CNO FINANCIAL GROUP, INC., 10-Q filed on 8/7/2020
Quarterly Report
v3.20.2
Cover Page - shares
6 Months Ended
Jun. 30, 2020
Jul. 28, 2020
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2020  
Document Transition Report false  
Entity File Number 001-31792  
Entity Registrant Name CNO Financial Group, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 75-3108137  
Entity Address, Address Line One 11825 N. Pennsylvania Street  
Entity Address, City or Town Carmel,  
Entity Address, State or Province IN  
Entity Address, Postal Zip Code 46032  
City Area Code (317)  
Local Phone Number  817-6100  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   141,719,305
Entity Central Index Key 0001224608  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Common Stock, par value $0.01 per share    
Document Information [Line Items]    
Title of 12(b) Security Common Stock, par value $0.01 per share  
Trading Symbol CNO  
Security Exchange Name NYSE  
Rights to purchase Series D Junior Participating Preferred Stock    
Document Information [Line Items]    
Title of 12(b) Security Rights to purchase Series D Junior Participating Preferred Stock  
No Trading Symbol Flag true  
Security Exchange Name NYSE  
v3.20.2
CONSOLIDATED BALANCE SHEET - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Investments:    
Fixed maturities, available for sale, at fair value (net of allowance for credit losses of $10.8 at June 30, 2020; amortized cost: June 30, 2020 - $19,641.6; December 31, 2019 - $19,179.5) $ 22,167.9 $ 21,295.2
Equity securities at fair value (cost: June 30, 2020 - $68.5; December 31, 2019 - $44.2) 60.5 44.1
Mortgage loans (net of allowance for credit losses of $11.6 at June 30, 2020) 1,459.9 1,566.1
Policy loans 124.3 124.5
Trading securities 240.6 243.9
Investments held by variable interest entities (net of allowance for credit losses of $27.7 at June 30, 2020; amortized cost: June 30, 2020 - $1,223.7; December 31, 2019 - $1,206.3) 1,137.4 1,188.6
Other invested assets 993.8 1,118.5
Total investments 26,184.4 25,580.9
Cash and cash equivalents - unrestricted 521.1 580.0
Cash and cash equivalents held by variable interest entities 36.8 74.7
Accrued investment income 205.3 205.9
Present value of future profits 263.4 275.4
Deferred acquisition costs 1,120.9 1,215.5
Reinsurance receivables (net of allowance for credit losses of $4.0 at June 30, 2020) 4,712.6 4,785.7
Income tax assets, net 428.8 432.6
Assets held in separate accounts 3.7 4.2
Other assets 502.5 476.0
Total assets 33,979.5 33,630.9
Liabilities for insurance products:    
Policyholder account liabilities 12,171.3 12,132.3
Future policy benefits 11,767.5 11,498.5
Liability for policy and contract claims 488.6 522.3
Unearned and advanced premiums 243.6 260.5
Liabilities related to separate accounts 3.7 4.2
Other liabilities 788.3 750.2
Investment borrowings 1,643.4 1,644.3
Borrowings related to variable interest entities 1,152.2 1,152.5
Notes payable – direct corporate obligations 989.7 989.1
Total liabilities 29,248.3 28,953.9
Commitments and Contingencies
Shareholders' equity:    
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: June 30, 2020 – 141,718,570; December 31, 2019 – 148,084,178) 1.4 1.5
Additional paid-in capital 2,664.3 2,767.3
Accumulated other comprehensive income 1,520.2 1,372.5
Retained earnings 545.3 535.7
Total shareholders' equity 4,731.2 4,677.0
Total liabilities and shareholders' equity $ 33,979.5 $ 33,630.9
v3.20.2
CONSOLIDATED BALANCE SHEET (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Investments:    
Fixed maturities, available for sale, amortized cost $ 19,641.6 $ 19,179.5
Fixed maturities, available for sale, allowance for credit losses 10.8 2.1
Equity securities, cost 68.5 44.2
Mortgage loans, allowance for credit losses 11.6 6.7
Investments held by variable interest entities, amortized cost 1,223.7 $ 1,206.3
Investments held by variable interest entities, allowance for credit losses 27.7  
Reinsurance receivables, allowance for current expected credit losses $ 4.0  
Shareholders' equity:    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 8,000,000,000 8,000,000,000
Common stock, shares issued (in shares) 141,718,570 148,084,178
Common stock, shares outstanding (in shares) 141,718,570 148,084,178
v3.20.2
CONSOLIDATED STATEMENT OF OPERATIONS - USD ($)
shares in Thousands, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenues:        
Insurance policy income $ 625.3 $ 618.3 $ 1,254.0 $ 1,237.6
Net investment income:        
General account assets 231.7 284.9 512.0 553.7
Policyholder and other special-purpose portfolios 87.1 49.6 (23.6) 136.6
Realized investment gains (losses):        
Net realized investment gains (losses) 27.9 5.3 (32.2) 23.6
Change in allowance for credit losses and other-than-temporary impairment losses [1] 15.9 0.0 (39.5) (2.2)
Total realized gains (losses) 43.8 5.3 (71.7) 21.4
Fee revenue and other income 26.3 21.7 60.7 53.5
Total revenues 1,014.2 979.8 1,731.4 2,002.8
Benefits and expenses:        
Insurance policy benefits 540.3 610.4 1,031.1 1,233.9
Interest expense 28.4 38.6 61.8 79.6
Amortization 88.5 46.2 138.7 104.4
Loss on extinguishment of debt 0.0 7.3 0.0 7.3
Other operating costs and expenses 251.6 229.6 465.4 464.3
Total benefits and expenses 908.8 932.1 1,697.0 1,889.5
Income before income taxes 105.4 47.7 34.4 113.3
Income tax expense (benefit):        
Tax expense on period income 23.4 10.1 7.6 23.9
Valuation allowance for deferred tax assets and other tax items 0.0 0.0 (34.0) 0.0
Net income $ 82.0 $ 37.6 $ 60.8 $ 89.4
Basic:        
Weighted average shares outstanding (in shares) 143,421 158,816 144,625 159,882
Net income (in dollars per share) $ 0.57 $ 0.24 $ 0.42 $ 0.56
Diluted:        
Weighted average shares outstanding (in shares) 143,941 159,735 145,269 160,962
Net income (in dollars per share) $ 0.57 $ 0.24 $ 0.42 $ 0.56
[1]
No portion of the other-than-temporary impairments recognized in the 2019 periods was included in accumulated other comprehensive income.

