of securities
Corporate securities
United States Treasury securities and obligations of United
States government corporations and agencies
States and political subdivisions
Foreign governments
Asset-backed securities
Agency residential mortgage-backed securities
Non-agency residential mortgage-backed securities
Collateralized loan obligations
Commercial mortgage-backed securities

TOTAL FIXED MATURITIES, AVAILABLE FOR SALE

Fair value
305.5
$

7.0
110.1
3.4
75.7
8.8
137.4
220.7
394.2
$ 1,262.8

Unrealized
losses
(6.6)

Unrealized

Fair value
96.8
$

losses Fair value
402.3

(5.7) $

Unrealized
losses
(12.3)

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

3.5
—
—
45.5
—
67.2
115.4
12.8
341.2

—
—
—
(1.4)
—
(.3)
(2.3)
—

10.5
110.1
3.4
121.2
8.8
204.6
336.1
407.0
(9.7) $ 1,604.0

(.1)
(1.5)
—
(1.8)
—
(1.0)
(3.4)
(1.0)
(21.1)

Based on management’s current assessment of investments
with unrealized losses at December 31, 2020, 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.

The following table summarizes changes in the allowance for credit losses related to fixed maturities, available for sale, for the year
ended December 31, 2020 (dollars in millions):

Allowance at January 1, 2020

Additions for securities for which credit losses were not
previously recorded
Additions for purchased securities with deteriorated credit
Additions (reductions) for securities where an allowance
was previously recorded
Reduction for securities sold during the period
Reduction for securities for which the Company made the
decision to sell where an allowance was previously recorded
Write-offs
Recoveries of previously written-off amount
ALLOWANCE AT DECEMBER 31, 2020

Non-
agency
residential
mortgage-
backed
securities

Asset-
backed
securities

Foreign
governments

States and
political
subdivisions
$

— $

.7
—

(.4)
—

—
—
—
.3

— $

.1
—

(.1)
—

—
—
—
— $

1.0
—

(1.0)
—

—
—
—
— $

.3
—

(.3)
—

—
—
—
— $

Total
2.1

25.7
—

(24.1)
(1.5)

—
—
—
2.2

Corporate
securities
2.1
$

23.6
—

(22.3)
(1.5)

—
—
—
1.9

Structured Securities

At December 31, 2020, fixed maturity investments included
structured securities with an estimated fair value of $5.7 billion
(or 24.2 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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsHistorically, the rate of prepayments on structured securities
has tended to increase when prevailing interest rates have
declined significantly in absolute terms and also relative to
the interest rates on the underlying collateral. The yields
recognized on structured securities purchased at a discount to
par will generally increase (relative to the stated rate) when the
underlying collateral prepays faster than expected. The yields
recognized on structured securities purchased at a premium
will decrease (relative to the stated rate) when the underlying
collateral prepays faster than expected. When interest rates
decline, the proceeds from prepayments may be reinvested at
lower rates than we were earning on the prepaid securities.
When interest rates increase, prepayments may decrease below
expected levels. When this occurs, the average maturity and
duration of structured securities increases, decreasing the yield
on structured securities purchased at discounts and increasing
the yield on those purchased at a premium because of a decrease
in the annual amortization of premium.

For structured securities included in fixed maturities, available
for sale, that were purchased at a discount or premium, we
recognize investment income using an effective yield based on
anticipated future prepayments and the estimated final maturity
of the securities. Actual prepayment experience is periodically
reviewed and effective yields are recalculated when differences
arise between the prepayments originally anticipated and the
actual prepayments received and currently anticipated. For

credit sensitive mortgage-backed and asset-backed securities,
and for securities that can be prepaid or settled in a way that
we would not recover substantially all of our investment, the
effective yield is recalculated on a prospective basis. Under
this method, the amortized cost basis in the security is not
immediately adjusted and a new yield is applied prospectively.
For all other structured and asset-backed securities, the effective
yield is recalculated when changes in assumptions are made,
and reflected in our income on a retrospective basis. Under
this method, the amortized cost basis of the investment in the
securities is adjusted to the amount that would have existed had
the new effective yield been applied since the acquisition of the
securities. Such adjustments were not significant in 2020.

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, 2020, summarized by type of security, were as follows
(dollars in millions):

Type
Asset-backed securities
Agency residential mortgage-backed securities
Non-agency residential mortgage-backed securities
Collateralized loan obligations
Commercial mortgage-backed securities

TOTAL STRUCTURED SECURITIES

collateralized

agency-guaranteed

Residential mortgage-backed securities (“RMBS”) include
and
transactions
non-agency mortgage obligations. Non-agency RMBS
investments are primarily categorized by underlying borrower
credit quality: Prime, Alt-A, Non-Qualified Mortgage (“Non-
QM”), and Subprime. Prime borrowers typically default
with the lowest frequency, Alt-A and Non-QM default
at higher rates, and Subprime borrowers default with the
highest frequency. In addition to borrower credit categories,
RMBS investments include Re-Performing Loan (“RPL”) and
Credit Risk Transfer (“CRT”) transactions. RPL transactions
include borrowers with prior difficulty meeting the original
mortgage terms and were subsequently modified, resulting
in a sustainable payback arrangement. CRT securities are
collateralized by Government-Sponsored Enterprise (“GSE”)
conforming mortgages and Prime borrowers, but without an
agency guarantee against default losses.

Commercial mortgage-backed
(“CMBS”) are
secured by commercial real estate mortgages, generally income
producing properties that are managed for profit. Property
types include multi-family dwellings including apartments,

securities

Estimated fair value

Amount
1,062.1
58.4
2,092.6
458.9
1,980.2
5,652.2

Percent of fixed
maturities

4.5%
.3
8.9
2.0
8.5
24.2%

Amortized cost
1,024.4
52.7
1,913.5
461.9
1,871.1
5,323.6

retail centers, hotels, restaurants, hospitals, nursing homes,
warehouses, and office buildings. While most CMBS 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

Mortgage loans are carried at amortized unpaid balance, net
of allowance for estimated credit 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.

The allowance for estimated credit losses is measured using a
loss-rate method on an individual asset basis. Inputs used include
asset-specific characteristics, current economic conditions,
historical loss information and reasonable and supportable
forecasts about future economic conditions.

CNO FINANCIAL GROUP, INC. - Form 10-KPART IIITEM 8 Consolidated Financial StatementsAt December 31, 2020, the mortgage loan balance was primarily
comprised of commercial mortgage loans. Approximately
14 percent, 10 percent, 8 percent and 7 percent of the commercial
mortgage loan balance were on properties located in California,
Texas, Maryland and Wisconsin, respectively. No other state
comprised greater than six percent of the commercial mortgage
loan balance. At December 31, 2020, there were no commercial
mortgage loans in process of foreclosure. At December 31, 2020,

we held residential mortgage loan investments with a carrying
value of $84.8 million and a fair value of $84.9 million. At
December 31, 2020, there were 19 residential mortgage loans
that were noncurrent with a carrying value of $6.1 million
(of which, 15 such loans with a carrying value of $5.1 million
were in forbearance and 3 loans with a carrying value of
$0.5 million were in foreclosure). There were no other mortgage
loans that were noncurrent at December 31, 2020.

The following table provides the amortized cost by year of origination and estimated fair value of our outstanding commercial
mortgage loans and the underlying collateral as of December 31, 2020 (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%
90% or greater

TOTAL

2020
29.0 $
—
18.8
—
—
47.8

2019
81.5 $
7.3
12.2
—
—
$ 101.0

2018
139.7 $
8.6
—
—
—
$ 148.3

2017
84.1 $
10.8
—
—
—
94.9

2016
76.7 $
19.4
—
—
10.0
$ 106.1

Prior
608.0 $ 1,019.0 $
72.7
43.1
63.8
—
$ 787.6

118.8
74.1
63.8
10.0
$ 1,285.7

Mortgage
loans
1,074.4 $
121.7
73.8
61.2
8.8

Collateral
2,899.3
182.0
101.0
76.5
10.7
$ 1,339.9 $ 3,269.5

Total
amortized
cost

(a) Loan-to-value ratios are calculated as the ratio of: (i) the amortized cost of the commercial mortgage loans; to (ii) the estimated fair value of the underlying collateral.

The following table summarizes changes in the allowance for credit losses related to mortgage loans for the year ended December 31, 2020
(dollars in millions):

Allowance for credit losses at January 1, 2020

Current period provision for expected credit losses
Initial allowance recognized for purchased financial assets with credit deterioration
Write-offs charged against the allowance
Recoveries of amounts previously written off

ALLOWANCE FOR CREDIT LOSSES AT DECEMBER 31, 2020

Other Investment Disclosures

Mortgage loans
6.7
5.1
—
—
—
11.8

Life insurance companies are required to maintain certain investments on deposit with state regulatory authorities. Such assets had
aggregate carrying values of $40.1 million and $39.6 million at December 31, 2020 and 2019, respectively.

The Company had no fixed maturity investments that were in excess of 10 percent of shareholders’ equity at December 31, 2020 and 2019.

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.

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsValuation Hierarchy

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

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

• Level 2 – includes assets and liabilities valued using inputs
that are quoted prices for similar assets in an active market,
quoted prices for identical or similar assets in a market that
is not active, observable inputs, or observable inputs that can
be corroborated by market data. Level 2 assets and liabilities
include those financial instruments that are valued by
independent pricing services using models or other valuation
methodologies. These models consider various inputs such
as credit rating, maturity, corporate credit spreads, reported
trades and other inputs that are observable or derived from
observable information in the marketplace or are supported by
transactions executed in the marketplace. Financial assets in
this category primarily include: certain publicly registered and
privately placed corporate fixed maturity securities; certain
government or agency securities; certain mortgage and asset-
backed securities; certain equity securities; most investments
held by our consolidated VIEs; and 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, certain structured securities, mortgage loans, and
other less liquid securities. Financial liabilities in this category
include our insurance liabilities for interest-sensitive products,
which includes embedded derivatives (including embedded
derivatives related to our fixed index annuity products and to
a modified coinsurance arrangement) since their values include
significant unobservable inputs including actuarial assumptions.

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

The vast majority of our fixed maturity and equity securities, including
those held in trading portfolios and those held by consolidated VIEs
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.

