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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___ 

Commission File Number 001-31792

CNO Financial Group, Inc.
Delaware 75-3108137
State of Incorporation IRS Employer Identification No.
  
11825 N. Pennsylvania Street  
Carmel,Indiana46032 (317)817-6100
Address of principal executive offices Telephone

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareCNONew York Stock Exchange
Rights to purchase Series E Junior Participating Preferred StockNew York Stock Exchange
5.125% Subordinated Debentures due 2060CNOpANew York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes ☒  No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.  Large accelerated filer ☒  Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes ☐ No ☒

Shares of common stock outstanding as of July 21, 2022:  114,397,676





TABLE OF CONTENTS
PART I - FINANCIAL INFORMATIONPage
   
Item 1.Financial Statements (unaudited) 
   
Item 2.
Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations
Item 3.
Item 4.
PART II - OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.



CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(unaudited)

ASSETS
June 30,
2022		December 31,
2021
  
Investments:  
Fixed maturities, available for sale, at fair value (net of allowance for credit losses: June 30, 2022 - $54.2 and December 31, 2021 - $7.6; amortized cost: June 30, 2022 - $23,100.8 and December 31, 2021 - $21,867.6)
$21,362.7 $24,805.4 
Equity securities at fair value136.9 131.1 
Mortgage loans (net of allowance for credit losses: June 30, 2022 - $4.9 and December 31, 2021 - $5.6)
1,215.3 1,218.6 
Policy loans119.5 120.2 
Trading securities198.9 227.2 
Investments held by variable interest entities (net of allowance for credit losses: June 30, 2022 - $12.2 and December 31, 2021 - $3.7; amortized cost: June 30, 2022 - $1,180.2 and December 31, 2021 - $1,206.8)
1,107.7 1,199.6 
Other invested assets1,086.6 1,224.0 
Total investments25,227.6 28,926.1 
Cash and cash equivalents - unrestricted567.2 632.1 
Cash and cash equivalents held by variable interest entities52.2 99.6 
Accrued investment income224.1 216.4 
Present value of future profits219.8 222.6 
Deferred acquisition costs1,767.0 1,112.0 
Reinsurance receivables (net of allowance for credit losses: June 30, 2022 - $3.0 and December 31, 2021 - $3.0)
4,277.9 4,354.3 
Income tax assets, net929.8 118.3 
Assets held in separate accounts3.0 3.9 
Other assets566.9 519.1 
Total assets$33,835.5 $36,204.4 

(continued on next page)








The accompanying notes are an integral part
of the consolidated financial statements.
3
Table of Contents


CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, continued
(Dollars in millions)
(unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY
June 30,
2022		December 31,
2021
  
Liabilities:  
Liabilities for insurance products:  
Policyholder account liabilities$14,608.8 $13,689.7 
Future policy benefits11,684.6 11,670.7 
Liability for policy and contract claims466.4 501.8 
Unearned and advanced premiums243.4 246.7 
Liabilities related to separate accounts3.0 3.9 
Other liabilities713.2 830.9 
Investment borrowings1,640.2 1,715.8 
Borrowings related to variable interest entities1,125.9 1,147.9 
Notes payable – direct corporate obligations1,138.0 1,137.3 
Total liabilities31,623.5 30,944.7 
Commitments and Contingencies
Shareholders' equity:  
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: June 30, 2022 – 114,795,328; December 31, 2021 – 120,377,152)
1.1 1.2 
Additional paid-in capital2,032.7 2,184.2 
Accumulated other comprehensive income (loss)(1,165.0)1,947.1 
Retained earnings1,343.2 1,127.2 
Total shareholders' equity2,212.0 5,259.7 
Total liabilities and shareholders' equity$33,835.5 $36,204.4 

















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

4
Table of Contents
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Three months endedSix months ended
June 30,June 30,
 2022202120222021
Revenues:
Insurance policy income$625.6 $630.5 $1,250.6 $1,262.9 
Net investment income:    
General account assets317.7 282.1 595.2 564.8 
Policyholder and other special-purpose portfolios(93.8)97.1 (163.1)152.6 
Investment gains (losses):  
Realized investment gains (losses)(7.0)17.1 11.8 11.1 
Other investment gains (losses)(41.8)14.2 (93.3)17.4 
Total investment gains (losses)(48.8)31.3 (81.5)28.5 
Fee revenue and other income54.3 32.1 96.7 70.3 
Total revenues855.0 1,073.1 1,697.9 2,079.1 
Benefits and expenses:
Insurance policy benefits340.2 657.4 686.9 1,116.5 
Interest expense27.8 24.0 51.6 48.1 
Amortization88.1 42.6 192.0 142.3 
Other operating costs and expenses223.5 247.5 442.7 480.6 
Total benefits and expenses679.6 971.5 1,373.2 1,787.5 
Income before income taxes175.4 101.6 324.7 291.6 
Income tax expense on period income39.3 23.6 76.3 66.2 
Net income$136.1 $78.0 $248.4 $225.4 
Earnings per common share:
Basic:
Weighted average shares outstanding115,533,000 131,016,000 117,078,000 132,578,000 
Net income$1.18 $.59 $2.12 $1.70 
Diluted:   
Weighted average shares outstanding117,286,000 133,814,000 119,144,000 135,233,000 
Net income$1.16 $.58 $2.08 $1.67 














The accompanying notes are an integral part
of the consolidated financial statements.
5
Table of Contents
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
(unaudited)
Three months endedSix months ended
June 30,June 30,
2022202120222021
Net income$136.1 $78.0 $248.4 $225.4 
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on investments(2,285.9)874.5 (4,721.0)(323.7)
Adjustment to present value of future profits and deferred acquisition costs282.8 (75.4)540.3 8.2 
Amount related to premium deficiencies assuming the net unrealized gains had been realized— (165.0)165.0 97.5 
Reclassification adjustments:
For net realized investment (gains) losses included in net income27.2 (25.0)35.0 (25.5)
For amortization of the present value of future profits and deferred acquisition costs related to net realized investment (gains) losses included in net income(1.0)1.3 (1.1)1.3 
Other comprehensive income (loss) before tax(1,976.9)610.4 (3,981.8)(242.2)
Income tax (expense) benefit related to items of accumulated other comprehensive income (loss)431.4 (133.0)869.7 51.6 
Other comprehensive income (loss), net of tax(1,545.5)477.4 (3,112.1)(190.6)
Comprehensive income (loss)$(1,409.4)$555.4 $(2,863.7)$34.8 



























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

6
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions, shares in thousands)
(unaudited)
Common stock
Additional
paid-in		Accumulated other comprehensiveRetained
 SharesAmountcapitalincome (loss)earningsTotal
Balance, March 31, 2021132,268 $1.3 $2,457.8 $1,518.1 $883.5 $4,860.7 
Net income— — — — 78.0 78.0 
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense of $133.0)
— — — 477.4 — 477.4 
Common stock repurchased(3,491)— (87.4)— — (87.4)
Dividends on common stock— — — — (17.3)(17.3)
Employee benefit plans, net of shares used to pay tax withholdings328 — 12.6 — — 12.6 
Balance, June 30, 2021129,105 $1.3 $2,383.0 $1,995.5 $944.2 $5,324.0 
Balance, March 31, 2022117,241 $1.2 $2,085.7 $380.5 $1,223.5 $3,690.9 
Net income— — — — 136.1 136.1 
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax benefit of $431.4)
— — — (1,545.5)— (1,545.5)
Common stock repurchased(2,550)(.1)(59.9)— — (60.0)
Dividends on common stock— — — — (16.4)(16.4)
Employee benefit plans, net of shares used to pay tax withholdings104 — 6.9 — — 6.9 
Balance, June 30, 2022114,795 $1.1 $2,032.7 $(1,165.0)$1,343.2 $2,212.0 




















The accompanying notes are an integral part
of the consolidated financial statements.
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, continued
(Dollars in millions, shares in thousands)
(unaudited)
Common stock
Additional
paid-in		Accumulated other comprehensiveRetained
 SharesAmountcapitalincome (loss)earningsTotal
Balance, December 31, 2020135,279 $1.3 $2,544.5 $2,186.1 $752.3 $5,484.2 
Net income— — — — 225.4 225.4 
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax benefit of $51.6)
— — — (190.6)— (190.6)
Common stock repurchased(7,600)— (187.4)— — (187.4)
Dividends on common stock— — — — (33.5)(33.5)
Employee benefit plans, net of shares used to pay tax withholdings1,426 — 25.9 — — 25.9 
Balance, June 30, 2021129,105 $1.3 $2,383.0 $1,995.5 $944.2 $5,324.0 
Balance, December 31, 2021120,377 $1.2 $2,184.2 $1,947.1 $1,127.2 $5,259.7 
Net income— — — — 248.4 248.4 
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax benefit of $869.7)
— — — (3,112.1)— (3,112.1)
Common stock repurchased(6,607)(.1)(159.9)— — (160.0)
Dividends on common stock— — — — (32.4)(32.4)
Employee benefit plans, net of shares used to pay tax withholdings1,025 — 8.4 — — 8.4 
Balance, June 30, 2022114,795 $1.1 $2,032.7 $(1,165.0)$1,343.2 $2,212.0 





















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


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(unaudited)
Six months ended
June 30,
 20222021
Cash flows from operating activities:  
Insurance policy income$1,153.7 $1,179.1 
Net investment income547.5 523.8 
Fee revenue and other income80.3 72.4 
Insurance policy benefits(834.3)(839.6)
Interest expense(47.3)(46.3)
Deferrable policy acquisition costs(165.5)(142.8)
Other operating costs(549.4)(474.7)
Income taxes(18.0)(33.6)
Net cash from operating activities167.0 238.3 
Cash flows from investing activities:  
Sales of investments2,226.1 1,092.5 
Maturities and redemptions of investments923.4 1,554.8 
Purchases of investments(4,353.1)(3,118.5)
Net purchases of trading securities(1.9)(18.9)
Other(24.8)(60.3)
Net cash used by investing activities(1,230.3)(550.4)
Cash flows from financing activities:  
Issuance of common stock4.7 17.5 
Payments to repurchase common stock(170.1)(187.5)
Common stock dividends paid(32.6)(33.6)
Amounts received for deposit products1,958.7 917.5 
Withdrawals from deposit products(711.6)(676.8)
Issuance of investment borrowings:
Federal Home Loan Bank210.0 393.7 
Payments on investment borrowings:
Federal Home Loan Bank(285.6)(394.7)
Related to variable interest entities(22.5)(1.1)
Net cash provided by financing activities951.0 35.0 
Net decrease in cash and cash equivalents(112.3)(277.1)
Cash and cash equivalents - unrestricted and held by variable interest entities, beginning of period731.7 991.9 
Cash and cash equivalents - unrestricted and held by variable interest entities, end of period$619.4 $714.8 











The accompanying notes are an integral part
of the consolidated financial statements.
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________


BUSINESS AND BASIS OF PRESENTATION

The following notes should be read together with the notes to the consolidated financial statements included in our 2021 Annual Report on Form 10-K.

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

We focus on serving middle-income pre-retiree and retired Americans, which we believe are attractive, underserved, high growth markets.  We sell our products through exclusive agents, independent producers (some of whom sell one or more of our product lines exclusively) and direct marketing.

Our unaudited consolidated financial statements reflect normal recurring adjustments that, in the opinion of management, are necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented.  As permitted by rules and regulations of the Securities and Exchange Commission (the "SEC") applicable to quarterly reports on Form 10-Q, we have condensed or omitted certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").  We have reclassified certain amounts from the prior periods to conform to the 2022 presentation. These reclassifications have no effect on net income or shareholders' equity. Results for interim periods are not necessarily indicative of the results that may be expected for a full year.

The balance sheet at December 31, 2021, presented herein, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

When we prepare financial statements in conformity with GAAP, we are required to make estimates and assumptions that significantly affect reported amounts of various assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting periods.  For example, we use significant estimates and assumptions to calculate values for deferred acquisition costs, the present value of future profits, fair value measurements of certain investments (including derivatives), allowance for credit losses and other-than-temporary impairments of investments, assets and liabilities related to income taxes, liabilities for insurance products, liabilities related to litigation and guaranty fund assessment accruals.  If our future experience differs from these estimates and assumptions, our financial statements could be materially affected.

The accompanying financial statements include the accounts of the Company and its subsidiaries. Our consolidated financial statements exclude transactions between us and our consolidated affiliates, or among our consolidated affiliates.

INVESTMENTS

We classify our fixed maturity securities into one of two categories: (i) "available for sale" (which we carry at estimated fair value with any unrealized gain or loss, net of tax and related adjustments, recorded as a component of shareholders' equity); or (ii) "trading" (which we carry at estimated fair value with changes in such value recognized as either net investment income (classified as investment income from policyholder and other special-purpose portfolios) or investment gains (losses)).

Trading securities include: (i) investments purchased with the intent of selling in the near term to generate income; and (ii) certain fixed maturity securities containing embedded derivatives for which we have elected the fair value option.  The change in fair value of the income generating investments is recognized in income from policyholder and other special-purpose portfolios (a component of net investment income). The change in fair value of securities with embedded derivatives is recognized in other investment gains (losses).

We review our available for sale fixed maturity securities with unrealized losses to determine whether such impairments are the result of credit losses. We analyze various factors to make such determinations including, but not limited to: (i) actions
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

taken by rating agencies; (ii) default by the issuer; (iii) the significance of the decline; (iv) an assessment of our intent to sell the security before recovering the security's amortized cost; (v) an economic analysis of the issuer's industry; and (vi) the financial strength, liquidity, and recoverability of the issuer. We perform a security by security review each quarter to evaluate whether a credit loss has occurred.

In determining the credit loss component, we discount the estimated cash flows on a security by security basis. We consider the impact of macroeconomic conditions on inputs used to measure the amount of credit loss. For most structured securities, cash flow estimates are based on bond-specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity, prepayment speeds and structural support, including overcollateralization, excess spread, subordination and guarantees. For corporate bonds, cash flow estimates are derived by considering asset type, rating, time to maturity, and applying an expected loss rate.

If a portion of the decline is due to credit-related factors, we separate the credit loss component of the impairment from the amount related to all other factors. The credit loss component is recorded as an allowance and reported in other investment gains (losses) (limited to the difference between estimated fair value and amortized cost). The impairment related to all other factors (non-credit factors) is reported in accumulated other comprehensive income (loss) along with unrealized gains related to fixed maturity investments, available for sale, net of tax and related adjustments. The allowance is adjusted for any additional credit losses and subsequent recoveries. When recognizing an allowance associated with a credit loss, the cost basis is not adjusted. When we determine a security is uncollectable, the remaining amortized cost will be written off.
  
If we intend to sell an impaired fixed maturity security, available for sale, or identify an impaired fixed maturity security, available for sale, for which it is more likely than not we will be required to sell before anticipated recovery, the difference between the fair value and the amortized cost is included in other investment gains (losses) and the fair value becomes the new amortized cost. The new cost basis is not adjusted for any subsequent recoveries in fair value.

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

Accumulated other comprehensive income (loss) is primarily comprised of the net effect of unrealized appreciation (depreciation) on our investments.  These amounts, included in shareholders' equity as of June 30, 2022 and December 31, 2021, were as follows (dollars in millions):
June 30,
2022		December 31,
2021
Net unrealized gains (losses) on investments having no allowance for credit losses $(500.7)$2,963.3 
Unrealized losses on investments with an allowance for credit losses (1,245.1)(23.1)
Adjustment to present value of future profits (a)3.6 (8.3)
Adjustment to deferred acquisition costs246.6 (420.2)
Adjustment to insurance liabilities— (25.5)
Deferred income tax assets (liabilities)330.6 (539.1)
Accumulated other comprehensive income (loss)$(1,165.0)$1,947.1 
________
(a)The present value of future profits is the value assigned to the right to receive future cash flows from contracts existing at September 10, 2003, the date Conseco, Inc., an Indiana corporation, emerged from bankruptcy.

At December 31, 2021, adjustments to the present value of future profits, deferred acquisition costs, insurance liabilities and deferred tax assets included $(7.3) million, $(132.2) million, $(25.5) million and $35.8 million, respectively, for premium deficiencies that would exist on certain blocks of business if unrealized gains on the assets backing such products had been realized and the proceeds from the sales of such assets were invested at then current yields. There were no such adjustments at June 30, 2022.


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

At June 30, 2022, the amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses and estimated fair value of fixed maturities, available for sale, were as follows (dollars in millions):
Amortized costGross unrealized gainsGross unrealized lossesAllowance for credit lossesEstimated fair value
Corporate securities$13,921.1 $151.3 $(1,292.2)$(52.2)$12,728.0 
United States Treasury securities and obligations of United States government corporations and agencies168.8 6.7 (3.2)— 172.3 
States and political subdivisions2,699.0 63.6 (276.7)(1.1)2,484.8 
Foreign governments74.6 .2 (8.1)(.7)66.0 
Asset-backed securities1,259.1 1.7 (84.0)(.2)1,176.6 
Agency residential mortgage-backed securities32.0 1.1 — — 33.1 
Non-agency residential mortgage-backed securities1,809.2 69.7 (116.5)— 1,762.4 
Collateralized loan obligations727.9 — (33.9)— 694.0 
Commercial mortgage-backed securities2,409.1 .9 (164.5)— 2,245.5 
Total fixed maturities, available for sale$23,100.8 $295.2 $(1,979.1)$(54.2)$21,362.7 

At December 31, 2021, the amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses and estimated fair value of fixed maturities, available for sale, were as follows (dollars in millions):
Amortized costGross unrealized gainsGross unrealized lossesAllowance for credit lossesEstimated fair value
Corporate securities$13,195.4 $2,284.5 $(21.7)$(7.4)$15,450.8 
United States Treasury securities and obligations of United States government corporations and agencies166.2 54.3 (.9)— 219.6 
States and political subdivisions2,649.0 356.7 (1.5)— 3,004.2 
Foreign governments85.4 13.6 (.3)(.2)98.5 
Asset-backed securities1,129.0 37.0 (3.1)— 1,162.9 
Agency residential mortgage-backed securities36.7 3.7 — — 40.4 
Non-agency residential mortgage-backed securities1,870.4 156.5 (3.1)— 2,023.8 
Collateralized loan obligations587.3 2.3 (1.3)— 588.3 
Commercial mortgage-backed securities2,148.2 77.9 (9.2)— 2,216.9 
Total fixed maturities, available for sale$21,867.6 $2,986.5 $(41.1)$(7.6)$24,805.4 


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table sets forth the amortized cost and estimated fair value of fixed maturities, available for sale, at June 30, 2022, by contractual maturity.  Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.  Structured securities (such as asset-backed securities, agency residential mortgage-backed securities, non-agency residential mortgage-backed securities, collateralized loan obligations and commercial mortgage-backed securities, collectively referred to as "structured securities") frequently include provisions for periodic principal payments and permit periodic unscheduled payments.
Amortized
cost		Estimated
fair
value
 (Dollars in millions)
Due in one year or less$106.1 $105.7 
Due after one year through five years1,797.6 1,720.5 
Due after five years through ten years2,227.2 2,069.5 
Due after ten years12,732.6 11,555.4 
Subtotal16,863.5 15,451.1 
Structured securities6,237.3 5,911.6 
Total fixed maturities, available for sale$23,100.8 $21,362.7 

The following table sets forth the amortized cost and estimated fair value of fixed maturities, available for sale, at December 31, 2021, by contractual maturity.
Amortized
cost		Estimated
fair
value
 (Dollars in millions)
Due in one year or less$80.3 $80.5 
Due after one year through five years1,147.4 1,205.6 
Due after five years through ten years1,458.4 1,573.7 
Due after ten years13,409.9 15,913.3 
Subtotal16,096.0 18,773.1 
Structured securities5,771.6 6,032.3 
Total fixed maturities, available for sale$21,867.6 $24,805.4 

Gross Unrealized Investment Losses

Our investment strategy is to maximize, over a sustained period and within acceptable parameters of quality and risk, investment income and total investment return through active strategic asset allocation and investment management. Accordingly, we may sell securities at a gain or a loss to enhance the projected total return of the portfolio as market opportunities change, to reflect changing perceptions of risk, or to better match certain characteristics of our investment portfolio with the corresponding characteristics of our insurance liabilities.