v3.20.2
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net income $ 82.0 $ 37.6 $ 60.8 $ 89.4
Other comprehensive income, before tax:        
Unrealized gains on investments: 1,656.2 681.3 330.8 1,371.5
Adjustment to present value of future profits and deferred acquisition costs (131.0) (66.2) 5.3 (116.7)
Amount related to premium deficiencies assuming the net unrealized gains had been realized (330.5) (45.0) (195.0) (76.5)
Reclassification adjustments:        
For net realized investment (gains) losses included in net income (15.9) (4.0) 49.7 (2.9)
For amortization of the present value of future profits and deferred acquisition costs related to net realized investment (gains) losses included in net income 0.3 0.2 (3.1) 0.4
Other comprehensive income before tax 1,179.1 566.3 187.7 1,175.8
Income tax expense related to items of accumulated other comprehensive income (254.1) (123.0) (40.0) (255.3)
Other comprehensive income, net of tax 925.0 443.3 147.7 920.5
Comprehensive income $ 1,007.0 $ 480.9 $ 208.5 $ 1,009.9
v3.20.2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - USD ($)
$ in Millions
Total
Cumulative Effect, Period of Adoption, Adjustment
Cumulative Effect, Period of Adoption, Adjusted Balance
Common stock
Common stock
Cumulative Effect, Period of Adoption, Adjusted Balance
Additional Paid-in Capital
Additional Paid-in Capital
Cumulative Effect, Period of Adoption, Adjusted Balance
Accumulated Other Comprehensive income
Accumulated Other Comprehensive income
Cumulative Effect, Period of Adoption, Adjusted Balance
Retained Earnings
Retained Earnings
Cumulative Effect, Period of Adoption, Adjustment
Retained Earnings
Cumulative Effect, Period of Adoption, Adjusted Balance
Balance, beginning of period (in shares) at Dec. 31, 2018       162,202,000                
Balance, beginning of period at Dec. 31, 2018 $ 3,370.9 $ (3.1) $ 3,367.8 $ 1.6 $ 1.6 $ 2,995.0 $ 2,995.0 $ 177.7 $ 177.7 $ 196.6 $ (3.1) $ 193.5
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 89.4                 89.4    
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense) 920.4             920.4        
Change in noncredit component of impairment losses on fixed maturities, available for sale (net of applicable income tax expense) 0.1             0.1        
Common stock repurchased (in shares)       (6,235,000)                
Common stock repurchased (102.0)         (102.0)            
Dividends on common stock (33.7)                 (33.7)    
Employee benefit plans, net of shares used to pay tax withholdings (in shares)       801,000                
Employee benefit plans, net of shares used to pay tax withholdings 10.2         10.2            
Balance, end of period (in shares) at Jun. 30, 2019       156,768,000                
Balance, end of period at Jun. 30, 2019 4,252.2     $ 1.6   2,903.2   1,098.2   249.2    
Balance, beginning of period (in shares) at Mar. 31, 2019       159,955,000                
Balance, beginning of period at Mar. 31, 2019 3,837.9     $ 1.6   2,952.2   654.9   229.2    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 37.6                 37.6    
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense) 443.3             443.3        
Common stock repurchased (in shares)       (3,342,000)                
Common stock repurchased (55.0)         (55.0)            
Dividends on common stock (17.6)                 (17.6)    
Employee benefit plans, net of shares used to pay tax withholdings (in shares)       155,000                
Employee benefit plans, net of shares used to pay tax withholdings 6.0         6.0            
Balance, end of period (in shares) at Jun. 30, 2019       156,768,000                
Balance, end of period at Jun. 30, 2019 $ 4,252.2     $ 1.6   2,903.2   1,098.2   249.2    
Balance, beginning of period (in shares) at Dec. 31, 2019 148,084,178     148,084,000                
Balance, beginning of period at Dec. 31, 2019 $ 4,677.0 $ (17.8) $ 4,659.2 $ 1.5 $ 1.5 2,767.3 $ 2,767.3 1,372.5 $ 1,372.5 535.7 $ (17.8) $ 517.9