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, agency and non-agency residential mortgage-
backed securities, collateralized loan obligations and commercial
mortgage-backed securities 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

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

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 85 percent
of our Level 3 fixed maturity securities and trading securities were
valued using unadjusted broker quotes or broker-provided valuation
inputs. The remaining Level 3 fixed maturity investments do not
have readily determinable market prices and/or observable inputs.
For these securities, we use internally developed valuations. Key
assumptions used to determine fair value for these securities may
include risk premiums, projected performance of underlying
collateral and other factors involving significant assumptions which
may not be reflective of an active market. For certain investments,
we use a matrix or model process to develop a security price where
future cash flow expectations are discounted at an estimated market
rate. The pricing matrix incorporates term interest rates as well as a
spread level based on the issuer’s credit rating, other factors relating
to the issuer, and the security’s maturity. In some instances issuer-
specific spread adjustments, which can be positive or negative, are
made based upon internal analysis of security specifics such as
liquidity, deal size, and time to maturity.

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at
December 31, 2020 is as follows (dollars in millions):

ASSETS:

Fixed maturities, available for sale:

Equity securities - corporate securities
Trading securities:

Asset-backed securities
Agency residential mortgage-backed securities
Non-agency residential mortgage-backed securities
Commercial mortgage-backed securities

Total trading securities

Investments held by variable interest entities - corporate securities
Other invested assets - derivatives
Assets held in separate accounts

TOTAL ASSETS CARRIED AT FAIR VALUE BY CATEGORY
LIABILITIES:

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

100

CNO FINANCIAL GROUP, INC. - Form 10-K

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

Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total

— $

14,592.3 $

146.9 $ 14,739.2

—
—
—
—
—
—
—
—
—
104.6

—
—
—
—
—
—
—
—
104.6

235.5
2,653.9
102.8
1,047.8
58.4
2,091.0
458.9
1,980.2
23,220.8
19.8

10.4
.4
92.0
106.3
209.1
1,189.4
216.7
4.2
24,860.0

—
—
—
14.3
—
1.6
—
—
162.8
26.8

—
—
5.9
17.0
22.9
—
—
—
212.5

235.5
2,653.9
102.8
1,062.1
58.4
2,092.6
458.9
1,980.2
23,383.6
151.2

10.4
.4
97.9
123.3
232.0
1,189.4
216.7
4.2
$ 25,177.1

— $

1,644.5

PART IIITEM 8 Consolidated Financial Statements

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):

ASSETS:

Fixed maturities, available for sale:

Equity securities - corporate securities
Trading securities:

Asset-backed securities
Agency residential mortgage-backed securities
Non-agency residential mortgage-backed securities
Commercial mortgage-backed securities

Total trading securities

Investments held by variable interest entities - corporate securities
Other invested assets - derivatives
Assets held in separate accounts

TOTAL ASSETS CARRIED AT FAIR VALUE BY CATEGORY
LIABILITIES:

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

— $

12,756.5 $

178.8 $

12,935.3

—
—
—
—
—
—
—
—
—
31.3

—
—
—
—
—
—
—
—
31.3

204.6
2,246.7
94.5
1,375.3
95.0
2,042.3
400.8
1,887.0
21,102.7
4.5

12.1
.4
113.4
105.5
231.4
1,188.6
203.8
4.2
22,735.2

—
—
1.1
12.6
—
—
—
—
192.5
8.3

204.6
2,246.7
95.6
1,387.9
95.0
2,042.3
400.8
1,887.0
21,295.2
44.1

—
—
—
12.5
12.5
—
—
—

12.1
.4
113.4
118.0
243.9
1,188.6
203.8
4.2
213.3 $ 22,979.8

— $

1,565.4 $

1,565.4

The fair value of 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, 2020
Significant
other observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Total
estimated
fair value

Total
carrying
amount

— $
—

—

937.8
54.1

—
—
—
—

— $
—

1,424.8 $
123.0

1,424.8 $ 1,358.7
123.0

123.0

209.7

—
—

—
1,648.3
1,141.7
1,326.8

—

—
—

209.7

937.8
54.1

12,540.6
—
—
—

12,540.6 12,540.6
1,642.5
1,648.3
1,151.8
1,141.7
1,136.2
1,326.8

101

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

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

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

— $
—

—

579.9
74.7

—
—
—
—

— $
—

194.0

.1
—

—
1,647.9
1,142.1
1,117.2

1,651.4 $ 1,651.4 $ 1,566.1
124.5

124.5

—

—
—

194.0

580.0
74.7

12,132.3
—
—
—

12,132.3 12,132.3
1,644.3
1,647.9
1,152.5
1,142.1
989.1
1,117.2

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, 2020 (dollars in millions):

December 31, 2020

Total
realized
and
unrealized
gains
(losses)
included in
net income

Total realized
and unrealized
gains (losses)
included in
accumulated
other
comprehensive
income (loss)

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

Beginning
balance as of
December 31,
2019

Transfers
into
Level 3(a)

Transfers
out of
Level 3(a)

Ending
balance as of
December 31,
2020

Amount of
total gains
(losses) for the
year ended
December
31, 2020
included in
our net income
relating to
assets and
liabilities still
held as of the
reporting date

Amount of total
gains (losses) for
the year ended
December 31, 2020
included in
accumulated other
comprehensive
income (loss)
relating to assets
and liabilities
still held as of the
reporting date

ASSETS:

Fixed maturities,
available for sale:

Corporate securities
Foreign governments
Asset-backed securities
Non-agency residential
mortgage-backed
securities

Total fixed maturities,
available for sale

Equity securities -
corporate securities
Trading securities:

Non-agency residential
mortgage-backed
securities
Commercial mortgage-
backed securities

Total trading securities

LIABILITIES:

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

178.8 $
1.1
12.6

—

192.5

8.3

—

12.5
12.5

17.8
—
1.5

1.6

20.9

14.0

(2.0)

4.3
2.3

(.9)
—
—

—

(.9)

(.1)

(.4)
(.5)

10.2
—
.2

$ 90.6 $ (149.6)
(1.1)
—

—
—

146.9 $
—
14.3

(1.0) $
—
—

—

10.4

90.6

(150.7)

—

4.2

—

.6
1.0

7.6

—
7.6

—

—
—

1.6

162.8

26.8

5.9

17.0
22.9

—

(1.0)

—

(.1)

(.4)
(.5)

7.2
—
.2

—

7.4

—

—
—

(1,565.4)

(157.0)

77.9

—

(1,644.5)

77.9

—

(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, 2020 (dollars in millions):

102

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements

ASSETS:

Fixed maturities, available for sale:

Corporate securities
Asset-backed securities
Non-agency residential mortgage-backed securities

Total fixed maturities, available for sale

Equity securities - corporate securities
Trading securities:

Non-agency residential mortgage-backed securities
Commercial mortgage-backed securities
Total trading securities

LIABILITIES:

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

Purchases

Sales

Issuances

Settlements

Purchases, sales, issuances
and settlements, net

20.5 $
2.0
1.6
24.1
14.3

—
4.3
4.3

(2.7) $
(.5)
—
(3.2)
(.3)

(2.0)
—
(2.0)

— $
—
—
—
—

—
—
—

— $
—
—
—
—

—
—
—

17.8
1.5
1.6
20.9
14.0

(2.0)
4.3
2.3

(183.7)

119.3

(180.1)

87.5

(157.0)

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

ASSETS:

Fixed maturities,
available for sale:

Corporate securities
Foreign governments
Asset-backed securities

158.6 $
1.0
12.0

(34.3) $
—
(.6)

(4.6) $
—
—

12.9 $
.1
1.2

46.2 $
—
—

— $
—
—

171.6

(34.9)

9.5

—

(4.6)

(1.2)

1.6

14.2

46.2

—

10.3

—

178.8 $
1.1
12.6

192.5

8.3

(4.0)
—
—

(4.0)

(1.2)

12.5

1.6

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)

(1,289.0)

(193.5)

(82.9)

—

(1,565.4)

(82.9)

103

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

ASSETS:

Fixed maturities, available for sale:

Corporate securities
Asset-backed securities

Total fixed maturities, available for sale

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)

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

(154.9)

7.2

(138.0)

92.2

(193.5)

Realized and unrealized investment gains and losses presented in
the preceding tables represent gains and losses during the time the
applicable financial instruments were classified as Level 3.

Realized and unrealized gains (losses) on Level 3 assets are
primarily reported in either net investment income for policyholder
and other special-purpose portfolios, net realized investment
gains (losses) or insurance policy benefits within the consolidated
statement of operations or accumulated other comprehensive
income within shareholders’ equity based on the appropriate
accounting treatment for the instrument.

The amount presented for gains (losses) included in our net 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 amount presented for gains (losses) included in accumulated
other comprehensive income (loss) for assets and liabilities still
held as of the reporting date primarily represents changes in the
fair value of fixed maturities, available for sale, that are held as of
the reporting date.

At December 31, 2020, 92 percent of our Level 3 fixed maturities,
available for sale, were investment grade and 90 percent of our
Level 3 fixed maturities, available for sale, consisted of corporate
securities.

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, 2020 (dollars in millions):

Fair value at
December 31, 2020

Valuation techniques

Unobservable inputs

Range
(weighted average)(a)

ASSETS:

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

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

Total
LIABILITIES:

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

13.4
12.3
8.3

Discounted cash flow analysis
Discounted cash flow analysis
Recovery method

18.6
Unadjusted purchase price
159.9 Unadjusted third-party price source
212.5

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

1.90% - 5.59% (3.24%)
2.46%
59.27% - 100.00%
(59.52%)
Not applicable
Not applicable

1,644.5

Discounted projected embedded
derivatives

Projected portfolio yields
Discount rates

4.12% - 4.38% (4.13%)
0.00% - 2.64% (1.03%)

Surrender rates

1.60% - 25.60% (9.40%)

(a) The weighted average is based on the relative fair value of the related assets or liabilities.

(b) 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 have resulted in a significantly lower (higher) 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 have resulted 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 have resulted in a significantly higher (lower) fair value measurement.

(e) Equity securities – For these assets, there were no adjustments to the purchase price.

