8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 8, 2010

CNO Financial Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-31792	75-3108137
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

11825 North Pennsylvania Street

Carmel, Indiana 46032

(Address of principal executive offices) (Zip Code)

(317) 817-6100

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 7.01 Regulation FD Disclosure.

On December 8, 2010, CNO Financial Group, Inc. (the “Company”) issued a press release announcing the launch of a private offering of senior secured notes. The press release is filed as Exhibit 99.1 hereto and is incorporated by reference herein. The press release is furnished and not filed pursuant to Instruction B.2 of Form 8-K.

The Company is disclosing under Item 7.01 of this Current Report on Form 8-K the summary historical consolidated financial and operating data included as Exhibit 99.2 hereto and incorporated by reference herein. This information is excerpted from a preliminary offering memorandum dated December 8, 2010 that is being disseminated in connection with the private offering of senior secured notes (the “Preliminary Offering Memorandum”) and should be read in conjunction with the information disclosed in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010, Annual Report on Form 10-K for the year ended December 31, 2009 and Current Report on Form 8-K filed on December 1, 2010. The summary historical consolidated financial and operating data is furnished and not filed pursuant to Instruction B.2 of Form 8-K.

Item 8.01 Other Events.

The Company is disclosing under Item 8.01 of this Current Report on Form 8-K the information included as Exhibits 99.3 through 99.7, which information is incorporated by reference herein. This information, some of which has not been previously reported, is excerpted from the Preliminary Offering Memorandum and should be read in conjunction with the information disclosed in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010, Annual Report on Form 10-K for the year ended December 31, 2009 and Current Report on Form 8-K filed on December 1, 2010.

Item 9.01 Financial Statements and Exhibits.

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

(d) Exhibits

99.1	Press release of CNO Financial Group, Inc. dated December 8, 2010, announcing a private offering of senior secured notes.
99.2	Summary Historical Consolidated Financial and Operating Data from Preliminary Offering Memorandum dated December 8, 2010.
99.3	Business of CNO from Preliminary Offering Memorandum dated December 8, 2010.
99.4	Risks Relating to CNO Financial Group from Preliminary Offering Memorandum dated December 8, 2010.
99.5	Capitalization from Preliminary Offering Memorandum dated December 8, 2010.
99.6	Investments from Preliminary Offering Memorandum dated December 8, 2010.
99.7	Government Regulation from Preliminary Offering Memorandum dated December 8, 2010.

SIGNATURES

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 hereunto duly authorized.

CNO Financial Group, Inc.
By:	/s/ John R. Kline
Name:	John R. Kline
Title:	Senior Vice President and   Chief Accounting Officer

Date: December 8, 2010

EXHIBIT INDEX

EXHIBIT NUMBER	EXHIBIT
99.1	Press release of CNO Financial Group, Inc. dated December 8, 2010, announcing a private offering of senior secured notes.
99.2	Summary Historical Consolidated Financial and Operating Data from Preliminary Offering Memorandum dated December 8, 2010.
99.3	Business of CNO from Preliminary Offering Memorandum dated December 8, 2010.
99.4	Risks Relating to CNO Financial Group from Preliminary Offering Memorandum dated December 8, 2010.
99.5	Capitalization from Preliminary Offering Memorandum dated December 8, 2010.
99.6	Investments from Preliminary Offering Memorandum dated December 8, 2010.
99.7	Government Regulation from Preliminary Offering Memorandum dated December 8, 2010.

EX-99.1

Exhibit 99.1

CNO FINANCIAL GROUP

For Immediate Release

Contact:	(News Media) Tony Zehnder +1.312.396.7086
	(Investors) Scott Galovic +1.317.817.3228

CNO Financial Group, Inc. Announces

Offering of Senior Secured Notes Due 2017

Carmel, Ind., December 8, 2010 – CNO Financial Group, Inc. (NYSE: CNO) announced today that it intends to offer $300 million aggregate principal amount of senior secured notes due 2017. The Company intends to use the net proceeds, together with amounts to be borrowed under a new $325 million senior secured credit facility along with available cash, to retire the Company’s existing senior credit facility.

The notes are to be offered and sold to “qualified institutional buyers” as defined in Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States in reliance on Regulation S under the Securities Act.

This press release does not constitute an offer to sell or the solicitation of an offer to buy the notes or any other securities. The notes have not been and will not be registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration except pursuant to an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws.

CNO is a holding company. Our insurance subsidiaries - principally Bankers Life and Casualty Company, Colonial Penn Life Insurance Company and Washington National Insurance Company - serve working American families and seniors by helping them protect against financial adversity and provide for a more secure retirement. For more information, visit CNO online at www.CNOinc.com.

EX-99.2

Exhibit 99.2

Summary Historical Consolidated Financial and Operating Data

The following table sets forth summary historical consolidated financial and operating data for CNO Financial Group as of the dates and for the periods indicated. We have prepared the summary financial and operating data, other than statutory data, in conformity with GAAP (the “GAAP Data”). We have derived the summary GAAP Data: (i) as of and for the three years ended December 31, 2009 from the consolidated financial statements audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm (“PwC”) included elsewhere in this Offering Memorandum (the “Audited Consolidated Financial Statements”); (ii) as of and for the nine months ended September 30, 2010 and September 30, 2009 from our unaudited consolidated financial statements included elsewhere in this Offering Memorandum (the “Unaudited Consolidated Financial Statements” and, together with the Audited Consolidated Financial Statements, the “Consolidated Financial Statements”); and (iii) as of and for the twelve months ended September 30, 2010 from the Consolidated Financial Statements. We have derived the statutory data from the statements filed by our insurance subsidiaries with regulatory authorities and have prepared the statutory data in accordance with statutory accounting practices, which vary in certain respects from GAAP. The data should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Offering Memorandum.

	Twelve Months Ended September 30, 2010			Nine Months Ended September 30,						Year Ended December 31,
				2010			2009			2009			2008			2007
	(amounts in millions, except ratios)
Statement of Operations Data(a)
Insurance policy income	$	2,754.5		$	2,007.0		$	2,346.1		$	3,093.6		$	3,253.6		$	2,895.7
Net investment income		1,329.2			1,007.4			970.9			1,292.7			1,178.8			1,369.8
Net realized investment (losses)		(35.0	)		(18.0	)		(43.5	)		(60.5	)		(262.4	)		(158.0	)
Total revenues		4,065.8			3,008.1			3,283.7			4,341.4			4,189.7			4,131.3
Interest expense		114.7			84.6			87.8			117.9			106.5			125.3
Total benefits and expenses		3,865.9			2,825.9			3,127.8			4,167.8			4,186.0			4,149.3
Income (loss) before income taxes and discontinued operations		199.9			182.2			155.9			173.6			3.7			(18.0	)
Income tax expense		65.3			65.8			88.4			87.9			413.3			61.1
Income (loss) before discontinued operations		134.6			116.4			67.5			85.7			(409.6	)		(79.1	)
Discontinued operations, net of income taxes		—			—			—			—			(722.7	)		(105.9	)
Net income (loss)		134.6			116.4			67.5			85.7			(1,132.3	)		(185.0	)
Preferred stock dividends		—			—			—			—			—			14.1
Net income (loss) applicable to common stock		134.6			116.4			67.5			85.7			(1,132.3	)		(199.1	)
Balance Sheet Data—at Period End(a)
Total investments	$	24,199.1		$	24,199.1		$	21,603.9		$	21,530.2		$	18,647.5		$	21,324.5
Total assets		31,973.6			31,973.6			30,269.0			30,343.8			28,763.3			33,961.5
Corporate notes payable		1,029.8			1,029.8			1,261.9			1,037.4			1,311.5			1,167.6
Total liabilities		27,369.3			27,369.3			26,935.3			26,811.4			27,133.3			29,709.2
Shareholders’ equity		4,604.3			4,604.3			3,333.7			3,532.4			1,630.0			4,252.3
Statutory Data—at Period End(b)
Statutory capital and surplus	$	1,443.1		$	1,443.1		$	1,285.1		$	1,410.7		$	1,311.5		$	1,336.2
AVR		78.6			78.6			23.1			28.2			55.0			161.3
Total statutory capital and surplus and AVR		1,521.7			1,521.7			1,308.2			1,438.9			1,366.5			1,497.5
Other data
Adjusted EBITDA(c)		340.1			278.0			276.5			338.6			92.0			110.2
Credit Statistics
Total Adjusted Debt to Adjusted EBITDA(d)		2.99x
Adjusted EBITDA to interest expense on corporate debt(e)		4.13x
Adjusted Debt to total capital, excluding accumulated other comprehensive income (loss)(f)		20.6%
Aggregate Consolidated RBC ratio(g)		320%

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(a) Our financial condition and results of operations have been significantly affected during the 2008 and 2007 periods presented by our discontinued operations. Please refer to the notes to the Audited Consolidated Financial Statements included in this Offering Memorandum.

(b) 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, and include amounts related to our discontinued operations in the year ended December 31, 2007.

(c) EBITDA is a non-GAAP measurement that consists of net income (loss) applicable to common stock plus interest expense on corporate debt, income tax expense, and deprecation and amortization. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net earnings as a measure of operating performance or to cash flows from our operations as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Our presentation of EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Management uses EBITDA to measure and evaluate the operating results of the Company before interest and taxes and certain non-cash items. Adjusted EBITDA is a non-GAAP measurement that consists of EBITDA plus non-cash compensation expense; the impact of changes on unrealized losses (gains) on assets and liabilities to which fair market value is applied; the loss from extinguishment of debt; costs related to operational initiatives and consolidation activities; and the loss (income) from discontinued operations. In addition, for the purpose of calculating Adjusted EBITDA, we only include income from the variable interest entities to the extent it was received in cash. The following table reconciles net income (loss) applicable to common stock to EBITDA and Adjusted EBITDA:

	Twelve months ended September 30, 2010		Nine months ended September 30,				Year ended December 31,
			2010		2009		2009		2008			2007
	(amounts in millions)
Net income (loss) applicable to common stock	$	134.6	$	116.4	$	67.5	$	85.7	$	(1,132.3	)	$	(199.1	)
Preferred stock dividends		—		—		—		—		—			14.1
Interest expense on corporate debt(1)		82.4		59.3		61.6		84.7		67.9			80.3
Income tax expense		65.3		65.8		88.4		87.9		413.3			61.1
Depreciation and amortization(2)		26.6		19.5		20.1		27.2		25.9			27.3
EBITDA		308.9		261.0		237.6		285.5		(625.2	)		(16.3	)
Adjustments:
Non-cash compensation expense(3)		11.3		8.9		6.6		9.2		7.4			14.5
Unrealized gains (losses) on assets and liabilities to which fair market value accounting is applied(4)		4.3		4.3		7.0		7.1		(9.5	)		1.5
Loss from extinguishment of debt(5)		15.5		2.7		9.5		22.2		(21.2	)		—
Costs related to operational initiatives and consolidation activities(6)		—		—		—		—		9.6			11.0
Discontinued operations(7)		—		—		—		—		722.7			105.9
Income (loss) for variable interest entities(8), net of cash received		0.1		1.1		15.8		14.6		8.2			(6.4	)
Adjusted EBITDA	$	340.1	$	278.0	$	276.5	$	338.6	$	92.0		$	110.2

(1) This amount includes interest expense and the amortization of discount and issuance costs related to our corporate debt. This amount excludes interest expense related to investment borrowing transactions of our insurance subsidiaries and borrowings related to variable interest entities. Please refer to the notes to the Unaudited Consolidated Financial Statements entitled “Investment Borrowings” and “Investments in Variable Interest Entities” for additional information regarding excluded amounts.

(2) This amount includes depreciation and amortization expense on buildings, leasehold improvements, furniture and fixtures, equipment and software. This amount excludes amortization expense related to the present value of future profits and deferred acquisition costs.

(3) This amount includes non-cash compensation expense for grants of restricted stock, performance shares and stock options to officers, directors and employees of the Company.

(4) We apply fair value accounting to our investment in Company-owned life insurance policies, which were purchased as an investment vehicle to fund our agent deferred compensation plan. This amount includes the change in unrealized gains (losses) as a result of the application of fair value accounting.

(5) This amount includes the (gain) loss we realized upon extinguishing or modifying corporate debt.

(6) This amount includes lease termination, severance, relocation expense and asset impairment costs related to initiatives we have taken to optimize the efficiency of our operations. Such amount includes costs related to the decision to abandon certain software that will not be used consistent with our current business plan and costs related to other operational initiatives and consolidation activities.

(7) On November 12, 2008, we completed the transfer of the stock of Senior Health Insurance Company of Pennsylvania (“Senior Health”) to Senior Health Care Oversight Trust, an independent trust for the exclusive benefit of Senior Health’s long-term care

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policyholders. As a result, Senior Health’s long-term care business is presented as a discontinued operation in our consolidated statement of operations. This adjustment includes the loss related to the discontinued operations.

(8) The Company has investments in variable interest entities required to be consolidated in accordance with GAAP. The assets held by these entities are legally isolated and are not available to the Company. Accordingly, for the purpose of calculating adjusted EBITDA, we only include income from these entities to the extent it was received in cash.

(d) Total Adjusted Debt to Adjusted EBITDA (a non-GAAP measure) is calculated by dividing: (i) the aggregate outstanding principal amount of corporate debt as of September 30, 2010, as adjusted to reflect the refinancing transactions described in this Offering Memorandum and summarized under “—Capitalization”; by (ii) Adjusted EBITDA.

(e) Adjusted EBITDA to interest expense on corporate debt (a non-GAAP measure) is calculated by dividing (i) Adjusted EBITDA by (ii) interest expense on corporate debt for the 12 month period ended September 30, 2010.

(f) Adjusted debt to total capital (a non-GAAP measure) is calculated by dividing: (i) the aggregate principal amount outstanding of our corporate debt as of September 30, 2010, as adjusted to reflect the refinancing transactions described in this Offering Memorandum and summarized under “—Capitalization”; by (ii) total capital, as adjusted to reflect the refinancing transactions and excluding accumulated other comprehensive income (loss).

(g) Our New Senior Secured Credit Agreement will require that we maintain an Aggregate consolidated RBC ratio (calculated as the consolidated RBC ratio of our insurance company subsidiaries quarterly by dividing our consolidated TAC (the sum of the TAC of Washington National, Conseco Life, Conseco Life of Texas, Bankers Life, Colonial Penn and Bankers Conseco Life minus the equity in the TAC of Bankers Life, Colonial Penn and Bankers Conseco Life (the subsidiaries of Conseco Life of Texas) included in the TAC of Conseco Life of Texas) by our consolidated RBC (the RBC calculated for all of our insurance company subsidiaries based on an aggregation of our insurance company subsidiaries’ data on a pro forma basis, as if they were one entity) in excess of 225% for 2011 and 250% thereafter. See “Risk Factors—The New Senior Secured Credit Agreement will contain various restrictive covenants and required financial ratios that will limit our operating flexibility. The violation of one or more loan covenant requirements will entitle our lenders to declare all outstanding amounts under the New Senior Secured Credit Agreement to be due and payable”.

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EX-99.3

Exhibit 99.3

CNO Financial Group

CNO is a holding company for a group of insurance companies operating throughout the United States that develop, market and administer supplemental health insurance, annuity, individual life insurance and other insurance products. We focus on serving the senior and middle-income markets, which we believe are attractive, underserved, high growth markets. We sell our products through three distribution channels: career agents, professional independent producers (some of whom sell one or more of our product lines exclusively) and direct marketing. We are a highly cash generative business and benefit from recurring revenues. As of September 30, 2010, we had 3.9 million insurance policies inforce and a $24.2 billion investment portfolio, which provide recurring premiums and investment income, respectively. CNO is a publicly listed company (NYSE: CNO) and had a market capitalization of $1.6 billion as of December 3, 2010.

For the twelve months ended September 30, 2010 (“LTM”), we had $4.1 billion of revenues, $333.7 million of earnings before net realized investment gains (losses), corporate interest expense, loss on extinguishment or modification of debt and income taxes (“EBIT”) and $134.6 million of net income. During the same period, CNO received $171.1 million of net cash distributions from its operating subsidiaries. At September 30, 2010, the Company had a debt to total capital ratio, excluding accumulated other comprehensive income and unamortized discount on the 7.0% Debentures, of 21.1%.

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

• Bankers Life (60% of LTM revenue), which markets and distributes Medicare supplement insurance, interest-sensitive life insurance, traditional life insurance, fixed annuities and long-term care insurance products to the middle-income senior market through a dedicated field force of career agents and sales managers supported by a network of community-based branch offices. The Bankers Life segment includes primarily the business of Bankers Life and Casualty Company (“Bankers Life”). Bankers Life also markets and distributes Medicare Advantage plans primarily through a distribution arrangement with Humana and Medicare Part D prescription drug plans through a distribution and reinsurance arrangement with Coventry.

• Washington National (19% of LTM revenue), which markets and distributes supplemental health (including specified disease, accident and hospital indemnity insurance products) and traditional life insurance to middle-income consumers at home and at the worksite. These products are marketed through Performance Matters Associates, Inc. (“PMA”), a wholly owned subsidiary, and through independent marketing organizations and insurance agencies. Products being marketed by Washington National are underwritten by Washington National Insurance Company (“Washington National”).

• Colonial Penn (6% of LTM revenue), which markets primarily graded benefit and simplified issue life insurance directly to customers through television advertising, direct mail, the internet and telemarketing. The Colonial Penn segment includes primarily the business of Colonial Penn Life Insurance Company (“Colonial Penn”).

• Other CNO Business (15% of LTM revenue), which consists of blocks of interest-sensitive life insurance, traditional life insurance, annuities, long-term care insurance and other supplemental health products. These blocks of business are not being actively marketed and were primarily issued or acquired by Conseco Life Insurance Company (“Conseco Life”) and Washington National.

