FinanceLooker

Excrept from filing document 2024-12-31

At June 30 2024 the last business day of the Registrant s most recently completed second fiscal quarter the aggregate market value of the Registrant s common equity held by non affiliates was approximately 2 9 billion
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 sustainable repeatable and similar words although some forward looking statements are expressed differently You should consider statements that contain these words carefully because they describe our expectations plans strategies and goals and our beliefs concerning future business conditions our results of operations financial position and our business outlook or they state other forward looking information based on currently available information The Risk Factors in Item 1A provide examples of risks uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward looking statements Assumptions and other important factors that could cause our actual results to differ materially from those anticipated in our forward looking statements include among other things
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
future investment results 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
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
inflation or other unfavorable economic or business conditions may impact the sales and persistency of insurance products a portion of our insurance policy benefits affected by increased medical coverage costs and various selling general and administrative expenses
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 health care regulation affecting health insurance products and privacy laws and regulations
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
CNO Financial Group Inc a Delaware corporation CNO is a holding company for a group of insurance companies that develop market and administer health insurance annuity individual life insurance and other insurance and financial services products The terms CNO Financial Group Inc CNO the Company we us and our as used in this report refer to CNO and its subsidiaries Such terms when used to describe insurance business and products refer to the insurance business and products of CNO s insurance subsidiaries
We focus on serving middle income pre retiree and retired Americans which we believe are attractive underserved high growth markets We sell our products through exclusive agents independent producers some of whom sell one or more of our product lines exclusively and direct marketing As of December 31 2024 we had total assets of 37 9 billion and shareholders equity of 2 5 billion which included an accumulated other comprehensive loss of 1 4 billion For the year ended December 31 2024 we had revenues of 4 4 billion and net income of 404 0 million See our consolidated financial statements and accompanying footnotes for additional financial information about the Company and its segments
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 the chief operating decision maker makes operating decisions and assesses the performance of the business
We market our 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 The Worksite Division focuses on the sale of voluntary benefit life and health insurance products in the workplace for businesses associations and other membership groups interacting with customers at their place of employment and virtually The Worksite Division also offers a suite of voluntary benefits benefits administration technology and year round advocacy services to reduce costs and increase benefits engagement to employers and their employees
We centralize certain functional areas including marketing business unit finance and sales support among others We primarily market our insurance products under our three primary brands Bankers Life Washington National and Colonial Penn
Our executive offices are located at 11299 Illinois Street Carmel Indiana 46032 and our telephone number is 317 817 6100 Our annual reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and amendments to those reports filed or furnished pursuant to Section 13 a or 15 d of the Securities Exchange Act are available free of charge on our website at
Copies of these filings are also available without charge from CNO Investor Relations 11299 Illinois Street Carmel IN 46032 Except for the documents specifically incorporated by reference into this Annual Report on Form 10 K information contained on our website or that can be accessed through our website is not incorporated by reference in this Annual Report on Form 10 K Reference to our website is made as an inactive textual reference
Our website also includes the charters of our Audit and Enterprise Risk Committee Executive Committee Governance and Nominating Committee Human Resources and Compensation Committee and Investment Committee as well as our Corporate Governance Guidelines and our Code of Conduct that applies to all officers directors and employees Copies of these documents are available free of charge on our website at
or from CNO Investor Relations at the address shown above Within the time period specified by the SEC and the New York Stock Exchange we will post on our website any amendment to our Code of Conduct and any waiver applicable to our principal executive officer principal financial officer or principal accounting officer
In May 2024 we filed with the New York Stock Exchange the Annual CEO Certification regarding the Company s compliance with their Corporate Governance listing standards as required by Section 303A 12 a of the New York Stock Exchange Listed Company Manual In addition we have filed as exhibits to this 2024 Form 10 K the applicable
CNO became the successor to Conseco Inc an Indiana corporation our Predecessor in connection with a bankruptcy reorganization which became effective on September 10 2003 Our Predecessor was organized in 1979 and commenced operations in 1982
Our insurance subsidiaries develop market and administer health insurance annuity individual life insurance and other insurance and financial services products We sell these products through exclusive agents independent producers some of whom sell one or more of our product lines exclusively and direct marketing We had premium collections of 4 4 billion 4 1 billion and 4 1 billion in 2024 2023 and 2022 respectively
Our insurance subsidiaries collectively hold licenses to market our insurance products in all fifty states the District of Columbia and certain protectorates of the United States Sales to residents of the following states accounted for at least 5 percent of our 2024 collected premiums Florida 11 percent Iowa 6 percent Pennsylvania 5 percent California 5 percent and Texas 5 percent
We believe that most purchases of life insurance accident and health insurance and annuity products occur only after individuals are contacted and solicited by an insurance agent Accordingly the success of our distribution system is largely dependent on our ability to attract and retain experienced and highly motivated agents
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 In 2021 we began selling our direct to consumer products through third party distributors
At December 31 2024 we had an exclusive agency force of approximately 4 500 producing agents monthly average of agents that have submitted at least one policy in the month and financial representatives working from approximately 230 branch and satellite field offices throughout the United States The field agents establish one on one contact with potential policyholders and promote strong personal relationships with existing policyholders Field agents sell Medicare supplement supplemental health and long term care insurance policies life insurance and annuities These agents also sell Medicare Advantage plans through distribution arrangements with third party insurance companies After the sale of an insurance policy the agent serves as a contact person for policyholder questions claims assistance and additional insurance needs In addition we have tele sales agents that are primarily engaged in the sale of our graded benefit life insurance policies and the sale of Medicare Advantage plans of third party insurance companies using direct response marketing techniques New policyholder leads are generated primarily from television print advertising direct response mailings and the internet Financial representatives are able to buy and sell securities for clients and may provide ongoing investment advice for clients
Supplemental health and life insurance products are also sold through a diverse network of independent agents insurance brokers and marketing organizations The general agency and insurance brokerage distribution system is comprised of independent agents licensed to sell our products in all fifty states the District of Columbia and certain protectorates of the United States
The Worksite Division focuses on the sale of voluntary benefit life and health insurance products in the workplace 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 wholly owned subsidiary Optavise LLC Optavise Through our Optavise brand we guide employers and their employees through their healthcare choices with a suite of voluntary benefits benefits administration technology and year round advocacy services to reduce costs and increase benefits engagement
At December 31 2024 we had approximately 370 exclusive producing agents working across the United States These agents establish relationships with employers and have one on one contact with potential policyholders primarily at their place of employment and primarily sell supplemental health and life insurance products
Supplemental health and life insurance products are also sold through a diverse network of independent agents insurance brokers and marketing organizations The general agency and insurance brokerage distribution system is comprised of independent agents licensed to sell our products in all fifty states the District of Columbia and certain protectorates of the United States
Marketing organizations typically recruit agents by advertising our products and commission structure through direct mail advertising or through seminars for agents and brokers These organizations bear most of the costs incurred in marketing our products We compensate the marketing organizations by paying them a percentage of the commissions earned on new sales generated by agents recruited by such organizations Certain of these marketing organizations are specialty organizations that have a marketing expertise or a distribution system related to a particular product or market such as worksite and individual health products
The Consumer and Worksite Divisions are primarily focused on marketing insurance products including annuity health and life products several types of which are sold in both divisions and underwritten in the same manner The following table summarizes premium collections by segment for the years ended December 31 2024 2023 and 2022 dollars in millions
During 2024 we collected annuity premiums of 1 790 6 million or 41 percent of our total premiums collected Annuity products include fixed indexed annuity traditional fixed rate annuity and single premium immediate annuity products Annuities offer a tax deferred means of accumulating savings for retirement needs and provide a tax efficient source of income in the payout period For fixed indexed annuities our major source of income is the spread between the investment income earned on the underlying general account assets and the cost of the index options purchased to provide index based credits to the contractholders accounts Our major source of income from fixed rate annuities is the spread between the investment income earned on the underlying general account assets and the interest credited to contractholders accounts
These products accounted for 1 542 7 million or 35 percent of our total premium collections during 2024 Substantially all of the deposits on our fixed indexed annuity products are currently paid in a lump sum Our fixed indexed annuities are deferred annuity contracts offering a fixed credit option and at least one indexed option generating an interest return tied to the price return of an external index typically the S P 500 Our fixed indexed annuity contracts are designed so that the guaranteed contract value meets regulatory requirements such that the contract holder receives no less than 87 5 percent of deposits paid compounded annually at a rate of up to 3 percent which establishes a floor value for the contract in the event of cash disbursement full surrender death claim payout or annuitization Within each contract issued each fixed indexed annuity specifies
The time period during which the change in the index is measured At the end of the time period the change in the index is applied to the account value The time period for most contracts is one year but can range up to four years for some older inforce contracts
The measured change in the index is multiplied by a participation rate percentage of change in the index before the credit is applied Some policies guarantee the initial participation rate for the life of the contract and some vary the rate for each period
The measured change in the index may also be limited to the excess in the measured change over a margin before the credit is applied Some policies guarantee the initial margin for the life of the contract and some vary the margin for each period
Our fixed indexed annuity contracts are usually surrendered prior to the specified maturity date typically the policy anniversary after the customer s 99th birthday At surrender or maturity they are provided various annuitization options allowing for periodic payments paid over various periods such as their remaining life or a term certain period However the majority of contracts remain in the accumulation phase until the customer surrenders the contract or has a death claim Policyholders can surrender the contract at any time at which point they receive their account value as specified in the contract less any applicable surrender charges subject to the floor value defined above They may also take one penalty free withdrawal of up to 10 percent of the premium paid each policy year after the first year only for some contracts
Our fixed indexed annuities credit interest on an annual basis Depending on the credit option chosen that interest is based on a fixed interest rate guaranteed for the annual crediting period or the price return of the underlying index the S P 500 index or the Morningstar US Dividend Growth Barclays 5 percent VC index subject to a participation rate receiving a portion of the appreciation or a cap rate receiving all appreciation up to the cap any indexed option return is subject to a 0 percent floor All crediting rates are subject to contractual guaranteed minimums We have a disciplined rate setting approach that allows the Company to set crediting rates consistent with the investment return earned on the net premiums received and if applicable the current option cost to fund the indexed benefit
In 2016 we began offering a guaranteed lifetime income rider to our fixed indexed annuity contracts which allows policyholders the option to elect to receive a guaranteed income stream for life without having to annuitize their policy In 2021 an optional benefit was added to the rider which enhances the guaranteed income stream payout amount for a two year period if the policyholder meets certain conditions related to the ability to perform activities of daily living These benefits are often referred to as guaranteed living withdrawal benefits GLWB
In recent years a significant portion of our new annuity sales were premium bonus products These products specify a bonus rate that is applied to the premium deposited This provides an immediate increase in the account value but the premium bonus becomes eligible for withdrawal or vests over a number of years In 2023 we launched a flexible premium bonus indexed annuity FPBIA product that offers a premium bonus expressed as a percentage of the premium deposit for each premium deposit made subject to contractual terms The current range for the premium bonus is 4 5 percent
Commissions underwriting sales and contract issuance and processing costs are incurred when a fixed indexed annuity contract is issued When such costs are incremental costs directly related to the successful acquisition of a new insurance contract they are capitalized and amortized on a constant level basis over the expected term to approximate straight line amortization
These products include fixed rate single premium deferred annuities SPDAs and flexible premium deferred annuities FPDAs These products accounted for 239 1 million or 5 percent of our total premium collections during 2024 Our fixed rate SPDAs and FPDAs typically have a crediting rate that is guaranteed by the Company for the first policy year after which we have the ability to change the crediting rate to any rate not below a guaranteed minimum rate The current guaranteed rate on annuities being issued is 3 percent and the guaranteed rates on all policies inforce range from 1 0 percent to 5 5 percent As of December 31 2024 the average crediting rate on our outstanding traditional annuities was 3 13 percent
For subsequent adjustments to crediting rates we take into account current and prospective yields on investments annuity surrender assumptions competitive industry pricing and the crediting rate history for particular groups of annuity policies with similar characteristics
Withdrawals from fixed interest annuities we are currently selling are generally subject to a surrender charge of 8 percent to 10 percent in the first year declining to zero over a five to 10 year period depending on issue age and product Surrender charges are set at levels intended to protect the Company from loss on early terminations and to reduce the likelihood that policyholders will terminate their policies during periods of increasing interest rates This practice is intended to lengthen the duration of policy liabilities and to enable us to maintain profitability on such policies
These products include single premium immediate annuities SPIAs SPIAs accounted for 8 8 million of our total premiums collected in 2024 SPIAs are designed to provide a series of periodic payments for a fixed period of time or for life according to the policyholder s choice at the time of issuance Once the payments begin the amount frequency and length of time over which they are payable are fixed SPIAs often are purchased by persons at or near retirement age who desire a steady stream of payments over a future period of years The single premium is often the payout from a fixed rate contract The implicit interest rate on SPIAs is based on market conditions when the policy is
issued The implicit interest rate on our outstanding SPIAs averaged 6 6 percent at December 31 2024 Other annuities also include closed blocks of structured settlements which were last sold over 25 years ago
Supplemental health collected premiums were 725 7 million during 2024 or 17 percent of our total collected premiums These policies generally provide fixed or limited benefits Cancer insurance and heart stroke products are guaranteed renewable individual accident and health insurance policies Payments under cancer insurance policies are generally made directly to or at the direction of the policyholder following diagnosis of or treatment for a covered type of cancer Heart stroke policies provide for payments directly to the policyholder for treatment of a covered heart disease heart attack or stroke Accident products combine insurance for accidental death with limited benefit disability income insurance Hospital indemnity products provide a fixed dollar amount per day of confinement in a hospital The benefits provided under the supplemental health policies do not necessarily reflect the actual cost incurred by the insured as a result of the illness or accident and benefits are not reduced by any other medical insurance payments made to or on behalf of the insured
Our supplemental health products include a critical illness insurance product that pays a lump sum cash benefit directly to the insured when the insured is diagnosed with a specified critical illness The product is designed to provide additional financial protection associated with treatment and recovery as well as cover non medical expenses such as i loss of income ii at home recovery or treatment iii experimental and or alternative medicine iv co pays deductibles and out of network expenses and v child care and transportation costs In addition these products include a hospital indemnity product that provides payment in the event of a hospital stay The product is designed to help cover expenses which may not be covered by private insurance or Medicare such as deductibles and co payments
Approximately 66 percent of the total number of our supplemental health policies inforce were sold with return of premium or cash value riders The return of premium rider generally provides that after a policy has been inforce for a specified number of years or upon the policyholder reaching a specified age we will pay to the policyholder or in some cases a beneficiary under the policy the aggregate amount of all premiums paid under the policy without interest less the aggregate amount of all claims incurred under the policy For some policies the return of premium rider does not have any claim offset The cash value rider is similar to the return of premium rider but also provides for payment of a graded portion of the return of premium benefit if the policy terminates before the return of premium benefit is earned
Medicare supplement collected premiums were 625 7 million during 2024 or 14 percent of our total collected premiums Medicare is a federal health insurance program for disabled persons and seniors age 65 and older Part A of the program provides protection against the costs of hospitalization and related hospital and skilled nursing facility care subject to an initial deductible related coinsurance amounts and specified maximum benefit levels The deductible and coinsurance amounts are subject to change each year by the federal government Part B of Medicare covers doctor s bills and a number of other medical costs not covered by Part A subject to deductible and coinsurance amounts for charges approved by Medicare The deductible amount is subject to change each year by the federal government
Medicare supplement policies provide coverage for many of the hospital and medical expenses which the Medicare program does not cover such as deductibles coinsurance costs in which the insured and Medicare share the costs of medical expenses and specified losses which exceed the federal program s maximum benefits Our Medicare supplement plans automatically adjust coverage to reflect changes in Medicare benefits In marketing these products we currently concentrate on individuals who have recently become eligible for Medicare by reaching the age of 65 Approximately 58 percent of new sales of Medicare supplement policies in 2024 were within the seven month open enrollment period that begins three months before an individual reaches age 65
Long term care collected premiums were 276 2 million during 2024 or 6 percent of our total collected premiums Long term care products provide coverage within prescribed limits for nursing homes home healthcare or a combination of both We sell long term care plans primarily to retirees and to a lesser degree to older self employed individuals in the middle income market
During 2024 99 percent of new sales of long term care products had benefit periods of two years or less From 2009 through September 30 2024 we ceded 25 percent of most new sales to a third party under a reinsurance agreement Effective October 1 2024 we discontinued ceding 25 percent of long term care new business under the reinsurance
agreement At December 31 2024 65 percent of our long term care policies have benefit periods of one year or less 81 percent have benefit periods of two years or less and 94 percent of our long term care policies have benefit periods of four years or less In 2018 we ceased sales of home health care only long term care policies In addition we ceased sales of comprehensive and nursing home long term care policies with benefit periods exceeding two years in the majority of jurisdictions Comprehensive policies cover both nursing home care and home healthcare Home healthcare benefits included in comprehensive policies cover incurred charges after a deductible or elimination period and are subject to a weekly or monthly maximum dollar amount and an overall benefit maximum We monitor the loss experience on our long term care products and when appropriate apply for actuarially justified rate increases in the jurisdictions in which we sell such products Regulatory approval is required before we can increase our premiums on these products
These products include universal life and other interest sensitive life products that provide life insurance with adjustable rates of return related to current interest rates They accounted for 244 1 million or 6 percent of our total collected premiums in 2024 The principal differences between universal life products and other interest sensitive life products are policy provisions affecting the amount and timing of premium payments Universal life policyholders may vary the frequency and size of their premium payments and policy benefits may also fluctuate according to such payments Premium payments under other interest sensitive policies may not be varied by the policyholders Universal life products include fixed indexed universal life products The account value of these policies is credited with interest at a guaranteed rate plus additional interest credits based on changes in a particular index during a specified time period
These products accounted for 716 4 million or 16 percent of our total collected premiums in 2024 Traditional life policies including whole life graded benefit life term life and single premium whole life products are marketed through independent producers exclusive agents and direct response marketing Under whole life policies the policyholder generally pays a level premium over an agreed period or the policyholder s lifetime The annual premium in a whole life policy is generally higher than the premium for comparable term insurance coverage in the early years of the policy s life but is generally lower than the premium for comparable term insurance coverage in the later years of the policy s life These policies combine insurance protection with a savings component that gradually increases in amount over the life of the policy The policyholder may borrow against the savings component that may be at a rate of interest lower than that available from other lending sources The policyholder may also choose to surrender the policy and receive the accumulated cash value rather than continuing the insurance protection Term life products offer pure insurance protection for life with a guaranteed level premium for a specified period of time typically five 10 20 or 30 years In some instances these products offer an option to return the premium at the end of the guaranteed period
Traditional life products also include graded benefit life insurance products Graded benefit life insurance products are offered on an individual basis primarily to persons age 50 to 85 principally in face amounts of 400 to 50 000 with limited or no medical examination or evidence of insurability Premiums are paid as frequently as monthly Benefits paid are less than the face amount of the policy during the first two years except in cases of accidental death
Traditional life products also include single premium whole life insurance This product requires one initial lump sum payment in return for providing life insurance protection for the insured s entire lifetime Single premium whole life products accounted for 25 6 million of our total collected net premiums in 2024
40 86 Advisors Inc 40 86 Advisors a registered investment advisor and wholly owned subsidiary of CNO manages the investment portfolios of our insurance subsidiaries 40 86 Advisors had approximately 29 0 billion of assets at fair value under management at December 31 2024 which were primarily our assets including investments held by variable interest entities VIEs that are included on our consolidated balance sheet Our general account investment strategies are to
Investment activities are an important and integral part of our business because investment income is a significant component of our revenues The profitability of many of our insurance products is significantly affected by spreads between interest yields on investments and rates credited on insurance liabilities Also certain insurance products are priced based on long term assumptions including investment returns Although substantially all credited rates on SPDAs FPDAs and interest sensitive life products may be changed annually subject to minimum guaranteed rates changes in crediting rates may not be sufficient to maintain targeted investment spreads in all economic and market environments In addition competition minimum guaranteed rates and other factors including the impact of surrenders and withdrawals may limit our ability to adjust or to maintain crediting rates at levels necessary to avoid narrowing of spreads under certain market conditions
The prices of the options we purchase to manage the equity based risk component of our fixed indexed annuities vary based on market conditions All other factors held constant the prices of the options generally increase with increases in the volatility of the applicable indices which may reduce the profitability of the fixed indexed products cause us to lower participation rates or both Accordingly changes in volatility of the related indices is one factor in the uncertainty regarding the profitability of our fixed indexed products
Our invested assets are predominately fixed rate in nature and their value fluctuates with changes in market rates among other factors such as changes in the overall compensation for risk required by the market as well as issuer specific changes in credit quality We seek to manage the interest rate risk inherent in our business by managing the durations and cash flows of our fixed maturity investments along with those of the related insurance liabilities For example one management measure we use is asset and liability duration Duration measures expected change in fair value for a given change in interest rates If interest rates increase by 1 percent the fair value of a fixed maturity security with a duration of 5 years is typically expected to decrease in value by approximately 5 percent When the estimated durations of assets and liabilities are similar absent other factors a change in the value of assets related to changes in interest rates should be largely offset by a change in the value of liabilities We calculate asset and liability durations using our estimates of future asset and liability cash flows
The markets in which we operate are competitive Compared to CNO many companies in the financial services industry are larger have greater capital technological and marketing resources have greater access to capital and other sources of liquidity at a lower cost offer broader and more diversified product lines have greater brand recognition have larger staffs and higher ratings Banks securities brokerage firms and other financial intermediaries also market insurance products or offer competing products such as mutual fund products traditional bank investments and other investment and retirement funding alternatives We also compete with many of these companies and others in providing services for fees In most areas competition is based on a number of factors including pricing service provided to distributors and
In the individual health insurance business companies compete primarily on the basis of marketing service and price Pursuant to federal regulations the Medicare supplement products offered by all companies have standardized policy features This increases the comparability of such policies and intensifies competition based on other factors See Insurance Underwriting and Governmental Regulation for additional information In addition to competing with the products of other insurance companies commercial banks mutual funds and broker dealers our insurance products compete with health maintenance organizations preferred provider organizations and other health care related institutions which provide medical benefits based on contractual agreements
Our principal competitors vary by product line Our main competitors for agent sold long term care insurance products include Northwestern Mutual Mutual of Omaha and New York Life Our main competitors for agent sold Medicare supplement insurance products include United HealthCare Blue Cross and Blue Shield Plans and Mutual of Omaha Our main competitors for life insurance sold through direct marketing channels include Mutual of Omaha Globe Life Inc TruStage Gerber Life and AAA Life Insurance Our main competitors for supplemental health products sold through our Worksite Division include AFLAC subsidiaries of Unum MetLife and subsidiaries of Globe Life Inc
In some of our product lines such as life insurance and fixed annuities we have a relatively small market share from a total industry wide perspective Even in some of the lines in which we are one of the top writers our market share is relatively small Based on a 2023 Medicare Supplement Earned Premium report we ranked seventh in direct premiums earned for Medicare supplement insurance with a market share of 1 7 percent The top writer of Medicare supplement insurance had direct premiums with a market share of 34 percent during the period When looking at the 2023 Individual Long Term Care Insurance Survey one of our subsidiaries Bankers Life and Casualty Company Bankers Life is ranked second in new annualized premiums of individual long term care insurance with a market share of approximately 21 percent The top writer of individual long term care insurance had new annualized premiums with a market share of approximately 38 percent during the period
Many of our major competitors have higher financial strength ratings than we do Industry consolidation including business combinations among insurance and other financial services companies has resulted in larger competitors with even greater financial resources Furthermore changes in federal law have narrowed the historical separation between financial institutions and insurance companies enabling traditional financial institutions to enter the insurance and annuity markets and further increase competition This increased competition may harm our ability to maintain or improve our profitability
In addition because the actual cost of products is unknown when they are sold we are subject to competitors who may sell a product at a price that does not cover its actual cost Accordingly if we do price our products to maintain profitability we may lose market share to other companies If we lower our prices to maintain market share our profitability will decline
Our direct to consumer channel has faced increased competition from other insurance companies who also distribute products through direct marketing In addition the demand and cost of television advertising appropriate for our direct to consumer campaigns fluctuates from period to period and will impact the average cost to generate a television lead
We must attract and retain sales representatives to sell our insurance and annuity products Strong competition exists among insurance and financial services companies for sales representatives We compete for sales representatives primarily on the basis of our financial position financial strength ratings support services compensation products and product features Our competitiveness for such agents also depends upon the relationships we develop with these agents
An important competitive factor for life insurance companies is the financial strength ratings they receive from nationally recognized rating organizations Agents insurance brokers and marketing companies who market our products and prospective purchasers of our products use the financial strength ratings of our insurance subsidiaries as an important factor in determining whether to market or purchase Ratings have the biggest impact on our sales of supplemental health and life products to consumers at the worksite Financial strength ratings provided by Fitch Ratings Fitch S P Global Ratings S P Moody s Investor Services Inc Moody s and AM Best Company AM Best are the rating agency s opinions of the ability of our insurance subsidiaries to pay policyholder claims and obligations when due They are not directed toward the protection of investors and such ratings are not recommendations to buy sell or hold securities The
current financial strength ratings of our primary insurance subsidiaries from Fitch S P Moody s and AM Best are A A A3 and A respectively For a description of these ratings and additional information on these ratings see Management s Discussion and Analysis of Consolidated Financial Condition and Results of Operations Consolidated Financial Condition Financial Strength Ratings of our Insurance Subsidiaries
Under regulations developed by the National Association of Insurance Commissioners the NAIC an association of state regulators and their staffs and adopted by the states we are prohibited from underwriting our Medicare supplement policies for certain first time purchasers If a person applies for insurance within six months after becoming eligible by reason of age or disability in certain limited circumstances the application may not be rejected due to medical conditions Some states prohibit underwriting of all Medicare supplement policies For other prospective Medicare supplement policyholders such as senior citizens who are transferring to our products the underwriting procedures are relatively limited except for policies providing prescription drug coverage
Before issuing long term care products we generally apply detailed underwriting procedures to assess and quantify the insurance risks We require medical examinations of applicants including blood and urine tests where permitted for certain health insurance products and for life insurance products which exceed prescribed policy amounts These requirements vary according to the applicant s age and may vary by type of policy or product We also rely on medical records and the potential policyholder s written application In recent years there have been significant regulatory changes with respect to underwriting certain types of health insurance An increasing number of states prohibit underwriting and or charging higher premiums for substandard risks We monitor changes in state regulation that affect our products and consider these regulatory developments in determining the products we market and where we market them
Most of our supplemental health policies are individually underwritten using a simplified issue application Based on an applicant s responses on the application the underwriter either i approves the policy as applied for ii approves the policy with reduced benefits or iii rejects the application
Our life insurance products include policies that are underwritten individually and low face amount life insurance products that utilize standardized underwriting procedures After initial processing insurance underwriters obtain the information needed to make an underwriting decision such as prescription history medical examinations doctors statements and special medical tests After collecting and reviewing the information the underwriter either i approves the policy as applied for ii approves the policy with an extra premium charge because of unfavorable factors or iii rejects the application
We underwrite group insurance policies based on the characteristics of the group and its past claim experience Guaranteed acceptance life insurance policies are issued without medical examination or evidence of insurability There is minimal underwriting on annuities
At December 31 2024 the total balance of our liabilities for insurance products was 29 7 billion These liabilities are generally payable over an extended period of time The profitability of our insurance products depends on pricing and other factors Differences between our expectations when we sold these products and our actual experience could result in future losses
Liabilities for insurance products are calculated based on numerous assumptions including but not limited to investment yields mortality morbidity withdrawals lapses cash flow assumptions and discount rates Such assumptions are based on our experience and in cases of limited experience industry experience Such assumptions also consider future expectations in policyholder behavior that may vary from past experience
Consistent with the general practice of the life insurance industry our subsidiaries enter into indemnity reinsurance agreements with third party insurance companies in order to reinsure portions of the coverage provided by our insurance products Indemnity reinsurance agreements are intended to limit a life insurer s maximum loss on a large or unusually hazardous risk or to diversify its risk Indemnity reinsurance does not discharge the original insurer s primary liability to
the insured Our reinsured business is ceded to numerous reinsurers Based on our periodic review of their financial statements insurance industry reports and reports filed with state insurance departments we believe the assuming companies are able to honor all material contractual commitments
As of December 31 2024 the policy risk retention limit of our insurance subsidiaries was generally 0 8 million or less Reinsurance ceded to third parties by CNO represented 9 percent of gross combined life insurance inforce and reinsurance assumed represented 0 3 percent of net combined life insurance inforce
a In addition to life insurance certain long term care business has been ceded to Wilton Re through a 100 percent indemnity coinsurance agreement Such business had total insurance policy liabilities of 2 2 billion at December 31 2024
b In addition to life insurance certain annuity business has been ceded to Jackson through a coinsurance agreement Such business had total insurance policy liabilities of 686 6 million at December 31 2024
CNO associates are among our most important resources They are critical to achieving our mission to secure the future of middle income America by providing insurance and financial services that help protect their health income and retirement needs while building enduring value for all our stakeholders We rely on our associates to develop products advise clients service customers and support the efficient running of the organization Therefore we focus significant attention on attracting and retaining talented experienced individuals to serve our customers and manage and support our operations
The Human Resource and Compensation Committee of our Board of Directors is actively engaged in the oversight of our human resource initiatives and receives regular updates from management on progress and developments Our commitment to our associates is demonstrated through several areas of focus
CNO provides a supportive environment designed to encourage all associates to pursue their professional goals and career objectives through one to one coaching mentoring continuing education professional education and
At CNO we strive for a culture of exceptional performance We believe in developing associates through a challenging work environment coupled with extensive support and training We are committed to fair pay practices and pay equity To support pay transparency we provide education to associates on how pay decisions are made and share competitive market ranges for roles across the enterprise Our compensation philosophy is focused on pay for performance In 2024 we continued to offer annual cash incentives to eligible associates reflecting our performance philosophy at all levels of the organization We reward overall and individual performance that drives long term success for the company and our associates
Supporting our associates physical emotional and financial well being is at the center of how we engage our workforce Our comprehensive associate benefits include medical dental and vision insurance coverage as well as an extensive well being program We understand healthcare affordability is fundamental and we provide tiered premiums for CNO s health plan that align with an associate s salary level
CNO s well being program encourages associates and their families to engage in healthy lifestyle choices including completing preventive exams and screenings and taking care of their mental well being In 2024 we launched a new well being platform to simplify healthcare navigation and to help associates maximize their well being benefits We also enhanced paid time off benefits by increasing parental and maternity leave and adding two new Company paid holidays for 2024 to focus on mental well being We also improved associate financial well being by introducing new student loan resources and flexible earned wage access in 2024
We offer flexible work arrangements for the vast majority of our associates which includes working from home working from the office or a mix of both options We remain committed to delivering consistent service while providing workplace flexibility to our associates
CNO s Code of Conduct outlines our expectations surrounding key issues and business practices including anti money laundering political activities and contributions conflicts of interest fraud prevention data security confidentiality gift giving and fair competition Our associates are required to be familiar with and to act in accordance with this code
Doing what s right for our associates agents customers and communities is embedded in CNO s business operations and corporate values We are passionate about creating a workplace environment that welcomes all associates encourages them to bring their best selves to work and values the varied associate voices that represent the customers we serve CNO believes this approach is a critical part of our culture to help us continue sustainable growth of our company
By putting people first we believe that we can choose among the strongest talent to find the best qualified associates to best serve our customers This workplace environment creates benefits that are shared by our associates customers and ultimately our shareholders
CNO is committed to supporting community organizations that address the health and financial wellness of middle income Americans and to providing ways for our associates to give back through our Team CNO volunteer program
Our insurance subsidiaries are licensed to transact insurance business and are subject to extensive regulation and supervision by insurance regulators of the jurisdictions in which they operate Our insurance subsidiaries are domiciled in Illinois Indiana New York Pennsylvania Texas and Bermuda and are collectively licensed in all 50 states of the United States the District of Columbia in four U S territories and Bermuda The extent of regulation by jurisdiction varies but most jurisdictions have laws and regulations governing the financial aspects and business conduct of insurers This regulation and supervision is primarily for the benefit and protection of customers and not for the benefit of our investors or creditors
The NAIC is the U S standard setting and regulatory support organization governed by the chief insurance regulators from the 50 states the District of Columbia and five U S territories to coordinate the regulation of multi state insurers The NAIC assists state insurance regulators in their mission to serve the public interest and achieve their regulatory goals State insurance regulators establish standards and best practices for insurers They coordinate their regulatory oversight through the NAIC and work with the NAIC to regularly re examine existing insurance laws and regulations
The Company s insurance subsidiaries are required to file detailed annual reports in accordance with prescribed statutory accounting rules with regulatory authorities in each of the jurisdictions in which they do business As part of their routine oversight process state insurance departments conduct periodic detailed examinations at least once every five years of the books records and accounts of insurers domiciled in their states These examinations are generally
The NAIC s mission is to support its state insurance regulatory members who set standards and ensure fair competitive and healthy insurance markets to protect consumers The NAIC develops model laws and regulations many of which are adopted by state legislatures or insurance regulators relating to
The NAIC adopted amendments to its valuation manual containing a principle based approach for the calculation of reserves for life insurance and annuity contracts which reflect corresponding amendments to the NAIC Standard Valuation Law Principle based reserving replaced the prior formulaic approach to determining policy reserves with a design that more closely reflects the risks of life insurance and annuity products The principle based reserving approach has been adopted by all states where it has been effective for life insurance and certain annuity products issued on or after January 1 2020 Similar reserving requirements for additional products are expected to be implemented over time Although the impact of implementing this approach for our life insurance products has not been significant to date the ultimate impact is unknown
The NAIC s Risk Management and Own Risk and Solvency Assessment Model Act ORSA which has been adopted by all states requires insurers to maintain a risk management framework and conduct an internal own risk and solvency assessment of an insurer s material risks in normal and stressed environments The assessment must be documented in an annual summary report a copy of which must be submitted to insurance regulators as required or upon request