(f) Other assets categorized as Level 3 - For these assets, there were no adjustments to non-binding 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 have led 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 have led 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.

104

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, 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)

134.2

Discounted cash flow analysis

1.0
12.6

Recovery method
Discounted cash flow analysis

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

8.3
Recovery method
57.2 Unadjusted third-party price source

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

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

213.3

1,565.4

Discounted projected embedded
derivatives

Projected portfolio yields
Discount rates
Surrender rates

4.71% - 4.98% (4.72%)
1.24% - 3.07% (1.88%)
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 non-binding 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.

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
Not
applicable
Company
experience
Company
experience
Not
applicable

Mortality
assumption
Company
experience

(a)

Company
experience
Company
experience

(b)

Average
interest rate
assumption

2020

2019

6% $

5,455.8

5,414.1

2,556.3

3,214.9

73.9

2,505.2

3,079.4

62.1

443.3
11,744.2 $

437.7
11,498.5

(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.

105

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

2020
8,111.4
3,209.0
1,220.2
12,540.6 $

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

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

2020
1,921.2
(993.2)
928.0

1,177.8
(75.2)
1,102.6
36.8

(766.1)
(357.8)
(1,123.9)
—
943.5
881.5
1,825.0

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

(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:

Carryback of net operating losses to years with a higher statutory corporate rate
pursuant to provisions of the CARES Act (as defined below)
Change in valuation allowance
Other items

TOTAL INCOME TAX EXPENSE (BENEFIT)

2020
(24.0)
100.5
—
76.5
—

(34.0)
—
—
42.5

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

The Coronavirus Aid, Relief, and Economic Security
(“CARES”) Act, a tax-and-spending package intended to provide
economic relief to address the impact of the novel coronavirus
(“COVID-19”) pandemic, was signed into law in March 2020.
Provisions in the CARES Act permit NOLs arising in a taxable
year beginning after December 31, 2017, and before January

1, 2021 to be allowed as a carryback to each of the five taxable
years preceding the taxable year of such loss. Accordingly, we are
able to carryback the NOL created in 2018 related to the long-
term care reinsurance transaction to 2017 and 2016 resulting
in a $34.0 million tax benefit from the difference in tax rates
between the current enacted rate of 21% and the enacted rate

106

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statementsin 2016 and 2017 of 35%. This provision also accelerated the
utilization of approximately $375 million of life NOLs and
restored approximately $130 million of non-life NOLs. Further,
the CARES Act temporarily repeals the 80 percent limitation for
taxable years beginning before January 1, 2021 (as required under
the Tax Cuts and Job Act (the “Tax Reform Act”)). This provision

resulted in the acceleration of approximately $105 million of life
NOLs and restored approximately $35 million of non-life NOLs.
Our current income tax asset at December 31, 2020, includes a
receivable of $99.2 million related to refunds resulting from the
NOL utilization provisions of the CARES Act.

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
Carryback of net operating losses to years with a higher statutory corporate rate
pursuant to provisions of the CARES Act

EFFECTIVE TAX RATE

2020
21.0 %
—
(.4)
1.6

(9.9)
12.3 %

2019
21.0 %
(70.6)
(1.0)
1.3

—
(49.3)%

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
Current income taxes prepaid

INCOME TAX ASSETS, NET

2020

339.2
2.7
386.4
105.7
43.0
877.0

(29.5)
(133.8)
(604.3)
(767.6)
109.4
90.0
199.4

2018
21.0 %
(39.5)
.6
(1.1)

—
(19.0)%

2019

532.3
10.3
351.3
50.3
40.4
984.6

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

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

A reduction of the net carrying amount of deferred tax assets
by establishing a valuation allowance is required if, based on the
available evidence, it is more likely than not that such assets will
not be realized. In assessing the need for a valuation allowance, all
available evidence, both positive and negative, shall be considered
to determine whether, based on the weight of that evidence,
a valuation allowance for deferred tax assets is needed. This
assessment requires significant judgment and considers, among
other matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the duration
of carryforward periods, our experience with operating loss and
tax credit carryforwards expiring unused, and tax planning
strategies.

We evaluate the need to establish a valuation allowance for our
deferred income tax assets on an ongoing basis 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, tax planning strategies and the COVID-19 pandemic.
Our estimates of future taxable income are based on evidence we
consider to be objectively verifiable. At December 31, 2020, our
projection of future taxable income for purposes of determining
the valuation allowance was based on our estimates of such
future taxable income through the date our NOLs expire. Such
estimates are subject to the risks and uncertainties associated with
the COVID-19 pandemic and the extent to which actual impacts
differ from the assumptions used in our deferred tax valuation
model. Based on our assessment, we have concluded that it is more
likely than not that all our deferred tax assets of $109.4 million
will be realized through future taxable earnings.

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

107

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K
in the valuation allowance in a future period. Any future increase
in the valuation allowance may result in additional income tax
expense and reduce shareholders’ equity, and such an increase
could have a significant impact upon our earnings in the future.

In the fourth quarter of 2019, the Company implemented a tax
planning strategy whereby, pursuant to the Internal Revenue

Code (the “Code”), the Company reflected 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.

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

Balance, December 31, 2017

Increase in 2018

Balance, December 31, 2018

Decrease in 2019

Balance, December 31, 2019

89.1
104.6(a)
193.7
(193.7)(b)
—

(a) 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.

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

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

Section 382 Rights Agreement extended the expiration date of the
Section 382 Rights Agreement to November 13, 2023, updated
the purchase price of the rights described below and provided
for a new series of preferred stock relating to the rights that is
substantially identical to the prior series of preferred stock. The
Company expects to submit the Fourth Amended and Restated
Section 382 Rights Agreement to the Company’s stockholders for
approval at the Company’s 2021 annual meeting.

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 (.99 percent at December 31, 2020), 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, 2020, 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 four times, most recently effective
November 13, 2020 (the “Fourth Amended and Restated Section
382 Rights Agreement”). The Fourth Amended and Restated

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 Fourth Amended and
Restated 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.

108

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsWe have $1.6 billion of federal NOLs as of December 31, 2020, 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

Net operating loss
carryforwards

1,028.7
85.2
149.9
10.8
80.3
213.2
.3
.2
44.4
.6
.9
.8
1,615.3

Our life NOLs have been fully utilized in 2020. Our non-life
NOLs can be used to offset 35 percent of life insurance company
taxable income and 100 percent of non-life company taxable
income until all non-life NOLs are utilized or expire.

We also had deferred tax assets related to NOLs for state income
taxes of $2.7 million and $10.3 million at December 31, 2020 and
2019, respectively. The related state NOLs are available to offset
future state taxable income in certain states and are expected to be
fully utilized prior to expiration.

There were no unrecognized tax benefits in either 2020 or 2019.

The federal statute of limitations remains open with respect to tax
years 2016 through 2020. 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.

7. NOTES PAYABLE - DIRECT CORPORATE OBLIGATIONS

The following notes payable were direct corporate obligations of the Company as of December 31, 2020 and 2019 (dollars in millions):

5.250% Senior Notes due May 2025
5.250% Senior Notes due May 2029
5.125% Subordinated Debentures due 2060
Revolving Credit Agreement (as defined below)
Unamortized debt issuance costs

DIRECT CORPORATE OBLIGATIONS

2020
500.0
500.0
150.0
—
(13.8)
1,136.2

2019
500.0
500.0
—
—
(10.9)
989.1

Subordinated Debentures due 2060

In November 2020, the Company issued $150.0 million of
5.125% Subordinated Debentures due 2060 (the “Debentures”).
The terms of the Debentures are set forth in the Indenture, dated
as of June 12, 2019 (the “2019 Base Indenture”) as supplemented
by the Second Supplemental Indenture, dated as of November
25, 2020 (the “2020 Supplemental Indenture” and, together with
the 2019 Base Indenture, the “2020 Indenture”), each between
the Company and U.S. Bank National Association, as trustee
(the “Trustee”). The Debentures bear interest at an annual rate

of 5.125%, payable quarterly in arrears on February 25, May 25,
August 25 and November 25 commencing on February 25, 2021.
The Debentures mature on November 25, 2060. The Company
used the net proceeds from the issuance of the Debentures for
general corporate purposes.

The Debentures are unsecured and rank junior to all existing and
future senior indebtedness (including the 2025 Notes and 2029
Notes, each as defined below). In addition, the Debentures are
structurally subordinated to all existing and future indebtedness
and other liabilities of the Company’s subsidiaries.

109

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe Company may redeem the Debentures:

(i)

(ii)

(iii)

in whole at any time or in part from time to time on or
after November 25, 2025, at a redemption price equal to
their principal amount plus accrued and unpaid interest
to, but excluding, the date of redemption; provided that
if the Debentures are not redeemed in whole, at least
$25 million aggregate principal amount of the Debentures
must remain outstanding after giving effect to such
redemption;

in whole, but not in part, at any time prior to
November 25, 2025, within 90 days of the occurrence of
a “tax event” or a “regulatory capital event” (as such terms
are defined in the 2020 Indenture) at a redemption price
equal to their principal amount plus accrued and unpaid
interest to, but excluding, the date of redemption; or

in whole, but not in part, at any time prior to
November 25, 2025, within 90 days of the occurrence of a
“rating agency event” (as such term is defined in the 2020
Indenture) at a redemption price equal to 102% of their
principal amount plus any accrued and unpaid interest to,
but excluding, the date of redemption.

The 2020 Indenture contains covenants that will limit the ability
of the Company and certain of its subsidiaries to consolidate,
merge or sell, lease, transfer or otherwise dispose of its properties
and assets substantially as an entirety.

An event of default with respect to the Debentures will occur only
upon certain events of our bankruptcy, insolvency or receivership
(as specified in the 2020 Indenture).

2029 Notes

On June 12, 2019, the Company executed 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 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 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.

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.

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.

110

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe 2025 Notes are 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.

Prior to February 28, 2025, the Company may redeem some
or all of the 2025 Notes at any time or from time to time at a
“make-whole” redemption price plus accrued and unpaid
interest to, but not including, the redemption date. On and after
February 28, 2025, the Company may redeem some or all of the
2025 Notes at any time or from time to time at a redemption price
equal to 100% of the principal amount thereof plus accrued and
unpaid interest to, but not including, the redemption date.