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table summarizes the gross unrealized losses and fair values of our investments with unrealized losses for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that such securities have been in a continuous unrealized loss position, at June 30, 2022 (dollars in millions):

 Less than 12 months12 months or greaterTotal
Description of securitiesFair
value		Unrealized
losses		Fair
value		Unrealized
losses		Fair
value		Unrealized
losses
Corporate securities$2,532.9 $(266.3)$24.5 $(5.9)$2,557.4 $(272.2)
United States Treasury securities and obligations of United States government corporations and agencies32.1 (.9)17.3 (2.3)49.4 (3.2)
States and political subdivisions488.7 (79.6)— — 488.7 (79.6)
Asset-backed securities1,019.8 (78.3)19.6 (1.6)1,039.4 (79.9)
Non-agency residential mortgage-backed securities1,067.2 (113.8)19.2 (2.7)1,086.4 (116.5)
Collateralized loan obligations608.0 (29.8)76.0 (4.1)684.0 (33.9)
Commercial mortgage-backed securities2,040.7 (155.6)85.3 (8.9)2,126.0 (164.5)
Total fixed maturities, available for sale$7,789.4 $(724.3)$241.9 $(25.5)$8,031.3 $(749.8)

The following table summarizes the gross unrealized losses and fair values of our investments with unrealized losses for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that such securities have been in a continuous unrealized loss position, at December 31, 2021 (dollars in millions):

 Less than 12 months12 months or greaterTotal
Description of securitiesFair
value		Unrealized
losses		Fair
value		Unrealized
losses		Fair
value		Unrealized
losses
Corporate securities$87.8 $(.4)$9.2 $(.1)$97.0 $(.5)
United States Treasury securities and obligations of United States government corporations and agencies5.7 — 18.7 (.9)24.4 (.9)
States and political subdivisions47.3 (.4)— — 47.3 (.4)
Asset-backed securities210.8 (2.4)17.8 (.7)228.6 (3.1)
Non-agency residential mortgage-backed securities380.8 (3.1)2.3 — 383.1 (3.1)
Collateralized loan obligations271.5 (1.2)32.8 (.1)304.3 (1.3)
Commercial mortgage-backed securities694.7 (7.6)41.4 (1.6)736.1 (9.2)
Total fixed maturities, available for sale$1,698.6 $(15.1)$122.2 $(3.4)$1,820.8 $(18.5)

Based on management's current assessment of investments with unrealized losses at June 30, 2022, the Company believes the issuers of the securities will continue to meet their obligations.  While we do not have the intent to sell securities with unrealized losses and it is not more likely than not that we will be required to sell securities with unrealized losses prior to their anticipated recovery, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, if a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we had the intent to sell the security before its anticipated recovery.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table summarizes changes in the allowance for credit losses related to fixed maturities, available for sale, for the three months ended June 30, 2022 (dollars in millions):

Corporate securitiesStates and political subdivisionsForeign governmentsAsset-backed securitiesTotal
Allowance at March 31, 2022$35.6 $.8 $.1 $.1 $36.6 
Additions for securities for which credit losses were not previously recorded18.6 .2 .3 .1 19.2 
Additions for purchased securities with deteriorated credit— — — — — 
Additions (reductions) for securities where an allowance was previously recorded4.1 .1 .3 — 4.5 
Reduction for securities sold during the period(6.1)— — — (6.1)
Reduction for securities for which the Company made the decision to sell where an allowance was previously recorded— — — — — 
Write-offs— — — — — 
Recoveries of previously written-off amount— — — — — 
Allowance at June 30, 2022$52.2 $1.1 $.7 $.2 $54.2 

The following table summarizes changes in the allowance for credit losses related to fixed maturities, available for sale, for the six months ended June 30, 2022 (dollars in millions):

Corporate securitiesStates and political subdivisionsForeign governmentsAsset-backed securitiesTotal
Allowance at December 31, 2021$7.4 $— $.2 $— $7.6 
Additions for securities for which credit losses were not previously recorded32.6 .5 .4 .1 33.6 
Additions for purchased securities with deteriorated credit— — — — — 
Additions (reductions) for securities where an allowance was previously recorded18.7 .6 .1 .1 19.5 
Reduction for securities sold during the period(6.5)— — — (6.5)
Reduction for securities for which the Company made the decision to sell where an allowance was previously recorded— — — — — 
Write-offs— — — — — 
Recoveries of previously written-off amount— — — — — 
Allowance at June 30, 2022$52.2 $1.1 $.7 $.2 $54.2 



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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table summarizes changes in the allowance for credit losses related to fixed maturities, available for sale, for the three months ended June 30, 2021 (dollars in millions):

Corporate securitiesStates and political subdivisionsTotal
Allowance at March 31, 2021$4.9 $.4 $5.3 
Additions for securities for which credit losses were not previously recorded.2 — .2 
Additions for purchased securities with deteriorated credit— — — 
Additions (reductions) for securities where an allowance was previously recorded(2.5)(.4)(2.9)
Reduction for securities sold during the period(.3)— (.3)
Reduction for securities for which the Company made the decision to sell where an allowance was previously recorded— — — 
Write-offs— — — 
Recoveries of previously written-off amount— — — 
Allowance at June 30, 2021$2.3 $— $2.3 

The following table summarizes changes in the allowance for credit losses related to fixed maturities, available for sale, for the six months ended June 30, 2021 (dollars in millions):

Corporate securitiesStates and political subdivisionsTotal
Allowance at December 31, 2020$1.9 $.3 $2.2 
Additions for securities for which credit losses were not previously recorded1.9 .1 2.0 
Additions for purchased securities with deteriorated credit— — — 
Additions (reductions) for securities where an allowance was previously recorded(1.0)(.4)(1.4)
Reduction for securities sold during the period(.5)— (.5)
Reduction for securities for which the Company made the decision to sell where an allowance was previously recorded— — — 
Write-offs— — — 
Recoveries of previously written-off amount— — — 
Allowance at June 30, 2021$2.3 $— $2.3 


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

Mortgage Loans

Mortgage loans are carried at amortized unpaid balance, net of allowance for estimated credit losses. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. Payment terms specified for mortgage loans may include a prepayment penalty for unscheduled payoff of the investment. Prepayment penalties are recognized as investment income when received.

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

At June 30, 2022, the mortgage loan balance was primarily comprised of commercial mortgage loans and there were no commercial mortgage loans in process of foreclosure. At June 30, 2022, we held residential mortgage loan investments with an amortized cost and fair value of $35.6 million and $36.2 million, respectively. At June 30, 2022, there were three residential mortgage loans that were noncurrent with a carrying value of $1.1 million (of which, no such loans were in forbearance and two loans with a carrying value of $0.5 million were in foreclosure). There were no other mortgage loans that were noncurrent at June 30, 2022.

The following table provides the amortized cost by year of origination and estimated fair value of our outstanding commercial mortgage loans and the underlying collateral as of June 30, 2022 (dollars in millions):
Estimated fair
value
Loan-to-value ratio (a)20222021202020192018PriorTotal amortized costMortgage loansCollateral
Less than 60%$99.6 $126.8 $39.9 $76.2 $100.1 $534.4 $977.0 $921.8 $4,126.4 
60% to less than 70%34.0 12.9 5.8 — 8.3 26.2 87.2 81.0 133.7 
70% to less than 80%33.0 22.3 — — — 30.0 85.3 79.1 114.5 
80% to less than 90%— — — — — 35.1 35.1 29.1 43.0 
Total$166.6 $162.0 $45.7 $76.2 $108.4 $625.7 $1,184.6 $1,111.0 $4,417.6 
________________
(a)Loan-to-value ratios are calculated as the ratio of: (i) the amortized cost of the commercial mortgage loans; to (ii) the estimated fair value of the underlying collateral.

The following table summarizes changes in the allowance for credit losses related to mortgage loans for the three months ended June 30, 2022 and 2021 (dollars in millions):

Three months ended
June 30,
20222021
Allowance at the beginning of the period$5.1 $8.8 
Current period provision for expected credit losses(.2)(.5)
Initial allowance recognized for purchased financial assets with credit deterioration— — 
Write-offs charged against the allowance— — 
Recoveries of amounts previously written off— — 
Allowance at the end of the period$4.9 $8.3 


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table summarizes changes in the allowance for credit losses related to mortgage loans for the six months ended June 30, 2022 and 2021 (dollars in millions):

Six months ended
June 30,
20222021
Allowance at the beginning of the period$5.6 $11.8 
Current period provision for expected credit losses(.7)(3.5)
Initial allowance recognized for purchased financial assets with credit deterioration— — 
Write-offs charged against the allowance— — 
Recoveries of amounts previously written off— — 
Allowance at the end of the period$4.9 $8.3 

Total Investment Gains (Losses)

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

Three months endedSix months ended
June 30,June 30,
 2022202120222021
Realized investment gains (losses): 
Gross realized gains on sales of fixed maturities, available for sale$23.5 $25.5 $78.3 $38.7 
Gross realized losses on sales of fixed maturities, available for sale(26.3)(4.4)(56.9)(18.2)
Equity securities, net(3.6)(2.8)(8.3)(2.8)
Other, net(.6)(1.2)(1.3)(6.6)
Total realized investment gains (losses)(7.0)17.1 11.8 11.1 
Change in allowance for credit losses (a)(23.7)5.7 (54.4)15.3 
Change in fair value of equity securities (b)(.5)4.4 (1.7)2.6 
Other changes in fair value (c)(17.6)4.1 (37.2)(.5)
Other investment gains (losses)(41.8)14.2 (93.3)17.4 
Total investment gains (losses)$(48.8)$31.3 $(81.5)$28.5 
_________________
(a)    Changes in the allowance for credit losses includes $(6.3) million and $(8.5) million in the three and six months ended June 30, 2022, respectively, and $2.2 million and $11.9 million in the three and six months ended June 30, 2021, respectively, related to investments held by variable interest entities ("VIEs").
(b)    Changes in the estimated fair value of equity securities (that are still held as of the end of the respective periods) were $(5.8) million and $0.4 million for the six months ended June 30, 2022 and 2021, respectively.
(c)    Change in the estimated fair value of trading securities that we have elected the fair value option (that are still held as of the end of the respective periods) were $(25.2) million and $0.7 million in the six months ended June 30, 2022 and 2021, respectively.

During the first six months of 2022, we recognized net investment losses of $81.5 million, which were comprised of: (i) $20.1 million of net gains from the sales of investments; (ii) $10.0 million of losses related to equity securities, including the change in fair value; (iii) the decrease in fair value of certain fixed maturity investments with embedded derivatives of $25.5 million; (iv) the decrease in fair value of embedded derivatives related to a modified coinsurance agreement of $11.7 million; and (v) an increase in the allowance for credit losses of $54.4 million.

During the first six months of 2021, we recognized net investment gains of $28.5 million, which were comprised of: (i) $13.9 million of net gains from the sales of investments; (ii) $0.2 million of losses related to equity securities, including the
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

change in fair value; (iii) the increase in fair value of certain fixed maturity investments with embedded derivatives of $0.7 million; (iv) the decrease in fair value of embedded derivatives related to a modified coinsurance agreement of $1.2 million; and (v) a decrease in the allowance for credit losses of $15.3 million.

Our fixed maturity investments are generally purchased in the context of various long-term strategies, including funding insurance liabilities, so we do not generally seek to generate short-term realized gains through the purchase and sale of such securities.  In certain circumstances, including those in which securities are selling at prices which exceed our view of their underlying economic value, or when it is possible to reinvest the proceeds to better meet our long-term asset-liability objectives, we may sell certain securities.

At June 30, 2022, there were no fixed maturity investments in default.

During the first six months of 2022, the $56.9 million of gross realized losses on sales of $1,106.0 million of fixed maturity securities, available for sale, included: (i) $37.6 million related to various corporate securities; (ii) $10.2 million related to non-agency residential mortgage-backed securities; (iii) $4.2 million related to states and political subdivisions; and (iv) $4.9 million related to various other investments. Securities are generally sold at a loss following unforeseen issuer-specific events or conditions or shifts in perceived relative values.  These reasons include but are not limited to: (i) changes in the investment environment; (ii) expectation that the market value could deteriorate; (iii) our desire to reduce our exposure to an asset class, an issuer or an industry; (iv) prospective or actual changes in credit quality; or (v) changes in expected portfolio cash flows.

During the first six months of 2021, the $18.2 million of gross realized losses on sales of $310.7 million of fixed maturity securities, available for sale, primarily related to various corporate securities.

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

EARNINGS PER SHARE

A reconciliation of net income and shares used to calculate basic and diluted earnings per share is as follows (dollars in millions and shares in thousands):
Three months endedSix months ended
June 30,June 30,
 2022202120222021
Net income for basic and diluted earnings per share$136.1 $78.0 $248.4 $225.4 
Shares:  
Weighted average shares outstanding for basic earnings per share115,533 131,016 117,078 132,578 
Effect of dilutive securities on weighted average shares:  
Amounts related to employee benefit plans1,753 2,798 2,066 2,655 
Weighted average shares outstanding for diluted earnings per share117,286 133,814 119,144 135,233 


Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period.  Restricted shares (including our performance units) are not included in basic earnings per share until vested.  Diluted earnings per share reflect the potential dilution that could occur if outstanding stock options were exercised and restricted stock was vested.  The dilution from options and restricted shares is calculated using the treasury stock method.  Under this method, we assume the proceeds from the exercise of the options (or the unrecognized compensation expense with respect to restricted stock and performance units) will be used to purchase shares of our common stock at the average market price during the period, reducing the dilutive effect of the exercise of the options (or the vesting of the restricted stock and performance units).
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

BUSINESS SEGMENTS

We view our operations as three insurance product lines (annuity, health and life) and the investment and fee revenue segments. Our segments are aligned based on their common characteristics, comparability of profit margins and the way management makes operating decisions and assesses the performance of the business.

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

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

We market our insurance products through the Consumer and Worksite Divisions that reflect the customers served by the Company.

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

The Worksite Division focuses on worksite and group sales for businesses, associations, and other membership groups, interacting with customers at their place of employment and virtually. With a separate Worksite Division, we are bringing a sharper focus to this high-growth business while further capitalizing on the strength of our acquisitions of Web Benefits Design Corporation ("WBD") in April 2019 and Optavise, LLC ("Optavise" formerly known as DirectPath, LLC prior to its name change in April 2022) in February 2021. Sales in the Worksite Division have been particularly adversely impacted by the novel coronavirus ("COVID-19") pandemic given the challenges of interacting with customers at their place of employment.

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

The investment segment involves the management of our capital resources, including investments and the management of corporate debt and liquidity. Our measure of profitability of this segment is the total net investment income not allocated to the insurance products. Investment income not allocated to product lines represents net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable and investment borrowings; (iv) expenses related to the funding agreement-backed note ("FABN") program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income. Investment income not allocated to product lines includes investment income on investments in excess of average insurance liabilities, investments held by our holding companies, the spread we earn from our Federal Home Loan Bank ("FHLB") investment borrowing and FABN programs and variable components of investment income (including call and prepayment income, adjustments to returns on structured securities due to cash flow changes, income (loss) from company-owned life insurance ("COLI") and alternative investments income not allocated to product lines), net of interest expense on corporate debt. The spread earned from our FHLB investment borrowing and FABN programs includes the investment income on the matched assets less interest on investment borrowings related to the FHLB investment borrowing program; and interest credited on funding agreements and amortization of deferred acquisition costs related to the FABN program.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

Our fee income segment includes the earnings generated from sales of third-party insurance products, services provided by WBD (our on-line benefit administration firm), Optavise (a national provider of year-round technology-driven employee benefits management services) and the operations of our broker dealer and registered investment advisor.

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

We measure segment performance by excluding total investment gains (losses), fair value changes in embedded derivative liabilities (net of related amortization), fair value changes related to the agent deferred compensation plan, income taxes and other non-operating items consisting primarily of earnings attributable to VIEs ("pre-tax operating earnings") because we believe that this performance measure is a better indicator of the ongoing business and trends in our business.  Our primary investment focus is on investment income to support our liabilities for insurance products as opposed to the generation of investment gains (losses), and a long-term focus is necessary to maintain profitability over the life of the business.

Investment gains (losses), fair value changes in embedded derivative liabilities (net of related amortization), fair value changes related to the agent deferred compensation plan and other non-operating items consisting primarily of earnings attributable to VIEs depend on market conditions or represent unusual items that do not necessarily relate to the underlying business of our segments.  Investment gains (losses) and fair value changes in embedded derivative liabilities (net of related amortization) may affect future earnings levels since our underlying business is long-term in nature and changes in our investment portfolio may impact our ability to earn the assumed interest rates needed to maintain the profitability of our business.

Operating information by segment is as follows (dollars in millions):

Three months endedSix months ended
June 30,June 30,
 2022202120222021
Revenues:  
Annuity:  
Insurance policy income$5.8 $4.3 $10.8 $9.7 
Net investment income114.8 114.9 229.9 230.6 
Total annuity revenues120.6 119.2 240.7 240.3 
Health:
Insurance policy income403.5 415.4 810.2 831.9 
Net investment income71.6 71.6 143.4 143.1 
Total health revenues 475.1 487.0 953.6 975.0 
Life:
Insurance policy income216.3 210.8 429.6 421.3 
Net investment income36.2 36.1 72.5 71.9 
Total life revenues252.5 246.9 502.1 493.2 
Change in market values of the underlying options supporting the fixed index annuity and life products (offset by market value changes credited to policyholder balances)(92.4)76.1 (164.3)118.6 
Investment income not allocated to product lines84.6 72.5 134.3 137.4 
Fee revenue and other income:
Fee income31.1 31.1 71.4 63.4 
Amounts netted in expenses not allocated to product lines24.3 1.8 27.1 8.6 
Total segment revenues$895.8 $1,034.6 $1,764.9 $2,036.5 


(continued on next page)

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Notes to Consolidated Financial Statements
(unaudited)
___________________

(continued from previous page)
Three months endedSix months ended
June 30,June 30,
 2022202120222021
Expenses:
Annuity:
Insurance policy benefits$27.6 $1.3 $45.4 $7.5 
Interest credited42.3 36.9 83.6 75.6 
Amortization and non-deferred commissions13.6 15.0 30.0 33.3 
Total annuity expenses 83.5 53.2 159.0 116.4 
Health:
Insurance policy benefits315.7 323.3 617.0 629.9 
Amortization and non-deferred commissions46.0 42.8 98.4 99.5 
Total health expenses361.7 366.1 715.4 729.4 
Life:
Insurance policy benefits138.4 149.5 302.0 313.1 
Interest credited 11.3 11.0 22.9 21.6 
Amortization, non-deferred commissions and advertising expense46.0 46.7 100.6 91.7 
Total life expenses195.7 207.2 425.5 426.4 
Allocated expenses 152.2 141.6 297.0 282.7 
Expenses not allocated to product lines21.4 25.6 39.0 54.4 
Market value changes of options credited to fixed index annuity and life policyholders(92.4)76.1 (164.3)118.6 
Amounts netted in investment income not allocated to product lines:
Interest expense 20.3 18.1 38.4 36.3 
Interest credited7.2 — 14.1 — 
Amortization.4 — .8 — 
Other expenses (11.8)6.6 (16.0)10.3 
Expenses netted in fee revenue:
Commissions and other operating expenses27.9 24.5 58.3 49.5 
Total segment expenses766.1 919.0 1,567.2 1,824.0 
Pre-tax measure of profitability:
Annuity margin37.1 66.0 81.7 123.9 
Health margin113.4 120.9 238.2 245.6 
Life margin56.8 39.7 76.6 66.8 
Total insurance product margin207.3 226.6 396.5 436.3 
Allocated expenses(152.2)(141.6)(297.0)(282.7)
Income from insurance products55.1 85.0 99.5 153.6 
Fee income3.2 6.6 13.1 13.9 
Investment income not allocated to product lines68.5 47.8 97.0 90.8 
Expenses not allocated to product lines2.9 (23.8)(11.9)(45.8)
Operating earnings before taxes 129.7 115.6 197.7 212.5 
Income tax expense on operating income 29.6 26.5 46.5 48.2 
Net operating income $100.1 $89.1 $151.2 $164.3 


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________


A reconciliation of segment revenues and expenses to consolidated revenues and expenses and net income is as follows (dollars in millions):
Three months endedSix months ended
June 30,June 30,
 2022202120222021
Total segment revenues$895.8 $1,034.6 $1,764.9 $2,036.5 
Total investment losses(48.8)31.3 (81.5)28.5 
Revenues related to earnings attributable to VIEs8.0 7.2 14.5 14.1 
Consolidated revenues855.0 1,073.1 1,697.9 2,079.1 
Total segment expenses766.1 919.0 1,567.2 1,824.0 
Insurance policy benefits - fair value changes in embedded derivative liabilities
(109.9)59.3 (233.8)(49.8)
Amortization related to fair value changes in embedded derivative liabilities
30.2 (14.4)63.3 12.6 
Amortization related to investment gains (losses)(1.0)1.3 (1.1)1.3 
Expenses attributable to VIEs8.2 6.3 14.3 12.6 
Fair value changes related to agent deferred compensation plan(14.0)— (36.7)(13.2)
Consolidated expenses679.6 971.5 1,373.2 1,787.5 
Income before tax175.4 101.6 324.7 291.6 
Income tax expense on period income39.3 23.6 76.3 66.2 
Net income$136.1 $78.0 $248.4 $225.4 


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

ACCOUNTING FOR DERIVATIVES

Our freestanding and embedded derivatives, which are not designated as hedging instruments, are held at fair value and are summarized as follows (dollars in millions):
Fair value
June 30,
2022		December 31, 2021
Assets:
Other invested assets:
Fixed index call options$23.9 $225.0 
Other— 2.5 
Reinsurance receivables(13.4)(1.7)
Total assets$10.5 $225.8 
Liabilities:
Future policy benefits:
Fixed index products$1,371.0 $1,724.1 
Total liabilities$1,371.0 $1,724.1 

We are required to establish an embedded derivative related to a modified coinsurance agreement pursuant to which we assume the risks of a block of health insurance business. The embedded derivative represents the mark-to-market adjustment for approximately $98 million in underlying investments held by the ceding reinsurer at June 30, 2022.

Our fixed index annuity products provide a guaranteed minimum rate of return and a higher potential return that is based on a percentage (the "participation rate") of the amount of increase in the value of a particular index, such as the Standard & Poor's 500 Index, over a specified period.  We are generally able to change the participation rate at the beginning of each index period (typically on each policy anniversary date), subject to contractual minimums.  The Company accounts for the options attributed to the policyholder for the estimated life of the contract as embedded derivatives. These accounting requirements often create volatility in the earnings from these products. We typically buy call options (including call spreads) referenced to the applicable indices in an effort to offset or hedge potential increases to policyholder benefits resulting from increases in the particular index to which the policy's return is linked.  The notional amount of these options was $3.0 billion at both June 30, 2022 and December 31, 2021.

We purchase certain fixed maturity securities that contain embedded derivatives that are required to be held at fair value on the consolidated balance sheet. We have elected the fair value option to carry the entire security at fair value with changes in fair value recognized in net income.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table provides the pre-tax gains (losses) recognized in revenues for derivative instruments, which are not designated as hedges for the periods indicated (dollars in millions):
Three months endedSix months ended
June 30,June 30,
2022202120222021
Net investment income (loss) from policyholder and other special-purpose portfolios:
Fixed index call options$(92.8)$76.0 $(165.7)$119.6 
Total investment losses:
Embedded derivative related to modified coinsurance agreement(5.2)1.8 (11.7)(1.2)
Total revenues from derivative instruments, not designated as hedges$(98.0)$77.8 $(177.4)$118.4 

Derivative Counterparty Risk

If the counterparties to the call options fail to meet their obligations, we may recognize a loss.  We limit our exposure to such a loss by diversifying among several counterparties believed to be strong and creditworthy.  At June 30, 2022, all of our counterparties were rated "A" or higher by S&P Global Ratings ("S&P").

The Company and its subsidiaries are parties to master netting arrangements with its counterparties related to entering into various derivative contracts.