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 60.8                 60.8    
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense) 147.7             147.7        
Common stock repurchased (in shares)       (7,051,000)                
Common stock repurchased (113.0)     $ (0.1)   (112.9)            
Dividends on common stock (33.4)                 (33.4)    
Employee benefit plans, net of shares used to pay tax withholdings (in shares)       686,000                
Employee benefit plans, net of shares used to pay tax withholdings $ 9.9         9.9            
Balance, end of period (in shares) at Jun. 30, 2020 141,718,570     141,719,000                
Balance, end of period at Jun. 30, 2020 $ 4,731.2     $ 1.4   2,664.3   1,520.2   545.3    
Balance, beginning of period (in shares) at Mar. 31, 2020       143,610,000                
Balance, beginning of period at Mar. 31, 2020 3,765.8     $ 1.4   2,688.5   595.2   480.7    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 82.0                 82.0    
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense) 925.0             925.0        
Common stock repurchased (in shares)       (1,968,000)                
Common stock repurchased (30.0)         (30.0)            
Dividends on common stock (17.4)                 (17.4)    
Employee benefit plans, net of shares used to pay tax withholdings (in shares)       77,000                
Employee benefit plans, net of shares used to pay tax withholdings $ 5.8         5.8            
Balance, end of period (in shares) at Jun. 30, 2020 141,718,570     141,719,000                
Balance, end of period at Jun. 30, 2020 $ 4,731.2     $ 1.4   $ 2,664.3   $ 1,520.2   $ 545.3    
v3.20.2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Stockholders' Equity [Abstract]        
Change in unrealized appreciation (depreciation) of investments, applicable income tax expense $ 254.1 $ 123.0 $ 40.0 $ 255.3
Change in noncredit component of impairment losses on fixed maturities, available for sale, applicable income tax expense (less than for three months ended June 30, 2019)   $ 0.1   $ 0.1
v3.20.2
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Insurance policy income $ 1,151.2 $ 1,151.5
Net investment income 554.4 559.4
Fee revenue and other income 60.7 53.5
Insurance policy benefits (808.2) (819.5)
Interest expense (63.9) (79.6)
Deferrable policy acquisition costs (132.4) (143.0)
Other operating costs (431.8) (407.9)
Income taxes (5.0) 3.3
Net cash from operating activities 325.0 317.7
Cash flows from investing activities:    
Sales of investments 1,011.1 2,463.4
Maturities and redemptions of investments 912.5 1,094.6
Purchases of investments (2,296.6) (3,675.2)
Net sales (purchases) of trading securities 9.6 (8.1)
Other (16.2) (84.2)
Net cash used by investing activities (379.6) (209.5)
Cash flows from financing activities:    
Issuance of notes payable, net 0.0 494.2
Payments on notes payable 0.0 (425.0)
Expenses related to extinguishment of debt 0.0 (6.1)
Issuance of common stock 3.0 3.6
Payments to repurchase common stock (118.1) (103.8)
Common stock dividends paid (33.6) (33.8)
Amounts received for deposit products 762.8 873.8
Withdrawals from deposit products (654.3) (689.5)
Issuance of investment borrowings:    
Federal Home Loan Bank 65.3 346.8
Payments on investment borrowings:    
Federal Home Loan Bank (66.2) (347.4)
Related to variable interest entities (1.1) (269.7)
Net cash used by financing activities (42.2) (156.9)
Net decrease in cash and cash equivalents (96.8) (48.7)
Cash and cash equivalents - unrestricted and held by variable interest entities, beginning of period 654.7 656.6
Cash and cash equivalents - unrestricted and held by variable interest entities, end of period $ 557.9 $ 607.9
v3.20.2
BUSINESS AND BASIS OF PRESENTATION
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BUSINESS AND BASIS OF PRESENTATION
BUSINESS AND BASIS OF PRESENTATION