Upon the occurrence of a Change of Control Repurchase Event
(as defined in the 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.

Revolving Credit Agreement

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
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, 2020.

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;

• restricted payments during the continuance of an event of

default;

• disposition of assets and sale and leaseback transactions;

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

• transactions with affiliates;

• change in business;

• fundamental changes;

• modification of certain agreements; and

• changes to fiscal year.

111

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe 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 26.4 percent at
December 31, 2020); (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 411 percent at December 31, 2020); 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 $3,298.1 million at December 31, 2020 compared to the
minimum requirement of $2,700.5 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, 2020 (dollars in millions):

Year ending December 31,
2021
2022
2023
2024
2025
Thereafter

—
—
—
—
500.0
650.0
1,150.0

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

112

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements
damages typically are indeterminate or not factually supported
in the complaint, and, in any event, the Company’s experience
indicates that monetary demands for damages often bear little
relation to the ultimate loss. In some cases, plaintiffs are seeking
to certify classes in the litigation and class certification either has
been denied or is pending and we have filed oppositions to class
certification or sought to decertify a prior class certification. In
addition, for many of these cases: (i) there is uncertainty as to the
outcome of pending appeals or motions; (ii) there are significant
factual issues to be resolved; and/or (iii) there are novel legal issues
presented. Accordingly, the Company cannot reasonably estimate
the possible loss or range of loss in excess of amounts accrued,
if any, or predict the timing of the eventual resolution of these
matters. The Company reviews these matters on an ongoing basis.
When assessing reasonably possible and probable outcomes, the
Company bases its assessment on the expected ultimate outcome
following all appeals.

On April 9, 2019, Bankers Conseco Life Insurance Company
(“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”). BCLIC and Washington National seek an unspecified
amount of damages, costs, attorney’s fees, and other relief as the
court deems appropriate. 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 Beechwood Re Ltd.
(“BRe”), as well as for breaching its fiduciary duties to BCLIC and
Washington National. The Court granted Wilmington’s motion
to dismiss this litigation. BCLIC and Washington National
appealed the Court’s decision, which appeal is awaiting oral
argument before the New York Appellate Division of the Supreme
Court, First Judicial Department.

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,
CNO Financial Group, Inc., BCLIC, Washington National
and 40|86 Advisors, Inc. (collectively, the “CNO Parties”) in
Delaware Chancery Court. Plaintiffs seek an unspecified amount
of damages, costs, attorney’s fees, and other relief as the court
deems appropriate. 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 are vigorously
contesting the plaintiff’s claims. The CNO Parties had removed
the case to the United States District Court for the District of
Delaware but on April 6, 2020, the District Court granted the
plaintiff’s motion to remand the case back to the Delaware
Chancery Court. Plaintiffs have filed an Amended Complaint and
the CNO Parties have moved to dismiss the Amended Complaint.

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”). BCLIC and
Washington National seek an unspecified amount of damages,
costs, attorney’s fees, and other relief as the court deems appropriate.
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. The Court granted KPMG’s motion
to dismiss this litigation. BCLIC and Washington National
appealed the Court’s decision. On December 1, 2020, the New
York Appellate Division of the Supreme Court, First Judicial
Department unanimously reversed the Trial Court and reinstated
the aiding and abetting claim against KPMG. The KPMG Action
is currently pending in the Supreme Court of the State of New
York, County of New York, Commercial Division.

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

113

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Kon behalf of the signatory jurisdictions is comparing expanded
matching criteria to the SSADMF to identify deceased insureds
and contract holders where a valid claim has not been made.

benefits. The liability for such benefits was $22.0 million and
$22.7 million at December 31, 2020 and 2019, respectively, and
is included in the caption “Other liabilities” in the consolidated
balance sheet.

Guaranty Fund Assessments

The balance sheet at December 31, 2020, included: (i) accruals of
$7.6 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, 2020; and (ii) receivables of
$14.8 million that we estimate will be recovered through a
reduction in future premium taxes as a result of such assessments.
At December 31, 2019, such guaranty fund assessment accruals
were $8.9 million and such receivables were $16.8 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 $2.9 million, $2.1 million and
$2.3 million in 2020, 2019 and 2018, 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

Leases and Certain Other Long-Term
Commitments

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
$74.9 million, $67.0 million and $67.0 million in 2020, 2019 and
2018, respectively.

The Company rents office space for certain administrative
operations 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 2021 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.

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

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

2020
25.0
25.7
11.5
54.7

Maturities of our operating lease liabilities as of December 31, 2020 are as follows (dollars in millions):

2021
2022
2023
2024
2025
Thereafter

Total undiscounted lease payments

Less interest

PRESENT VALUE OF LEASE LIABILITIES

Weighted average remaining lease term (in years)
Weighted average discount rate

114

CNO FINANCIAL GROUP, INC. - Form 10-K

2019
25.0
24.3
22.7
66.5

22.8
18.0
13.3
5.5
1.9
.7
62.2
(2.2)
60.0

3.2
2.36 %

PART IIITEM 8 Consolidated Financial Statements9. 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 exclusive
agency force. Benefits were 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 $190.7 million
and $175.2 million at December 31, 2020 and 2019, respectively.
Expenses incurred on this plan were $22.8 million, $27.0 million
and $(5.2) million during 2020, 2019 and 2018, respectively

(including the recognition of gains (losses) of $(16.3) million,
$(20.4) million and $11.9 million in 2020, 2019 and 2018,
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 $209.7 million and $194.0 million at
December 31, 2020 and 2019, 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 $15.7 million, $22.3 million and $(10.6) million in 2020,
2019 and 2018, respectively.

We used the following assumptions for the deferred compensation plan to calculate:

Benefit obligations:
Discount rate
Net periodic cost:
Discount rate

2020

2019

2.50 %

3.25 %

4.25 %

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, 2020 were as follows (dollars in
millions):

2021
2022
2023
2024
2025
2026 - 2030

7.8
8.1
8.5
8.7
8.8
46.2

One of our insurance subsidiaries has another unfunded
nonqualified deferred compensation program for qualifying
members of its exclusive 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 $53.3 million and $41.5 million at December 31,
2020 and 2019, respectively. Company contribution expense
totaled $4.9 million, $5.0 million and $5.5 million in 2020,
2019 and 2018, 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 $47.8 million and $36.2 million at
December 31, 2020 and 2019, 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 $6.0 million, $6.1 million and $5.8 million
in 2020, 2019 and 2018, respectively. Employer matching
contributions are discretionary.

115

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K10. 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

2020

216.7
1.4
218.1

1,644.5
1,644.5

$
$

2019

203.8
(1.2)
202.6

1,565.4
1,565.4

$
$

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 $112 million
in underlying investments held by the ceding reinsurer at December 31, 2020.

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,
2019
113,652
3,166.3 $

Additions
11,553
2,540.1 $

Maturities/
terminations
(8,291)
(3,268.3) $

December 31,
2020
116,914
2,438.1

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

2020

2019

2018

39.5

151.9 $

(43.0)

2.6

5.3

77.9
120.0

(82.9)
74.3 $

(5.1)

107.8
59.7

Derivative 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, 2020, 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.

116

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe following table summarizes information related to derivatives with master netting arrangements or collateral as of December 31, 2020
and 2019 (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

216.7 $

— $

216.7 $

— $

216.7

203.8

—

203.8

—

203.8

December 31, 2020:

Fixed index call options

December 31, 2019:

Fixed index call options

11. SHAREHOLDERS’ EQUITY

In May 2011, the Company announced a securities repurchase
program. In 2020, 2019 and 2018, we repurchased 14.5 million,
15.4 million and 5.5 million shares, respectively, for $263.0 million,
$252.3 million (including $1.8 million of repurchases settled in
the first quarter of 2020), and $100.9 million, respectively, under
the securities repurchase program. The Company had remaining
repurchase authority of $269.3 million as of December 31, 2020.

In 2020, 2019 and 2018, dividends declared on common stock
totaled $67.4 million ($0.47 per common share), $67.2 million
($0.43 per common share) and $65.1 million ($0.39 per common
share), respectively. In May 2020, the Company increased its
quarterly common stock dividend to $0.12 per share from $0.11
per share. 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.

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, 2020, 8.8 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 year 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
year 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 year 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 2020 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
18.59
—
(16.59)
(19.40)
19.01

Shares
6,015
—
(1,104)
(367)
4,544
2,946
8,789

Weighted average
remaining life
(in years)

Aggregate
intrinsic value

5.6 $
4.5 $

9.0

27.5
19.9

117

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

A 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

We recognized compensation expense related to stock options
totaling $2.6 million ($2.1 million after income taxes) in
2020, $3.8 million ($3.0 million after income taxes) in 2019
and $5.6 million ($4.5 million after income taxes) in 2018.
Compensation expense related to stock options reduced both
basic and diluted earnings per share by one cent in 2020,
two cents in 2019 and three cents in 2018. At December 31,

2020, the unrecognized compensation expense for non-vested
stock options totaled $3.3 million which is expected to be
recognized over a weighted average period of 2.0 years. Cash
received by the Company from the exercise of stock options was
$16.5 million, $6.9 million and $3.9 million during 2020, 2019
and 2018, 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 (there were no stock option grants in 2020):

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

2.4 %
2.4 %
26 %
6.3
3.90

2.9 %
1.9 %
27 %
6.4
5.49

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 and 2018.