The following table summarizes information related to derivatives with master netting arrangements or collateral as of June 30, 2022 and December 31, 2021 (dollars in millions):
Gross amounts not offset in the balance sheet
Gross amounts recognizedGross amounts offset in the balance sheetNet amounts of assets presented in the balance sheetFinancial instrumentsCash collateral receivedNet amount
June 30, 2022:
Fixed index call options$23.9 $— $23.9 $— $— $23.9 
December 31, 2021:
Fixed index call options225.0 — 225.0 — — 225.0 

REINSURANCE

The cost of reinsurance ceded totaled $49.1 million and $54.2 million in the second quarters of 2022 and 2021, respectively, and $101.1 million and $109.0 million in the first six months of 2022 and 2021, respectively.  We deduct this cost from insurance policy income.  Reinsurance recoveries netted against insurance policy benefits totaled $80.5 million and $64.1 million in the second quarters of 2022 and 2021, respectively, and $174.4 million and $156.4 million in the first six months of 2022 and 2021, respectively.

From time to time, we assume insurance from other companies.  Any costs associated with the assumption of insurance are amortized consistent with the method used to amortize deferred acquisition costs.  Reinsurance premiums assumed totaled $4.6 million and $5.0 million in the second quarters of 2022 and 2021, respectively, and $9.5 million and $10.3 million in the first six months of 2022 and 2021, respectively. Insurance policy benefits related to reinsurance assumed totaled $7.0 million and $6.7 million in the second quarters of 2022 and 2021, respectively, and $13.1 million and $15.3 million in the first six months of 2022 and 2021, respectively.
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________


INCOME TAXES

The Company's interim tax expense is based upon the estimated annual effective tax rate for the respective period. Under authoritative guidance, certain items are required to be excluded from the estimated annual effective tax rate calculation. Such items include changes in judgment about the realizability of deferred tax assets resulting from changes in projections of income expected to be available in future years, and items deemed to be unusual, infrequent, or that cannot be reliably estimated. In these cases, the actual tax expense or benefit applicable to that item is treated discretely and is reported in the same period as the related item. The components of income tax expense are as follows (dollars in millions):

Three months endedSix months ended
June 30,June 30,
 2022202120222021
Current tax expense$.6 $22.8 $5.0 $36.8 
Deferred tax expense38.7 .8 71.3 29.4 
Total income tax expense$39.3 $23.6 $76.3 $66.2 

A reconciliation of the U.S. statutory corporate tax rate to the estimated annual effective rate, reflected in the consolidated statement of operations is as follows: 
Six months ended
June 30,
 20222021
U.S. statutory corporate rate21.0 %21.0 %
Non-taxable income and nondeductible benefits, net.1 — 
State taxes2.4 1.7 
Effective tax rate23.5 %22.7 %

The increase in our effective tax rate in the first six months of 2022 was driven by a new Illinois income tax regulation that will limit our use of Illinois net operating loss carryforwards ("NOLs") in 2022 and 2023, triggering retaliatory taxes in other states.


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The components of the Company's income tax assets and liabilities are summarized below (dollars in millions):
June 30,
2022		December 31,
2021
Deferred tax assets:  
Net federal operating loss carryforwards$212.2 $241.4 
Net state operating loss carryforwards2.5 2.3 
Insurance liabilities314.5 390.7 
Indirect costs allocable to self-constructed real estate assets185.0 158.3 
Accumulated other comprehensive loss326.5 — 
Other14.1 27.5 
Gross deferred tax assets1,054.8 820.2 
Deferred tax liabilities:  
Investments(37.9)(48.2)
Present value of future profits and deferred acquisition costs(105.8)(119.4)
Accumulated other comprehensive income— (540.4)
Gross deferred tax liabilities(143.7)(708.0)
Net deferred tax assets911.1 112.2 
Current income taxes prepaid18.7 6.1 
Income tax assets, net$929.8 $118.3 

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

A reduction of the net carrying amount of deferred tax assets by establishing a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. In assessing the need for a valuation allowance, all available evidence, both positive and negative, shall be considered to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed. This assessment requires significant judgment and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of carryforward periods, our experience with operating loss and tax credit carryforwards expiring unused, and tax planning strategies.

We evaluate the need to establish a valuation allowance for our deferred income tax assets on an ongoing basis using a deferred tax valuation model. Our model is adjusted to reflect changes in our projections of future taxable income including changes resulting from the Tax Cuts and Jobs Act, investment strategies, the impact of the sale or reinsurance of business, the recapture of business previously ceded, tax planning strategies and the COVID-19 pandemic. Our estimates of future taxable income are based on evidence we consider to be objectively verifiable. At June 30, 2022, our projection of future taxable income for purposes of determining the valuation allowance is based on our estimates of such future taxable income through the date our NOLs expire. Such estimates are subject to the risks and uncertainties associated with the COVID-19 pandemic and the extent to which actual impacts differ from the assumptions used in our deferred tax valuation model. Based on our assessment, we have concluded that it is more likely than not that all our deferred tax assets of $911.1 million will be realized through future taxable earnings.

Recovery of our deferred tax asset is dependent on achieving the level of future taxable income projected in our deferred tax valuation model and failure to do so could result in an increase in the valuation allowance in a future period.  Any future increase in the valuation allowance may result in additional income tax expense and reduce shareholders' equity, and such an increase could have a significant impact upon our earnings in the future.

The Internal Revenue Code (the "Code") limits the extent to which losses realized by a non-life entity (or entities) may offset income from a life insurance company (or companies) to the lesser of: (i) 35 percent of the income of the life insurance
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Notes to Consolidated Financial Statements
(unaudited)
___________________

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

Section 382 of the Code imposes limitations on a corporation's ability to use its NOLs when the company undergoes a 50 percent ownership change over a three-year period.  Future transactions and the timing of such transactions could cause an ownership change for Section 382 income tax purposes.  Such transactions may include, but are not limited to, additional repurchases under our securities repurchase program, issuances of common stock and acquisitions or sales of shares of CNO stock by certain holders of our shares, including persons who have held, currently hold or may accumulate in the future five percent or more of our outstanding common stock for their own account.  Many of these transactions are beyond our control.  If an additional ownership change were to occur for purposes of Section 382, we would be required to calculate an annual restriction on the use of our NOLs to offset future taxable income.  The annual restriction would be calculated based upon the value of CNO's equity at the time of such ownership change, multiplied by a federal long-term tax exempt rate (2.36 percent at June 30, 2022), and the annual restriction could limit our ability to use a substantial portion of our NOLs to offset future taxable income.  We regularly monitor ownership change (as calculated for purposes of Section 382) and, as of June 30, 2022, we were below the 50 percent ownership change level that could limit our ability to utilize our NOLs.

We have $1.0 billion of federal NOLs as of June 30, 2022, as summarized below (dollars in millions):
Net operating loss
Year of expirationcarryforwards
2023$423.8 
202585.2 
2026149.9 
202710.8 
202880.3 
2029213.2 
2030.3 
2031.2 
203244.4 
2033.6 
2034.9 
2035.8 
Total federal non-life NOLs$1,010.4 

Our non-life NOLs can be used to offset 35 percent of life insurance company taxable income and 100 percent of non-life company taxable income until all non-life NOLs are utilized or expire.
We also had deferred tax assets related to NOLs for state income taxes of $2.5 million and $2.3 million at June 30, 2022 and December 31, 2021, respectively.  The related state NOLs are available to offset future state taxable income in certain states and are expected to be fully utilized prior to expiration.

The IRS is conducting an examination of our 2016 through 2018 tax returns. The federal statute of limitations remains open with respect to tax years 2016 through 2021. The Company’s various state income tax returns are generally open for tax years based on individual state statutes of limitation. Generally, for tax years which generate NOLs, capital losses or tax credit carryforwards, the statute remains open until the expiration of the statute of limitations for the tax year in which such carryforwards are utilized. The outcome of tax audits cannot be predicted with certainty. If the Company’s tax audits are not resolved in a manner consistent with management’s expectations, the Company may be required to adjust its provision for income taxes.


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

NOTES PAYABLE - DIRECT CORPORATE OBLIGATIONS

The following notes payable were direct corporate obligations of the Company as of June 30, 2022 and December 31, 2021 (dollars in millions):
June 30,
2022		December 31,
2021
5.250% Senior Notes due May 2025
$500.0 $500.0 
5.250% Senior Notes due May 2029
500.0 500.0 
5.125% Subordinated Debentures due November 2060
150.0 150.0 
Revolving Credit Agreement (as defined below)— — 
Unamortized debt issue costs(12.0)(12.7)
Direct corporate obligations$1,138.0 $1,137.3 

Revolving Credit Agreement
On July 16, 2021, the Company amended and restated its $250.0 million revolving credit agreement (as so amended and restated, the "Revolving Credit Agreement"). The Revolving Credit Agreement, among other things, (i) requires the Company to maintain (each as calculated in accordance with the Revolving Credit Agreement): (i) a debt to total capitalization ratio (excluding hybrid securities, except to the extent that the aggregate amount outstanding of all such hybrid securities exceeds an amount equal to 15 percent of total capitalization) of not more than 35.0 percent (such ratio was 22.2 percent at June 30, 2022); and (ii) a minimum consolidated net worth of not less than the sum of (x) $2,674 million plus (y) 25.0 percent of the net equity proceeds received by the Company from the issuance and sale of equity interests in the Company (the Company's consolidated net worth was $3,377.0 million at June 30, 2022 compared to the minimum requirement of $2,692.5 million). The maturity date of the Revolving Credit Agreement is July 16, 2026. The Revolving Credit Agreement contains certain other restrictive covenants with which the Company must comply. The interest rate applicable to loans under the Revolving Credit Agreement is calculated as the eurodollar rate or the base rate, at the Company’s option, plus a margin based on the Company’s unsecured debt rating. The margins under the Revolving Credit Agreement range from 1.375 percent to 2.125 percent, in the case of loans at the eurodollar rate, and 0.375 percent to 1.125 percent, in the case of loans at the base rate. The commitment fee under the Revolving Credit Agreement is based on the Company's unsecured debt rating and the Revolving Credit Agreement includes updated LIBOR fallback provisions. There were no amounts outstanding under the Revolving Credit Agreement during the six months ended June 30, 2022.

INVESTMENT BORROWINGS

Three of the Company's insurance subsidiaries (Bankers Life and Casualty Company ("Bankers Life"), Washington National Insurance Company ("Washington National") and Colonial Penn Life Insurance Company ("Colonial Penn")) are members of the FHLB.  As members of the FHLB, our insurance subsidiaries have the ability to borrow on a collateralized basis from the FHLB. We are required to hold certain minimum amounts of FHLB common stock as a condition of membership in the FHLB, and additional amounts based on the amount of the borrowings.  At June 30, 2022, the carrying value of the FHLB common stock was $75.2 million.  As of June 30, 2022, collateralized borrowings from the FHLB totaled $1.6 billion and the proceeds were used to purchase fixed maturity securities.  The borrowings are classified as investment borrowings in the accompanying consolidated balance sheet.  The borrowings are collateralized by investments with an estimated fair value of $2.0 billion at June 30, 2022, which are maintained in a custodial account for the benefit of the FHLB.  Substantially all of such investments are classified as fixed maturities, available for sale, in our consolidated balance sheet.  


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Notes to Consolidated Financial Statements
(unaudited)
___________________

The following summarizes the terms of the borrowings from the FHLB by our insurance subsidiaries (dollars in millions):
AmountMaturityInterest rate at
borroweddateJune 30, 2022
$21.2 March 2023
Fixed rate – 2.160%
50.0 July 2023
Variable rate – 1.710%
100.0 July 2023
Variable rate – 1.710%
50.0 July 2023
Variable rate – 1.710%
100.0 April 2024
Variable rate – 1.755%
50.0 May 2024
Variable rate – 2.154%
22.0 May 2024
Variable rate – 1.544%
75.0 June 2024
Variable rate – 2.544%
100.0 July 2024
Variable rate – 1.272%
15.5 July 2024
Fixed rate – 1.990%
34.5 July 2024
Variable rate – 1.730%
15.0 July 2024
Variable rate – 1.689%
27.0 August 2024
Fixed rate – .640%
25.0 September 2024
Variable rate – 2.275%
21.7 May 2025
Variable rate – 1.802%
18.8 June 2025
Fixed rate – 2.940%
125.0 September 2025
Variable rate – 1.860%
100.0 October 2025
Variable rate – 1.996%
100.0 October 2025
Variable rate – 2.005%
57.7 October 2025
Variable rate – 1.967%
50.0 November 2025
Variable rate – 1.481%
50.0 January 2026
Variable rate – 1.356%
50.0 January 2026
Variable rate – 1.401%
100.0 January 2026
Variable rate – 1.852%
21.8 May 2026
Variable rate – 1.742%
50.0 May 2026
Variable rate – 1.780%
50.0 April 2027
Variable rate – 1.189%
50.0 May 2027
Variable rate – 1.235%
100.0 June 2027
Variable rate – 1.880%
10.0 June 2027
Variable rate – 2.103%
$1,640.2   

The variable rate borrowings are pre-payable on each interest reset date without penalty.  The fixed rate borrowings are pre-payable subject to payment of a yield maintenance fee based on prevailing market interest rates.  At June 30, 2022, the aggregate yield maintenance fee to prepay all fixed rate borrowings was $1.9 million.

Interest expense of $7.1 million and $5.2 million in the first six months of 2022 and 2021, respectively, was recognized related to total borrowings from the FHLB.


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

CHANGES IN COMMON STOCK

In the first six months of 2022, we repurchased 6.6 million shares of common stock for $160.0 million under our securities repurchase program. The Company had remaining repurchase authority of $206.9 million as of June 30, 2022.

In the first six months of 2022, dividends declared on common stock totaled $32.4 million ($0.27 per common share). In May 2022, the Company increased its quarterly common stock dividend to $0.14 per share from $0.13 per share.

SALES INDUCEMENTS

Certain of our annuity products offer sales inducements to contract holders in the form of enhanced crediting rates or bonus payments in the initial period of the contract.  Certain of our life insurance products offer persistency bonuses credited to the contract holder's balance after the policy has been outstanding for a specified period of time.  These enhanced rates and persistency bonuses are considered sales inducements in accordance with GAAP.  Such amounts are deferred and amortized in the same manner as deferred acquisition costs.  Sales inducements deferred totaled $10.7 million and $8.2 million during the six months ended June 30, 2022 and 2021, respectively.  Amounts amortized totaled $13.8 million and $7.1 million during the six months ended June 30, 2022 and 2021, respectively.  The unamortized balance of deferred sales inducements was $58.1 million and $61.2 million at June 30, 2022 and December 31, 2021, respectively.

RECENTLY ISSUED ACCOUNTING STANDARDS

Pending Accounting Standards

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

We have selected the modified retrospective transition method, except for market risk benefits where we are required to use the full retrospective approach.

We have made progress in determining certain accounting decisions related to the standard including, but not limited to, preliminary conclusions related to: (i) the method to determine discount rates; (ii) a process to group policies into cohorts for the measurement of future policy benefits; (iii) a process to develop experience studies at a cohort level to substantiate mortality, morbidity, terminations and other actuarial assumptions; and (iv) a method to estimate the fair value of certain annuity product features which guarantee a defined stream of income to the policyholder for life (which is considered a market risk benefit).

With respect to the method to determine interest rates, we have made preliminary conclusions, but we continue to refine our methodology. The process involves the determination of discount rate curves for discounting cash flows to calculate the liability for future policy benefits at a cohort level. Each discount rate curve is developed to reflect the duration characteristics
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Notes to Consolidated Financial Statements
(unaudited)
___________________

of the underlying insurance liabilities using discount rates comparable to upper-medium grade (low credit risk) fixed income yields. Discount rates will be updated quarterly.

Our long duration insurance contracts will be grouped into annual calendar-year cohorts primarily based on the contractual issue date, marketing distribution channel, legal entity and product type. Single premium contracts will be grouped into separate cohorts from other traditional products. Riders will generally be combined with the base policy. Insurance contracts which were issued prior to September 10, 2003 (the effective date of the bankruptcy reorganization of Conseco, Inc. (our Predecessor)) will be grouped by marketing distribution channel, legal entity and product type in a single issue year cohort.

Using the cash flow assumptions underlying our insurance contracts, we have completed preliminary testing of the potential loss recognition on the January 1, 2021 transition date (the "Transition Date"). Under the new guidance, this testing is performed at the Transition Date at a cohort level, rather than the current requirements to aggregate all vintages within a block.

Although we do not have variable annuity business with guaranteed features considered "market risk benefits," we do issue certain fixed index annuities with lifetime income riders. These riders are currently accounted for using traditional insurance accounting, but must be carried at fair value under the new standard. We have made preliminary determinations of the Transition Date impact of this change.

We continue to evaluate the impact of adoption and expect that the adoption will have a significant impact on our financial position, results of operations, and disclosures. We anticipate that the requirement to update assumptions for the liability for future policy benefits will have a significant impact on our results of operations, systems, processes and controls and that the requirement to update discount rates will have a significant impact on shareholders’ equity.

Based upon the modified retrospective transition method, we currently estimate that the new discount rate impact from adoption on the Transition Date is likely to result in a decrease to the accumulated other comprehensive income (loss) balance in the range of approximately $1,800 million to $2,200 million, resulting in a balance approximating zero at the Transition Date. This is primarily due to updating the liability for future policy benefits discount rate assumptions from the rates locked in for reserves held as of the Transition Date to rates determined by reference to the Transition Date market level yields for upper-medium-grade (low credit risk) fixed income instruments as of December 31, 2020.
In addition, we currently estimate that the Transition Date impact on retained earnings will be a decrease in the range of approximately $100 million to $200 million primarily due to certain "cohorts" of older long-term care policies having negative margins. The overall margin on our long-term care block continues to be positive. In addition, our estimate of the Transition Date impact on retained earnings includes the impact of carrying the lifetime income riders on certain fixed index annuities at fair value. The estimated impact on retained earnings is based on numerous assumptions and preliminary methodologies including: (i) our methodology of defining cohorts; (ii) the assumptions used to estimate the market value of features which guarantee a defined stream of income to the policyholder for life; and (iii) numerous assumptions regarding future policy benefits.

We are testing our reporting and disclosure capabilities under the new guidance for post-Transition Date accounting periods. We are also enhancing certain modeling, data management, experience study and analytical capabilities and increasing the automation of key reporting and analytical processes. As part of our implementation plan, we are putting in place internal controls related to the new processes and will continue to refine and develop these internal controls until the formal implementation of the new standard in the first quarter of 2023.

LITIGATION AND OTHER LEGAL PROCEEDINGS

Legal Proceedings

The Company and its subsidiaries are involved in various legal actions in the normal course of business, in which claims for compensatory and punitive damages are asserted, some for substantial amounts.  We recognize an estimated loss from these loss contingencies when we believe it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Some of the pending matters have been filed as purported class actions and some actions have been filed in certain jurisdictions that permit punitive damage awards that are disproportionate to the actual damages incurred.  The amounts sought in certain of these actions are often large or indeterminate and the ultimate outcome of certain actions is difficult to predict.  In
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Notes to Consolidated Financial Statements
(unaudited)
___________________

the event of an adverse outcome in one or more of these matters, there is a possibility that the ultimate liability may be in excess of the liabilities we have established and could have a material adverse effect on our business, financial condition, results of operations and cash flows.  In addition, the resolution of pending or future litigation may involve modifications to the terms of outstanding insurance policies or could impact the timing and amount of rate increases, which could adversely affect the future profitability of the related insurance policies.  Based upon information presently available, and in light of legal, factual and other defenses available to the Company and its subsidiaries, the Company does not believe that it is probable that the ultimate liability from either pending or threatened legal actions, after consideration of existing loss provisions, will have a material adverse effect on the Company's consolidated financial condition, operating results or cash flows. However, given the inherent difficulty in predicting the outcome of legal proceedings, there exists the possibility that such legal actions could have a material adverse effect on the Company's consolidated financial condition, operating results or cash flows.

In addition to the inherent difficulty of predicting litigation outcomes, particularly those that will be decided by a jury, some matters purport to seek substantial or an unspecified amount of damages for unsubstantiated conduct spanning several years based on complex legal theories and damages models. The alleged damages typically are indeterminate or not factually supported in the complaint, and, in any event, the Company's experience indicates that monetary demands for damages often bear little relation to the ultimate loss. In some cases, plaintiffs are seeking to certify classes in the litigation and class certification either has been denied or is pending and we have filed oppositions to class certification or sought to decertify a prior class certification. In addition, for many of these cases: (i) there is uncertainty as to the outcome of pending appeals or motions; (ii) there are significant factual issues to be resolved; and/or (iii) there are novel legal issues presented. Accordingly, the Company cannot reasonably estimate the possible loss or range of loss in excess of amounts accrued, if any, or predict the timing of the eventual resolution of these matters.  The Company reviews these matters on an ongoing basis.  When assessing reasonably possible and probable outcomes, the Company bases its assessment on the expected ultimate outcome following all appeals.

On April 9, 2019, Bankers Conseco Life Insurance Company ("BCLIC") and Washington National commenced an action entitled Bankers Conseco Life Insurance Company and Washington National Insurance Company v. Wilmington Trust, National Association, in the Supreme Court of the State of New York, County of New York, Commercial Division (the "Wilmington Action").  BCLIC and Washington National seek an unspecified amount of damages, costs, attorney's fees, and other relief as the court deems appropriate. In the Wilmington Action, BCLIC and Washington National assert claims against Wilmington Trust, National Association ("Wilmington") for breaching its express contractual obligations under four trust agreements pursuant to which Wilmington was the trustee in regard to trust assets ceded as part of reinsurance agreements with Beechwood Re Ltd. ("BRe"), as well as for breaching its fiduciary duties to BCLIC and Washington National. The Court granted Wilmington's motion to dismiss this litigation. BCLIC and Washington National appealed the Court's decision. On April 20, 2021, the New York Appellate Division of the Supreme Court, First Judicial Department unanimously reversed the trial court and reinstated breach of contract and breach of fiduciary duty claims against Wilmington. The Wilmington Action is currently pending in the Supreme Court of the State of New York, County of New York, Commercial Division.