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The following table sets forth LTM information on our segments (dollars in millions):

	Collected Premiums
	$		Percentage
Bankers Life	$	2,622.2		72	%
Washington National		582.3		16
Colonial Penn		196.3		5
Other CNO Business		250.3		7
Total	$	3,651.1		100	%

Competitive Strengths

We believe our competitive strengths have enabled and will continue to enable us to capitalize on the opportunities in our target markets. These strengths include the following:

Leading National Provider of Life and Health Insurance Products to Growing and Underserved Market

Our Bankers Life segment is one of the leading national providers of life and health insurance products focused primarily on the senior market. We provide a number of products such as supplemental health coverage, including Medicare supplement, Medicare Advantage and Medicare Part D products and long-term care insurance, as well as selected life and annuity products, that are important to the financial well-being of seniors.

According to the most recently published report on Medicare supplement insurance by the National Association of Insurance Commissioners, we were ranked third in direct premiums earned from individual Medicare supplement insurance in 2009. Our approximately 5,400 career agents and sales managers are trained to cater to the needs of the senior market. Based on figures from the U.S. Census Bureau released in 2008, current demographic trends indicate that the senior market will continue to grow (the percentage of the U.S. population aged 65 and older is projected to increase by 50% between 2010 and 2030), and we believe our focus on seniors will provide us with a significant opportunity to increase our share of this market, as we believe we are one of only a few companies currently addressing the savings and protection needs of this demographic group.

Growing Distribution Force Enables Us to Access Our Middle-Income Market Customers

We are able to reach our customers through a growing distribution force consisting of:

• over 5,400 Bankers Life career agents and sales managers who are trained to cater to the needs of the senior market. These agents sell a number of products such as supplemental health coverage, including Medicare supplement, Medicare Advantage and Medicare Part D products and long-term care insurance, as well as selected life and annuity products, that are important to the financial well-being of seniors. This agency force typically visits the home of a policyholder or potential policyholder, which helps develop strong personal relationships;

• over 1,000 independent agents of our captive Performance Matters Associates, Inc. subsidiary, who distribute Washington National’s supplemental health products which customers can purchase at home or through their worksite. These agents sell specified disease insurance, such as cancer and heart/stroke products, as well as accident, disability and life insurance to middle-income customers; and

• Colonial Penn’s direct contacts with customers through direct mail, television advertising and the Internet for the sale of simple, low-cost life insurance products.

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Strong, Nationally Recognized Brand Names

We believe our brands are widely recognized by our customers and distributors. We believe we have successfully developed product-focused consumer recognition in our chosen markets through three distinct brands—Bankers Life & Casualty, Colonial Penn and Washington National. We believe our multiple-brand strategy has insulated our business from some of the recent challenges in the economy. We continue to raise the profile of our Bankers Life brand through informal relationships with the Alzheimer’s Association, the International Longevity Center and Meals on Wheels. We believe that our brands give us a key competitive advantage, allowing us to continue to build and maintain strong relationships with our customers and distributors.

Experienced Management with a Proven Track Record

We have a strong, experienced senior management team. The ten members of our senior management team have, on average, more than 20 years of industry experience. We have made significant changes to our management team in recent years and it has been strengthened by the addition of many experienced industry executives, led by C. James Prieur, who has served as Chief Executive Officer since September 2006. Before joining us, Mr. Prieur previously worked at Sun Life Financial, Inc. since 1979, where he served in a variety of investment management positions before being promoted to President and Chief Operating Officer for all U.S. operations of Sun Life Financial in 1999.

The current management team has taken a number of measures to strengthen the Company’s operations and financial profile, including:

• in the fourth quarter of 2008, transferred the stock of Senior Health Insurance Company of Pennsylvania—an insurance subsidiary housing a substantial block of run-off long-term care business, which produced volatile earnings in the past and drained substantial capital from the core operations—to an independent trust; and

• in the fourth quarter of 2009 and the first six months of 2010, raised $296 million from the sale of equity and $283 million from the sale of convertible debt to refinance existing indebtedness, reduce outstanding debt and bolster holding company liquidity.

Credit Strengths

Strong Cash Generation of Operating Subsidiaries

Our subsidiaries generate substantial free cash flow (available to the holding company as dividends subject to approval from state insurance regulators) for the following reasons:

• focus on insurance products with relatively moderate protection benefits and capital needs means that new business generation does not impose an unmanageable surplus strain;

• moderate first year commissions to our sales force similarly means that the origination of new policies does not create a strain on capital as some high commission products do;

• our cash tax payments are limited to minimal amounts of alternative minimum income taxes due to our $4.5 billion net operating loss carryforward position.

The cash generation capacity of our insurance subsidiaries may be approximated by their statutory operating earnings before fees and interest paid to the holding company. For the twelve months ended September 30, 2010, the insurance subsidiaries generated $335 million of statutory operating earnings before fees and interest paid to the holding company, which compares to $52 million of holding company operating expenses and $82 million of interest expense on corporate debt.

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Insurance Operations Resilient to Adverse Economic Environments

The sales and profitability of our products are not strongly correlated with equity or credit market performance. We primarily sell products with capped payouts that provide protection in case of death or illness. We do not sell complex variable annuity or life products with guaranteed benefits. Furthermore, over 80% of our premiums during 2009 were generated by proprietary and exclusive distribution channels, which made our sales and business retention less sensitive to changes in our credit ratings than that of many of our competitors. During the financial crisis in 2008 and 2009 our operating subsidiaries continued to deliver strong operating results as measured by collected premiums of $4.5 billion and $4.1 billion, respectively. We were also able to maintain and grow the size of our career agency sales force in 2009.

Regulatory Capital Adequacy of Bankers Life, Colonial Penn and Washington National

A significant constraint on the ability of our regulated insurance company subsidiaries to make dividend payments to our holding company is their regulatory capital adequacy.

The regulatory capital adequacy of an insurance company is measured by its Risk-Based Capital (“RBC”) ratio, which is calculated by dividing the insurer’s Total Adjusted Capital (“TAC”) by its “Company Action Level RBC”, a minimum, formula-based capital requirement set by The National Association of Insurance Commissioners (“NAIC”). The RBC formulas take into account the insurer’s asset, market and credit risks, underwriting and pricing risks, the risk that the return from assets are not aligned with the requirements of the Company’s liabilities and general business risk. See “Governmental Regulation”.

As of September 30, 2010, the individual TAC of our subsidiaries, Bankers Life, Colonial Penn and Washington National, which are actively writing new business, were significantly in excess of the levels that would prompt regulatory action under the insurance laws of their respective jurisdictions. TAC and RBC are calculated annually by insurers as of December 31 of each year. However, for the purpose of a covenant in the existing Senior Secured Credit Agreement and a covenant to be included in the New Senior Secured Credit Agreement, we calculate RBC, TAC and our consolidated RBC ratio on a quarterly basis. The consolidated RBC ratio of our insurance company subsidiaries was 320% at September 30, 2010. See “Risk Factors—The New Senior Secured Credit Agreement will contain various restrictive covenants and required financial ratios that will limit our operating flexibility. The violation of one or more loan covenant requirements will entitle our lenders to declare all outstanding amounts under the New Senior Secured Credit Agreement to be due and payable”.

Consistent Ability of Insurance Subsidiaries to Distribute Cash to the Holding Company

Our holding company has three sources of cash from its operating subsidiaries: dividends, management fees under authorized affiliate services agreements and interest on internal surplus debentures. The payment of these management fees and interest on surplus debentures (with respect to interest payments on surplus debentures, provided the RBC ratio of Conseco Life of Texas exceeds 100%) by our insurance subsidiaries does not require further regulatory approval (other than interest payments on surplus debentures, which can not be made unless the RBC ratio of Conseco Life Insurance Company of Texas (“Conseco Life of Texas”) exceeds 100%). For the twelve months ended September 30, 2010, the holding company received dividends, management fees and interest on surplus debentures from our insurance subsidiaries of $271 million. During the same period, we contributed $99 million to the capital of our insurance subsidiaries.

Conservative Investment Portfolio

Our investment portfolio is primarily comprised of high quality fixed maturity securities. At September 30, 2010, the investment portfolio was in a $1.3 billion net unrealized gain position and 92% of the fixed maturity securities were investment grade. Investment grade and below investment grade corporate debt securities in the

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portfolio constituted 60% and 5% of our portfolio, respectively, while structured securities accounted for 16%. The structured securities in our portfolio were highly rated with 86% of the portfolio rated investment grade. Commercial mortgage loans constituted 8% of the total investment portfolio. We believe our commercial mortgage loan portfolio is well diversified geographically and by property type. The balance of the portfolio was comprised of trading securities, investments held by variable interest entities, equity securities, policyholder loans and other invested assets.

Conservative Holding Company Capital Structure

With the December 2009 recapitalization and positive momentum in our earnings, we reduced our debt to total capital ratio, excluding accumulated other comprehensive income and unamortized discount on the 7.0% Debentures, to 21.1% at September 30, 2010 and achieved 4.0x LTM EBIT coverage of our interest expense on corporate debt. Our leverage ratio at September 30, 2010 was below, and our LTM EBIT interest coverage ratio was above, the level rating agencies typically require of insurers in our ratings category.

Our Strategic Direction

Our mission is to be a premier provider of life insurance, supplemental health products and annuities to America’s middle-income consumers with a focus on seniors and to provide value to our shareholders. We believe we can accomplish this mission through the effective execution of the following strategies:

• Remain focused on the Needs of Our Senior and Middle Income Market Customers. We define our business by our target markets and not by our products. We continue to adapt our distribution, product offerings and product features to the evolving needs of our middle income and senior customers. We provide a broad range of middle market products to meet the protection needs of our customers and to provide them with longevity solutions. We are able to reach our customers through our career agents and independent agent relationships, directly, through our Colonial Penn direct distribution platform, and at work, through our worksite marketing channel.

• Expand and Improve the Efficiency of our Distribution Channels. The continued development and maintenance of our distribution channels is critical to our continued sales growth. We dedicate substantial resources to the recruitment, development and retention of our Bankers Life career agents and seek to maximize their productivity by providing them with high quality leads for new business opportunities. In addition, investments in both our direct distribution platform, Colonial Penn, and in PMA, have enabled us to achieve significant sales growth since 2004.

• Seek Profitable Growth. We continue to pursue profitable growth opportunities in the middle income market. We focus on marketing and selling products that meet the needs of our customers and we believe it will enable us to provide long-term value for our shareholders. As part of this strategy, we have de-emphasized products with return characteristics that we consider to be inadequate.

• Pursue Operational Efficiencies and Cost Reduction Opportunities. We seek to strengthen our competitive position with a focus on cost control and enhanced operational efficiency. Our efforts include:

• improvements to our policy administration processes and procedures to reduce costs and improve customer service;

• continued consolidation of policy processing systems, including conversions and elimination of systems;

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• streamlining administrative procedures and consolidating processes across the enterprise to reduce personnel costs; and

• eliminating expenses associated with the marketing of those products that do not meet our return objectives.

• Continue to manage and reduce the risk profile of our business where possible. We actively manage the risks associated with our business and have taken several steps to reduce the risk profile of our business. In the fourth quarter of 2007, we completed a transaction to coinsure 100% of a block of inforce fixed index annuity and fixed annuity business sold through our independent distribution channel. Such business was largely out of the surrender charge periods and had policyholder and other reserves of $2.8 billion. This transaction significantly reduced the asset and liability risks associated with this business. In the fourth quarter of 2008, we transferred the stock of Senior Health Insurance Company of Pennsylvania (“Senior Health”) to an independent trust, eliminating our exposure to a substantial block of long-term care business previously included in our run-off segment. In 2009, we began coinsuring a significant portion of the new long-term care business written through our Bankers Life segment. These transactions have reduced our exposure to long-term care business that has led to volatile earnings in the past.

We have purposefully avoided products like variable life, variable annuity and guaranteed investment contracts that we believe would expose us to risks that are not commensurate with potential profits. We plan to continue to emphasize products that are straight forward and have a lower risk profile. We believe such products meet various needs of the middle income markets we serve. We will continue to manage the investment risks associated with our insurance business by:

• maintaining a largely investment-grade, diversified fixed-income portfolio;

• maximizing the spread between the investment income we earn and the yields we pay on investment products within acceptable levels of risk; and

• continually tailoring our investment portfolio to consider expected liability durations, cash flows and other requirements.

We believe that our focus on middle-income families and seniors will position us favorably to capitalize on the future growth in these markets.

Concurrently with the closing of this offering of the Notes, we expect to enter into a new $325 million senior secured credit agreement (the “New Senior Secured Credit Agreement”) maturing on September 30, 2016. The New Senior Secured Credit Agreement will be guaranteed by substantially all of our current and future domestic subsidiaries that are not regulated insurance companies and secured by substantially all of our and the Subsidiary Guarantors’ assets (collectively, the “Collateral”). The New Senior Secured Credit Agreement and the Notes offered hereby will share a first priority lien on the Collateral, and the relative rights between the lenders under the New Senior Secured Credit Agreement and holders of the notes will be governed by an intercreditor agreement (the “Intercreditor Agreement”). See “Description of Certain Indebtedness” for a more detailed description of the terms of the New Senior Secured Credit Agreement and “Description of the Notes—Intercreditor Agreement” for a description of the Intercreditor Agreement. The consummation of this offering will occur concurrently with, and is conditioned upon, the funding of the New Senior Secured Credit Agreement.

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Holding Company Cash Sources and Uses

We are organized in a holding company structure as is typical for insurance companies. Business activities are conducted by our operating subsidiaries while corporate debt is serviced at the holding company level. The holding company, CNO, has three sources of cash: intercompany dividends, interest on internal debt and management fees from subsidiaries. CNO also generates some investment income. Dividends from unregulated subsidiaries are unrestricted, while those from the regulated insurance company subsidiaries require approval from state insurance regulators. CNO holds four internal surplus debentures issued to Conseco Life of Texas. The surplus debentures have a combined face value of $750 million, mature on December 31, 2030 and pay interest at a rate which is the greater of Libor + 400 basis points and 6.5%. These interest payments do not require additional approval, but they do require prior written notice to the applicable regulator prior to each payment. CNO and its unregulated subsidiaries also receive regular, contractually set management fees for services rendered from the operating subsidiaries. The terms of these management contracts were approved by regulators and the payment of fees pursuant to the contracts does not require further regulatory approval. The primary expenses of CNO are interest on indebtedness and corporate overhead. The operating subsidiaries have no outstanding third party indebtedness, except for borrowings related to investment transactions.

(1) During the 12-month period ended September 30, 2010, CNO contributed $99.4 million of capital back to its subsidiaries.

(2) Internal surplus debentures of $750 million (variable rate-6.5% at September 30, 2010; 2030 maturity).

(3) Reflects (i) gross amount of investment management fees plus (ii) the amount, net of costs, that have been incurred by the insurance subsidiaries for administrative services provided during the 12-month period ended September 30, 2010.

(4) Represents the administrative services and investment management fees received by unregulated subsidiaries from insurance subsidiaries less operating expenses at unregulated subsidiaries paid over the 12-month period ended September 30, 2010.

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The table below shows the sources of cash held by the holding company, CNO, and the uses for such cash:

	Twelve  months ended September 30, 2010		Year ended December 31,
			2009		2008
Sources of holding company cash:
Dividends from our insurance subsidiaries	$	151.0	$	35.0	$	20.0
Surplus debenture interest		48.7		59.3		56.4
Administrative services and investment management fees (net of costs to provide such services)		70.8		80.5		71.5
Amount received in conjunction with the termination of commission financing agreement with Conseco Insurance Company		—		16.2		—
Intercompany loan from a non-life subsidiary		—		17.5		—
Revolving credit agreement		—		—		75.0
Proceeds from issuance of 7.0% Debentures		282.8		172.0		—
Equity proceeds, net of expenses		297.7		296.3		—
Tax sharing payments		0.9		3.4		1.1
Total sources of cash available to service our debt and other obligations		851.9		680.2		224.0
Uses of holding company cash:
Debt service commitments of CNO:
Interest payments		77.2		76.0		53.3
Principal payments under the:
Senior Health Note		25.0		25.0		—
Senior Secured Credit Agreement		198.2		204.7		24.0
Revolving credit agreement		—		55.0		20.0
Capital contributions to our insurance subsidiaries		99.4		—		79.4
Repurchase of 3.5% Debentures		293.0		176.5		—
Corporate expense and other		54.6		55.9		80.3
Total uses of cash		747.4		593.1		257.0
Net increase (decrease) in cash		104.5		87.1		(33.0	)
Cash balance, beginning of period		85.6		59.0		92.0
Cash balance, end of period	$	190.1	$	146.1	$	59.0

Our principal executive offices are located at 11825 N. Pennsylvania Street, Carmel, Indiana 46032, and our telephone number at this location is (317) 817-6100. Our website is www.cnoinc.com. Information on our website should not be construed to be part of this Offering Memorandum. Our common stock is listed on the NYSE under the symbol “CNO”.

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EX-99.4

Exhibit 99.4

Risks Relating to CNO Financial Group

Continuation of the current low interest rate environment for an extended period of time may impact our profitability.

New money interest rates continue to be at historically low levels. If interest rates were to remain low over an extended period of time, we may have to invest new cash flows or reinvest proceeds from investments that have matured, prepaid or been sold at lower yields, reducing our net spread between interest earned on investments and interest credited to some of our products (including annuity and other interest-sensitive products). Our ability to lower credited rates is limited by the guaranteed minimum rates that we must credit to policyholders on certain products, as well as the terms of most of our other products that limit reductions in the crediting rates. In addition, investment income is an important component of the profitability of our health products, especially long-term care and supplemental health products.

Our expectation of future investment income is an important consideration in determining the amortization of deferred acquisition costs and the present value of future profits (collectively referred to as “insurance acquisition costs”), analyzing the recovery of these assets and determining the adequacy of our liabilities for insurance products. Expectations of lower future investment earnings may cause us to accelerate amortization or write down the balance of insurance acquisition costs or establish additional liabilities for insurance products, thereby reducing net income in the affected reporting period. The blocks of business in our Other CNO Business segment are particularly sensitive to changes in our expectations of future interest rates, since many of these blocks are not expected to generate future profits and the entire impact of adverse changes to our earlier estimates of future gross profits is reflected in earnings in the period such changes occur. For example, during the three months ended, September 30, 2010, we were required to recognize a pre-tax reduction in earnings of approximately $13 million in our Other CNO Business segment primarily due to additional amortization expense resulting from decreased projected future investment yields related to interest-sensitive insurance products.