The NAIC s Corporate Governance Annual Disclosure Model Act CGAD has also been adopted in all states CGAD requires an annual filing by an insurer or insurance group that provides detailed information regarding their governance practices including information on whether a diversity policy is in place for its board of directors as well as sample documentation on their corporate governance structure and policies
In recent years the NAIC s macro prudential initiative was intended to enhance risk identification efforts through enhancements to supervisory practices related to liquidity recovery and resolution capital stress testing and counterparty exposure concentrations for life insurers In connection with this initiative the NAIC adopted amendments to the Model Holding Company System Act and Regulation in 2020 which implement an annual filing requirement for a liquidity stress
testing framework the Liquidity Stress Test for certain large U S life insurers and insurance groups Life insurers are subject to this filing requirement based on criteria related to the amounts of certain types of business written or material exposure to certain investment transactions such as derivatives and securities lending The Liquidity Stress Test is used as a regulatory tool in the jurisdictions that have adopted the Holding Company Act amendments which includes all of our insurance subsidiaries domiciliary states
The NAIC has also developed a group capital calculation GCC tool using an RBC aggregation methodology for all entities within the insurance holding company system The goal is to provide state insurance regulators with a method to aggregate the available capital and minimum capital of each entity in a group in a way that applies to all groups regardless of their structure The NAIC s amendments to the Model Holding Company System Act and Regulation in 2020 adopted the Group Capital Calculation Template and Instructions and the amendments implement the GCC s annual filing requirement with an insurance group s lead state regulator who adopted the Holding Company Amendments effective January 1 2026 The NAIC Financial Analysis Handbook provides guidance for insurance regulators on reviewing GCC submissions We cannot predict what impact this regulatory tool may have on our business
The NAIC is focused on enhancing regulatory oversight of insurers investments in complex assets such as leveraged loans and CLOs The NAIC has expressed concerns related to the filing exempt status for certain securities or loans such as CLOs which generally allows the use of a credit rating provider s CRP rating for purposes of capital assessment as opposed to requiring review by the Securities Valuation Office SVO Under the NAIC s amended Purposes and Procedures Manual the P P Manual the NAIC s Structured Securities Group SSG will assign risk weights to CLOs based on its own modeling as opposed to credit ratings The SSG will model CLO investments and evaluate tranche level losses across all debt and equity tranches under a series of calibrated and weighted collateral stress scenarios to assign NAIC designations The goal is to ensure that the aggregate RBC factor for owning all tranches of a CLO is the same as that required for owning all of the underlying loan collateral in order to avoid RBC arbitrage The amendment to the P P Manual which became effective on January 1 2024 requires insurers to begin reporting the financially modeled NAIC designations for CLOs with their year end 2025 financial statement filings The NAIC is collaborating with interested parties to refine the process for modeling CLO investments It is possible that the NAIC may propose new regulations or changes to statutory accounting principles regarding CLOs
In November 2024 the NAIC adopted an amendment to the P P Manual which sets forth procedures for the SVO staff to identify and evaluate a filing exempt security with an NAIC designation determined by a rating that appears to be an unreasonable assessment of investment risk The procedures include without limitation sending an information request to insurers that hold the security under review and determining whether the NAIC designation is three or more notches different than the SVO s assessment which allows the SVO to request the removal of the CRP credit rating from the filing exempt process At any time during the process an alternate CRP credit rating may be requested and if one is received it will be incorporated in the filing exempt process The amendment to the P P Manual is scheduled to become effective on January 1 2026
In 2023 the NAIC s Financial Condition E Committee launched a holistic review of the insurance regulatory framework related to insurer investment risk regulation The primary objective is to highlight areas where the insurance regulatory framework and the SVO can be enhanced in order to strengthen oversight of insurers investments in complex assets More specifically the NAIC is focused on the SVO s discretion to review NAIC designations for individual investments the appropriate extent of SVO reliance on CRPs and oversight of the development of new RBC charges for CLOs and other structured securities The proposed changes to modernize investment oversight include i reducing or eliminating blind reliance on CRPs while continuing to utilize them by implementing a due diligence framework that oversees the effectiveness of CRPs and ii bolstering the SVO s portfolio risk analysis capabilities by investing in a risk analytics tool and adding specialized personnel
State insurance departments periodically examine the books records accounts and business practices of their domiciled insurers as previously noted State insurance departments may also conduct examinations of non domiciliary insurers licensed in their states
State regulatory authorities and industry groups have developed several initiatives regarding market conduct including the form and content of disclosures to consumers advertising sales practices and complaint handling Various
state insurance departments periodically examine the market conduct activities of domestic and non domestic insurance companies doing business in their states including our insurance subsidiaries The purpose of these market conduct examinations is to determine whether an insurer s operations are consistent with the laws and regulations of the state conducting the examination Market conduct has also become one of the criteria used by rating agencies to establish the financial strength ratings of an insurance company For example AM Best s ratings analysis now includes the review of an insurer s compliance program
Most states mandate minimum benefit standards and benefit ratios for accident and health insurance policies We are generally required to maintain with respect to our individual long term care policies premium rates that either i are adequate to support moderately adverse claims experience or ii support minimum anticipated benefit ratios over the entire period of coverage of not less than 60 percent The specific requirements vary by state With respect to our Medicare supplement policies we are generally required to attain and maintain an actual benefit ratio after three years of not less than 65 percent With respect to supplemental health policies several states require us to annually certify that the premium rates are set such that minimum lifetime loss ratios will be met These minimum lifetime loss ratios vary by state and product We provide to the insurance departments where required annual calculations that demonstrate compliance with required minimum benefit ratios for long term care Medicare supplement and supplemental health insurance These calculations are prepared utilizing statutory lapse and interest rate assumptions In the event that we fail to maintain minimum mandated benefit ratios our insurance subsidiaries could be required to provide retrospective refunds and or prospective rate reductions As of December 31 2024 we believe that our insurance subsidiaries have provided retrospective refunds prospective rate reductions and or benefit increases when required
Our insurance subsidiaries are required by the guaranty fund laws of the jurisdictions in which they transact business to participate in guaranty associations that are organized to pay certain contractual insurance benefits owed pursuant to insurance policies issued by impaired insolvent or failed insurers These laws require insurers to pay assessments up to prescribed limits to fund policyholder losses or liabilities of insolvent insurance companies Typically assessments are levied on member insurers on a basis which is related to the member insurer s proportionate share of the business written by all member insurers Assessments can be partially recovered through a reduction in future premium taxes in some states
In addition to state regulations we are subject to federal laws regulations and guidelines issued by the Centers for Medicare Medicaid Services CMS that place a number of requirements on plan sponsors and their agents in connection with the marketing and sale of Medicare Advantage plans For example CMS and state regulations and guidelines include a number of prohibitions regarding the ability to contact Medicare eligible individuals and place many restrictions on the marketing of Medicare related plans
U S state insurance holding company system laws and regulations are generally based on the NAIC Model Holding Company System Act and Regulation These laws and regulations vary from jurisdiction to jurisdiction but generally require a controlled insurance company i e an insurer that is a subsidiary of an insurance holding company to register and file reports with state regulatory authorities on its capital structure ownership financial condition intercompany transactions and general business operations They also require the ultimate controlling person of a U S insurer to file an annual enterprise risk report with the lead state regulator of the insurance holding company system This report identifies the material risks within the insurance holding company system that could pose enterprise risk to the insurer or its insurance holding company system as a whole Each of our insurance subsidiaries domiciliary states has enacted laws to implement these requirements including the enterprise risk reporting requirement
The insurance holding company system laws and regulations also regulate the terms of surplus debentures and transactions between or involving insurance companies and their affiliates Various reporting and approval requirements apply to transactions between or involving insurance companies and their affiliates within an insurance holding company system depending on the size and nature of the transactions Generally all transactions between an insurance company and an affiliate must be fair and reasonable The Company and its insurance subsidiaries are registered as a holding company system pursuant to the laws and regulations in our domiciliary states
In addition the insurance holding company system laws and regulations regulate the acquisition or sale of control of insurance companies Generally these laws and regulations provide that no person corporation or other entity may acquire control of a domestic insurance company or any parent company of such domestic insurer without the prior approval of the insurance company s domiciliary state regulator Any person acquiring directly or indirectly 10 percent or more of the voting securities of an insurance company is generally presumed to have acquired control of the insurer This statutory presumption may be rebutted by a showing that control does not exist in fact However state insurance regulators may find that control exists in circumstances in which a person owns or controls directly or indirectly less than 10 percent of the voting securities The laws and regulations regarding acquisitions of control may discourage potential acquisition proposals or may delay or prevent a change of control involving the Company including through unsolicited transactions that some of our shareholders might consider desirable
State insurance holding company system laws and regulations also regulate the payment of dividends or other payments by our insurance subsidiaries to parent companies A state insurance regulator may prohibit a dividend payment if the regulator determines that such a payment could be adverse to an insurer s policyholders or contract holders The ability of our U S based insurance subsidiaries to pay dividends is based on their financial statements that are prepared in accordance with statutory accounting practices prescribed or permitted by regulatory authorities which differ from financial statements prepared in accordance with accounting principles generally accepted in the United States of America GAAP These regulations generally permit an insurer to pay a dividend from earned surplus without regulatory approval if the amount of the dividend together with other dividends made within the preceding 12 month period does not exceed the greater of or in some states the lesser of
If an insurance company has negative earned surplus any dividend payments require the prior approval of the company s domiciliary state regulator In addition the RBC and other capital requirements described below can also limit in certain circumstances the ability of our insurance subsidiaries to pay dividends
In accordance with an order from the Florida Office of Insurance Regulation Washington National Insurance Company Washington National may not distribute funds to any affiliate or shareholder without prior notice to the Florida Office of Insurance Regulation except pursuant to agreements with affiliates that have been approved by the insurance regulator
The NAIC has adopted model long term care policy language providing nonforfeiture benefits and in April 2022 the NAIC adopted the Long Term Care Insurance Multi state Rate Review Framework the LTC Framework The LTC Framework s goal is to establish a consistent national approach to reviewing long term care insurance rates in order to assist states in granting actuarially appropriate rate increases in a timely manner The NAIC s Long Term Care Actuarial B Working Group is developing revisions to the LTC Framework and the proposed changes include a single actuarial approach that can be used for multi state long term care rate increase reviews We are evaluating our participation in the multi state review process for our filings requesting
In addition various bills are introduced from time to time in the U S Congress which propose the implementation of certain minimum consumer protection standards in all long term care policies including guaranteed renewability protection against inflation and limitations on waiting periods for pre existing conditions Federal legislation permits premiums paid for qualified long term care insurance to be tax deductible medical expenses and for benefits received on such policies to be excluded from taxable income
Our insurance subsidiaries that write long term care business have made insurance regulatory filings seeking actuarially justified rate increases on our long term care policies Most of our long term care business is guaranteed renewable If we are unable to raise our premium rates because we fail to obtain approval for actuarially justified rate increases in one or more states our financial condition and results of operations could be adversely affected
Insurers are required to maintain their capital and surplus at or above minimum levels prescribed by the laws of their respective jurisdictions Regulators generally have discretionary authority to limit or prohibit an insurer s sales to policyholders if the insurer has not maintained a minimum surplus or capital or if they find that the further transaction of business will be hazardous to policyholders
The NAIC annually calculates certain statutory financial ratios for most insurance companies in the United States to assist state regulators in monitoring the financial condition of insurance companies These calculations are known as the Insurance Regulatory Information System IRIS ratios There are 12 IRIS ratios for life insurers and each ratio has an established usual range of results as a benchmark An insurance company may fall out of the usual range for one or more ratios because of specific transactions that are immaterial or are eliminated at the consolidated level Generally an insurance company will become subject to regulatory scrutiny if it falls outside the usual ranges of four or more of the ratios and regulators may then act if the company has insufficient capital to constrain the company s underwriting capacity In the past variances in certain ratios of our insurance subsidiaries have resulted in inquiries from insurance departments to which we have responded These inquiries have not led to any restrictions affecting our operations
The NAIC s RBC requirements provide a tool for insurance regulators to assess the level of risk inherent in an insurance company s business and determine whether an insurer has insufficient capital which could lead to regulatory intervention The basis of the system is a formula that applies prescribed factors to various risk elements in an insurer s business to report a minimum capital requirement proportional to the amount of risk assumed by the insurer The life and health insurer RBC formula is designed to measure annually i the risk of loss from asset defaults and asset value fluctuations ii the risk of loss from adverse mortality and morbidity experience iii the risk of loss from mismatching of assets and liability cash flow due to changing interest rates and iv business risks
The RBC requirements currently provide for a trend test if a company s total adjusted capital is between 100 percent and 150 percent of its RBC at the end of the year The trend test calculates a margin which is the excess of total adjusted capital over authorized control level RBC for each of the current year prior year and third prior year The trend test assumes that such decrease could occur again in the coming year Any company whose trended total adjusted capital is less than 95 percent of its RBC would trigger a requirement to submit a comprehensive plan to the regulatory authority proposing corrective actions aimed at improving its capital position The 2024 annual statutory financial statements of each of our U S based insurance subsidiaries reflect total adjusted capital in excess of the levels that would subject such subsidiaries to any regulatory action
Interest Maintenance Reserve In 2023 the NAIC adopted a short term solution related to the accounting treatment of an insurer s negative interest maintenance reserve IMR balance which may occur when a rising interest rate environment causes an insurer s IMR balance to become negative as a result of bond sales executed at a capital loss The new interim statutory accounting guidance which is effective until December 31 2025 allows an insurer with an authorized control level RBC greater than 300 to admit negative IMR up to 10 of its general account capital and surplus subject to certain restrictions and reporting obligations The NAIC is developing a long term solution for the accounting treatment of negative IMR
RBC Revisions In 2023 the NAIC increased the RBC factor for structured security residual tranches from 30 to 45 which is effective for year end 2024 RBC filings The NAIC is currently reviewing the RBC treatment of collateralized loan obligations CLOs as discussed below
Bond Project The NAIC has undertaken a principles based bond project which includes consideration of factors to determine whether an investment in an asset backed security qualifies for reporting on an insurer s statutory financial statement as a bond on Schedule D 1 as opposed to Schedule BA other long term investment assets the latter of which has a higher risk charge The NAIC adopted a new principles based definition of a bond that is effective in certain statutory accounting guidance as of January 1 2025 This will
Although we are under no obligation to do so we may elect to contribute additional capital or retain greater amounts of capital to strengthen the surplus of certain insurance subsidiaries Any election to contribute or retain additional capital could impact the amounts our insurance subsidiaries pay as dividends to the holding company The ability of our insurance subsidiaries to pay dividends is also impacted by various criteria established by rating agencies to maintain or receive higher ratings and by the capital levels that we target for our insurance subsidiaries
In 2023 we formed CNO Bermuda Re Ltd CNO Bermuda Re a Bermuda exempted company which is an indirect wholly owned subsidiary of CNO CNO Bermuda Re is registered by and subject to the supervision of the Bermuda Monetary Authority the BMA as a Class C insurer under the Bermuda Insurance Act 1978 and its related rules and regulations each as amended the Insurance Act
The Insurance Act requires the value an insurer s statutory assets to exceed the value of its statutory liabilities by an amount great than their prescribed minimum solvency margin The minimum solvency margin that must be maintained by a Class C insurer is the greater of i 0 5 million or ii 1 5 percent of assets or iii 25 percent of its enhanced capital requirement ECR as reported at the end of the relevant year
A Class C insurer is also required to maintain available statutory economic capital and surplus at a level equal to or in excess of its ECR which is established by reference to either the Bermuda Solvency Capital Requirement BSCR model or a Bermuda approved internal capital model The BSCR model is a risk based capital model which provides a method for determining an insurer s capital requirements statutory economic capital and surplus by taking into account the risk characteristics of different aspects of the Class C insurer s business The BSCR formula establishes capital requirements for certain categories of risk including fixed income investment risk equity investment risk long term interest rate liquidity risk currency risk concentration risk certain insurance risks credit risk catastrophe risk and operational risk For each category the capital requirement is determined by applying factors to asset premium reserve creditor probable maximum loss and operation items with higher factors applied to items with greater underlying risk and lower factors for less risky items
While not specifically referred to in the Insurance Act the BMA has also established a target capital level TCL equal to 120 percent of an insurer s ECR The TCL serves as an early warning tool for the BMA and failure to maintain statutory capital at least equal to the TCL will likely result in increased regulatory oversight
CNO Bermuda Re has entered into a Capital and Liquidity Maintenance Agreement the CLMA with CDOC Pursuant to the CLMA between CNO Bermuda Re and CDOC CDOC will contribute funds to CNO Bermuda Re in the event i CNO Bermuda Re s statutory economic capital and surplus is less than 150 percent of its ECR at the end of any calendar quarter or ii CNO Bermuda Re s liquid assets are insufficient to meet its contractual obligations to ceding insurers in each case unless Bankers Life has provided notice of recapture pursuant to the terms of a modified coinsurance agreement between it and CNO Bermuda Re Further CNO Bermuda Re may not pay any dividends or make any capital distributions to its parent and or affiliates within the five years following its initial reinsurance transaction unless approved by the BMA
The BMA has broad supervisory and administrative powers relating to granting and revoking licenses to transact reinsurance business the approval of specific reinsurance transactions capital requirements and solvency standards limitations on dividends or distributions to shareholders the nature of and limitations on investments and the filing of financial statements in line with prudential and technical standards and permitted accounting practices Future regulatory changes made by the BMA or other events may impact the capital efficiency of the reinsurance structure and could require the holding company to contribute additional capital to CNO Bermuda Re or Bankers Life to recapture the ceded business
We are in the process of completing CNO Bermuda Re s capital and solvency return in respect of the year ended December 31 2024 which includes the BSCR We believe that CNO Bermuda Re s level of capitalization will exceed the minimum solvency margin and result in its statutory economic capital and surplus being in excess of the TCL
Our insurance subsidiaries are subject to state laws and regulations that require diversification of their investment portfolios and limit the amount of investments in certain investment categories such as below investment grade bonds ownership in joint venture interests in real estate and common stocks Failure to comply with these laws and regulations would cause investments exceeding regulatory limitations to be treated as non admitted assets for purposes of measuring statutory surplus and in some instances would require divestiture of such non qualifying investments The investments made by our insurance subsidiaries complied in all material respects with such investment regulations as of December 31 2024
Federal and state laws and regulations require financial institutions to protect the security and confidentiality of personal information including health related and customer information and to notify customers and other individuals about their policies and practices relating to their collection use maintenance disclosure and destruction of such information and their practices relating to protecting the security confidentiality integrity and availability of that information State laws regulate the use and disclosure of personal information such as social security numbers and other identifiers and federal and state laws require notice to affected individuals law enforcement regulators and others if there is a breach of the security of certain personal information including social security numbers financial information and other identifiers Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited e mail fax messages or SMS text messages to consumers and customers The United States Department of Health and Human Services has issued regulations under the Health Insurance Portability and Accountability Act as amended relating to standardized electronic transaction formats code sets the privacy of member health information and the implementation of data security controls to safeguard electronic protected health information
Further numerous state regulatory bodies are focused on security and privacy requirements for companies that collect personal information and various state legislatures have proposed and enacted legislation and regulations regarding data protection standards and protocols and the area of cybersecurity has also come under increased scrutiny by state insurance regulators For example the New York State Department of Financial Services NYDFS cybersecurity regulation applies to banking and insurance entities under its jurisdiction such as Bankers Conseco Life Insurance Company The regulation requires a company s cybersecurity program to include robust controls regarding access privileges application security policies and procedures for the disposal of nonpublic information regular cybersecurity awareness training encryption of nonpublic information third party due diligence and an incident response plan Companies subject to the New York regulation must also implement and maintain written policies approved by a senior officer of the company to protect its information systems and nonpublic information appoint a chief information security officer perform periodic risk assessments and annually certify compliance with the regulation to NYDFS
On November 1 2023 the NYDFS adopted amendments to the regulation which include significant changes such as i implementing additional governance and oversight measures including that a senior governing body e g the board of directors must have sufficient understanding of cybersecurity related matters and regularly review management reports about cybersecurity matters ii expanding the types of cybersecurity events that require timely notification to the NYDFS and iii requiring enhancements to a covered entity s written policies and procedures related to remote access vulnerability management data retention and access privileges General compliance was required by April 29 2024 with certain provisions subject to other transition dates We cannot predict what effect the amended regulation will have on our business or compliance efforts We are required to file an annual Certification of Compliance with the NYDFS regarding our cybersecurity program
Where enacted in a given state the NAIC s Insurance Data Security Model Law applies to entities licensed under the relevant state s insurance laws The model law requires such entities to establish standards for data security and the investigation of and notification to insurance commissioners of cybersecurity events involving unauthorized access to or the misuse of certain nonpublic information The model law imposes significant regulatory burdens intended to protect the confidentiality integrity and availability of information systems and the non public information stored thereon Several states have adopted the model law or a form thereof including Illinois Indiana and Pennsylvania We are also required
In addition certain state legislatures have adopted or are actively considering general consumer privacy legislation that may apply to us For example in 2018 California enacted the California Consumer Privacy Act CCPA which became effective January 1 2020 CCPA provides for enhanced privacy rights for California consumers including the right to know what personal information a business has collected and or shared with third parties the right to delete personal information held by a business and the right to limit certain processing or use of such information CCPA provides for a private right of action with potentially significant statutory damages whereby a business that fails to implement reasonable security measures to protect against breaches of personal information could be liable to affected consumers Certain data processing which is otherwise regulated including under the Gramm Leach Bliley Act GLBA is excluded from the CCPA however this is not an entity wide exclusion The California Privacy Rights Act which established the California Privacy Protection Agency amended the CCPA to include new rights to consumers and came into effect on January 1 2023 Various other U S states have enacted or are considering comprehensive privacy laws that adopt similar approaches to the collection use and sharing of personal information from state residents but many include broader entity wide exemptions for organizations that process data subject to GLBA
The NAIC s Privacy Protections H Working Group PPWG is developing amendments to update the Privacy of Consumer Financial and Health Information Regulation Model 672 The proposed amendments would expand the definition of nonpublic personal information add consumer rights to request access correction and deletion of nonpublic personal information and add requirements for contracts with third party service providers In November 2024 the PPWG received an extension until December 31 2025 to finalize the amendments to the model regulation
As of January 1 2025 the Bermuda Personal Information Protection Act PIPA became fully effective PIPA applies to all organizations that use personal information meaning any information about an identified or identifiable natural person in Bermuda PIPA regulates the use of personal information across all industry sectors granting individuals rights such as access rectification and erasure of their personal information and imposing organizational transparency and governance requirements including the appointment of a privacy officer PIPA is enforced by the Office of the Privacy Commissioner
These statutes and any corresponding regulations adopted thereunder affect our administration marketing and sale of our products and how we collect store use and disseminate personal information Federal and state lawmakers and regulatory bodies may consider additional or more detailed regulation regarding these subjects and the privacy and security of personal information
As a result of increased innovation and technology in the insurance sector the NAIC and insurance regulators are focused on the use of big data techniques such as the use of AI machine learning and automated decision making In December 2023 the NAIC s Innovation Cybersecurity and Technology H Committee the H Committee adopted the
the AI Bulletin after exposing a draft for comment States have started to adopt the AI Bulletin which sets forth insurance regulators expectations as to how insurers should govern the development acquisition and use of AI technologies as well as the types of information that regulators may request during an investigation or examination of an insurer in regard to AI systems The NAIC s Third Party Data and Models H Task Force continues to develop a regulatory framework for the oversight of insurers use of third party data and predictive models
Further the NAIC and state insurance regulators have been focused on addressing unfair discrimination in the use of consumer data and technology and some states have passed laws targeting unfair discrimination practices For instance in 2021 Colorado enacted a law which prohibits insurers from using external consumer data and information sources ECDIS as well as algorithms or predictive models that use ECDIS in a way that unfairly discriminates based on race color national or ethnic origin religion sex sexual orientation disability gender identity or gender expression In August 2023 the Colorado Division of Insurance adopted the first regulation under the 2021 law effective on November 14 2023 requiring life insurers to adopt a governance and risk management framework including board oversight and broad documentation requirements for the use of AI machine learning and other technologies that utilize ECDIS In December 2024 the Colorado Division of Insurance released a draft proposed amendment which would expand the scope of the regulation to private passenger automobile insurers and health benefit plan insurers it is expected that the Colorado
Division of Insurance will further promulgate governance and testing regulations for other lines of insurance Similarly in July 2024 the NYDFS released a circular letter which applies to all authorized insurers in New York such as Bankers Conseco Life Insurance Company The circular letter provides guidance on how such insurers should develop and manage their use of external consumer data and AI systems in underwriting and pricing so as not to harm consumers
We expect big data to remain an important issue for the NAIC and state insurance regulators We cannot predict which regulators will adopt the AI Bulletin or what if any changes to laws or regulations may be enacted with regard to big data or AI technologies
We are subject to the U S federal laws and regulations generally applicable to public companies including the rules and regulations of the SEC and the New York Stock Exchange relating to public reporting and disclosure corporate governance securities trading and accounting and financial reporting The U S federal government does not directly regulate the business of insurance although the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 the Dodd Frank Act generally provides for enhanced federal supervision of financial institutions including insurance companies in certain circumstances and financial activities that represent a systemic risk to financial stability or the U S economy The Dodd Frank Act created the Federal Insurance Office FIO within the U S Treasury Department to monitor all aspects of the insurance industry Its authority extends to most lines of insurance written by our insurance subsidiaries although the FIO is not empowered with any direct regulatory authority over insurers
The Dodd Frank Act also established the Financial Stability Oversight Council FSOC which has the ability to designate certain non bank financial institutions including insurers as systemically important a SIFI if the FSOC determines that financial distress at the company could pose a threat to U S financial stability Such a designation would subject a non bank SIFI to supervision and heightened prudential standards by the Federal Reserve
In November 2023 the FSOC adopted guidance that establishes a new process for designating certain non bank financial companies as non bank SIFIs Under such guidance the FSOC is no longer required to conduct a cost benefit analysis and an assessment of the likelihood of a non bank financial company s material financial distress before considering the designation of the company The revised process could have the effect of simplifying and shortening FSOC s procedures for designating certain financial companies as non bank SIFIs
The Dodd Frank Act also provides for the preemption of state laws when they are inconsistent with covered agreements with non U S governments or regulatory authorities and the Dodd Frank Act streamlines the state level regulation of reinsurance and surplus lines insurance In addition under certain circumstances the FDIC can assume the role of a state insurance regulator and initiate liquidation proceedings under state law
The USA PATRIOT Act of 2001 seeks to promote cooperation among financial institutions regulators and law enforcement entities in identifying parties that may be involved in terrorism money laundering or other illegal activities CNO and its insurance subsidiaries support these goals by having adopted anti money laundering AML programs that include policies procedures and controls to detect and prevent money laundering designate compliance officers to oversee the programs provide for on going employee training and ensure periodic independent testing of the programs CNO s and the insurance subsidiaries AML programs also establish and enforce customer identification programs and provide for the monitoring and the reporting to the Department of the Treasury of certain suspicious transactions
Federal legislation and administrative policies in other areas including employee benefit plan and individual retirement account IRA regulation could also impact the insurance industry In that regard in 2023 the U S Department of Labor the DOL issued a proposed regulation to change the definition of fiduciary for purposes of the Employee Retirement Income Security Act of 1974 ERISA and parallel provisions of the Internal Revenue Code of 1986 as amended the Code when a financial professional including an insurance producer provides investment advice and proposed amendments to various existing prohibited transaction exemptions PTEs including PTE 84 24 and PTE 2020 02 that financial professionals rely on when they make investment recommendations to retirement investors On April 23 2024 the DOL finalized and published this new definition of fiduciary for purposes of ERISA and parallel provisions of the Code and finalized and published amendments to these PTEs Shortly thereafter these changes were challenged in court including by a coalition of insurance industry trade associations that filed a motion for a preliminary injunction and stay of the amendments On July 25 and July 26 2024 two federal district courts located in the Eastern District of Texas the E D Tex and the Northern District of Texas the N D Tex respectively entered stays of the effective date of the new regulation regarding the definition of fiduciary and the amendments to the PTEs The
DOL has appealed the stay issued in the E D Tex litigation to the U S Court of Appeals for the Fifth Circuit The DOL has also filed an interlocutory appeal challenging the stay issued in the N D Tex litigation to the U S Court of Appeals for the Fifth Circuit the parties have jointly agreed to stay further proceedings pending the outcome of the interlocutory appeal We are monitoring these developments but do not expect any changes in the definition of fiduciary as currently contemplated to have a significant impact on our business
The asset management activities of 40 86 Advisors and Bankers Life Advisory Services Inc are subject to various federal and state securities laws and regulations The SEC is the principal regulator of our asset management operations
Our broker dealer subsidiary Bankers Life Securities Inc is registered under the Securities Exchange Act of 1934 and is subject to federal and state regulation including but not limited to the Financial Industry Regulatory Authority FINRA Agents and employees registered or associated with our broker dealer subsidiary are subject to the Securities Exchange Act of 1934 and to examination requirements and regulation by the SEC FINRA and state securities commissioners The SEC and other governmental agencies as well as state securities commissions in the United States have the power to conduct administrative proceedings that can result in censure fines the issuance of cease and desist orders or suspension and termination or limitation of the activities of the regulated entity or its employees
Numerous regulatory bodies are focused on enacting regulations requiring investment advisers broker dealers and or agents to meet a higher standard of care when providing advice to their clients and to provide enhanced disclosure of conflicts of interest For example the SEC s Regulation Best Interest Reg BI enhances the broker dealer standard of conduct beyond existing suitability obligations and requires broker dealers to act in the best interest of the customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer In addition the Form CRS Relationship Summary requires registered investment advisers and broker dealers to provide retail investors with simple easy to understand information about the nature of their relationship with their financial professional In addition to the SEC rules the NAIC and several states have proposed and or enacted laws and regulations requiring insurance producers to disclose conflicts of interest to clients and or to meet a best interest standard of care when providing recommendations or advice to their clients The NAIC revised the Suitability in Annuity Transactions Model Regulation to apply a best interest standard for the sale of annuities The amended model regulation has been adopted by four of our insurance subsidiaries domiciliary states In New York the NYDFS amended Regulation Suitability and Best Interests in Life Insurance and Annuity Transactions to add a best interest standard for recommendations regarding the sale of life insurance and annuity products in New York The amendment was challenged in litigation by a number of producer trade groups but was ultimately upheld by the New York State Court of Appeals New York s highest appellate court on October 20 2022 The North American Securities Administrators Association NASAA has proposed further amendments to a model rule regarding broker dealer conduct that states might seek to adopt and that is intended to account for revisions to federal conduct standards for broker dealers and agents arising out of the adoption of Reg BI by the SEC and other changes that have occurred in the financial services industry in recent years including the blurring of brokerage and advisory service models
On July 26 2023 the SEC proposed rules that if adopted would require a broker dealer or investment adviser when using a covered technology in a retail investor interaction i e to engage or communicate with a retail investor to eliminate or neutralize any conflict of interest that results in an investor interaction that places the interest of the broker dealer or investment adviser ahead of the retail investors interests
The changes amend existing Rule 206 4 1 under the Investment Advisers Act and incorporate aspects of Investment Advisers Act Rule 206 4 3 which the SEC simultaneously rescinded in its entirety The amended rules impose a number of new requirements that will affect marketing of certain advisory products including in particular private funds Our wholly owned registered investment advisers have updated their policies and procedures for the amended rule
Climate risk has come under increased scrutiny by insurance regulators and other regulatory agencies In New York the NYDFS expects authorized insurers to integrate financial risks related to climate change into their governance frameworks risk management processes and business strategies The NYDFS issued guidance for New York domestic insurers such as Bankers Conseco Life Insurance Company stating that they are expected to manage climate risks by outlining actions that are proportionate to the nature scale and complexity of their businesses For instance such insurers should incorporate climate risk into their financial risk management e g a company s ORSA should address climate risk New York domestic insurers have implemented certain corporate governance changes and developed plans to implement organizational structure changes e g clearly defining roles and responsibilities related to managing climate risk With respect to the NYDFS more complex expectations e g using scenario analysis when developing business strategies it will issue additional guidance on the implementation timelines The board of directors of Bankers Conseco Life Insurance Company approved a Climate Risk Policy in June 2022
The NYDFS also amended the regulation that governs enterprise risk management effective as of August 13 2021 to require an insurance group s enterprise risk management function to address certain additional risks including climate change risk Our ORSA reports which are filed with the NYDFS and our lead state regulator include enhanced disclosure on the management of climate risk
In September 2023 the California legislature passed a law that will require firms with annual revenues of over 1 0 billion that do business in the state to publicly report their greenhouse gas emissions beginning in 2026 for calendar year 2025
The NAIC is seeking to address climate related risks through three areas of insurance regulation financial risk analysis insurance market availability and affordability and consumer education and outreach In 2022 the NAIC adopted a new standard for insurance companies to report their climate related risks as part of its annual Climate Risk Disclosure Survey which applies to insurers that meet the reporting threshold of 100 million in countrywide direct premium and are licensed in one of the participating jurisdictions
In addition the FIO is assessing how the insurance sector may mitigate climate risks and help achieve national climate related goals pursuant to its authority under the Dodd Frank Act as discussed above
In June 2023 the FIO released a report titled Insurance Supervision and Regulation of Climate Related Risks which evaluates climate related issues and gaps in insurer regulation The report urges insurance regulators to adopt climate related risk monitoring guidance in order to enhance their regulation and supervision of insurers No data has been requested from the life and health insurance industry
Insurance regulators and the NAIC are also focused on the topic of race diversity and inclusion In New York the NYDFS issued a circular letter in 2021 stating that it expects the insurers it regulates such as Bankers Conseco Life Insurance Company to make diversity of their leadership a business priority and a key element of their corporate governance The NAIC s Special EX Committee on Race and Insurance continues to work on identifying barriers that disadvantage or discriminate against people of color or historically underrepresented groups and improving access to different types of insurance products in minority communities The Special Committee is coordinating with other NAIC groups on issues related to predictive modeling price algorithms and insurers use of AI
Our annuity and life insurance products generally provide policyholders with an income tax advantage as compared to other savings investments such as certificates of deposit and bonds because taxes on the increase in value of the products are deferred until received by policyholders With other savings investments the increase in value is generally taxed as earned Annuity benefits and life insurance benefits which accrue prior to the death of the policyholder are generally not taxable until paid Life insurance death benefits are generally exempt from income tax Also benefits received on immediate annuities other than structured settlements are recognized as taxable income ratably as opposed to the methods used for some other investments which tend to accelerate taxable income into earlier years The tax advantage
Congress has considered from time to time possible changes to the U S tax laws including elimination of the tax deferral on the accretion of value of certain annuities and life insurance products It is possible that further tax legislation will be enacted which would contain provisions with possible adverse effects on our annuity and life insurance products
Our U S based insurance company subsidiaries are taxed under the life insurance company provisions of the Code Provisions in the Code require a portion of the expenses incurred in selling insurance products to be deducted over a period of years as opposed to immediate deduction in the year incurred This provision increases the tax for statutory accounting purposes which reduces statutory earnings and surplus and accordingly decreases the amount of cash dividends that may be paid by the life insurance subsidiaries