On June 7, 2019, the Joint Official Liquidators of Platinum Partners Value Arbitrage Fund L.P. (in Official Liquidation) and Principal Growth Strategies, LLC, commenced suit against, among others, CNO Financial Group, Inc., BCLIC, Washington National and 40|86 Advisors, Inc. (collectively, the "CNO Parties") in Delaware Chancery Court.  Plaintiffs seek an unspecified amount of damages, costs, attorney's fees, and other relief as the court deems appropriate.  Plaintiffs allege that the CNO Parties were unjustly enriched when they terminated BCLIC and Washington National's reinsurance agreements with BRe and recaptured assets from reinsurance trusts, in particular, Agera securities.  Plaintiffs contend that the Agera securities were fraudulently transferred to the reinsurance trusts by other Platinum-related entities and they are seeking to claw back those Agera securities, or the value of those assets, from the CNO Parties.  The CNO Parties are vigorously contesting the plaintiff's claims. The CNO Parties had removed the case to the United States District Court for the District of Delaware but on April 6, 2020, the District Court granted the plaintiff's motion to remand the case back to the Delaware Chancery Court. Plaintiffs have filed an Amended Complaint and the CNO Parties have moved to dismiss the Amended Complaint. The Delaware Chancery Court denied the CNO Parties’ motions to dismiss the Amended Complaint on the basis of forum non conveniens, but granted the CNO Parties’ motion to stay the case pending the conclusion of a related matter. After the stay is lifted, the court will address the CNO Parties’ and other defendants’ motions to dismiss the Amended Complaint on numerous other grounds.

On June 28, 2019, BCLIC and Washington National commenced an action entitled Bankers Conseco Life Insurance Company and Washington National Insurance Company v. KPMG LLP, in the Supreme Court of the State of New York, County of New York, Commercial Division (the "KPMG Action").  BCLIC and Washington National seek an unspecified
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Notes to Consolidated Financial Statements
(unaudited)
___________________

amount of damages, costs, attorney's fees, and other relief as the court deems appropriate. In the KPMG Action, BCLIC and Washington National assert claims against KPMG LLP ("KPMG") for aiding and abetting fraud, constructive fraud and negligent misrepresentation arising from KPMG's alleged role in the Platinum Partners' scheme to defraud BCLIC and Washington National into reinsuring its long-term care business with BRe. The Court granted KPMG’s motion to dismiss this litigation. BCLIC and Washington National appealed the Court's decision. On December 1, 2020, the New York Appellate Division of the Supreme Court, First Judicial Department unanimously reversed the trial court and reinstated the aiding and abetting claim against KPMG. The KPMG Action is currently pending in the Supreme Court of the State of New York, County of New York, Commercial Division.

On October 5, 2012, plaintiffs William Jeffrey Burnett and Joe H. Camp commenced an action entitled Burnett v. Conseco Life Ins. Co. against, among others, CNO Financial Group, Inc. and CNO Services, LLC (collectively, the "CNO Entities") in the United States District Court for the Central District of California on behalf of a putative class of former interest-sensitive whole life insurance policyholders who surrendered their policies or let them lapse. Plaintiffs' First Amended Complaint alleges that the CNO Entities are liable under an alter ego theory for Conseco Life Insurance Company's purported breach of the Optional Premium Payment Provision of plaintiffs' insurance policies. In January 2018, the case was transferred to the Southern District of Indiana. On August 17, 2020, the Court denied the CNO Entities' motions to dismiss. On January 13, 2021, the Court granted final approval of a class action settlement between plaintiffs and co-defendant Conseco Life Insurance Company (n/k/a Wilco Life Insurance Company). The case remains pending against the CNO Entities. On March 25, 2022, the Court certified a Rule 23(b)(3) class of under 2,000 policyholders who invoked the policy's Optional Premium Payment prior to October 2008 and who surrendered between October 7, 2008 and September 1, 2011. The Court's certification order acknowledged the existence of individualized issues of causation and damages, which the court stated could be addressed in individualized proceedings following a class trial on the alter ego allegations and the meaning of the subject insurance policy language. The CNO Entities continue to vigorously defend the case.

Regulatory Examinations and Fines

Insurance companies face significant risks related to regulatory investigations and actions.  Regulatory investigations generally result from matters related to sales or underwriting practices, payment of contingent or other sales commissions, claim payments and procedures, product design, product disclosure, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, charging excessive or impermissible fees on products, procedures related to canceling policies, changing the way cost of insurance charges are calculated for certain life insurance products or recommending unsuitable products to customers.  We are, in the ordinary course of our business, subject to various examinations, inquiries and information requests from state, federal and other authorities.  The ultimate outcome of these regulatory actions (including the costs of complying with information requests and policy reviews) cannot be predicted with certainty.  In the event of an unfavorable outcome in one or more of these matters, the ultimate liability may be in excess of liabilities we have established and we could suffer significant reputational harm as a result of these matters, which could also have a material adverse effect on our business, financial condition, results of operations or cash flows.

In August 2011, we were notified of an examination to be done on behalf of a number of states for the purpose of determining compliance with unclaimed property laws by the Company and its subsidiaries.  Such examination included inquiries related to the use of data available on the U.S. Social Security Administration's Death Master File ("SSADMF") to identify instances where benefits under life insurance policies, annuities and retained asset accounts are payable. We provided information to the examiners in response to their requests. A total of 42 states and the District of Columbia participated in this examination. In November 2018, we entered into an agreement for compliance with laws and regulations concerning the identification, reporting and escheatment of unclaimed contract benefits or abandoned funds (the "Global Resolution Agreement"). Under the terms of the Global Resolution Agreement, a third-party auditor acting on behalf of the signatory jurisdictions compared expanded matching criteria to the SSADMF to identify deceased insureds and contract holders where a valid claim has not been made. In May 2022, we received written notification that the exam is closed.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________


CONSOLIDATED STATEMENT OF CASH FLOWS

The following reconciles net income to net cash from operating activities (dollars in millions):
Six months ended
June 30,
 20222021
Cash flows from operating activities:  
Net income$248.4 $225.4 
Adjustments to reconcile net income to net cash from operating activities: 
Amortization and depreciation209.5 160.2 
Income taxes58.3 32.5 
Insurance liabilities(244.1)190.9 
Accrual, amortization and fair value changes included in investment income115.4 (193.6)
Deferral of policy acquisition costs(165.5)(142.8)
Net investment (gains) losses81.5 (28.5)
Other (a)(136.5)(5.8)
Net cash from operating activities$167.0 $238.3 

_____________
(a)    Primarily relates to: (i) changes in other assets and liabilities related to the timing of payments and receipts; and (ii) the change in fair value of the deferred compensation plan liability.

Other non-cash items not reflected in the investing and financing activities sections of the consolidated statement of cash flows (dollars in millions):
Six months ended
June 30,
 20222021
Amounts related to employee benefit plans$13.8 $13.6 

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Notes to Consolidated Financial Statements
(unaudited)
___________________


INVESTMENTS IN VARIABLE INTEREST ENTITIES

We have concluded that we are the primary beneficiary with respect to certain VIEs, which are consolidated in our financial statements.  In consolidating the VIEs, we consistently use the financial information most recently distributed to investors in the VIE.

All of the VIEs are collateralized loan trusts that were established to issue securities to finance the purchase of corporate loans and other permitted investments.  The assets held by the trusts are legally isolated and not available to the Company.  The liabilities of the VIEs are expected to be satisfied from the cash flows generated by the underlying loans held by the trusts, not from the assets of the Company.  The Company has no financial obligation to the VIEs beyond its investment in each VIE.

Certain of our subsidiaries are noteholders of the VIEs.  Another subsidiary of the Company is the investment manager for the VIEs.  As such, it has the power to direct the most significant activities of the VIEs which materially impacts the economic performance of the VIEs.

The following tables provide supplemental information about the assets and liabilities of the VIEs which have been consolidated in accordance with authoritative guidance (dollars in millions):
 June 30, 2022
VIEsEliminationsNet effect on
consolidated
balance sheet
Assets:   
Investments held by variable interest entities$1,107.7 $— $1,107.7 
Notes receivable of VIEs held by subsidiaries— (113.8)(113.8)
Cash and cash equivalents held by variable interest entities52.2 — 52.2 
Accrued investment income3.1 — 3.1 
Income tax assets, net22.4 — 22.4 
Other assets4.3 (.8)3.5 
Total assets$1,189.7 $(114.6)$1,075.1 
Liabilities:   
Other liabilities$33.5 $— $33.5 
Borrowings related to variable interest entities1,125.9 — 1,125.9 
Notes payable of VIEs held by subsidiaries126.1 (126.1)— 
Total liabilities$1,285.5 $(126.1)$1,159.4 
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Notes to Consolidated Financial Statements
(unaudited)
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 December 31, 2021
VIEsEliminationsNet effect on
consolidated
balance sheet
Assets:   
Investments held by variable interest entities$1,199.6 $— $1,199.6 
Notes receivable of VIEs held by subsidiaries— (113.8)(113.8)
Cash and cash equivalents held by variable interest entities99.6 — 99.6 
Accrued investment income1.6 — 1.6 
Income tax assets, net8.4 — 8.4 
Other assets7.1 (.9)6.2 
Total assets$1,316.3 $(114.7)$1,201.6 
Liabilities:   
Other liabilities$89.5 $(4.3)$85.2 
Borrowings related to variable interest entities1,147.9 — 1,147.9 
Notes payable of VIEs held by subsidiaries126.1 (126.1)— 
Total liabilities$1,363.5 $(130.4)$1,233.1 

The investment portfolios held by the VIEs are primarily comprised of commercial bank loans to corporate obligors which are almost entirely rated below-investment grade.  At June 30, 2022, such loans had an amortized cost of $1,180.2 million; gross unrealized gains of $0.2 million; gross unrealized losses of $60.5 million; allowance for credit losses of $12.2 million; and an estimated fair value of $1,107.7 million.

The following table summarizes changes in the allowance for credit losses related to corporate securities held by VIEs for the three months ended June 30, 2022 and 2021 (dollars in millions):
Three months ended
June 30,
20222021
Allowance at the beginning of the period$5.9 $5.4 
Additions for securities for which credit losses were not previously recorded4.8 .1 
Additions for purchased securities with deteriorated credit— — 
Additions (reductions) for securities where an allowance was previously recorded1.9 (1.0)
Reduction for securities sold during the period(.4)(1.3)
Reduction for securities for which the Company made the decision to sell where an allowance was previously recorded— — 
Write-offs— — 
Recoveries of previously written-off amount— — 
Allowance at the end of the period$12.2 $3.2 


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Notes to Consolidated Financial Statements
(unaudited)
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The following table summarizes changes in the allowance for credit losses related to corporate securities held by VIEs for the six months ended June 30, 2022 and 2021 (dollars in millions):

Six months ended
June 30,
20222021
Allowance at the beginning of the period$3.7 $15.1 
Additions for securities for which credit losses were not previously recorded6.3 .6 
Additions for purchased securities with deteriorated credit— — 
Additions (reductions) for securities where an allowance was previously recorded3.2 (3.5)
Reduction for securities sold during the period(1.0)(9.0)
Reduction for securities for which the Company made the decision to sell where an allowance was previously recorded— — 
Write-offs— — 
Recoveries of previously written-off amount— — 
Allowance at the end of the period$12.2 $3.2 

The following table sets forth the amortized cost and estimated fair value of the investments held by the VIEs at June 30, 2022, by contractual maturity.  Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
Amortized
cost		Estimated
fair
value
 (Dollars in millions)
Due after one year through five years$641.6 $603.8 
Due after five years through ten years538.6 503.9 
Total$1,180.2 $1,107.7 

During the first six months of 2022, the VIEs recognized investment losses of $10.2 million which were comprised of: (i) $1.4 million of net losses from the sales of fixed maturities; (ii) the change in market value of other investments of $(0.3) million; and (iii) an increase in the allowance for credit losses of $8.5 million. Such net realized losses included gross realized losses of $1.4 million from the sale of $21.2 million of investments. During the first six months of 2021, the VIEs recognized net investment gains of $5.1 million which were comprised of: (i) $6.8 million of net losses from the sales of fixed maturities; and (ii) a decrease in the allowance for credit losses of $11.9 million. Such net realized losses included gross realized losses of $7.0 million from the sale of $43.7 million of investments.

At June 30, 2022, there were no fixed maturity investments held by the VIEs in default.

At June 30, 2022, the VIEs held: (i) investments (for which an allowance for credit losses has not been recorded) with a fair value of $467.4 million and gross unrealized losses not deemed to have credit losses of $23.3 million that had been in an unrealized loss position for less than twelve months; and (ii) investments (for which an allowance for credit losses has not been recorded) with a fair value of $368.3 million and gross unrealized losses not deemed to have credit losses of $21.4 million that had been in an unrealized loss position for twelve months or greater.

At December 31, 2021, the VIEs held: (i) investments (for which an allowance for credit losses has not been recorded) with a fair value of $417.7 million and gross unrealized losses of $2.2 million that had been in an unrealized loss position for less than twelve months; and (ii) investments (for which an allowance for credit losses has not been recorded) with a fair value of $279.7 million and gross unrealized losses of $3.1 million that had been in an unrealized loss position for twelve months or greater.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The investments held by the VIEs are evaluated for impairment in a manner that is consistent with the Company's fixed maturities, available for sale.

In addition, the Company, in the normal course of business, makes passive investments in structured securities issued by VIEs for which the Company is not the investment manager.  These structured securities include asset-backed securities, collateralized loan obligations, commercial mortgage-backed securities, agency residential mortgage-backed securities and
non-agency residential mortgage-backed securities.  Our maximum exposure to loss on these securities is limited to our cost basis in the investment.  We have determined that we are not the primary beneficiary of these structured securities due to the relative size of our investment in comparison to the total principal amount of the individual structured securities and the level of credit subordination which reduces our obligation to absorb gains or losses.

At June 30, 2022, we held investments in various limited partnerships and hedge funds, in which we are not the primary beneficiary, totaling $691.3 million (classified as other invested assets).  At June 30, 2022, we had unfunded commitments to these partnerships totaling $305.0 million.  Our maximum exposure to loss on these investments is limited to the amount of our investment.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and, therefore, represents an exit price, not an entry price.  We carry certain assets and liabilities at fair value on a recurring basis, including fixed maturities, equity securities, trading securities, investments held by VIEs, derivatives, separate account assets and embedded derivatives.  We carry our COLI, which is invested in a series of mutual funds, at its cash surrender value which approximates fair value. In addition, we disclose fair value for certain financial instruments, including mortgage loans, policy loans, cash and cash equivalents, insurance liabilities for interest-sensitive products and funding agreements, investment borrowings, notes payable and borrowings related to VIEs.

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

Valuation Hierarchy

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

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

•Level 2 – includes assets and liabilities valued using inputs that are quoted prices for similar assets in an active market, quoted prices for identical or similar assets in a market that is not active, observable inputs, or observable inputs that can be corroborated by market data.  Level 2 assets and liabilities include those financial instruments that are valued by independent pricing services using models or other valuation methodologies.  These models consider various inputs such as credit rating, maturity, corporate credit spreads, reported trades and other inputs that are observable or derived from observable information in the marketplace or are supported by transactions executed in the marketplace. Financial assets in this category primarily include: certain publicly registered and privately placed corporate fixed maturity securities; certain government or agency securities; certain mortgage and asset-backed securities; certain equity securities; most investments held by our consolidated VIEs; and derivatives such as call options. Financial liabilities in this category include investment borrowings, notes payable and borrowings related to VIEs.

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

At each reporting date, we classify assets and liabilities into the three input levels based on the lowest level of input that is significant to the measurement of fair value for each asset and liability reported at fair value.  This classification is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and overall market conditions.  Our assessment
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

of the significance of a particular input to the fair value measurement and the ultimate classification of each asset and liability requires judgment and is subject to change from period to period based on the observability of the valuation inputs.

The vast majority of our assets carried at fair value use Level 2 inputs for the determination of fair value.  These fair values are obtained primarily from independent pricing services, which use Level 2 inputs for the determination of fair value.  Our Level 2 assets are valued as follows:

•Fixed maturities available for sale, equity securities and trading securities

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

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

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

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

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

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

•Investments held by VIEs

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

•Other invested assets - derivatives

The fair value measurements for derivative instruments, including embedded derivatives requiring bifurcation, are determined based on the consideration of several inputs including closing exchange or over-the-counter market price quotes, time value and volatility factors underlying options, market interest rates and non-performance risk.

Third-party pricing services normally derive security prices through recently reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information.  If there are no recently reported trades, the third-party pricing services may use matrix or model processes to develop a security price where future cash flow expectations are discounted at an estimated risk-adjusted market rate.  The number of prices obtained for a given security is dependent on the Company's analysis of such prices as further described below.

As the Company is responsible for the determination of fair value, we have control processes designed to ensure that the fair values received from third-party pricing sources are reasonable and the valuation techniques and assumptions used
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

appear reasonable and consistent with prevailing market conditions. Additionally, when inputs are provided by third-party pricing sources, we have controls in place to review those inputs for reasonableness. As part of these controls, we perform monthly quantitative and qualitative analysis on the prices received from third parties to determine whether the prices are reasonable estimates of fair value.  The Company's analysis includes: (i) a review of the methodology used by third-party pricing services; (ii) where available, a comparison of multiple pricing services' valuations for the same security; (iii) a review of month to month price fluctuations; (iv) a review to ensure valuations are not unreasonably dated; and (v) back testing to compare actual purchase and sale transactions with valuations received from third parties.  As a result of such procedures, the Company may conclude a particular price received from a third party is not reflective of current market conditions.  In those instances, we may request additional pricing quotes or apply internally developed valuations. However, the number of such instances is insignificant and the aggregate change in value of such investments is not materially different from the original prices received.

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

For securities that are not priced by pricing services and may not be reliably priced using pricing models, we obtain broker quotes.  These broker quotes are non-binding and represent an exit price, but assumptions used to establish the fair value may not be observable and therefore represent Level 3 inputs.  Approximately 91 percent of our Level 3 fixed maturity securities and trading securities were valued using unadjusted broker quotes or broker-provided valuation inputs.  The remaining Level 3 fixed maturity investments do not have readily determinable market prices and/or observable inputs.  For these securities, we use internally developed valuations.  Key assumptions used to determine fair value for these securities may include risk premiums, projected performance of underlying collateral and other factors involving significant assumptions which may not be reflective of an active market.  For certain investments, we use a matrix or model process to develop a security price where future cash flow expectations are discounted at an estimated market rate.  The pricing matrix incorporates term interest rates as well as a spread level based on the issuer's credit rating, other factors relating to the issuer, and the security's maturity.  In some instances issuer-specific spread adjustments, which can be positive or negative, are made based upon internal analysis of security specifics such as liquidity, deal size, and time to maturity.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at June 30, 2022 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$— $12,604.0 $124.0 $12,728.0 
United States Treasury securities and obligations of United States government corporations and agencies— 172.3 — 172.3 
States and political subdivisions— 2,484.8 — 2,484.8 
Foreign governments— 66.0 — 66.0 
Asset-backed securities— 1,146.9 29.7 1,176.6 
Agency residential mortgage-backed securities— 33.1 — 33.1 
Non-agency residential mortgage-backed securities— 1,721.9 40.5 1,762.4 
Collateralized loan obligations— 689.6 4.4 694.0 
Commercial mortgage-backed securities— 2,229.0 16.5 2,245.5 
Total fixed maturities, available for sale— 21,147.6 215.1 21,362.7 
Equity securities - corporate securities61.6 67.1 8.2 136.9 
Trading securities:    
Asset-backed securities— 3.9 — 3.9 
Agency residential mortgage-backed securities— .3 — .3 
Non-agency residential mortgage-backed securities— 64.4 3.4 67.8 
Commercial mortgage-backed securities— 120.9 6.0 126.9 
Total trading securities— 189.5 9.4 198.9 
Investments held by variable interest entities - corporate securities— 1,107.7 — 1,107.7 
Other invested assets:
Derivatives— 23.9 — 23.9 
Residual tranches— .3 2.6 2.9 
Total other invested assets— 24.2 2.6 26.8 
Assets held in separate accounts— 3.0 — 3.0 
Total assets carried at fair value by category$61.6 $22,539.1 $235.3 $22,836.0 
Liabilities:    
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)$— $— $1,371.0 $1,371.0 


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at December 31, 2021 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$— $15,361.1 $89.7 $15,450.8 
United States Treasury securities and obligations of United States government corporations and agencies— 219.6 — 219.6 
States and political subdivisions— 3,004.2 — 3,004.2 
Foreign governments— 98.5 — 98.5 
Asset-backed securities— 1,136.3 26.6 1,162.9 
Agency residential mortgage-backed securities— 40.4 — 40.4 
Non-agency residential mortgage-backed securities— 2,023.8 — 2,023.8 
Collateralized loan obligations— 583.3 5.0 588.3 
Commercial mortgage-backed securities— 2,197.9 19.0 2,216.9 
Total fixed maturities, available for sale— 24,665.1 140.3 24,805.4 
Equity securities - corporate securities100.8 18.8 11.5 131.1 
Trading securities:    
Asset-backed securities— 5.8 — 5.8 
Agency residential mortgage-backed securities— .4 — .4 
Non-agency residential mortgage-backed securities— 77.5 3.5 81.0 
Commercial mortgage-backed securities— 127.1 12.9 140.0 
Total trading securities— 210.8 16.4 227.2 
Investments held by variable interest entities - corporate securities— 1,197.4 2.2 1,199.6 
Other invested assets - derivatives— 227.5 — 227.5 
Assets held in separate accounts— 3.9 — 3.9 
Total assets carried at fair value by category$100.8 $26,323.5 $170.4 $26,594.7 
Liabilities:    
Embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities)$— $— $1,724.1 $1,724.1 






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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The fair value of our financial instruments disclosed at fair value on a recurring basis are as follows (dollars in millions):
June 30, 2022
 Quoted prices in active markets for identical assets or liabilities
(Level 1)		Significant other observable inputs
 (Level 2)		Significant unobservable inputs 
(Level 3)		Total estimated fair valueTotal carrying amount
Assets:    
Mortgage loans$— $— $1,147.2 $1,147.2 $1,215.3 
Policy loans— — 119.5 119.5 119.5 
Other invested assets:
Company-owned life insurance— 197.8 — 197.8 197.8 
Cash and cash equivalents:
Unrestricted567.2 — — 567.2 567.2 
Held by variable interest entities52.2 — — 52.2 52.2 
Liabilities: 
Policyholder account liabilities— — 14,608.8 14,608.8 14,608.8 
Investment borrowings— 1,642.1 — 1,642.1 1,640.2 
Borrowings related to variable interest entities— 1,082.8 — 1,082.8 1,125.9 
Notes payable – direct corporate obligations— 1,112.1 — 1,112.1 1,138.0 