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

We have and, following the consummation of the Transactions, will have substantial indebtedness that will require a significant portion of the cash available to CNO, restricting our ability to take advantage of business, strategic or financing opportunities.

The following tables set forth (i) CNO’s indebtedness and (ii) the scheduled principal payments of CNO’s direct corporate obligations, in each case, as of September 30, 2010, on an actual basis and on an as adjusted basis to give effect to this offering of the Notes, the contemplated borrowing under the New Senior Secured Credit Agreement as of the closing date of this offering, and the repayment of outstanding borrowings under the existing Senior Secured Credit Agreement (the “Transactions”):

	Actual			As Adjusted
	(dollars in millions)
Debt:
New Senior Secured Credit Agreement	$	—		$	325.0
Senior Secured Credit Agreement(1)		652.1			—
% Senior Secured Notes due 2017		—			300.0
6% Senior Health Note due 2013		100.0			100.0
7.0% Debentures due 2016		293.0			293.0
Unamortized discount on 7.0% Debentures		(15.3	)		(15.3	)
Total debt	$	1,029.8		$	1,002.7	(2)

(1) The assumed repayment of outstanding borrowings under the existing Senior Secured Credit Agreement would result in an after tax debt extinguishment charge of $2.9 million if such repayment had been completed on September 30, 2010. The existing Senior Secured Credit Agreement will be repaid in full and terminated in connection with this offering.

(2) Total debt, as adjusted, does not include a $25 million amortization payment on the Senior Health Note made in November 2010.

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	Actual		As Adjusted
	(dollars in millions)
Remainder of 2010	$	25.0	$	25.0
2011		60.0		50.0
2012		65.0		60.0
2013		602.1		75.0
2014		—		70.0
2015		—		70.0
2016		293.0		368.0
2017		—		300.0
	$	1,045.1	$	1,018.0

In addition, at September 30, 2010, CNO’s non-guarantor subsidiaries had approximately $654 million of investment borrowings, $24.4 billion of policyholder obligations and $699 million of other liabilities (excluding intercompany balances).

Following the consummation of the Transactions, our indebtedness will require approximately $126 million in cash to service through December 31, 2011.

The payment of principal and interest on our outstanding indebtedness will require a substantial portion of CNO’s available cash each year, which, as a holding company, is limited, as further described in the risk factor entitled “CNO is a holding company and its liquidity and ability to meet its obligations may be constrained by the ability of CNO’s insurance subsidiaries to distribute cash to it” below. Our debt obligations may restrict our ability to take advantage of business, strategic or financing opportunities.

The New Senior Secured Credit Agreement will contain various restrictive covenants and require financial ratios that we will be required to meet or maintain and that will limit our operating flexibility. If we default under any of these covenants, the lenders could declare the outstanding principal amount of the term loan, accrued and unpaid interest and all other amounts owing or payable thereunder to be immediately due and payable. In such event, the holders of CNO’s 7.0% Debentures and the unsecured Senior Note due November 12, 2013 (the “Senior Health Note”) could elect to take similar action with respect to those debts. If that were to occur, we would not have sufficient liquidity to repay our indebtedness. Absent sufficient liquidity to repay our indebtedness, our management or our independent registered public accountants may conclude that there is substantial doubt regarding our ability to continue as a going concern.

If we fail to pay interest or principal on the 7.0% Debentures, we will be in default under the 7.0% Indenture, which could also lead to a default under agreements governing our existing and future indebtedness, including under the New Senior Secured Credit Agreement. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we likely would not have sufficient funds to repay our indebtedness.

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

Concurrently with the closing of this offering of the Notes, CNO will enter into the New Senior Secured Credit Agreement. Pursuant to the New Senior Secured Credit Agreement, CNO will agree to a number of covenants and other provisions that will restrict the Company’s ability to borrow money and pursue some operating activities without the prior consent of the lenders. We will also agree to meet or maintain various financial ratios and balances. Our ability to meet these financial tests and maintain ratings may be affected by events beyond our control. There are several conditions or circumstances that could lead to an event of default under the New Senior Secured Credit Agreement, as described below.

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The New Senior Secured Credit Agreement will prohibit or restrict, among other things, CNO’s ability to:

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

• pay dividends or make other distributions to shareholders;

• purchase or redeem capital stock or subordinated indebtedness;

• make investments;

• create liens;

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

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

• consolidate or merge with or into other companies or transfer all or substantially all of our assets; and

• engage in transactions with affiliates;

in each case subject to important exceptions and qualifications as set forth in the New Senior Secured Credit Agreement.

The New Senior Secured Credit Agreement will also require that our annual audited consolidated financial statements be accompanied by an opinion from a nationally-recognized independent public accounting firm stating that such audited consolidated financial statements present fairly, in all material respects, our financial position and results of operations in conformity with GAAP for the periods indicated. For us to remain in compliance with the New Senior Secured Credit Agreement, such opinion must not include an explanatory paragraph regarding our ability to continue as a going concern or similar qualification. These provisions will represent significant restrictions on the manner in which we may operate our business. If we default under any of these provisions, the lenders will be able to declare the outstanding principal amount of the term loan, accrued and unpaid interest and all other amounts owing or payable thereunder to be due and payable. If that were to occur, we would likely not have sufficient liquidity to repay amounts due under the New Senior Secured Credit Agreement in full or any of our other debts which may be accelerated as a result of any such default.

Pursuant to the New Senior Secured Credit Agreement, unless our Debt to Total Capitalization Ratio (as defined below) is less than or equal to 20% and either (A) Certain Insurance Subsidiaries (as defined below) have financial strength ratings of not less than either “A-” (stable) from A.M. Best Company or (B) the senior secured term loan facility under the New Senior Secured Credit Agreement has a rating of not less than “BBB-” (stable) from S&P and “Baa3” (stable) from Moody’s, we will be required to make mandatory prepayments with all or a portion of the proceeds from the following transactions or events: (i) certain equity issuances; (ii) certain asset sales; and (iii) certain casualty events.

For purposes of the immediately preceding paragraph:

“Debt-to-Total Capitalization Ratio” means, as of any date of determination, without duplication, the ratio of (a) the principal amount of and accrued but unpaid interest on all indebtedness of CNO outstanding on such date, other than (i) indebtedness owing to any Subsidiary Guarantor and (ii) indebtedness on account of certain swap contracts determined by reference to the termination value thereof to (b) Total Capitalization (defined below) on such date;

“Total Capitalization” means, without duplication, (a) the amount described in clause (a) of the definition of Debt to Total Capitalization Ratio (defined above) plus (b) CNO’s total common and preferred shareholders’ equity as determined in accordance with GAAP (calculated excluding (i) unrealized gains

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(losses) on securities as determined in accordance with FASB ASC 320 (Investments—Debt and Equity Securities) and (ii) any charges taken to write off any goodwill included on CNO’s balance sheet on the effective date of the New Senior Secured Credit Agreement to the extent such charges are required by FASB ASC 320 (Investments–Debt and Equity Securities) and ASC 350 (Intangibles—Goodwill and Others); and

“Certain Insurance Subsidiaries” means any subsidiary that is required to be licensed as an insurer or reinsurer, other than Conseco Life, Conseco Life of Texas and Bankers Conseco Life Insurance Company (“Bankers Conseco Life”).

The following chart summarizes: (i) the most significant financial ratios and balances we will be required to maintain pursuant to the New Senior Secured Credit Agreement; (ii) the ratios and balances as of September 30, 2010, as adjusted to take into account the Transactions and the use of proceeds of the Transactions (see “Use of Proceeds”); and (iii) the margins for adverse developments before such ratio or balance requirement is not met (dollars in millions):

	Covenant under the New Senior Secured Credit Agreement	Balance or ratio as of September 30, 2010, as adjusted	Margin for adverse development from September 30, 2010 levels
Debt to Total Capitalization	Not more than 30%	20.6%	Reduction of shareholders’ equity of approximately $1.5 billion or additional debt of $658 million.
Available Cash Flow to Cash Interest Expense	Greater than or equal to 2.00:1.00	2.78:1.00	Reduction in cash flows to the holding company, CNO, of approximately $60 million.
Combined statutory capital and surplus	Greater than or equal to $1,200 million	$1,521 million	Reduction to combined statutory capital and surplus of approximately $321 million.
Aggregate risk-based capital ratio	Greater than or equal to 225% for 2011 and 250% thereafter	320%	Reduction to total adjusted capital (defined as combined statutory capital and surplus plus the asset valuation reserve and 50% of the balance of the provision of policyholder dividends) of approximately $452 million, or an increase to required risk-based capital of approximately $201 million.

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

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We are required to assess our ability to continue as a going concern as part of our preparation of financial statements at each quarter-end. The assessment includes, among other things, consideration of our plans to address our liquidity and capital needs during the following 12 months and our ability to comply with the future loan covenant and financial ratio requirements under the New Senior Secured Credit Agreement. If we default under any covenants or financial ratio requirement, the lenders could declare the outstanding principal amount of the term loan, accrued and unpaid interest and all other amounts owing and payable thereunder to be immediately due and payable. In such event, the holders of CNO’s 7.0% Debentures and the Senior Health Note could elect to take similar action with respect to those debts. If that were to occur, we would not have sufficient liquidity to repay our indebtedness. Absent sufficient liquidity to repay our indebtedness, we or our auditors may conclude that there is substantial doubt regarding our ability to continue as a going concern. If we were to conclude there was substantial doubt regarding our ability to continue as a going concern in our financial statements for subsequent periods, we may be required to increase the valuation allowance for deferred tax assets, which could result in the violation of one or more loan covenant requirements under the New Senior Secured Credit Agreement.

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

The obligations under the New Senior Secured Credit Agreement and the Notes are guaranteed by our current and future domestic subsidiaries, other than our insurance subsidiaries and certain immaterial subsidiaries. CDOC’s guarantee under the Notes and the New Senior Secured Credit Agreement is secured by a lien on substantially all of the assets of the Subsidiary Guarantors, including the stock of Conseco Life of Texas (which is the parent of Bankers Life, Bankers Conseco Life and Colonial Penn), Washington National and Conseco Life. If we fail to make the required payments, do not meet the financial covenants or otherwise default on the terms of the New Senior Secured Credit Agreement or the Notes, the stock of Conseco Life of Texas, Washington National and Conseco Life could be transferred to the lenders under the New Senior Secured Credit Agreement and the holders of Notes. Any such transfer would have a material adverse effect on our business, financial condition and results of operations.

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

On August 23, 2010, S&P affirmed its “B-” rating on CNO’s senior secured debt. On December 17, 2009, S&P upgraded the rating on CNO’s senior secured debt, to “B-” from “CCC”. In S&P’s view, an obligation rated “B” is more vulnerable to nonpayment than obligations rated “BB”, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation. A “negative” designation means that a rating may be lowered. S&P has a total of 22 separate categories rating senior debt, ranging from “AAA (Extremely Strong)” to “D (Payment Default).” There are fifteen ratings above CNO’s “B-” rating and six ratings that are below its rating. On May 26, 2010, Moody’s upgraded the rating on CNO’s senior secured debt to “B2”, from “Caa1”. In Moody’s view, an obligation rated “B2” generally lacks the characteristics of a desirable investment and assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. Moody’s has a total of 21 separate categories in which to

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rate senior debt, ranging from “Aaa (Exceptional)” to “C (Lowest Rated).” There are 14 ratings above CNO’s “B2” rating and six ratings that are below its rating. If we were to require additional capital, either to refinance our existing indebtedness or for any other reason, our current senior debt ratings, as well as conditions in the credit markets generally, could severely restrict our access to such capital and adversely affect its cost.

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, its wholly owned subsidiary, which will be a Subsidiary Guarantor under the Indenture and the New Senior Secured Credit Agreement, 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 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 levels) or to provide the capital necessary for growth, in which case it is less likely that its insurance subsidiaries would pay CNO dividends. Accordingly, this could limit CNO’s ability to meet debt service requirements and satisfy other holding company financial obligations.

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

• statutory net gain from operations or statutory net income for the prior year, or

• 10% of statutory capital and surplus as of the end of the preceding year (excluded from this calculation would be the $61.2 million of additional surplus recognized due to temporary modifications in statutory prescribed practices related to certain deferred tax assets).

This type of dividend is referred to as “ordinary dividends”. Any dividends in excess of these levels require the approval of the director or commissioner of the applicable state insurance department. This type of dividend is referred to as “extraordinary dividends”. In the first nine months of 2010, our insurance subsidiaries paid extraordinary dividends of $151 million to CDOC. At the same time, during that period an aggregate of $99.4 million was paid by CDOC to our insurance subsidiaries in the form of capital contributions. Accordingly, during nine months ended September 30, 2010, the cash dividends we received from our insurance subsidiaries exceeded capital contributions by $51.6 million. Each of the immediate insurance subsidiaries of CDOC had negative earned surplus at September 30, 2010. As a result, any dividend payments from the insurance subsidiaries to the holding company will require the prior approval of the director or commissioner of the applicable state insurance department. While the payment of dividends does require regulatory approval, CNO expects to receive regulatory approval for future dividends from its 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.

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We generally strive to maintain capital and surplus levels in our insurance subsidiaries in an amount that is sufficient to maintain a minimum consolidated RBC ratio of approximately 300% and will typically cause our insurance subsidiaries to pay ordinary dividends or request regulatory approval for extraordinary dividends when the consolidated RBC ratio exceeds such level and we have concluded the capital level in each of our insurance subsidiaries is adequate to support their business and projected growth. As required by applicable insurance regulations, we calculate the RBC ratio of our insurance company subsidiaries as of December 31 of each year. In addition, for purposes of a covenant in our existing Senior Secured Credit Agreement and for a covenant that will be in the New Senior Secured Credit Agreement, we calculate the consolidated RBC ratio of our insurance company subsidiaries quarterly by dividing our consolidated TAC (the sum of the TAC of Washington National, Conseco Life, Conseco Life of Texas, Bankers Life, Colonial Penn and Bankers Conseco Life minus the equity in the TAC of Bankers Life, Colonial Penn and Bankers Conseco Life (the subsidiaries of Conseco Life of Texas) included in the TAC of Conseco Life of Texas) by our consolidated RBC (the RBC calculated for all of our insurance company subsidiaries based on an aggregation of our insurance company subsidiaries’ data on a pro forma basis, as if they were one entity). The consolidated RBC ratio of our insurance company subsidiaries was 320% at September 30, 2010. See “—The New Senior Secured Credit Agreement will contain various restrictive covenants and required financial ratios that will limit our operating flexibility. The violation of one or more loan covenant requirements will entitle our lenders to declare all outstanding amounts under the New Senior Secured Credit Agreement to be due and payable”. 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.

Interest on surplus debentures from Conseco Life of Texas do not require additional approval provided the RBC ratio of Conseco Life of Texas exceeds 100% (but do require prior written notice to the Texas state insurance department). The RBC ratio of Conseco Life of Texas was 255% at September 30, 2010. Dividends and other payments from our non-insurance subsidiaries, including 40|86 Advisors and CNO Services, LLC, to CNO or CDOC do not require approval by any regulatory authority or other third party. However, insurance regulators may prohibit payments by our insurance subsidiaries to parent companies if they determine that such payments could be adverse to our policyholders or contractholders.

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

In addition, our insurance subsidiary, Washington National, may not distribute funds to any affiliate or shareholder, without prior notice to the Florida Office of Insurance Regulation, in accordance with an order from the Florida Office of Insurance Regulation.

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The following table sets forth the aggregate amount of (i) dividends and other distributions that our insurance subsidiaries paid to us; and (ii) capital contributions paid by us, to our insurance subsidiaries in each of the last three fiscal years and during the nine months ended September 30, 2010:

	Nine months ended September 30, 2010			Years ended December 31,
				2009		2008			2007
				(dollars in millions)
Dividends to CNO	$	151.0		$	35.0	$	20.0		$	50.0
Surplus debenture interest		36.4			59.3		56.4			69.9
Fees for services provided pursuant to service agreements		49.4			80.5		71.5			82.1
Tax sharing payments		0.9			3.4		1.1			1.9
Total dividends and other distributions paid by its subsidiaries		237.7			178.2		149.0			203.9
Total capital contributions paid to insurance subsidiaries		(99.4	)		—		(79.4	)		(200.0	)
Excess of dividends and other distributions over capital contributions	$	138.3		$	178.2	$	69.6		$	3.9

There are risks to our business associated with the current economic environment.

Over the past three years, the U.S. economy has experienced unprecedented credit and liquidity issues and entered into a recession. Following several years of rapid credit expansion, a contraction in mortgage lending coupled with substantial declines in home prices, rising mortgage defaults and increasing home foreclosures, resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to many sectors of the related credit markets, and to related credit default swaps and other derivative securities, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions, to be subsidized by the U.S. government and, in some cases, to fail. These factors, combined with declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown. Although the recession has ended, the risk of prolonged deflation and elevated unemployment remains.

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

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

• The value of our investment portfolio has been materially affected in recent periods by changes in market conditions which have resulted in, and may continue to result in, substantial realized and/or unrealized losses. For example, in 2008, the value of our investments decreased by $2.5 billion due to net unrealized losses on investments. A widening of credit spreads, such as the market experienced in 2008, increases the net unrealized loss position of our investment portfolio and may ultimately result in increased realized losses. The value of our investment portfolio can also be affected by illiquidity and by changes in assumptions or inputs we use in estimating fair value. Further, certain types of securities

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in our investment portfolio, such as structured securities supported by residential and commercial mortgages, have been disproportionately affected. Although the value of our investments increased on an aggregate basis in 2009 and during the first nine months of 2010, there can be no assurance that higher realized and/or unrealized losses will not occur in the future. Future adverse capital market conditions could result in additional realized and/or unrealized losses.