Our income tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax bases of assets and liabilities capital loss carryforwards and net operating loss carryforwards NOLs In evaluating our deferred tax assets we consider whether it is more likely than not that the deferred tax assets will be realized The ultimate realization of our deferred tax assets depends upon generating future taxable income during the periods in which our temporary differences become deductible and before our NOLs expire In addition the use of our NOLs is dependent in part on whether the Internal Revenue Service ultimately agrees with the tax positions we have taken in previously filed tax returns and that we plan to take in future tax returns Accordingly with respect to our deferred tax assets we assess the need for a valuation allowance on an ongoing basis
On August 16 2022 President Biden signed the Inflation Reduction Act into law which introduces a 15 percent minimum tax based on financial statement income which is not currently expected to have a significant impact on CNO The Inflation Reduction Act also introduces a 1 percent excise tax on share buybacks effective for tax years beginning in 2023 We continue to monitor developments and regulations associated with the Inflation Reduction Act for any potential future impacts on our business results of operations and financial condition
The SECURE 2 0 Act of 2022 SECURE 2 0 signed into law on December 29 2022 makes significant changes to existing law for retirement plans by building upon provisions in the Setting Every Community Up for Retirement Enhancement Act of 2019 SECURE 2 0 introduces new requirements and considerations for plan sponsors that are intended to expand coverage increase savings preserve income and simplify plan rules and administrative procedures Among other provisions SECURE 2 0 directs the DOL to review its current interpretive bulletin regarding ERISA plan sponsors selection of annuity providers for purposes of transferring plan sponsor benefit plan liability to such annuity providers Such review could result in the DOL s imposition of new or different requirements on plan sponsors or on annuity providers or could make such selection process more difficult for the parties involved
CNO and its businesses are subject to a number of risks including general business and financial risks Any or all of such risks could have a material adverse effect on the business financial condition or results of operations of CNO In addition please refer to the Cautionary Statement Regarding Forward Looking Statements section of this Form 10 K
General factors such as the availability of credit consumer spending business investment capital market conditions and inflation affect our business Threats facing the U S economy include the imposition of tariffs the continued disagreement over the federal debt limit and other federal budget and taxation questions Failure to resolve these political issues in a timely manner could result in increased costs market disruption and volatility and impact government spending and economic activity In an economic downturn higher unemployment lower family income and savings lower corporate earnings lower business investment and lower consumer spending may depress the demand for life insurance annuities and other insurance products In addition this type of economic environment may result in higher lapses or surrenders of policies and may negatively impact the value of our assets
Our business is exposed to the performance of the debt and equity markets Adverse market conditions can affect the liquidity and value of our investments The manner in which debt and equity market performance and changes in interest rates have affected and will continue to affect our business financial condition growth and profitability include but are not limited to the following
The value of our investment portfolio has been materially affected in the past by changes in market conditions which resulted in substantial realized and or unrealized losses Future adverse capital market conditions could result in additional realized and or unrealized losses
Changes in interest rates also affect our investment portfolio In periods of increasing interest rates life insurance policy loans surrenders and withdrawals could increase as policyholders seek higher returns This could require us to sell invested assets at a time when their prices may be depressed by the increase in interest rates which could cause us to realize investment losses Conversely during periods of declining interest rates we could experience increased premium payments on products with flexible premium features repayment of policy loans and increased percentages of policies remaining inforce We could obtain lower returns on investments made with these cash flows In addition prepayment rates on investments may increase so that we might have to reinvest those proceeds in lower yielding investments As a consequence of these factors we could experience a decrease in the spread between the returns on our investment portfolio and amounts to be credited to policyholders and contract holders which could adversely affect our profitability
The attractiveness of some of our insurance products may decrease because they are linked to the equity markets and or assessments of our financial strength resulting in lower profits Increasing consumer concerns about the returns and features of our insurance products or our financial strength may cause existing customers to surrender policies or withdraw assets and diminish our ability to sell policies and attract assets from new and existing customers which would result in lower sales and fee revenues
Persistent inflation within the U S economy creates a heightened level of risk for us the insurance industry and the U S economy generally Rising inflation may impact the sales and persistency of our insurance products the reliability of our loss reserve estimates and our ability to accurately price insurance products and may create additional volatility in the fair value of our investments A portion of our insurance policy benefits may be affected by increased medical coverage costs and various operating expenses including payroll have already been affected Additionally regulatory agencies such as various state departments of insurance the U S government and Federal Reserve may be slow to approve rate changes or adopt measures to attempt to control inflation which could affect our ability to generate profits and cash flow There can be no assurance that inflation rates will not escalate in the future or that measures adopted or that may be adopted by the U S government or the Federal Reserve to control inflation will be effective or successful Continuing significant inflation
Some of our products principally traditional whole life universal life fixed rate and fixed indexed annuity contracts expose us to the risk that low interest rates will reduce our spread the difference between the amounts that we are required to pay under the contracts and the investment income we are able to earn on the investments supporting our obligations under the contracts Our spread which is a component of product margin provides a key contribution to our net income Investment income is also an important component of the profitability of our health products especially long term care and supplemental health policies In addition interest rates impact the liability for the benefits we provide under our agent deferred compensation plan as it is our policy to immediately recognize changes in assumptions used to determine this liability
Interest rates in 2024 and 2023 were higher than the historically low interest rates experienced prior to 2022 If interest rates were to return to low levels for an extended period of time we may have to invest new cash flows or reinvest proceeds from investments that have matured or have been prepaid or sold at yields that have the effect of reducing our net investment income as well as the spread between interest earned on investments and interest credited to some of our products below present or planned levels To the extent prepayment rates on fixed maturity investments or mortgage loans in our investment portfolio exceed our assumptions this could increase the impact of this risk We can lower crediting rates on certain products to offset the decrease in investment yield However our ability to lower these rates may be limited by i contractually guaranteed minimum rates or ii competition In addition a decrease in crediting rates may not match the timing or magnitude of changes in investment yields Currently approximately 54 percent of our fixed interest annuities and 29 percent of our universal life products with contractually guaranteed minimum rates have crediting rates set at the minimum rate As a result in a low interest rate environment reinvestment risk can place pressure on insurance product margins resulting in lower earnings
Our fixed indexed annuity products provide a guaranteed minimum rate of return and a higher potential return that is based on a percentage the participation rate of the amount of increase in the value of a particular index such as the Standard Poor s 500 Index over a specified period We are generally able to change the participation rate at the beginning of each index period typically on each policy anniversary date subject to contractual minimums At December 31 2024 144 0 million of the indexed account values of the fixed indexed annuities were at contractual minimum participation rates and 327 0 million of the fixed fund values of the fixed indexed annuities were at contractual minimum guaranteed crediting rates
During periods of declining or low interest rates life and annuity products may be relatively more attractive to consumers resulting in increased premium payments on products with flexible premium features repayment of policy loans and increased persistency a higher percentage of insurance policies remaining in force from year to year
Our expectation of future investment income is an important consideration in determining the adequacy of our liabilities for insurance products Expectations of lower future investment earnings may require us to establish additional liabilities for certain insurance products thereby reducing net income in future periods
The performance of our investment portfolio depends in part upon the level of and changes in interest rates risk spreads real estate values equity market values interest rate and equity market volatility the performance of the economy in general the policies adopted by the Federal Reserve the performance of the specific obligors included in our portfolio and other factors that are beyond our control Changes in these factors can affect our net investment income in any period and such changes can be substantial These factors include but are not limited to the following i changes in interest rates and credit spreads which can reduce the value of our investments ii changes in patterns of relative liquidity in the capital markets for various asset classes iii changes in the perceived or actual ability of issuers to make timely repayments which can reduce the value of our investments iv changes in the estimated timing of receipt of cash flows and v changes in mortgage delinquency or recovery rates declining real estate prices challenges to the validity of foreclosures and the quality of service provided by service providers on securities in our portfolios These risks are
significantly greater with respect to below investment grade securities and alternative investments which comprised 4 4 percent and 2 6 percent of our total investments as of December 31 2024 Our structured securities as defined below which comprised 31 0 percent of our available for sale fixed maturity investments at December 31 2024 are generally subject to variable prepayment on the assets underlying such securities such as mortgage loans When asset backed securities agency residential mortgage backed securities non agency residential mortgage backed securities CLOs and commercial mortgage backed securities collectively referred to as structured securities prepay faster than expected investment income may be adversely affected due to the acceleration of the amortization of purchase premiums or the inability to reinvest at comparable yields in lower interest rate environments
We use derivatives in an effort to hedge higher potential returns to our fixed indexed annuity policyholders based on the increase in the value of a particular index For derivative positions we hold that are in the money we are exposed to credit risk in the event of default of our counterparty
In addition our investment borrowings from the Federal Home Loan Bank FHLB are secured by collateral the fair value of which can be significantly impacted by general market conditions If the fair value of pledged collateral falls below specific levels we would be required to pledge additional eligible collateral or repay all or a portion of the investment borrowings
The concentration of our investment portfolio in any particular industry group of related industries asset classes such as residential mortgage backed securities and other asset backed securities or geographic area could have an adverse effect on our results of operations and financial position While we seek to mitigate this risk by having a broadly diversified portfolio events or developments that have a correlated negative impact on any particular industry group of related industries or geographic area may have an adverse effect on the investment portfolio
Because a substantial portion of our operating results are derived from returns on our investment portfolio significant losses in the portfolio may have a direct and materially adverse impact on our results of operations In addition losses on our investment portfolio could reduce the investment returns that we are able to credit to our customers of certain products thereby impacting our sales and eroding our financial performance Investment losses may also reduce the capital of our insurance subsidiaries which may cause us to make additional capital contributions to those subsidiaries or may limit the ability of our insurance subsidiaries to make dividend payments to CNO
On December 13 2023 the SEC adopted rules to require covered clearing agencies to adopt policies and procedures reasonably designed to require every direct participant of the agency to submit for clearing eligible secondary market transactions in U S Treasury securities which will effectively require those participants to clear eligible cash transactions in U S Treasury securities by December 31 2025 and eligible repurchase transactions in U S Treasury securities by June 30 2026 As a result certain transactions between such participants and us will be required to be cleared Uncertainty remains regarding potential impact of the rule However the rule could increase costs of trading in U S Treasuries or potentially negatively affect market liquidity
The determination of the amount of allowances and impairments varies by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class Such evaluations and assessments require significant judgment and are revised as conditions change and new information becomes available Additional impairments may need to be taken or allowances provided for in the future and the ultimate loss may exceed our current loss estimates
The determination of fair value of our fixed maturity securities results in unrealized investment gains and losses and is in some cases highly subjective and could materially impact our operating results and financial condition
In determining fair value we generally utilize market transaction data for the same or similar instruments The degree of management judgment involved in determining fair values is inversely related to the availability of market observable information Since significant observable market inputs are not available for certain securities it may be difficult to value them The fair value of financial assets and financial liabilities may differ from the amount actually received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date Moreover the use of different valuation assumptions may have a material effect on the fair values
of the financial assets and financial liabilities During periods of market disruption it may be difficult to value certain securities if trading becomes less frequent and or market data becomes less observable There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the changing financial environment In such cases the valuation process may require more subjectivity and management judgment Rapidly changing market conditions could materially impact the valuation of securities and the period to period changes in value could vary significantly
We set the premium rates on our policies based on facts and circumstances known at the time we issue the policies and on assumptions about numerous variables including but not limited to the actuarial probability of a policyholder incurring a claim the probable size of the claim maintenance costs to administer the policies and the interest rate earned on our investment of premiums In setting premium rates we consider historical claims information industry statistics the rates of our competitors and other factors but we cannot predict with certainty the future actual claims on our products If our actual claims experience proves to be less favorable than we assumed and we are unable to raise our premium rates to the extent necessary to offset the unfavorable claims experience our financial results will be adversely affected
We review the adequacy of our premium rates regularly and file proposed rate increases on our health insurance products when we believe existing premium rates are too low It is possible that we will not be able to obtain approval for premium rate increases from currently pending or future requests If we are unable to raise our premium rates because we fail to obtain approval in one or more states our financial results will be adversely affected Moreover in some instances our ability to exit unprofitable lines of business is limited by the guaranteed renewal feature of most of our insurance policies Due to this feature we cannot exit such lines of business without regulatory approval and accordingly we may be required to continue to service those products at a loss for an extended period of time
If we are successful in obtaining regulatory approval to raise premium rates the increased premium rates may reduce the volume of our new sales and cause existing policyholders to allow their policies to lapse This could result in a significantly higher ratio of claim costs to premiums if healthier policyholders allow their policies to lapse while policies of less healthy policyholders continue inforce This would reduce our premium income and profitability in future periods
Our business financial condition results of operations liquidity and cash flows depend on the accuracy of our models and assumptions and we could experience significant gains or losses if the models and assumptions differ significantly from actual results
We make and rely on numerous assumptions related to our business which are used to make decisions crucial to our operations Errors in the modeling software we use or differences between actual experience and the assumptions in our models could materially and adversely affect our business financial condition results of operations liquidity and cash flows
Liabilities for insurance products are calculated based on numerous assumptions including but not limited to investment yields mortality morbidity withdrawals lapses cash flow assumptions and discount rates Such assumptions are based on our experience and in cases of limited experience industry experience Such assumptions also consider future expectations in policyholder behavior that may vary from past experience
Many factors can affect these reserves and liabilities such as economic and social conditions inflation hospital and pharmaceutical costs changes in life expectancy regulatory actions changes in doctrines of legal liability and extra contractual damage awards Therefore the reserves and liabilities we establish are necessarily based on estimates assumptions industry data and prior years statistics Our financial performance depends significantly upon the extent to which our actual claims experience and future expenses are consistent with the assumptions we used in setting our reserves If our future claims are higher than our assumptions and our reserves prove to be insufficient to cover our actual losses and
Surrenders of our annuities and life insurance products can result in losses and decreased revenues if surrender levels differ significantly from assumed levels At December 31 2024 approximately 3 4 billion of our total insurance liabilities could be surrendered by the policyholder without penalty The surrender charges that are imposed on our fixed rate annuities typically decline during a penalty period which ranges from five to twelve years after the date the policy is issued Surrender charges are eliminated after the penalty period Surrenders and other policy withdrawals could require us to dispose of assets earlier than we had planned possibly at a loss Moreover surrenders and other policy withdrawals require faster amortization of deferred acquisition costs associated with the original sale of a product thus reducing our net income We believe policyholders are generally more likely to surrender their policies if they believe the issuer is having financial difficulties or if they are able to reinvest the policy s value at a higher rate of return in an alternative insurance or investment product
We transfer exposure to certain risks to third parties through reinsurance arrangements Under these arrangements other insurers assume a portion of our losses and expenses associated with reported and unreported claims in exchange for a portion of policy premiums The availability amount and cost of reinsurance depend on general market conditions and may vary significantly As of December 31 2024 our third party reinsurance receivables and ceded life insurance inforce totaled 3 9 billion and 2 8 billion respectively Our seven largest reinsurers which are rated A or higher by AM Best as of December 31 2024 accounted for 97 percent of our ceded life insurance inforce and 99 percent of our reinsurance receivables Such reinsurance receivables also include long term care and annuity blocks of business that have been ceded We face credit risk with respect to reinsurance When we obtain reinsurance we are still liable for those transferred risks even if the reinsurer defaults on its obligations The failure insolvency inability or unwillingness of one or more of the Company s reinsurers to perform in accordance with the terms of its reinsurance agreement could negatively impact our earnings or financial position In addition it is possible that reinsurance may not be available or affordable in the future or may not be adequate to protect us against losses
In addition we have under an intercompany reinsurance agreement initiated in 2023 ceded approximately 7 6 billion of our fixed indexed annuity statutory reserves from Bankers Life to CNO Bermuda Re as of December 31 2024 Future regulatory changes made by the BMA or other events may impact the capital efficiency of the reinsurance structure and could require the holding company to contribute additional capital to CNO Bermuda Re or Bankers Life to recapture the ceded business
The Revolving Credit Agreement and the Indentures for the Notes and Debentures contain various restrictive covenants and required financial ratios that could limit our operating flexibility The violation of one or more loan covenant requirements will entitle our lenders to declare all outstanding amounts under the Revolving Credit Agreement the Notes and the Debentures to be due and payable
Certain of the agreements governing our indebtedness contain a number of restrictive covenants and require financial ratios that impose operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long term best interest including restrictions on our ability to incur additional indebtedness and guarantee indebtedness pay dividends or make other distributions or repurchase or redeem our capital stock prepay redeem or repurchase subordinated debt sell assets incur liens enter into transactions with affiliates and consolidate merge sell or otherwise dispose of our assets
The Revolving Credit Agreement requires the Company to maintain each as calculated in accordance with the Revolving Credit Agreement i a debt to total capitalization ratio excluding hybrid securities except to the extent that the aggregate amount outstanding of all such hybrid securities exceeds an amount equal to 15 of total capitalization of not more than 35 0 percent such ratio was 30 5 percent at December 31 2024 and ii a minimum consolidated net worth of not less than the sum of 2 674 0 million plus 25 0 of the net equity proceeds received by the Company from the
These covenants place restrictions on the manner in which we may operate our business and our ability to meet these financial covenants may be affected by events beyond our control If we default under any of these covenants the lenders could declare the outstanding principal amount of the loan accrued and unpaid interest and all other amounts owing and payable thereunder to be immediately due and payable which would have material adverse consequences to us In addition an event of default under the Revolving Credit Agreement would permit our lenders to terminate commitments to extend further credit See the note to the consolidated financial statements entitled Notes Payable Direct Corporate Obligations for more information
CNO and CDOC Inc CDOC are holding companies with no business operations of their own CNO and CDOC depend on their operating subsidiaries for cash to make principal and interest payments on debt and to pay administrative expenses and income taxes CNO and CDOC receive cash from our insurance subsidiaries consisting of dividends and distributions principal and interest payments on surplus debentures and tax sharing payments as well as cash from their non insurance subsidiaries consisting of dividends distributions loans and advances Deterioration in the financial condition earnings or cash flow of these significant subsidiaries for any reason could hinder the ability of such subsidiaries to pay cash dividends or other disbursements to CNO and or CDOC which would limit our ability to meet our debt service requirements and satisfy other financial obligations In addition CNO may elect to contribute additional capital to certain insurance subsidiaries to strengthen their surplus for covenant compliance or regulatory purposes including for example maintaining adequate RBC or BSCR levels or to provide the capital necessary for growth in which case it is less likely that its insurance subsidiaries would pay dividends to the holding company Accordingly this could limit CNO s ability to meet debt service requirements and satisfy other holding company financial obligations See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Liquidity of the Holding Companies for more information
Insurance regulations generally permit our U S based insurance subsidiaries to pay dividends from statutory earned surplus without regulatory approval if the amount of the dividend together with other dividends made within the preceding 12 month period does not exceed the greater of or in some states the lesser of i statutory net gain from operations of such insurer for the prior calendar year or ii 10 percent of such insurer s surplus as regards to policyholders at the end of the preceding calendar year CNO receives dividends and other payments from CDOC and from certain non insurance subsidiaries CDOC receives dividends and surplus debenture interest payments from our insurance subsidiaries and payments from certain of our non insurance subsidiaries CNO Bermuda Re may not pay any dividends or make any capital distributions to its parent and or affiliates within the five years following the initial reinsurance transaction unless approved by the BMA
Payments from our non insurance subsidiaries to CNO or CDOC and payments from CDOC to CNO do not require approval by any regulatory authority or other third party However the payment of dividends or surplus debenture interest by our insurance subsidiaries to CDOC is subject to state insurance department regulations and may be prohibited by insurance regulators if they determine that such dividends or other payments could be adverse to our policyholders or contract holders
However as each of the U S based insurance subsidiaries of CDOC has negative earned surplus any dividend payments from such insurance subsidiaries to CNO would require the prior approval of the director or commissioner of the applicable state insurance department In 2024 our U S based insurance subsidiaries paid dividends of 196 0 million to CDOC CNO expects to seek regulatory approval for future dividends from our insurance subsidiaries but there can be no assurance that such payments will be approved or that the financial condition of our insurance subsidiaries will not deteriorate making future approvals less likely
CDOC holds surplus debentures from Conseco Life Insurance Company of Texas CLTX with an aggregate principal amount of 749 6 million Interest payments on those surplus debentures do not require additional approval provided the RBC ratio of CLTX exceeds 100 percent but do require prior written notice to the Texas Department of Insurance The estimated RBC ratio of CLTX was 330 percent at December 31 2024 CDOC also holds a surplus debenture from Colonial Penn Life Insurance Company Colonial Penn with a principal balance of 160 0 million Interest payments on that surplus debenture require prior approval by the Pennsylvania Insurance Department
In addition although we are generally under no obligation to do so we may elect to contribute additional capital to strengthen the surplus of certain insurance subsidiaries for covenant compliance or regulatory purposes or to provide the capital necessary for growth Pursuant to the CLMA between CNO Bermuda Re and CDOC CDOC will contribute funds to CNO Bermuda Re in the event i CNO Bermuda Re s statutory economic capital and surplus is less than 150 percent of its ECR at the end of any calendar quarter or ii CNO Bermuda Re s liquid assets are insufficient to meet its contractual obligations to ceding insurers in each case unless Bankers Life has provided notice of recapture pursuant to the terms of a modified coinsurance agreement between it and CNO Bermuda Re Contributions of additional capital to our insurance subsidiaries could affect the ability of our top tier insurance subsidiaries to pay dividends The ability of our insurance subsidiaries to pay dividends is also impacted by various criteria established by rating agencies to maintain or receive higher financial strength ratings and by the capital levels that we target for our insurance subsidiaries as well as regulatory and other financial covenant compliance requirements under the Revolving Credit Agreement
In addition Washington National may not distribute funds to any affiliate or shareholder without prior notice to the Florida Office of Insurance Regulation except pursuant to agreements with affiliates that have been approved in accordance with an order from the Florida Office of Insurance Regulation
A decline in our current credit ratings may adversely affect our ability to access capital and the cost of such capital which could have a material adverse effect on our financial condition and results of operations
Our senior unsecured debt ratings are currently BBB BBB Baa3 and bbb from Fitch S P Moody s and AM Best respectively If we were to require additional capital either to refinance our existing indebtedness or for any other reason our current senior unsecured debt ratings as well as conditions in the credit markets generally could restrict our access to such capital and adversely affect its cost Disruptions volatility and uncertainty in the financial markets and our credit ratings could limit our ability to access external capital markets at times and on terms which allow us to meet our capital and liquidity needs See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Liquidity of the Holding Companies for more information
As of December 31 2024 we had approximately 343 9 million of federal tax NOLs resulting in deferred tax assets of approximately 72 2 million 63 0 million of which expire in years 2028 through 2035 and 9 2 million of which have no expiration date Section 382 of the Code imposes limitations on a corporation s ability to use its NOLs when it undergoes a 50 percent ownership change over a three year period Although we underwent an ownership change in 2003 as the result of our reorganization the timing and manner in which we will be able to utilize our NOLs is not currently limited by Section 382
We regularly monitor ownership changes as calculated for purposes of Section 382 based on available information and as of December 31 2024 our analysis indicated that we were well below the 50 percent ownership change threshold that could limit our ability to utilize our NOLs A future transaction or transactions and the timing of such transaction or transactions could trigger an ownership change under Section 382 Such transactions may include but are not limited to additional repurchases or issuances of common stock acquisitions or sales of shares of CNO s stock by certain holders of its shares including persons who have held currently hold or may accumulate in the future five percent or more of CNO s outstanding common stock for their own account CNO s Board of Directors adopted a Section 382 Rights Agreement designed to protect shareholder value by preserving the value of our NOLs To further protect against the possibility of triggering an ownership change under Section 382 CNO s shareholders approved amendments included in CNO s certificate of incorporation designed to prevent certain transfers of common stock which could limit our ability to use our NOLs See the note to the consolidated financial statements entitled Income Taxes for more information about the Section 382 Rights Agreement and the amendments included in CNO s certificate of incorporation
If an ownership change were to occur for purposes of Section 382 we would be required to calculate an annual limitation on the use of our NOLs to offset future taxable income The annual restriction would be calculated based upon the value of CNO s equity at the time of such ownership change multiplied by a federal long term tax exempt rate 3 43 percent at December 31 2024
The value of our deferred tax assets may be reduced to the extent our future profits are less than we have projected or the current corporate income tax rate is reduced and such reductions in value may have a material adverse effect on our results of operations and our financial condition
As of December 31 2024 we had net deferred tax assets of 791 4 million Our income tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax bases of assets and liabilities capital loss carryforwards and NOLs We evaluate the realizability of our deferred tax assets and assess the need for a valuation allowance on an ongoing basis In evaluating our deferred tax assets we consider whether it is more likely than not that the deferred tax assets will be realized The ultimate realization of our deferred tax assets depends upon generating sufficient future taxable income during the periods in which our temporary differences become deductible and before our capital loss carry forwards and NOLs expire In addition we expect to recognize approximately 800 million of non life NOLs on our tax return as a result of changes related to the tax accounting method for allocating indirect costs pursuant to the Code to self constructed real estate assets upon approval from the IRS Such NOLs will not be subject to expiration Our assessment of the realizability of our deferred tax assets requires significant judgment Failure to achieve our projections may result in the recognition of a valuation allowance in a future period The recognition of a valuation allowance would increase income tax expense and reduce shareholders equity and such an increase could have a significant impact upon our earnings in the future
The value of our net deferred tax assets as of December 31 2024 reflects the current Federal corporate income tax rate of 21 percent Changes in tax laws including changes regarding the utilization of NOLs could cause a write down of our net deferred tax assets which may have an adverse effect on our results of operations and financial condition
The insurance and annuity products we issue receive favorable tax treatment under current U S federal income tax laws Changes in U S Federal income tax laws could reduce or eliminate the tax advantages of certain of our products making these products less attractive to our customers This may lead to a reduction in sales which may adversely impact our profitability In addition we benefit from certain tax items including but not limited to dividends received deductions tax credits tax exempt bond interest and insurance reserve deductions From time to time the U S Congress as well as state and local governments consider legislative changes that could reduce or eliminate the benefits associated with these and other tax items We continue to evaluate the impact potential tax reform proposals may have on our future results of operations and financial condition
From time to time we may become subject to tax audits tax litigation or similar proceedings and as a result we may owe additional taxes interest and penalties or our NOLs may be reduced in amounts that may be material
In determining our provisions for income taxes and our accounting for tax related matters in general we are required to exercise judgment We regularly make estimates where the ultimate tax determination is uncertain The final determination of any tax audit appeal of the decision of a taxing authority tax litigation or similar proceedings may be materially different from that reflected in our financial statements The assessment of additional taxes interest and penalties could be materially adverse to our current and future results of operations and financial condition
Our business is subject to extensive regulation which limits our operating flexibility and could result in our insurance subsidiaries being placed under regulatory control or otherwise negatively impact our financial results
Our insurance business is subject to extensive regulation and supervision in the jurisdictions in which we operate See Business of CNO Governmental Regulation Our insurance subsidiaries are subject to state insurance laws that establish supervisory agencies The regulations issued by state insurance agencies can be complex and subject to differing interpretations If a state insurance regulatory agency determines that one of our insurance subsidiaries is not in compliance with applicable regulations the subsidiary is subject to various potential administrative remedies including without limitation monetary penalties restrictions on the subsidiary s ability to do business in that state and a return of a portion of policyholder premiums In addition regulatory action or investigations could cause us to suffer significant reputational harm which could have an adverse effect on our business financial condition and results of operations
Our U S based insurance subsidiaries are required to comply with statutory accounting principles Such statutory accounting principles including principles that impact the calculation of RBC and our insurance liabilities are subject to continued review by the NAIC in an effort to address emerging issues and improve financial reporting Proposals being considered by the NAIC could negatively impact our insurance subsidiaries if enacted
Our U S based insurance subsidiaries are also subject to RBC requirements These requirements were designed to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks associated with asset quality mortality and morbidity asset and liability matching and other business factors The requirements are used by states as an early warning tool to discover companies that may be weakly capitalized for the purpose of initiating regulatory action Generally if an insurer s RBC ratio falls below specified levels the insurer is subject to different degrees of regulatory action depending upon the magnitude of the deficiency The 2024 statutory annual statements of each of our U S based insurance subsidiaries reflect RBC ratios in excess of the levels that would subject our insurance subsidiaries to any regulatory action
In addition to the RBC requirements states have established minimum capital requirements for insurance companies licensed to do business in their state These regulators have the discretionary authority in connection with the continual licensing of our insurance subsidiaries to limit or prohibit writing new business within its jurisdiction when in the regulator s judgment the insurance subsidiary is not maintaining adequate statutory surplus or capital or the insurance subsidiary s further transaction of business would be hazardous to policyholders
Our Bermuda based insurance subsidiary is subject to regulation in Bermuda where the BMA has broad supervisory and administrative powers relating to granting and revoking licenses to transact reinsurance business the approval of specific reinsurance transactions capital requirements and solvency standards limitations on dividends or distributions to shareholders the nature of and limitations on investments and the filing of financial statements in accordance with prescribed or permitted accounting practices Future regulatory changes made by the BMA or other events may impact the capital efficiency of the reinsurance structure between CNO Bermuda Re and Bankers Life and could require the holding company to contribute additional capital to CNO Bermuda Re or Bankers Life to recapture the ceded business
Our broker dealer and investment adviser subsidiaries are subject to regulation and supervision by the SEC FINRA and certain state regulatory bodies The SEC FINRA and other governmental agencies as well as state securities commissions may examine or investigate the activities of broker dealers and investment advisers These examinations or investigations often focus on the activities of the registered representatives and investment adviser representatives doing business through such entities and the entities supervision of those persons It is possible that any examination or investigation could lead to enforcement action by the regulator and or may result in payments of fines and penalties payments to customers or both as well as changes in systems or procedures of such entities any of which could have a material adverse effect on the Company s financial condition or results of operations
Furthermore as described above under Business of CNO Governmental Regulation the SEC has adopted regulations relating to the standard of conduct applicable to broker dealers when making certain recommendations involving securities to retail customers and requiring registered investment advisors and broker dealers to provide certain standardized disclosures to retail investors In addition the NAIC and several states have proposed and or enacted regulations related to required disclosures and or standards of conduct when insurance producers provide recommendations to clients regarding sales of annuity products These regulations and similar regulatory initiatives could have an impact on Company operations and the manner in which broker dealers and investment advisers distribute the Company s products
Insurance companies historically have been subject to substantial litigation In addition to the traditional policy claims associated with their businesses insurance companies like ours face class action suits and derivative suits from policyholders and or shareholders We also face significant risks related to regulatory investigations and proceedings The litigation and regulatory matters we are have been or may become subject to include matters related to the classification of our exclusive agents as independent contractors sales marketing and underwriting practices payment of contingent or other sales commissions claim payments and procedures product design product disclosure administration additional premium charges for premiums paid on a periodic basis calculation of cost of insurance charges changes to certain non guaranteed policy features denial or delay of benefits charging excessive or impermissible fees on products procedures related to canceling policies recommending unsuitable products to customers and policies from legacy business that we
acquired or no longer write Certain of our insurance policies allow or require us to make changes based on experience to certain non guaranteed elements NGEs such as cost of insurance charges expense loads credited interest rates and policyholder bonuses We intend to make changes to certain NGEs in the future In some instances in the past such action has resulted in litigation and similar litigation may arise in the future Our exposure including the potential adverse financial consequences of delays or decisions not to pursue changes to certain NGEs if any arising from any such action cannot presently be determined Our pending legal and regulatory proceedings include matters that are specific to us as well as matters faced by other insurance companies State insurance departments have focused and continue to focus on sales marketing and claims payment practices and product issues in their market conduct examinations Negotiated settlements of class action and other lawsuits have had a material adverse effect on the business financial condition and results of operations of CNO and our insurance subsidiaries
We are in the ordinary course of our business a plaintiff or defendant in actions arising out of our insurance business including class actions and reinsurance disputes and from time to time we are also involved in various governmental and administrative proceedings and investigations and inquiries such as information requests subpoenas and books and record examinations from state federal and other authorities See the note to the consolidated financial statements entitled Commitments and Contingencies The ultimate outcome of these lawsuits regulatory proceedings and investigations cannot be predicted with certainty In the event of an unfavorable outcome in one or more of these matters the ultimate liability may be in excess of liabilities we have established and could have a material adverse effect on our business financial condition results of operations or cash flows We could also suffer significant reputational harm as a result of such litigation regulatory proceedings or investigations including harm flowing from actual or threatened revocation of licenses to do business regulator actions to assert supervision or control over our business and other sanctions which could have a material adverse effect on our business financial condition results of operations or cash flows
During recent years the health insurance industry has experienced substantial changes including those caused by healthcare legislation Recent federal and state legislation and pending legislative proposals concerning healthcare reform contain features that could severely limit or eliminate our ability to vary pricing terms or apply medical underwriting standards to individuals thereby potentially increasing our benefit ratios and adversely impacting our financial results
Proposals that have been made in Congress and some state legislatures may also affect our financial results These proposals include the implementation of minimum consumer protection standards in all long term care policies including guaranteed premium rates protection against inflation limitations on waiting periods for pre existing conditions setting standards for sales practices for long term care insurance and guaranteed consumer access to information about insurers including information regarding lapse and replacement rates for policies and the percentage of claims denied Enactment of any proposal that would limit the amount we can charge for our products such as guaranteed premium rates or that would increase the benefits we must pay such as limitations on waiting periods or that would otherwise increase the costs of our business could adversely affect our financial results
The Dodd Frank Act of 2010 made extensive changes to the laws regulating financial services firms and required various federal agencies to adopt a broad range of implementing rules and regulations including those pertaining to the use of derivatives Certain of these regulations have imposed additional requirements that may affect both the Company and its derivatives counterparties including in the areas of reporting recordkeeping the mandatory exchange execution and clearing of certain derivatives position limits with respect to certain derivatives regulatory initial margin and variation margin requirements and limitations on the ability to close out certain derivatives transactions with certain counterparties upon the bankruptcy of such counterparties These and other regulations under the Dodd Frank Act could pose limitations and burdens on the Company and its derivatives counterparties which could result in increased costs to the Company in connection with its derivatives transactions Uncertainty remains regarding potential amendments to the Dodd Frank Act and whether any such changes to the Dodd Frank Act would result in a material effect on our business operations