December 31, 2021
 Quoted prices in active markets for identical assets or liabilities
(Level 1)		Significant other observable inputs
 (Level 2)		Significant unobservable inputs 
(Level 3)		Total estimated fair valueTotal carrying amount
Assets:    
Mortgage loans$— $— $1,297.5 $1,297.5 $1,218.6 
Policy loans— — 120.2 120.2 120.2 
Other invested assets:
Company-owned life insurance— 207.0 — 207.0 207.0 
Cash and cash equivalents:
Unrestricted632.1 — — 632.1 632.1 
Held by variable interest entities99.6 — — 99.6 99.6 
Liabilities:
Policyholder account liabilities— — 13,689.7 13,689.7 13,689.7 
Investment borrowings— 1,719.6 — 1,719.6 1,715.8 
Borrowings related to variable interest entities— 1,144.8 — 1,144.8 1,147.9 
Notes payable – direct corporate obligations— 1,283.4 — 1,283.4 1,137.3 







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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 three months ended June 30, 2022 (dollars in millions):
 June 30, 2022 
 Beginning balance as of March 31, 2022Purchases, sales, issuances and settlements, net (b)Total realized and unrealized gains (losses) included in net incomeTotal realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)Transfers into Level 3 (a)Transfers out of
Level 3 (a)		Ending balance as of June 30, 2022Amount of total gains (losses) for the three months ended June 30, 2022 included in our net income relating to assets still held as of the reporting dateAmount of total gains (losses) for the three months ended June 30, 2022 included in accumulated other comprehensive income (loss) relating to assets still held as of the reporting date
Assets:        
Fixed maturities, available for sale:        
Corporate securities$118.0 $(6.9)$(5.0)$(12.3)$37.1 $(6.9)$124.0 $(3.5)$(13.0)
Asset-backed securities41.2 (.2)— (1.5)— (9.8)29.7 — (1.6)
Non-agency residential mortgage-backed securities4.4 (.2)— (4.9)45.6 (4.4)40.5 — (4.9)
Collateralized loan obligations9.8 — — (.6)5.0 (9.8)4.4 — (.6)
Commercial mortgage-backed securities17.5 — — (1.0)— — 16.5 — (1.0)
Total fixed maturities, available for sale190.9 (7.3)(5.0)(20.3)87.7 (30.9)215.1 (3.5)(21.1)
Equity securities - corporate securities8.4 — — — — (.2)8.2 — — 
Trading securities:        
Non-agency residential mortgage-backed securities— (.5)(.2).1 4.0 — 3.4 (.2)— 
Commercial mortgage-backed securities12.7 (7.2).4 .1 — — 6.0 .4 — 
Total trading securities12.7 (7.7).2 .2 4.0 — 9.4 .2 — 
Other invested assets - residual tranches2.1 .3 .2 — — — 2.6 .2 — 
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

_________
(a)Transfers into Level 3 are the result of unobservable inputs utilized within valuation methodologies for assets that were previously valued using observable inputs. Transfers out of Level 3 are due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company is able to validate.
(b)Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset but does not represent changes in fair value for the instruments held at the beginning of the period.  Such activity primarily consists of purchases and sales of fixed maturity and equity securities.  The following summarizes such activity for the three months ended June 30, 2022 (dollars in millions):
 PurchasesSalesIssuancesSettlementsPurchases, sales, issuances and settlements, net
Assets:     
Fixed maturities, available for sale:     
Corporate securities$1.2 $(8.1)$— $— $(6.9)
Asset-backed securities— (.2)— — (.2)
Non-agency residential mortgage-backed securities— (.2)— — (.2)
Total fixed maturities, available for sale1.2 (8.5)— — (7.3)
Trading securities:
Non-agency residential mortgage-backed securities— (.5)— — (.5)
Commercial mortgage-backed securities— (7.2)— — (7.2)
Total trading securities— (7.7)— — (7.7)
Other invested assets - residual tranches.3 — — — .3 


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________


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 six months ended June 30, 2022 (dollars in millions):
 June 30, 2022 
 Beginning balance as of December 31, 2021Purchases, sales, issuances and settlements, net (b)Total realized and unrealized gains (losses) included in net incomeTotal realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)Transfers into Level 3 (a)Transfers out of
Level 3 (a)		Ending balance as of June 30, 2022Amount of total gains (losses) for the six months ended June 30, 2022 included in our net income relating to assets still held as of the reporting dateAmount of total gains (losses) for the six months ended June 30, 2022 included in accumulated other comprehensive income (loss) relating to assets still held as of the reporting date
Assets:        
Fixed maturities, available for sale:        
Corporate securities$89.7 $(4.6)$(2.8)$(24.6)$73.7 $(7.4)$124.0 $(2.1)$(26.1)
Asset-backed securities26.6 5.8 — (2.7)— — 29.7 — (2.8)
Non-agency residential mortgage-backed securities— (2.3)(.2)(9.1)52.1 — 40.5 — (9.1)
Collateralized loan obligations5.0 5.0 — (.6)— (5.0)4.4 — (.6)
Commercial mortgage-backed securities19.0 — — (2.5)— — 16.5 — (2.5)
Total fixed maturities, available for sale140.3 3.9 (3.0)(39.5)125.8 (12.4)215.1 (2.1)(41.1)
Equity securities - corporate securities11.5 (3.2)(.1)— — — 8.2 — — 
Trading securities:        
Non-agency residential mortgage-backed securities3.5 (.8)(.3).2 .8 — 3.4 (.3)— 
Commercial mortgage-backed securities12.9 (7.2)— .3 — — 6.0 — — 
Total trading securities16.4 (8.0)(.3).5 .8 — 9.4 (.3)— 
Investments held by variable interest entities - corporate securities2.2 (2.1)(.1)— — — — — — 
Other invested assets - residual tranches— .9 (.1)— 1.8 — 2.6 (.1)— 
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

_________
(a)Transfers into Level 3 are the result of unobservable inputs utilized within valuation methodologies for assets that were previously valued using observable inputs. Transfers out of Level 3 are due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company is able to validate.
(b)Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset but does not represent changes in fair value for the instruments held at the beginning of the period.  Such activity primarily consists of purchases and sales of fixed maturity and equity securities.  The following summarizes such activity for the six months ended June 30, 2022 (dollars in millions):

 PurchasesSalesIssuancesSettlementsPurchases, sales, issuances and settlements, net
Assets:     
Fixed maturities, available for sale:     
Corporate securities$9.2 $(13.8)$— $— $(4.6)
Asset-backed securities6.1 (.3)— — 5.8 
Non-agency residential mortgage-backed securities— (2.3)— — (2.3)
Collateralized loan obligations5.0 — — — 5.0 
Total fixed maturities, available for sale20.3 (16.4)— — 3.9 
Equity securities - corporate securities— (3.2)— — (3.2)
Trading securities:
Non-agency residential mortgage-backed securities— (.8)— — (.8)
Commercial mortgage-backed securities— (7.2)— — (7.2)
Total trading securities— (8.0)— — (8.0)
Investments held by variable interest entities - corporate securities— (2.1)— — (2.1)
Other invested assets - residual tranches.9 — — — .9 
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 three months ended June 30, 2021 (dollars in millions):

 June 30, 2021
 Beginning balance as of March 31, 2021Purchases, sales, issuances and settlements, net (b)Total realized and unrealized gains (losses) included in net incomeTotal realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)Transfers into Level 3 (a)Transfers out of Level 3 (a)Ending balance as of June 30, 2021Amount of total gains (losses) for the three months ended June 30, 2021 included in our net income relating to assets still held as of the reporting dateAmount of total gains (losses) for the three months ended June 30, 2021 included in accumulated other comprehensive income (loss) relating to assets still held as of the reporting date
Assets:        
Fixed maturities, available for sale:        
Corporate securities$133.5 $— $(1.1)$3.4 $— $(53.3)$82.5 $(1.1)$2.9 
Asset-backed securities11.8 (.1)— .3 — — 12.0 — .3 
Total fixed maturities, available for sale145.3 (.1)(1.1)3.7 — (53.3)94.5 (1.1)3.2 
Equity securities - corporate securities26.8 .2 — — — — 27.0 — — 
Trading securities:        
Non-agency residential mortgage-backed securities5.6 (.8)— — — — 4.8 — (.2)
Commercial mortgage-backed securities12.4 — — .2 — — 12.6 — — 
Total trading securities18.0 (.8)— .2 — — 17.4 — (.2)
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

____________
(a)Transfers into Level 3 are the result of unobservable inputs utilized within valuation methodologies for assets that were previously valued using observable inputs. Transfers out of Level 3 are due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company is able to validate.
(b)Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset but does not represent changes in fair value for the instruments held at the beginning of the period.  Such activity primarily consists of purchases and sales of fixed maturity and equity securities.  The following summarizes such activity for the three months ended June 30, 2021 (dollars in millions):

 PurchasesSalesIssuancesSettlementsPurchases, sales, issuances and settlements, net
Assets:     
Fixed maturities, available for sale - asset-backed securities— (.1)— — (.1)
Equity securities - corporate securities.2 — — — .2 
Trading securities - non-agency residential mortgage-backed securities— (.8)— — (.8)


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________


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 six months ended June 30, 2021 (dollars in millions):

 June 30, 2021
 Beginning balance as of December 31, 2020Purchases, sales, issuances and settlements, net (b)Total realized and unrealized gains (losses) included in net incomeTotal realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)Transfers into Level 3 (a)Transfers out of Level 3 (a)Ending balance as of June 30, 2021Amount of total gains (losses) for the six months ended June 30, 2021 included in our net income relating to assets still held as of the reporting dateAmount of total gains (losses) for the six months ended June 30, 2021 included in accumulated other comprehensive income (loss) relating to assets still held as of the reporting date
Assets:        
Fixed maturities, available for sale:        
Corporate securities$146.9 $(.1)$(.2)$1.2 $6.1 $(71.4)$82.5 $(.2)$.2 
Asset-backed securities14.3 (.3)— — — (2.0)12.0 — — 
Non-agency residential mortgage-backed securities1.6 — — — — (1.6)— — — 
Total fixed maturities, available for sale162.8 (.4)(.2)1.2 6.1 (75.0)94.5 (.2).2 
Equity securities - corporate securities26.8 .2 — — — — 27.0 — — 
Trading securities:        
Non-agency residential mortgage-backed securities5.9 (1.1)(.2).2 — — 4.8 (.2)— 
Commercial mortgage-backed securities17.0 — (.1).4 — (4.7)12.6 (.1)— 
Total trading securities22.9 (1.1)(.3).6 — (4.7)17.4 (.3)— 
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

____________
(a)Transfers into Level 3 are the result of unobservable inputs utilized within valuation methodologies for assets that were previously valued using observable inputs. Transfers out of Level 3 are due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company is able to validate.
(b)Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset but does not represent changes in fair value for the instruments held at the beginning of the period.  Such activity primarily consists of purchases and sales of fixed maturity and equity securities.  The following summarizes such activity for the six months ended June 30, 2021 (dollars in millions):

 PurchasesSalesIssuancesSettlementsPurchases, sales, issuances and settlements, net
Assets:     
Fixed maturities, available for sale:     
Corporate securities$— $(.1)$— $— $(.1)
Asset-backed securities— (.3)— — (.3)
Total fixed maturities, available for sale— (.4)— — (.4)
Equity securities - corporate securities.2 — — — .2 
Trading securities - non-agency residential mortgage-backed securities— (1.1)— — (1.1)

Realized and unrealized investment gains and losses presented in the preceding tables represent gains and losses during the time the applicable financial instruments were classified as Level 3. Realized and unrealized gains (losses) on Level 3 assets are primarily reported in either net investment income for policyholder and other special-purpose portfolios or investment gains (losses) within the consolidated statement of operations or accumulated other comprehensive income (loss) within shareholders' equity based on the appropriate accounting treatment for the instrument. The amount presented for gains (losses) included in our net income for assets still held as of the reporting date primarily represents change in allowance for credit losses for fixed maturities, available for sale, changes in fair value of equity securities and trading securities that exist as of the reporting date. The amount presented for gains (losses) included in accumulated other comprehensive income (loss) for assets still held as of the reporting date primarily represents changes in the fair value of fixed maturities, available for sale, that are held as of the reporting date.

At June 30, 2022, 89 percent of our Level 3 fixed maturities, available for sale, were investment grade and 58 percent of our Level 3 fixed maturities, available for sale, consisted of corporate securities.


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table summarizes changes in the value of our embedded derivatives associated with fixed index annuity products (classified as policyholder account liabilities) which are measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value (dollars in millions):

Three months endedSix months ended
June 30,June 30,
2022202120222021
Balance at beginning of the period$1,543.5 $1,549.3 $1,724.1 $1,644.5 
Premiums less benefits22.2 27.9 43.3 43.4 
Change in fair value, net(194.7)117.8 (396.4)7.1 
Balance at end of the period$1,371.0 $1,695.0 $1,371.0 $1,695.0 

The change in fair value, net for each period in our embedded derivatives is included in the consolidated statement of operations.


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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table provides additional information about the significant unobservable (Level 3) inputs developed internally by the Company to determine fair value for certain assets and liabilities carried at fair value at June 30, 2022 (dollars in millions):
Fair value at June 30, 2022Valuation techniquesUnobservable inputsRange (weighted average) (a)
Assets:
Corporate securities (b)$.1 Discounted cash flow analysisDiscount margins
 4.16%
Corporate securities (c)10.5 Unadjusted purchase priceNot applicableNot applicable
Asset-backed securities (d)9.7 Discounted cash flow analysisDiscount margins2.40%
Equity securities (e).1 Recovery methodPercent of recovery expected
0.00% - 100.00% (100.00%)
Equity securities (f)8.2 Unadjusted purchase priceNot applicableNot applicable
Other assets categorized as Level 3 (g)206.7 Unadjusted third-party price sourceNot applicableNot applicable
Total235.3 
Liabilities:
Embedded derivatives related to fixed index annuity products (classified as policyholder account liabilities) (h)1,371.0 Discounted projected embedded derivativesProjected portfolio yields
3.98% - 4.37% (3.99%)
Discount rates
2.79% - 5.07% (3.57%)
Surrender rates
1.50% - 26.40% (9.00%)
________________________________
(a)    The weighted average is based on the relative fair value of the related assets or liabilities.
(b)    Corporate securities - The significant unobservable input used in the fair value measurement of our corporate securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would have resulted in a significantly lower (higher) fair value measurement.
(c)    Corporate securities - For these assets, there were no adjustments to the purchase price.
(d)    Asset-backed securities - The significant unobservable input used in the fair value measurement of these asset-backed securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would have resulted in a significantly lower (higher) fair value measurement.
(e)    Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is percentage of recovery expected.  Significant increases (decreases) in percentage of recovery expected in isolation would have resulted in a significantly higher (lower) fair value measurement.
(f)    Equity securities - For these assets, there were no adjustments to the purchase price.
(g)    Other assets categorized as Level 3 - For these assets, there were no adjustments to non-binding quoted market prices obtained from third-party pricing sources.
(h)    Embedded derivatives related to fixed index annuity products (classified as policyholder account liabilities) - The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed index annuity products are projected portfolio yields, discount rates and surrender rates. Increases (decreases) in projected portfolio yields in isolation would have resulted in a higher (lower) fair value measurement. The discount rate is based on risk free rates (U.S. Treasury rates for similar durations) adjusted for our non-performance risk and risk margins for non-capital market inputs. Increases (decreases) in the discount rates would have resulted in a lower (higher) fair value measurement. Assumed surrender rates are used to project how long the contracts remain in force. Generally, the longer the contracts are assumed to be in force the higher the fair value of the embedded derivative.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table provides additional information about the significant unobservable (Level 3) inputs developed internally by the Company to determine fair value for certain assets and liabilities carried at fair value at December 31, 2021 (dollars in millions):
Fair value at December 31, 2021Valuation techniquesUnobservable inputsRange (weighted average) (a)
Assets:
Corporate securities (b)$.1 Discounted cash flow analysisDiscount margins4.49%
Corporate securities (c)2.3 Recovery methodPercent of recovery expected
0.00% - 100.00% (100.00%)
Corporate securities (d)12.5 Unadjusted purchase priceNot applicableNot applicable
Asset-backed securities (e)11.6 Discounted cash flow analysisDiscount margins1.50%
Equity securities (f)3.3 Recovery methodPercent of recovery expected
0.00% - 100.00% (100.00%)
Equity securities (g)8.2 Unadjusted purchase priceNot applicableNot applicable
Other assets categorized as Level 3 (h)132.4 Unadjusted third-party price sourceNot applicableNot applicable
Total170.4 
Liabilities:
Embedded derivatives related to fixed index annuity products (classified as policyholder account liabilities) (i)1,724.1 Discounted projected embedded derivativesProjected portfolio yields
3.98% - 4.37% (3.99%)
Discount rates
0.31% - 3.18% (1.89%)
Surrender rates
1.50% - 26.40% (9.00%)
________________________________
(a)    The weighted average is based on the relative fair value of the related assets or liabilities.
(b)    Corporate securities - The significant unobservable input used in the fair value measurement of our corporate securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would have resulted in a significantly lower (higher) fair value measurement.
(c)    Corporate securities - The significant unobservable input used in the fair value measurement of these corporate securities is percentage of recovery expected.  Significant increases (decreases) in percentage of recovery expected in isolation would have resulted in a significantly higher (lower) fair value measurement.
(d)    Corporate securities - For these assets, there were no adjustments to the purchase price.
(e)    Asset-backed securities - The significant unobservable input used in the fair value measurement of these asset-backed securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would have resulted in a significantly lower (higher) fair value measurement.
(f)    Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is percentage of recovery expected.  Significant increases (decreases) in percentage of recovery expected in isolation would have resulted in a significantly higher (lower) fair value measurement.
(g)    Equity securities - For these assets, there were no adjustments to the purchase price.
(h)    Other assets categorized as Level 3 - For these assets, there were no adjustments to non-binding quoted market prices obtained from third-party pricing sources.
(i)    Embedded derivatives related to fixed index annuity products (classified as policyholder account liabilities) - The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed index annuity products are projected portfolio yields, discount rates and surrender rates. Increases (decreases) in projected portfolio yields in isolation would have resulted in a higher (lower) fair value measurement. The discount rate is based on risk free rates (U.S. Treasury rates for similar durations) adjusted for our non-performance risk and risk margins for non-capital market inputs. Increases (decreases) in the discount rates would have resulted in a lower (higher) fair value measurement. Assumed surrender rates are used to project how long the contracts remain in force. Generally, the longer the contracts are assumed to be in force the higher the fair value of the embedded derivative.
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

In this section, we review the consolidated financial condition of CNO at June 30, 2022, and its consolidated results of operations for the six months ended June 30, 2022 and 2021, and, where appropriate, factors that may affect future financial performance. Please read this discussion in conjunction with the accompanying consolidated financial statements and notes. Results for interim periods are not necessarily indicative of the results that may be expected for a full year.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Our statements, trend analyses and other information contained in this report and elsewhere (such as in filings by CNO with the SEC, press releases, presentations by CNO or its management or oral statements) relative to markets for CNO's products and trends in CNO's operations or financial results, as well as other statements, contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995.  Forward-looking statements typically are identified by the use of terms such as "anticipate," "believe," "plan," "estimate," "expect," "project," "intend," "may," "will," "would," "contemplate," "possible," "attempt," "seek," "should," "could," "goal," "target," "on track," "comfortable with," "optimistic," "guidance," "outlook" and similar words, although some forward-looking statements are expressed differently.  You should consider statements that contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business conditions, our results of operations, financial position, and our business outlook or they state other "forward-looking" information based on currently available information.  The "Risk Factors" section of our 2021 Annual Report on Form 10-K provides examples of risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements.  Assumptions and other important factors that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, among other things:

•the ongoing COVID-19 pandemic and the resulting financial market, economic and other impacts, including the deferral of healthcare by policyholders and the potential for future resulting increased claim costs, could adversely affect our business, results of operations, financial condition and liquidity;

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

•exposure to interest rate risk, including volatility to interest rates, may negatively impact our results of operations, financial position or cash flow;

•changes to future investment earnings, including the impact of realized losses (including other-than-temporary impairment charges) may diminish the value of our invested assets and negatively impact our profitability, our financial condition and our liquidity;

•the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are subject;

•our ability to make anticipated changes to certain non-guaranteed elements of our life insurance products;

•our ability to obtain adequate and timely rate increases on our health products, including our long-term care business;

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

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

•changes in our assumptions related to deferred acquisition costs or the present value of future profits;

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________
•the recoverability of our deferred tax assets and the effect of potential ownership changes and tax rate changes on their value;

•our assumption that the positions we take on our tax return filings will not be successfully challenged by the Internal Revenue Service;

•changes in accounting principles and the interpretation thereof;

•our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debt agreements;

•performance and valuation of our investments;

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

•our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs;

•changes in capital deployment opportunities;

•our ability to maintain effective controls over financial reporting and modeling;

•our ability to continue to recruit and retain productive agents and distribution partners;

•customer response to new products, distribution channels and marketing initiatives;

•inflation may impact the sales and persistency of insurance products, a portion of our insurance policy benefits affected by increased medical coverage costs and various operating expenses including payroll;

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

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

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

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

•the performance of third party service providers and potential difficulties arising from outsourcing arrangements;

•the growth rate of sales, collected premiums, annuity deposits and assets;

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

•events of terrorism, cyber-attacks, natural disasters or other catastrophic events, including losses from a disease pandemic or potential adverse impacts from climate change;

•ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; and

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___________________
•the risk factors or uncertainties listed from time to time in our filings with the SEC.

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

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

The reporting of risk-based capital ("RBC") measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities.

OVERVIEW

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

We view our operations as three insurance product lines (annuity, health and life) and the investment and fee income segments. Our segments are aligned based on their common characteristics, comparability of profit margins and the way management makes operating decisions and assesses the performance of the business.

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

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

We market our insurance products through the Consumer and Worksite Divisions that reflect the customers served by the Company.

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

The Worksite Division focuses on worksite and group sales for businesses, associations, and other membership groups, interacting with customers at their place of employment and virtually. With a separate Worksite Division, we are bringing a sharper focus to this high-growth business while further capitalizing on the strength of our acquisitions of WBD and Optavise. Sales in the Worksite Division have been particularly adversely impacted by the COVID-19 pandemic given the challenges of interacting with customers at their place of employment. The Worksite Division is increasing its recruiting efforts to rebuild its agent force which was adversely impacted by the COVID-19 pandemic.