The following notes should be read together with the notes to the consolidated financial statements included in our 2019 Annual Report on Form 10-K.

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

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

Our unaudited consolidated financial statements reflect normal recurring adjustments that, in the opinion of management, are necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented.  As permitted by rules and regulations of the Securities and Exchange Commission (the "SEC") applicable to quarterly reports on Form 10-Q, we have condensed or omitted certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").  We have reclassified certain amounts from the prior periods to conform to the 2020 presentation.  These reclassifications have no effect on net income or shareholders' equity.  Results for interim periods are not necessarily indicative of the results that may be expected for a full year, especially when considering the risks and uncertainties associated with the novel coronavirus ("COVID-19") and the impact it may have on our business, results of operations and financial condition. The COVID-19 pandemic has negatively impacted the U.S. and global economies, created significant volatility and disruption in the capital markets, dramatically increased unemployment levels and has fueled concerns that it will lead to a global recession. Depending on the duration and severity of the pandemic, we foresee the potential for adverse impacts related to, among other things: (i) sales results; (ii) insurance product margin; (iii) net investment income; (iv) invested assets; (v) regulatory capital; (vi) liabilities for insurance products; (vii) deferred acquisition costs; (viii) the present value of future profits; and (ix) income tax assets. The full extent to which COVID-19 will impact our business, results of operations and financial condition remains uncertain.

The balance sheet at December 31, 2019, presented herein, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

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

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.
v3.20.2
INVESTMENTS
6 Months Ended
Jun. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS
INVESTMENTS

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

Trading securities include: (i) investments purchased with the intent of selling in the near term to generate income; (ii) investments supporting certain insurance liabilities; and (iii) certain fixed maturity securities containing embedded derivatives for which we have elected the fair value option.  The change in fair value of the income generating investments and investments supporting insurance liabilities and reinsurance agreements is recognized in income from policyholder and other special-purpose portfolios (a component of net investment income). The change in fair value of securities with embedded derivatives is recognized in realized investment gains (losses). Investment income related to investments supporting certain insurance liabilities is substantially offset by the change in insurance policy benefits related to certain products.

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

In determining the credit loss component, we discount the estimated cash flows on a security by security basis. We consider the impact of macroeconomic conditions on inputs used to measure the amount of credit loss. For most structured securities, cash flow estimates are based on bond-specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity, prepayment speeds and structural support, including overcollateralization, excess spread, subordination and guarantees. For corporate bonds, cash flow estimates are derived by considering asset type, rating, time to maturity, and applying an expected loss rate.
  
If we intend to sell an impaired fixed maturity security, available for sale, or identify an impaired fixed maturity security, available for sale, for which is it more likely than not we will be required to sell before anticipated recovery, the difference between the fair value and the amortized cost is included in net realized investment gains (losses) and the fair value becomes the new amortized cost. The new cost basis is not adjusted for any subsequent recoveries in fair value.