State insurance regulators federal regulators and the NAIC continually reexamine existing laws and regulations and may impose changes in the future The passage of new legislation or new interpretations of existing laws may impact our sales profitability or financial strength The NAIC regularly reviews and updates its U S statutory reserve and RBC requirements Changes to these requirements have resulted in an increase to the amount of reserves and capital we are required to hold and may adversely impact the ability of our insurance subsidiaries to pay dividends to the holding company
We cannot predict the requirements of the regulations ultimately adopted the effect such regulations will have on financial markets generally or on our businesses specifically the additional costs associated with compliance with such regulations or any changes to our operations that may be necessary to comply with new regulations any of which could have a material adverse effect on our business results of operations cash flows or financial condition
The guaranty fund laws of all states in which an insurance company does business require that company to pay assessments up to certain prescribed limits to fund policyholder losses or liabilities of other insurance companies that become insolvent Insolvencies of insurance companies increase the possibility that assessments may be required These assessments may be deferred or forgiven under most guaranty laws if they would threaten an insurer s financial strength and in certain instances may be offset against future premium taxes We cannot estimate the likelihood and amount of future assessments Although past assessments have not been material if there were a number of large insolvencies future assessments could be material and could have a material adverse effect on our operating results and financial position
We are subject to operational risks including among other things fraud errors failure to document transactions properly or to obtain proper internal authorization failure to comply with regulatory requirements or obligations under our agreements information technology failures including cybersecurity attacks failure of our service providers such as investment custodians and information technology and policyholder service providers to comply with our services agreements and failure to effectively maintain upgrade or replace the systems and information technology on which we rely The associates and agents who conduct our business including executive officers and other members of management sales managers investment professionals product managers sales agents and other associates do so in part by making decisions and choices that involve exposing us to risk These include decisions involving numerous business activities such as setting underwriting guidelines product design and pricing investment purchases and sales reserve setting claim processing policy administration and servicing financial and tax reporting and other activities many of which are very complex
We seek to monitor and control our exposure to risks arising out of these activities through a risk control framework encompassing a variety of reporting systems internal controls management review processes and other mechanisms However these processes and procedures may not effectively control all known risks or effectively identify unforeseen risks Management of operational risks can fail for a number of reasons including design failure systems failure cybersecurity attacks human error or unlawful activities If our controls are not effective or properly implemented we could suffer financial or other loss disruption of our business regulatory sanctions or damage to our reputation Losses resulting from these failures may have a material adverse effect on our financial position or results of operations
Our operations are exposed to the risk of major health pandemics epidemics or outbreaks The extent to which major health issues impact our business results of operations or financial condition depends on future developments which are highly uncertain and cannot be predicted including but not limited to i new viruses or virus mutations ii the efficacy of vaccines and other medical inventions iii premature mortality impacts on our claim experience iv responses by government authorities including potential changes in monetary policy enacted by the Federal Reserve and potential fiscal stimulus measures implemented by the federal government and v responses in behavior by policyholders businesses and the population more generally
Our investment portfolio may be adversely affected as a result of any delays or failures of borrowers to make payments of principal and interest when due or delays or moratoriums on foreclosures enforcement actions with respect to delinquent or defaulted mortgages imposed by governmental authorities or the failure of tenants to pay rent or tenants demands for lease modifications Further severe market volatility may leave us unable to react to market events in a prudent manner consistent with our historical investment practices Market dislocations decreases in observable market
activity or unavailability of information in each case arising from major public health issues may impact the key inputs used to derive certain estimates and assumptions made in connection with financial reporting or otherwise
Any uncertainty as a result of any of these events may require us to change our estimates assumptions models or reserves Refer to Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Comprehensive Annual Actuarial Review for further information related to changes in certain actuarial assumptions and their impact on our operating results in 2024
We are exposed to various risks arising out of natural and man made disasters including earthquakes hurricanes floods tornadoes acts of terrorism and military actions and the impacts of climate change For example a natural or man made disaster could lead to unexpected changes in persistency rates as policyholders and contractholders who are affected by the disaster may be unable to meet their contractual obligations such as payment of premiums on our insurance policies and deposits into our investment products In addition such a disaster could also significantly increase our mortality and morbidity experience above the assumptions we used in pricing our products The continued threat of terrorism and ongoing military actions may cause significant volatility in global financial markets and a natural or man made disaster could trigger an economic downturn in the areas directly or indirectly affected by the disaster These consequences could among other things result in a decline in business and increased claims from those areas Disasters also could disrupt public and private infrastructure including communications and financial services which could disrupt our normal business operations
A natural or man made disaster could also disrupt the operations of our counterparties or result in increased prices for the products and services they provide to us For example a natural or man made disaster could lead to increased reinsurance prices and potentially cause us to retain more risk than we otherwise would retain if we were able to obtain reinsurance at lower prices In addition a disaster could adversely affect the value of the assets in our investment portfolio if it affects companies ability to pay principal or interest on their securities
Climate change regulation and market forces reacting to climate change may affect the values of certain invested assets or the Company s willingness to continue to hold them It may also impact other counterparties including reinsurers and affect the value of investments including real estate investments the Company holds or manages for others The Company cannot predict the long term impacts from climate change regulation
Interruption in telecommunication information technology and other operational systems or a failure to maintain the security confidentiality or privacy of sensitive data residing on such systems could harm our business
We depend heavily on our telecommunication information technology and other operational systems and on the integrity and timeliness of data we use to run our businesses and service our customers These systems may fail to operate properly or become disabled as a result of events or circumstances which may be wholly or partly beyond our control including cyber attack denial of service viruses or other malicious activities power outages hardware or software malfunction defects or degradation lack of proper maintenance human error or misuse and similar events Further we face the risk of operational and technology failures by others including financial intermediaries vendors and parties that provide services to us If these parties do not perform as anticipated we may experience operational difficulties increased costs and other adverse effects on our business We have implemented and we require our vendors to implement a variety of security measures to protect the confidentiality availability and integrity of our information systems and data However failure to maintain a reasonable and effective data protection and cybersecurity program or any compromise of the security confidentiality integrity or availability of our information systems and the sensitive proprietary and confidential data including personal information on such systems could lead to additional costs and liabilities as well as damage our reputation or deter people from purchasing our products We are periodically targeted by cybersecurity threat actors In the past we have experienced cybersecurity events resulting in the compromise of personal and confidential information of our customers While no such cybersecurity event has been material there can be no assurance that a future breach will not occur or if any does occur that it can be promptly detected and sufficiently remediated without materially impacting our business or our operations
Moreover we invest significant time and resources towards ensuring that the capacity and reliability of our information technology systems and those of third parties on which our operations rely are sufficient and appropriate to support our business Costs associated with maintaining upgrading or replacing such information technology including legacy systems could exceed our expectations or we may be required to dedicate additional resources Maintaining legacy systems including ensuring such systems meet our evolving technical and regulatory requirements may become impracticable or cost prohibitive Planned system upgrades may not be successful or operate as intended may take longer than anticipated may exceed their budget or create or exacerbate previously unknown security vulnerabilities Any of these outcomes could have a materially adverse impact on our business operations and financial condition
Interruption in telecommunication information technology and other operational systems or a failure to maintain the security confidentiality integrity or availability of sensitive confidential or proprietary data residing on such systems whether due to actions by us our vendors or others could delay or disrupt our ability to do business and service our customers harm our reputation subject us to litigation regulatory sanctions and other claims require us to incur significant technical legal and other expenses lead to a loss of customers revenues and opportunities or otherwise adversely affect our business
Depending on the nature of the information compromised in the event of a data breach or other unauthorized access to or acquisition of our customer data we may also have obligations to notify customers other stakeholders and federal and state government regulators about the incident and we may need to provide some form of remedy such as a subscription to a credit monitoring service for the individuals affected by the incident All fifty states as well as a growing number of regulatory bodies have adopted consumer notification requirements in the event of the actual or reasonably suspected unauthorized access to or acquisition of certain types of personal information Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another Complying with these obligations could cause us to incur substantial costs including fines and could increase negative publicity surrounding any incident that compromises customer data While we maintain insurance coverage that subject to policy terms and conditions and a self insured retention is designed to address certain aspects of cyber risks such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk
AI technologies offer numerous potential benefits such as creating or increasing operational efficiencies and we expect the use of AI and generative AI by us third parties on our behalf and other market actors including our competitors to increase However the deployment of such technologies also poses certain risks including that they may be misused or the models or datasets on which the models are trained may be flawed or otherwise may function in an unexpected manner The relative newness of the technology the speed at which it is being adopted and the relative lack of laws regulations or standards expressly and specifically governing its use increases these risks Any such misuse could expose us to legal or regulatory risk damage customer relationships or cause reputational harm Our competitors may also adopt AI or generative AI more quickly or more effectively than we do which could cause competitive harm
We utilize third party vendors to provide certain business support services and functions which exposes us to risks outside our control that may lead to business interruption or compromise For example we outsource certain information technology and policy administration operations to third party service providers both domestic and international If we fail to maintain an effective outsourcing strategy or if third party providers do not perform as contracted we may experience operational difficulties increased costs and a loss of business that could have a material adverse effect on our results of operations In addition enhanced regulatory and other standards for the oversight of vendors and other service providers could result in higher costs and other potential exposures In the event that one or more of our third party service providers becomes unable to continue to provide services we may suffer financial loss and other negative consequences
A decline in the current financial strength rating of our insurance subsidiaries could cause us to experience decreased sales increased agent attrition and increased policyholder lapses and other policy withdrawals
An important competitive factor for our insurance subsidiaries is the financial strength ratings they receive from nationally recognized rating organizations Agents insurance brokers and marketing companies who market our products and prospective purchasers of our products use the financial strength ratings of our insurance subsidiaries as an important factor in determining whether to market or purchase Ratings have the most impact on our annuity interest sensitive life
insurance and long term care products The current financial strength ratings of our primary insurance subsidiaries from Fitch S P Moody s and AM Best are A A A3 and A respectively For a description of these ratings see Management s Discussion and Analysis of Consolidated Financial Condition and Results of Operations Liquidity and Capital Resources Financial Strength Ratings of our Insurance Subsidiaries
If our ratings are downgraded we may experience declining sales of certain of our insurance products defections of our independent and exclusive sales force and increased policies being redeemed or allowed to lapse These events would adversely affect our financial results which could then lead to additional ratings downgrades
Competition from companies that have greater market share higher ratings greater financial resources and stronger brand recognition may impair our ability to retain existing customers and sales representatives attract new customers and sales representatives and maintain or improve our financial results
The supplemental health insurance annuity and individual life insurance markets are highly competitive Competitors include other life and accident and health insurers commercial banks thrifts mutual funds and broker dealers
Most of our major competitors have higher financial strength ratings than we do Many of our competitors are larger companies that have greater capital technological and marketing resources and have access to capital at a lower cost Recent industry consolidation including business combinations among insurance and other financial services companies has resulted in larger competitors with even greater financial resources In some of our product lines such as life insurance and fixed annuities we have a relatively small market share Even in some of the lines in which we are one of the top writers our market share is relatively small
In addition because the actual cost of products is unknown when they are sold we are subject to competitors who may sell a product at a price that does not cover its actual cost Accordingly if we do not also lower our prices for similar products we may lose market share to these competitors If we lower our prices to maintain market share our profitability would decline
If we are unable to attract and retain agents and marketing organizations or otherwise attract and retain key personnel sales of our products may be reduced and our operations may be adversely impacted
Our products are marketed and distributed primarily through a dedicated field force of exclusive agents and sales managers and through our wholly owned marketing organization and other independent marketing organizations We must attract and retain agents sales managers and independent marketing organizations to sell our products through those distribution channels We compete with other insurance companies financial services companies and other entities for agents and sales managers and for business through marketing organizations If we are unable to attract and retain these agents sales managers and marketing organizations our ability to grow our business and generate revenues from new sales would suffer
We rely on a combination of contractual rights and copyright trademark and trade secret laws to establish and protect our intellectual property Although we use a broad range of measures to protect our intellectual property rights third parties may infringe or misappropriate our intellectual property We may have to litigate to enforce and protect our copyrights trademarks trade secrets and know how or to determine their scope validity or enforceability which represents a diversion of resources that may be significant in amount and may not prove successful The loss of intellectual property protection or the inability to secure or enforce the protection of our intellectual property assets could adversely impact our business and its ability to compete effectively
We also may be subject to costly litigation in the event that another party alleges our operations or activities infringe upon that party s intellectual property rights We may also be subject to claims by third parties for breach of copyright trademark trade secret or license usage rights Any such claims and any resulting litigation could result in significant expense and liability for damages or we could be enjoined from providing certain products or services to our customers or utilizing and benefiting from certain methods processes copyrights trademarks trade secrets or licenses or alternatively we could be required to enter into costly licensing arrangements with third parties all of which could have a material adverse effect on our business results of operations and financial condition
The Company s cybersecurity approach comprises a holistic strategy that includes comprehensive security policies and standards a robust security awareness and education program and the implementation of advanced and layered defenses which is integrated into the Company s overall risk management processes Our cybersecurity program is aligned with generally accepted principles and practices for securing information systems and data The program is designed to comply with applicable laws and regulations and is based on many industry best practices For instance our cybersecurity program policies and controls align to those of the National Institute of Standards and Technology s Cybersecurity Framework
We have established and continue to enhance our procedures for identifying cybersecurity risks and implementing defenses to mitigate these risks We devote significant resources to maintaining and regularly updating our systems and processes to protect the security of our computer systems software networks and other technology assets against unauthorized parties attempting to access confidential information destroy data disrupt or degrade service sabotage systems or cause other damage Our cyber incident response plan provides procedures and controls for timely and accurate reporting of any material cybersecurity incident and each associate is educated trained and tested on cybersecurity to help be our first line of defense
We have a dedicated Cybersecurity Services team CST devoted to information security which is led by the chief information security officer CISO In addition our Security Operations Center provides near real time monitoring of network traffic going in and out of the enterprise to identify any abnormalities or indications of malicious behavior We use managed security services providers to provide monitoring threat hunting and response services through network and security log monitoring and a hosted security information and event management solution
We conduct regular enterprise wide internal and external cyber risk assessments These efforts include audits internal and external regulatory compliance assessments and periodic self assessments Vulnerability assessments are performed frequently for systems and internal and external penetration tests are performed annually We periodically engage vendors to review and benchmark our cybersecurity processes In addition members of the CST perform regular security control assurance testing
Our internal audit department also reviews our cybersecurity program processes policies and controls at least annually The program also is regularly reviewed in annual external audits and regulatory assessments Lessons learned from those efforts are used to drive improvements to continually strengthen the cybersecurity program including controls for data security
The CST works closely with the sourcing and vendor management team when contracting for third party information technology services Our information technology architecture review board which includes cybersecurity leadership reviews all potential vendors We have comprehensive cybersecurity assessment processes and procedures in place including security risk questionnaires standard documentation requests and utilization of a third party risk evaluation tool to provide insight on potential third party vendors We utilize private connections including private VPN and extensive use of virtual desktops to secure access to our data and systems Our legal team ensures that specific protections are included in contracts including confidentiality language nondisclosure obligations and security provisions
Critical vendors are monitored by our sourcing and vendor management team Resources contracted through a third party that will have access to corporate systems must complete CNO s associate training or their company s security awareness training that has been approved by CNO We also perform periodic risk assessments throughout the term of the engagements including those third parties located outside the United States that have access to our Company and customer information
We recognize that security is an enterprise concern and requires stakeholders from across the enterprise to understand and manage this risk Our security management structure reflects a centralized security program that coordinates security functions across the enterprise The CISO who oversees the CST reports directly to our chief information officer and is responsible for the overall strategy and function of the cybersecurity program We also have a cybersecurity steering committee that takes an active role in setting strategic direction for cybersecurity initiatives and provides oversight and guidance for overall information security risk management The CISO provides regular reports on our cybersecurity program and potential risks to the Audit and Enterprise Risk Committee AERC of the Board of Directors The AERC regularly briefs the full Board on these matters One AERC member holds the CERT Certification in Cybersecurity Oversight from Carnegie Mellon University and a second has significant work experience related to technology
Our CISO is well qualified in the area of cybersecurity and data protection These qualifications include i 24 years of experience in cybersecurity security risk management and IT auditing ii the designation of Certified Information Systems Security Professional CISSP and iii a Bachelor s degree in Computer Information Systems Our CISO also previously held the Certified Information Systems Auditor CISA and Certified in Risk and Information Systems Controls CRISC certifications
Failure to maintain a reasonable and effective cybersecurity program or any compromise of the security confidentiality integrity or availability of our information systems and the sensitive proprietary and confidential data on such systems could lead to additional costs and liabilities as well as damage our reputation or deter people from purchasing our products
There can be no assurance that a future breach will not occur or if any does occur that it can be promptly detected and sufficiently remediated without materially impacting our business or our operations While we maintain insurance coverage that subject to policy terms and conditions is designed to address certain aspects of cyber risks such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the event of a material cyber risk incident For a discussion regarding risks associated with cybersecurity threats see Risk Factors General Business Risk Interruption in telecommunication information technology and other operational systems or a failure to maintain the security confidentiality or privacy of sensitive data residing on such systems could harm our business and The use or anticipated use of AI technologies including generative AI by us or third parties may increase the operational risks discussed above or create new or unanticipated operational risks
Our headquarters and certain administrative operations of our subsidiaries and Worksite Division are in a 125 000 leased building with terms through June 2034 located in Carmel Indiana immediately north of Indianapolis In April of 2024 we moved all but our mail operations to this new location from our owned Campus In December 2023 the entire 77 acre campus with six buildings approximately 630 000 square feet was listed for sale in preparation for our move We are presently in discussions with potential buyers for all or portions of the campus Our outsourced mail operations will remain in one of the owned buildings approximately 100 000 square feet until a potential buyer and closing requirements are determined
Our Consumer Division is primarily administered from downtown Chicago Illinois We currently lease approximately 33 000 square feet with terms through August 2033 We also lease approximately 230 branch offices in various states totaling approximately 781 000 square feet These leases are generally short term in length with remaining lease terms expiring between 2025 and 2030
As a result of our success with hybrid work arrangements and evolving business needs our direct to consumer products are primarily administered via remote and hybrid work arrangements In June of 2024 we sold our Philadelphia Pennsylvania office building
Our Optavise business has three office locations Orlando Florida Milwaukee Wisconsin and Birmingham Alabama In Orlando we lease 22 000 square feet with terms through December 2028 Our Milwaukee operations occupy 7 100 square feet pursuant to a lease with terms through February 2030 Our Birmingham operation occupies 7 400 square feet pursuant to a lease with terms through July 2026
Information required for Item 3 is incorporated by reference to the discussion under the heading Legal Proceedings in the note to the consolidated financial statements entitled Commitments and Contingencies included in Item 8 of this Form 10 K
Since January 2018 chief executive officer of CNO From April 2016 to December 2017 president of CNO From April 2015 until joining CNO chief executive officer of GCB LLC an insurance and financial services consulting company that he founded Mr Bhojwani was a member of the board of management of Allianz SE and Chairman of Allianz of America Allianz Life Insurance Company and Fireman s Fund Insurance Company from 2012 to 2015 From 2007 to 2012 he served as chief executive officer of Allianz Life Insurance Company of North America and was president of Commercial Business Fireman s Fund Insurance Company from 2004 to 2007
Since January 2024 president Worksite Division From September 2019 to December 2023 chief actuary and from June 2020 to June 2022 chief risk officer From 2013 to 2019 Ms DeToro held executive leadership positions at New York Life From 2011 to 2013 principal at Deloitte Consulting
Since November 2017 chief human resources officer of CNO From 2016 until joining CNO chief human capital officer of TCF Bank From 2007 to 2016 Ms Franzese held various human resources positions at Allianz including the chief human resources role for Allianz of North America
Since September 2003 chief investment officer of CNO and president and chief executive officer of 40 86 Advisors CNO s wholly owned registered investment advisor Since January 2018 executive in charge of corporate development activities Mr Johnson has held various investment management positions since joining CNO in 1997
Since January 2025 chief accounting officer of CNO Prior to joining CNO Mr Koehneman served as Finance Director at CDW Corporation in 2024 From 2008 to 2023 he held various positions within the audit practice at PricewaterhouseCoopers primarily focused on life insurance clients
Since January 2023 chief operations officer of CNO From August 2017 to December 2022 senior vice president of operations From June 2015 to August 2017 various leadership positions including senior vice president of consumer operations and vice president of customer service Prior to joining CNO Ms Linnenbringer held various positions at Genworth Financial from 2000 to 2015
Since January 2023 chief information officer of CNO From November 2018 to December 2022 senior vice president and chief information officer Prior to joining CNO Mr Mead held various positions at AIG Technologies from 1996 to 2018 including senior vice president and transformation executive
Since March 2019 chief marketing officer of CNO From 2017 to March 2019 vice president of finance and operations for Bankers Life Prior to joining CNO he held various positions from October 2011 to September 2016 including interim chief financial officer beginning in August 2015 and chief financial officer beginning in January 2016 with ITT Financial Services Inc which filed for Chapter 7 Bankruptcy in September 2016
We commenced the payment of a dividend on our common stock in the second quarter of 2012 The dividend on our common stock is declared each quarter by our Board of Directors In determining dividends our Board of Directors reviews our surplus and takes into consideration our financial condition including current and expected earnings and projected cash flows
The performance graph below compares CNO s cumulative total shareholder return on its common stock for the period from December 31 2019 through December 31 2024 with the cumulative total return of the Standard Poor s Life and Health Insurance Index the S P Life and Health Insurance Index and the Standard Poor s MidCap 400 Index the S P MidCap 400 Index The comparison for each of the periods assumes that 100 was invested on December 31 2019 in each of CNO common stock the stocks included in the S P Life and Health Insurance Index and the stocks included in the S P MidCap 400 Index and that all dividends were reinvested The stock performance shown in this graph represents past performance and should not be considered an indication of future performance of CNO s common stock
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 February 2025 when it authorized the repurchase of an additional 500 0 million of the Company s outstanding shares of common stock
In this section we review the consolidated financial condition of CNO and its consolidated results of operations for the years ended December 31 2024 2023 and 2022 and where appropriate factors that may affect future financial performance Please read this discussion in conjunction with the consolidated financial statements and notes included in this Form 10 K
We are a holding company for a group of insurance companies that develop market and administer health insurance annuity individual life insurance and other insurance and financial services 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 of deferred acquisition costs and present value of future profits 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 Net insurance liabilities for the purpose of allocating investment income to product lines are equal to i policyholder account values for interest sensitive products ii total reserves before the fair value adjustments reflected in accumulated other comprehensive income loss if applicable for all other products less iii amounts related to reinsured business iv deferred acquisition costs v the present value of future profits and vi the value of unexpired options credited to insurance liabilities
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 an additional understanding of the business and a more meaningful analysis of the results of our insurance product lines
We market our products through the Consumer and Worksite Divisions that reflect the customers served by the Company 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
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 the sale of voluntary benefit life and health insurance products in the workplace for businesses associations and other membership groups interacting with customers at their place of employment and virtually The Worksite Division also offers employer benefits services that seek to increase benefits engagement and reduce costs for employers and their employees These services include benefit administration technology year round advocacy enrollment benefits compliance and communications services
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 investment borrowings and financing arrangements 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 plus vi the impact of annual option forfeitures related to fixed indexed annuity surrenders Investment income not allocated to product lines includes investment income on investments in excess of amounts allocated to product lines 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 Company owned life insurance COLI and alternative investment income not allocated to product lines net of interest expense on corporate debt and financing arrangements The spread earned from our FHLB investment borrowing and FABN programs includes the investment income on the matched assets less i interest on investment borrowings related to the FHLB investment borrowing program ii interest credited on funding agreements and iii amortization of deferred acquisition costs related to the FABN program
Our fee income segment includes the earnings generated from sales of third party insurance products primarily Medicare Advantage services provided by Optavise and the operations of our broker dealer and registered investment advisor
Management believes that an analysis of net income applicable to common stock before i net realized investment gains or losses from sales impairments and the change in allowance for credit losses net of taxes ii net change in market value of investments recognized in earnings net of taxes iii changes in fair value of embedded derivative liabilities and market risk benefits MRBs related to our fixed indexed annuities net of taxes iv fair value changes related to the agent deferred compensation plan net of taxes v gains or losses related to material reinsurance transactions net of taxes vi loss on extinguishment of debt net of taxes vii changes in the valuation allowance for deferred tax assets and other tax items and viii other non operating items including earnings attributable to variable interest entities net of taxes net operating income a non GAAP financial measure is important to evaluate the financial performance of the company and is a key measure commonly used in the life insurance industry The income tax expense or benefit allocated to the items included in net non operating income loss represents the current and deferred income tax expense or benefit allocated to the items included in non operating earnings Management believes this information helps provide a better understanding of the business and a more meaningful analysis of results of our insurance product lines 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
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of various assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as revenues and expenses during the reporting period Management has made estimates in the past that we believed to be appropriate but were subsequently revised as actual experience developed differently than expected If our future experience differs materially from these estimates and assumptions our results of operations and financial condition could be materially affected
We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances We continually evaluate the information used to make these estimates as our business and the economic environment change The use of estimates is pervasive throughout our financial statements The accounting policies and estimates we consider most critical are summarized below Additional information on our accounting policies is included in the note to our consolidated financial statements entitled Summary of Significant Accounting Policies
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and therefore represents an exit price not an entry price We carry certain assets and liabilities at fair value on a recurring basis including fixed maturities equity securities trading securities investments held by VIEs derivatives separate account assets and embedded derivatives related to fixed indexed annuity products We carry our COLI which is invested in a series of mutual funds at its cash surrender value which approximates fair value In addition we disclose fair value for certain financial instruments including mortgage loans policy loans cash and cash equivalents insurance liabilities for interest sensitive products 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 We categorize our financial instruments carried at fair value into a three level hierarchy based on the observability of inputs The three level hierarchy for fair value measurements is described in the note to the consolidated financial statements entitled Fair Value Measurements
When an available for sale fixed maturity security s fair value is below the amortized cost the security is considered impaired If a portion of the decline is due to credit related factors we separate the credit loss component of the impairment from the amount related to all other factors The credit loss component is recorded as an allowance and reported in net 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 losses 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 uncollectible the remaining amortized cost will be written off
In determining the credit loss component we discount the estimated cash flows on a security by security basis We consider the impact of macroeconomic conditions on inputs used to measure the amount of credit loss For most structured securities cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics expectations of delinquency and default rates loss severity prepayment speeds and structural support including over collateralization excess spread subordination and guarantees For corporate bonds cash flow estimates are derived by considering asset type rating time to maturity and applying an expected loss rate
If we intend to sell an impaired fixed maturity security available for sale or identify an impaired fixed maturity security available for sale for which is it more likely than not we will be required to sell before anticipated recovery the difference between the fair value and the amortized cost is included in net 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
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
Amortization of the present value of future profits and deferred acquisition costs is calculated using the same contract groupings or cohorts mortality surrender and lapse assumptions that are used in calculating the liability for future policy benefits and these assumptions are reviewed and updated at least annually
Present value of future profits and deferred acquisition costs are sensitive to unexpected terminations due to higher mortality surrender and lapse experience than expected Such changes are recognized in the current period as a reduction of the capitalized balances The effect of changes in assumptions related to future mortality and lapses are recognized prospectively over the remaining contract term The carrying values of deferred acquisition costs are not subject to recovery testing
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 Job Act investment strategies the impact of the sale or reinsurance of business the recapture of business previously ceded and tax planning strategies Our estimates of future taxable income are based on evidence we consider to be objectively verifiable At December 31 2024 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 numerous risks and uncertainties 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 net deferred tax assets of 791 4 million will be realized through future taxable earnings
Recovery of our deferred tax asset is dependent on achieving the level of future taxable income projected in our deferred tax valuation model and failure to do so could result in the recognition of a valuation allowance in a future period The recognition of a valuation allowance would increase income tax expense and reduce shareholders equity and such an increase could have a significant impact upon our earnings in the future
The Code limits the extent to which losses realized by a non life entity or entities may offset income from a life insurance company or companies to the lesser of i 35 percent of the income of the life insurance company or ii 35 percent of the total loss of the non life entities including NOLs of the non life entities There is no similar limitation on the extent to which losses realized by a life insurance entity or entities may offset income from a non life entity or entities
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 In addition we expect to recognize approximately 800 million of non life NOLs on our 2024 tax return as a result of changes related to the tax accounting
At December 31 2024 the total balance of our liabilities for insurance products was 29 7 billion These liabilities are generally payable over an extended period of time and the profitability of the related products is dependent on the pricing of the products and other factors Liabilities for insurance products are calculated using management s best judgments based on our past experience and standard actuarial tables of mortality morbidity lapse rates investment experience and expense levels Differences between our expectations when we sold these products and our actual experience could positively or negatively impact future earnings
Our liabilities for future policy benefits are measured using the net premium ratio approach as described in the note to the consolidated financial statements entitled Summary of Significant Accounting Policies
The liability for future policy benefits is determined based on numerous assumptions The most significant assumptions for our life and annuity business are mortality and lapse withdrawal rates which are based on our experience and in cases of limited experience industry experience Mortality and lapse withdrawal rates also take into consideration future expectations in policyholder behavior that may vary from past experience For our health business mortality rates lapse rates morbidity assumptions and future rate increases are based on our experience and in cases of limited experience industry experience Such assumptions also consider future expectations in policyholder behavior that may vary from past experience In addition the liability for future policy benefits is measured using estimated discount rates The assumptions and estimates that we use often depend on judgment regarding the likelihood of future events and are inherently uncertain The liability for unpaid policy claims on health contracts is classified as future policy benefits on the consolidated balance sheet The liability for unpaid policy claims on life insurance contracts is classified as the liability for life insurance policy claims on the consolidated balance sheet
Cash flow assumptions related to our insurance contracts are established when a policy is issued and are evaluated each quarter to determine if assumption updates are required A more detailed review of assumptions is performed annually Changes to our cash flow assumptions are recognized in the liability for future policy benefits remeasurement gain loss in the consolidated statement of operations Actual experience is reflected in the calculation of future policy benefits each quarter and changes in the liability due to actual experience are also recognized in the liability for future policy benefits remeasurement gain loss in the consolidated statement of operations
Discount rates used to calculate net premiums are locked in at policy inception and provide the basis to recognize interest expense in the consolidated statement of operations Discount rates used to measure the carrying value of the liability for future policy benefits in the consolidated balance sheet are updated each reporting period and differences between the liability balances calculated using the locked in rate and the updated discount rates are recognized in accumulated other comprehensive income loss For additional discussion on the determination of discount rates see the note to the consolidated financial statements entitled Summary of Significant Accounting Policies
The table presented below summarizes our estimates of the immediate impacts to pre tax income resulting from hypothetical revisions to certain assumptions and is for illustrative purposes only as such hypothetical revisions are not currently required or anticipated We have assumed that revisions to assumptions resulting in the adjustments summarized below would occur equally among policy types ages and durations within each product classification Any actual adjustment would be dependent on the specific policies affected and therefore may differ from the estimates summarized below In addition the impact of actual adjustments would reflect the net effect of all changes in assumptions during the period
a The estimated impact of the hypothetical 50 basis point increase or decrease in interest rates related to our fixed indexed and fixed interest annuity products would be reflected in our pre tax non operating earnings
MRBs are contracts or contract features that both provide protection to the contract holder from other than nominal capital market risk and expose the Company to other than nominal capital market risk Many of our fixed indexed annuity products include a GLWB that is considered a MRB MRBs are measured at fair value using an option based valuation model based on amount of exposure market data company experience and other factors Changes in fair value are recognized in earnings each period with the exception of the portion of the change in fair value due to a change in the instrument specific credit risk which is recognized in other comprehensive income loss MRBs in an asset position are presented separately from those in a liability position as there is no legal right of offset between contracts
The cost of MRBs may rise in volatile or declining equity markets or in a low interest rate environment Market conditions including but not limited to changes in interest rates equity indices market volatility variations in actuarial assumptions regarding policyholder behavior mortality and risk margins related to non capital market inputs may result in significant fluctuations in the estimated fair value of the guarantees that could affect net income and changes in our nonperformance risk could materially affect other comprehensive income loss
At December 31 2024 the value of goodwill and other intangible assets was 69 5 million and 28 1 million respectively Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise Goodwill is tested annually for impairment and whenever indicators of impairment arise in accordance with Accounting Standards Codification 350
ASC 350 The Company first performs a qualitative assessment to determine whether it is more likely than not a goodwill impairment exists and if an indication of potential impairment results from the qualitative assessment a quantitative assessment is performed The Company prepares a quantitative assessment to determine the fair value of the reporting unit by using a combination of the present value of expected future cash flows and a market approach based on revenue multiple data from peer companies and relevant observable market transactions if available If an impairment is identified an impairment is recorded by the amount that the carrying value exceeds the fair value of the reporting unit up to the carrying amount of goodwill