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

We have also centralized certain functional areas previously housed in the three business segments, including marketing, business unit finance and sales training and support, among others. All policy, contract, and certificate terms, conditions, and benefits remain unchanged.

The investment segment involves the management of our capital resources, including investments and the management of corporate debt and liquidity. Our measure of profitability of this segment is the total net investment income not allocated to the insurance products. Investment income not allocated to product lines represents net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable and investment borrowings; (iv) expenses related to the FABN program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income. Investment income not allocated to product lines includes investment income on investments in excess of average insurance liabilities, investments held by our holding companies, the spread we earn from our FHLB investment borrowing and FABN programs and variable components of investment income (including call and prepayment income, adjustments to returns on structured securities due to cash flow changes, income (loss) from COLI and alternative investment income not allocated to product lines), net of interest expense on corporate debt.

Our fee income segment includes the earnings generated from sales of third-party insurance products, services provided by WBD (our on-line benefit administration firm), Optavise (a national provider of year-round technology-driven employee benefits management services) and the operations of our broker dealer and registered investment advisor.

Expenses not allocated to product lines include the expenses of our corporate operations, excluding interest expense on debt.
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________
The following summarizes our earnings for the three and six months ending June 30, 2022 and 2021 (dollars in millions, except per share data):
Three months endedSix months ended
June 30,June 30,
2022202120222021
Insurance product margin
Annuity margin$37.1 $66.0 $81.7 $123.9 
Health margin113.4 120.9 238.2 245.6 
Life margin56.8 39.7 76.6 66.8 
Total insurance product margin207.3 226.6 396.5 436.3 
Allocated expenses(152.2)(141.6)(297.0)(282.7)
Income from insurance products55.1 85.0 99.5 153.6 
Fee income3.2 6.6 13.1 13.9 
Investment income not allocated to product lines68.5 47.8 97.0 90.8 
Expenses not allocated to product lines2.9 (23.8)(11.9)(45.8)
Operating earnings before taxes129.7 115.6 197.7 212.5 
Income tax expense on operating income(29.6)(26.5)(46.5)(48.2)
Net operating income (a)100.1 89.1 151.2 164.3 
Net realized investment gains (losses) from sales and change in allowance for credit losses (net of related amortization)(26.1)24.3 (33.2)27.9 
Net change in market value of investments recognized in earnings(21.7)5.7 (47.2)(.7)
Fair value changes related to agent deferred compensation plan14.0 — 36.7 13.2 
Fair value changes in embedded derivative liabilities (net of related amortization)79.7 (44.9)170.5 37.2 
Other(.2).9 .2 1.5 
Net non-operating income (loss) before taxes45.7 (14.0)127.0 79.1 
Income tax (expense) benefit on non-operating income (loss)(9.7)2.9 (29.8)(18.0)
Net non-operating income (loss)36.0 (11.1)97.2 61.1 
Net income$136.1 $78.0 $248.4 $225.4 
Per diluted share
Net operating income$.85 $.66 $1.27 $1.22 
Net non-operating income (loss).31 (.08).81 .45 
Net income$1.16 $.58 $2.08 $1.67 
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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____________
(a)Management believes that an analysis of net income applicable to common stock before: (i) net realized investment gains (losses) from sales, impairments and change in allowance for credit losses, net of related amortization and taxes; (ii) net change in market value of investments recognized in earnings, net of taxes; (iii) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and taxes; (iv) fair value changes related to the agent deferred compensation plan, net of taxes; (v) changes in the valuation allowance for deferred tax assets and other tax items; and (vi) other non-operating items consisting primarily of earnings attributable to VIEs (“net operating income,” a non-GAAP financial measure) is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry. Management uses this measure to evaluate performance because the items excluded from net operating income can be affected by events that are unrelated to the Company's underlying fundamentals. The table above reconciles the non-GAAP measure to the corresponding GAAP measure.

In addition, management uses these non-GAAP financial measures in its budgeting process, financial analysis of segment performance and in assessing the allocation of resources. We believe these non-GAAP financial measures enhance an investor’s understanding of our financial performance and allows them to make more informed judgments about the Company as a whole. These measures also highlight operating trends that might not otherwise be apparent. However, net operating income is not a measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities, as measures of liquidity, or as an alternative to net income as measures of our operating performance or any other measures of performance derived in accordance with GAAP. In addition, net operating income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Net operating income has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under GAAP. Our definition and calculation of net operating income are not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation.

CRITICAL ACCOUNTING POLICIES

Refer to "Critical Accounting Policies" in our 2021 Annual Report on Form 10-K for information on our other accounting policies that we consider critical in preparing our consolidated financial statements.

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RESULTS OF OPERATIONS

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

Three months endedSix months ended
June 30,June 30,
 2022202120222021
Insurance product margin
Annuity:
Insurance policy income$5.8 $4.3 $10.8 $9.7 
Net investment income114.8 114.9 229.9 230.6 
Insurance policy benefits(27.6)(1.3)(45.4)(7.5)
Interest credited(42.3)(36.9)(83.6)(75.6)
Amortization and non-deferred commissions(13.6)(15.0)(30.0)(33.3)
Annuity margin37.1 66.0 81.7 123.9 
Health:
Insurance policy income403.5 415.4 810.2 831.9 
Net investment income71.6 71.6 143.4 143.1 
Insurance policy benefits(315.7)(323.3)(617.0)(629.9)
Amortization and non-deferred commissions(46.0)(42.8)(98.4)(99.5)
Health margin113.4 120.9 238.2 245.6 
Life:
Insurance policy income216.3 210.8 429.6 421.3 
Net investment income36.2 36.1 72.5 71.9 
Insurance policy benefits(138.4)(149.5)(302.0)(313.1)
Interest credited(11.3)(11.0)(22.9)(21.6)
Amortization and non-deferred commissions(23.4)(21.8)(48.7)(43.5)
Advertising expense(22.6)(24.9)(51.9)(48.2)
Life margin56.8 39.7 76.6 66.8 
Total insurance product margin207.3 226.6 396.5 436.3 
Allocated expenses:
Branch office expenses(15.4)(16.2)(33.5)(34.7)
Other allocated expenses(136.8)(125.4)(263.5)(248.0)
Income from insurance products55.1 85.0 99.5 153.6 
Fee income3.2 6.6 13.1 13.9 
Investment income not allocated to product lines68.5 47.8 97.0 90.8 
Expenses not allocated to product lines2.9 (23.8)(11.9)(45.8)
Operating earnings before taxes129.7 115.6 197.7 212.5 
Income tax expense on operating income(29.6)(26.5)(46.5)(48.2)
Net operating income$100.1 $89.1 $151.2 $164.3 

CNO is the top tier holding company for a group of insurance companies operating throughout the United States that develop, market and administer health insurance, annuity, individual life insurance and other insurance products. We view our operations by segments, which consist of insurance product lines. These products are distributed by our two divisions. The Consumer Division serves individual consumers, engaging with them on the phone, virtually, online, face-to-face with agents, or through a combination of sales channels. The Worksite Division focuses on worksite and group sales for businesses, associations, and other membership groups, interacting with customers at their place of employment and virtually.

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Insurance product margin is management’s measure of the profitability of its annuity, health and life product lines’ performance and consists of insurance policy income plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs. Income from insurance products is the sum of the insurance margins of the annuity, health and life product lines, less expenses allocated to the insurance lines. It excludes the income from our fee income business, investment income not allocated to product lines, net expenses not allocated to product lines (primarily holding company expenses) and income taxes. Management believes insurance product margin and income from insurance products help provide a better understanding of the business and a more meaningful analysis of the results of our insurance product lines.

Investment income is allocated to the product lines using the book yield of investments backing the block of business, which is applied to the average insurance liabilities, net of insurance intangibles, for the block in each period. Investment income not allocated to product lines represents net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable and investment borrowings; (iv) expenses related to the FABN program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income. Investment income not allocated to product lines includes investment income on investments in excess of average insurance liabilities, investments held by our holding companies, the spread we earn from our FHLB investment borrowing and FABN programs and variable components of investment income (including call and prepayment income, adjustments to returns on structured securities due to cash flow changes, income (loss) from COLI and alternative investment income not allocated to product lines), net of interest expense on corporate debt.

Summary of Operating Results: Net operating income was $100.1 million in the second quarter of 2022, up from $89.1 million in the second quarter of 2021, and was $151.2 million in the first six months of 2022, down from $164.3 million in the first six months of 2021.

Insurance product margin was $207.3 million in the second quarter of 2022 compared to $226.6 million in the second quarter of 2021, and was $396.5 million in the first six months of 2022 compared to $436.3 million in the first six months of 2021. Insurance product margin has been significantly impacted by the COVID-19 pandemic. Our life margin reflected adverse mortality as a result of increased deaths related to COVID-19 of approximately nil and $11 million in the second quarters of 2022 and 2021, respectively, and $16 million and $30 million in the first six months of 2022 and 2021, respectively. Our health margin continues to compare favorably to the margins experienced prior to the COVID-19 pandemic. We estimate the favorable impacts on our health margin due to COVID-19 to be approximately $21 million and $30 million in the second quarters of 2022 and 2021, respectively, and $53 million and $70 million in the first six months of 2022 and 2021, respectively. In addition, the margin from fixed index annuities in the three and six months ended June 30, 2022 decreased by $26 million and $36 million, respectively, due to recent market volatility, as compared to the same periods in 2021.

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

Three months endedSix months ended
June 30,June 30,
2022202120222021
Fee revenue$31.1 $31.1 $71.4 $63.4 
Operating costs and expenses(27.9)(24.5)(58.3)(49.5)
Net fee income$3.2 $6.6 $13.1 $13.9 

Operating costs and expenses in the fee income segment in the 2022 periods primarily reflect higher expenses related to our businesses that provide benefits administration and employee benefits management services. Such expenses in the first six months of 2022 are partially offset by the growth related to the sales of third party products in recent periods and changes to our assumptions reflecting favorable policy persistency.

Investment income not allocated to product lines generally fluctuates from period to period based on the level of prepayment income (including call premiums) and trading account income; the performance of our alternative investments (which are typically reported a quarter in arrears); the earnings related to the investments underlying our COLI; and the spread we earn from our FHLB investment borrowing and FABN programs.

Expenses not allocated to product lines includes certain significant items listed in the table below. Expenses not allocated to product lines as adjusted for such significant items is summarized below (dollars in millions):
Three months endedSix months ended
June 30,June 30,
2022202120222021
Expenses not allocated to product lines$(2.9)$23.8 $11.9 $45.8 
Experience refund related to a reinsurance agreement (a)
22.5 — 22.5 — 
Net expenses related to significant legal and regulatory matters— (4.5)— (9.8)
Transaction expenses related to acquisition of Optavise— — — (2.5)
Adjusted total$19.6 $19.3 $34.4 $33.5 

_______________
(a)    Under the terms of the reinsurance agreement to cede a substantial portion of our legacy long-term care block, we are entitled to receive an experience refund of up to $22.5 million if certain rate increases are approved and implemented. As of June 30, 2022, all requirements to earn the maximum experience refund have been met and the refund has been recognized. Pursuant to the terms of the agreement, the refund is payable in the second half of 2023.
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Margin from Annuity Products (dollars in millions):

Three months endedSix months ended
June 30,June 30,
 2022202120222021
Annuity margin:
Fixed index annuities
Insurance policy income$3.7 $3.3 $6.7 $6.3 
Net investment income88.4 84.9 176.1 169.8 
Insurance policy benefits(24.0)3.8 (37.7)5.4 
Interest credited(30.4)(23.4)(59.7)(48.3)
Amortization and non-deferred commissions(11.9)(13.3)(26.4)(29.6)
Margin from fixed index annuities$25.8 $55.3 $59.0 $103.6 
Average net insurance liabilities$8,420.5 $7,643.4 $8,344.4 $7,554.1 
Margin/average net insurance liabilities1.23 %2.89 %1.41 %2.74 %
Fixed interest annuities
Insurance policy income$.3 $.1 $.4 $.3 
Net investment income20.6 23.7 42.1 48.1 
Insurance policy benefits(.6).2 (.9)(.5)
Interest credited(11.3)(12.8)(22.7)(26.0)
Amortization and non-deferred commissions(1.6)(1.7)(3.4)(3.6)
Margin from fixed interest annuities$7.4 $9.5 $15.5 $18.3 
Average net insurance liabilities$1,713.6 $1,899.5 $1,737.8 $1,925.5 
Margin/average net insurance liabilities1.73 %2.00 %1.78 %1.90 %
Other annuities
Insurance policy income$1.8 $.9 3.7 $3.1 
Net investment income5.8 6.3 11.7 12.7 
Insurance policy benefits(3.0)(5.3)(6.8)(12.4)
Interest credited(.6)(.7)(1.2)(1.3)
Amortization and non-deferred commissions(.1)— (.2)(.1)
Margin from other annuities$3.9 $1.2 $7.2 $2.0 
Average net insurance liabilities$481.6 $506.8 $484.8 $509.5 
Margin/average net insurance liabilities3.24 %.95 %2.97 %.79 %
Total annuity margin$37.1 $66.0 $81.7 $123.9 
Average net insurance liabilities$10,615.7 $10,049.7 $10,567.0 $9,989.1 
Margin/average net insurance liabilities1.40 %2.63 %1.55 %2.48 %

Margin from fixed index annuities was $25.8 million in the second quarter of 2022 compared to $55.3 million in the second quarter of 2021, and was $59.0 million in the first six months of 2022 compared to $103.6 million in the first six months of 2021. The decrease in margin in the 2022 periods is primarily driven by unfavorable impacts resulting from market conditions (primarily higher interest rates and lower equity markets) in 2022 as compared to the 2021 periods. Accordingly, the margin from fixed index annuities decreased $26 million in the second quarter of 2022 and $36 million in the first six months of 2022, as compared to the same periods in 2021. Average net insurance liabilities (total insurance liabilities less: (i) amounts related to reinsured business; (ii) deferred acquisition costs; (iii) present value of future profits; and (iv) the value of unexpired options credited to insurance liabilities) were $8,420.5 million and $7,643.4 million in the second quarters of 2022 and 2021, respectively, and were $8,344.4 million and $7,554.1 million in the first six months of 2022 and 2021, respectively, driven by deposits and reinvested returns in excess of withdrawals. The increase in net insurance liabilities results in higher net investment income allocated, however, the earned yield was 4.20 percent in the second quarter of 2022, down from 4.44 percent
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in the second quarter of 2021, and was 4.22 percent in the first six months of 2022 down from 4.50 percent in the first six months of 2021, reflecting lower market yields. We believe the margin on fixed index annuities was favorably impacted by approximately $3 million and $6 million in the three and six months ended June 30, 2021, respectively, primarily due to persistency impacts indirectly related to the pandemic. There were no material COVID-19 impacts in the 2022 periods.

Net investment income and interest credited exclude the change in market values of the underlying options supporting the fixed index annuity products and corresponding offsetting amount credited to policyholder account balances. Such amounts were $(80.1) million and $68.3 million in the second quarters of 2022 and 2021, respectively, and were $(144.4) million and $106.0 million in the first six months of 2022 and 2021, respectively.

Margin from fixed interest annuities was $7.4 million in the second quarter of 2022 compared to $9.5 million in the second quarter of 2021, and was $15.5 million in the first six months of 2022 compared to $18.3 million in the first six months of 2021, driven primarily by a reduction in the size of the block and lower investment yields. Average net insurance liabilities were $1,713.6 million in the second quarter of 2022 compared to $1,899.5 million in the second quarter of 2021, and were $1,737.8 million in the first six months of 2022 compared to $1,925.5 million in the first six months of 2021, driven by withdrawals in excess of deposits and reinvested returns. The decrease in net insurance liabilities results in lower net investment income allocated. The earned yield decreased to 4.81 percent in the second quarter of 2022 from 4.99 percent in the second quarter of 2021, and to 4.85 percent in the first six months of 2022 from 5.00 percent in the first six months of 2021, reflecting lower market yields.

Margin from other annuities was $3.9 million in the second quarter of 2022 compared to $1.2 million in the second quarter of 2021, and was $7.2 million in the first six months of 2022 compared to $2.0 million in the first six months of 2021. The margin on this relatively small block of business is sensitive to annuitant mortality related to contracts with life contingencies. An increase in mortality in this block will result in a decrease in insurance liabilities and insurance policy benefits. Such mortality was higher in the 2022 periods compared to the same periods in 2021. We believe the margin from other annuities reflected favorable (unfavorable) COVID-19 impacts of approximately $1 million in both the three and six months ended June 30, 2022, and approximately $(1) million and $(3) million in the three and six months ended June 30, 2021.


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Margin from Health Products (dollars in millions):
Three months endedSix months ended
June 30,June 30,
 2022202120222021
Health margin:
Supplemental health
Insurance policy income$172.0 $170.0 $345.5 $339.8 
Net investment income37.8 36.3 75.3 72.4 
Insurance policy benefits(128.5)(130.9)(252.9)(257.2)
Amortization and non-deferred commissions(29.0)(27.9)(58.4)(57.1)
Margin from supplemental health$52.3 $47.5 $109.5 $97.9 
Margin/insurance policy income30 %28 %32 %29 %
Medicare supplement
Insurance policy income$165.1 $179.7 $331.9 $360.7 
Net investment income1.4 1.3 2.7 2.6 
Insurance policy benefits(115.5)(123.0)(225.7)(243.0)
Amortization and non-deferred commissions(14.6)(12.3)(36.3)(36.4)
Margin from Medicare supplement$36.4 $45.7 $72.6 $83.9 
Margin/insurance policy income22 %25 %22 %23 %
Long-term care margin
Insurance policy income$66.4 $65.7 $132.8 $131.4 
Net investment income32.4 34.0 65.4 68.1 
Insurance policy benefits(71.7)(69.4)(138.4)(129.7)
Amortization and non-deferred commissions(2.4)(2.6)(3.7)(6.0)
Margin from long-term care$24.7 $27.7 $56.1 $63.8 
Margin/insurance policy income37 %42 %42 %49 %
Total health margin$113.4 $120.9 $238.2 $245.6 
Margin/insurance policy income28 %29 %29 %30 %

Margin from supplemental health business was $52.3 million in the second quarter of 2022, up 10 percent from the second quarter of 2021, and was $109.5 million in the first six months of 2022, up 12 percent from the first six months of 2021, reflecting growth in the block and favorable claim experience. The margin as a percentage of insurance policy income was 30 percent in the second quarter of 2022 compared to 28 percent in the prior year period, and was 32 percent in the first six months of 2022 compared to 29 percent in the first six months of 2021. The supplemental health margin continues to compare favorably to the margins experienced prior to the COVID-19 pandemic. We estimate the favorable impacts due to COVID-19 on the supplemental health margin in the three and six months ended June 30, 2022 were approximately $6 million and $15 million, respectively, and approximately $2 million and $8 million, respectively, in the three and six months ended June 30, 2021, respectively, relative to our expectations and previous experience prior to COVID-19. Claim experience will fluctuate from period to period and there is no assurance that such favorable impacts will continue.

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

Margin from Medicare supplement business was $36.4 million and $45.7 million in the second quarters of 2022 and 2021, respectively, and $72.6 million and $83.9 million in the first six months of 2022 and 2021, respectively. The margin on the Medicare supplement business in the 2022 and 2021 periods continued to compare favorably to the margins experienced prior to the COVID-19 pandemic. We estimate that the favorable impacts due to COVID-19 (based on actual claims incurred and persistency relative to our expectations and previous experience prior to COVID-19) on the Medicare supplement margin were approximately $4 million and $11 million in the three and six months ended June 30, 2022, respectively, and $11 million and $20 million in the three and six months ended June 30, 2021, respectively. Claim experience will fluctuate from period to period and there is no assurance that such favorable impacts will continue. Insurance policy income was $165.1 million in the second quarter of 2022, down 8.1 percent from the second quarter of 2021, and was $331.9 million in the first six months of 2022, down 8.0 percent from the first six months of 2021, reflecting lower sales in recent periods partially offset by premium rate increases. We have experienced a shift in the sale of Medicare supplement policies to the sale of Medicare Advantage policies. We receive fee income when Medicare Advantage policies of other providers are sold, which is recorded in our Fee income segment. We continue to invest in both our Medicare supplement products and Medicare Advantage distribution to meet our customers' needs and preferences. For example, we launched a new competitive Medicare supplement product in the second quarter of 2022.

Medicare supplement business consists of both individual and group policies. Government regulations generally require we attain and maintain a ratio of total benefits incurred to total premiums earned (excluding changes in policy benefits reserves which is a component of Insurance policy benefits) of not less than 65 percent on individual products and not less than 75 percent on group products. The ratio is determined after three years from the original issuance of the policy and over the lifetime of the policy and measured in accordance with statutory accounting principles. Since the insurance product liabilities we establish for Medicare supplement business are subject to significant estimates, the ultimate claim liability we incur for a particular period is likely to be different than our initial estimate. Changes to our estimates are reflected in insurance policy benefits in the period the change is determined.