• Changes in interest rates also affect our investment portfolio. In periods of increasing interest rates, life insurance policy loans, surrenders and withdrawals could increase as policyholders seek investments with higher returns. This could require us to sell invested assets at a time when their prices are 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 would obtain lower returns on investments made with these cash flows. In addition, borrowers may prepay or redeem bonds in our investment portfolio 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 credited to policyholders and contract owners, which could adversely affect our profitability.

• The attractiveness of certain of our 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 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.

These extraordinary economic and market conditions have materially and adversely affected us. It is difficult to predict how long the current economic and market conditions will continue, whether the financial markets will continue to experience instability and which aspects of our products and/or business will be adversely affected. However, the lack of credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity are likely to continue to materially and adversely affect our business, financial condition and results of operations.

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

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

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

• changes in patterns of relative liquidity in the capital markets for various asset classes;

• changes in the ability of issuers to make timely repayments, which can reduce the value of our investments. This risk is significantly greater with respect to below-investment grade securities, which comprised 8% of our available for sale fixed maturity investments as of September 30, 2010; and

• changes in the estimated timing of receipt of cash flows. For example, our structured security investments, which comprised 18% of our available for sale fixed maturity investments at September 30, 2010, are subject to risks relating to variable prepayment on the assets underlying such securities, such as mortgage loans. When 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.

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We have recorded writedowns of fixed maturity investments, equity securities and other invested assets as a result of conditions which caused us to conclude a decline in the fair value of the investment was other than temporary as follows (excluding any such amounts included in discontinued operations): $69.8 million in the first nine months of 2010 ($72.7 million of which was recognized through net income and $(2.9) million of which was recognized through accumulated other comprehensive income (loss)); $385.0 million in 2009 ($195.4 million of which was recognized through net income and $189.6 million of which was recognized through accumulated other comprehensive loss); $162.3 million in 2008; and $105.5 million in 2007 (including $73.7 million of writedowns of investments which were subsequently transferred pursuant to a coinsurance agreement as further discussed in the note to our Audited Consolidated Financial Statements entitled “Summary of Significant Accounting Policies”). Our investment portfolio is subject to the risks of further declines in realizable value. However, we attempt to mitigate this risk through the diversification and active management of our portfolio.

In the event of substantial product surrenders or policy claims, we may choose to maintain highly liquid, and potentially lower-yielding, assets or to sell assets at a loss, thereby eroding the performance of our portfolio.

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

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

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

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

The determination of realized investment losses recorded as impairments varies by investment type and is based upon our ongoing evaluation and assessment of known risks. Such evaluations and assessments are revised as conditions change and new information becomes available. We update our evaluations regularly and reflect changes in realized investment gains and losses from impairments in operating results as such evaluations are revised. Our assessment of whether unrealized losses are other-than-temporary impairments requires significant judgment and future events may occur, or additional information may become available, which may necessitate future impairments of securities in our portfolio. Historical trends may not be indicative of future other-than- temporary impairments. For example, the cost of our fixed maturity and equity securities is adjusted for impairments in value deemed to be other than temporary in the period in which the determination is made. The assessment of whether impairments have occurred is based on our case-by-case evaluation of the underlying reasons for the decline in fair value.

The valuation determination of our fixed maturity securities results in unrealized net investment gains and losses and is 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

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market observable information. The fair value of financial assets and financial liabilities may differ from the amount actually received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the fair values of the financial assets and financial liabilities. As of September 30, 2010 and as of December 31, 2009 and 2008, our total unrealized net investment gains (losses) before adjustments for insurance intangibles and deferred income taxes were $1.3 billion, $(0.5) billion and $(3.0) billion, respectively.

Litigation and regulatory investigations are inherent in our business, may harm our financial strength and reputation and 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 face class action suits and derivative suits from shareholders and/or policyholders. We also face significant risks related to regulatory investigations and proceedings. The litigation and regulatory matters we are, have been, or may become, subject to include matters related to sales, marketing and underwriting practices, payment of contingent or other sales commissions, claim payments and procedures, product design, product disclosure, administration, additional premium charges for premiums paid on a periodic basis, calculation of cost of insurance charges, changes to certain non-guaranteed policy features, denial or delay of benefits, charging excessive or impermissible fees on products 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 such as cost of insurance charges, expense loads, credited interest rates and policyholder bonuses. We intend to make changes to certain non-guaranteed elements 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 non-guaranteed elements), if any, arising from any such action cannot presently be determined. Our pending legal and regulatory proceedings include matters that are specific to us, as well as matters faced by other insurance companies. State insurance departments have focused and continue to focus on sales, marketing and claims payment practices and product issues in their market conduct examinations. Negotiated settlements of class action and other lawsuits have had a material adverse effect on the business, financial condition and results of operations of our insurance companies. 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. The ultimate outcome of these lawsuits and 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 regulator actions to assert supervision or control over our business, which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

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

In setting premium rates, we consider historical claims information and other factors, but we cannot predict future claims with certainty. This is particularly applicable to our long-term care insurance products, for which we (as well as other companies selling these products) have relatively limited historical claims experience. Long-term care products tend to have fewer claims than other health products such as Medicare supplement, but when claims are incurred, they tend to be much higher in dollar amount and longer in duration. Also, long-term care claims are incurred much later in the life of the policy than most other supplemental health products. As a result of these traits, it is difficult to appropriately price this product. For our long-term care insurance, actual persistency in later policy durations that is higher than our persistency assumptions could have a negative impact on profitability. If these policies remain inforce longer than we assumed, then we could be required to make greater benefit payments than anticipated when the products were priced. Mortality is a critical factor influencing

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the length of time a claimant receives long-term care benefits. Mortality continues to improve for the general population, and life expectancy has increased. Improvements in actual mortality trends relative to assumptions may adversely affect our profitability.

Our Bankers Life segment has offered long-term care insurance since 1985. Recently, the claims experience on our Bankers Life long-term care blocks has generally been higher than our pricing expectations and, the persistency of these policies has been higher than our pricing expectations which may result in higher benefit ratios in the future.

On November 12, 2008, CNO and CDOC completed the transfer (the “Transfer”) of the stock of Senior Health to an independent trust for the exclusive benefit of Senior Health’s long-term care policyholders. After the Transfer, we continue to hold long-term care business acquired through previous acquisitions in our Other CNO Business segment. The premiums collected from this block totaled $22.3 million in the first nine months of 2010 and $31.4 million in 2009. The experience on this acquired block has generally been worse than the acquired companies’ original pricing expectations. We have received regulatory approvals for numerous premium rate increases in recent years pertaining to these blocks. Even with these rate increases, this block experienced benefit ratios of 200.5% in the first nine months of 2010, 186.7% in 2009, 169.6% in 2008, and 192.4% in 2007. If future claims experience continues to be worse than anticipated as our long-term care blocks continue to age, our financial results will be adversely affected. In addition, rate increases may cause existing policyholders to allow their policies to lapse.

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

We are exposed to various risks arising out of natural disasters, including earthquakes, hurricanes, floods and tornadoes, and man-made disasters, including acts of terrorism and military actions and pandemics. For example, a natural or man-made disaster or a pandemic could lead to unexpected changes in persistency rates as policyholders and contractholders who are affected by the disaster may be unable to meet their contractual obligations, such as payment of premiums on our insurance policies, deposits into our investment products, and mortgage payments on loans insured by our mortgage insurance policies. They could also significantly increase our mortality and morbidity experience above the assumptions we used in pricing our insurance and investment 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. These consequences could, among other things, result in a decline in business and increased claims from those areas, as well as an adverse effect on home prices in those areas, which could result in increased loss experience in our mortgage insurance businesses. 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.

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

We set the premium rates on our health insurance policies, including long-term care policies and certain life insurance policies, based on facts and circumstances known at the time we issue the policies and on assumptions about numerous variables, including the actuarial probability of a policyholder incurring a claim, the probable size of the claim, maintenance costs to administer the policies and the interest rate earned on our investment of

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premiums. In setting premium rates, we consider historical claims information, industry statistics, the rates of our competitors and other factors, but we cannot predict with certainty the future actual claims on our products. If our actual claims experience proves to be less favorable than we assumed and we are unable to raise our premium rates to the extent necessary to offset the unfavorable claims experience, our financial results will be adversely affected.

We review the adequacy of our premium rates regularly and file proposed rate increases on our health insurance products when we believe existing premium rates are too low. It is possible that we will not be able to obtain approval for premium rate increases from currently pending requests or from future requests. If we are unable to raise our premium rates because we fail to obtain approval in one or more states, our financial results will be adversely affected. Moreover, in some instances, our ability to exit unprofitable lines of business is limited by the guaranteed renewal feature of the policy. Due to this feature, we cannot exit such business without regulatory approval, and accordingly, we may be required to continue to service those products at a loss for an extended period of time. Most of our long-term care business is guaranteed renewable, and, if necessary rate increases are not approved, we would be required to recognize a loss and establish a premium deficiency reserve. During 2009 and the first nine months of 2010, the financial statements of three of our subsidiaries prepared in accordance with statutory accounting practices prescribed or permitted by regulatory authorities reflected asset adequacy or premium deficiency reserves. Total asset adequacy or premium deficiency reserves for Washington National, Conseco Life and Bankers Conseco Life were $79.1 million, $257.1 million and $21.2 million, respectively, at December 31, 2009, and $79.1 million, $278.8 million and $39.4 million, respectively, at September 30, 2010. Due to differences between statutory and GAAP insurance liabilities, we were not required to recognize a similar premium deficiency reserve in our consolidated financial statements prepared in accordance with GAAP. The determination of the need for and amount of asset adequacy reserves is subject to numerous actuarial assumptions, including our ability to change non-guaranteed elements related to certain products consistent with contract provisions.

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

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

The benefit ratio for our long-term care products included in the Other CNO Business segment has increased in recent periods and was 200.5% in the first nine months of 2010, 186.7% in 2009 and 169.6% in 2008. We will have to continue to raise rates or take other actions with respect to some of these policies or our financial results will be adversely affected.

As a result of higher persistency and resultant higher claims in our long-term care block in the Bankers Life segment than assumed in the original pricing, our premium rates were too low. Accordingly, we have been seeking approval from regulatory authorities for rate increases on portions of this business. Many of the rate increases have been approved by regulators and implemented. However, it is possible that we will not be able to obtain approval for all or a portion of the premium rate increases from currently pending requests or future requests. If we are unable to obtain these rate increases, the profitability of these policies and the performance of this block of business will be adversely affected. In addition, such rate increases may reduce the volume of our new sales and cause existing policyholders to allow their policies to lapse, resulting in reduced profitability.

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

We have identified a material weakness in our internal control over financial reporting, and our business and stock price may be adversely affected if we have not adequately addressed the weakness or if we have other material weaknesses or significant deficiencies in our internal controls over financial reporting.

We did not maintain effective controls over the accounting and disclosure of insurance policy benefits and the liabilities for some of our insurance products. We previously identified a material weakness in internal controls over the actuarial reporting processes related to the design of controls to ensure the completeness and accuracy of certain inforce policies in our Bankers Life segment, Washington National segment, what is now our Other CNO Business segment, and the long-term care business reflected in discontinued operations. Remediation efforts to enhance controls over the actuarial reporting process have been continuing over the last several years under the direction of the chief financial officer. Material control deficiencies in the actuarial reporting process related to the design and operating effectiveness of controls over completeness and accuracy of inforce policies in all insurance blocks other than certain specified disease policies were remediated, and the new controls were determined to be effective at December 31, 2009. However, a material weakness relating to the actuarial reporting process over certain specified disease policies in our Washington National segment continued to exist as of December 31, 2009, and our remediation efforts are continuing.

These control deficiencies resulted in adjustments to insurance policy benefits and the liabilities for insurance products in the consolidated financial statements for the years ended December 31, 2009, 2008 and 2007. If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, the market price of our stock could decline significantly, we may be unable to obtain additional financing to operate and expand our business, and our business and financial condition could be harmed. We may also be unable to be certain that we are in compliance with covenants in our credit facilities. In addition, we face the risk that, notwithstanding our efforts to date to identify and remedy all material errors in those financial statements, we may discover other errors in the future and that the cost of identifying and remedying the errors and remediating our material weakness in internal controls will be high and have a material adverse effect on our financial condition and results of operations.

Our ability to use our existing Net Operating Losses may be limited by certain transactions, and an impairment of existing Net Operating Losses could cause us to breach the debt to total capitalization covenant of the New Senior Secured Credit Agreement.

As of September 30, 2010, we had approximately $4.5 billion of federal tax net operating losses (“NOLs”) and $1.1 billion of capital loss carry-forwards, resulting in a deferred tax asset of approximately $2.0 billion, expiring in years 2010 through 2029. Section 382 of the Code imposes limitations on a corporation’s ability to use its NOLs when it undergoes a 50% “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 September 30, 2010 our analysis indicated that we were below the 50% ownership change threshold that would limit our ability to utilize our NOLs. However, taking into account the common stock issuance to Paulson & Co. Inc. (“Paulson”) and CNO’s public offering of common stock in 2009, we are close to the 50% ownership change level. As a result, any future transaction or transactions and the timing of such transaction or transactions could trigger an additional ownership change under Section 382. Such transactions

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may include, but are not limited to, additional repurchases or issuances of common stock, including upon conversion of CNO’s outstanding 7.0% Debentures (including conversion pursuant to a make whole adjustment event) or exercise of the warrants sold to Paulson, or acquisitions or sales of shares of CNO’s stock by certain holders of its shares, including persons who have held, currently hold or may accumulate in the future 5% or more of CNO’s outstanding common stock (“5% Shareholders”) for their own account. In January 2009, CNO’s board of directors adopted a Section 382 Rights Agreement (the “Rights Agreement”) that is designed to protect shareholder value by preserving the value of our NOLs. See the note to the Audited Consolidated Financial Statements entitled “Income Taxes”. The Rights Agreement provides a strong economic disincentive for any one shareholder knowingly, and without the approval of the board, to become a 5% Shareholder and for any of the 5% Shareholders as of the date of the Rights Agreement to increase their ownership stake by more than 1% of the shares of CNO’s common stock then outstanding, and thus limits the uncertainty with regard to the potential for future ownership changes. However, despite the strong economic disincentives of the Rights Agreement, shareholders may elect to increase their ownership, including beyond the limits set by the Rights Agreement, and thus adversely affect CNO’s ownership shift calculations.

Additionally, based on the advice of our tax advisor, we have taken the position that the 7.0% Debentures are not treated as stock for purposes of Section 382 and do not trigger an ownership change. However, the IRS may not agree with our position. If the IRS were to succeed in challenging this position, the issuance of the 7.0% Debentures would push us above the 50% ownership change level described above and trigger an ownership change under Section 382.

If an ownership change were to occur for purposes of Section 382, we would be required to calculate an annual limitation on the amount of our taxable income that may be offset by NOLs arising prior to such ownership change. That limitation would apply to all of our current NOLs. The annual limitation would be calculated based upon the fair market value of our equity at the time of such ownership change, multiplied by a federal long-term tax exempt rate (3.99% at September 30, 2010), and would eliminate our ability to use a substantial portion of our NOLs to offset future taxable income. Additionally, the writedown of our deferred tax assets that would occur in the event of an ownership change for purposes of Section 382 could cause us to breach the debt to total capitalization covenant, which will be included in the New Senior Secured Credit Agreement.

The value of our deferred tax assets may be impaired to the extent our future profits are less than we have projected and such impairment may have a material adverse effect on our results of operations and our financial condition.

As of September 30, 2010, we had deferred tax assets of $0.5 billion. In 2009, we increased the deferred tax valuation allowance by $27.8 million, of which $23 million related to our reassessment of the recovery of our deferred tax assets following the completion of reinsurance transactions in 2009; and $4.8 million was associated with capital loss carry-forwards recognized in 2009.

Our income tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax bases of assets and liabilities, capital loss carry-forwards and NOLs. We evaluate the realizability of our deferred income tax assets and assess the need for a valuation allowance on an ongoing basis. In evaluating our deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of our deferred income 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. Additionally, the value of our deferred tax assets would be significantly impaired if we were to undergo a 50% “ownership change” for purposes of Section 382 of the Code, as discussed in the risk factor immediately above. Our assessment of the realizability of our deferred income 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.

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

The concentration of our investment portfolios 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 its value and performance and, consequently, 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 portfolios to the extent that the portfolios are concentrated.

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. Our insurance subsidiaries are subject to state insurance laws that establish supervisory agencies. Such agencies have broad administrative powers including the power to:

• grant and revoke business licenses;

• regulate and supervise sales practices and market conduct;

• establish guaranty associations;

• license agents;

• approve policy forms;

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

• establish reserve requirements;

• credit for reinsurance;

• prescribe the form and content of required financial statements and reports;

• determine the reasonableness and adequacy of statutory capital and surplus;

• perform financial, market conduct and other examinations;

• define acceptable accounting principles; and

• regulate the types and amounts of permitted investments.

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 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 falls below specified levels, the insurer is subject to different degrees of regulatory action depending upon the magnitude of the deficiency. The 2009 statutory annual statements filed with the state insurance regulators of each of our insurance subsidiaries reflected TAC in excess of the levels subjecting the subsidiaries to any regulatory action.

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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.

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. For our health insurance business, we establish an active life reserve, a liability for due and unpaid claims, claims in the course of settlement, incurred but not reported claims, and a reserve for the present value of amounts on incurred claims not yet due. We establish reserves based on assumptions and estimates of factors either established at the fresh-start date for business inforce or considered when we set premium rates for business written after that date.