During the fourth quarter of 2024 the Company performed a quantitative impairment assessment in accordance with ASC 350 As a result of this impairment test we determined that the fair value of the Optavise reporting unit exceeded its carrying value and therefore goodwill was not impaired
While future cash flows utilized in the quantitative impairment test are consistent with those that are used in our internal planning process estimating cash flows requires significant judgment Future changes to our projected cash flows can vary from the cash flows eventually realized which may have a material impact on the outcomes of future goodwill impairment tests The Company also uses a weighted average cost of capital that represents the blended average required rate of return for equity and debt capital based on observed market return data and company specific risk factors The estimated fair value of the Optavise reporting unit is highly sensitive to changes in the weighted average cost of capital and terminal value estimates For example increasing the weighted average cost of capital by 300 basis points or decreasing the terminal value by 13 percent would result in the carrying value of the Optavise reporting unit exceeding its fair value resulting in goodwill impairment
Amortization and non deferred commissions are comprised of i the amortization of deferred acquisition costs and present value of future profits and ii commission expenses that are not directly related to the successful acquisition of new or renewal insurance contracts and therefore are not eligible to be deferred Such non deferred commissions are included in other operating costs and expenses on the consolidated statement of operations
CNO is the top tier holding company for a group of insurance companies that develop market and administer health insurance annuity individual life insurance and other insurance and financial services 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 the sale of voluntary benefit life and health insurance products in the workplace for businesses associations and other membership groups interacting with customers at their place of employment and virtually
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 this information helps provide an additional understanding of the business and a more meaningful analysis of the results of our insurance product lines
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 for the block in each period Net insurance liabilities for the purpose of allocating investment income to product lines are equal to i policyholder account values for interest sensitive products ii total reserves before the fair value adjustments reflected in accumulated other comprehensive income loss if applicable for all other products less iii amounts related to reinsured business iv deferred acquisition costs v the present value of future profits and vi the value of unexpired options credited to insurance liabilities 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 investment borrowings and financing arrangements iv expenses related to the FABN program and v certain expenses related to benefit plans that are offset by special purpose investment income plus vi the impact of annual option forfeitures related to fixed indexed annuity surrenders Investment income not allocated to product lines includes investment income on investments in excess of amounts allocated to product lines 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 and financing arrangements
Previously the review was completed in the fourth quarter of each year however we began performing this review in the third quarter starting with 2024 to better align with our annual planning process and third quarter is also more consistent with industry practice In addition we also review and update our assumptions on a more frequent basis to the extent current conditions or circumstances warrant changes that could be significant to our operating results The impacts of the review have had a significant impact on our earnings
We performed our 2024 comprehensive annual actuarial review resulting in a net favorable impact to insurance product margins included in pre tax operating income of 27 3 million The impact to insurance product margins by product are summarized in the table below The most significant impacts related to fixed indexed annuities and Medicare supplement products which were favorably unfavorably impacted by 36 2 million and 9 4 million respectively The primary fixed indexed annuities changes related to higher mortality assumptions The primary Medicare supplement changes related to higher morbidity and higher persistency assumptions In addition the comprehensive annual actuarial review unfavorably impacted pre tax non operating income by 42 8 million related to changes in the fair value of embedded derivative liabilities and market risk benefits on our fixed indexed annuities The primary changes related to higher earned rate assumptions
We performed our 2023 comprehensive annual actuarial review resulting in a net favorable impact to insurance product margins included in pre tax operating income of 33 9 million The impact to insurance product margins by product are summarized in the table below The most significant impacts related to supplemental health and Medicare supplement products which were favorably unfavorably impacted by 41 9 million and 10 6 million respectively The primary supplemental health changes related to lower morbidity and higher surrender assumptions The primary Medicare
supplement changes related to higher near term morbidity and higher persistency assumptions In addition the comprehensive annual actuarial review unfavorably impacted pre tax non operating income by 12 4 million related to changes in the fair value of embedded derivative liabilities and market risk benefits on our fixed indexed annuities
We performed our 2022 comprehensive annual actuarial review resulting in a net favorable impact to insurance product margins included in pre tax operating income of 0 7 million and is summarized by product in the table below The most significant impacts related to long term care and traditional life products which were favorably unfavorably impacted by 16 4 million and 13 0 million respectively The primary long term care assumption changes related to lower near term morbidity The primary traditional life assumption change was an increase in expected mortality
Insurance product margin was 1 040 0 million 959 0 million and 936 5 million in 2024 2023 and 2022 respectively Insurance product margin excluding the impacts summarized in the table above were 1 012 7 million 925 1 million and 935 8 million in 2024 2023 and 2022 respectively Fluctuations by product line are discussed in greater detail in the narratives that follow Total allocated and unallocated expenses are summarized in the table below Expenses not allocated to product lines include certain significant items listed in the table below Total allocated and unallocated expenses as adjusted for the significant items are summarized below dollars in millions
Our expense ratio was 19 2 percent 19 4 percent and 19 3 percent for the years ended December 31 2024 2023 and 2022 respectively The expense ratio is defined as total allocated and unallocated expenses excluding any significant items divided by the sum of insurance policy income and net investment income allocated to products
Net fee income decreased modestly in 2024 compared to 2023 due to i changes in our revenue recognition assumptions related to sales of third party Medicare Advantage products by our Consumer Division reflecting less favorable policy persistency and higher agent persistency resulting in higher renewal commissions largely offset by ii higher sales of third party Medicare Advantage products in 2024 and iii slightly lower losses related to services provided by Optavise and operations of our broker dealer and registered investment advisor Net fee income increased in 2023 primarily due to growth in the sales of third party Medicare Advantage products by our Consumer Division and changes to our revenue recognition assumptions reflecting favorable policy persistency partially offset by lower earnings related to services provided by Optavise
was 215 8 million in 2024 compared to 192 2 million in 2023 and 183 4 million in 2022 The margin adjusted to exclude the favorable unfavorable impacts of the annual actuarial review previously discussed was 179 6 million 182 8 million and 186 6 million in 2024 2023 and 2022 respectively The decreasing adjusted margins are primarily due to additional amortization resulting from higher surrenders and assumption changes partially offset by increased surrender charge income Growth in the block is primarily being offset by spread compression driven by increased surrenders of higher spread products Net insurance liabilities equal to i policyholder account values for interest sensitive products ii total reserves before the fair value adjustments reflected in accumulated other comprehensive income loss if applicable for all other products less iii amounts related to reinsured business iv deferred acquisition costs v the present value of future profits and vi the value of unexpired options credited to insurance liabilities were 9 848 9 million 9 337 3 million and 8 788 6 million in 2024 2023 and 2022 respectively driven by deposits and reinvested returns in excess of withdrawals The increase in net insurance liabilities results in higher net investment income allocated The earned yield was 4 66 percent in 2024 up from 4 39 percent in 2023 and 4 25 percent in 2022 reflecting higher portfolio yields
Net investment income and interest credited exclude the change in market values of the underlying options supporting the fixed indexed annuity products and corresponding offsetting amount credited to policyholder account balances Such amounts were 231 8 million 118 3 million and 181 3 million in 2024 2023 and 2022 respectively
was 31 6 million in 2024 compared to 33 9 million in 2023 and 32 4 million in 2022 The margin decreased in 2024 primarily due to additional amortization from higher policy surrenders The reduction in the size of the block is largely offset by increased yields Average net insurance liabilities were 1 578 3 million 1 612 0 million and 1 700 5 million in 2024 2023 and 2022 respectively driven by withdrawals in excess of deposits and reinvested returns The earned yield increased to 5 33 percent in 2024 reflecting higher portfolio yields compared to 5 19 percent in 2023 and 4 88 percent in 2022
was 26 8 million in 2024 compared to 8 9 million in 2023 and 11 1 million in 2022 The margin adjusted to exclude the favorable impacts of the annual actuarial review previously discussed was 5 4 million in 2023 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 We experienced elevated annuitant mortality on a small number of closed block payout annuity policies in 2024 Mortality was lower in 2023 compared to 2022
business was 269 8 million in 2024 compared to 294 4 million in 2023 and 230 9 million in 2022 The margin adjusted to exclude the favorable impacts of the annual actuarial review previously discussed was 269 5 million 252 5 million and 229 0 million in 2024 2023 and 2022 respectively The adjusted margin as a percentage of insurance policy income was 37 percent in 2024 compared to 36 percent in 2023 and 33 percent in 2022 The increase in the supplemental health adjusted margin in 2024 compared to 2023 and 2022 reflects growth in the block and favorable morbidity
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 two thirds of our supplemental health policies inforce based on policy count are sold with return of premium or cash value riders The return of premium rider generally provides that after a policy has been inforce for a
specified number of years or upon the policyholder reaching a specified age we will pay to the policyholder or a beneficiary under the policy the aggregate amount of all premiums paid under the policy without interest less the aggregate amount of all claims incurred under the policy The cash value rider is similar to the return of premium rider but also provides for payment of a graded portion of the return of premium benefit if the policy terminates before the return of premium benefit is earned Accordingly the net cash flows from these products generally result in the accumulation of amounts in the early years of a policy reflected in our earnings as reserve increases which is a component of insurance policy benefits which will be paid out as benefits in later policy years reflected in our earnings as reserve decreases which offset the recording of benefit payments As the policies age insurance policy benefits will typically increase but the increase in benefits will be partially offset by investment income earned on the accumulated assets
business was 113 9 million in 2024 compared to 116 9 million in 2023 and 151 0 million in 2022 The Medicare supplement margin adjusted to exclude the impacts of the annual actuarial review previously discussed was 123 3 million 127 5 million and 151 0 million in 2024 2023 and 2022 respectively The adjusted margin as a percentage of insurance policy income was 20 percent 21 percent and 23 percent in 2024 2023 and 2022 respectively The slight decrease in the adjusted margin in 2024 as compared to 2023 is primarily due to higher morbidity The decrease in the adjusted margin in 2023 compared to 2022 was primarily due to a reduction in the size of the block and higher morbidity Claim experience will fluctuate from period to period Insurance policy income was 620 5 million in 2024 compared to 619 9 million in 2023 and 657 8 million in 2022 Over the last several years 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 We launched a new competitive Medicare supplement product in 2022 resulting in sales growth over the past two years
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 U S 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
was 133 1 million in 2024 compared to 83 0 million in 2023 and 122 5 million in 2022 The margin adjusted to exclude the impacts of the annual actuarial review previously discussed was 132 2 million 92 0 million and 106 1 million in 2024 2023 and 2022 respectively The adjusted margin as a percentage of insurance policy income and excluding the impacts of the annual actuarial review was 48 percent 35 percent and 40 percent in 2024 2023 and 2022 respectively The fluctuations resulted from claim experience which was favorable in 2024 as compared to 2023 and unfavorable in 2023 as compared to 2022 Claim experience will fluctuate from period to period Effective October 1 2024 we discontinued ceding 25 percent of long term care new business under a reinsurance agreement We now retain 100 percent of our long term care new business This does not impact the inforce business that we previously ceded As a result we expect margins to increase modestly in 2025 and grow more in future years as earnings emerge from the sales
business was 97 9 million in 2024 compared to 98 7 million in 2023 and 79 5 million in 2022 The interest sensitive life margins adjusted to exclude the impacts of the annual actuarial review previously discussed were 94 1 million 94 8 million and 80 9 million in 2024 2023 and 2022 respectively The increase in the adjusted margin in 2024 and 2023 compared to 2022 reflects more favorable mortality and growth in the block due to sales in recent periods
The interest margin was 2 3 million in 2024 compared to 2 8 million in 2023 and 3 3 million in 2022 The decline in the interest margin over the three year period is due to spread compression partially offset by growth in the
block 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 excludes the change in market values of the underlying options supporting the fixed indexed life products and corresponding offsetting amount credited to policyholder account balances Such amounts were 21 9 million 13 2 million and 24 0 million in 2024 2023 and 2022 respectively
business was 151 1 million in 2024 compared to 131 0 million in 2023 and 125 7 million in 2022 The traditional life margins adjusted to exclude the impacts of the annual actuarial review previously discussed were 155 6 million 136 2 million and 138 7 million in 2024 2023 and 2022 respectively The increase in the adjusted margin in 2024 compared to 2023 and 2022 primarily reflects lower advertising expense and growth in the block
Advertising expense was 77 3 million in 2024 compared to 92 5 million in 2023 and 94 3 million in 2022 The demand and cost of television advertising can fluctuate from period to period and tends to spike during presidential election cycles We are disciplined with our marketing expenditures and will increase or decrease our marketing spend depending on the current economics of the purchase or other factors
The above table reconciles net investment income to investment income not allocated to product lines Such amounts will generally fluctuate from period to period based on a number of factors A dividend of 28 1 million was received in the fourth quarter of 2024 related to a single equity investment Other factors driving fluctuations include the performance of our alternative investments which are typically reported a quarter in arrears the earnings related to the investments underlying our COLI the spread we earn from our FHLB investment borrowing and FABN programs and the level of prepayment income including call premiums and trading account income
Net realized investment losses were 72 7 million in 2024 net of reductions in the allowance for credit losses of 9 4 million which were recorded in earnings Net realized investment losses were 62 7 million in 2023 net of reductions in the allowance for credit losses of 8 1 million which were recorded in earnings Net realized investment losses were 62 2 million in 2022 including the unfavorable change in the allowance for credit losses of 52 6 million which were recorded in earnings
During 2024 2023 and 2022 we recognized an increase decrease in earnings of 22 8 million 6 3 million and 73 2 million respectively due to the net change in market value of investments recognized in earnings The change in value will fluctuate from period to period based on market conditions
During 2024 2023 and 2022 we recognized an increase decrease in earnings of 6 6 million 3 5 million and 48 9 million respectively for the mark to market change in the agent deferred compensation plan liability which was impacted by changes in the underlying actuarial assumptions used to value the liability We recognize the mark to market change in the estimated value of this liability through earnings as assumptions change
During 2024 2023 and 2022 we recognized an increase decrease in earnings of 24 7 million 29 9 million and 440 2 million respectively resulting from changes in the fair value of embedded derivative liabilities and MRBs related to our fixed indexed annuities Excluding the net unfavorable impacts of the annual actuarial review previously discussed we recognized an increase decrease in earnings of 67 5 million 17 5 million and 440 2 million in 2024 2023 and 2022 respectively Such amounts include the impacts of changes in market interest rates and equity impacts used to determine the estimated fair values of the embedded derivatives and MRBs
In 2024 other non operating items included a charge of 8 7 million primarily related to a five percent workforce reduction and transition costs for outsourcing certain operations activities At the same time we are adding roles to enhance support of our Consumer and Worksite divisions and that add technology expertise in areas such as AI robotics and automation In 2022 other non operating items include a one time restructuring charge of 7 1 million primarily related to an early retirement program The program reduced our headcount by 2 percent and reduced run rate expenses by approximately 10 million Other non operating items also 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
In accordance with GAAP insurance policy income in our consolidated statement of operations consists of premiums earned for traditional insurance policies that have life contingencies or morbidity features For annuity and interest sensitive life contracts premiums collected are not reported as revenues but as deposits to insurance liabilities We recognize revenues for these products over time in the form of investment income and surrender or other charges
Agents insurance brokers and marketing organizations who market our products and prospective purchasers of our products use the financial strength ratings of our insurance subsidiaries as an important factor in determining whether to market or purchase Ratings have the most impact on our Worksite sales of supplemental health and life products since such ratings are often an important factor considered by employers The current financial strength ratings of our primary insurance subsidiaries from Fitch S P Moody s and AM Best are A A A3 and A respectively For a description of these ratings and additional information on our ratings see Consolidated Financial Condition Financial Strength Ratings of our Insurance Subsidiaries
We set premium rates on our health insurance policies based on facts and circumstances known at the time we issue the policies using assumptions about numerous variables including but not limited to the actuarial probability of a policyholder incurring a claim the probable size of the claim and the interest rate earned on our investment of premiums We also consider historical claims information industry statistics the rates of our competitors and other factors If our actual claims experience is less favorable than we anticipated and we are unable to raise our premium rates our financial results may be adversely affected We generally cannot raise our health insurance premiums in any state until we obtain the approval of the state insurance regulator We review the adequacy of our premium rates regularly and file for rate increases on our products when we believe such rates are too low It is likely that we will not be able to obtain approval for all requested premium rate increases If such requests are denied in one or more states our net income may decrease If such requests are approved increased premium rates may reduce the volume of our new sales and may cause existing policyholders to lapse their policies If the healthier policyholders allow their policies to lapse this would reduce our premium income and profitability in the future
include fixed indexed fixed interest and other annuities sold to the senior market Annuity collections were 1 790 6 million in 2024 compared to 1 583 2 million in 2023 and 1 604 6 million in 2022 Premium collections from fixed indexed annuities increased 12 3 percent to 1 542 7 million in 2024 compared to 2023 Premium collections from fixed interest annuities increased 19 7 percent to 239 1 million in 2024 compared to 2023
products include supplemental health Medicare supplement and long term care products Premiums collected on supplemental health products including specified disease accident and hospital indemnity insurance products were 725 7 million in 2024 compared to 706 6 million in 2023 and 692 9 million in 2022 Such increases are primarily due to new sales and steady persistency
Collected premiums on Medicare supplement policies were 625 7 million 609 4 million and 651 6 million in 2024 2023 and 2022 respectively Prior to 2023 decreases were driven by lower sales partially offset by premium rate increases In recent years 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 ensure we are well positioned to meet our customers needs and preferences We launched a new competitive Medicare supplement product in 2022 resulting in sales growth over the past two years
products include interest sensitive and traditional life products Life premiums were 960 5 million 937 0 million and 911 8 million in 2024 2023 and 2022 respectively Premiums collected reflect both recent sales activity and steady persistency
Our investment strategy is to i provide largely stable investment income from a diversified high quality fixed income portfolio ii mitigate the effect of changing interest rates through active asset liability management iii provide liquidity to meet our cash obligations to policyholders and others iv manage capital efficiency through active strategic asset allocation and investment management and v use outside managers in specialized investment classes to add value to our overall strategy Consistent with this strategy investments in fixed maturity securities and mortgage loans made up 91 percent of our 27 9 billion investment portfolio at December 31 2024 The remainder of the invested assets were trading securities investments held by VIEs equity securities policy loans and other invested assets
Insurance statutes regulate the types of investments that our insurance subsidiaries are permitted to make and limit the amount of funds that may be used for any one type of investment In addition we have internal management compliance limits on various exposures and activities which are typically more restrictive than insurance statutes In light of these statutes and regulations and our capital management strategy we generally seek to invest in i highly rated securities such as United States government and government agency securities and corporate securities rated investment grade by established nationally recognized rating organizations ii securities of comparable investment quality if not rated or iii a limited quantity of other investments which offer differentiated return characteristics
Investment ratings are assigned the second lowest rating by Nationally Recognized Statistical Rating Organizations Moody s S P or Fitch or if not rated by such firms the rating assigned by the NAIC NAIC designations of 1 or 2 include fixed maturities generally rated investment grade rated Baa3 or higher by Moody s or rated BBB or higher by S P and Fitch NAIC designations of 3 through 6 are referred to as below investment grade which generally are rated Ba1 or lower by Moody s or rated BB or lower by S P and Fitch References to investment grade or below investment grade throughout our consolidated financial statements are determined as described above The following table sets forth fixed maturity investments at December 31 2024 classified by ratings dollars in millions
We continually evaluate the creditworthiness of each issuer whose securities we hold We pay special attention to large investments investments which have significant risk characteristics and to those securities whose fair values have declined materially for reasons other than changes in general market conditions We evaluate the realizable value of the investment the specific condition of the issuer and the issuer s ability to comply with the material terms of the security We review the historical and recent operational results and financial position of the issuer information about its industry information about factors affecting the issuer s performance and other information 40 86 Advisors employs experienced securities analysts in a broad variety of specialty areas who compile and review such data During 2024 we recognized net investment losses of 49 9 million which were comprised of i 75 6 million of net losses from the sales of investments ii 0 4 million of losses related to equity securities including the change in fair value iii the net increase in fair value of certain other invested assets and fixed maturity investments with embedded derivatives of 24 4 million iv the increase in fair value of embedded derivatives related to a modified coinsurance agreement of 0 4 million v 3 9 million of gains related to the liquidation of VIEs and vi investment write downs offset by a net decrease in the allowance for credit losses of 2 6 million
During 2024 we sold 1 432 0 million of fixed maturity investments which resulted in gross realized investment losses before income taxes of 54 9 million Securities are generally sold at a loss following unforeseen sector or issuer specific events or conditions shifts in perceived credit quality relative values or in connection with strategic asset repositionings related to changes in market conditions
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
At December 31 2024 we held commercial mortgage loan investments with an amortized cost of 1 501 4 million or 5 4 percent of total invested assets and a fair value of 1 344 2 million Our commercial mortgage loan portfolio is primarily comprised of large commercial mortgage loans Approximately 17 percent 7 percent 6 percent 6 percent and 5 percent of the commercial mortgage loan balance were on properties located in California Maryland Wisconsin Utah and Georgia respectively No other state comprised greater than five percent of the mortgage loan balance At December 31 2024 there were no commercial mortgage loans in process of foreclosure
The following table provides the amortized cost by year of origination and estimated fair value of our outstanding commercial mortgage loans and the underlying collateral as of December 31 2024 dollars in millions
At December 31 2024 we held residential mortgage loan investments with an amortized cost of 1 018 6 million and a fair value of 1 031 8 million Our primary credit quality indicator for these investments is whether the loan is current or non current We define non current loans as those that are 90 or more days past due and or in nonaccrual status At December 31 2024 there were twenty one residential mortgage loans that were non current with an amortized cost of 15 6 million of which eight loans with an amortized cost of 3 7 million were in foreclosure At December 31 2023 we held residential mortgage loan investments with an amortized cost of 622 0 million and a fair value of 621 8 million
At December 31 2024 we held 304 2 million of trading securities We carry trading securities at estimated fair value changes in fair value are reflected in the statement of operations Our trading securities include i investments purchased with the intent of selling in the near term to generate income and ii certain fixed maturity securities containing embedded derivatives for which we have elected the fair value option Investment income from trading securities backing certain insurance liabilities is substantially offset by the change in insurance policy benefits related to certain products and agreements
Other invested assets include options backing our fixed indexed annuity and life insurance products COLI FHLB common stock and certain nontraditional investments including investments in limited partnerships hedge funds and real estate investments
At December 31 2024 we held investments with an amortized cost of 437 0 million and an estimated fair value of 432 3 million related to VIEs that we are required to consolidate The investment portfolio held by the VIEs is primarily comprised of commercial bank loans the borrowers for which are almost entirely rated below investment grade Refer to the note to the consolidated financial statements entitled Investments in Variable Interest Entities for additional information on these investments
We expect operating earnings per diluted share to be in the range of 3 70 to 3 90 excluding any significant items in the year We expect our expense ratio to be in the range of 19 0 percent to 19 4 percent with a quarterly trend similar to 2024 starting on the high end in the first quarter of the year and then grading down throughout the year We expect improved results in net investment income not allocated to product lines which assumes higher returns on our alternative investments We expect a modest decrease in fee income with approximately 25 percent of such earnings to be recognized in the first quarter of 2025 and the remainder of such earnings generally recognized in the fourth quarter of 2025 reflecting the seasonality of the business We expect the effective tax rate to be generally consistent with prior years at approximately 23 percent
We expect excess cash flow to the holding company to be in the range of 200 million to 250 million We expect to continue to manage to i a consolidated RBC ratio of 375 percent for our U S based insurance subsidiaries ii minimum holding company liquidity of 150 million and iii a target debt to total capital excluding accumulated other comprehensive income loss in the range of 25 percent to 28 percent Although our debt to total capital ratio excluding accumulated other comprehensive income loss was 32 1 percent at December 31 2024 we expect to use a portion of the net proceeds from the issuance of the 2034 Notes for the repayment of our 2025 Notes At December 31 2024 adjusting for the expected repayment of the 2025 Notes the debt to total capital ratio excluding accumulated other comprehensive income loss would have been 25 6 percent
In the second quarter of 2025 we will begin a three year project to modernize certain elements of our technology enabling continued growth of the business over the long term The initiative is expected to cost approximately 170 million over three years including approximately 60 million in 2025 The substantial majority of the costs will be expensed as incurred but will be excluded from operating earnings and included as a component of non operating earnings The expenses excluded from operating earnings will be discrete expenses one time in nature related to the three year initiative and largely paid to third parties as well as some asset write offs The remainder of the costs will either be expensed as incurred or capitalized and amortized through operating earnings The outlook metrics previously described include the expected impact of this initiative
Changes in our consolidated balance sheet between December 31 2024 and December 31 2023 primarily reflect i our net income for 2024 ii changes in accumulated other comprehensive income loss and iii payments to repurchase common stock of 281 6 million
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
a These cash flows represent our estimates of the payments we expect to make to our policyholders without consideration of future premiums or reinsurance recoveries These estimates are based on numerous assumptions depending on the product type related to mortality morbidity lapses withdrawals future premiums future deposits interest rates on investments credited rates expenses and other factors which affect our future payments The cash flows presented are undiscounted for interest As a result total outflows for all years exceed the corresponding liabilities of 29 7 billion included in our consolidated balance sheet as of December 31 2024 As such payments are based on numerous assumptions the actual payments may vary significantly from the amounts shown
For products such as universal life ordinary life long term care supplemental health and deferred annuities the future payments are not due until the occurrence of an insurable event such as death or disability or a triggering event such as a surrender or partial withdrawal We estimated these payments using actuarial models based on historical experience and our expectation of the future payment patterns which is consistent with the assumptions used in our reserve calculations for these blocks of business
For insurance products such as Medicare supplement insurance the future payments relate only to amounts necessary to settle all outstanding claims including those that have been incurred but not reported as of the balance sheet date We estimated these payments based on our historical experience and our expectation of future payment patterns which is consistent with the assumptions used in our reserve calculations for these blocks of business
The average interest rate we assumed would be credited to our total insurance liabilities excluding interest rate bonuses for the first policy year only and excluding the effect of credited rates attributable to variable or fixed indexed products over the term of the contracts was 4 3 percent
b Includes projected interest payments based on interest rates as applicable as of December 31 2024 Refer to the note to the consolidated financial statements entitled Notes Payable Direct Corporate Obligations for additional information on notes payable
While we actively manage the relationship between the duration and cash flows of our invested assets and the estimated duration and cash flows of benefit payments arising from contract liabilities there could be significant variations in the timing of such cash flows Although we believe our current estimates properly project future claim experience if these estimates prove to be wrong and our experience worsens as it did in some prior periods our future liquidity could be adversely affected
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 December 31 2024 the carrying value of the FHLB common stock was 94 6 million As of December 31 2024 collateralized borrowings from the FHLB totaled 2 2 billion and the proceeds were used to purchase matched variable rate 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 8 billion at December 31 2024 which are maintained in custodial accounts for the benefit of the FHLB
Bankers Life has 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 4 billion In October 2021 Bankers Life issued a funding agreement to a series of the Trust in an aggregate principal amount of 500 0 million In January 2022 Bankers Life issued two additional funding agreements each to a series of the Trust totaling 900 0 million In June September and December of 2024 Bankers Life issued funding agreements each to a series of the Trust in a principal amounts of 750 0 million 400 0 million and 450 0 million respectively 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 of our U S based insurance subsidiaries was 383 percent at December 31 2024 compared to 402 percent at December 31 2023 In 2024 the RBC ratio reflected i our estimated consolidated statutory operating income of 196 9 million ii insurance company dividends net of capital contributions to the holding company of 129 0 million iii an increase in reserves of 100 7 million due to a change in valuation basis recorded directly to surplus offset by a 93 5 million release of premium deficiency reserves reflected in operating income and iv an increase in required capital primarily due to growth of our insurance business and expansion of the FABN program Our RBC ratio at December 31 2024 exceeded our targeted statutory RBC ratio of 375 percent and the minimum 350 percent that is reflected in our risk appetite statement that we share and discuss with rating agencies and insurance regulators We believe that the 375 percent RBC ratio target continues to adequately support our financial strength and credit ratings
In 2023 we formed CNO Bermuda Re a Bermuda exempted company which is an indirect wholly owned subsidiary of CNO CNO Bermuda Re is registered by and subject to the supervision of the BMA as a Class C insurer under the Insurance Act Pursuant to the CLMA between CNO Bermuda Re and CDOC CDOC will contribute funds to CNO Bermuda Re in the event i CNO Bermuda Re s statutory economic capital and surplus is less than 150 percent of its ECR at the end of any calendar quarter or ii CNO Bermuda Re s liquid assets are insufficient to meet its contractual obligations to ceding insurers in each case unless Bankers Life has provided notice of recapture pursuant to the terms of a modified coinsurance agreement between it and CNO Bermuda Re Further CNO Bermuda Re may not pay any dividends
or make any capital distributions to its parent and or affiliates within the five years following the initial reinsurance transaction unless approved by the BMA CNO Bermuda Re is subject to regulation in Bermuda where the BMA has broad supervisory and administrative powers relating to granting and revoking licenses to transact reinsurance business the approval of specific reinsurance transactions capital requirements and solvency standards limitations on dividends or distributions to shareholders the nature of and limitations on investments and the filing of financial statements in accordance with prescribed or permitted accounting practices Future regulatory changes made by the BMA or other events may impact the capital efficiency of the reinsurance structure and could require the holding company to contribute additional capital to CNO Bermuda Re or Bankers Life to recapture the ceded business
During 2024 the financial statements of three of our U S based insurance subsidiaries prepared in accordance with statutory accounting practices prescribed or permitted by regulatory authorities reflected asset adequacy or premium deficiency reserves Total asset adequacy and premium deficiency reserves for Bankers Life Washington National and Bankers Conseco Life Insurance Company were 90 0 million 51 0 million and 34 5 million respectively at December 31 2024 Due to differences between statutory and GAAP insurance liabilities we were not required to recognize a similar asset adequacy or premium deficiency reserve in our consolidated financial statements prepared in accordance with GAAP The determination of the need for and amount of asset adequacy or premium deficiency reserves is subject to numerous actuarial assumptions and state requirements
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
On October 29 2024 Fitch affirmed its A financial strength ratings of our primary insurance subsidiaries and the outlook for these ratings is stable An insurer rated A in Fitch s opinion indicates a low expectation of ceased or interrupted payments and indicates strong capacity to meet policyholder and contract obligations This capacity may nonetheless be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings Fitch ratings for the industry range from AAA Exceptionally Strong to C Distressed and some companies are not rated Pluses and minuses show the relative standing within a category Fitch has nineteen possible ratings There are five ratings above the A rating of our primary insurance subsidiaries and thirteen ratings that are below that rating
Moody s most recently reviewed its A3 financial strength ratings of our primary insurance subsidiaries on July 10 2024 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
S P most recently reviewed its A financial strength ratings of our primary insurance subsidiaries on June 4 2024 The outlook for these ratings is stable S P financial strength ratings range from AAA to R and some companies are not rated An insurer rated A in S P s opinion has strong financial security characteristics but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings Pluses and minuses show the relative standing within a category S P has twenty one possible ratings There are six ratings above the A rating of our primary insurance subsidiaries and fourteen ratings that are below that rating
On February 15 2024 AM Best affirmed its A financial strength ratings of our primary insurance subsidiaries and the outlook for these ratings is stable The A rating is assigned to companies that have an excellent ability in 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 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
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 their rating 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
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
As further described in the note to the consolidated financial statements entitled Notes Payable Direct Corporate Obligations the Company issued the 2034 Notes in May 2024 resulting in proceeds of 691 million net of original issue discount and debt issuance costs The Company invested 500 million of those proceeds primarily into certificates of deposit which is expected to be used for the repayment of the 2025 Notes at maturity
CNO and CDOC are holding companies with no business operations of their own they depend on their operating subsidiaries for cash to make principal and interest payments on debt and to pay administrative expenses and income taxes CNO and CDOC receive cash from insurance subsidiaries consisting of dividends and distributions interest payments on surplus debentures and tax sharing payments as well as cash from non insurance subsidiaries consisting of dividends distributions loans and advances The principal non insurance subsidiaries that provide cash to CNO and CDOC are 40 86 Advisors which receives fees from the insurance subsidiaries for investment services and CNO Services LLC CNO Services which receives fees from the insurance subsidiaries for providing administrative services The agreements between our insurance subsidiaries and CNO Services and 40 86 Advisors respectively were previously approved by the domestic insurance regulator for each insurance company and any payments thereunder do not require further regulatory approval Refer to Liquidity for Insurance Operations above regarding the CLMA and limitations on CNO Bermuda Re s ability to pay dividends or other capital distributions to CDOC
The following table sets forth the aggregate amount of dividends net of capital contributions and other distributions that our insurance subsidiaries paid to our non insurance subsidiaries in each of the last three fiscal years dollars in millions
The ability of our U S based 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 U S based 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 CNO Bermuda Re may not pay any dividends or make any capital distributions to its parent and or affiliates within the five years following the initial reinsurance transaction unless approved
by the BMA In 2024 our U S based insurance subsidiaries paid dividends to CDOC totaling 196 0 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 During 2024 CDOC made capital contributions of 67 0 million to its insurance subsidiaries
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 Department of Insurance The estimated RBC ratio of CLTX was 330 percent at December 31 2024 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 Insurance Department Dividends and other payments from our non insurance subsidiaries including 40 86 Advisors and CNO Services to CNO or CDOC do not require approval by any regulatory authority or other third party However insurance regulators may prohibit payments by our insurance subsidiaries to parent companies if they determine that such payments could be adverse to our policyholders or contract holders
The insurance subsidiaries of CDOC receive funds to pay dividends primarily from i the earnings of their direct businesses ii tax sharing payments received from subsidiaries if applicable and iii with respect to CLTX dividends received from subsidiaries At December 31 2024 the subsidiaries of CLTX had earned deficit as summarized below dollars in millions
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
Such amount represents our 5 250 Notes due 2025 The Company invested 500 million of the proceeds from the 6 450 Notes due 2034 primarily into certificates of deposit which is expected to be used for the repayment of the 2025 Notes at maturity
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 2024 we generated 284 3 million of such free cash flow The Company expects to deploy 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 In 2024 we repurchased 8 9 million shares of common stock for 281 6 million under our securities repurchase program The Company had remaining repurchase authority of 240 3 million as of December 31 2024 The Company s Board of Directors authorized the repurchase of an additional 500 0 million of the Company s outstanding shares of common stock in February 2025
In 2024 2023 and 2022 dividends declared on common stock totaled 67 5 million 0 63 per common share 67 9 million 0 59 per common share and 65 0 million 0 55 per common share respectively In May 2024 the Company increased its quarterly common stock dividend to 0 16 per share from 0 15 per share
On May 14 2024 AM Best affirmed its bbb rating on our issuer credit and senior unsecured debt 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 twenty two 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 13 2024 Fitch affirmed its BBB rating on our senior unsecured debt ratings The outlook for these rating is stable In Fitch s view an obligation rated BBB indicates that expectations of default risk are currently low The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity Pluses and minuses show the relative standing within a category Fitch has a total of 21 possible ratings ranging from AAA to D There are eight ratings above CNO s BBB rating and twelve ratings that are below its rating
S P most recently reviewed its BBB rating on our senior unsecured debt on May 8 2024 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 twenty two 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
Moody s most recently reviewed its Baa3 rating on our senior unsecured debt on May 9 2024 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 twenty one possible ratings ranging from Aaa to C There are nine ratings above CNO s Baa3 rating and eleven 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 For additional discussion regarding the liquidity and other risks that we face see Risk Factors
Our spread based insurance business is subject to several inherent risks arising from movements in interest rates especially if we fail to anticipate or respond to such movements First interest rate changes can cause compression of our net spread between interest earned on investments and interest credited on customer deposits thereby adversely affecting our results Second if interest rate changes produce an unanticipated increase in surrenders of our spread based products we may be forced to sell invested assets at a loss in order to fund such surrenders Many of our products include surrender charges market interest rate adjustments or other features to encourage persistency however at December 31 2024 approximately 3 4 billion of our total insurance liabilities could be surrendered by the policyholder without penalty Finally changes in interest rates can have significant effects on our investment portfolio We use asset liability management strategies that are designed to mitigate the effect of interest rate changes on our profitability However there can be no assurance that management will be successful in implementing such strategies and sustaining adequate investment spreads