Margin from Long-term care products was $24.7 million in the second quarter of 2022, down 11 percent from the second quarter of 2021, and was $56.1 million in the first six months of 2022, down 12 percent from the first six months of 2021. The margin as a percentage of insurance policy income was 37 percent in the second quarter of 2022 compared to 42 percent in the second quarter of 2021, and was 42 percent in the first six months of 2022 compared to 49 percent in the first six months of 2021. The margin in both the 2022 and 2021 periods continued to compare favorably to the margins experienced prior to the COVID-19 pandemic. In addition, an increase in policyholder deaths attributable to the pandemic resulted in higher than expected reserve releases in the first quarter of 2021. We estimate the favorable impacts due to COVID-19 (based on actual claims incurred and persistency relative to our expectations and previous experience prior to COVID-19) on the long-term care margin were approximately $11 million and $27 million in the three and six months ended June 30, 2022, respectively, and by approximately $17 million and $42 million in the three and six months ended June 30, 2021, respectively. Claim experience will fluctuate from period to period and there is no assurance that such favorable impacts will continue. In addition, the margin has been favorably impacted by the more profitable business currently being sold and the run-off of less profitable older long-term care business.
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Margin from Life Products (dollars in millions):
Three months endedSix months ended
June 30,June 30,
 2022202120222021
Life margin:
Interest-sensitive life
Insurance policy income$43.8 $41.4 $86.9 $82.2 
Net investment income12.9 12.4 25.9 24.8 
Insurance policy benefits(15.8)(20.0)(37.0)(42.7)
Interest credited(11.1)(10.8)(22.6)(21.3)
Amortization and non-deferred commissions(8.0)(6.2)(14.5)(12.0)
Margin from interest-sensitive life$21.8 $16.8 $38.7 $31.0 
Average net insurance liabilities$1,020.3 $970.0 $1,016.1 $962.4 
Interest margin$1.8 $1.6 $3.3 $3.5 
Interest margin/average net insurance liabilities.71 %.66 %.65 %.73 %
Underwriting margin$20.0 $15.2 $35.4 $27.5 
Underwriting margin/insurance policy income46 %37 %41 %33 %
Traditional life
Insurance policy income$172.5 $169.4 $342.7 $339.1 
Net investment income23.3 23.7 46.6 47.1 
Insurance policy benefits(122.6)(129.5)(265.0)(270.4)
Interest credited(.2)(.2)(.3)(.3)
Amortization and non-deferred commissions(15.4)(15.5)(34.2)(31.4)
Advertising expense(22.6)(25.0)(51.9)(48.3)
Margin from traditional life$35.0 $22.9 $37.9 $35.8 
Margin/insurance policy income20 %14 %11 %11 %
Margin excluding advertising expense/insurance policy income33 %28 %26 %25 %
Total life margin$56.8 $39.7 $76.6 $66.8 

Margin from interest-sensitive life business was $21.8 million in the second quarter of 2022, up 30 percent from the second quarter of 2021, and was $38.7 million in the first six months of 2022, up 25 percent from the first six months of 2021. The change in margin reflects less unfavorable mortality related to COVID-19 in the 2022 periods, compared to the 2021 periods and growth in the block due to sales in recent periods. We estimate that the unfavorable impact from death claims related to COVID-19 on the margin of this block of business was approximately nil and $3 million in the three and six months ended June 30, 2022, respectively, and approximately $4 million and $11 million in the three and six months ended June 30, 2021, respectively.

The interest margin was $1.8 million and $1.6 million in the second quarters of 2022 and 2021, respectively, and was $3.3 million and $3.5 million in the first six months of 2022 and 2021, respectively. Net investment income in the 2022 periods was slightly higher than the 2021 periods. The increase in average net insurance liabilities results in higher net investment income allocated, which is partially offset by lower earned yields. The earned yield was 5.06 percent and 5.11 percent in the second quarters of 2022 and 2021, respectively, and was 5.10 percent and 5.15 percent in the first six months of 2022 and 2021, respectively. Interest credited to policyholders may be changed annually but is subject to minimum guaranteed rates and, as a result, any reduction in our earned rate may not be fully reflected in the rate credited to policyholders.

Net investment income and interest credited exclude the change in market values of the underlying options supporting the fixed index life products and corresponding offsetting amount credited to policyholder account balances. Such amounts were $(12.3) million and $7.8 million in the second quarters of 2022 and 2021, respectively, and were $(19.9) million and $12.6 million in the first six months of 2022 and 2021, respectively.
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Margin from traditional life business was $35.0 million and $22.9 million in the second quarters of 2022 and 2021, respectively, and was $37.9 million and $35.8 million in the first six months of 2022 and 2021, respectively. Insurance policy benefits were $122.6 million in the second quarter of 2022, down 5.3 percent from the same period in 2021, and were $265.0 million in the first six months of 2022, down 2.0 percent from the same period in 2021. We estimate that the impact from death claims related to COVID-19 increased insurance policy benefits by approximately nil and $13 million in the three and six months ended June 30, 2022, respectively, and by approximately $7 million and $19 million in the three and six months ended June 30, 2021, respectively. In addition, amortization is higher in the first six months of 2022, as compared to the same period in 2021, primarily related to modestly lower persistency and higher deferred acquisition costs in recent periods due to strong sales, including sales of our direct-to-consumer products through third party distributors.
Allocated net investment income in the 2022 periods was comparable to the 2021 periods, as the growth in the block was offset by lower average investment yields.

Advertising expense was $22.6 million in the second quarter of 2022, down 9.6 percent from the comparable period in 2021, and was $51.9 million in the first six months of 2022, up 7.5 percent from the comparable period in 2021. The demand and cost of television advertising can fluctuate from period to period. We are disciplined with our marketing expenditures and will increase or decrease our marketing spend depending on prices or other factors.

Collected Premiums From Annuity and Interest-Sensitive Life Products (dollars in millions):
Three months endedSix months ended
June 30,June 30,
 2022202120222021
Collected premiums from annuity and interest-sensitive life products:
Annuities$435.0 $344.3 $803.6 $669.7 
Interest-sensitive life56.6 54.6 113.2 109.1 
Total collected premiums from annuity and interest-sensitive life products$491.6 $398.9 $916.8 $778.8 

Collected premiums from annuity and interest-sensitive products increased 23 percent in the second quarter of 2022 compared to the second quarter of 2021, and 18 percent in the first six months of 2022 compared to the first six months of 2021, primarily due to higher premium collections from fixed index annuity products.


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Investment Income Not Allocated to Product Lines (dollars in millions):
Three months endedSix months ended
June 30,June 30,
 2022202120222021
Net investment income$223.9 $379.2 $432.1 $717.4 
Allocated to product lines:
Annuity (114.8)(114.9)(229.9)(230.6)
Health(71.6)(71.6)(143.4)(143.1)
Life (36.2)(36.1)(72.5)(71.9)
Equity returns credited to policyholder account balances92.4 (76.1)164.3 (118.6)
Amounts allocated to product lines and credited to policyholder account balances(130.2)(298.7)(281.5)(564.2)
Amount related to variable interest entities and other non-operating items(9.1)(8.0)(16.3)(15.8)
Interest expense on debt(15.6)(15.6)(31.3)(31.1)
Interest expense on investment borrowings(4.7)(2.5)(7.1)(5.2)
Expenses related to FABN program(7.6)— (14.9)— 
Less amounts credited to deferred compensation plans (offsetting investment income)11.8 (6.6)16.0 (10.3)
Total adjustments(25.2)(32.7)(53.6)(62.4)
Investment income not allocated to product lines$68.5 $47.8 $97.0 $90.8 

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

Net Non-Operating Income (Loss):

The following summarizes our net non-operating income (loss) for the three and six months ending June 30, 2022 and 2021 (dollars in millions):
Three months endedSix months ended
June 30,June 30,
 2022202120222021
Net realized investment gains (losses) from sales and change in allowance for credit losses (net of related amortization)$(26.1)$24.3 $(33.2)$27.9 
Net change in market value of investments recognized in earnings(21.7)5.7 (47.2)(.7)
Fair value changes related to agent deferred compensation plan14.0 — 36.7 13.2 
Fair value changes in embedded derivative liabilities (net of related amortization)79.7 (44.9)170.5 37.2 
Other(.2).9 .2 1.5 
Net non-operating income (loss) before taxes$45.7 $(14.0)$127.0 $79.1 

Net realized investment losses, net of related amortization, in the three and six months ended June 30, 2022, were $26.1 million and $33.2 million, respectively, including the unfavorable change in the allowance for credit losses of $23.7 million and $54.4 million, respectively, which was recorded in earnings. Net realized investment gains, net of related amortization, in the three and six months ended June 30, 2021, were $24.3 million and $27.9 million, respectively, including the favorable change in the allowance for credit losses of $5.7 million and $15.3 million, respectively, which was recorded in earnings.
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The change in market value of investments recognized in earnings was an increase (decrease) of $(21.7) million and $5.7 million in the second quarters of 2022 and 2021, respectively, and $(47.2) million and $(0.7) million in the first six months of 2022 and 2021, respectively. The change in value will fluctuate from period to period based on market conditions.

During the first six months of 2022 and 2021, we recognized an increase in earnings of $36.7 million and $13.2 million, respectively, for the mark-to-market change in the agent deferred compensation plan liability which was impacted by changes in the underlying actuarial assumptions used to value the liability.  We recognize the mark-to-market change in the estimated value of this liability through earnings as assumptions change.

The fair value changes in embedded derivative liabilities related to our fixed index annuities (net of related amortization) increased earnings by $170.5 million and $37.2 million in the first six months of 2022 and 2021, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities related to our fixed index annuities, net of related amortization. Such amounts include the impacts of changes in market interest rates used to determine the derivative's estimated fair value. The discount rate is based on risk-free rates (U.S. Treasury rates for similar durations) adjusted for our non-performance risk and risk margins for non-capital market inputs. The increase in U.S. Treasury rates in 2022 was the primary factor in the change in estimated fair value of the embedded derivative liabilities.

Other non-operating items include earnings attributable to VIEs that we are required to consolidate, net of affiliated amounts. Such earnings are not indicative of, and are unrelated to, the Company's underlying fundamentals.



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LIQUIDITY AND CAPITAL RESOURCES

2022 Outlook

Market volatility adversely impacted our results in the first half of 2022 (specifically the decrease in equity markets, the higher equity market volatility and increase in interest rates), decreasing our fixed index annuity margin by approximately $36 million. If such market volatility persists in future periods, we expect it would have directionally similar adverse impacts on our results in those periods.

For the remainder of 2022, we expect:

•continued positive sales momentum with respect to new annualized premiums, collected premiums and fee revenue;
•continued net favorable COVID-19 impacts on insurance product margin, but tapering off over the course of the year;
•investment income allocated to product lines to be relatively flat to slightly up compared to 2021;
•net investment income not allocated to product lines to trend lower in 2022, as compared to the elevated levels in 2021, as the yield on alternative investments moderates;
•earnings from our fee income segment to be higher in 2022 compared to 2021;
•total expenses allocated and not allocated to product lines in 2022 to trend modestly higher than 2021 (excluding certain significant items related to legal and regulatory matters, an experience refund related to a reinsurance agreement, and transaction expenses related to the acquisition of Optavise) as we capture operating efficiencies, while also investing in growth; and
•effective tax rate in 2022 to be higher than 2021 primarily due to higher state income taxes.

In the aggregate, our consolidated RBC capital level and excess holding company liquidity are approximately $95 million below our target capital levels, but above our risk tolerance thresholds (see "—Liquidity for Insurance Operations" below).

We expect free cash flow to be less than the $380 million generated in 2021, reflecting moderating yield on alternative investments and tapering of net favorable COVID-19 impacts, capital strain from new business, and our decision in 2021 to reduce capital and excess holding company liquidity to target levels which contributed to higher levels of free cash flow in 2021.

Our expectations are based on our financial model, which reflects our best estimate assumptions of various key variables. Given the unprecedented nature of the COVID-19 pandemic and the current macro-economic and geopolitical environment, the assumptions used in our modeling are based on variables that are inherently unpredictable, are subject to change, and have been difficult to predict accurately in prior periods. There are many plausible assumptions which could result in materially different projected outcomes from those used in our modeling which could affect our business, results of operations, financial condition and liquidity. The outcome generated by the application of updated assumptions may be materially different from those described above.


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Our capital structure as of June 30, 2022 and December 31, 2021 was as follows (dollars in millions):
June 30,
2022		December 31, 2021
Total capital:  
Corporate notes payable$1,138.0 $1,137.3 
Shareholders’ equity: 
Common stock1.1 1.2 
Additional paid-in capital2,032.7 2,184.2 
Accumulated other comprehensive income (loss)(1,165.0)1,947.1 
Retained earnings1,343.2 1,127.2 
Total shareholders’ equity2,212.0 5,259.7 
Total capital$3,350.0 $6,397.0 

The following table summarizes certain financial ratios as of and for the six months ended June 30, 2022 and as of and for the year ended December 31, 2021:
June 30,
2022		December 31, 2021
Book value per common share$19.27 $43.69 
Book value per common share, excluding accumulated other comprehensive income (loss) (a)29.42 27.52 
Debt to total capital ratios:
Corporate debt to total capital34.0 %17.8 %
Corporate debt to total capital, excluding accumulated other comprehensive income (loss) (a)25.2 %25.6 %
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(a)This non-GAAP measure differs from the corresponding GAAP measure presented immediately above, because accumulated other comprehensive income (loss) has been excluded from the value of capital used to determine this measure.  Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in accumulated other comprehensive income (loss).  Such volatility is often caused by changes in the estimated fair value of our investment portfolio resulting from changes in general market interest rates rather than the business decisions made by management.  However, this measure does not replace the corresponding GAAP measure.

Liquidity for Insurance Operations

Our insurance companies generally receive adequate cash flows from premium collections and investment income to meet their obligations.  Life insurance, long-term care and supplemental health insurance and annuity liabilities are generally long-term in nature.  Life and annuity policyholders may, however, withdraw funds or surrender their policies, subject to any applicable penalty provisions; there are generally no withdrawal or surrender benefits for long-term care insurance.  We actively manage the relationship between the duration of our invested assets and the estimated duration of benefit payments arising from contract liabilities.

Three of the Company's insurance subsidiaries (Bankers Life, Washington National and Colonial Penn) are members of the FHLB.  As members of the FHLB, our insurance subsidiaries have the ability to borrow on a collateralized basis from the FHLB.  We are required to hold certain minimum amounts of FHLB common stock as a condition of membership in the FHLB, and additional amounts based on the amount of the borrowings.  At June 30, 2022, the carrying value of the FHLB common stock was $75.2 million.  As of June 30, 2022, collateralized borrowings from the FHLB totaled $1.6 billion and the proceeds were used to purchase fixed maturity securities.  The borrowings are classified as investment borrowings in the accompanying consolidated balance sheet.  The borrowings are collateralized by investments with an estimated fair value of $2.0 billion at June 30, 2022, which are maintained in custodial accounts for the benefit of the FHLB.  

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In the third quarter of 2021, Bankers Life established a FABN program pursuant to which Bankers Life may issue funding agreements to a Delaware statutory trust organized in series (the "Trust") to generate spread-based earnings. The maximum aggregate principal amount of funding agreements permitted to be outstanding at any one time under the FABN program is $3 billion. In October 2021, Bankers Life issued a funding agreement to a series of the Trust in an aggregate principal amount of $500 million. In January 2022, Bankers Life issued two additional funding agreements, each to a series of the Trust, totaling $900 million. Under current market conditions, we expect the FABN program to provide approximately 100 basis points of annualized pre-tax spread income on the notional amount of the funding agreements outstanding, net of the expense associated with the program. The activity related to the funding agreements is reported in investment income not allocated to product lines.

State laws generally give state insurance regulatory agencies broad authority to protect policyholders in their jurisdictions. Regulators have used this authority in the past to restrict the ability of our insurance subsidiaries to pay any dividends or other amounts without prior approval. We cannot be assured that the regulators will not seek to assert greater supervision and control over our insurance subsidiaries' businesses and financial affairs.

Our estimated consolidated statutory RBC ratio was 360 percent at June 30, 2022, compared to 386 percent at December 31, 2021. In the first six months of 2022, the RBC ratio reflected our estimated consolidated statutory operating earnings of $124 million and insurance company dividends (net of capital contributions) of $84.0 million that were paid to the holding company. Our RBC ratio at June 30, 2022, was 15 percentage points below our targeted statutory RBC ratio of 375 percent (which is equivalent to approximately $85 million of capital) but above the minimum 350 percent that is reflected in our risk appetite statement that we share and discuss with rating agencies and insurance regulators. Our targeted RBC ratio of 375 percent allows for a reduction in the ratio toward our minimum threshold of 350 percent in stressed market conditions such as we are experiencing this year. Our holding company liquidity at June 30, 2022, was $140.9 million which was below our minimum target level of $150 million (see "—Liquidity of the Holding Companies" below). In the aggregate, our RBC capital level and excess holding company liquidity were approximately $95 million below our target capital levels, but above our risk tolerance thresholds. We expect to manage back to $150 million of holding company liquidity and the 375 percent targeted consolidated statutory RBC ratio over time. We believe that the 375 percent RBC ratio target continues to adequately support our financial strength and credit ratings and is aligned with our risk appetite.

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

Financial Strength Ratings of our Insurance Subsidiaries

Financial strength ratings provided by AM Best Company ("AM Best"), Fitch Ratings ("Fitch"), Moody's Investor Services, Inc. ("Moody's") and S&P are the rating agency's opinions of the ability of our insurance subsidiaries to pay policyholder claims and obligations when due.

On January 26, 2022, AM Best upgraded the financial strength ratings of our primary insurance subsidiaries to "A" from "A-" and the outlook for these ratings is stable. The "A" rating is assigned to companies that have an excellent ability, in AM Best's opinion, to meet their ongoing obligations to policyholders.  AM Best ratings for the industry currently range from "A++ (Superior)" to "F (In Liquidation)" and some companies are not rated.  An "A++" rating indicates a superior ability to meet ongoing obligations to policyholders.  AM Best has sixteen possible ratings.  There are two ratings above the "A" rating of our primary insurance subsidiaries and thirteen ratings that are below that rating.

On December 2, 2021, Fitch affirmed its "A-" financial strength ratings of our primary insurance subsidiaries. The outlook for these ratings remain stable. An insurer rated "A", in Fitch's opinion, indicates a low expectation of ceased or interrupted payments and indicates strong capacity to meet policyholder and contract obligations. This capacity may, nonetheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. Fitch ratings for the industry range from "AAA Exceptionally Strong" to "C Distressed" and some companies are not rated. Pluses and minuses show the relative standing within a category. Fitch has nineteen possible ratings. There are six ratings above the "A-" rating of our primary insurance subsidiaries and twelve ratings that are below that rating.

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On September 28, 2021, Moody's affirmed its "A3" financial strength ratings of our primary insurance subsidiaries. The outlook for these ratings remains stable. Moody’s financial strength ratings range from "Aaa" to "C".  These ratings may be supplemented with numbers "1", "2", or "3" to show relative standing within a category.  In Moody's view, an insurer rated "A" offers good financial security, however, certain elements may be present which suggests a susceptibility to impairment sometime in the future. Moody's has twenty-one possible ratings.  There are six ratings above the "A3" rating of our primary insurance subsidiaries and fourteen ratings that are below that rating.

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

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

Liquidity of the Holding Companies

Availability and Sources and Uses of Holding Company Liquidity; Limitations on Ability of Insurance Subsidiaries to Make Dividend and Surplus Debenture Interest Payments to the Holding Companies; Limitations on Holding Company Activities

At June 30, 2022, CNO, CDOC, Inc. ("CDOC", our wholly owned subsidiary and the immediate parent of Washington National and Conseco Life Insurance Company of Texas ("CLTX")) and our other non-insurance subsidiaries held $140.9 million of cash and investments which was comprised of: (i) unrestricted cash and cash equivalents of $104.6 million; and (ii) exchange-traded funds that invest in fixed income securities of $36.3 million. Our holding company liquidity was approximately $10 million below our minimum target level, but above our risk tolerance thresholds. We expect to manage back to our minimum target level of $150 million over time. Refer to "—Liquidity for Insurance Operations" above regarding our aggregate capital levels relative to our consolidated statutory RBC ratio target and minimum holding company liquidity target.

CNO and CDOC are holding companies with no business operations of their own; they depend on their operating subsidiaries for cash to make principal and interest payments on debt, and to pay administrative expenses and income taxes.  CNO and CDOC receive cash from insurance subsidiaries, consisting of dividends and distributions, interest payments on surplus debentures and tax-sharing payments, as well as cash from non-insurance subsidiaries consisting of dividends, distributions, loans and advances.  The principal non-insurance subsidiaries that provide cash to CNO and CDOC are 40|86 Advisors, Inc., which receives fees from the insurance subsidiaries for investment services, and CNO Services, LLC which receives fees from the insurance subsidiaries for providing administrative services.  The agreements between our insurance subsidiaries and CNO Services, LLC and 40|86 Advisors, Inc., respectively, were previously approved by the domestic insurance regulator for each insurance company, and any payments thereunder do not require further regulatory approval.

The ability of our insurance subsidiaries to pay dividends is subject to state insurance department regulations and is based on the financial statements of our insurance subsidiaries prepared in accordance with statutory accounting practices prescribed or permitted by regulatory authorities, which differ from GAAP.  These regulations generally permit dividends to be paid from statutory earned surplus of the insurance company without regulatory approval for any 12-month period in amounts equal to the greater of (or in some states, the lesser of): (i) statutory net gain from operations or net income for the prior year; or (ii) 10 percent of statutory capital and surplus as of the end of the preceding year.  However, as each of the immediate insurance subsidiaries of CDOC has significant negative earned surplus, any dividend payments from the insurance subsidiaries require the prior approval of the director or commissioner of the applicable state insurance department.  In the first six months of 2022,
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our insurance subsidiaries paid dividends to CDOC totaling $98.6 million.  We expect to receive regulatory approval for future dividends from our subsidiaries, but there can be no assurance that such payments will be approved or that the financial condition of our insurance subsidiaries will not change, making future approvals less likely.

CDOC holds surplus debentures from CLTX with an aggregate principal amount of $749.6 million.  Interest payments on those surplus debentures do not require additional approval provided the RBC ratio of CLTX exceeds 100 percent (but do require prior written notice to the Texas state insurance department).  The estimated RBC ratio of CLTX was 312 percent at June 30, 2022.  CDOC also holds a surplus debenture from Colonial Penn with a principal balance of $160.0 million. Interest payments on that surplus debenture require prior approval by the Pennsylvania state insurance department. Dividends and other payments from our non-insurance subsidiaries, including 40|86 Advisors, Inc. and CNO Services, LLC, to CNO or CDOC do not require approval by any regulatory authority or other third party.  However, insurance regulators may prohibit payments by our insurance subsidiaries to parent companies if they determine that such payments could be adverse to our policyholders or contractholders.

The insurance subsidiaries of CDOC receive funds to pay dividends primarily from: (i) the earnings of their direct businesses; (ii) tax sharing payments received from subsidiaries (if applicable); and (iii) with respect to CLTX, dividends received from subsidiaries.  At June 30, 2022, the subsidiaries of CLTX had earned surplus (deficit) as summarized below (dollars in millions):
Subsidiaries of CLTXEarned surplus (deficit)Additional information
Bankers Life$297.8 (a)
Colonial Penn(442.4)(b)
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(a)Bankers Life paid dividends of $45.0 million to CLTX in the first six months of 2022. Bankers Life may pay dividends without regulatory approval or prior notice for any 12-month period if such dividends are less than the greater of: (i) statutory net income for the prior year; or (ii) 10 percent of statutory capital and surplus as of the end of the preceding year. Dividends in excess of these levels require 30 days prior notice.
(b)The deficit is primarily due to transactions which occurred several years ago, including a tax planning transaction and the fee paid to recapture a block of business previously ceded to an unaffiliated insurer.