Many factors can affect these reserves and liabilities, such as economic and social conditions, inflation, hospital and pharmaceutical costs, changes in life expectancy, regulatory actions, changes in doctrines of legal liability and extra-contractual damage awards. Therefore, the reserves and liabilities we establish are necessarily based on estimates, assumptions, industry data and prior years’ statistics. It is possible that actual claims will materially exceed our reserves and have a material adverse effect on our results of operations and financial condition. We have incurred significant losses beyond our estimates as a result of actual claim costs and persistency of our long-term care business included in our Bankers Life and Other CNO Business segments. The insurance policy benefits incurred for our long-term care products in our Bankers Life segment were $501.5 million in the first nine months of 2010 and $635.8 million, $672.0 million and $633.6 million in 2009, 2008 and 2007, respectively. The benefit ratios for our long-term care products in our Bankers Life segment were 113.9% in the first nine months of 2010, and 105.2%, 107.6% and 102.0% in 2009, 2008 and 2007, respectively. The benefit ratios for our long-term care products in our Other CNO Business segment were 200.5%, in the first nine months of 2010, and 186.7%, 169.6% and 192.4% in 2009, 2008 and 2007, respectively. The insurance policy benefits incurred for our long-term care products in our Other CNO Business segment were $45.5 million in the first nine months of 2010 and $59.9 million, $58.7 million and $72.5 million in 2009, 2008 and 2007, respectively. Our financial performance depends significantly upon the extent to which our actual claims experience and future expenses are consistent with the assumptions we used in setting our reserves. If our assumptions with respect to future claims are incorrect, and our reserves prove to be insufficient to cover our actual losses and expenses, we would be required to increase our liabilities, and our financial results could be adversely affected.

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

Deferred acquisition costs represent the costs that vary with, and are primarily related to, producing new insurance business. The present value of future profits represents the value assigned to the right to receive future cash flows from contracts existing at September 10, 2003, the effective date of our predecessor company’s plan of reorganization. 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 that could have an adverse effect on the results of our operations and our financial condition.

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

Surrenders of our annuities and life insurance products can result in losses and decreased revenues if surrender levels differ significantly from assumed levels. At September 30, 2010, approximately 20% of our total insurance liabilities, or approximately $4.9 billion, could be surrendered by the policyholder without penalty. The surrender charges that are imposed on our fixed rate annuities typically decline during a penalty period, which ranges from five to twelve years after the date the policy is issued. Surrender charges are eliminated after the penalty period. Surrenders and redemptions could require us to dispose of assets earlier than we had planned,

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possibly at a loss. Moreover, surrenders and redemptions require faster amortization of either the acquisition costs or the commissions associated with the original sale of a product, thus reducing our net income. We believe policyholders are generally more likely to surrender their policies if they believe the issuer is having financial difficulties, or if they are able to reinvest the policy’s value at a higher rate of return in an alternative insurance or investment product.

Changing interest rates may adversely affect our results of operations.

Our profitability is affected by fluctuating interest rates. While we monitor the interest rate environment and, in some cases, employ asset/liability and hedging strategies to mitigate such impact, our financial results could be adversely affected by changes in interest rates. Our spread-based insurance and annuity business is subject to several inherent risks arising from movements in interest rates, 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 to customer deposits. Our ability to adjust for such a compression is limited by the guaranteed minimum rates that we must credit to policyholders on certain products, as well as the terms on most of our other products that limit reductions in the crediting rates to pre-established intervals. As of September 30, 2010, approximately 41% of our insurance liabilities were subject to interest rates that may be reset annually; 41% had a fixed explicit interest rate for the duration of the contract; 13% had credited rates that approximate the income we earn; and the remainder had no explicit interest rates. Second, if interest rate changes produce an unanticipated increase in surrenders of our spread-based products, we may be forced to sell invested assets at a loss in order to fund such surrenders. Third, the profits from many non-spread-based insurance products, such as long-term care policies, can be adversely affected when interest rates decline because we may be unable to reinvest the cash from premiums received at the interest rates anticipated when we sold the policies. Finally, changes in interest rates can have significant effects on the fair value and performance of our investments in general and specifically on the performance of our structured securities portfolio, including collateralized mortgage obligations, as a result of changes in the prepayment rate of the loans underlying such securities.

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

We use computer models to simulate our cash flows expected from existing business under various interest rate scenarios. With such estimates, we seek to manage the relationship between the duration of our assets and the expected duration of our liabilities. When the estimated durations of assets and liabilities are similar, exposure to interest rate risk is minimized because a change in the value of assets should be largely offset by a change in the value of liabilities. At September 30, 2010, the duration of our fixed maturity investments (as modified to reflect prepayments and potential calls) was approximately 9.2 years, and the duration of our insurance liabilities was approximately 8.5 years. We estimate that our fixed maturity securities and short-term investments, net of corresponding changes in insurance acquisition costs, would decline in fair value by approximately $302 million if interest rates were to increase by 10% from rates as of September 30, 2010. This compares to a decline in fair value of $455 million based on amounts and rates at December 31, 2009. The calculations involved in our computer simulations incorporate numerous assumptions, require significant estimates and assume an immediate change in interest rates without any management reaction to such change. Consequently, potential changes in the values of our financial instruments indicated by the simulations will likely be different from the actual changes experienced under given interest rate scenarios, and the differences may be material. Because we actively manage our investments and liabilities, our net exposure to interest rates can vary over time.

General market conditions affect investments and investment income.

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

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

Our results of operations may be negatively impacted if our initiatives to restructure our insurance operations are unsuccessful or if our planned conversions result in valuation differences.

We have implemented several initiatives to improve operating results, including: (i) focusing sales efforts on higher margin products; (ii) reducing operating expenses by eliminating or reducing marketing costs of certain products; (iii) streamlining administrative procedures and reducing personnel; and (iv) increasing retention rates on our more profitable blocks of inforce business. Many of our initiatives address issues resulting from the substantial number of acquisitions of our predecessor company. Between 1982 and 1997, our predecessor company completed 19 transactions involving the acquisitions of 44 separate insurance companies. Our efforts involve improvements to our policy administration procedures and significant systems conversions, such as the elimination of duplicate processing systems for similar business. These initiatives may result in unforeseen expenses, complications or delays, and may be inadequate to address all issues. Some of these initiatives have only recently begun to be executed, and may not ultimately be successfully completed. While our future operating performance depends greatly on the success of these efforts, even if we successfully implement these measures, they alone may not sufficiently improve our results of operations.

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

Our financial position may be negatively impacted if we are unable to achieve our goals.

We have identified a number of goals, including maintaining strong growth at Bankers Life, improving earnings stability and reducing volatility and reducing our enterprise exposure to long-term care business. The most consistent components of our operations in recent years have been Bankers Life and Colonial Penn, and the continued growth and profitability of those businesses is critical to our overall results. The failure to achieve these and our other goals could have a material adverse effect on our results of operations, financial condition and the price of our common stock.

A failure to improve the financial strength ratings of our insurance subsidiaries or a decline from the current ratings could cause us to experience decreased sales, increased agent attrition and increased policyholder lapses and redemptions.

An important competitive factor for our insurance subsidiaries is the ratings they receive from nationally recognized rating organizations. Agents, insurance brokers and marketing companies who market our products, and prospective policyholders view ratings as an important factor in evaluating an insurer’s products. This is especially true for annuity, interest-sensitive life insurance and long-term care products. The current financial strength ratings of our primary insurance subsidiaries from A.M. Best, S&P and Moody’s are “B (Fair)” (except Conseco Life), “BB-” and “Ba1,” respectively. A.M. Best has 16 possible ratings. There are six ratings above our “B” rating and nine ratings that are below our rating. S&P has 21 possible ratings. There are twelve ratings above our “BB-” rating and eight ratings that are below our rating. Moody’s has 21 possible ratings. There are ten ratings above our “Ba1” rating and ten ratings that are below our rating. Most of our competitors have higher financial strength ratings and, to be competitive over the long term, we believe it is critical to achieve improved ratings.

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

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

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

Our principal competitors vary by product line. Our main competitors for agent-sold long-term care insurance products include Genworth Financial, Inc., John Hancock Financial Services and MetLife, Inc. Our main competitors for agent-sold Medicare supplement insurance products include United HealthCare, Blue Cross and Blue Shield Plans, Mutual of Omaha and United American.

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 five writers, our market share is relatively small. For example, while, based on an Individual Long-Term Care Insurance Survey, our Bankers Life segment ranked fifth in annualized premiums of individual long-term care insurance in 2009 with a market share of approximately 5.8%, the top four writers of individual long-term care insurance had annualized premiums with a combined market share of approximately 64% during the period. In addition, while, based on the NAIC’s 2009 Medicare Supplement Loss Ratios report, our Bankers Life segment was ranked third in direct premiums earned for individual Medicare supplement insurance in 2009 with a market share of 3.8%, the top writer of individual Medicare supplement insurance had direct premiums with a market share of 17.0% during the period.

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

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

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

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

Fluctuations in the securities markets and other economic factors may adversely affect sales and/or policy surrenders of our annuities and life insurance policies. For example, volatility in the equity markets may deter potential purchasers from investing in fixed index annuities and may cause current policyholders to surrender their policies for the cash value or to reduce their investments. In addition, significant or unusual volatility in the general level of interest rates could negatively impact sales and/or lapse rates on certain types of insurance products.

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

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

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

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was enacted and signed into law. The Dodd-Frank Act made extensive changes to the laws regulating financial services firms and requires various federal agencies to adopt a broad range of new implementing rules and regulations.

Among other provisions, the Dodd-Frank Act provides for a new framework of regulation of over-the-counter (“OTC”) derivatives markets. This will require us to clear certain types of transactions currently traded in the OTC derivative markets and may limit our ability to customize derivative transactions for our needs. In addition, we will likely experience additional collateral requirements and costs associated with derivative transactions. The Dodd-Frank Act also authorizes the SEC to adopt regulations that could impose heightened standards of care on sellers of our variable or other registered products, which could adversely affect our sales of and reduce our margins on these products.

The Dodd-Frank Act also establishes a Financial Stability Oversight Council, which is authorized to subject nonbank financial companies deemed systemically significant to stricter prudential standards and other requirements and to subject such a company to a special orderly liquidation process outside the federal bankruptcy code, administered by the Federal Deposit Insurance Corporation (although insurance company subsidiaries would remain subject to liquidation and rehabilitation proceedings under state law). In addition, the Dodd-Frank Act establishes a Federal Insurance Office within the Department of the Treasury. While not having a general supervisory or regulatory authority over the business of insurance, the director of this office will perform various functions with respect to insurance, including serving as a non-voting member of the Financial Stability Oversight Council and making recommendations to the Council regarding insurers to be designated for more stringent regulation. The director is also required to conduct a study on how to modernize and improve the system of insurance regulation in the United States, including by increased national uniformity through either a federal charter or effective action by the states.

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

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

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

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

We face risk with respect to our reinsurance agreements.

We transfer exposure to certain risks to others through reinsurance arrangements. Under these arrangements, other insurers assume a portion of our losses and expenses associated with reported and unreported claims in exchange for a portion of policy premiums. The availability, amount and cost of reinsurance depend on general market conditions and may vary significantly. As of September 30, 2010, our reinsurance receivables totaled $3.3 billion. Our ceded life insurance inforce totaled $15.0 billion. Our ten largest reinsurers accounted for 91% of our ceded life insurance inforce. We face credit risk with respect to reinsurance. When we obtain reinsurance, we are still liable for those transferred risks if the reinsurer cannot meet its obligations. Therefore, the inability of our reinsurers to meet their financial obligations may require us to increase liabilities, thereby reducing our net income and shareholders’ equity.

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

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

The Notes may be issued with original issue discount.

The Notes will be issued with original issue discount for U.S. federal income tax purposes (“OID”) if the stated principal amount of the Notes exceeds their issue price by more than a de minimis amount. In such event, holders subject to U.S. federal income taxation will be required to include the OID in gross income (as ordinary income) as the OID accrues, prior to the receipt of cash attributable thereto (and regardless of a holder’s method of accounting for U.S. federal income tax purposes). See “Certain United States Federal Income Tax Considerations”.

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EX-99.5

Exhibit 99.5

CAPITALIZATION

The following table sets forth our consolidated capitalization as of September 30, 2010 on an actual basis and on an as adjusted basis to give effect to the following transactions (using all of the assumptions set forth in the notes to the table):

• this offering;

• the contemplated borrowing under the New Senior Secured Credit Agreement as of the closing date of this offering; and

• the repayment of outstanding borrowings under the existing Senior Secured Credit Agreement.

This table should be read in conjunction with the information set forth under “Use of Proceeds” in this Offering Memorandum and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and notes thereto contained in this Offering Memorandum.

	As of September 30, 2010
	Actual			As Adjusted
	(dollars in millions)
Debt:
New Senior Secured Credit Agreement(1)	$	—		$	325.0
Senior Secured Credit Agreement(2)		652.1			—
Senior Secured Notes offered hereby		—			300.0
6% Senior Health Note		100.0			100.0
7.0% Debentures, net of unamortized discount		277.7			277.7
Total debt	$	1,029.8		$	1,002.7	(3)
Shareholders’ equity:
Common stock ($0.01 par value, 8,000,000,000 shares authorized; 251,046,412 shares issued and outstanding)		2.5			2.5
Additional paid-in capital		4,421.6			4,421.6
Accumulated other comprehensive income		688.1			688.1
Accumulated deficit(2)		(507.9	)		(510.8	)
Total shareholders’ equity		4,604.3			4,601.4
Total capitalization	$	5,634.1		$	5,604.1

(1) The New Senior Secured Credit Agreement will be scheduled to mature in September 2016.

(2) The assumed repayment of outstanding borrowings under the existing Senior Secured Credit Agreement would result in an after tax debt extinguishment charge of $2.9 million if such repayment had been completed on September 30, 2010. The existing Senior Secured Credit Agreement will be repaid in full and terminated in connection with this offering.

(3) Total debt, as adjusted, does not include a $25 million amortization payment on the Senior Health Note made in November 2010.

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EX-99.6

Exhibit 99.6

INVESTMENTS

Our investment strategy is to: (i) maintain a predominately investment-grade fixed income portfolio; (ii) provide liquidity to meet our cash obligations to policyholders and others; and (iii) generate stable and predictable investment income through active investment management. Consistent with this strategy, investments in fixed maturity securities, mortgage loans and policy loans made up 96% of our $24.2 billion investment portfolio at September 30, 2010. The remainder of the invested assets was trading securities, investments held by variable interest entities, equity securities and other invested assets.

The following table summarizes the composition of our investment portfolio as of September 30, 2010 (dollars in millions):

	Carrying Value		Percent of total investments
Fixed maturities, available for sale	$	21,007.5		87	%
Equity securities		41.1		—
Mortgage loans		1,825.6		8
Policy loans		290.9		1
Trading securities		389.7		1
Investments held by variable interest entities		454.8		2
Other invested assets		189.5		1
Total investments	$	24,199.1		100	%

Insurance statutes regulate the types of investments that our insurance subsidiaries are permitted to make and limit the amount of funds that may be used for any one type of investment. In light of these statutes and regulations and our business and investment strategy, we generally seek to invest in United States government and government-agency securities and corporate securities rated investment grade by established nationally recognized rating organizations or in securities of comparable investment quality, if not rated.

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At September 30, 2010, the amortized cost, gross unrealized gains and losses and estimated fair value of fixed maturities, available for sale, and equity securities were as follows (dollars in millions):

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Investment grade(a)
Corporate securities	$	13,208.6	$	1,302.7	$	(54.3	)	$	14,457.0
United States Treasury securities and obligations of United States government corporations and agencies		100.8		8.0		—			108.8
States and political subdivisions		1,439.5		62.5		(31.2	)		1,470.8
Debt securities issued by foreign governments		0.8		0.1		—			0.9
Asset-backed securities		559.1		10.1		(6.3	)		562.9
Collateralized debt obligations		208.7		1.6		(2.2	)		208.1
Commercial mortgage-backed securities		1,303.3		84.9		(19.0	)		1,369.2
Mortgage pass-through securities		32.1		1.6		(0.1	)		33.6
Collateralized mortgage obligations		1,048.7		54.2		(16.4	)		1,086.5
Total investment grade fixed maturities, available for sale		17,901.6		1,525.7		(129.5	)		19,297.8
Below-investment grade(a):
Corporate securities		1,229.1		26.8		(61.8	)		1,194.1
States and political subdivisions		4.8		—		(1.3	)		3.5
Asset-backed securities		47.6		2.1		(0.4	)		49.3
Collateralized debt obligations		14.1		0.2		—			14.3
Commercial mortgage-backed securities		2.9		—		(1.8	)		1.1
Collateralized mortgage obligations		464.4		9.0		(26.0	)		447.4
Total below-investment grade fixed maturities, available for sale		1,762.9		38.1		(91.3	)		1,709.7
Total fixed maturities, available for sale	$	19,664.5	$	1,563.8	$	(220.8	)	$	21,007.5
Equity securities	$	40.7	$	0.9	$	(0.5	)	$	41.1

(a) Investment ratings—Investment ratings are assigned the second lowest rating by a nationally recognized statistical rating organization (Moody’s, S&P or Fitch Ratings (“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.

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Concentration of Fixed Maturity Securities, 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 September 30, 2010 (dollars in millions):

	Carrying value		Percent of fixed maturities			Gross unrealized losses		Percent of gross unrealized losses
Energy/pipelines	$	2,106.1		10.0	%	$	7.3		3.3	%
Utilities		2,024.1		9.6			1.3		0.6
Collateralized mortgage obligations		1,533.9		7.3			42.4		19.2
States and political subdivisions		1,474.3		7.0			32.5		14.7
Commercial mortgage-backed securities		1,370.3		6.5			20.8		9.4
Insurance		1,301.0		6.2			11.8		5.4
Food/beverage		1,231.5		5.9			0.6		0.3
Healthcare/pharmaceuticals		1,213.0		5.8			0.5		0.2
Banks		945.7		4.5			30.0		13.6
Cable/media		873.7		4.2			7.8		3.6
Real estate/REITs		821.8		3.9			6.3		2.8
Capital goods		618.7		2.9			2.2		1.0
Asset-backed securities		612.2		2.9			6.7		3.0
Transportation		527.5		2.5			—		—
Aerospace/defense		468.1		2.2			—		—
Telecom		460.8		2.2			0.8		0.4
Building materials		444.2		2.1			4.0		1.8
Metals and mining		340.5		1.6			0.2		0.1
Brokerage		264.2		1.3			1.4		0.6
Consumer products		250.3		1.2			1.4		0.6
Entertainment/hotels		235.3		1.1			—		—
Chemicals		222.7		1.1			—		—
Collateralized debt obligations		222.4		1.1			2.2		1.0
Other		1,445.2		6.9			40.6		18.4
Total fixed maturities, available for sale	$	21,007.5		100.0	%	$	220.8		100.0	%

Our fixed maturity securities consist predominantly of publicly traded securities. We classify securities issued in the Rule 144A market as publicly traded. Securities not publicly traded comprise approximately 12% of our total fixed maturity securities portfolio.