We seek to invest our assets allocated to our insurance products in a manner that will fund future obligations to policyholders and meet profitability objectives subject to appropriate risk considerations We seek to meet this objective through investments that i have similar cash flow characteristics with the liabilities they support ii are diversified including by types of obligors and iii are predominantly investment grade in quality
Our investment strategy is to manage over a sustained period and within acceptable parameters of quality and risk capital efficiency through active strategic asset allocation and investment management Accordingly we may sell securities at a gain or a loss to enhance the projected total return of the portfolio as market opportunities change to reflect changing perceptions of risk or to better match certain characteristics of our investment portfolio with the corresponding characteristics of our insurance liabilities
The profitability of many of our products depends on the spread between the interest earned on investments and the rates credited on our insurance liabilities In addition changes in competition and other factors including the level of surrenders and withdrawals may limit our ability to adjust or to maintain crediting rates at levels necessary to avoid narrowing of spreads under certain market conditions As of December 31 2024 approximately 13 percent of our insurance liabilities had interest rates that may be reset annually 44 percent had a fixed explicit interest rate for the duration of the contract 39 percent are fixed indexed products where the income earned is subject to a participation rate that typically may be changed annually and the remainder had no explicit interest rates
The weighted average crediting rates at December 31 2024 related to such annuity and universal life account values that were at the minimum guaranteed crediting rate were 2 66 percent and 4 17 percent respectively
At December 31 2024 the weighted average yield computed on the cost basis of investments allocated to our product lines was approximately 4 8 percent and the average interest rate credited or accruing to our total insurance liabilities excluding interest rate bonuses for the first policy year only and excluding the effect of credited rates attributable
to variable or fixed indexed products was 4 3 percent Such 4 3 percent rate includes interest credited to annuity and universal life products as well as the rates assumed in our calculations of reserves for health and traditional life products which are set based on investment yields at policy issuance and are locked in in accordance with current accounting requirements Refer to Part 1 Item 1A Risk Factors A return to a prolonged low interest rate environment may negatively impact our results of operations financial position and cash flows for additional information on interest rate risks
We simulate the cash flows expected from our existing insurance business under various interest rate scenarios These simulations help us to measure the potential gain or loss in fair value of our interest rate sensitive investments and to manage the relationship between the interest sensitivity of our assets and liabilities When the estimated durations of assets and liabilities are similar absent other factors a change in the value of assets related to changes in interest rates should be largely offset by a change in the value of liabilities At December 31 2024 the estimated duration of our fixed income securities as modified to reflect estimated prepayments and call premiums and the estimated duration of our insurance liabilities were approximately 7 9 years and 8 4 years respectively We estimate that our fixed maturity securities and short term investments would decline in fair value by 729 6 million if interest rates were to increase by 10 percent from their levels at December 31 2024 Our simulations incorporate numerous assumptions require significant estimates and assume an immediate change in interest rates without any management of the investment portfolio in reaction to such change Consequently potential changes in value of our financial instruments indicated by the simulations will likely be different from the actual changes experienced under given interest rate scenarios and the differences may be material Because we actively manage our investments and liabilities our net exposure to interest rates can vary over time
The Company is subject to risk resulting from fluctuations in market prices of our equity securities In general these investments have more year to year price variability than our fixed maturity investments However returns over longer time frames have been consistently higher We manage this risk by limiting our equity securities to a relatively small portion of our total investments
Our investment in options backing our equity linked products is closely matched with our obligation to fixed indexed annuity holders Fair value changes associated with that investment are substantially offset by an increase or decrease in the amounts added to policyholder account liabilities for fixed indexed products
Inflation rates may impact the financial statements and operating results in several areas Inflation influences interest rates which in turn impact the fair value of the investment portfolio and yields on new investments Inflation also impacts a portion of our insurance policy benefits affected by increased medical coverage costs Operating expenses including payrolls are impacted to a certain degree by the inflation rate Refer to Part I Item 1A Risk Factors High inflation levels could have adverse consequences for us the insurance industry and the U S economy generally for additional information on inflation
The information included under the caption Market Sensitive Instruments and Risk Management in Item 7 Management s Discussion and Analysis of Consolidated Financial Condition and Results of Operations is incorporated herein by reference
We have audited the accompanying consolidated balance sheets of CNO Financial Group Inc and its subsidiaries the Company as of December 31 2024 and December 31 2023 and the related consolidated statements of operations of comprehensive income loss of shareholders equity and of cash flows for each of the three years in the period ended December 31 2024 including the related notes and financial statement schedules listed in the index appearing under Item 15 a 2 collectively referred to as the consolidated financial statements We also have audited the Company s internal control over financial reporting as of December 31 2024 based on criteria established in
In our opinion the consolidated financial statements referred to above present fairly in all material respects the financial position of the Company as of December 31 2024 and December 31 2023 and the results of its operations and its cash flows for each of the three years in the period ended December 31 2024 in conformity with accounting principles generally accepted in the United States of America Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of December 31 2024 based on criteria established in
The Company s management is responsible for these consolidated financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management s Report on Internal Control over Financial Reporting appearing under Item 9A Our responsibility is to express opinions on the Company s consolidated financial statements and on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that i pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company and iii provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
consolidated financial statements and ii involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
Certain of the Company s fixed indexed annuity products include a guaranteed lifetime withdrawal benefit GLWB that is considered a MRB MRBs are measured at fair value using an option based valuation model based on amount of exposure market data Company experience and other factors The calculation of MRBs includes market assumptions interest rate equity returns volatility and dividend yields and non market assumptions mortality rates surrender and withdrawal rates GLWB utilization and spreads The non market assumptions related to mortality rates surrenders and withdrawal rates and GLWB utilization are significant unobservable inputs and are based on actuarial estimates and past experience
The principal considerations for our determination that performing procedures relating to the valuation of MRBs associated with fixed indexed annuity products is a critical audit matter are i the significant judgment by management when developing the valuation of MRBs associated with fixed indexed annuity products ii a high degree of auditor judgment subjectivity and effort in performing procedures and evaluating management s significant assumptions related to surrender rates and GLWB utilization and iii the audit effort involved the use of professionals with specialized skill and knowledge
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements These procedures included testing the effectiveness of controls relating to management s valuation of MRBs associated with fixed indexed annuity products including controls over management s development of the significant assumptions related to surrender rates and GLWB utilization These procedures also included among others i testing management s process for developing the valuation of MRBs associated with fixed indexed annuity products ii evaluating the appropriateness of the model used by management iii testing the completeness and accuracy of the underlying data provided by management and iv the involvement of professionals with specialized skill and knowledge to assist in evaluating the reasonableness of the significant assumptions related to surrender rates and GLWB utilization used in the valuation based on industry knowledge as well as historical Company data and experience
CNO Financial Group Inc a Delaware corporation CNO is a holding company for a group of insurance companies that develop market and administer health insurance annuity individual life insurance and other insurance and financial services 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
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 guaranty fund assessment accruals goodwill and intangible assets and fee revenue 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
include available for sale bonds and redeemable preferred stocks We carry these investments at estimated fair value We record any unrealized gain or loss net of tax and related adjustments as a component of shareholders equity
include investments in common stock exchange traded funds and non redeemable preferred stock We carry these investments at estimated fair value Changes in the fair value of equity securities are recognized in net income
held in our investment portfolio are carried at amortized unpaid balance net of allowance for estimated credit losses Interest income is accrued on the principal amount of the loan based on the loan s contractual interest rate Payment terms specified for mortgage loans may include a prepayment penalty for unscheduled payoff of the investment Prepayment penalties are recognized as investment income when received The allowance for estimated credit losses is measured using a loss rate method on an individual asset basis Inputs used include asset specific characteristics current economic conditions historical loss information and reasonable and supportable forecasts about future economic conditions
are stated at current unpaid principal balances Policy loans are collateralized by the cash surrender value of the life insurance policy Interest income is recorded as earned using the contractual interest rate
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 in the consolidated statement of operations The change in fair value of securities with embedded derivatives is recognized in other investment gains losses in the consolidated statement of operations
include i call options purchased in an effort to offset or hedge the effects of certain policyholder benefits related to our fixed indexed annuity and life insurance products ii company owned life insurance COLI iii investments in the common stock of the Federal Home Loan Bank FHLB and iv certain non traditional investments We carry the call options at estimated fair value as further described in the section of this note entitled Accounting for Derivatives We carry COLI at its cash surrender value which approximates its net realizable value Non traditional investments include investments in certain limited partnerships and hedge funds which are accounted for using the equity method In accounting for limited partnerships and hedge funds we consistently use the most recently available financial information provided by the general partner or manager of each of these investments which is generally three months prior to the end of our reporting period Our share of earnings in our equity method investments is recorded within net investment income in the consolidated statement of operations
Interest income on fixed maturity securities is recognized when earned using a constant effective yield method giving effect to amortization of premiums and accretion of discounts Prepayment fees are recognized when earned Dividends on equity securities are recognized on the ex dividend date
When we sell a security other than trading securities we report the difference between the sale proceeds and amortized cost determined based on specific identification as a realized investment gain or loss
When an available for sale fixed maturity security s fair value is below the amortized cost the security is considered impaired If a portion of the decline is due to credit related factors we separate the credit loss component of the impairment from the amount related to all other factors The credit loss component is recorded as an allowance and reported in 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 uncollectible the remaining amortized cost will be written off
In determining the credit loss component we discount the estimated cash flows on a security by security basis We consider the impact of macroeconomic conditions on inputs used to measure the amount of credit loss For most structured securities cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics expectations of delinquency and default rates loss severity prepayment speeds and structural support including over collateralization excess spread subordination and guarantees For corporate bonds cash flow estimates are derived by considering asset type rating time to maturity and applying an expected loss rate
If we intend to sell an impaired fixed maturity security available for sale or identify an impaired fixed maturity security available for sale for which 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
Cash and cash equivalents include invested cash and other investments purchased with original maturities of less than three months Cash and cash equivalents are carried at amortized cost which approximates estimated fair value It is the Company s policy to offset negative cash balances with positive balances in other accounts with the same counterparty when agreements are in place permitting legal right of offset
Deferred acquisition costs represent policy acquisition costs that have been capitalized and are subject to amortization Capitalized costs are incremental costs directly related to the successful acquisition of new or renewal insurance contracts Such costs consist primarily of commissions underwriting sales and contract issuance advertising and processing expenses All other costs not eligible for capitalization including certain advertising market research agent training product development unsuccessful sales and underwriting efforts as well as indirect costs are expensed as incurred Contracts are grouped by contract type and issue year into cohorts consistent with the grouping used in estimating the associated liability Deferred acquisition costs are amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight line amortization For life and health insurance products the constant level basis used is policy counts For all annuity products the constant level basis used is premiums in force The constant level bases used for amortization are projected using mortality and lapse assumptions that are based on our experience industry data and other factors and are consistent with those used for the liability for future policy benefits If those projected assumptions change in future periods they will be reflected in the cohort level amortization basis at the time Unexpected lapses due to higher mortality and lapse experience than expected are recognized in the current period as a reduction of the capitalized balances Changes in future estimates are recognized prospectively over the remaining expected contract term The carrying amount of deferred acquisition costs is not subject to recovery testing
The present value of future profits is the value assigned to the right to receive future cash flows from policyholder insurance contracts existing at September 10 2003 the Effective Date the effective date of the bankruptcy reorganization of Conseco Inc an Indiana corporation our Predecessor The present value of future profits is amortized in the same manner as described above for deferred acquisition costs
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 and are classified as deferred acquisition costs in the consolidated balance sheet Unlike deferred acquisition costs such amounts are considered contractual cash flows and as a result are subject to periodic recovery testing
In February 2021 we acquired DirectPath LLC DirectPath now known as Optavise LLC Optavise subsequent to its name change in April 2022 a leading national provider of year round technology driven employee benefits management services to employers and employees Optavise provides personalized benefits education advocacy and transparency and communications compliance services that help employers reduce healthcare costs and assist employees with making informed benefits decisions Another company acquired in 2019 Web Benefits Design Corporation WBD has been operating on an integrated basis with Optavise and was legally merged into Optavise during 2023 Goodwill and other intangible assets of Optavise totaled approximately 69 5 million and 28 1 million respectively at December 31 2024 and are assigned to the Optavise reporting unit The value of goodwill and other intangible assets were 69 5 million and 32 9 million respectively at December 31 2023 The business of Optavise is included in our Fee income segment
Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise Goodwill is tested annually for impairment and whenever indicators of impairment arise in accordance with Accounting Standards Codification 350 I
ASC 350 The Company first performs a qualitative assessment to determine whether it is more likely than not a goodwill impairment exists and if an indication of potential impairment results from the qualitative assessment a quantitative assessment is performed The Company prepares a quantitative assessment to determine the fair value of the reporting unit by using a combination of the present value of expected future cash flows and a market approach based on revenue multiple data from peer companies and relevant observable market transactions if available If an impairment is identified an impairment is recorded by the amount that the carrying value exceeds the fair value of the reporting unit up to the carrying amount of goodwill
During the fourth quarter of 2024 the Company performed a quantitative impairment assessment in accordance with ASC 350 As a result of this impairment test we determined that the fair value of the Optavise reporting unit exceeded its carrying value and therefore goodwill was not impaired
While future cash flows utilized in the quantitative impairment test are consistent with those that are used in our internal planning process estimating cash flows requires significant judgment Future changes to our projected cash flows can vary from the cash flows eventually realized which may have a material impact on the outcomes of future goodwill impairment tests The Company also uses a weighted average cost of capital that represents the blended average required rate of return for equity and debt capital based on observed market return data and company specific risk factors The estimated fair value of the Optavise reporting unit is highly sensitive to changes in the weighted average cost of capital and terminal value estimates For example increasing the weighted average cost of capital by 300 basis points or decreasing the terminal value by 13 percent would result in the carrying value of the Optavise reporting unit exceeding its fair value resulting in goodwill impairment
Market risk benefits MRBs are contracts or contract features that both provide protection to the contract holder from other than nominal capital market risk and expose the Company to other than nominal capital market risk Many of our fixed indexed annuity products include a guaranteed living withdrawal benefit GLWB that is considered a MRB MRBs are measured at fair value using an option based valuation model based on amount of exposure market data Company experience and other factors The calculation of MRBs includes market assumptions interest rate equity returns volatility and dividend yields and non market assumptions mortality rates surrender and withdrawal rates GLWB utilization and spreads Changes in fair value are recognized in earnings each period with the exception of the portion of the change in fair value due to a change in the instrument specific credit risk which is recognized in other comprehensive income loss MRBs in an asset position are presented separately from those in a liability position as there is no legal right of offset between contracts
Policyholder account balances represent the contract value that has accrued to the benefit of the policyholder as of the balance sheet date It includes the policyholder account values adjusted for the amount of reserves above below policyholder account values Policyholder account values include accumulated account deposits plus interest credited less policyholder withdrawals and if applicable charges assessed This balance also includes liabilities for the funding agreements associated with our funding agreement backed notes FABN program
Total liabilities for insurance products related to our fixed indexed annuities are comprised of i the liability related to the host contract and ii the fair market value of the embedded derivatives as summarized below dollars in millions
The liability for future policy benefits is the present value of estimated future policy benefits to be paid to or on behalf of policyholders and certain related expenses where the timing and amount of payment depends on policyholder mortality or morbidity less the present value of estimated future net premiums to be collected from policyholders where net premiums are gross premiums multiplied by the net premium ratio discussed below The liability for future policy benefits is accrued over time as premium revenue is recognized The liability is estimated using current assumptions that include discount rates mortality morbidity lapse withdrawal rates and expenses Such assumptions are based on our historical experience industry data and other factors that are inherently uncertain
The liability for future policy benefits is established using a net premium ratio approach where net premiums the portion of gross premiums required to fund expected insurance benefits and claims settlement expenses under the contract are accrued each period as the liability for future policy benefits The net premium ratio used to accrue the liability for future policy benefits in each period is determined by using the historical and present value of expected future benefits and claim adjustment expenses for the cohort divided by the historical and present value of expected future gross premiums for the cohort
Our long duration insurance contracts are grouped into annual calendar year cohorts primarily based on the contractual issue date marketing distribution channel legal entity and product type Single premium contracts are grouped into separate cohorts from other traditional products Riders are generally combined with the base policy Insurance contracts issued prior to the Effective Date are grouped by marketing distribution channel legal entity and product type in a single issue year cohort The liability is adjusted for differences between actual and expected experience We review our historical and future cash flow assumptions quarterly and update the net premium ratio used to calculate the liability each time the assumptions are changed Each quarter we update our estimates of cash flows expected over the entire life of a group of contracts using actual historical experience and current future cash flow assumptions These updated cash flows are used to calculate the revised net premiums and net premium ratio which are used to derive an updated liability for future policy benefits as of the beginning of the current reporting period discounted at the original contract issuance discount rate This amount is then compared to the carrying amount of the liability as of that same date before the updating of cash flow assumptions to determine the current period change in liability estimate This current period change in the liability is the liability remeasurement gain or loss and is presented as a separate component of benefit expense in the consolidated statement of operations In subsequent periods the revised net premiums are used to measure the liability for future policy benefits subject to future revisions
If a cohort is in a loss position where the liability for future policy benefits plus the present value of expected future gross premiums is determined to be insufficient to provide for expected future policy benefits and claim settlement costs the net premium ratio is capped at 100 percent When this occurs all changes in expected benefits resulting from both actual experience deviations and changes in future assumptions are recognized immediately
The locked in discount rate is generally based on expected investment returns at contract inception for contracts issued prior to January 1 2021 and the upper medium grade fixed income corporate instrument yield A credit rated corporate bond yield at contract inception for contracts issued after January 1 2021 The contract inception date for contracts issued by the Predecessor is September 10 2003 The discount rate in effect at contract inception is locked in for the calculation of the net premium ratio and accretion of interest cost on the liability is recorded through net income However for balance sheet remeasurement purposes the discount rate is updated using the current rate at each reporting period with the impact resulting from such updates recorded in other comprehensive income loss
We develop discount rate curves for discounting cash flows to calculate the liability for future policy benefits based on the duration characteristics of the underlying liabilities For liability cash flows that are projected beyond the duration of market observable A credit rated fixed income instruments we use the last market observable yield level and use linear interpolation to determine yield assumptions for durations that do not have market observable yields
The liability for life insurance policy claims includes life policy and contract claims including incurred but not reported claims The liability for these claims is based on our estimated ultimate cost to settle all claims that have been incurred as of the reporting date Such amounts are estimated based on an analysis of historical patterns of claims which are continually reviewed and updated Adjustments resulting from differences between our estimates and actual payments are recognized in the period the estimates are made or claims are paid
For limited payment products gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability DPL Gross premiums are measured using assumptions consistent with those used in the measurement of the liability for future policy benefits including discount rate mortality lapses and expenses
The DPL is amortized and recognized in insurance policy benefits in proportion to insurance in force for life insurance contracts and expected future benefit payments for annuity contracts Interest is accreted on the balance of the DPL using the discount rate determined at contract issuance We review and update the estimate of cash flows for the DPL at the same time as the estimate of cash flows for the liability for future policy benefits When cash flows are updated the updated estimates are used to recalculate the DPL at contract issuance The recalculated DPL as of the beginning of the current reporting period is compared to the carrying amount of the DPL as of the beginning of the current reporting period and any difference is recognized as either a charge or credit to insurance policy benefits
For interest sensitive life and annuity contracts that do not involve significant mortality or morbidity risk and funding agreements the amounts collected from policyholders are considered deposits and are not included in revenue Revenues for these contracts consist of charges for policy administration cost of insurance charges and surrender charges assessed against policyholders account balances Such revenues are recognized when the service or coverage is provided or when the policy is surrendered
Premiums from individual life products other than interest sensitive life contracts and health products are recognized when due When premiums are due over a significantly shorter period than the period over which benefits are provided any gross premium in excess of the net premium i e the portion of the gross premium required to provide for all expected future benefits and expenses is deferred and recognized into revenue in a constant relationship to insurance in force Benefits are recorded as an expense when they are incurred
Bankers Life and Casualty Company Bankers Life has entered into various distribution and marketing agreements with other insurance companies to use Bankers Life s exclusive agents to distribute prescription drug and Medicare Advantage plans These agreements allow Bankers Life to offer these products to current and potential future policyholders without investment in management and infrastructure We receive fee income related to the plans sold through our distribution channels and incur distribution expenses paid to our agents who sell such products
The recognition of fee revenue and the distribution expenses paid to our agents results from approval of an application by the third party insurance companies which we define as our customers We recognize the net lifetime revenue expected to be earned on these sales but only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when such net lifetime revenue can be reasonably estimated The assumptions and constraints used to recognize such net revenue are based on available historical data To the extent we make changes to the assumptions we use to calculate revenue on these products we will recognize the impact of the changes in the period in which the change is made When sufficient historical data is not available or when we cannot otherwise reasonably estimate net lifetime revenue revenue is recognized when payment is made
In addition services provided by Optavise and revenues from the operations of our broker dealer and registered investment advisor are recorded as fee revenue and other income in our consolidated statement of operations
Total revenues related to these arrangements was 190 5 million 177 6 million and 169 3 million for the years ended December 31 2024 2023 and 2022 respectively We typically collect payment related to these contract assets within one to five years
In the normal course of business we seek to limit our loss exposure on any single insured or to certain groups of policies by ceding reinsurance to other insurance enterprises We currently retain no more than 0 8 million of mortality risk on any one policy We diversify the risk of reinsurance loss by using a number of reinsurers that have strong claims paying ratings In each case the ceding CNO subsidiary is directly liable for claims reinsured in the event the assuming company is unable to pay We have determined that each of our reinsurance agreements provide indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards Such reinsurance permits recovery of the reinsured losses from reinsurers although it does not discharge our primary liability as the direct insurer of the risks reinsured
The reinsurance recoverable for traditional and limited payment contracts is generally measured using a net premium ratio approach to accrue the projected net gain or loss on reinsurance in proportion to the gross premiums of the underlying reinsured cohorts Such amount is adjusted on a quarterly basis for actual experience and at least once a year for any changes in cash flow assumptions
The cost of reinsurance ceded totaled 183 1 million 195 2 million and 206 2 million for the years ended December 31 2024 2023 and 2022 respectively We deduct this cost from insurance policy income Reinsurance recoveries netted against insurance policy benefits totaled 395 5 million 409 5 million and 388 7 million for the years ended December 31 2024 2023 and 2022 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 15 5 million 16 6 million and 18 7 million for the years ended December 31 2024 2023 and 2022 respectively Insurance policy benefits related to reinsurance assumed totaled 26 1 million 21 8 million and 25 3 million for the years ended December 31 2024 2023 and 2022 respectively
Our income tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax bases of assets and liabilities and net operating loss NOL carryforwards Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which temporary differences are expected to be recovered or paid The effect of a change in tax rates on deferred tax assets and liabilities is recognized in earnings in the period when the changes are enacted
A reduction of the net carrying amount of deferred tax assets by establishing a valuation allowance is required if based on the available evidence it is more likely than not that such assets will not be realized In assessing the need for a valuation allowance all available evidence both positive and negative shall be considered to determine whether based on the weight of that evidence a valuation allowance for deferred tax assets is needed This assessment requires significant judgment and considers among other matters the nature frequency and severity of current and cumulative losses forecasts of future profitability the duration of carryforward periods our experience with operating loss and tax credit carryforwards expiring unused and tax planning strategies We evaluate the need to establish a valuation allowance for our deferred income tax assets on an ongoing basis The realization of our deferred tax assets depends upon generating sufficient future taxable income of the appropriate type during the periods in which our temporary differences become deductible and before our NOLs expire
We have concluded that we are the primary beneficiary with respect to certain variable interest entities VIEs which are consolidated in our financial statements All of the VIEs are collateralized loan trusts that were established to issue securities to finance the purchase of commercial bank loans and other permitted investments The assets held by the trusts are legally isolated and not available to the Company The liabilities of the VIEs are expected to be satisfied from the cash flows generated by the underlying loans held by the trusts not from the assets of the Company The Company has no financial obligation to the VIEs beyond its investment in each VIE
The investment portfolios held by the VIEs are primarily comprised of commercial bank loans to corporate obligors which are almost entirely rated below investment grade Refer to the note to the consolidated financial statements entitled Investments in Variable Interest Entities for additional information about VIEs
In addition the Company in the normal course of business makes passive investments in structured securities issued by VIEs for which the Company is not the investment manager These structured securities include asset backed securities agency residential mortgage backed securities non agency residential mortgage backed securities collateralized loan obligations and commercial mortgage backed securities Our maximum exposure to loss on these securities is limited to our cost basis in the investment We have determined that we are not the primary beneficiary of these structured securities due to the relative size of our investment in comparison to the total principal amount of the individual structured securities and the level of credit subordination which reduces our obligation to absorb gains or losses
At December 31 2024 we held investments of 446 2 million in various limited partnerships and hedge funds in which we are not the primary beneficiary These investments are included within other invested assets on the consolidated balance sheet At December 31 2024 we had unfunded commitments to these partnerships totaling 491 2 million Our maximum exposure to loss on these investments is limited to the amount of our investment and any unfunded commitments
Three of the Company s insurance subsidiaries Bankers Life Washington National Insurance Company Washington National and Colonial Penn Life Insurance Company are members of the FHLB As members of the FHLB our insurance subsidiaries have the ability to borrow on a collateralized basis from the FHLB We are required to hold certain minimum amounts of FHLB common stock as a condition of membership in the FHLB and additional amounts based on the amount of the borrowings At December 31 2024 the carrying value of the FHLB common stock was 94 6 million As of December 31 2024 collateralized borrowings from the FHLB totaled 2 188 8 million and the proceeds were used to purchase matched variable rate 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 2 790 1 million at December 31 2024 which are maintained in a custodial account for the benefit of the FHLB Substantially all of such investments are classified as fixed maturities available for sale in our consolidated balance sheet
The variable rate borrowings are pre payable on each interest reset date without penalty The fixed rate borrowings of 17 5 million are pre payable subject to payment of a yield maintenance fee based on prevailing market interest rates
Our fixed indexed 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 We are required to record the embedded derivatives related to our fixed indexed annuity products at estimated fair value
The value of the embedded derivative is based on the estimated cost to fulfill our commitment to fixed indexed annuity policyholders by purchasing a series of annual forward options over the duration of the policy that back the potential return based on a percentage of the amount of increase in the value of the appropriate index In estimating the future cost to purchase the options we are required to make assumptions regarding i future index values to determine both the future notional amounts at each anniversary date and the future prices of the forward starting options ii future annual participation rates and iii non economic factors related to policy persistency
The value of the embedded derivatives is determined based on the present value of estimated future option costs discounted using a risk free rate adjusted for our non performance risk and risk margins for non capital market inputs The non performance risk adjustment is determined by taking into consideration publicly available information related to spreads in the secondary market for debt with credit ratings similar to ours These observable spreads are then adjusted to reflect the priority of these liabilities and the claim paying ability of the issuing insurance subsidiaries Changes in fair value of such embedded derivatives are included in insurance policy benefits in the consolidated statement of operations
Risk margins are established to capture non capital market risks which represent the additional compensation a market participant would require to assume the risks related to the uncertainties regarding the embedded derivatives including future policyholder behavior related to persistency The determination of the risk margin is highly judgmental given the lack of a market to assume the risks solely related to the embedded derivatives of our fixed indexed annuity products
The determination of the appropriate risk free rate and non performance risk is sensitive to the economic and interest rate environment Accordingly the value of the derivative is volatile due to external market sensitivities which may materially affect net income Additionally changes in the judgmental assumptions regarding the appropriate risk margin can significantly impact the value of the derivative
We typically buy call options including call spreads referenced to the applicable indices in an effort to offset or hedge potential increases to policyholder benefits resulting from increases in the particular index to which the policy s return is linked
We purchase certain fixed maturity securities that contain embedded derivatives that are required to be held at fair value on the consolidated balance sheet We have elected the fair value option to carry the entire security at fair value with changes in fair value reported in net income
Certain amounts presented in the prior years consolidated balance sheet and consolidated statement of operations as of December 31 2023 and December 31 2022 and related footnotes thereto have been corrected to conform with the 2024 presentation
The Company previously recorded at transaction inception the fair value of the market risk benefit MRB in policyholder account balances resulting in no initial MRB presented separately on the consolidated balance sheet MRBs are required to be presented separately in the consolidated balance sheet Subsequent to transaction inception the resulting accumulated change in the fair value of the MRBs was recorded as market risk benefits within the consolidated balance sheet Additionally the transaction s resulting policyholder account balance discount was accreted in change in fair value of MRBs This accretion should have been recorded in insurance policy benefits within the consolidated statement of operations
To correct for the error the Company decreased market risk benefit assets by 75 4 million increased market risk benefit liabilities by 109 7 million and decreased policyholder account balances by 185 1 million on the consolidated balance sheet as of December 31 2023 Within the consolidated statement of operations for years ended December 31 2023 and 2022 the Company increased insurance policy benefits by 12 9 million and 1 3 million and decreased change in fair value of market risk benefits by 12 9 million and 1 3 million respectively
The Company previously presented embedded derivatives related to our annuities segment within policyholder account balances at contract inception and the related accumulated change in fair value within future policy benefits The entirety of the embedded derivatives are now reflected within policyholder account balances resulting in a decrease in policyholder account balances of 260 2 million and increase in future policy benefits of 260 2 million in the Company s consolidated balance sheet as of December 31 2023 The Company determined that these corrections were not material to the previously issued interim or annual consolidated financial statements These corrections had no impact on the previously reported net income total shareholders equity or to the consolidated statement of cash flows
Effective January 1 2023 we adopted Accounting Standards Update 2018 12 ASU 2018 12 related to targeted improvements to the accounting for long duration insurance contracts with a transition date of January 1 2021 the Transition Date The new guidance i improved the timeliness of recognizing changes in the liability for future benefits and modifies the rate used to discount future cash flows ii simplified and improved the accounting for certain market based options or guarantees associated with deposit or account balance contracts iii simplified the amortization of deferred acquisition costs and iv required enhanced disclosures including disaggregated rollforwards of the liability for future policy benefits policyholder account liabilities MRBs and deferred acquisition costs Additionally qualitative and quantitative information about expected cash flows estimates and assumptions is required The new measurement guidance for traditional and limited payment contract liabilities and the new guidance for the amortization of deferred acquisition costs was adopted on a modified retrospective transition approach For contracts in force at the Transition Date we 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 is used at transition through accumulated other comprehensive income loss and subsequently through other comprehensive income loss For MRBs we used the required retrospective application and were able to use actual assumption information to measure fair value components to the extent assumptions in a prior period were unobservable or otherwise unavailable
We selected the modified retrospective transition method except for MRBs where we are required to use the full retrospective approach Pursuant to ASU 2018 12 the account balances subject to the guidance were recast on the Transition Date
ASU 2023 07 effective January 1 2024 ASU 2023 07 is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses Such requirements include i disclosures on significant segment expenses that are regularly provided to the chief operating decision maker CODM and included within each reported measure of segment profit or loss on an annual and interim basis ii disclosures of an amount for other segment items by reportable segment and a description of its composition on an annual and interim basis the other segment items category is the difference between segment revenues less the segment expenses disclosed pursuant to the new guidance iii providing all annual disclosures on a reportable segment s profit or loss and assets currently required by Financial Accounting Standards Board FASB ASC Topic 280
in interim periods and iv specifying the title and position of the CODM and an explanation of how the CODM uses the reported measures to assess segment performance and make decisions about allocating resources The adoption of ASU 2023 07 did not have an impact on our financial position or results of operations and did not have a material impact on our disclosures The adoption was made retrospectively
ASU 2023 09 ASU 2023 09 is intended to improve the effectiveness of income tax disclosures by requiring among other things the disclosure on an annual basis of i specific categories in the rate reconciliation and ii additional information for reconciling items that meet a quantitative threshold In addition ASU 2023 09 requires disclosure on an annual basis of the following information about income taxes paid i the amount of income taxes paid net of refunds received disaggregated by federal national state and foreign taxes and ii the amount of income taxes paid net of refunds received disaggregated by individual jurisdictions in which income taxes paid net of refunds received is equal to or greater than 5 percent of total income taxes paid net of refunds received ASU 2023 09 is effective for annual periods beginning January 1 2025 to be applied prospectively with an option for retrospective application with early adoption permitted The adoption of ASU 2023 09 will modify our disclosures but will not have an impact on our financial position or results of operations
ASU 2024 03 which requires disclosure of additional information about specific expense categories in the notes to the financial statements ASU 2024 03 is effective for annual periods beginning after December 15 2026 and for interim periods within fiscal years beginning after December 15 2027 Early adoption is permitted ASU 2024 03 may be applied retrospectively or prospectively The Company is currently evaluating the effect of this update on its consolidated financial statements and related disclosures
At December 31 2024 the amortized cost gross unrealized gains gross unrealized losses allowance for credit losses and estimated fair value of fixed maturities available for sale were as follows dollars in millions
Investment ratings are assigned the second lowest rating by Nationally Recognized Statistical Rating Organizations NRSROs Moody s Investor Services Inc Moody s S P Global Ratings S P or Fitch Ratings Fitch or if not rated by such firms the rating assigned by the National Association of Insurance Commissioners the NAIC NAIC designations of 1 or 2 include fixed maturities generally rated investment grade rated Baa3 or higher by Moody s or rated BBB or higher by S P and Fitch NAIC designations of 3 through 6 are referred to as below investment grade which generally are rated Ba1 or lower by Moody s or rated BB or lower by S P and Fitch References to investment grade or below investment grade throughout our consolidated financial statements are determined as described above