A significant deterioration in the financial condition, earnings or cash flow of the material subsidiaries of CNO or CDOC for any reason could hinder such subsidiaries' ability to pay cash dividends or other disbursements to CNO and/or CDOC, which, in turn, could limit CNO's ability to meet debt service requirements and satisfy other financial obligations.  In addition, we may choose to retain capital in our insurance subsidiaries or to contribute additional capital to our insurance subsidiaries to maintain or strengthen their surplus or fund reinsurance transactions, and these decisions could limit the amount available at our top tier insurance subsidiaries to pay dividends to the holding companies. In the first six months of 2022, CDOC made a capital contribution of $14.6 million to CLTX.

At June 30, 2022, there are no amounts outstanding under our $250 million Revolving Credit Agreement and there are no scheduled repayments of our direct corporate obligations until May 2025.

Free cash flow is a measure of holding company liquidity and is calculated as: (i) dividends, management fees and surplus debenture interest payments received from our subsidiaries; plus (ii) earnings on corporate investments; less (iii) interest expense, corporate expenses and net tax payments. In the first six months of 2022, we generated $85 million of such free cash flow. The Company is committed to deploying 100 percent of its free cash flow into investments to accelerate profitable growth, common stock dividends and share repurchases. The amount and timing of future share repurchases (if any) will be based on business and market conditions and other factors including, but not limited to, available free cash flow, the current price of our common stock and investment opportunities. Free cash flow will be pressured in the near term as we manage back to our targeted capital levels for the RBC ratio and holding company liquidity. In the first six months of 2022, we repurchased 6.6 million shares of common stock for $160.0 million under our securities repurchase program. The Company had remaining repurchase authority of $206.9 million as of June 30, 2022.

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In the first six months of 2022, dividends declared on common stock totaled $32.4 million ($0.27 per common share). In May 2022, the Company increased its quarterly common stock dividend to $0.14 per share from $0.13 per share.

On January 26, 2022, AM Best upgraded our issuer credit and senior unsecured debt ratings to "bbb" from "bbb-" and the outlook for these ratings is stable. In AM Best's view, a company rated "bbb" has an adequate ability to meet the terms of its obligations; however, the issuer is more susceptible to changes in economic or other conditions. Pluses and minuses show the relative standing within a category. AM Best has a total of 22 possible ratings ranging from "aaa (Exceptional)" to "d (In default)". There are eight ratings above CNO's "bbb" rating and thirteen ratings that are below its rating.

On December 2, 2021, Fitch affirmed its "BBB-" rating on our senior unsecured debt. The outlook for these ratings remain stable. In Fitch's view, an obligation rated "BBB" indicates that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity. Pluses and minuses show the relative standing within a category. Fitch has a total of 21 possible ratings ranging from "AAA" to "D". There are nine ratings above CNO's "BBB-" rating and eleven ratings that are below its rating.

On September 28, 2021, Moody's affirmed its "Baa3" rating on our senior unsecured debt. The outlook for these ratings remains stable. In Moody's view, obligations rated "Baa" are subject to moderate credit risk and may possess certain speculative characteristics. A rating is supplemented with numerical modifiers "1", "2" or "3" to show the relative standing within a category. Moody's has a total of 21 possible ratings ranging from "Aaa" to "C". There are nine ratings above CNO's "Baa3" rating and eleven ratings that are below its rating.

On June 21, 2019, S&P upgraded our senior unsecured debt rating to "BBB-" from "BB+" and the outlook for these ratings is stable. In S&P's view, an obligation rated "BBB" exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Pluses and minuses show the relative standing within a category. S&P has a total of 22 possible ratings ranging from "AAA (Extremely Strong)" to "D (Payment Default)". There are nine ratings above CNO's "BBB-" rating and twelve ratings that are below its rating.

We believe that the existing cash available to the holding company, the cash flows to be generated from operations and other transactions will be sufficient to allow us to meet our debt service obligations, pay corporate expenses and satisfy other financial obligations.  However, our cash flow is affected by a variety of factors, many of which are outside of our control, including insurance regulatory issues, competition, financial markets and other general business conditions.  We cannot provide assurance that we will possess sufficient income and liquidity to meet all of our debt service requirements and other holding company obligations.

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INVESTMENTS

At June 30, 2022, the amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses and estimated fair value of fixed maturities, available for sale, were as follows (dollars in millions):
Amortized
cost		Gross
unrealized
gains		Gross
unrealized
losses		Allowance for credit lossesEstimated
fair
value
Investment grade (a):    
Corporate securities$13,126.5 $149.7 $(1,220.7)$(35.8)$12,019.7 
United States Treasury securities and obligations of United States government corporations and agencies168.8 6.7 (3.2)— 172.3 
States and political subdivisions2,687.4 63.6 (276.3)(.9)2,473.8 
Foreign governments74.6 .2 (8.1)(.7)66.0 
Asset-backed securities1,124.6 1.7 (72.0)(.2)1,054.1 
Agency residential mortgage-backed securities32.0 1.1 — — 33.1 
Non-agency residential mortgage-backed securities1,188.9 6.9 (109.6)— 1,086.2 
Collateralized loan obligations720.4 — (32.9)— 687.5 
Commercial mortgage-backed securities2,325.2 .9 (155.3)— 2,170.8 
Total investment grade fixed maturities, available for sale21,448.4 230.8 (1,878.1)(37.6)19,763.5 
Below-investment grade (a) (b):    
Corporate securities794.6 1.6 (71.5)(16.4)708.3 
States and political subdivisions11.6 — (.4)(.2)11.0 
Asset-backed securities134.5 — (12.0)— 122.5 
Non-agency residential mortgage-backed securities620.3 62.8 (6.9)— 676.2 
Collateralized loan obligations7.5 — (1.0)— 6.5 
Commercial mortgage-backed securities83.9 — (9.2)— 74.7 
Total below-investment grade fixed maturities, available for sale1,652.4 64.4 (101.0)(16.6)1,599.2 
Total fixed maturities, available for sale$23,100.8 $295.2 $(1,979.1)$(54.2)$21,362.7 
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(a)Investment ratings are assigned the second lowest rating by Nationally Recognized Statistical Rating Organizations ("NRSROs") (Moody's, S&P or Fitch), or if not rated by such firms, the rating assigned by the National Association of Insurance Commissioners (the "NAIC"). NAIC designations of "1" or "2" include fixed maturities generally rated investment grade (rated "Baa3" or higher by Moody's or rated "BBB-" or higher by S&P and Fitch).  NAIC designations of "3" through "6" are referred to as below-investment grade (which generally are rated "Ba1" or lower by Moody's or rated "BB+" or lower by S&P and Fitch).  References to investment grade or below-investment grade throughout our consolidated financial statements are determined as described above.
(b)    Certain structured securities rated below-investment grade by NRSROs may be assigned a NAIC 1 or NAIC 2 designation based on the cost basis of the security relative to estimated recoverable amounts as determined by the NAIC. Refer to the table below for a summary of our fixed maturity securities, available for sale, by NAIC designations.
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The NAIC evaluates the fixed maturity investments of insurers for regulatory and capital assessment purposes and assigns securities to one of six credit quality categories called NAIC designations, which are used by insurers when preparing their annual statements based on statutory accounting principles. The NAIC designations are generally similar to the credit quality designations of the NRSROs for marketable fixed maturity securities, except for certain structured securities. However, certain structured securities rated below investment grade by the NRSROs can be assigned NAIC 1 or NAIC 2 designations depending on the cost basis of the holding relative to estimated recoverable amounts as determined by the NAIC. The following summarizes the NAIC designations and NRSRO equivalent ratings:
NAIC DesignationNRSRO Equivalent Rating
1AAA/AA/A
2BBB
3BB
4B
5CCC and lower
6In or near default


A summary of our fixed maturity securities, available for sale, by NAIC designations (or for fixed maturity securities held by non-regulated entities, based on NRSRO ratings) as of June 30, 2022 is as follows (dollars in millions):
NAIC designationAmortized costEstimated fair valuePercentage of total estimated fair value
1$13,388.4 $12,460.1 58.3 %
28,665.9 7,969.8 37.3 
Total NAIC 1 and 2 (investment grade)22,054.3 20,429.9 95.6 
3707.0 632.2 3.0 
4302.5 265.8 1.2 
536.0 34.8 .2 
61.0 — — 
Total NAIC 3, 4, 5 and 6 (below-investment grade)1,046.5 932.8 4.4 
Total$23,100.8 $21,362.7 100.0 %

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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 June 30, 2022 (dollars in millions):
Carrying valuePercent of fixed maturitiesGross unrealized lossesPercent of gross unrealized losses
States and political subdivisions$2,484.8 11.6 %$276.7 14.0 %
Commercial mortgage-backed securities2,245.5 10.5 164.5 8.3 
Non-agency residential mortgage-backed securities1,762.4 8.3 116.5 5.9 
Banks1,718.8 8.0 180.0 9.1 
Insurance1,321.5 6.2 140.4 7.1 
Utilities1,277.2 6.0 120.7 6.1 
Healthcare/pharmaceuticals1,191.8 5.6 142.0 7.2 
Asset-backed securities1,176.6 5.5 84.0 4.2 
Brokerage968.7 4.5 105.4 5.3 
Technology836.4 3.9 117.9 6.0 
Food/beverage732.6 3.4 60.2 3.0 
Collateralized loan obligations694.0 3.2 33.9 1.7 
Energy563.1 2.6 37.7 1.9 
Cable/media488.3 2.3 65.1 3.3 
Transportation408.2 1.9 24.8 1.3 
Real estate/REITs398.8 1.9 30.6 1.5 
Telecom357.0 1.7 14.8 .8 
Capital goods336.6 1.6 23.8 1.2 
Chemicals301.2 1.4 26.1 1.3 
Consumer products206.6 1.0 30.0 1.5 
Other1,892.6 8.9 184.0 9.3 
Total fixed maturities, available for sale$21,362.7 100.0 %$1,979.1 100.0 %

Below-Investment Grade Securities

At June 30, 2022, the amortized cost of the Company's below-investment grade fixed maturity securities, available for sale, was $1,652.4 million, or 7.2 percent of the Company's fixed maturity portfolio (or $1,046.5 million, or 4.5 percent, of the Company's fixed maturity portfolio measured on credit quality ratings assigned by the NAIC). The estimated fair value of the below-investment grade portfolio was $1,599.2 million, or 97 percent of the amortized cost.

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

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Net Realized and Unrealized Investment Losses

During the first six months of 2022, we recognized $56.9 million of realized losses on sales of $1,106.0 million of fixed maturity securities, available for sale, including: (i) $37.6 million related to various corporate securities; (ii) $10.2 million related to non-agency residential mortgage-backed securities; (iii) $4.2 million related to states and political subdivisions; and (iv) $4.9 million related to various other investments. Securities are generally sold at a loss following unforeseen issuer-specific events or conditions or shifts in perceived relative values.  These reasons include but are not limited to: (i) changes in the investment environment; (ii) expectation that the market value could deteriorate; (iii) our desire to reduce our exposure to an asset class, an issuer or an industry; (iv) prospective or actual changes in credit quality; (v) better match certain characteristics of our investment portfolio with the corresponding characteristics of our insurance liabilities; or (vi) changes in expected portfolio cash flows.

During the first six months of 2021, we recognized $18.2 million of realized losses on sales of $310.7 million of fixed maturity securities, available for sale, primarily related to various corporate securities.

The following summarizes the investments sold at a loss during the first six months of 2022 which had been
continuously in an unrealized loss position exceeding 20 percent of the amortized cost basis prior to the sale for the period
indicated (dollars in millions):
At date of sale
Number
of issuers		Amortized costFair value
Less than 6 months prior to sale5$34.8 $15.0 

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

The following table sets forth the amortized cost and estimated fair value of those fixed maturities, available for sale, with unrealized losses at June 30, 2022, by contractual maturity.  Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.  Structured securities frequently include provisions for periodic principal payments and permit periodic unscheduled payments.
Amortized
cost		Estimated
fair
value
 (Dollars in millions)
Due in one year or less$27.7 $26.7 
Due after one year through five years1,425.6 1,340.8 
Due after five years through ten years1,820.9 1,644.9 
Due after ten years9,843.8 8,471.4 
Subtotal13,118.0 11,483.8 
Structured securities5,371.4 4,972.3 
Total$18,489.4 $16,456.1 

The following summarizes the investments in our portfolio rated below-investment grade not deemed to have credit losses which have been continuously in an unrealized loss position exceeding 20 percent of the cost basis for the period indicated as of June 30, 2022 (dollars in millions):

Number
of issuers		Cost
basis		Unrealized
loss		Estimated
fair value
Less than 6 months15$45.0 $(10.4)$34.6 

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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 June 30, 2022 (dollars in millions):
 Investment gradeBelow-investment grade
AAA/AA/ABBBBBB+ and
below		Total gross
unrealized
losses
States and political subdivisions$270.2 $6.1 $— $.4 $276.7 
Banks96.8 82.3 .8 .1 180.0 
Commercial mortgage-backed securities126.2 29.1 7.9 1.3 164.5 
Healthcare/pharmaceuticals93.1 44.1 3.3 1.5 142.0 
Insurance69.1 67.7 2.7 .9 140.4 
Utilities59.6 58.4 2.1 .6 120.7 
Technology62.6 45.8 5.8 3.7 117.9 
Non-agency residential mortgage-backed securities58.3 51.3 2.3 4.6 116.5 
Brokerage40.6 61.1 2.8 .9 105.4 
Asset-backed securities25.4 46.6 10.5 1.5 84.0 
Cable/media6.2 48.8 4.0 6.1 65.1 
Food/beverage13.1 44.4 .5 2.2 60.2 
Energy3.8 28.7 5.2 — 37.7 
Collateralized loan obligations28.1 4.8 1.0 — 33.9 
Real estate/REITs18.5 11.1 1.0 — 30.6 
Consumer products16.0 9.9 1.1 3.0 30.0 
Retail17.0 7.7 3.5 .1 28.3 
Chemicals2.4 21.7 .8 1.2 26.1 
Transportation9.4 14.5 .2 .7 24.8 
Capital goods12.3 9.3 1.5 .7 23.8 
Aerospace/defense4.0 18.4 — 1.2 23.6 
Autos3.3 16.9 2.1 .2 22.5 
Building materials3.9 14.3 1.0 .8 20.0 
Telecom— 14.8 — — 14.8 
Metals and mining.6 7.8 .9 .2 9.5 
Foreign governments3.3 4.8 — — 8.1 
Paper.6 5.9 .1 .8 7.4 
Entertainment/hotels4.2 1.2 .3 1.6 7.3 
United States Treasury securities and obligations of United States government corporations and agencies3.2 — — — 3.2 
Business services— .2 1.1 .8 2.1 
Other33.8 14.8 2.8 .6 52.0 
Total fixed maturities, available for sale$1,085.6 $792.5 $65.3 $35.7 $1,979.1 

Our investment strategy is to maximize, over a sustained period and within acceptable parameters of quality and risk, investment income and total investment return through active strategic asset allocation and investment management. Accordingly, we may sell securities at a gain or a loss to enhance the projected total return of the portfolio as market opportunities change, to reflect changing perceptions of risk, or to better match certain characteristics of our investment portfolio with the corresponding characteristics of our insurance liabilities.
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Structured Securities

At June 30, 2022, fixed maturity investments included structured securities with an estimated fair value of $5.9 billion (or 27.7 percent of all fixed maturity securities).  The yield characteristics of structured securities generally differ in some respects from those of traditional corporate fixed-income securities or government securities.  For example, interest and principal payments on structured securities may occur more frequently, often monthly.  In many instances, we are subject to variability in the amount and timing of principal and interest payments.  For example, in many cases, partial prepayments may occur at the option of the issuer and prepayment rates are influenced by a number of factors that cannot be predicted with certainty, including:  the relative sensitivity of prepayments on the underlying assets backing the security to changes in interest rates and asset values; the availability of alternative financing; a variety of economic, geographic and other factors; the timing, pace and proceeds of liquidations of defaulted collateral; and various security-specific structural considerations (for example, the repayment priority of a given security in a securitization structure).  In addition, the total amount of payments for non-agency structured securities may be affected by changes to cumulative default rates or loss severities of the related collateral.

The amortized cost and estimated fair value of structured securities at June 30, 2022, summarized by type of security, were as follows (dollars in millions):
  Estimated fair value
TypeAmortized
cost		AmountPercent
of fixed
maturities
Asset-backed securities$1,259.1 $1,176.6 5.5 %
Agency residential mortgage-backed securities32.0 33.1 .2 
Non-agency residential mortgage-backed securities1,809.2 1,762.4 8.3 
Collateralized loan obligations727.9 694.0 3.2 
Commercial mortgage-backed securities2,409.1 2,245.5 10.5 
Total structured securities$6,237.3 $5,911.6 27.7 %

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

Commercial mortgage-backed securities ("CMBS") are secured by commercial real estate mortgages, generally income producing properties that are managed for profit. Property types include, but are not limited to, multi-family dwellings including apartments, retail centers, hotels, restaurants, hospitals, nursing homes, warehouses, and office buildings. While most CMBS have call protection features whereby underlying borrowers may not prepay their mortgages for stated periods of time without incurring prepayment penalties, recoveries on defaulted collateral may result in involuntary prepayments.


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INVESTMENTS IN VARIABLE INTEREST ENTITIES

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

Three months endedSix months ended
June 30,June 30,
2022202120222021
Revenues:
Net investment income – policyholder and other special-purpose portfolios$12.8 $11.7 $23.6 $23.5 
Fee revenue and other income1.1 1.4 2.5 2.7 
Total revenues13.9 13.1 26.1 26.2 
Expenses:
Interest expense7.5 5.9 13.2 11.8 
Other operating expenses.7 .4 1.1 .8 
Total expenses8.2 6.3 14.3 12.6 
Income before net investment gains (losses) and income taxes5.7 6.8 11.8 13.6 
Net investment gains (losses)(7.0)1.0 (10.2)5.1 
Income (loss) before income taxes$(1.3)$7.8 $1.6 $18.7 


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Supplemental Information on Investments Held by VIEs

The following table summarizes the carrying values and gross unrealized losses of the investments held by the VIEs by category as of June 30, 2022 (dollars in millions):
Carrying valuePercent
of fixed
maturities		Gross
unrealized
losses		Percent of
gross
unrealized
losses
Technology$136.0 12.3 %$7.3 12.1 %
Healthcare/pharmaceuticals126.2 11.4 7.4 12.2 
Cable/media122.8 11.1 6.7 11.1 
Food/beverage81.7 7.4 4.9 8.1 
Capital goods61.4 5.5 3.4 5.7 
Chemicals61.2 5.5 2.5 4.1 
Brokerage55.7 5.0 2.9 4.8 
Building materials53.9 4.9 2.6 4.3 
Paper47.6 4.3 2.3 3.8 
Consumer products46.6 4.2 3.4 5.6 
Utilities38.2 3.4 2.4 4.0 
Transportation36.0 3.3 2.2 3.6 
Aerospace/defense35.4 3.2 1.6 2.6 
Insurance33.6 3.0 1.7 2.8 
Autos33.5 3.0 2.2 3.6 
Business services23.1 2.1 1.6 2.6 
Retail16.6 1.5 .7 1.2 
Banks12.7 1.1 .5 .8 
Other85.5 7.8 4.2 7.0 
Total$1,107.7 100.0 %$60.5 100.0 %

The following table sets forth the amortized cost and estimated fair value of those investments held by the VIEs with unrealized losses at June 30, 2022, by contractual maturity.  Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
Amortized
cost		Estimated
fair
value
 (Dollars in millions)
Due after one year through five years$635.5 $597.5 
Due after five years through ten years537.7 503.0 
Total$1,173.2 $1,100.5 

There were no investments sold at a loss during the first six months of 2022 which had been continuously in an unrealized loss position exceeding 20 percent of the amortized cost basis prior to the sale.

There were no investments in our portfolio rated below-investment grade not deemed to have credit losses which had been continuously in an unrealized loss position exceeding 20 percent of the cost basis.

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NEW ACCOUNTING STANDARDS

See "Recently Issued Accounting Standards" in the notes to consolidated financial statements for a discussion of recently issued accounting standards.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our market risks, and the ways we manage them, are summarized in "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Annual Report on Form 10-K for the year ended December 31, 2021.  There have been no material changes in the first six months of 2022 to such risks or our management of such risks.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.  CNO's management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of CNO's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended).  Based on its evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, CNO's disclosure controls and procedures were effective to ensure that information required to be disclosed by CNO in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.  Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes to Internal Control Over Financial Reporting.  There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the three months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

Information required for Part II, Item 1 is incorporated by reference to the discussion under the heading "Litigation and Other Legal Proceedings" in the footnotes to our consolidated financial statements included in Part I, Item 1 of this Form 10-Q.


ITEM 1A.  RISK FACTORS.

CNO and its businesses are subject to a number of risks including general business and financial risk.  Any or all of such risks could have a material adverse effect on the business, financial condition or results of operations of CNO.  Refer to "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, for further discussion of such risk factors.  There have been no material changes from such previously disclosed risk factors.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Issuer Purchases of Equity Securities
Period (in 2022)Total number of shares (or units) purchasedAverage price paid per share (or unit)Total number of shares (or units) purchased as part of publicly announced plans or programsMaximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (a)
(dollars in millions)
April 1 through April 302,010,800 $25.02 1,997,934 $216.9 
May 1 through May 3153,283 19.18 52,827 215.9 
June 1 through June 30501,307 17.98 499,856 206.9 
Total2,565,390 23.52 2,550,617 206.9 
_________________
(a)    In May 2011, the Company announced a securities repurchase program. Since that date, the Company's Board of Directors has authorized additional repurchases from time to time, most recently in May 2021 when it authorized the repurchase of an additional $500.0 million of the Company's outstanding shares of common stock.

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ITEM 6. EXHIBITS.
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (embedded within the Inline XBRL document).
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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




CNO FINANCIAL GROUP, INC.


Dated:  August 5, 2022
 By:/s/ John R. Kline
  John R. Kline
 Senior Vice President and Chief Accounting Officer
  (authorized officer and principal accounting officer)

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