The following table summarizes information about stock options outstanding at December 31, 2020 (shares in thousands):

Options outstanding

Options exercisable

Range of exercise prices
15.08 - $21.57
$23.33

Number
outstanding
4,177
367
4,544

Remaining life
(in years)
5.5
6.8

Average exercise
price
18.63
23.33

118

CNO FINANCIAL GROUP, INC. - Form 10-K

Number
exercisable

2,763 $
183
2,946

Average exercise
price
18.53
23.33

PART IIITEM 8 Consolidated Financial StatementsDuring 2020, 2019 and 2018, the Company granted restricted
stock of 0.5 million, 0.5 million and 0.4 million, respectively,
to certain directors, officers and employees of the Company
at a weighted average fair value of $18.28 per share, $17.07 per
share and $22.36 per share, respectively. The fair value of such

grants totaled $9.5 million, $8.1 million and $9.7 million in
2020, 2019 and 2018, 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 2020 is presented below (shares in thousands):

Non-vested shares, beginning of year

Granted
Vested
Forfeited

NON-VESTED SHARES, END OF YEAR

Shares
828
520
(349)
(31)
968

Weighted average grant
date fair value
19.49
18.28
19.59
19.34
18.80

At December 31, 2020, the unrecognized compensation expense for
non-vested restricted stock totaled $7.8 million which is expected
to be recognized over a weighted average period of 1.8 years. At
December 31, 2019, the unrecognized compensation expense for
non-vested restricted stock totaled $7.6 million. We recognized
compensation expense related to restricted stock awards totaling
$8.7 million, $7.2 million and $7.1 million in 2020, 2019 and
2018, respectively. The fair value of restricted stock that vested
during 2020, 2019 and 2018 was $6.8 million, $6.5 million and
$4.2 million, respectively.

In 2020, 2019 and 2018, the Company granted performance units
totaling 493,630, 485,830 and 319,920, 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 one to three years), each as defined
in the award. The performance units granted in 2020, 2019 and
2018 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, 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

Granted in 2020
Additional shares issued pursuant to achieving certain performance criteria(a)
Shares vested in 2020
Forfeited

AWARDS OUTSTANDING AT DECEMBER 31, 2020

Total
shareholder
return awards
629
160
—
(160)
(61)
568
243
—
—
(260)
551
—
—
—
(212)
339

Operating
return on
equity awards
629
160
123
(318)
(26)
568
243
113
(297)
(76)
551
247
138
(281)
(74)
581

Operating
earnings per
share awards

—
247
—
—
(8)
239

(a) The performance units that vested in 2018, 2019 and 2020 provided for a payout of up to 200 percent of the award if certain performance levels were achieved.

The grant date fair value of the performance units awarded was
$10.1 million and $9.4 million in 2020 and 2019, respectively. We
recognized compensation expense of $12.5 million, $7.8 million
and $12.0 million in 2020, 2019 and 2018, 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
four occasions. The Section 382 Rights Agreement, as amended, is
designed to protect shareholder value by preserving the value of our

tax assets primarily associated with NOLs. At the time the Section
382 Rights Agreement was adopted, the Company declared
a dividend of one preferred share purchase right (a “Right”) for
each outstanding share of common stock. The dividend was
payable on January 30, 2009, to the shareholders of record as of
the close of business on that date and a Right is also attached to
each share of CNO common stock issued after that date. Pursuant
to the Section 382 Rights Agreement, as amended, each Right
entitles the shareholder to purchase from the Company one one-
thousandth of a share of Series E Junior Participating Preferred
Stock, par value $.01 per share (the “Junior Preferred Stock”) of the

119

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KCompany at a price of $95.00 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

2020
301.8

2019
409.4 $

2018
(315.0)

142,096

156,040

165,457

1,068

1,108

—

143,164

157,148

165,457

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

2020
4,176.0
23.0
(247.8)
3,951.2
9.2

(1,620.1)
2,340.3
171.0
2,511.3

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

The three states with the largest shares of 2020 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

2020
111.8
252.6
577.6
942.0

2019
133.6 $
238.2
561.1
932.9 $

2018
122.8
233.2
458.2
814.2

120

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial Statements

Changes 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

2020
1,215.5
275.8
(233.4)
—

(230.1)
—
1,027.8

2020
275.4
(34.7)
—

8.7
—
249.4

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

(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 10 percent of the December 31, 2020 balance of the
present value of future profits in 2021, 9 percent in 2022, 8 percent
in 2023, 7 percent in 2024 and 6 percent in 2025. 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, 2020, 2019 and 2018.

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

2020

2019

2018

301.8

409.4

(315.0)

303.9
14.1
397.6
(125.2)
(275.8)
36.2
—
—
—
—
—
82.9
735.5

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

121

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

2020
24.5

2019
19.3

2018
24.7

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

2020
1,805.5
304.0
406.6
2,516.1

2019
1,696.6
295.9
420.1
2,412.6

Statutory capital and surplus included investments in upstream
affiliates of $42.6 million at both December 31, 2020 and 2019,
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
$409.6 million, $291.4 million and $(293.3) million (including
approximately $541 million
loss related to a reinsurance
transaction) in 2020, 2019 and 2018, respectively. In 2020,
statutory net operating income and capital and surplus were
favorably impacted by $99 million and $53 million, respectively,
related to certain provisions in the CARES Act. The favorable
impact resulted from provisions that permitted the carryback of
net operating losses that were created after 2017 and the temporary
repeal of the 80% limitation on the utilization of NOLs created
after 2017. 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 $(11.9) million, $(16.6) million and $43.8 million in
2020, 2019 and 2018, respectively. In addition, such net income
included pre-tax amounts for fees and interest paid to CNO or its
non-life subsidiaries totaling $163.8 million, $166.3 million and
$159.2 million in 2020, 2019 and 2018, respectively.

Insurance regulators may prohibit the payment of dividends
or other payments by our insurance subsidiaries to parent
companies if they determine that such payment could be adverse
to our policyholders or contract holders. Otherwise, the ability
of our insurance subsidiaries to pay dividends is subject to state
insurance department regulations. Insurance regulations generally
permit dividends to be paid from statutory earned surplus of the
insurance company without regulatory approval for any 12-month
period in amounts equal to the greater of (or in some states, the
lesser of): (i) statutory net gain from operations or statutory net
income for the prior year; or (ii) 10 percent of statutory capital and
surplus as of the end of the preceding year. However, as each of
the immediate insurance subsidiaries of CDOC, Inc. (“CDOC”,
our wholly owned subsidiary and the immediate parent of
Washington National and Conseco Life Insurance Company of
Texas) has negative earned surplus, any dividend payments from
the insurance subsidiaries to CNO requires the prior approval
of the director or commissioner of the applicable state insurance
department. During 2020, our insurance subsidiaries paid
dividends of $294.1 million to CDOC.

122

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsThe payment of interest on surplus debentures requires either
prior written notice or approval of the director or commissioner
of the applicable state insurance department. Dividends and other
payments from our non-insurance subsidiaries to CNO or CDOC
do not require approval by any regulatory authority or other third
party.

In accordance with an order from the Florida Office of Insurance
Regulation, Washington National may not distribute funds to
any affiliate or shareholder, except pursuant to agreements that
have been approved, without prior notice to the Florida Office of
Insurance Regulation. In addition, the risk-based capital (“RBC”)
and other capital requirements described below can also limit, in
certain circumstances, the ability of our insurance subsidiaries to
pay dividends.

RBC requirements provide a tool for insurance regulators to
determine the levels of statutory capital and surplus an insurer
must maintain in relation to its insurance and investment risks and
the need for possible regulatory attention. The RBC requirements
provide four levels of regulatory attention, varying with the ratio
of the insurance company’s total adjusted capital (defined as the
total of its statutory capital and surplus, asset valuation reserve and
certain other adjustments) to its RBC (as measured on December
31 of each year) as follows: (i) if a company’s total adjusted capital
is less than 100 percent but greater than or equal to 75 percent
of its RBC, the company must submit a comprehensive plan to
the regulatory authority proposing corrective actions aimed at
improving its capital position (the “Company Action Level”); (ii) if
a company’s total adjusted capital is less than 75 percent but greater
than or equal to 50 percent of its RBC, the regulatory authority
will perform a special examination of the company and issue an
order specifying the corrective actions that must be taken; (iii) if a
company’s total adjusted capital is less than 50 percent but greater
than or equal to 35 percent of its RBC, the regulatory authority
may take any action it deems necessary, including placing the
company under regulatory control; and (iv) if a company’s total

15. BUSINESS SEGMENTS

adjusted capital is less than 35 percent of its RBC, the regulatory
authority must place the company under its control. In addition,
the RBC requirements provide for a trend test if a company’s total
adjusted capital is between 100 percent and 150 percent of its
RBC at the end of the year. The trend test calculates the greater
of the decrease in the margin of total adjusted capital over RBC:
(i) between the current year and the prior year; and (ii) for the
average of the last 3 years. It assumes that such decrease could
occur again in the coming year. Any company whose trended total
adjusted capital is less than 95 percent of its RBC would trigger a
requirement to submit a comprehensive plan as described above for
the Company Action Level. The 2020 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, 2020, 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.

Prior to 2020, the Company managed its business through the
following operating segments: Bankers Life, Washington National
and Colonial Penn, which were defined on the basis of product
distribution; long-term care in run-off; and corporate operations,
comprised of holding company activities and certain noninsurance
company businesses.

In January 2020, we announced a new operating model that
changes how we view our operating segments. Instead of the
operating business segments described above, we view our
operations as three insurance product lines (annuity, health and
life) and the investment and fee revenue segments. The new
structure creates a leaner, more integrated, customer-centric
organization that better positions us for long-term success and
shareholder value creation. Our new segments are aligned based
on their common characteristics, comparability of profit margins
and the way management makes operating decisions and assesses
the performance of the business. We began reporting under the
new segment structure in the first quarter of 2020. Prior period
results have been reclassified to conform to the new reporting
structure.

123

PART IIITEM 8 Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-Klines, net expenses not allocated to product lines (primarily holding
company expenses) and income taxes. Management believes
insurance product margin and income from insurance products
help provide a better understanding of the business and a more
meaningful analysis of the results of our insurance product lines.

Expenses not allocated to product lines include the expenses of our
corporate operations, excluding interest expense on debt.

We measure segment performance by excluding loss related to
reinsurance agreement, 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 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.

Under our new structure, we market our insurance products
through the Consumer and Worksite Divisions that reflect the
customers served by the Company.

The Worksite Division focuses 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 are bringing a sharper
focus to this high-growth business while further capitalizing on
the strength of our recent acquisition of Web Benefits Design
Corporation (“WBD”). Sales in the Worksite Division have been
particularly adversely impacted by the COVID-19 pandemic
given the challenges of interacting with customers at their place
of employment.

We also centralized certain functional areas previously housed in
the three business segments, including marketing, business unit
finance, sales training and support, and agent recruiting, among
others. All policy, contract, and certificate terms, conditions, and
benefits remain unchanged.