Below-Investment Grade Securities

At September 30, 2010, the amortized cost of the Company’s below-investment grade fixed maturity securities was $1,762.9 million, or 9.0% of the Company’s fixed maturity portfolio. The estimated fair value of the below-investment grade portfolio was $1,709.7 million, or 97% of the amortized cost.

Below-investment grade corporate debt securities have different characteristics than investment grade corporate debt securities. Based on historical performance, probability of default by the borrower is significantly greater for below-investment grade 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.

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Net Realized Investment Gains (Losses)

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

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Fixed maturity securities, available for sale:
Realized gains on sale	$	100.8		$	97.5		$	212.4		$	259.5
Realized losses on sale		(59.3	)		(78.2	)		(141.7	)		(145.4	)
Net impairment losses recognized in earnings		(4.8	)		(23.4	)		(27.6	)		(127.8	)
Net realized investment gains (losses) from fixed maturities		36.7			(4.1	)		43.1			(13.7	)
Commercial mortgage loans		(14.1	)		(5.7	)		(14.0	)		(5.7	)
Other-than-temporary declines in fair value of mortgage loans and other invested assets		(19.7	)		(12.3	)		(45.1	)		(36.5	)
Other		0.7			1.8			(2.0	)		12.4
Net realized investment gains (losses)	$	3.6		$	(20.3	)	$	(18.0	)	$	(43.5	)

During the first nine months of 2010, we recognized net realized investment losses of $18.0 million, which were comprised of $54.7 million of net gains from the sales of investments (primarily fixed maturities) with proceeds of $6.6 billion and $72.7 million of writedowns of investments for other than temporary declines in fair value recognized through net income ($69.8 million, prior to the $(2.9) million of impairment losses recognized through accumulated other comprehensive income (loss)).

During the first nine months of 2009, we recognized net realized investment losses of $43.5 million, which were comprised of $120.8 million of net gains from the sales of investments (primarily fixed maturities) and $164.3 million of writedowns of investments for other than temporary declines in fair value recognized through net income ($324.2 million, prior to the $159.9 million of impairment losses recognized through accumulated other comprehensive income (loss)).

At September 30, 2010, fixed maturity securities in default or considered nonperforming had an aggregate amortized cost of $0.6 million and a carrying value of $0.7 million.

During the first nine months of 2010, the $72.7 million of other-than-temporary impairments we recorded in earnings included: (i) $20.3 million of losses related to mortgage-backed and asset-backed securities, primarily reflecting changes related to the estimated future cash flows of the underlying assets and, for certain securities, changes in our intent to hold the securities; (ii) $37.8 million of losses related to commercial mortgage loans reflecting our concerns regarding the issuers’ ability to continue to make contractual payments related to these loans and our estimate of the value of the underlying properties; (iii) $1.4 million related to a home office building which is available for sale; and (iv) $13.2 million of additional losses primarily related to various corporate securities and other invested assets following unforeseen issue-specific events or conditions.

During the first nine months of 2010, the $141.7 million of realized losses on sales of $1.2 billion of fixed maturity securities, available for sale, included: (i) $117.4 million of losses related to the sales of mortgage-backed securities and asset-backed securities; and (ii) $24.3 million of additional losses primarily related to various corporate securities. Securities are generally sold at a loss following unforeseen issue-specific events or conditions or shifts in perceived risks. These reasons include but are not limited to: (i) changes in the investment environment; (ii) expectation that the fair value could deteriorate further; (iii) desire to reduce our exposure to an asset class, an issuer or an industry; (iv) changes in credit quality; or (v) changes in expected liability cash flows.

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During the first nine months of 2009, the $164.3 million of other-than-temporary impairments we recorded included: (i) $74.8 million of losses related to residential mortgage-backed and asset-backed securities, primarily reflecting changes related to the performance of the underlying assets and, for certain securities, changes in our intent regarding continuing to hold the securities; (ii) $32.2 million of losses related to commercial mortgage loans reflecting our concerns regarding the issuers’ ability to continue to make contractual payments related to these loans and our estimate of the value of the underlying properties; (iii) $13.8 million of losses related to securities issued by a large commercial lender that recently filed bankruptcy; and (iv) $43.5 million of additional losses primarily related to various corporate securities following unforeseen issue-specific events or conditions and shifts in risks or uncertainty of the issuer.

During the first nine months of 2009, the $145.4 million of realized losses on sales of $0.8 billion of fixed maturity securities, available for sale, included: (i) $96.2 million of losses related to the sales of residential mortgage-backed securities and asset-backed securities; (ii) $11.4 million of losses related to the sale of securities issued by providers of financial guarantees and mortgage insurance; and (iii) $37.8 million of additional losses primarily related to various corporate securities. Securities are generally sold at a loss following unforeseen issue-specific events or conditions and shifts in risks or uncertainty of certain securities. These reasons include but are not limited to: (i) changes in the investment environment; (ii) expectation that the market value could deteriorate further; (iii) desire to reduce our exposure to an asset class, an issuer or an industry; (iv) changes in credit quality; or (v) changes in expected liability cash flows.

Our fixed maturity investments are generally purchased in the context of a long-term strategy to fund insurance liabilities, so we do not generally seek to purchase and sell such securities to generate short-term realized gains. 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 matching objectives, we may sell certain securities.

The following summarizes the investments (including investments held by the VIEs) sold at a loss during the first nine months of 2010 which had been continuously in an unrealized loss position exceeding 20% of the amortized cost basis prior to the sale for the period indicated (dollars in millions):

	At date of sale
	Number of issuers		Amortized cost		Fair value
Less than 6 months prior to sale		7	$	51.5	$	38.9
Greater than or equal to 6 and less than 12 months prior to sale		2		0.3		0.1
Greater than 12 months prior to sale		27		165.5		87.1
		36	$	217.3	$	126.1

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

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Future events may occur, or additional information may become available, which may necessitate future realized losses of securities in our portfolio. Significant losses in the estimated fair values of our investments could have a material adverse effect on our earnings in future periods.

The following table sets forth the amortized cost and estimated fair value of those fixed maturities, available for sale, with unrealized losses at September 30, 2010, by contractual maturity. Actual maturities will differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties. Structured securities frequently permit periodic unscheduled payments throughout their lives.

	Amortized cost		Estimated fair value
	(Dollars in millions)
Due in one year or less	$	22.1	$	22.1
Due after one year through five years		187.5		182.3
Due after five years through ten years		313.0		294.1
Due after ten years		1,721.4		1,596.9
Subtotal		2,244.0		2,095.4
Structured securities		1,016.7		944.5
Total	$	3,260.7	$	3,039.9

The following summarizes the investments in our portfolio rated below-investment grade which have been continuously in an unrealized loss position exceeding 20% of the cost basis for the period indicated as of September 30, 2010 (dollars in millions):

	Number of issuers		Cost basis		Unrealized loss			Estimated fair value
Less than 6 months		3	$	5.4	$	(1.2	)	$	4.2
Greater than 12 months		6		53.7		(13.7	)		40.0
		9	$	59.1	$	(14.9	)	$	44.2

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The following table summarizes the gross unrealized losses of our fixed maturity securities, available for sale, by category and ratings category as of September 30, 2010 (dollars in millions):

	Investment grade				Below investment grade				Total  gross unrealized losses
	AAA/AA/A		BBB		BB		B+ and     below
Collateralized mortgage obligations	$	16.3	$	0.1	$	4.8	$	21.2	$	42.4
States and political subdivisions		12.2		19.0		1.3		—		32.5
Banks		10.2		17.5		2.3		—		30.0
Commercial mortgage-backed securities		11.6		7.4		1.8		—		20.8
Insurance		2.9		6.6		0.8		1.6		11.9
Cable/media		—		3.1		2.3		2.5		7.9
Energy/pipelines		—		7.1		0.2		—		7.3
Asset-backed securities		4.7		1.6		0.1		0.3		6.7
Real estate/REITs		—		1.4		4.3		0.6		6.3
Building materials		—		1.3		2.3		0.3		3.9
Paper		—		—		3.4		0.1		3.5
Capital goods		0.4		0.4		1.5		—		2.3
Collateralized debt obligations		1.9		0.3		—		—		2.2
Brokerage		0.9		0.5		—		—		1.4
Consumer products		—		—		1.0		0.3		1.3
Utilities		—		0.1		—		1.2		1.3
Gaming		—		—		—		1.1		1.1
Telecom		—		—		0.7		—		0.7
Food/beverage		—		0.2		0.4		—		0.6
Healthcare/pharmaceuticals		0.1		0.2		0.2		—		0.5
Retail		—		—		0.2		0.2		0.4
Metals and mining		—		0.2		—		—		0.2
Technology		—		—		0.2		—		0.2
Autos		—		—		—		0.1		0.1
Mortgage pass-through securities		0.1		—		—		—		0.1
Textiles		—		—		—		0.1		0.1
Other		—		1.2		33.6		0.3		35.1
Total fixed maturities, available for sale	$	61.3	$	68.2	$	61.4	$	29.9	$	220.8

Our investment strategy is to maximize, over a sustained period and within acceptable parameters of quality and risk, investment income and total investment return through active investment management. Accordingly, we may sell securities at a gain or a loss to enhance the projected total return of the portfolio as market opportunities change, to reflect changing perceptions of risk, or to better match certain characteristics of our investment portfolio with the corresponding characteristics of our insurance liabilities. 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, we may sell securities at a loss in the future because of actual or expected changes in our view of the particular investment, its industry, its type or the general investment environment. 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 securities before their anticipated recovery.

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The following table summarizes the gross unrealized losses and fair values of our investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that such securities had been in a continuous unrealized loss position, at September 30, 2010 (dollars in millions):

	Less than 12 months					12 months or greater					Total
Description of securities	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
Corporate securities	$	492.7	$	(10.0	)	$	1,252.2	$	(106.1	)	$	1,744.9	$	(116.1	)
United States Treasury securities and obligations of United States government corporations and agencies		10.0		—			0.3		—			10.3		—
States and political subdivisions		82.2		(0.2	)		258.0		(32.3	)		340.2		(32.5	)
Asset-backed securities		170.2		(1.5	)		61.0		(5.2	)		231.2		(6.7	)
Collateralized debt obligations		117.7		(2.2	)		—		—			117.7		(2.2	)
Commercial mortgage-backed securities		37.6		(0.2	)		126.3		(20.6	)		163.9		(20.8	)
Mortgage pass-through securities		0.3		—			3.6		(0.1	)		3.9		(0.1	)
Collateralized mortgage obligations		106.3		(1.0	)		321.5		(41.4	)		427.8		(42.4	)
Total fixed maturities, available for sale	$	1,017.0	$	(15.1	)	$	2,022.9	$	(205.7	)	$	3,039.9	$	(220.8	)

Structured Securities

At September 30, 2010, fixed maturity investments included structured securities with an estimated fair value of $3.8 billion (or 18% of all fixed maturity securities). The yield characteristics of structured securities differ in some respects from those of traditional fixed-income securities. For example, interest and principal payments on structured securities may occur more frequently, often monthly. In many instances, we are subject to the risk that the amount and timing of principal and interest payments may vary from expectations. 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 the underlying assets backing the security to changes in interest rates; a variety of economic, geographic and other factors; the timing and pace of liquidations of defaulted collateral; the amount of loan maturities; 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-government structured securities may be affected by changes to cumulative default rates or loss severities of the related collateral.

The following table sets forth the par value, amortized cost and estimated fair value of structured securities, summarized by interest rates on the underlying collateral, at September 30, 2010 (dollars in millions):

	Par value		Amortized cost		Estimated fair value
Below 4%	$	289.0	$	247.3	$	246.7
4% – 5%		210.8		208.6		221.2
5% – 6%		2,362.0		2,288.2		2,346.8
6% – 7%		827.2		783.0		805.1
7% – 8%		78.3		79.2		78.1
8% and above		75.5		74.6		74.5
Total structured securities	$	3,842.8	$	3,680.9	$	3,772.4

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The amortized cost and estimated fair value of structured securities at September 30, 2010, summarized by type of security, were as follows (dollars in millions):

Type			Estimated fair value
	Amortized cost		Amount		Percent of fixed maturities
Pass-throughs, sequential and equivalent securities	$	1,044.9	$	1,076.2		5.1	%
Planned amortization classes, target amortization classes and accretion-directed bonds		486.1		476.6		2.3
Commercial mortgage-backed securities		1,306.2		1,370.3		6.5
Asset-backed securities		606.7		612.2		2.9
Collateralized debt obligations		222.8		222.4		1.1
Other		14.2		14.7		0.1
Total structured securities	$	3,680.9	$	3,772.4		18.0	%

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

Commercial mortgage-backed securities are secured by commercial real estate mortgages, generally income producing properties that are managed for profit. Property types include multi-family dwellings including apartments, retail centers, hotels, restaurants, hospitals, nursing homes, warehouses, and office buildings. Most commercial mortgage-backed securities have call protection features whereby underlying borrowers may not prepay their mortgages for stated periods of time without incurring prepayment penalties.

Securities Lending

The Company participated in a securities lending program whereby certain fixed maturity securities from our investment portfolio were loaned to third parties via a lending agent for a short period of time. We maintained ownership of the loaned securities. We required collateral equal to 102% of the fair value of the loaned securities. The collateral was invested by the lending agent in accordance with our guidelines. The fair value of the loaned securities was monitored on a daily basis with additional collateral obtained as necessary. In the third quarter of 2010, the Company discontinued its securities lending program. Income generated from the program, net of expenses was recorded as net investment income and totaled $0.2 million and $1.0 million in the first nine months of 2010 and 2009, respectively.

9

Commercial Mortgage Loans

The following table provides the weighted average loan-to-value ratio for our outstanding mortgage loans as of September 30, 2010 (dollars in millions):

Loan-to-value ratio(a)	Carrying value		Estimated fair value
Less than 60%	$	695.3	$	758.2
60% to 70%		669.4		646.8
70% to 80%		370.1		359.8
80% to 90%		46.5		45.1
Greater than 90%		44.3		38.6
Total	$	1,825.6	$	1,848.5

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

Investment in Variable Interest Entities

The following table provides supplemental information about the revenues and expenses of Fall Creek and Eagle Creek which have been consolidated in accordance with authoritative guidance, after giving effect to the elimination of our investment in Fall Creek and Eagle Creek and investment management fees earned by a subsidiary of the Company (dollars in millions):

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Revenues:
Net investment income—policyholder and reinsurer accounts and other special-purpose portfolios	$	5.1		$	2.9		$	15.5		$	10.7
Fee revenue and other income		0.1			0.1			0.5			0.3
Total revenues		5.2			3.0			16.0			11.0
Expenses:
Interest expense		3.3			2.8			10.2			10.7
Other operating expenses		—			0.1			0.4			0.3
Total expenses		3.3			2.9			10.6			11.0
Income (loss) before net realized investment losses and income taxes		1.9			0.1			5.4			—
Net realized investment losses		(1.4	)		(4.0	)		(4.1	)		(14.8	)
Income (loss) before income taxes	$	0.5		$	(3.9	)	$	1.3		$	(14.8	)

During the first nine months of 2010, net realized investment losses included: (i) $0.9 million of net losses from the sales of investments; and (ii) $3.2 million of writedowns of investments resulting from declines in fair values that we concluded were other than temporary. During the first nine months of 2009, net realized investment losses included: (i) $1.3 million of net losses from the sales of investments; and (ii) $13.5 million of writedowns of investments resulting from declines in fair values that we concluded were other than temporary.

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Supplemental Information on Investments Held by VIEs

The following table summarizes the carrying values of the investments held by the VIEs by category as of September 30, 2010 (dollars in millions):

	Carrying value		Percent of fixed maturities			Gross unrealized losses		Percent of gross unrealized losses
Cable/media	$	75.4		16.6	%	$	3.4		17.8	%
Healthcare/pharmaceuticals		60.7		13.3			1.8		9.4
Chemicals		28.4		6.3			1.1		5.5
Retail		27.9		6.1			0.9		4.5
Utilities		25.0		5.5			1.8		9.0
Autos		18.7		4.1			0.5		2.6
Gaming		18.5		4.1			1.9		9.6
Energy/pipelines		17.4		3.8			2.1		10.9
Consumer products		17.4		3.8			0.7		3.7
Entertainment/hotels		17.4		3.8			0.6		3.3
Capital goods		17.1		3.8			0.7		3.8
Aerospace/defense		16.8		3.7			0.3		1.5
Food/beverage		16.4		3.6			0.4		2.1
Paper		13.9		3.1			0.2		0.8
Technology		9.3		2.0			0.4		2.1
Other		74.5		16.4			2.6		13.4
Total	$	454.8		100.0	%	$	19.4		100.0	%

The following table sets forth the amortized cost and estimated fair value of those investments held by the VIEs with unrealized losses at September 30, 2010, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized cost		Estimated fair value
	(Dollars in millions)
Due in one year or less	$	13.5	$	13.1
Due after one year through five years		303.2		285.6
Due after five years through ten years		52.7		51.4
Total	$	369.4	$	350.1

The following summarizes the investments in our portfolio held by the VIEs rated below-investment grade which have been continuously in an unrealized loss position exceeding 20% of the cost basis for the period indicated as of September 30, 2010 (dollars in millions):

	Number of issuers		Cost basis		Unrealized loss			Estimated fair value
Less than 6 months		1	$	0.9	$	(0.4	)	$	0.5
Greater than or equal to 6 and less than 12 months		2		10.6		(2.8	)		7.8
Greater than 12 months		2		2.6		(1.2	)		1.4
		5	$	14.1	$	(4.4	)	$	9.7

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Fair Value of Investments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and, therefore, represents an exit price, not an entry price. We hold fixed maturities, equity securities, derivatives and separate account assets, which are carried at fair value.