Certain structured securities rated below investment grade by NRSROs may be assigned a NAIC 1 or NAIC 2 designation based on the cost basis of the security relative to estimated recoverable amounts as determined by the NAIC Refer to the table below for a summary of our fixed maturity securities available for sale by NAIC designations
The NAIC evaluates the fixed maturity investments of insurers for regulatory and capital assessment purposes and assigns securities to one of six credit quality categories called NAIC designations which are used by insurers when preparing their annual statements based on U S 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
A summary of our fixed maturity securities available for sale by NAIC designations or for fixed maturity securities held by non regulated entities based on NRSRO ratings as of December 31 2024 is as follows dollars in millions
At December 31 2023 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
At December 31 2024 the amortized cost of the Company s below investment grade fixed maturity securities available for sale was 1 288 0 million or 5 1 percent of the Company s fixed maturity portfolio The estimated fair value of the below investment grade portfolio was 1 225 5 million or 95 percent of the amortized cost Based on the credit quality ratings assigned by the NAIC i the amortized cost of our below investment grade fixed maturities was 911 2 million or 3 6 percent of our fixed maturity portfolio and ii the estimated fair value of such below investment grade fixed maturities was 837 5 million or 92 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
The following table sets forth the amortized cost and estimated fair value of fixed maturities available for sale at December 31 2024 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
b Changes in the estimated fair value of equity securities that were still held as of the end of the respective years were 0 3 million 0 1 million and 7 3 million for the years ended December 31 2024 2023 and 2022 respectively
c Changes in the estimated fair value of trading securities that we have elected the fair value option that were still held as of the end of the respective years were 3 7 million 2 0 million and 43 3 million for the years ended December 31 2024 2023 and 2022 respectively
During 2024 we recognized net investment losses of 49 9 million which were comprised of i 75 6 million of net losses from the sales of investments ii 0 4 million of losses related to equity securities including the change in fair value iii the net increase in fair value of certain other invested assets and fixed maturity investments with embedded derivatives of 24 4 million iv the increase in fair value of embedded derivatives related to a modified coinsurance agreement of 0 4 million v 3 9 million of gains related to the liquidation of VIEs and vi investment write downs partially offset by a net decrease in the allowance for credit losses of 2 6 million
During 2023 we recognized net investment losses of 69 0 million which were comprised of i 68 7 million of net losses from the sales of investments ii 0 2 million of losses related to equity securities including the change in fair value iii the net decrease in fair value of certain other invested assets and fixed maturity investments with embedded derivatives of 8 5 million iv the increase in fair value of embedded derivatives related to a modified coinsurance agreement of 0 3 million and v a decrease in the allowance for credit losses of 8 1 million
During 2022 we recognized net investment losses of 135 4 million which were comprised of i 9 6 million of net losses from the sales of investments ii 11 2 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 45 9 million iv the decrease in fair value of embedded derivatives related to a modified coinsurance agreement of 16 1 million and v an increase in the allowance for credit losses of 52 6 million
During 2024 the 54 9 million of realized losses on sales of 1 432 0 million of fixed maturity securities available for sale included i 35 7 million related to various corporate securities ii 12 5 million related to commercial mortgage backed securities and iii 6 7 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 2023 the 58 9 million of realized losses on sales of 712 2 million of fixed maturity securities available for sale included i 48 8 million related to various corporate securities ii 6 7 million related to commercial mortgage backed securities and iii 3 4 million related to various other investments
During 2022 the 104 0 million of realized losses on sales of 1 651 5 million of fixed maturity securities available for sale included i 70 9 million related to various corporate securities ii 16 5 million related to non agency residential mortgage backed securities iii 7 5 million related to states and political subdivisions and iv 9 1 million related to various other investments
Our fixed maturity investments are generally purchased in the context of various long term strategies including funding insurance liabilities so we do not generally seek to generate short term realized gains through the purchase and sale of such securities In certain circumstances including those in which securities are selling at prices which exceed our view of their underlying economic value or when it is possible to reinvest the proceeds to better meet our long term asset liability objectives we may sell certain securities
The following summarizes the investments sold at a loss during 2024 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
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 December 31 2024 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
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 December 31 2024 dollars in millions
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 2024 dollars in millions
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 2023 dollars in millions
Based on management s current assessment of investments with unrealized losses at December 31 2024 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
At December 31 2024 fixed maturity investments included structured securities with an estimated fair value of 7 1 billion or 31 0 percent of all fixed maturity securities The yield characteristics of structured securities generally differ in some respects from those of traditional corporate fixed income securities or government securities For example interest and principal payments on structured securities may occur more frequently often monthly In many instances we are subject to variability in the amount and timing of principal and interest payments For example in many cases partial prepayments may occur at the option of the issuer and prepayment rates are influenced by a number of factors that cannot be predicted with certainty including the relative sensitivity of prepayments on the underlying assets backing the security to changes in interest rates and asset values the availability of alternative financing a variety of economic geographic and
other factors the timing pace and proceeds of liquidations of defaulted collateral and various security specific structural considerations for example the repayment priority of a given security in a securitization structure In addition the total amount of payments for non agency structured securities may be affected by changes to cumulative default rates or loss severities of the related collateral
Historically the rate of prepayments on structured securities has tended to increase when prevailing interest rates have declined significantly in absolute terms and also relative to the interest rates on the underlying collateral The yields recognized on structured securities purchased at a discount to par will generally increase relative to the stated rate when the underlying collateral prepays faster than expected The yields recognized on structured securities purchased at a premium will decrease relative to the stated rate when the underlying collateral prepays faster than expected When interest rates decline the proceeds from prepayments may be reinvested at lower rates than we were earning on the prepaid securities When interest rates increase prepayments may decrease below expected levels When this occurs the average maturity and duration of structured securities increases decreasing the yield on structured securities purchased at discounts and increasing the yield on those purchased at a premium because of a decrease in the annual amortization of premium
For structured securities included in fixed maturities available for sale that were purchased at a discount or premium we recognize investment income using an effective yield based on anticipated future prepayments and the estimated final maturity of the securities Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated For credit sensitive mortgage backed and asset backed securities and for securities that can be prepaid or settled in a way that we would not recover substantially all of our investment the effective yield is recalculated on a prospective basis Under this method the amortized cost basis in the security is not immediately adjusted and a new yield is applied prospectively For all other structured and asset backed securities the effective yield is recalculated when changes in assumptions are made and reflected in our income on a retrospective basis Under this method the amortized cost basis of the investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the securities Such adjustments were not significant in 2024
For purchased credit impaired securities at acquisition the difference between the undiscounted expected future cash flows and the recorded investment in the securities represents the initial accretable yield which is accreted into net investment income over the securities remaining lives on a level yield basis Subsequently effective yields recognized on purchased credit impaired securities are recalculated and adjusted prospectively to reflect changes in the contractual benchmark interest rates on variable rate securities and any significant increases in undiscounted expected future cash flows arising due to reasons other than interest rate changes Significant decreases in expected cash flows arising from credit events would result in impairment if such security s fair value is below amortized cost
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 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 hospitals hotels multi family dwellings including apartments nursing homes office buildings restaurants retail centers and warehouses While most CMBS have call protection features whereby underlying borrowers may not prepay their mortgages for stated periods of time without incurring prepayment penalties recoveries on defaulted collateral may result in involuntary prepayments
Mortgage loans 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 mortgage loan balance was comprised of commercial and residential mortgage loans At December 31 2024 we held commercial mortgage loan investments with an amortized cost and fair value of 1 501 4 million and 1 344 2 million respectively Approximately 17 percent 7 percent 6 percent 6 percent and 5 percent of the commercial mortgage loan balance were on properties located in California Maryland Wisconsin Utah and Georgia respectively No other state comprised greater than five percent of the commercial mortgage loan balance At December 31 2024 there were no commercial mortgage loans in process of foreclosure
The following table provides the amortized cost by year of origination and estimated fair value of our outstanding commercial mortgage loans and the underlying collateral as of December 31 2024 dollars in millions
At December 31 2024 we held residential mortgage loan investments with an amortized cost of 1 018 6 million and a fair value of 1 031 8 million Our primary credit quality indicator for these investments is whether the loan is current or non current We define non current loans as those that are 90 or more days past due and or in nonaccrual status At December 31 2024 there were 21 residential mortgage loans that were non current with an amortized cost of 15 6 million of which eight loans with an amortized cost of 3 7 million were in foreclosure
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 The following table summarizes changes in the allowance for credit losses related to mortgage loans for each of the three years ended December 31 2024 dollars in millions
Life insurance companies are required to maintain certain investments on deposit with state regulatory authorities Such assets had an aggregate fair value of 38 2 million and 38 0 million at December 31 2024 and 2023 respectively
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 that are not carried at fair value 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
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 policy 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 indexed 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 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
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
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
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
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
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
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 observable market information If there are no recently reported trades the third party pricing services may use matrix or model processes to develop a security price where future cash flow expectations are discounted at an estimated risk adjusted market rate The number of prices obtained for a given security is dependent on the Company s analysis of such prices as further described below
As the Company is responsible for the determination of fair value we have control processes designed to ensure that the fair values received from third party pricing sources are reasonable and the valuation techniques and assumptions used appear reasonable and consistent with prevailing market conditions Additionally when inputs are provided by third party pricing sources we have controls in place to review those inputs for reasonableness As part of these controls we perform monthly quantitative and qualitative analysis on the prices received from third parties to determine whether the prices are reasonable estimates of fair value The Company s analysis includes i a review of the methodology used by third party pricing services ii where available a comparison of multiple pricing services valuations for the same security iii a review of month to month price fluctuations iv a review to ensure valuations are not unreasonably dated and v back testing to compare actual purchase and sale transactions with valuations received from third parties As a result of such procedures the Company may conclude a particular price received from a third party is not reflective of current market conditions In those instances we may request additional pricing quotes or apply internally developed valuations However the number of such instances is insignificant and the aggregate change in value of such investments is not materially different from the original prices received
The categorization of the fair value measurements of our investments priced by independent pricing services was based upon the Company s judgment of the inputs or methodologies used by the independent pricing services to value different asset classes The Company categorizes such fair value measurements based upon asset classes and the underlying observable or unobservable inputs used to value such investments
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
Includes 212 6 million of COLI purchased as an investment vehicle to fund our agent deferred compensation plan as further described in the footnote to the consolidated financial statements entitled Agent Deferred Compensation Plan Also includes a 189 5 million investment in a COLI policy for key employees that is recorded in our general account assets
Includes 202 9 million of COLI purchased as an investment vehicle to fund our agent deferred compensation plan as further described in the footnote to the consolidated financial statements entitled Agent Deferred Compensation Plan Also includes a 100 1 million investment in a COLI policy for key employees that is recorded in our general account assets
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 as of December 31 2024 dollars in millions
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 year ended December 31 2024 dollars in millions
b 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 independent pricing service information for certain assets that the Company is able to validate
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 as of December 31 2023 dollars in millions
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 year ended December 31 2023 dollars in millions
b 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 independent pricing service information for certain assets that the Company is able to validate
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 i the change in the allowance for credit losses for fixed maturities available for sale and ii changes in fair value of equity securities and trading securities that are held 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 December 31 2024 66 percent of our Level 3 fixed maturities available for sale were investment grade and 82 percent of our Level 3 fixed maturities available for sale consisted of corporate securities
The following table summarizes changes in the value of our embedded derivatives associated with fixed indexed annuity products classified in policyholder account balances as presented in the note to the consolidated financial statements entitled Derivatives 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
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 2024 dollars in millions
c Asset backed securities The significant unobservable input used in the fair value measurement of these asset backed securities is discount margin added to a riskless market yield Significant increases decreases in discount margin in isolation would have resulted in a significantly lower higher fair value measurement
d Asset backed 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
e Equity securities The significant unobservable input used in the fair value measurement of these equity securities is multiples of earnings before interest taxes depreciation and amortization EBITDA Generally increases decreases in the EBITDA multiples would result in higher lower fair value measurements
f Other assets categorized as Level 3 For these assets there were no adjustments to non binding quoted market prices obtained from third party pricing sources therefore disclosures of unobservable inputs and range are not applicable Includes 92 7 million of residual tranches that are valued based on our ownership share of the equity of the investee as reported to us by the General Partner We had unfunded commitments to invest 26 0 million in these entities as of December 31 2024 These investments are typically non redeemable however can be transferred to a third party with the consent of the General Partner The Company does not have plans to sell any of these assets at less than fair value Investments underlying these entities are generally expected to be liquidated within a 10 year timeframe
g Market risk benefits Many of our fixed indexed annuity products include a GLWB that is considered a MRB The calculation of the value of MRBs is based on significant unobservable inputs including nonmarket assumptions related to mortality rates surrender and withdrawal rates and GLWB utilization These assumptions are based on actuarial estimates and past experience Increases in assumed surrender rates would generally increase the value of a MRB asset or decrease the value of a MRB liability with decreases in assumed surrender rates having the opposite impacts Increases in utilization rates would generally decrease the value of a MRB asset or increase the value of a MRB liability with decreases in utilization rates having the opposite impacts
h Embedded derivatives related to fixed indexed annuity products are classified as policyholder account liabilities on the consolidated balance sheet The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed indexed 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
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 2023 dollars in millions
b Corporate securities The significant unobservable input used in the fair value measurement of these 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
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 multiples of EBITDA Generally increases decreases in the EBITDA multiples would result in higher lower fair value measurements
g 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
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 therefore disclosures of unobservable inputs and range are not applicable Includes 28 9 million of residual tranches that are valued based on our ownership share of the equity of the investee as reported to us by the General Partner We had unfunded commitments to invest 26 2 million in these entities as of December 31 2023 These investments are typically non redeemable however can be transferred to a third party with the consent of the General Partner The Company does not have plans to sell any of these assets at less than fair value Investments underlying these entities are generally expected to be liquidated within a 10 year timeframe
i Market risk benefits Many of our fixed indexed annuity products include a GLWB that is considered a MRB The calculation of the value of MRBs is based on significant unobservable inputs including nonmarket assumptions related to mortality rates surrender and withdrawal rates and GLWB utilization These assumptions are based on actuarial estimates and past experience Increases in assumed surrender rates would generally increase the value of a MRB asset or decrease the value of a MRB liability with decreases in assumed surrender rates having the opposite impacts Increases in utilization rates would generally decrease the value of a MRB asset or increase the value of a MRB liability with decreases in utilization rates having the opposite impacts
j Embedded derivatives related to fixed indexed annuity products are classified as policyholder account liabilities on the consolidated balance sheet The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed indexed 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
The liability for future policy benefits is determined based on numerous assumptions The most significant assumptions for our life and annuity business are mortality and lapse withdrawal rates which are based on our experience and in cases of limited experience industry experience Mortality and lapse withdrawal rates also take into consideration future expectations in policyholder behavior that may vary from past experience For our health business mortality rates lapse rates morbidity assumptions and future rate increases are based on our experience and in cases of limited experience industry experience Such assumptions also consider future expectations in policyholder behavior that may vary from past experience
In 2024 and 2023 we reviewed our actual mortality lapse and morbidity experience and updated our assumptions for future cash flows The impact of updating these assumptions is reflected in the Effect of changes in cash flow assumptions line items in the tables below
b In certain instances for interest sensitive products the total insurance liabilities for a particular line of business may not be deficient in the aggregate to trigger loss recognition but the pattern of earnings may be such that profits are expected to be recognized in earlier years followed by losses in later years In these situations accounting standards require that an additional liability the future loss reserve be recognized by an amount necessary to sufficiently offset the losses that would be recognized in later years
Many of our fixed indexed annuity products include a GLWB that is considered a MRB The calculation of MRBs includes market assumptions interest rate equity returns volatility and dividend yields and nonmarket assumptions mortality rates surrender and withdrawal rates GLWB utilization and spreads Market assumptions are updated quarterly to reflect current market conditions During 2024 we reviewed our non market assumptions used to calculate the MRBs and determined updates were warranted The impact of updating these assumptions is reflected in the Effect of changes in future expected policyholder behavior line items in the table below
The following table provides the amount of undiscounted and discounted expected gross premiums and expected future benefits and expenses for traditional and limited payment contracts dollars in millions
a The amount of insurance policy benefit expense resulting from death claims that we would incur in excess of the policyholder account balance net amount at risk for interest sensitive life contracts was 29 490 2 million at the balance sheet date
c Such amount represents the difference between i the total insurance liabilities for our fixed indexed products including the host contract and the related embedded derivative and ii the policyholder account balances for these products The accounting requirement to bifurcate the embedded derivative and value it at the current estimated fair value results in this amount
a The amount of insurance policy benefit expense resulting from death claims that we would incur in excess of the policyholder account balance net amount at risk for interest sensitive life contracts was 28 241 0 million at the balance sheet date
c Such amount represents the difference between i the total insurance liabilities for our fixed indexed products including the host contract and the related embedded derivative and ii the policyholder account balances for these products The accounting requirement to bifurcate the embedded derivative and value it at the current estimated fair value results in this amount
The following tables present the policyholder account values by range of guaranteed minimum crediting rates and the related range of difference in basis points between rates being credited to policyholders and the respective guaranteed minimums dollars in millions
a Excludes the account values related to i fixed indexed annuity contracts which do not have a minimum crediting rate since returns are based on an index and ii funding agreements which have a fixed crediting rate
a Excludes the account values related to i fixed indexed annuity contracts which do not have a minimum crediting rate since returns are based on an index and ii funding agreements which have a fixed crediting rate
Effective January 1 2024 the Company elected to change its tax method of accounting for indirect costs allocable to self constructed real estate assets The change in accounting method would result in a current year tax deduction of certain indirect costs previously capitalized under the Company s prior method of accounting In the second quarter of 2024 the Internal Revenue Service the IRS revised the list of tax method accounting changes that require approval from the IRS to include tax method accounting changes related to indirect costs allocable to self constructed real estate assets Previously only a taxpayer initiated election was necessary and IRS approval was not required The Company requested approval for its tax method change in June 2024
dependent on receiving formal IRS approval of our method change request As of December 31 2024 the Company has not yet received formal approval from the IRS and will account for the existing assets associated with the prior tax method of accounting Accordingly the Company expects to recognize a tax loss of approximately 800 million related to the
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 are 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 Our estimates of future taxable income are based on evidence we consider to be objectively verifiable At December 31 2024 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 numerous risks and uncertainties 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 net deferred tax assets of 791 4 million will be realized through future taxable earnings
Recovery of our deferred tax asset is dependent on achieving the level of future taxable income projected in our deferred tax valuation model and failure to do so could result in the recognition of a valuation allowance in a future period The recognition of a valuation allowance would increase income tax expense and reduce shareholders equity and such an increase could have a significant impact upon our earnings in the future
The Code limits the extent to which losses realized by a non life entity or entities may offset income from a life insurance company or companies to the lesser of i 35 percent of the income of the life insurance company or ii 35 percent of the total loss of the non life entities including NOLs of the non life entities There is no similar limitation on the extent to which losses realized by a life insurance entity or entities may offset income from a non life entity or entities
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 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 3 43 percent at December 31 2024 We regularly monitor ownership change as calculated for purposes of Section 382 and as of December 31 2024 we were well below the 50 percent ownership change level that could limit our ability to utilize our NOLs
In 2009 the Company s Board of Directors adopted a Section 382 Rights Agreement designed to protect shareholder value by preserving the value of our tax assets primarily associated with tax NOLs under Section 382 The Section 382 Rights Agreement was adopted to reduce the likelihood of an ownership change occurring by deterring the acquisition of stock that would create 5 percent shareholders as defined in Section 382 The Section 382 Rights Agreement has been
amended five times most recently effective November 13 2023 the Fifth Amended and Restated Section 382 Rights Agreement The Fifth Amended and Restated Section 382 Rights Agreement extended the expiration date of the Section 382 Rights Agreement to November 13 2026 updated the purchase price of the rights described below and provided for a new series of preferred stock relating to the rights that is substantially identical to the prior series of preferred stock The Company s shareholders approved the Fifth Amended and Restated Section 382 Rights Agreement at the Company s 2024 annual meeting
Under the Section 382 Rights Agreement one right was distributed for each share of our common stock outstanding as of the close of business on January 30 2009 and for each share issued after that date Pursuant to the Fifth Amended and Restated Section 382 Rights Agreement if any person or group subject to certain exemptions becomes an owner of more than 4 99 percent of the Company s outstanding common stock or any other interest in the Company that would be treated as stock under applicable Section 382 regulations without the approval of the Board of Directors there would be a triggering event causing significant dilution in the voting power and economic ownership of that person or group Shareholders who held more than 4 99 percent of the Company s outstanding common stock as of November 13 2023 will trigger a dilutive event only if they acquire additional shares exceeding one percent of our outstanding shares without prior approval from the Board of Directors
In 2010 our shareholders approved an amendment to CNO s certificate of incorporation designed to prevent certain transfers of common stock which could otherwise adversely affect our ability to use our NOLs the Original Section 382 Charter Amendment Subject to the provisions set forth in the Original Section 382 Charter Amendment the transfer restrictions generally will restrict any direct or indirect transfer such as transfers of our common stock that results from the transfer of interests in other entities that own our stock if i the transferor is a person or public group as defined in the regulations under Section 382 who directly or indirectly owns or is deemed to own 4 99 or more of our common stock ii the effect of the transfer would be to increase the direct or indirect ownership of our common stock by any person or public group from less than 4 99 to 4 99 or more of our common stock or iii the effect of the transfer would be to increase the percentage of our common stock owned directly or indirectly by a person or public group owning or deemed to own 4 99 or more of our common stock The Original Section 382 Charter Amendment was amended and extended in 2013 2016 2019 and 2022 the 2022 Section 382 Charter Amendment The expiration date for the 2022 Section 382 Charter Amendment is July 31 2025 The Company expects to submit a renewal of the Section 382 Charter Amendment to the Company s shareholders for approval at the Company s 2025 annual meeting
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 In addition we expect to recognize approximately 800 million of non life NOLs on our tax return as a result of changes related to the tax accounting method for allocating indirect costs pursuant to the Code to self constructed real estate assets upon approval from the IRS Such NOLs will not be subject to expiration
We also had deferred tax assets related to NOLs for state income taxes of 4 4 million at December 31 2024 and 2 5 million at December 31 2023 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 2024 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
Senior Notes due 2034 the 2034 Notes The 2034 Notes were issued under the Indenture dated as of June 12 2019 the Base Indenture as supplemented by the Third Supplemental Indenture dated as of May 13 2024 the Supplemental Indenture and together with the Base Indenture the Indenture each between the Company and U S Bank Trust Company National Association as successor in interest to U S Bank National Association as trustee the Trustee The 2034 Notes mature on June 15 2034 unless earlier repurchased by the Company and interest on the 2034 Notes is payable at
The 2034 Notes are senior unsecured obligations and rank equally with the Company s other senior unsecured and unsubordinated debt from time to time outstanding including obligations under our Revolving Credit Agreement as defined below The 2034 Notes are effectively subordinated to all of the Company s future indebtedness that is secured to the extent of the value of the assets securing such indebtedness The 2034 Notes are structurally subordinated to all existing and future indebtedness and other liabilities of the Company s subsidiaries
The Indenture contains customary terms and covenants including that upon certain events of default occurring and continuing either the Trustee or the holders of not less than 25 in aggregate principal amount of the 2034 Notes then outstanding may declare the entire principal amount of all the 2034 Notes and the interest accrued on such 2034 Notes if any to be immediately due and payable In the case of certain events of bankruptcy insolvency or reorganization relating to the Company the principal amount of the securities together with any accrued and unpaid interest thereon will automatically be and become immediately due and payable
Prior to March 15 2034 the date that is three months prior to the maturity date of the 2034 Notes the Par Call Date the 2034 Notes are redeemable at a redemption price equal to the greater of i 100 of the principal amount of the 2034 Notes to be redeemed or ii a the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date assuming the 2034 Notes matured on the Par Call Date on a semi annual basis assuming a 360 day year consisting of twelve 30 day months at the Treasury Rate as defined in the Indenture plus 30 basis points less b interest accrued to the date of redemption plus in either case accrued and unpaid interest thereon to but excluding the redemption date On and after the Par Call Date the 2034 Notes are redeemable at a redemption price equal to 100 of the principal amount of the 2034 Notes to be redeemed plus accrued and unpaid interest thereon to but excluding the date of redemption
In November 2020 the Company issued 150 0 million of 5 125 Subordinated Debentures due 2060 the Debentures The terms of the Debentures are set forth in the Indenture dated as of June 12 2019 the 2019 Base Indenture as supplemented by the Second Supplemental Indenture dated as of November 25 2020 the 2020 Supplemental Indenture and together with the 2019 Base Indenture the 2020 Indenture each between the Company and U S Bank National Association as trustee the Trustee The Debentures bear interest at an annual rate of 5 125 payable quarterly in arrears on February 25 May 25 August 25 and November 25 commencing on February 25 2021 The Debentures mature on November 25 2060 The Company used the net proceeds from the issuance of the Debentures for general corporate purposes
The Debentures are unsecured and rank junior to all existing and future senior indebtedness including the 2025 Notes 2029 Notes and 2034 Notes each as defined above and below In addition the Debentures are structurally subordinated to all existing and future indebtedness and other liabilities of the Company s subsidiaries
i in whole at any time or in part from time to time on or after November 25 2025 at a redemption price equal to their principal amount plus accrued and unpaid interest to but excluding the date of redemption provided that if the Debentures are not redeemed in whole at least 25 million aggregate principal amount of the Debentures must remain outstanding after giving effect to such redemption
ii in whole but not in part at any time prior to November 25 2025 within 90 days of the occurrence of a tax event or a regulatory capital event as defined in the 2020 Indenture at a redemption price equal to their principal amount plus accrued and unpaid interest to but excluding the date of redemption or
iii in whole but not in part at any time prior to November 25 2025 within 90 days of the occurrence of a rating agency event as defined in the 2020 Indenture at a redemption price equal to 102 of their principal amount plus any accrued and unpaid interest to but excluding the date of redemption
The 2020 Indenture contains covenants that will limit the ability of the Company and certain of its subsidiaries to consolidate merge or sell lease transfer or otherwise dispose of its properties and assets substantially as an entirety
On June 12 2019 the Company executed the 2019 Base Indenture and the First Supplemental Indenture dated as of June 12 2019 the 2019 Supplemental Indenture and together with the 2019 Base Indenture the 2019 Indenture between the Company and the Trustee pursuant to which the Company issued 500 0 million aggregate principal amount of 5 250 Senior Notes due 2029 the 2029 Notes
The Company used the net proceeds from the offering of the 2029 Notes to i repay all amounts outstanding under its existing Revolving Credit Agreement as defined below ii redeem and satisfy and discharge all of its outstanding 4 500 Senior Notes due May 2020 the 2020 Notes and iii pay fees and expenses related to the foregoing The remaining proceeds were used for general corporate purposes
The 2029 Notes mature on May 30 2029 and interest on the 2029 Notes is payable at 5 250 per annum Interest on the 2029 Notes is payable semi annually in cash in arrears on May 30 and November 30 of each year commencing on November 30 2019
The 2029 Notes are senior unsecured obligations and rank equally with the Company s other senior unsecured and unsubordinated debt from time to time outstanding including obligations under our Revolving Credit Agreement as defined below The 2029 Notes are effectively subordinated to all of the Company s existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness The 2029 Notes are structurally subordinated to all existing and future indebtedness and other liabilities of the Company s subsidiaries
Prior to February 28 2029 the Company may redeem some or all of the 2029 Notes at any time or from time to time at a make whole redemption price plus accrued and unpaid interest to but not including the redemption date On and after February 28 2029 the Company may redeem some or all of the 2029 Notes at any time or from time to time at a redemption price equal to 100 of the principal amount thereof plus accrued and unpaid interest to but not including the redemption date
Upon the occurrence of a Change of Control Repurchase Event as defined in the 2019 Indenture the Company will be required to make an offer to repurchase the 2029 Notes at a price equal to 101 of the principal amount thereof plus accrued and unpaid interest if any to but not including the date of repurchase So long as the 2029 Notes are rated investment grade and there is no default under the Indenture this covenant does not apply
The 2019 Indenture provides for customary events of default subject in certain cases to customary grace and cure periods which include nonpayment breach of covenants in the 2019 Indenture failure to pay at maturity or acceleration of other indebtedness a failure to pay certain judgments and certain events of bankruptcy and insolvency Generally if an event of default occurs the Trustee or holders of at least 50 in principal amount of the then outstanding 2029 Notes may declare the principal of and accrued but unpaid interest including any additional interest on all of the 2029 Notes to be due and payable
On May 19 2015 the Company executed the Indenture dated as of May 19 2015 the 2015 Base Indenture and the First Supplemental Indenture dated as of May 19 2015 the 2015 Supplemental Indenture and together with the 2015 Base Indenture the 2015 Indenture between the Company and the Trustee pursuant to which the Company issued 325 0 million aggregate principal amount of the 2020 Notes and 500 0 million aggregate principal amount of 5 250 Senior Notes due 2025 the 2025 Notes As described above the 2020 Notes were redeemed on June 12 2019
The 2025 Notes mature on May 30 2025 Interest on the 2025 Notes is payable at 5 250 per annum Interest on the 2025 Notes is payable semi annually in cash in arrears on May 30 and November 30 of each year commencing on November 30 2015
The 2025 Notes are senior unsecured obligations and rank equally with the Company s other senior unsecured and unsubordinated debt from time to time outstanding including obligations under the Revolving Credit Agreement as defined below The 2025 Notes are effectively subordinated to all of the Company s existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness The 2025 Notes are structurally subordinated to all existing and future indebtedness and other liabilities of the Company s subsidiaries
Prior to February 28 2025 the Company may redeem some or all of the 2025 Notes at any time or from time to time at a make whole redemption price plus accrued and unpaid interest to but not including the redemption date On and after February 28 2025 the Company may redeem some or all of the 2025 Notes at any time or from time to time at a redemption price equal to 100 of the principal amount thereof plus accrued and unpaid interest to but not including the redemption date
Upon the occurrence of a Change of Control Repurchase Event as defined in the 2015 Indenture the Company will be required to make an offer to repurchase the 2025 Notes at a price equal to 101 of the principal amount thereof plus accrued and unpaid interest if any to but not including the date of repurchase
The 2015 Indenture provides for customary events of default subject in certain cases to customary grace and cure periods which include nonpayment breach of covenants in the 2015 Indenture failure to pay at maturity or acceleration of other indebtedness a failure to pay certain judgments and certain events of bankruptcy and insolvency Generally if an event of default occurs the Trustee or holders of at least 25 in principal amount of the then outstanding 2025 Notes may declare the principal of and accrued but unpaid interest including any additional interest on all of the 2025 Notes to be due and payable
On May 19 2015 the Company entered into a 150 0 million four year unsecured revolving credit agreement with KeyBank National Association as administrative agent the Agent and the lenders from time to time party thereto On May 19 2015 the Company made an initial drawing of 100 0 million under the Revolving Credit Agreement On October 13 2017 the Company entered into an amendment and restatement agreement the Amendment Agreement with respect to its revolving credit agreement as amended by the Amendment Agreement the Second Amendment Agreement as described below the Third Amendment to Credit Agreement dated as of August 11 2021 and the Fourth Amendment as described below the Revolving Credit Agreement The Amendment Agreement among other things increased the total commitments available under the revolving credit facility from 150 0 million to 250 0 million increased the aggregate amount of additional incremental loans the Company may incur from 50 0 million to 100 0 million and extended the maturity date of the revolving credit facility from May 19 2019 to October 13 2022 which was further extended in July 2021 as described below As described above all amounts outstanding under the Revolving Credit Agreement were repaid in connection with the issuance of the 2029 Notes
On July 16 2021 the Company entered into a second amendment and restatement agreement the Second Amendment Agreement with respect to its Revolving Credit Agreement The Second Amendment Agreement among other things i revises the debt to total capitalization ratio to exclude hybrid securities from the calculation except to the extent that the aggregate amount outstanding of all such hybrid securities exceeds an amount equal to 15 of total capitalization ii reduces the net equity proceeds prong of the minimum consolidated net worth covenant from 50 to 25 iii removes the aggregate RBC ratio covenant and iv extends the maturity date of the revolving credit facility to
On May 4 2023 the Company entered into a fourth amendment and restatement agreement the Fourth Amendment Agreement with respect to its Revolving Credit Agreement The Fourth Amendment Agreement replaces the London interbank offered rate with the Secured Overnight Financing Rate SOFR as the applicable reference rate for loans and commitments under the Revolving Credit Agreement denominated in U S dollars
The Revolving Credit Agreement includes an uncommitted subfacility for swingline loans of up to 5 0 million and up to 5 0 million of the Revolving Credit Agreement is available for the issuance of letters of credit The Company may incur additional incremental loans under the Revolving Credit Agreement in an aggregate principal amount of up to 100 0 million provided that there are no events of default and subject to certain other terms and conditions including the delivery of certain documentation
The interest rate applicable to loans under the Revolving Credit Agreement is calculated at the Company s option as the SOFR plus a credit spread adjustment of 0 10 percent for all available interest periods or the base rate plus a margin based on the Company s unsecured debt rating The base rate defined as a per annum rate is equal to the highest of i the federal funds rate plus 0 50 ii the prime rate of the Agent and iii the Adjusted Term SOFR as defined in the Revolving Credit Agreement for a one month interest period plus 1 00 percent per annum The margins under the Revolving Credit Agreement range from 1 375 percent to 2 125 percent in the case of loans at the SOFR rate and 0 375 percent to 1 125 percent in the case of loans at the base rate In addition the daily average undrawn portion of the Revolving Credit Agreement accrues a commitment fee payable quarterly in arrears The applicable margin for and the commitment fee applicable to the Revolving Credit Agreement will be adjusted from time to time pursuant to a ratings based pricing grid
The Revolving Credit Agreement contains certain financial affirmative and negative covenants The negative covenants in the Revolving Credit Agreement include restrictions that relate to among other things and subject to customary baskets exceptions and limitations for facilities of this type
The Revolving Credit Agreement requires the Company to maintain each as calculated in accordance with the Revolving Credit Agreement i a debt to total capitalization ratio excluding hybrid securities except to the extent that the aggregate amount outstanding of all such hybrid securities exceeds an amount equal to 15 of total capitalization of not more than 35 0 percent such ratio was 30 5 percent at December 31 2024 and ii a minimum consolidated net worth of not less than the sum of 2 674 0 million plus 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 3 869 8 million at December 31 2024 compared to the minimum requirement of 2 698 8 million