The investment segment involves the management of our
capital resources, including investments and the management of
corporate debt and liquidity. Our measure of profitability of this
segment is the total net investment income not allocated to the
insurance products. Investment income not allocated to product
lines represents net investment income less: (i) equity returns
credited to policyholder account balances; (ii) the investment
income allocated to our product lines; (iii) interest expense
on notes payable and investment borrowings; and (iv) certain
expenses related to benefit plans that are offset by special-purpose
investment income. Investment income not allocated to product
lines includes investment income on investments in excess of
average insurance liabilities, investments held by our holding
companies, the spread we earn from the FHLB investment
borrowing program and variable components of investment
income (including call and prepayment income, adjustments to
returns on structured securities due to cash flow changes, income
(loss) from COLI and alternative investment income not allocated
to product lines), net of interest expense on corporate debt.

124

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Consolidated Financial StatementsOperating information by segment was as follows (dollars in millions):

Revenues:
Annuity:

Insurance policy income
Net investment income

Total annuity revenues

Health:

Insurance policy income
Net investment income

Total health revenues

Life:

Insurance policy income
Net investment income
Total life revenues

Revenues related to the reinsured long-term care block prior to
being ceded in the third quarter of 2018:

Insurance policy income
Net investment income

Change in market values of the underlying options supporting the fixed index annuity
and life products (offset by market value changes credited to policyholder balances)
Investment income not allocated to product lines
Fee revenue and other income:

2020

2019

2018

18.8
465.1
483.9

21.1
464.4
485.5

1,699.5
282.3
1,981.8

1,701.6
279.9
1,981.5

793.0
139.6
932.6

—
—

37.8
258.5

758.1
138.3
896.4

—
—

153.7
265.0

19.9
456.4
476.3

1,699.6
271.8
1,971.4

740.9
135.4
876.3

132.7
138.5

(45.5)
277.7

Fee income
Amounts netted in expenses not allocated to product lines

Total segment revenues

106.0
6.9
3,807.5

88.7
39.7
3,910.5

52.0
9.4
3,888.8

(continued on next page)

125

PART IIITEM 8 Notes to Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K(continued from previous page)

2020

2019

2018

Expenses:
Annuity:

Insurance policy benefits
Interest credited
Amortization and non-deferred commissions

Total annuity expenses

Health:

Insurance policy benefits
Amortization and non-deferred commissions

Total health expenses

Life:

Insurance policy benefits
Interest credited
Amortization, non-deferred commissions and advertising expense

Total life expenses

Expenses related to the reinsured long-term care block prior to being ceded
in the third quarter of 2018:
Insurance policy benefits
Amortization
Other operating costs and expenses

Allocated expenses
Expenses not allocated to product lines
Market value changes of options credited to fixed index annuity and life policyholders
Amounts netted in investment income not allocated to product lines:

Interest expense
Other expenses

Expenses netted in fee revenue:

Distribution and commission expenses

Total segment expenses
Pre-tax measure of profitability:

Annuity margin
Health margin
Life margin

Total insurance product margin

Allocated expenses

Income from insurance products

Ceded long-term care block
Fee income
Investment income not allocated to product lines
Expenses not allocated to product lines

Operating earnings before taxes

Income tax expense on operating income

NET OPERATING INCOME

(93.7)
170.6
110.3
187.2

1,329.7
192.3
1,522.0

570.0
44.5
153.1
767.6

—
—
—
557.7
90.7
37.8

76.4
15.0

12.8
166.9
75.7
255.4

1,424.9
193.7
1,618.6

513.6
41.9
144.8
700.3

—
—
—
543.0
93.1
153.7

98.6
14.3

37.1
156.5
69.1
262.7

1,434.6
185.7
1,620.3

497.2
40.5
134.2
671.9

226.5
7.0
18.2
521.2
89.7
(45.5)

89.9
4.1

89.3
3,343.7

65.2
3,542.2

41.6
3,507.6

296.7
459.8
165.0
921.5
(557.7)
363.8
—
16.7
167.1
(83.8)
463.8
101.5
362.3

230.1
362.9
196.1
789.1
(543.0)
246.1
—
23.5
152.1
(53.4)
368.3
78.3
290.0

213.6
351.1
204.4
769.1
(521.2)
247.9
19.5
10.4
183.7
(80.3)
381.2
78.1
303.1

126

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Notes to Consolidated Financial StatementsA 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:

Annuity
Health
Life
Investments not allocated to product lines
Assets of our non-life companies included in the fee income segment
Assets of our other non-life companies

TOTAL ASSETS

Liabilities:
Annuity
Health
Life
Liabilities associated with investments not allocated to product lines(a)
Liabilities of our non-life companies included in the fee income segment
Liabilities of our other non-life companies

TOTAL LIABILITIES

2020
3,807.5 $
(36.2)
—
35.5
14.3
3,821.1
3,343.7
99.0
(19.9)
(2.4)
33.8
16.3
—
—
8.8
(2.5)
3,476.8
344.3

76.5
(34.0)
301.8 $

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)

2020

2019

13,074.2 $
10,931.2
4,421.6
6,425.5
370.7
116.7
35,339.9 $

11,764.0 $
9,949.0
3,972.6
3,930.6
224.6
14.9
29,855.7 $

12,141.0
10,403.8
4,221.3
6,360.9
358.6
145.3
33,630.9

11,398.1
9,557.6
3,997.1
3,786.0
196.0
19.1
28,953.9

(a) Includes investment borrowings, borrowings related to VIEs and notes payable - direct corporate obligations.

127

PART IIITEM 8 Notes to Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-KThe following table presents selected financial information of our segments (dollars in millions):

Segment
2020

Annuity
Health
Life

TOTAL

2019

Annuity
Health
Life

TOTAL

Present value of
future profits

Deferred
acquisition costs

Insurance
liabilities

— $

230.0
19.4

249.4 $

.3 $

254.6
20.5

275.4 $

90.0 $

508.5
429.3
1,027.8 $

166.2 $
613.1
436.2
1,215.5 $

11,428.6
9,828.8
3,846.0
25,103.4

11,085.4
9,444.7
3,887.7
24,417.8

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

We compute earnings per common share for each quarter
independently of earnings per share for the year. The sum of
the quarterly earnings per share may not equal the earnings
per share for the year because of: (i) transactions affecting the

weighted average number of shares outstanding in each quarter;
and (ii) the uneven distribution of earnings during the year.
Quarterly financial data (unaudited) were as follows (dollars in
millions, except per share data):

2020
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)

2019
Revenues
Income before income taxes
Income tax expense (benefit)
NET INCOME
Earnings per common share:

Basic:

Net income

Diluted:

Net income

1st Qtr.

2nd Qtr.

717.2 $
(71.0) $
(49.8)
(21.2) $

1,014.2 $
105.4 $
23.4
82.0 $

3rd Qtr.
1,013.5 $
166.4 $
37.2
129.2 $

4th Qtr.
1,076.2
143.5
31.7
111.8

(.15) $

.57 $

.92 $

.81

(.15) $

1st Qtr.
1,023.0 $
65.6 $
13.8
51.8 $

.57 $

.91 $

2nd Qtr.

3rd Qtr.

979.8 $
47.7 $
10.1
37.6 $

944.0 $
53.5 $
11.5
42.0 $

.80
4th Qtr.
1,069.0
107.4
(170.6)
278.0

.32 $

.24 $

.27 $

1.85

.32 $

.24 $

.27 $

1.84

$
$

128

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Notes to Consolidated Financial Statements17. 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, a VIE that was required to be
consolidated was dissolved. We recognized a loss of $5.1 million
in 2019 representing the difference between the borrowings of

such VIE 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: $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; $0.8 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:

TOTAL ASSETS

LIABILITIES:

Other liabilities
Borrowings related to variable interest entities
Notes payable of VIEs held by subsidiaries

TOTAL LIABILITIES

December 31, 2020

VIEs

Eliminations

Net effect on
consolidated
balance sheet

1,189.4 $
—
54.1
1.7
10.4
3.3
1,258.9 $

36.3 $

1,151.8
126.1
1,314.2 $

— $

(113.8)
—
—
—
(.9)
(114.7) $

(4.8) $
—
(126.1)
(130.9) $

1,189.4
(113.8)
54.1
1.7
10.4
2.4
1,144.2

31.5
1,151.8
—
1,183.3

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

129

PART IIITEM 8 Notes to Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K

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 gains (losses) and income taxes

Net realized investment gains (losses)
Loss on extinguishment of borrowings

INCOME BEFORE INCOME TAXES

2020

2019

2018

52.7
5.1
57.8

32.4
1.4
33.8
24.0
(13.8)
—
10.2

74.3 $
5.8
80.1

53.7
1.6
55.3
24.8
(20.5)
—
4.3 $

81.5
7.6
89.1

59.9
2.1
62.0
27.1
(3.6)
(3.8)
19.7

The investment portfolios held by the VIEs are primarily comprised of commercial bank loans to corporate obligors. At December
31, 2020, the amortized cost of the below-investment grade investments held by the VIEs was $1,181.2 million, or 98 percent of the
VIEs investment portfolio. The estimated fair value of the below-investment grade portfolio was $1,159.2 million, or 98 percent of the
amortized cost. At December 31, 2020, such loans had an amortized cost of $1,211.3 million; gross unrealized gains of $3.7 million; gross
unrealized losses of $10.5 million; allowance for credit losses of $15.1 million; and an estimated fair value of $1,189.4 million.

The following table summarizes changes in the allowance for credit losses related to investments held by VIEs for the year ended December
31, 2020 (dollars in millions):

Allowance at January 1, 2020

Additions for securities for which credit losses were not previously recorded
Additions for purchased securities with deteriorated credit
Additions (reductions) for securities where an allowance was previously recorded
Reduction for securities sold during the period
Reduction for securities for which the Company made the decision to sell where an allowance was previously recorded
Write-offs
Recoveries of previously written-off amount
ALLOWANCE AT DECEMBER 31, 2020

Corporate
securities
9.9
26.6
—
(15.7)
(5.7)
—
—
—
15.1

The following table sets forth the amortized cost and estimated fair value of the investments held by the VIEs at December 31, 2020,
by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.