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 be considered to have fair value based on a lower level of observable inputs, and more judgment would be utilized in measuring fair value.

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

• Level 1—includes assets and liabilities valued using inputs that are quoted prices in active markets for identical assets or liabilities. Our Level 1 assets include 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 are primarily industry-standard models that consider various inputs such as interest rate, credit spread, reported trades, broker/dealer quotes, issuer spreads and other inputs that are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include: certain public and private corporate fixed maturity securities; certain government or agency securities; certain mortgage and asset-backed securities; and non-exchange-traded derivatives such as call options to hedge liabilities related to our fixed index annuity products.

• Level 3—includes assets valued using unobservable inputs that are used in model-based valuations that contain management assumptions. Level 3 assets include those financial instruments whose fair value is estimated based on nonbinding broker prices or internally developed models or methodologies utilizing significant inputs not based on, or corroborated by, readily available market information. Financial instruments in this category include certain corporate securities (primarily private placements), certain mortgage and asset-backed securities, and other less liquid securities.

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.

The vast majority of our fixed maturity securities and separate account assets use Level 2 inputs for the determination of fair value. These fair values are obtained primarily from independent pricing services, which use Level 2 inputs for the determination of fair value. Substantially all of our Level 2 fixed maturity securities and separate account assets were valued from independent pricing services. Third party pricing services normally derive the security prices through recently reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. If there are no recently reported

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trades, the third party pricing services may use matrix or model processes to develop a security price where future cash flow expectations are developed and discounted at an estimated risk-adjusted market rate. The number of prices obtained is dependent on the Company’s analysis of such prices as further described below.

For securities that are not priced by pricing services and may not be reliably priced using pricing models, we obtain broker quotes. These broker quotes are non-binding and represent an exit price, but assumptions used to establish the fair value may not be observable and therefore represent Level 3 inputs. Approximately 8% and 1% of our Level 3 fixed maturity securities were valued using broker quotes or independent pricing services, respectively. The remaining Level 3 fixed maturity investments do not have readily determinable market prices and/or observable inputs. For these securities, we use internally developed valuations. Key assumptions used to determine fair value for these securities may include risk-free rates, risk premiums, performance of underlying collateral and other factors involving significant assumptions which may not be reflective of an active market. For certain investments, we use a matrix or model process to develop a security price where future cash flow expectations are developed and discounted at an estimated market rate. The pricing matrix utilizes a spread level to determine the market price for a security. The credit spread generally incorporates the issuer’s credit rating and other factors relating to the issuer’s industry 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.

Privately placed securities comprise approximately 74% of our fixed maturities, available for sale, classified as Level 3. Privately placed securities are classified as Level 3 when their valuation is based on internal valuation models which rely on significant inputs that are not observable in the market. Our model applies spreads above the risk-free rate which are determined based on comparison to securities with similar ratings, maturities and industries that are rated by independent third party rating agencies. Our process also considers the ratings assigned by the NAIC to the Level 3 securities on an annual basis. Each quarter, a review is performed to determine the reasonableness of the initial valuations from the model. If an initial valuation appears unreasonable based on our knowledge of a security and current market conditions, we make appropriate adjustments to our valuation inputs. The remaining securities classified as Level 3 are primarily valued based on internally developed models using estimated future cash flows.

We recognized other-than-temporary impairments on securities classified as Level 3 investments of $0.2 million during the first nine months of 2010 and $26.7 million (including $16.1 million of impairment losses recognized through accumulated other comprehensive loss) during 2009.

As the Company is responsible for the determination of fair value, we perform monthly quantitative and qualitative analysis on the prices received from third parties to determine whether the prices are reasonable estimates of fair value. The Company’s analysis includes: (i) a review of the methodology used by third party pricing services; (ii) a comparison of pricing services’ valuation to other 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 stale; and (v) back testing to compare actual purchase and sale transactions with valuations received from third parties. As a result of such procedures, the Company may conclude the prices received from third parties are not reflective of current market conditions. In those instances, we may request additional pricing quotes or apply internally developed valuations. However, the number of instances is insignificant and the aggregate change in value of such investments is not materially different from the original prices received.

The categorization of the fair value measurements of our investments priced by independent pricing services was based upon the Company’s judgment of the inputs or methodologies used by the independent pricing services to value different asset classes. Such inputs include: benchmark yields, reported trades, broker dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. The Company categorizes such fair value measurements based upon asset classes and the underlying observable or unobservable inputs used to value such investments.

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The classification of fair value measurements for derivative instruments, including embedded derivatives requiring bifurcation, is determined based on the consideration of several inputs including closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options; market interest rates; and non-performance risk. For certain embedded derivatives, we may use actuarial assumptions in the determination of fair value.

The categorization of fair value measurements, by input level, for our fixed maturity securities, equity securities, trading securities, investments held by variable interest entities, certain other invested assets and assets held in separate accounts at September 30, 2010 is as follows (dollars in millions):

	Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)		Total
Assets:
Fixed maturities, available for sale:
Corporate securities	$	—	$	13,167.8		$	2,483.3	$	15,651.1
United States Treasury securities and obligations of United States government corporation and agencies		—		106.6			2.2		108.8
States and political subdivisions		—		1,464.6			9.7		1,474.3
Debt securities issued by foreign governments		—		0.9			—		0.9
Asset-backed securities		—		606.4			5.8		612.2
Collateralized debt obligations		—		12.4			210.0		222.4
Commercial mortgage-backed securities		—		1,363.7			6.6		1,370.3
Mortgage pass-through securities		29.9		—			3.7		33.6
Collateralized mortgage obligations		—		1,454.4			79.5		1,533.9
Total fixed maturities, available for sale		29.9		18,176.8			2,800.8		21,007.5
Equity securities		—		10.0			31.1		41.1
Trading Securities:
Corporate securities		5.7		53.1			4.1		62.9
United States Treasury securities and obligations of United States government corporation and agencies		—		305.6			—		305.6
States and political subdivisions		—		12.9			—		12.9
Asset-backed securities		—		0.6			—		0.6
Commercial mortgage-backed securities		—		5.4			—		5.4
Mortgage pass-through securities		0.4		—			—		0.4
Collateralized mortgaged obligations		—		1.9			—		1.9
Total trading securities		6.1		379.5			4.1		389.7
Investments held by variable interest entities		—		448.6			6.2		454.8
Other invested assets		—		133.9	(a)		—		133.9
Assets held in separate accounts		—		16.7			—		16.7

(a) Includes company-owned life insurance and derivatives.

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The following table presents additional information about assets 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 nine months ended September 30, 2010 (dollars in millions):

	September 30, 2010
	Beginning balance as of December 31, 2009		Cumulative effect of accounting change(a)			Purchases, sales, issuances and settlements, net			Total realized and unrealized gains (losses) included in net income			Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)		Transfers into Level 3		Transfers out of Level 3(b)			Ending balance as of September 30, 2010		Amount of total gains (losses) for the three months ended September 30, 2010 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	$	2,247.1	$	(5.9	)	$	84.2		$	(2.2	)	$	172.5	$	19.6	$	(32.0	)	$	2,483.3	$	—
United States Treasury securities and obligations of United States government corporations and agencies		2.2		—			(0.1	)		—			0.1		—		—			2.2		—
States and political subdivisions		10.7		—			—			—			0.7		—		(1.7	)		9.7		—
Asset-backed securities		15.8		—			(11.9	)		(11.3	)		13.2		—		—			5.8		—
Collateralized debt obligations		92.8		(5.7	)		119.8			(0.1	)		3.2		—		—			210.0		—
Commercial mortgage-backed securities		13.7		—			(2.8	)		—			1.6		—		(5.9	)		6.6		—
Mortgage pass-through securities		4.2		—			(0.5	)		—			—		—		—			3.7		—
Collateralized mortgage obligations		11.4		—			77.1			—			2.1		—		(11.1	)		79.5		—
Total fixed maturities, available for sale		2,397.9		(11.6	)		265.8			(13.6	)		193.4		19.6		(50.7	)		2,800.8		—
Equity securities		30.9		—			0.1			—			0.1		—		—			31.1		—
Trading Securities:
Corporate securities		3.7		—			—			0.4			—		—		—			4.1		0.4
Investments held by variable interest entities:
Corporate securities		—		6.9			(1.0	)		—			0.3		—		—			6.2		—
Securities lending collateral:
Corporate Securities		13.7		—			(13.7	)		—			—		—		—			—		—
Asset-backed securities		22.9		—			(20.9	)		—			—		—		(2.0	)		—		—
Total securities lending collateral		36.6		—			(34.6	)		—			—		—		(2.0	)		—		—
Other invested assets		2.4		(2.4	)		—			—			—		—		—			—		—

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(a) Amounts represent adjustments to investments related to a variable interest entity that was required to be consolidated effective January 1, 2010, as well as the reclassification of investments of a variable interest entity which was consolidated at December 31, 2009.

(b) Transfers out of Level 3 are reported as having occurred at the beginning of the period.

At September 30, 2010, 92% of our Level 3 fixed maturities, available for sale, were investment grade and 75% of our Level 3 fixed maturities, available for sale, consisted of corporate securities.

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

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

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, equity and trading securities and purchases and settlements of derivative instruments.

We review the fair value hierarchy classifications each reporting period. Transfers in and/or (out) of Level 3 in the first nine months of 2010 were primarily due to changes in the observability of the valuation attributes resulting in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. There were no transfers between Level 1 and Level 2 in the first nine months of 2010.

Investment ratings are assigned the second lowest rating by a nationally recognized statistical rating organization (primarily 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 based on such nationally recognized statistical ratings. The following table sets forth fixed maturity investments at September 30, 2010, classified by ratings (dollars in millions):

	Amortized cost		Estimated fair value
Investment rating			Amount		Percent of fixed maturities
AAA	$	2,172.9	$	2,303.3		11	%
AA		1,699.9		1,779.4		9
A		5,075.3		5,522.9		26
BBB+		2,254.1		2,479.5		12
BBB		3,737.3		4,042.6		19
BBB-		2,962.1		3,170.1		15
Investment grade		17,901.6		19,297.8		92
BB+		310.3		312.3		1
BB		187.2		181.4		1
BB-		704.8		676.6		3
B+ and below		560.6		539.4		3
Below-investment grade		1,762.9		1,709.7		8
Total fixed maturity securities	$	19,664.5	$	21,007.5		100	%

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The following table summarizes investment yields earned on the general account invested assets of our insurance subsidiaries. General account investments exclude the value of options (dollars in millions).

	Nine months ended September 30, 2010			Year ended December 31,
				2009			2008			2007
Weighted average general account invested assets as defined:
As reported	$	22,494.2		$	20,196.7		$	19,597.9		$	22,469.2
Excluding unrealized appreciation (depreciation)(a)		21,885.0			21,667.7			21,323.3			22,835.4
Net investment income on general account invested assets		962.7			1,230.6			1,249.9			1,344.1
Yields earned:
As reported		5.71	%		6.09	%		6.38	%		5.98	%
Excluding unrealized appreciation (depreciation)(a)		5.87	%		5.68	%		5.86	%		5.89	%

(a) Excludes the effect of reporting fixed maturities at fair value as described in the note to our Consolidated Financial Statements entitled “Investments”.

Although investment income is a significant component of total revenues, the profitability of certain of our insurance products is determined primarily by the spreads between the interest rates we earn and the rates we credit or accrue to our insurance liabilities. At September 30, 2010, December 31, 2009 and 2008, the average yield, computed on the cost basis of our fixed maturity portfolio, was 5.9%, 5.7% and 6.0%, respectively, and the average interest rate credited or accruing to our total insurance liabilities (excluding interest rate bonuses for the first policy year only and excluding the effect of credited rates attributable to variable or fixed index products) was 4.2%, 4.5% and 4.5%, respectively.

Fixed Maturities, Available for Sale

Our fixed maturity portfolio at September 30, 2010, included primarily debt securities of the United States government, various corporations, and structured securities. Asset-backed securities, collateralized debt obligations, commercial mortgage-backed securities, mortgage pass-through securities and collateralized mortgage obligations are collectively referred to as “structured securities”.

At September 30, 2010, our fixed maturity portfolio had $1,563.8 million of unrealized gains and $220.8 million of unrealized losses, for a net unrealized gain of $1,343.0 million. Estimated fair values of fixed maturity investments were determined based on estimates from: (i) nationally recognized pricing services (86% of the portfolio); (ii) broker-dealer market makers (2% of the portfolio); and (iii) internally developed methods (12% of the portfolio).

At September 30, 2010, approximately 7.1% of our invested assets (8.1% of fixed maturity investments) were fixed maturities rated below-investment grade. Our level of investments in below-investment-grade fixed maturities could change if market conditions change. Below investment grade corporate debt securities have different characteristics than investment grade corporate debt securities. Based on historical performance, probability of default by the borrower is significantly greater for below-investment grade securities and in many cases severity of loss is relatively greater as such securities are often subordinated to other indebtedness of the issuer. Also, issuers of below-investment grade securities frequently have higher levels of debt relative to investment-grade issuers, hence, all other things being equal, are more sensitive to adverse economic conditions, such as recession or increasing interest rates. The Company attempts to reduce the overall risk related to its investment in below-investment grade securities, as in all investments, through careful credit analysis, strict

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investment policy guidelines, and diversification by issuer and/or guarantor and by industry. At September 30, 2010, our below-investment-grade fixed maturity investments had an amortized cost of $1,762.9 million and an estimated fair value of $1,709.7 million.

We continually evaluate the creditworthiness of each issuer whose securities we hold. We pay special attention to large investments and to those securities whose fair values have declined materially for reasons other than changes in interest rates or other general market conditions. We evaluate the realizable value of the investment, the specific condition of the issuer and the issuer’s ability to comply with the material terms of the security. We review the recent operational results and financial position of the issuer, information about its industry, information about factors affecting the issuer’s performance and other information. 40|86 Advisors employs experienced securities analysts in a variety of specialty areas who compile and review such data. If evidence does not exist to support a realizable value equal to or greater than the amortized cost of the investment, and such decline in fair value is determined to be other than temporary, we reduce the amortized cost to its fair value, which becomes the new cost basis. We report the amount of the reduction as a realized loss. We recognize any recovery of such reductions as investment income over the remaining life of the investment (but only to the extent our current valuations indicate such amounts will ultimately be collected), or upon the repayment of the investment. During the first nine months of 2010, we recognized net realized investment losses of $18.0 million, which were comprised of $54.7 million of net gains from the sales of investments (primarily fixed maturities) with proceeds of $6.6 billion and $72.7 million of writedowns of investments for other than temporary declines in fair value recognized through net income ($69.8 million, prior to the $(2.9) million of impairment losses recognized through accumulated other comprehensive income (loss)). During 2009, we recognized net realized investment losses of $60.5 million, which were comprised of $134.9 million of net gains from the sales of investments (primarily fixed maturities) with proceeds of $10.7 billion and $195.4 million of write downs of investments for other than temporary declines in fair value recognized through net income ($385.0 million, prior to the $189.6 million of impairment losses recognized through other comprehensive loss). Our investment portfolio is subject to the risks of further declines in realizable value. However, we attempt to mitigate this risk through the diversification and active management of our portfolio.

Our investment strategy is to maximize, over a sustained period and within acceptable parameters of risk, investment income and total investment return through active investment management. Accordingly, we may sell securities at a gain or a loss to enhance the total return of the portfolio as market opportunities change or to better match certain characteristics of our investment portfolio with the corresponding characteristics of our insurance liabilities. 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, we may sell securities at a loss in the future because of actual or expected changes in our view of the particular investment, its industry, its type or the general investment environment.

As of September 30, 2010, we had investments in substantive default (i.e., in default due to nonpayment of interest or principal) that had an estimated fair value of $6.8 million. 40|86 Advisors employs experienced professionals to manage non-performing and impaired investments. There were no other fixed maturity investments about which we had serious doubts as to the recoverability of the carrying value of the investment.

When a security defaults or securities (other than structured securities) are other-than-temporarily impaired, our policy is to discontinue the accrual of interest and eliminate all previous interest accruals, if we determine that such amounts will not be ultimately realized in full. Investment income forgone on nonperforming investments was $3.3 million, $6.7 million, $0.9 and nil for the nine months ended September 30, 2010 and the years ended December 31, 2009, 2008 and 2007, respectively.

At September 30, 2010, fixed maturity investments included structured securities with an estimated fair value of $3.8 billion (or 18% of all fixed maturity securities). The yield characteristics of structured securities differ in some respects from those of traditional fixed-income securities. For example, interest and principal payments on structured securities may occur more frequently, often monthly. In many instances, we are subject

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to the risk that the amount and timing of principal and interest payments may vary from expectations. 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 the underlying assets backing the security to changes in interest rates; a variety of economic, geographic and other factors; the timing and pace of liquidations of defaulted collateral; the amount of loan maturities; 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-government structured securities may be affected by changes to cumulative default rates or loss severities of the related collateral.

In general, the rate of prepayments on structured securities increases when prevailing interest rates decline significantly in absolute terms and also relative to the interest rates on the underlying assets. The yields recognized on structured securities purchased at a discount to par will increase (relative to the stated rate) when the underlying assets prepay faster than expected. The yield recognized on structured securities purchased at a premium will decrease (relative to the stated rate) when the underlying assets prepay 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. When this occurs, the average maturity and duration of the structured securities increase, which decreases the yield on structured securities purchased at a discount because the discount is realized as income at a slower rate, and it increases the yield on those purchased at a premium because of a decrease in the annual amortization of the 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 2009.