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

Accumulated other comprehensive income is primarily comprised of the net effect of unrealized appreciation (depreciation) on our investments.  These amounts, included in shareholders' equity as of June 30, 2020 and December 31, 2019, were as follows (dollars in millions):
 
June 30,
2020
 
December 31,
2019
Net unrealized appreciation (depreciation) on fixed maturity securities, available for sale, on which an other-than-temporary impairment loss has been recognized
$

 
$
1.1

Net unrealized gains on all other fixed maturity securities, available for sale

 
2,095.3

Net unrealized gains on investments having no allowance for credit losses
2,520.6

 

Unrealized losses on investments with an allowance for credit losses
(43.7
)
 

Adjustment to present value of future profits (a)
(11.3
)
 
(18.9
)
Adjustment to deferred acquisition costs
(335.8
)
 
(227.9
)
Adjustment to insurance liabilities
(189.0
)
 
(96.5
)
Deferred income tax liabilities
(420.6
)
 
(380.6
)
Accumulated other comprehensive income
$
1,520.2

 
$
1,372.5

________
(a)
The present value of future profits is the value assigned to the right to receive future cash flows from contracts existing at September 10, 2003, the date Conseco, Inc., an Indiana corporation, emerged from bankruptcy.
At June 30, 2020, adjustments to the present value of future profits, deferred acquisition costs, insurance liabilities and deferred tax assets included $(9.3) million, $(132.2) million, $(189.0) million and $71.8 million, respectively, for premium deficiencies that would exist on certain blocks of business if unrealized gains on the assets backing such products had been realized and the proceeds from the sales of such assets were invested at then current yields.

At December 31, 2019, adjustments to the present value of future profits, deferred acquisition costs, insurance liabilities and deferred tax assets included $(12.2) million, $(26.8) million, $(96.5) million and $29.4 million, respectively, for premium deficiencies that would exist on certain blocks of business if unrealized gains on the assets backing such products had been realized and the proceeds from the sales of such assets were invested at then current yields.

At June 30, 2020, the amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses and estimated fair value of fixed maturities, available for sale, were as follows (dollars in millions):
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Allowance for credit losses
 
Estimated fair value
Corporate securities
$
11,651.2

 
$
2,034.4

 
$
(48.0
)
 
$
(10.0
)
 
$
13,627.6

United States Treasury securities and obligations of United States government corporations and agencies
151.3

 
79.0

 

 

 
230.3

States and political subdivisions
2,174.4

 
316.3

 
(6.8
)
 
(.5
)
 
2,483.4

Foreign governments
85.6

 
15.9

 

 

 
101.5

Asset-backed securities
1,172.4

 
27.2

 
(23.9
)
 
(.3
)
 
1,175.4

Agency residential mortgage-backed securities
67.8

 
7.6

 

 

 
75.4

Non-agency residential mortgage-backed securities
2,000.3

 
148.5

 
(10.6
)
 

 
2,138.2

Commercial mortgage-backed securities
1,881.0

 
59.5

 
(46.9
)
 

 
1,893.6

Collateralized loan obligations
457.6

 

 
(15.1
)
 

 
442.5

Total fixed maturities, available for sale
$
19,641.6

 
$
2,688.4

 
$
(151.3
)
 
$
(10.8
)
 
$
22,167.9



At December 31, 2019, the amortized cost, gross unrealized gains and losses, estimated fair value and other-than-temporary impairments in accumulated other comprehensive income of fixed maturities, available for sale, were as follows (dollars in millions):
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated fair value
 
Other-than-temporary impairments included in accumulated other comprehensive income
Corporate securities
$
11,403.5

 
$
1,544.1

 
$
(12.3
)
 
$
12,935.3

 
$

United States Treasury securities and obligations of United States government corporations and agencies
161.4

 
43.3

 
(.1
)
 
204.6

 

States and political subdivisions
2,002.1

 
246.1

 
(1.5
)
 
2,246.7

 

Foreign governments
82.6

 
13.0

 

 
95.6

 

Asset-backed securities
1,352.9

 
36.8

 
(1.8
)
 
1,387.9

 

Agency residential mortgage-backed securities
89.2

 
5.8

 