(Dollars in millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years

TOTAL

Amortized cost

6.6 $

762.7
442.0
1,211.3 $

Estimated fair value
5.4
744.0
440.0
1,189.4

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, 2020, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without penalties.

(Dollars in millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years

TOTAL

Amortized cost

6.6 $

660.9
258.9
926.4 $

Estimated fair value
5.4
640.7
254.7
900.8

130

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IIITEM 8 Notes to Consolidated Financial StatementsThe following summarizes the investments sold at a loss during 2020 which had been continuously in an unrealized loss position exceeding
20 percent of the amortized cost basis prior to the sale for the period indicated (dollars in millions):

Less than 6 months prior to sale
Greater than or equal to 6 months and less than 12 months prior to sale

There were no investments in our portfolio rated below-
investment grade which had been continuously in an unrealized
loss position exceeding 20 percent of the cost basis.

During 2020, the VIEs recognized net realized investment losses
of $13.8 million which were comprised of: (i) $8.6 million of net
losses from the sales of fixed maturities; and (ii) a $5.2 million
increase in the allowance for credit losses. Such net realized
losses included gross realized losses of $8.7 million from the sale
of $57.4 million of investments.

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. Such net realized
losses included gross realized losses of $12.6 million from the
sale of $280.6 million of investments.

During 2018, the VIEs recognized net realized investment
losses of $3.6 million from the sales of fixed maturities. Such
net realized losses included gross realized losses of $3.8 million
from the sale of $57.2 million of investments.

At December 31, 2020, there were three fixed maturity
investments held by the VIEs in default with an amortized
cost of $5.2 million, a carrying value of $1.6 million and an
allowance for credit losses of $3.5 million.

18. SUBSEQUENT EVENT

In February 2021, we acquired DirectPath, LLC (“DirectPath”),
leading national provider of year-round, technology-
a
driven employee benefits management services to employers
and employees. DirectPath provides personalized benefits
education, advocacy and transparency, and communications
compliance services that help employers reduce healthcare costs
and assist employees with making informed benefits decisions.
The purchase price was approximately $50 million with an
additional earn‐out if certain financial targets are achieved. The
transaction was funded from holding company cash.

DirectPath’s education services engage and enroll employees
in worksite benefits plans through
face-to-face, virtual
and telephonic enrollment. The Company’s advocacy and

Number of issuers
7
5

12 $

At date of sale

Amortized cost

10.3 $
7.0
17.3 $

Fair value
7.4
4.2
11.6

At December 31, 2020, the VIEs held: (i) investments (for
which an allowance for credit losses has not been recorded)
with a fair value of $461.9 million and gross unrealized losses
of $4.9 million that had been in an unrealized loss position
for less than twelve months; and (ii) investments (for which
an allowance for credit losses has not been recorded) with a
fair value of $238.3 million and gross unrealized losses of
$3.9 million that had been in an unrealized loss position for
greater than twelve months.

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.

The
for
investments held by the VIEs are evaluated
impairment in a manner that is consistent with the Company’s
fixed maturities, available
for sale. Similarly, prior to
January 1, 2020, the investments held by the VIEs were evaluated
for other-than-temporary declines in fair value in a manner that
was consistent with the Company’s fixed maturities, available
for sale.

transparency services help employees select cost-effective
medical providers and resolve claims issues, while enabling
employers to reduce administrative and healthcare costs. Its
communications compliance services manage governance and
regulatory communications for corporate benefits plans.

DirectPath operates direct nationwide and serves 400 employers
and represents a covered employee base of more than 2.5 million
people. DirectPath’s clients range in size from small- and
medium-sized businesses to Fortune 100 companies.

131

PART IIITEM 8 Notes to Consolidated Financial StatementsCNO FINANCIAL GROUP, INC. - Form 10-K
PART II
ITEM 9B Other Information

ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.

None.

ITEM 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. CNO’s
management, under the supervision and with the participation
of the Chief Executive Officer and the Chief Financial Officer,
evaluated the effectiveness of CNO’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended). Based on its
evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of December 31, 2020, CNO’s disclosure
controls and procedures were effective to ensure that information
required to be disclosed by CNO in reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in
the Securities and Exchange Commission’s rules and forms.
Disclosure controls and procedures are also designed to reasonably
assure that such information is accumulated and communicated
to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.

Limitations on the Effectiveness of Controls. Our management,
including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls over financial reporting
will prevent all error and fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be
met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances
of fraud, if any, have been detected. These inherent limitations
include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of error or mistake.
Controls can also be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is
based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance with
policies or procedures. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud
may occur and not be detected.

Conclusion Regarding the Effectiveness of Disclosure Controls and
Procedures. Based on our controls evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that as of the end
of the period covered by this annual report, our disclosure controls
and procedures were effective to provide reasonable assurance that:
(i) the information required to be disclosed by us in reports that
we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in
the Securities and Exchange Commission’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, 2020.

The effectiveness of our internal control over financial reporting as
of December 31, 2020 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, 2020, that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

ITEM 9B. Other Information.

None.

132

CNO FINANCIAL GROUP, INC. - Form 10-K

PART III

ITEM 10. Directors, Executive Officers and Corporate

Governance.

We will provide information that is responsive to this Item 10 in our definitive proxy statement or in an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated by reference into
this Item 10. Additional information called for by this item is contained in Part I of this Annual Report under the caption “Executive
Officers of the Registrant.”

ITEM 11. Executive Compensation.

We will provide information that is responsive to this Item 11 in our definitive proxy statement or in an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated by reference into
this Item 11.

ITEM 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.

We will provide information that is responsive to this Item 12 in our definitive proxy statement or in an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated by reference into
this Item 12.

ITEM 13. Certain Relationships and Related Transactions,

and Director Independence.

We will provide information that is responsive to this Item 13 in our definitive proxy statement or in an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated by reference into
this Item 13.

ITEM 14. Principal Accountant Fees and Services.

We will provide information that is responsive to this Item 14 in our definitive proxy statement or in an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated by reference into
this Item 14.

133

CNO FINANCIAL GROUP, INC. - Form 10-KPART IV

ITEM 15. Exhibits and Financial Statement Schedules.

(a)

1. Financial Statements. See Index to Consolidated Financial Statements

for a list of financial statements included in this Report. ..................................................................

2. Financial Statement Schedules:

Schedule II — Condensed Financial Information of Registrant (Parent Company)

Balance Sheet at December 31, 2020 and 2019 .............................................................................

Statement of Operations for the years ended December 31, 2020, 2019 and 2018 .......................

Statement of Cash Flows for the years ended December 31, 2020, 2019 and 2018 ......................

Notes to Condensed Financial Information ..................................................................................

Schedule IV — Reinsurance for the years ended December 31, 2020, 2019 and 2018 ...................

Page

139

140

141

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. Exhibit Index.

Exhibit No.

Description

2.1

3.1

3.2

3.3

3.4

3.5

3.6

3.7

Master Transaction Agreement dated as of August 1, 2018 by and between Bankers Life and Casualty Company
and Wilton Reassurance Company, incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K
filed August 2, 2018.

Amended and Restated Certificate of Incorporation of CNO Financial Group, Inc., incorporated by reference to
Exhibit 3.1 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.

Amended and Restated Bylaws of CNO Financial Group, Inc. dated as of February 20, 2019, incorporated by reference
to Exhibit 3.2 of our Annual Report on Form 10-K for the year ended December 31, 2018.

Certificate of Designations of Series E Junior Participating Preferred Stock of CNO Financial Group, Inc., incorporated
by reference to Exhibit 3.1 of our Current Report on Form 8-K filed November 12, 2020.

Certificate of Elimination of Series D Junior Participating Preferred Stock of CNO Financial Group, Inc., incorporated
by reference to Exhibit 3.2 of our Current Report on Form 8-K filed November 12, 2020.

Certificate of Elimination of Series C Junior Participating Preferred Stock of CNO Financial Group, Inc., incorporated
by reference to Exhibit 3.2 of our Current Report on Form 8-K filed October 4, 2017.

Certificate of Elimination of Series B Junior Participating Preferred Stock of CNO Financial Group, Inc., incorporated
by reference to Exhibit 3.2 of our Current Report on Form 8-K filed November 13, 2014.

Certificate of Elimination of Series A Junior Participating Preferred Stock of CNO Financial Group, Inc., incorporated
by reference to Exhibit 3.2 of our Current Report on Form 8-K filed on December 6, 2011.

134

CNO FINANCIAL GROUP, INC. - Form 10-K

Exhibit No.

Description

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

10.1

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

Fourth Amended and Restated Section 382 Rights Agreement, dated as of November 12, 2020, between CNO
Financial Group, Inc. and American Stock Transfer & Trust Company, LLC, as rights agent, which includes the
Certificate of Designations for the Series E Junior Participating Preferred Stock as Exhibit A, the Form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C., incorporated by
reference to Exhibit 4.1 of our Current Report on Form 8-K filed November 12, 2020.

Form of specimen stock certificate, incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed
May 12, 2010.

Indenture, dated as of May 19, 2015, between CNO Financial Group, Inc. and Wilmington Trust, National
Association, as trustee (the “Trustee”), incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K
filed May 19, 2015.

First Supplemental Indenture, dated as of May 19, 2015, between the Corporation and the Trustee, relating to the
5.250% Senior Notes due 2025, incorporated by reference to Exhibit 4.2 of our Current Report on Form 8-K filed
May 19, 2015.

Form of 5.250% Senior Notes due 2025 (included in Exhibit 4.4).

Indenture, dated as of June 12, 2019, between CNO Financial Group, Inc. and U.S. Bank National Association, as
trustee, incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed June 12, 2019.

First Supplemental Indenture, dated as of June 12, 2019, between CNO Financial Group, Inc. and U.S. Bank National
Association, as trustee, relating to the 5.250% Senior Notes due 2029, incorporated by reference to Exhibit 4.2 of our
Current Report on Form 8-K filed June 12, 2019.

Form of 5.250% Senior Notes due 2029 (included in Exhibit 4.7).