The following table sets forth the par value, amortized cost and estimated fair value of structured securities, summarized by interest rates on the underlying collateral, at September 30, 2010 (dollars in millions):

	Par value		Amortized cost		Estimated fair value
Below 4%	$	289.0	$	247.3	$	246.7
4% – 5%		210.8		208.6		221.2
5% – 6%		2,362.0		2,288.2		2,346.8
6% – 7%		827.2		783.0		805.1
7% – 8%		78.3		79.2		78.1
8% and above		75.5		74.6		74.5
Total structured securities	$	3,842.8	$	3,680.9	$	3,772.4

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The amortized cost and estimated fair value of structured securities at September 30, 2010, summarized by type of security, were as follows (dollars in millions):

Type	Amortized cost		Estimated fair value
			Amount		Percent of fixed maturities
Pass-throughs, sequential and equivalent securities	$	1,044.9	$	1,076.2		5.1	%
Planned amortization classes, target amortization classes and accretion-directed bonds		486.1		476.6		2.3
Commercial mortgage-backed securities		1,306.2		1,370.3		6.5
Asset-backed securities		606.7		612.2		2.9
Collateralized debt obligations		222.8		222.4		1.1
Other		14.2		14.7		0.1
Total structured securities	$	3,680.9	$	3,772.4		18.0	%

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

Commercial mortgage-backed securities are secured by commercial real estate mortgages, generally income producing properties that are managed for profit. Property types include multi-family dwellings including apartments, retail centers, hotels, restaurants, hospitals, nursing homes, warehouses, and office buildings. Most commercial mortgage-backed securities have call protection features whereby underlying borrowers may not prepay their mortgages for stated periods of time without incurring prepayment penalties.

During the first nine months of 2010, we sold $1.2 billion of fixed maturity investments which resulted in gross investment losses (before income taxes) of $135.6 million. We sell securities at a loss for a number of reasons including, but not limited to: (i) changes in the investment environment; (ii) expectation that the fair value could deteriorate further; (iii) desire to reduce our exposure to an asset class, an issuer or an industry; (iv) changes in credit quality; or (v) changes in expected liability cash flows. As discussed in the notes to our Consolidated Financial Statements, the realization of gains and losses affects the timing of the amortization of insurance acquisition costs related to universal life and investment products.

Other Investments

At September 30, 2010, we held commercial mortgage loan investments with a carrying value of $1,825.6 million (or 8% of total invested assets) and a fair value of $1,848.5 million. We held no noncurrent commercial mortgage loans at September 30, 2010. During the first nine months of 2010, we recognized $37.8 million of writedowns related to commercial mortgage loans reflecting our concerns regarding the issuers’ ability to continue to make contractual payments related to these loans and our estimate of the value of the underlying properties. During 2009, we recognized $40.9 million of write downs of commercial mortgage loans resulting from declines in fair value that we concluded were other than temporary. During 2008, we recognized $5.8 million of write downs of commercial mortgage loans for other-than-temporary declines in fair value and recognized losses of $22.1 million from the liquidation of several delinquent commercial mortgage loans. Realized losses on commercial mortgage loans were not significant in 2007. We had no allowance for loss on mortgage loans at September 30, 2010 or December 31, 2009 or 2008. Approximately 7%, 7%, 7% and 6% of

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the mortgage loan balance were on properties located in Minnesota, Indiana, California and Arizona, respectively. No other state comprised greater than 6% of the mortgage loan balance.

The following table shows the distribution of our commercial mortgage loan portfolio by property type as of September 30, 2010 (dollars in millions):

	Number of loans		Carrying value
Retail		248	$	726.5
Office building		85		685.1
Industrial		43		317.2
Multi-family		22		93.3
Other		1		3.5
Total commercial mortgage loans		399	$	1,825.6

The following table shows our commercial mortgage loan portfolio by loan size as of September 30, 2010 (dollars in millions):

	Number of loans		Carrying value
Under $5 million		289	$	492.9
$5 million but less than $10 million		60		428.0
$10 million but less than $20 million		31		402.1
Over $20 million		19		502.6
Total commercial mortgage loans		399	$	1,825.6

The following table summarizes the distribution of maturities of our commercial mortgage loans as of September 30, 2010 (dollars in millions):

	Number of loans		Carrying value
2010		2	$	1.4
2011		12		73.9
2012		17		46.3
2013		16		157.3
2014		25		90.6
after 2014		327		1,456.1
Total commercial mortgage loans		399	$	1,825.6

The following table provides the weighted average loan-to-value ratio for our outstanding mortgage loans as of September 30, 2010 (dollars in millions):

Loan-to-value ratio(a)	Carrying value		Estimated fair value
Less than 60%	$	695.3	$	758.2
60% to 70%		669.4		646.8
70% to 80%		370.1		359.8
80% to 90%		46.5		45.1
Greater than 90%		44.3		38.6
Total	$	1,825.6	$	1,848.5

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

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At September 30, 2010, we held $389.7 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 are held to act as hedges for embedded derivatives related to our fixed index annuity products and certain modified coinsurance agreements. See the note to the Audited Consolidated Financial Statements entitled “Summary of Significant Accounting Policies—Accounting for Derivatives” for further discussion regarding the embedded derivatives and the trading accounts. In addition, the trading account includes investments backing the market strategies of our multibucket annuity products.

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

The Company participated in a securities lending program whereby certain fixed maturity securities from our investment portfolio were loaned to third parties via a lending agent for a short period of time. We maintained ownership of the loaned securities. We required collateral equal to 102% of the fair value of the loaned securities. The collateral was invested by the lending agent in accordance with our guidelines. The fair value of the loaned securities was monitored on a daily basis with additional collateral obtained as necessary. In the third quarter of 2010, the Company discontinued its securities lending program. As of December 31, 2009 and 2008, the fair value of the loaned securities was $178.5 million and $389.3 million, respectively. As of December 31, 2009 and 2008, the Company had received collateral of $185.7 million and $408.8 million, respectively. Income generated from the program, net of expenses is recorded as net investment income and totaled $0.2 million, $1.2 million, $2.4 million and $1.3 million in the first nine months of 2010 and in 2009, 2008 and 2007, respectively.

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EX-99.7

Exhibit 99.7

GOVERNMENTAL REGULATION

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

• grant and revoke business licenses;

• regulate and supervise sales practices and market conduct;

• establish guaranty associations;

• license agents;

• approve policy forms;

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

• establish reserve requirements;

• prescribe the form and content of required financial statements and reports;

• determine the reasonableness and adequacy of statutory capital and surplus;

• perform financial, market conduct and other examinations;

• define acceptable accounting principles; and

• regulate the types and amounts of permitted investments.

In addition, the NAIC issues model laws and regulations, many of which have been adopted by state insurance regulators, relating to:

• reserve requirements;

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

• codification of insurance accounting principles;

• investment restrictions;

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

• credit for reinsurance; and

• product illustrations.

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

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

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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 by the insurance company if such dividends are not in excess of unassigned surplus and, for any 12-month period, are in amounts less than the greater of, or in a few states, the lesser of:

• statutory net gain from operations or statutory net income for the prior year; or

• 10% of statutory capital and surplus at the end of the preceding year.

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

In accordance with an order from the Florida Office of Insurance Regulation, Washington National may not distribute funds to any affiliate or shareholder without prior notice to the Florida Office of Insurance Regulation. In addition, the RBC and other capital requirements described below can also limit, in certain circumstances, the ability of our insurance subsidiaries to pay dividends.

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

During 2006, the Florida legislature enacted a statute, known as House Bill 947, intended to provide new protections to long-term care insurance policyholders. Among other requirements, this statute requires: (i) claim experience of affiliated long-term care insurers to be pooled in determining justification for rate increases for Florida policyholders; and (ii) insurers with closed blocks of long-term care insurance to not raise rates above the comparable new business premium rates offered by affiliated insurers. The manner in which the requirements of this statute are applied to our long-term care policies in Florida (including policies subject to the order from the Florida Office of Insurance Regulation as described in “Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations”) may affect our ability to achieve our anticipated rate increases on this business.

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

Using statutory statements filed with state regulators annually, the NAIC calculates certain financial ratios to assist state regulators in monitoring the financial condition of insurance companies. A “usual range” of results for each ratio is used as a benchmark. An insurance company may fall out of the usual range for one or more ratios because of specific transactions that are in themselves immaterial or eliminated at the consolidated level. Generally, an insurance company will become subject to regulatory scrutiny if it falls outside the usual ranges of four or more of the ratios, and regulators may then act, if the company has insufficient capital, to constrain the company’s underwriting capacity. In the past, variances in certain ratios of our insurance subsidiaries have resulted in inquiries from insurance departments, to which we have responded. These inquiries have not led to any restrictions affecting our operations.

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

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

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

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

• if a company’s total adjusted capital is less than 35% of its RBC (the “Mandatory Control Level”), 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% and 125% of its RBC at the end of the year. The trend test calculates the greater of the decrease in the margin of total adjusted capital over RBC:

• between the current year and the prior year; and

• for the average of the last 3 years.

It assumes that such decrease could occur again in the coming year. Any company whose trended total adjusted capital is less than 95% of its RBC would trigger a requirement to submit a comprehensive plan as described above for the Company Action Level.

In January 2009, the NAIC considered, but declined, a number of reserve and capital relief requests made by the American Council of Life Insurers, acting on behalf of its member companies. These requests, if adopted, would have generally resulted in lower statutory reserve and capital requirements, effective December 31, 2008, for life insurance companies. However, notwithstanding the NAIC’s action on these requests, insurance companies have the right to approach the insurance regulator in their respective state of domicile and request relief. Insurance subsidiaries of the Company requested and were granted certain permitted practices, with a beneficial impact on statutory capital as of September 30, 2010.

The 2009 statutory annual statements filed with the state insurance regulators of each of our insurance subsidiaries reflected total adjusted capital in excess of the levels subjecting the subsidiaries to any regulatory action. No assurances can be given that we will make future contributions or otherwise make capital available to our insurance subsidiaries.

The calculation and estimation of RBC requires certain judgments to be made, and, accordingly, the actual RBC may be greater or less than the RBC as of any date of determination. Furthermore, any reference to the RBC of Bankers Life, Colonial Penn or Washington National, individually or on a consolidated basis, should be considered only within the context of the totality of the information contained within this Offering Memorandum.

In addition to the RBC requirements, certain states have established minimum capital requirements for insurance companies licensed to do business in their state. These regulators have the discretionary authority, in connection with the continual licensing of the Company’s insurance subsidiaries, to limit or prohibit writing new

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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. These additional requirements generally have not had a significant impact on the Company’s insurance subsidiaries. Refer to the note entitled “Statutory Information (Based on Non-GAAP Measures)” in our notes to the Audited Consolidated Financial Statements for more information on our RBC ratios.

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. Any election regarding the contribution of additional capital to our insurance subsidiaries could affect the ability of our insurance subsidiaries to pay dividends to the holding company. The ability of our insurance subsidiaries to pay dividends is also impacted by various criteria established by rating agencies to maintain or receive higher ratings and by the capital levels that we target for our insurance subsidiaries.

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

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

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

State regulatory authorities and industry groups have developed several initiatives regarding market conduct, including the form and content of disclosures to consumers, advertising, sales practices and complaint handling. Various state insurance departments periodically examine domestic and non-domestic insurance companies conducting business in their states, including the insurance subsidiaries. The purpose of these periodic examinations is to determine if operations are consistent with the public interest of the policyholders resident in the state conducting the examination. State regulators have imposed significant fines and restrictions on our insurance company subsidiaries for improper market conduct. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. In addition, market conduct has become one of the criteria used by rating agencies to establish the ratings of an insurance company. For example, A.M. Best’s ratings analysis now includes a review of the insurer’s compliance program.

Recent investigations of broker placement and compensation practices initiated by the attorney general offices of certain states, together with recently filed class action lawsuits, initiated against such broker entities and certain insurance companies have challenged the legality of certain activities conducted by these brokers and companies. The investigations and suits challenge, among other things, (i) the appropriateness of setting fees paid to brokers based on the volume of business placed by a broker with a particular insurer or reinsurer; (ii) the payment of contingent fees to brokers by insurers or reinsurers because of an alleged conflict of interest arising

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from such fee arrangements; (iii) the nondisclosure by brokers to their clients of contingent fees paid to them by insurers and reinsurers; and (iv) bid rigging and tying the receipt of direct insurance to placing reinsurance through the same broker.

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%. 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%. We provide to the insurance departments of all states in which we conduct business annual calculations that demonstrate compliance with required minimum benefit ratios for both long-term care and Medicare supplement insurance. These calculations are prepared utilizing statutory lapse and interest rate assumptions. In the event that we fail to maintain minimum mandated benefit ratios, our insurance subsidiaries could be required to provide retrospective refunds and/or prospective rate reductions. We believe that our insurance subsidiaries currently comply with all applicable mandated minimum benefit ratios.

Our insurance subsidiaries are subject to state laws and regulations that require diversification of their investment portfolios and limit the amount of investments in certain investment categories, such as below investment grade bonds, equity real estate and common stocks. Failure to comply with these laws and regulations would cause investments exceeding regulatory limitations to be treated as non-admitted assets for purposes of measuring statutory surplus, and, in some instances, would require divestiture of such non-qualifying investments. The investments made by our insurance subsidiaries comply in all material respects with such investment regulations as of September 30, 2010.

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

Title III of the USA PATRIOT Act of 2001 (the “Patriot Act”), amends the Money Laundering Control Act of 1986 and the Bank Secrecy Act of 1970 to expand anti-money laundering (“AML”) and financial transparency laws applicable to financial services companies, including insurance companies. The Patriot Act, among other things, seeks to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism, money laundering or other illegal activities. To the extent required by applicable laws and regulations, CNO and its insurance subsidiaries have adopted AML programs that include policies, procedures and controls to detect and prevent money laundering, have designated compliance officers to oversee the programs, provide for on-going employee training and ensure periodic independent testing of the programs. CNO’s and the insurance subsidiaries’ AML programs, to the extent required, also establish and enforce customer identification programs and provide for the monitoring and the reporting to the Department of the Treasury of certain suspicious transactions.

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Traditionally, the federal government has not directly regulated the business of insurance. However, federal legislation and administrative policies in several areas can significantly and adversely affect insurance companies. Most prominently, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 give the U.S. federal government direct regulatory authority over certain aspects of the business of health insurance. In addition, the reform includes major changes to the U.S. health care insurance marketplace. Among other changes, the reform legislation includes an individual medical insurance coverage mandate, provides for penalties on certain employers for failing to provide adequate coverage, creates health insurance exchanges to attempt to facilitate the purchase of insurance by individuals and small businesses, and addresses policy coverages and exclusions as well as the medical loss ratios of insurers. The legislation also includes changes in government reimbursements and tax credits for individuals and employers and alters federal and state regulation of health insurers. These changes will be phased in over the next several years. These changes are directed toward major medical health insurance coverage, which our insurance subsidiaries do not offer. Rather, our core products (e.g., medicare supplement insurance, long term care insurance, and other limited benefit supplemental insurance products) are not subject to or covered under the major provisions of this new federal legislation.

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

It is unclear what impact, if any, the Dodd-Frank Act or any other similar legislation could have on the insurance subsidiaries’ results of operations, financial condition or liquidity.

Throughout 2008 and continuing in 2009, Congress, the Federal Reserve, the U.S. Treasury and other agencies of the federal government have taken a number of actions (in addition to continuing a series of interest rate reductions that began in the second half of 2007) intended to provide liquidity to financial institutions and markets, to mitigate the loss of investor confidence in particular troubled institutions and to prevent or contain the spread of the financial crisis. These measures have included:

• expanding the types of institutions that have access to the Federal Reserve’s discount window;

• injecting capital into selected banking institutions and their holding companies;

• increasing the level of deposit insurance coverage;

• providing a capital assistance program for banks that have undergone a “stress test”;

• creating a public-private investment program to purchase troubled loans and asset-backed securities from financial institutions;

• providing asset guarantees and emergency loans to particular distressed companies;

• instituting a temporary ban on short selling of shares of certain financial institutions;

• creating programs intended to reduce the volume of mortgage foreclosures by modifying the terms of mortgage loans for distressed borrowers;

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• temporarily guaranteeing money market funds; and

• implementing programs to support the mortgage-backed securities market and mortgage lending.

On March 5, 2009, the U.S. House of Representatives passed the “Helping Families Save Their Homes Act of 2009”, which would grant federal bankruptcy judges the ability to modify the terms of certain mortgage loans by, among other things, reducing interest rates and principal and extending repayments. Because it would permit judges to reduce, or “cram down” principal, this type of legislation is referred to as “cram down” legislation. Although the U.S. Senate defeated the “cram down” aspects of this legislation on April 30, 2009, similar legislation may be introduced in the future. Mortgage loan modifications can affect the allocation of losses on certain RMBS transactions including senior tranches of RMBS transactions that include bankruptcy carve-outs, which provide that bankruptcy losses above a specified threshold are allocated to all tranches pro rata regardless of seniority. If similar mortgage-related legislation is signed into law, it could cause loss of principal on or ratings downgrades of certain of the Company’s RMBS holdings, including senior tranches of RMBS transactions that include bankruptcy carve-outs.

In January 2009, the NAIC considered, but declined, a number of reserve and capital relief requests made by the American Council of Life Insurers, acting on behalf of its member companies. These requests, if adopted, would have generally resulted in lower statutory reserve and capital requirements, effective December 31, 2008, for life insurance companies. However, notwithstanding the NAIC’s action on these requests, insurance companies have the right to approach the insurance regulator in their respective state of domicile and request relief. Insurance subsidiaries of the Company requested and were granted certain permitted practices, with a beneficial impact on statutory capital as of December 31, 2008.

In late 2009, the NAIC issued Statement of Statutory Accounting Principles 10R (“SSAP 10R”). SSAP 10R increased the amount of deferred tax assets that may be admitted on a statutory basis. The admission criteria for realizing the value of deferred tax assets was increased from a one year to a three-year period. Further, the aggregate cap on deferred tax assets that may be admitted was increased from 10% to 15% of surplus. These changes increased the capital and surplus of our insurance subsidiaries, thereby positively impacting RBC at December 31, 2009. To temper this positive RBC impact, and as a temporary measure at December 31, 2009 only, a 5% pretax RBC charge must be applied to the additional admitted deferred tax assets generated by SSAP 10R.

The asset management activities of 40|86 Advisors are subject to various federal and state securities laws and regulations. The SEC and certain state securities commissions are the principal regulators of our asset management operations. In addition, CNO has a subsidiary that is registered as a broker/dealer, which is regulated by the Financial Industry Regulatory Authority, Inc. and by state securities commissioners.

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