 
95.0

 

Non-agency residential mortgage-backed securities
1,871.0

 
172.3

 
(1.0
)
 
2,042.3

 
(.3
)
Commercial mortgage-backed securities
1,812.7

 
75.3

 
(1.0
)
 
1,887.0

 

Collateralized loan obligations
404.1

 
.1

 
(3.4
)
 
400.8

 

Total fixed maturities, available for sale
$
19,179.5

 
$
2,136.8

 
$
(21.1
)
 
$
21,295.2

 
$
(.3
)


The following table sets forth the amortized cost and estimated fair value of fixed maturities, available for sale, at June 30, 2020, by contractual maturity.  Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.  Structured securities (such as asset-backed securities, collateralized loan obligations, commercial mortgage-backed securities, agency residential mortgage-backed securities and non-agency residential mortgage-backed securities, collectively referred to as "structured securities") frequently include provisions for periodic principal payments and permit periodic unscheduled payments.

 
Amortized
cost
 
Estimated
fair
value
 
(Dollars in millions)
Due in one year or less
$
329.8

 
$
336.1

Due after one year through five years
1,086.6

 
1,133.9

Due after five years through ten years
1,456.3

 
1,561.1

Due after ten years
11,189.8

 
13,411.7

Subtotal
14,062.5

 
16,442.8

Structured securities
5,579.1

 
5,725.1

Total fixed maturities, available for sale
$
19,641.6

 
$
22,167.9



The following table sets forth the amortized cost and estimated fair value of fixed maturities, available for sale, at December 31, 2019, by contractual maturity.

 
Amortized
cost
 
Estimated
fair
value
 
(Dollars in millions)
Due in one year or less
$
282.2

 
$
286.0

Due after one year through five years
1,082.2

 
1,130.8

Due after five years through ten years
1,376.6

 
1,481.7

Due after ten years
10,908.6

 
12,583.7

Subtotal
13,649.6

 
15,482.2

Structured securities
5,529.9

 
5,813.0

Total fixed maturities, available for sale
$
19,179.5

 
$
21,295.2



Gross Unrealized Investment Losses

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

The following table summarizes the gross unrealized losses and fair values of our investments with unrealized losses for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that such securities have been in a continuous unrealized loss position, at June 30, 2020 (dollars in millions):

 
 
Less than 12 months
 
12 months or greater
 
Total
Description of securities
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Corporate securities
 
$
495.4

 
$
(23.1
)
 
$
1.6

 
$
(.3
)
 
$
497.0

 
$
(23.4
)
States and political subdivisions
 
57.0

 
(4.9
)
 

 

 
57.0

 
(4.9
)
Asset-backed securities
 
448.1

 
(20.9
)
 
41.9

 
(3.0
)
 
490.0

 
(23.9
)
Non-agency residential mortgage-backed securities
 
273.0

 
(9.6
)
 
39.3

 
(1.0
)
 
312.3

 
(10.6
)
Collateralized loan obligations
 
287.3

 
(9.4
)
 
155.2

 
(5.7
)
 
442.5

 
(15.1
)
Commercial mortgage-backed securities
 
748.5

 
(46.8
)
 
1.9

 
(.1
)
 
750.4

 
(46.9
)
Total fixed maturities, available for sale
 
$
2,309.3

 
$
(114.7
)
 
$
239.9

 
$
(10.1
)
 
$
2,549.2

 
$
(124.8
)

The following table summarizes the gross unrealized losses and fair values of our investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that such securities have been in a continuous unrealized loss position, at December 31, 2019 (dollars in millions):

 
 
Less than 12 months
 
12 months or greater
 
Total
Description of securities
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Corporate securities
 
$
305.5

 
$
(6.6
)
 
$
96.8

 
$
(5.7
)
 
$
402.3

 
$
(12.3
)
United States Treasury securities and obligations of United States government corporations and agencies
 
7.0

 
(.1
)
 
3.5

 

 
10.5

 
(.1
)
States and political subdivisions
 
110.1

 
(1.5
)
 

 

 
110.1

 
(1.5
)
Foreign governments
 
3.4

 

 

 

 
3.4

 

Asset-backed securities
 
75.7

 
(.4
)
 
45.5

 
(1.4
)
 
121.2

 
(1.8
)
Agency residential mortgage-backed securities
 
8.8

 