Second Supplemental Indenture, dated as of November 25, 2020, between CNO Financial Group, Inc. and U.S. Bank
National Association, as trustee, relating to the 5.125% Subordinated Debentures due 2060, incorporated by reference
to Exhibit 4.2 of our Current Report on Form 8-K filed November 25, 2020.

Form of 5.125% Subordinated Debentures due 2060 (included as Exhibit A to Exhibit 4.9).

Description of the registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

First Amendment and Restatement Agreement, dated as of October 13, 2017, among CNO Financial Group, Inc.,
the lenders party thereto, and KeyBank National Association, as administrative agent for the lenders, in respect of
the Credit Agreement, dated as of May 19, 2015, among CNO Financial Group, Inc., the lenders from time to time
party thereto, and KeyBank National Association, as administrative agent for the lenders, incorporated by reference to
Exhibit 10.1 of our Current Report on Form 8-K filed October 16, 2017.

Letter of agreement dated as of August 3, 2007 between CNO Services, LLC (formerly Conseco Services, LLC) and
John R. Kline, incorporated by reference to Exhibit 10.11 of our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007.

CNO Financial Group, Inc. Amended and Restated Long-Term Incentive Plan, incorporated by reference to Exhibit
10.1 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Form of stock option agreement under Amended and Restated Long-Term Incentive Plan, incorporated by reference to
Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

Form of stock option agreement for 2015 under Amended and Restated Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.

Form of amendment to outstanding stock option agreements under the Amended and Restated Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.5 of our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015.

Form of stock option agreement for 2017 and 2018 under Amended and Restated Long-Term Incentive Plan,
incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.

135

CNO FINANCIAL GROUP, INC. - Form 10-KPART IVSignatureExhibit No.

Description

10.8*

10.9*

10.10*

10.11*

10.12*

10.13*

10.14*

10.15*

10.16

10.17*

10.18*

10.19*

10.20*

10.21

10.22*

10.23*

10.24*

10.25*

10.26

10.27

Form of restricted stock unit award agreement for 2017 and 2018 under Amended and Restated Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended March
31, 2017.

Form of performance stock unit award agreement for 2017 and 2018 under the Amended and Restated Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017.

Form of stock option agreement for 2019, incorporated by reference to Exhibit 10.10 of our Annual Report on Form
10-K for the year ended December 31, 2018.

Form of restricted stock unit award agreement for 2019, incorporated by reference to Exhibit 10.11 of our Annual
Report on Form 10-K for the year ended December 31, 2018.

Form of performance stock unit award agreement for 2019, incorporated by reference to Exhibit 10.12 of our Annual
Report on Form 10-K for the year ended December 31, 2018.

Form of restricted stock unit award agreement for 2020 under the Amended and Restated Long-Term Incentive Plan,
incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Form of performance stock unit award agreement for 2020 under the Amended and Restated Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q for the quarter ended March
31, 2020.

Form of Indemnification Agreement among the Corporation, CDOC, Inc., CNO Services, LLC (formerly Conseco
Services, LLC) and each director of the Corporation, incorporated by reference to Exhibit 10.16 of our Annual Report
on Form 10-K for the year ended December 31, 2008.

Not used.

CNO Deferred Compensation Plan amended and restated effective January 1, 2017, incorporated by reference to
Exhibit 10.20 of our Annual Report on Form 10-K for the year ended December 31, 2016.

First Amendment to the CNO Deferred Compensation Plan effective January 1, 2017.

Second Amendment to the CNO Deferred Compensation Plan effective January 1, 2020.

Third Amendment to the CNO Deferred Compensation Plan effective January 1, 2021.

Coinsurance and Administration Agreement between Conseco Insurance Company and Reassure American Life
Insurance Company, incorporated by reference to Exhibit 10.34 of our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2007.

Amended and Restated Employment Agreement dated as of August 6, 2019 between the Company and Gary C.
Bhojwani, incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K filed on August 8, 2019.

Amendment to Amended and Restated Employment Agreement, dated as of November 12, 2020, between CNO
Financial Group, Inc. and Gary C. Bhojwani, incorporated by reference to Exhibit 10.1 of our Current Report on Form
8-K filed November 12, 2020.

CNO Board of Directors Deferred Compensation Plan, incorporated by reference to Exhibit 10.31 of our Annual
Report on Form 10-K for the year ended December 31, 2016.

First Amendment to the CNO Board of Directors Deferred Compensation Plan effective January 1, 2021.

Coinsurance agreement dated as of September 27, 2018 by and between Bankers Life and Casualty Company and
Wilton Reassurance Company, incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed
October 2, 2018.

Trust Agreement dated as of September 27, 2018 by and among Bankers Life and Casualty Company, Wilton
Reassurance Company and Citibank, N.A., incorporated by reference to Exhibit 10.2 of our Current Report on Form
8-K filed October 2, 2018.

136

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IVSignatureExhibit No.

Description

10.28

10.29

10.30*

10.31*

10.32*

10.33*

10.34*

10.35*

23.1

31.1

31.2

32.1

32.2

Administrative Services Agreement dated as of September 27, 2018 by and between Bankers Life and Casualty
Company and Wilton Reassurance Company, incorporated by reference to Exhibit 10.3 of our Current Report on
Form 8-K filed October 2, 2018.

Transition Services Agreement dated as of September 27, 2018 by and between CNO Services, LLC and Wilton
Reassurance Company, incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K filed
October 2, 2018.

Form of Confidential Information and Nonsolicitation Agreement between the Company and each of Bruce Baude,
Karen DeToro, Yvonne Franzese, Eric Johnson, Paul McDonough, Rocco Tarasi and Matthew Zimpfer, incorporated
by reference to Exhibit 10.2 of our Current Report on Form 8-K filed August 8, 2019.

Form of Confidential Information, Noncompetition and Nonsolicitation Agreement between the Company and each
of Scott Goldberg, Michael Heard, Michael Byers and Joel Schwartz, incorporated by reference to Exhibit 10.4 of our
Current Report on Form 8-K filed August 8, 2019.

Form of officer acknowledgement & agreement pertaining to CNO Financial Group, Inc. Clawback Policy, incorporated
by reference to Exhibit 10.4 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

CNO Services, LLC Executive Severance Pay Plan, incorporated by reference to Exhibit 10.2 of our Quarterly Report
on Form 10-Q for the quarter ended September 30, 2020.

Amendment Number One to the CNO Services, LLC Executive Severance Pay Plan effective October 1, 2020.

CNO Financial Group, Inc. 2020 Amended and Restated Pay For Performance Incentive Plan, incorporated by
reference to Exhibit 10.1 of our Current Report on Form 8-K filed August 12, 2020.

Subsidiaries of the Registrant.

Consent of PricewaterhouseCoopers LLP.

Certification Pursuant to the Securities Exchange Act Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags
are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

101.DEF

101.LAB

101.PRE

104

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

Cover Page Interactive Data File (embedded within the Inline XBRL document).

Compensatory plan or arrangement

ITEM 16. Form 10-K Summary.

None.

137

CNO FINANCIAL GROUP, INC. - Form 10-KPART IVSignatureSignature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

CNO FINANCIAL GROUP, INC.
Dated: February 23, 2021
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/ STEVEN E. SHEBIK
Steven E. Shebik
/s/ FREDERICK J. SIEVERT
Frederick J. Sievert

Title (Capacity)
Director and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Director

Director

Date
February 23, 2021

February 23, 2021

February 24, 2021

February 23, 2021

February 24, 2021

February 23, 2021

138

CNO FINANCIAL GROUP, INC. - Form 10-K

PART IVSignatureSCHEDULE II Condensed Financial Information of Registrant (Parent Company)

Balance Sheet as of December 31, 2020 and 2019

(Dollars in millions)
ASSETS
Cash and cash equivalents - unrestricted
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: 2020 - 135,279,119; 2019 - 148,084,178)
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.

2020

2019

391.3
6,202.7
160.3
89.6
34.3
6,878.2

1,136.2
136.7
121.1
1,394.0

2,545.8
2,186.1
752.3
5,484.2
6,878.2

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

SCHEDULE II Condensed Financial Information of Registrant (Parent Company)

Statement of Operations for the years ended December 31, 2020, 2019 and 2018

(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 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.

2020

2019

2018

28.7
.8
.2
29.7

55.2
1.1
65.9
—
122.2
(92.5)
(28.2)
(64.3)
366.1
301.8

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

14.3
—
(4.3)
10.0

48.0
2.9
40.0
—
90.9
(80.9)
(20.8)
(60.1)
(254.9)
(315.0)

139

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, 2020, 2019 and 2018

2020
(136.3)

2019
(77.9)

2018
(107.2)

18.4
(18.2)
26.8

324.7
351.7

145.8
—
—
19.0
(268.3)
(67.0)
308.1
(143.6)
(6.0)
209.4
181.9
391.3

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

(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 2020;
nil in 2019; and $265.0 in 2018*

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.

140

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, 2020, 2019 and 2018

(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

2020

2019

2018

29,109.8
99.5
(3,042.4)
26,166.9

.4 %

2020

2,565.4
23.0
(248.1)
2,340.3

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

1.0 %

1.1 %

141

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 (Board Chair)

Retired Executive,
Intuit Inc.

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

Ellyn L. Brown
Retired Principal,
Brown & Associates

Stephen N. David
Senior Advisor,
The Boston Consulting Group

David B. Foss
President and Chief Executive Officer,
Jack Henry & 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 Chair,
Mellon Capital
Management Corporation

Steven E. Shebik
Retired Vice Chair,
The Allstate Corporation and
Allstate Insurance Company

Frederick J. Sievert
Retired President,
New York Life Insurance Company

Investor Information

Meeting of Shareholders
Our annual meeting of shareholders will be held via live webcast
at 8:00 a.m. (EDT) on May 7, 2021. 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.

Ways to Learn More About Us
Investor Hotline: Call (800) 426-6732 or (317) 817-2893 to receive
annual reports, Form 10-Ks, Form 10-Qs, and other documents by
mail, or to speak with an investor relations representative.

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

Shareholder Services
If you are a registered shareholder and have a question
about your account, or if you would like to report a
change in your name or address, please call CNO Financial’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

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

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

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ANNUAL
REPORT

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

CNOinc.com