The Company and its subsidiaries are involved in various legal actions in the normal course of business in which claims for compensatory and punitive damages are asserted some for substantial amounts We recognize an estimated loss from these loss contingencies when we believe it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated Some of the pending matters have been filed as purported class actions and some actions have been filed in certain jurisdictions that permit punitive damage awards that are disproportionate to the actual damages incurred The amounts sought in certain of these actions are often large or indeterminate and the ultimate outcome of certain actions is difficult to predict In the event of an adverse outcome in one or more of these matters there is a possibility that the ultimate liability may be in excess of the liabilities we have established and could have a material adverse effect on our business financial condition results of operations and cash flows 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 June 7 2019 Platinum Partners Value Arbitrage Fund L P in Official Liquidation PPVA the Joint Official Liquidators of PPVA the JOLs and Principal Growth Strategies LLC PGS commenced suit against among others CNO Financial Group Inc Bankers Conseco Life Insurance Company 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 Beechwood Re Ltd 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 had removed the case to the United States District Court for the District of Delaware but on April 6 2020 the District Court granted Plaintiffs motion to remand the case back to the Delaware Chancery Court On July 10 2020 Plaintiffs filed an Amended Complaint and the CNO Parties 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 On December 1 2023 the Delaware Chancery Court lifted the stay as of November 30 2023 On January 25 2024 the Delaware Chancery Court granted in part and denied in part the CNO Parties motion to dismiss the Amended Complaint Based on the Court s ruling PPVA and the JOLs claims against the CNO Parties were dismissed On April 9 2024 PGS filed a Second Amended Complaint which contains the same claims against the CNO Parties that PGS had previously asserted The CNO Parties are vigorously contesting PGS s claims Under the current Case Schedule trial is supposed to occur in October 2025 however the Court has not yet set a trial date
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 the Optional Premium Payment and other provisions of plaintiffs insurance policies In January 2018 the case was transferred to the United States District Court for 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 their policies 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 On September 25 2024 the Court granted in part and denied in part the CNO Entities Motion for Summary Judgment on the breach of contract claim On November 12 2024 the Court granted CNO Entities Motion to Bifurcate the trials of the breach of contract and alter ego claims The jury trial on the breach of contract claim is scheduled to begin on June 16 2025 the bench trial on the alter ego claim is scheduled to begin on August 12 2025 The CNO Entities continue to vigorously defend the case
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
The balance sheet at December 31 2024 included i accruals of 7 8 million representing our estimate of all known assessments that will be levied against the Company s insurance subsidiaries by various state guaranty associations based on premiums written through December 31 2024 and ii receivables of 18 3 million that we estimate will be recovered through a reduction in future premium taxes as a result of such assessments At December 31 2023 such guaranty fund assessment accruals were 6 0 million and such receivables were 9 5 million These estimates are subject to change when the associations determine more precisely the losses that have occurred and how such losses will be allocated among the insurance companies We recognized expense for such assessments of 2 4 million 2 0 million and 2 1 million for the years ended December 31 2024 2023 and 2022 respectively
In accordance with the terms of the employment agreements of two of the Company s former chief executives certain wholly owned subsidiaries of the Company are the guarantors of the former executives nonqualified supplemental retirement benefits The liability for such benefits was 19 1 million and 19 8 million at December 31 2024 and 2023 respectively and is recorded in other liabilities on the consolidated balance sheet
The Company leases office space equipment and computer software under contractual commitments or noncancellable operating lease agreements Total expense pursuant to these agreements was 98 7 million 96 3 million and 86 4 million for the years ended December 31 2024 2023 and 2022 respectively
The Company leases office space for certain administrative operations under agreements that expire between 2024 and 2034 We lease sales offices in various states which are generally short term in length with remaining lease terms expiring between 2024 and 2030 Many leases include an option to extend or renew the lease term The exercise of the renewal option is at the Company s discretion The operating lease liability includes lease payments related to options to extend or renew the lease term only if the Company is reasonably certain of exercising those options In determining the present value of lease payments the Company uses its incremental borrowing rate for borrowings secured by collateral commensurate with the terms of the underlying lease
For our agent deferred compensation plan it is our policy to immediately recognize changes in the actuarial benefit obligation resulting from either actual experience being different than expected or from changes in actuarial assumptions
One of our insurance subsidiaries has a noncontributory unfunded deferred compensation plan for qualifying members of its exclusive agency force Benefits were based on years of service and career earnings In 2016 the agent deferred compensation plan was amended to i freeze participation in the plan ii freeze benefits accrued under the plan and iii add a limited cashout feature The actuarial measurement date of this deferred compensation plan is December 31 The liability recognized in the consolidated balance sheet for the agent deferred compensation plan was 122 5 million and 130 9 million at December 31 2024 and 2023 respectively Interest costs incurred on this plan were 6 3 million 6 5 million and 6 1 million for the years ended December 31 2024 2023 and 2022 respectively The recognition of gains losses were 6 5 million 3 6 million and 48 9 million for the years ended December 31 2024 2023 and 2022 respectively primarily resulting from i changes in the discount rate assumption used to determine the deferred compensation plan liability to reflect current investment yields and ii changes in mortality table assumptions These expenses are recorded in other operating costs and expenses within the consolidated statement of operations We purchased COLI as an investment vehicle to fund the agent deferred compensation plan The COLI assets are not assets of the agent deferred compensation plan and as a result are accounted for outside the plan and are recorded in other invested assets on the consolidated balance sheet The carrying value of the COLI assets was 212 6 million and 202 9 million at December 31 2024 and 2023 respectively Death benefits related to COLI and changes in the cash surrender value which approximates net realizable value of the COLI assets are recorded as net investment income loss on special purpose portfolios and totaled 11 3 million 13 0 million and 4 4 million for the years ended December 31 2024 2023 and 2022 respectively
One of our insurance subsidiaries has another unfunded nonqualified deferred compensation program for qualifying members of its exclusive agency force Such agents may defer a certain percentage of their net commissions into the program In addition annual Company contributions are made based on the agent s production and vest over a period of five to 10 years The liability recognized in the consolidated balance sheet for this program was 103 6 million and 83 2 million at December 31 2024 and 2023 respectively Company contribution expenses are recorded to other operating costs and expenses in the consolidated statement of operations and totaled 5 6 million 6 2 million and 6 3 million for the years ended December 31 2024 2023 and 2022 respectively We purchased Trust Owned Life Insurance TOLI as an investment vehicle to fund the program The TOLI assets are not assets of the program and as a result are accounted for outside the program and are recorded in other invested assets on the consolidated balance sheet The carrying value of the TOLI assets was 95 3 million and 74 5 million at December 31 2024 and 2023 respectively
The Company has a qualified defined contribution plan for which substantially all employees are eligible Company contributions which match a portion of certain voluntary employee contributions to the plan totaled 11 4 million 10 9 million and 10 3 million for the years ended December 31 2024 2023 and 2022 respectively Employer matching contributions are discretionary
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 74 7 million in underlying investments held by the ceding reinsurer at December 31 2024
The activity associated with freestanding derivative instruments is measured as either the notional or the number of contracts The activity associated with the fixed indexed annuity embedded derivatives are shown by the number of policies The following table represents activity associated with derivative instruments as of the dates indicated
If the counterparties to the call options fail to meet their obligations we may recognize a loss We limit our exposure to such a loss by diversifying among several counterparties believed to be strong and creditworthy At December 31 2024 all of our counterparties were rated A or higher by S P
In May 2011 the Company announced a securities repurchase program In 2024 2023 and 2022 we repurchased 8 9 million 6 6 million and 7 6 million shares respectively for 281 6 million 165 1 million and 180 0 million respectively under the securities repurchase program The Company had remaining repurchase authority of 240 3 million as of December 31 2024 The Company s Board of Directors authorized the repurchase of an additional 500 0 million of the Company s outstanding shares of common stock in February 2025
In 2024 2023 and 2022 dividends declared on common stock totaled 67 5 million 0 63 per common share 67 9 million 0 59 per common share and 65 0 million 0 55 per common share respectively In May 2024 the Company increased its quarterly common stock dividend to 0 16 per share from 0 15 per share In May 2023 the Company increased its quarterly common stock dividend to 0 15 per share from 0 14 per share In May 2022 the Company increased its quarterly common stock dividend to 0 14 per share from 0 13 per share
The Company has a long term incentive plan which permits the grant of CNO incentive or non qualified stock options restricted stock awards restricted stock units stock appreciation rights performance shares or units and certain other equity based awards to certain directors officers and employees of the Company and certain other individuals who perform services for the Company although no grants have been made to such other individuals As of December 31 2024 2023 and 2022 there were 2 9 million shares 4 1 million shares and 5 6 million shares respectively that were available for issuance under the plan Our stock option awards are generally granted with an exercise price equal to the market price of the Company s stock on the date of grant and a maximum term of ten years Our stock options granted in 2015 through 2019 generally vested on a graded basis over a three year service term and expire ten years from the date of grant In 2018 one grant of 1 6 million of stock options vested on a graded basis over a five year service term and expires ten years from the date of grant There have been no stock options granted since 2019 The vesting periods for our awards of restricted stock units generally range from immediate vesting to a period of three years We record forfeitures as they occur
Compensation expense related to stock options was not material for each of the three years ended December 31 2024 Compensation expense related to stock options had no impact on either basic or diluted earnings per share
At December 31 2024 there was no unrecognized compensation expense for non vested stock options Cash received by the Company from the exercise of stock options was 7 2 million 9 2 million and 10 4 million during 2024 2023 and 2022 respectively
The Company granted restricted stock of 0 5 million for each of the three years ended December 31 2024 to certain directors officers and employees of the Company at a weighted average fair value of 27 59 per share 24 93 per share and 23 59 per share respectively based on the market value of the underlying share on the date of grant The fair value of such grants totaled 12 4 million 11 5 million and 12 0 million in 2024 2023 and 2022 respectively Such amounts are recognized as compensation expense over the vesting period of the restricted stock A summary of the Company s non vested restricted stock activity for 2024 is presented below shares in thousands
At December 31 2024 the unrecognized compensation expense for non vested restricted stock totaled 10 9 million which is expected to be recognized over a weighted average period of 1 8 years At December 31 2023 the unrecognized compensation expense for non vested restricted stock totaled 10 1 million We recognized compensation expense related to restricted stock awards totaling 11 4 million 10 9 million and 9 9 million in 2024 2023 and 2022 respectively The fair value of restricted stock that vested during 2024 2023 and 2022 was 12 6 million 10 4 million and 8 3 million respectively
The Company granted performance units totaling 0 4 million in each of the three years ended December 31 2024 The criteria for payment for such awards are based on certain company wide performance levels that must be achieved within a specified performance time generally one to three years each as defined in the award The performance units granted in 2024 2023 and 2022 provide for a payout of up to 200 percent of the award if certain performance thresholds are achieved Unless antidilutive the diluted weighted average shares outstanding would reflect the number of performance units expected to be issued using the treasury stock method
The grant date fair value of the performance units awarded is determined using the Monte Carlo valuation method including an assumption of volatility based on historical share prices and was 11 1 million and 11 9 million in 2024 and 2023 respectively We recognized compensation expense of 11 0 million 11 3 million and 13 8 million in 2024 2023 and 2022 respectively related to the performance units
As further discussed in the footnote to the consolidated financial statements entitled Income Taxes the Company s Board of Directors adopted the Section 382 Rights Agreement in 2009 and has amended and extended the Section 382 Rights Agreement on five occasions most recently effective November 13 2023 The Section 382 Rights Agreement as amended is designed to protect shareholder value by preserving the value of our tax assets primarily associated with NOLs At the time the Section 382 Rights Agreement was adopted the Company declared a dividend of one preferred share purchase right a Right for each outstanding share of common stock The dividend was payable on January 30 2009 to the shareholders of record as of the close of business on that date and a Right is also attached to each share of CNO common stock issued after that date Pursuant to the Section 382 Rights Agreement as amended each Right entitles the shareholder to purchase from the Company one one thousandth of a share of Series F Junior Participating Preferred Stock par value 0 01 per share the Junior Preferred Stock of the Company at a price of 110 00 per one one thousandth of a share of Junior Preferred Stock The description and terms of the Rights are set forth in the Section 382 Rights Agreement as amended The Rights would become exercisable in the event any person or group subject to certain exemptions becomes an owner of more than 4 99 percent of the outstanding stock of CNO a Threshold Holder without the approval of the Board of Directors or an existing shareholder who is currently a Threshold Holder acquires additional shares exceeding one percent of our outstanding shares without prior approval from the Board of Directors
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
a Excludes 1 599 2 million of funds received from the issuance of funding agreements pursuant to our FABN program for the year ended December 31 2024 and 899 0 million for the year ended December 31 2022
The five states with the largest shares of 2024 collected premiums were Florida 11 percent Iowa 6 percent Pennsylvania 5 percent California 5 percent and Texas 5 percent No other state accounted for more than five percent of total collected premiums
Based on current conditions and assumptions as to future events on all policies inforce the Company expects to amortize approximately 10 percent of the December 31 2024 balance of the present value of future profits in 2025 9 percent in 2026 8 percent in 2027 7 percent in 2028 and 7 percent in 2029
Statutory accounting practices prescribed or permitted by regulatory authorities for the Company s insurance subsidiaries differ from GAAP The Company s U S based insurance subsidiaries will report the following amounts to regulatory agencies after appropriate elimination of intercompany accounts among such subsidiaries dollars in millions
Such statutory capital and surplus included investments in upstream affiliates of 42 6 million at both December 31 2024 and 2023 which were eliminated in the consolidated financial statements prepared in accordance with GAAP
Statutory earnings build the capital required by ratings agencies and regulators Statutory earnings fees and interest paid by our U S based insurance subsidiaries to the parent company create the cash flow capacity the parent company needs to meet its obligations including debt service The consolidated statutory net income of our U S based insurance subsidiaries was 176 6 million 105 0 million and 238 0 million for the years ended December 31 2024 2023 and 2022 respectively Included in net income were net realized capital losses net of income taxes of 20 3 million 26 3 million and 25 9 million for the years ended December 31 2024 2023 and 2022 respectively In addition such net
income included pre tax amounts for fees and interest paid to CNO or its non life subsidiaries of 197 5 million 190 1 million and 168 4 million for the years ended December 31 2024 2023 and 2022 respectively
Insurance regulators may prohibit the payment of dividends or other payments by our insurance subsidiaries to parent companies if they determine that such payment could be adverse to our policyholders or contract holders Otherwise the ability of our insurance subsidiaries to pay dividends is subject to state insurance department regulations Insurance regulations generally permit dividends to be paid from statutory earned surplus of our U S based insurance subsidiaries without regulatory approval for any 12 month period in amounts equal to the greater of or in some states the lesser of i statutory net gain from operations or statutory net income for the prior year or ii 10 percent of statutory capital and surplus as of the end of the preceding year However as each of the immediate U S based insurance subsidiaries of CDOC Inc CDOC our wholly owned subsidiary and the immediate parent of Washington National and Conseco Life Insurance Company of Texas CLTX has negative earned surplus any dividend payments from the insurance subsidiaries to CNO requires the prior approval of the director or commissioner of the applicable state insurance department During 2024 our U S based insurance subsidiaries paid dividends of 196 0 million to CDOC In 2024 CDOC also made capital contributions of 67 0 million to CLTX
The payment of interest on surplus debentures requires either prior written notice or approval of the director or commissioner of the applicable state insurance department Dividends and other payments from our non insurance subsidiaries to CNO or CDOC do not require approval by any regulatory authority or other third party
In accordance with an order from the Florida Office of Insurance Regulation Washington National may not distribute funds to any affiliate or shareholder except pursuant to agreements that have been approved without prior notice to the Florida Office of Insurance Regulation In addition the risk based capital RBC and other capital requirements described below can also limit in certain circumstances the ability of our insurance subsidiaries to pay dividends
RBC requirements provide a tool for state insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks and the need for possible regulatory attention The RBC requirements provide four levels of regulatory attention varying with the ratio of the insurance company s total adjusted capital defined as the total of its statutory capital and surplus asset valuation reserve and certain other adjustments to its RBC as measured on December 31 of each year as follows i if a company s total adjusted capital is less than 100 percent but greater than or equal to 75 percent of its RBC the company must submit a comprehensive plan to the regulatory authority proposing corrective actions aimed at improving its capital position the Company Action Level ii if a company s total adjusted capital is less than 75 percent but greater than or equal to 50 percent of its RBC the regulatory authority will perform a special examination of the company and issue an order specifying the corrective actions that must be taken iii if a company s total adjusted capital is less than 50 percent but greater than or equal to 35 percent of its RBC the regulatory authority may take any action it deems necessary including placing the company under regulatory control and iv if a company s total adjusted capital is less than 35 percent of its RBC the regulatory authority must place the company under its control In addition the RBC requirements provide for a trend test if a company s total adjusted capital is between 100 percent and 150 percent of its RBC at the end of the year The trend test calculates the greater of the decrease in the margin of total adjusted capital over RBC i between the current year and the prior year and ii for the average of the last 3 years It assumes that such decrease could occur again in the coming year Any company whose trended total adjusted capital is less than 95 percent of its RBC would trigger a requirement to submit a comprehensive plan as described above for the Company Action Level The 2024 statutory annual statements of each of our U S based insurance subsidiaries reflect total adjusted capital in excess of the levels that would subject our subsidiaries to any regulatory action
In addition although we are under no obligation to do so we may elect to contribute additional capital or retain greater amounts of capital to strengthen the surplus of certain insurance subsidiaries Any election to contribute or retain additional capital could impact the amounts our insurance subsidiaries pay as dividends to the holding company The ability of our insurance subsidiaries to pay dividends is also impacted by various criteria established by rating agencies to maintain or receive higher ratings and by the capital levels that we target for our insurance subsidiaries
We calculate the consolidated RBC ratio by assuming all of the assets liabilities capital and surplus and other aspects of the business of our U S based insurance subsidiaries are combined together in one insurance subsidiary with appropriate intercompany eliminations
CNO Bermuda Re is registered by and subject to the supervision of the Bermuda Monetary Authority the BMA as a Class C insurer under the Bermuda Insurance Act 1978 and its related rules and regulations each as amended the Insurance Act The Insurance Act imposes solvency and capital requirements as well as auditing and reporting requirements The Insurance Act requires the value of an insurer s statutory assets to exceed the value of their statutory liabilities by an amount greater than or equal to their prescribed minimum solvency margin The minimum solvency margin that must be maintained by a Class C insurer is the greater of i 0 5 million or ii 1 5 percent of assets or iii 25 percent of its enhanced capital requirement ECR as reported at the end of the relevant year
A Class C insurer is also required to maintain available statutory economic capital and surplus at a level equal to or in excess of its ECR which is established by reference to either the Bermuda Solvency Capital Requirement BSCR model or a Bermuda approved internal capital model The BSCR model is a risk based capital model which provides a method for determining an insurer s capital requirements statutory economic capital and surplus by taking into account the risk characteristics of different aspects of the Class C insurer s business The BSCR formula establishes capital requirements for certain categories of risk including fixed income investment risk equity investment risk long term interest rate liquidity risk currency risk concentration risk certain insurance risks credit risk catastrophe risk and operational risk For each category the capital requirement is determined by applying factors to asset premium reserve creditor probable maximum loss and operation items with higher factors applied to items with greater underlying risk and lower factors for less risky items
While not specifically referred to in the Insurance Act the BMA has also established a target capital level TCL for each insurer equal to 120 percent of an insurer s ECR The TCL serves as an early warning tool for the BMA and failure to maintain statutory capital at least equal to the TCL will likely result in increased regulatory oversight CNO Bermuda Re has entered into a Capital and Liquidity Maintenance Agreement the CLMA with CDOC Pursuant to the CLMA between CNO Bermuda Re and CDOC CDOC will contribute funds to CNO Bermuda Re in the event i CNO Bermuda Re s statutory economic capital and surplus is less than 150 percent of its ECR at the end of any calendar quarter or ii CNO Bermuda Re s liquid assets are insufficient to meet its contractual obligations to ceding insurers in each case unless Bankers Life has provided notice of recapture pursuant to the terms of a modified coinsurance agreement between it and CNO Bermuda Re Further CNO Bermuda Re may not pay any dividends or make any capital distributions to its parent and or affiliates within the five years following its initial reinsurance transaction unless approved by the BMA
We are in the process of completing CNO Bermuda Re s capital and solvency return in respect of the year ended December 31 2024 which includes the BSCR We believe that CNO Bermuda Re s level of capitalization will exceed the minimum solvency margin and result in its statutory economic capital and surplus being in excess of the TCL
We view our operations as three insurance product line segments 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 the chief operating decision maker CODM makes operating decisions and assesses the performance of the business Our CODM is the Chief Executive Officer
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 of deferred acquisition costs and present value of future profits 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 net insurance liabilities for the block in each period Net insurance liabilities for the purpose of allocating investment income to product lines are equal to i policyholder account values for interest sensitive products ii total reserves before the fair value adjustments reflected in accumulated other comprehensive income loss if applicable for all other products less iii amounts related to reinsurance business iv deferred acquisition costs v the present value of future profits and vi the value of unexpired options credited to insurance liabilities
Income from insurance products is the sum of the insurance product 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 products through the Consumer and Worksite Divisions that reflect the customers served by the Company 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
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 the sale of voluntary benefit life and health insurance products in the workplace 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 wholly owned subsidiary Optavise a national provider of year round technology driven employee benefits management services
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 investment borrowings and financing agreements iv expenses related to the FABN program and v certain expenses related to benefit plans that are offset by special purpose investment income plus vi the impact of annual option forfeitures related to fixed indexed annuity surrenders Investment income not allocated to product lines includes investment income on investments in excess of amounts allocated to product lines 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 investments income not allocated to product lines net of interest expense on corporate debt and financing agreements The spread earned from our FHLB
investment borrowing and FABN programs includes the investment income on the matched assets less i interest on investment borrowings related to the FHLB investment borrowing program ii interest credited on funding agreements and iii amortization of deferred acquisition costs related to the FABN program
Our fee income segment includes the earnings generated from sales of third party insurance products services provided by Optavise and the operations of our broker dealer and registered investment advisor The resulting fee income metric is the fee income segment s measure of profitability
Our CODM allocates resources and assesses the performance of each operating segment based on the respective product line insurance margin investment income not allocated and fee income metrics described above
We measure segment performance by excluding total investment gains losses changes in fair value of embedded derivative liabilities and MRBs fair value changes related to the agent deferred compensation plan income taxes and other non operating items including 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 changes in fair value of embedded derivative liabilities and MRBs 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 changes in fair value of embedded derivative liabilities and MRBs 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
We compute earnings per common share for each quarter independently of earnings per share for the year The sum of the quarterly earnings per share may not equal the earnings per share for the year because of i transactions affecting the weighted average number of shares outstanding in each quarter and ii the uneven distribution of earnings during the year Quarterly financial data unaudited were as follows dollars in millions except per share data
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 commercial bank 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 scheduled repayment of the remaining principal balance of the borrowings related to the VIEs are estimated as follows 94 1 million in 2025 40 2 million in 2026 33 3 million in 2027 55 0 million in 2028 and 276 0 million in 2029 and thereafter The Company has no financial obligation to the VIEs beyond its investment in each VIE
Certain of our subsidiaries are noteholders of the VIEs Another subsidiary of the Company is the investment manager for the VIEs As such it has the power to direct the most significant activities of the VIEs which materially impacts the economic performance of the VIEs
The following table provides supplemental information about the 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
The investment portfolios held by the VIEs are primarily comprised of commercial bank loans to corporate obligors At December 31 2024 the amortized cost of the below investment grade investments held by the VIEs was 423 5 million or 97 percent of the VIEs investment portfolio At December 31 2024 such loans had an amortized cost of 437 0 million gross unrealized gains of 1 2 million gross unrealized losses of 4 7 million an allowance for credit losses of 1 3 million and an estimated fair value of 432 3 million The estimated fair value of the below investment grade portfolio was 418 7 million or 99 percent of the amortized cost
The following table sets forth the amortized cost and estimated fair value of the investments held by the VIEs at December 31 2024 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
The following table sets forth the amortized cost and estimated fair value of those investments held by the VIEs with unrealized losses at December 31 2024 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
The following summarizes the investments sold at a loss during 2024 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
As of December 31 2024 there were no investments held by the VIEs 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
During 2024 the VIEs recognized net investment losses of 16 9 million which were comprised of i 18 7 million of net losses from the sales of fixed maturities and ii a 1 8 million decrease in the allowance for credit losses Such net investment losses included gross realized losses of 23 8 million from the sale of 199 6 million of investments Sales activity in 2024 was partially driven by the liquidation of two collateralized loan trusts
During 2023 the VIEs recognized net investment losses of 4 4 million which were comprised of i 6 8 million of net losses from the sales of fixed maturities and ii a 2 4 million decrease in the allowance for credit losses Such net investment losses included gross realized losses of 6 9 million from the sale of 18 5 million of investments
During 2022 the VIEs recognized net investment losses of 8 1 million which were comprised of i 6 3 million of net losses from the sales of fixed maturities and ii a 1 8 million increase in the allowance for credit losses Such net investment losses included gross realized losses of 6 3 million from the sale of 69 2 million of investments
At December 31 2024 the VIEs held i investments for which an allowance for credit losses has not been recorded with a fair value of 183 2 million and gross unrealized losses of 0 9 million that had been in an unrealized loss position for less than twelve months and ii investments for which an allowance for credit losses has not been recorded with a fair value of 25 6 million and gross unrealized losses of 0 3 million that had been in an unrealized loss position for greater than twelve months
At December 31 2023 the VIEs held i investments for which an allowance for credit losses has not been recorded with a fair value of 24 8 million and gross unrealized losses of 0 1 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 302 3 million and gross unrealized losses of 8 7 million that had been in an unrealized loss position for greater than twelve months
CNO s management under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of CNO s disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Securities Exchange Act of 1934 as amended Based on its evaluation the Chief Executive Officer and Chief Financial Officer concluded that as of December 31 2024 CNO s disclosure controls and procedures were effective to ensure that information required to be disclosed by CNO in reports that it files or submits under the Securities Exchange Act of 1934 is recorded processed summarized and reported within the time periods specified in the Securities and Exchange Commission s rules and forms Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure
Our management including our Chief Executive Officer and Chief Financial Officer acknowledges that our disclosure controls over financial reporting will not prevent all error and fraud A control system no matter how well designed and operated can provide only reasonable not absolute assurance that the control system s objectives will be met Further the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues and instances of fraud if any have been detected These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of error or mistake Controls can also be circumvented by the individual acts of some persons by collusion of two or more people or by management override of the controls The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions Over time controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures Because of the inherent limitations in a cost effective control system misstatements due to error or fraud may occur and not be detected
Based on our controls evaluation our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this annual report our disclosure controls and procedures were effective to provide reasonable assurance that i the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded processed summarized and reported within the time periods specified in the Securities and Exchange Commission s rules and forms and ii material information is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a 15 f and 15d 15 f under the Securities Exchange Act of 1934 Under the supervision and with the participation of our management including our Chief Executive Officer and Chief Financial Officer we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
The effectiveness of our internal control over financial reporting as of December 31 2024 has been audited by PricewaterhouseCoopers LLP an independent registered public accounting firm as stated in their report which is included herein
There were no changes in the Company s internal control over financial reporting as defined in Rule 13a 15 f under the Securities Exchange Act of 1934 during the quarter ended December 31 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting
During the fourth quarter of 2024 certain officers as defined in Rule 16a 1 f of the Exchange Act the Section 16 Officers of the Company adopted separate Rule 10b5 1 trading arrangements as defined in Item 408 a of Regulation S K for the sale of shares of the Company s common stock Each such trading arrangement is intended to satisfy the affirmative defense of Rule10b5 1 c of the Exchange Act and the Company s policies regarding transactions in Company securities The following summarizes the material terms of such Rule 10b5 1 trading arrangements
a Trading arrangement will terminate on the earlier of the date i stated in this column ii on which the aggregate number of shares has been sold or iii on which the individual gives the designated agent notice to terminate
During the fourth quarter of 2024 none of the Company s directors and no other Section 16 Officers adopted terminated or modified a Rule 10b5 1 trading arrangement or a non Rule 10b5 1 trading arrangement as such terms are defined in Item 408 of Regulation S K
We will provide information that is responsive to this Item 10 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report That information is incorporated by reference into this Item 10 Additional information called for by this item is contained in Part I of this Annual Report under the caption Executive Officers of the Registrant
We have adopted an Insider Securities Trading Policy governing the purchase sale and other dispositions of the Company s securities by our directors officers and employees Our Insider Securities Trading Policy is reasonably designed to promote compliance with insider trading laws rules and regulations and the New York Stock Exchange listing standards In addition our Insider Securities Trading Policy includes provisions regarding the Company trading in its own securities A copy of our Insider Securities Trading Policy is filed as Exhibit 19 1 to this Annual Report on Form 10 K
We will provide information that is responsive to this Item 11 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report That information is incorporated by reference into this Item 11 other than disclosure under the heading Pay versus Performance information responsive to Item 402 v of Regulation S K of SEC rules
We will provide information that is responsive to this Item 12 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report That information is incorporated by reference into this Item 12
We will provide information that is responsive to this Item 13 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report That information is incorporated by reference into this Item 13
We will provide information that is responsive to this Item 14 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report That information is incorporated by reference into this Item 14
Underwriting Agreement dated May 8 2024 among CNO Financial Group Inc and Goldman Sach Co LLC RBC Capital Markets LLC and Barclays Capital Inc as representatives of the several underwriters named therein incorporated by reference to Exhibit 1 1 of our Current Report on Form 8 K filed May 13 2024
Master Transaction Agreement dated as of August 1 2018 by and between Bankers Life and Casualty Company and Wilton Reassurance Company incorporated by reference to Exhibit 2 1 of our Current Report on Form 8 K filed August 2 2018
Certificate of Designations of Series F Junior Participating Preferred Stock of CNO Financial Group Inc incorporated by reference to Exhibit 3 1 of our Current Report on Form 8 K filed November 13 2023
Fifth Amended and Restated Section 382 Rights Agreement dated as of November 10 2023 between CNO Financial Group Inc and Equiniti Trust Company LLC as rights agent which includes the Certificate of Designations for the Series F Junior Participating Preferred Stock as Exhibit A the Form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C incorporated by reference to Exhibit 4 1 of our Current Report on Form 8 K filed November 13 2023
Indenture dated as of May 19 2015 between CNO Financial Group Inc and Wilmington Trust National Association as trustee the Trustee incorporated by reference to Exhibit 4 1 of our Current Report on Form 8 K filed May 19 2015
First Supplemental Indenture dated as of May 19 2015 between the Corporation and the Trustee relating to the 5 250 Senior Notes due 2025 incorporated by reference to Exhibit 4 2 of our Current Report on Form 8 K filed May 19 2015
Indenture dated as of June 12 2019 between CNO Financial Group Inc and U S Bank Trust Company National Association as successor in interest to U S Bank National Association as trustee incorporated by reference to Exhibit 4 1 of our Current Report on Form 8 K filed June 12 2019
First Supplemental Indenture dated as of June 12 2019 between CNO Financial Group Inc and U S Bank National Association as trustee relating to the 5 250 Senior Notes due 2029 incorporated by reference to Exhibit 4 2 of our Current Report on Form 8 K filed June 12 2019
Second Supplemental Indenture dated as of November 25 2020 between CNO Financial Group Inc and U S Bank National Association as trustee relating to the 5 125 Subordinated Debentures due 2060 incorporated by reference to Exhibit 4 2 of our Current Report on Form 8 K filed November 25 2020
Third Supplemental Indenture dated as of May 13 2024 by and between CNO Financial Group Inc and U S Bank Trust Company National Association as trustee relating to the 6 450 Senior Notes due 2034 incorporated by reference to Exhibit 4 2 of our Current Report on Form 8 K filed May 13 2024
Description of the registrant s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 incorporated by reference to Exhibit 4 11 of our Annual Report on Form 10 K for the year ended December 31 2020
Fifth Amendment and Restatement Agreement dated as of March 30 2024 among CNO Financial Group Inc the lenders party thereto and KeyBank National Association as administrative agent for the lenders in respect of the Credit Agreement dated as of May 19 2015 among CNO Financial Group Inc the lenders party thereto and KeyBank National Association as administrative agent for the lenders incorporated by reference to Exhibit 10 5 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2024
Coinsurance and Administration Agreement between Conseco Insurance Company and Reassure American Life Insurance Company incorporated by reference to Exhibit 10 34 of our Quarterly Report on Form 10 Q for the quarter ended June 30 2007
Coinsurance Agreement dated as of September 27 2018 by and between Bankers Life and Casualty Company and Wilton Reassurance Company incorporated by reference to Exhibit 10 1 of our Current Report on Form 8 K filed October 2 2018
Trust Agreement dated September 27 2018 by and among Bankers Life and Casualty Company Wilton Reassurance Company and Citibank N A incorporated by reference to Exhibit 10 2 of our Current Report on Form
Administrative Services Agreement dated as of September 27 2018 by and between Bankers Life and Casualty Company and Wilton Reassurance Company incorporated by reference to Exhibit 10 3 of our Current Report on Form 8 K filed October 2 2018
Transition Services Agreement dated as of September 27 2018 by and between CNO Services LLC and Wilton Reassurance Company incorporated by reference to Exhibit 10 4 of our Current Report on Form 8 K filed October 2 2018
Form of stock option agreement for 2015 under Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 1 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2015
Form of amendment to outstanding stock option agreements under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 5 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2015
Form of stock option agreement for 2017 and 2018 under Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 1 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2017
Form of restricted stock unit award agreement for 2022 under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 1 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2022
Form of restricted stock unit award agreement for 2023 under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 3 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2023
Form of restricted stock unit award agreement for 2024 under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 3 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2024
Form of executive leadership group restricted stock unit award agreement for 2023 under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 1 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2023
Form of executive leadership group restricted stock unit award agreement for 2024 under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 1 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2024
Form of performance stock unit award agreement for 2022 under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 2 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2022
Form of performance stock unit award agreement for 2023 under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 4 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2023
Form of performance stock unit award agreement for 2024 under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 4 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2024
Form of executive leadership group performance stock unit award agreement for 2023 under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 2 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2023
Form of executive leadership group performance stock unit award agreement for 2024 under the Amended and Restated Long Term Incentive Plan incorporated by reference to Exhibit 10 2 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2024
Form of Indemnification Agreement among the Corporation CDOC Inc CNO Services LLC formerly Conseco Services LLC and each director of the Corporation incorporated by reference to Exhibit 10 16 of our Annual Report on Form 10 K for the year ended December 31 2008
First Amendment to the CNO Board of Directors Deferred Compensation Plan effective January 1 2021 incorporated by reference to Exhibit 10 25 of our Annual Report on Form 10 K for the year ended December 31 2020
Amended and Restated Employment Agreement dated as of August 6 2019 between the Company and Gary C Bhojwani incorporated by reference to Exhibit 10 3 of our Current Report on Form 8 K filed on August 8 2019
Amendment to Amended and Restated Employment Agreement dated November 12 2020 between CNO Financial Group Inc and Gary C Bhojwani incorporated by reference to Exhibit 10 1 of our Current Report on Form 8 K filed November 12 2020
Second Amendment to Amended and Restated Employment Agreement dated November 10 2023 between CNO Financial Group Inc and Gary C Bhojwani incorporated by reference to Exhibit 10 1 of our Current Report on Form 8 K filed November 13 2023
Form of Confidential Information and Nonsolicitation Agreement between the Company and each of Yvonne Franzese Eric Johnson Joel Koehneman Jeanne Linnenbringer Paul McDonough Michael Mead Rocco Tarasi Jeremy Williams and Matthew Zimpfer incorporated by reference to Exhibit 10 2 of our Current Report on Form 8 K filed August 8 2019
Form of Confidential Information Noncompetition and Nonsolicitation Agreement between the Company and each of Scott Goldberg and Karen DeToro incorporated by reference to Exhibit 10 4 of our Current Report on Form 8 K filed August 8 2019
Form of officer acknowledgement agreement pertaining to CNO Financial Group Inc Clawback Policy covering incentive compensation received prior to October 2 2023 but on and after January 31 2020 incorporated by reference to Exhibit 10 4 of our Quarterly Report on Form 10 Q for the quarter ended March 31 2020
CNO Services LLC Executive Severance Pay Plan amended and restated effective September 1 2023 incorporated by reference to Exhibit 10 1 of our Quarterly Report on Form 10 Q for the quarter ended September 30 2023
Pursuant to the requirements of the Securities Exchange Act of 1934 this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated
The condensed financial information should be read in conjunction with the consolidated financial statements of CNO Financial Group Inc The condensed financial information includes the accounts and activity of the parent company

Company Name	CNO Financial Group, Inc. Vist SEC web-site
Category	ACCIDENT & HEALTH INSURANCE
Trading Symbol	CNO