 

 

 
8.8

 

Non-agency residential mortgage-backed securities
 
137.4

 
(.7
)
 
67.2

 
(.3
)
 
204.6

 
(1.0
)
Collateralized loan obligations
 
220.7

 
(1.1
)
 
115.4

 
(2.3
)
 
336.1

 
(3.4
)
Commercial mortgage-backed securities
 
394.2

 
(1.0
)
 
12.8

 

 
407.0

 
(1.0
)
Total fixed maturities, available for sale
 
$
1,262.8

 
$
(11.4
)
 
$
341.2

 
$
(9.7
)
 
$
1,604.0

 
$
(21.1
)


Based on management's current assessment of investments with unrealized losses at June 30, 2020, the Company believes the issuers of the securities will continue to meet their obligations.  While we do not have the intent to sell securities with unrealized losses and it is not more likely than not that we will be required to sell securities with unrealized losses prior to their anticipated recovery, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, if a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we had the intent to sell the security before its anticipated recovery.

The following table summarizes changes in the allowance for credit losses related to fixed maturities, available for sale, for the three months ended June 30, 2020 (dollars in millions):

 
Corporate securities
 
States and political subdivisions
 
Foreign governments
 
Non-agency residential mortgage-backed securities
 
Asset-backed securities
 
Total
Allowance at March 31, 2020
$
18.2

 
$
.6

 
$
.1

 
$
1.0

 
$

 
$
19.9

Additions for securities for which credit losses were not previously recorded
4.2

 

 

 

 
.3

 
4.5

Additions for purchased securities with deteriorated credit

 

 

 

 

 

Additions (reductions) for securities where an allowance was previously recorded
(11.9
)
 
(.1
)
 
(.1
)
 
(1.0
)
 

 
(13.1
)
Reduction for securities sold during the period
(.5
)
 

 

 

 

 
(.5
)
Reduction for securities for which the Company made the decision to sell where an allowance was previously recorded

 

 

 

 

 

Write-offs

 

 

 

 

 

Recoveries of previously written-off amount

 

 

 

 

 

Allowance at June 30, 2020
$
10.0

 
$
.5

 
$

 
$

 
$
.3

 
$
10.8



The following table summarizes changes in the allowance for credit losses related to fixed maturities, available for sale, for the six months ended June 30, 2020 (dollars in millions):

 
Corporate securities
 
States and political subdivisions
 
Foreign governments
 
Non-agency residential mortgage-backed securities
 
Asset-backed securities
 
Total
Allowance at January 1, 2020
$
2.1

 
$

 
$

 
$

 
$

 
$
2.1

Additions for securities for which credit losses were not previously recorded
21.7

 
.6

 
.1

 
1.0

 
.3

 
23.7

Additions for purchased securities with deteriorated credit

 

 

 

 

 

Additions (reductions) for securities where an allowance was previously recorded
(13.0
)
 
(.1
)
 
(.1
)
 
(1.0
)
 

 
(14.2
)
Reduction for securities sold during the period
(.8
)
 

 

 

 

 
(.8
)
Reduction for securities for which the Company made the decision to sell where an allowance was previously recorded

 

 

 

 

 

Write-offs

 

 

 

 

 

Recoveries of previously written-off amount

 

 

 

 

 

Allowance at June 30, 2020
$
10.0

 
$
.5

 
$

 
$

 
$
.3

 
$
10.8



Mortgage Loans

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

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

At June 30, 2020, the mortgage loan balance was primarily comprised of commercial mortgage loans. At June 30, 2020, there was one commercial mortgage loan in process of foreclosure with a carrying value of $5.9 million and there were 29 residential mortgage loans that were noncurrent with a carrying value of $12.9 million (of which, 22 such loans with a carrying value of $11.4 million were in forbearance). Our commercial mortgage loan portfolio is comprised of large commercial mortgage loans. Our loans have risk characteristics that are individually unique. At June 30, 2020, we held residential mortgage loan investments with an both an amortized cost and fair value of $97.7 million.
The following table provides the amortized cost by year of origination and estimated fair value of our outstanding commercial mortgage loans and the underlying collateral as of June 30, 2020 (dollars in millions):

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated fair
value
Loan-to-value ratio (a)
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Total amortized cost
 
Mortgage loans
 
Collateral
Less than 60%
 
$
23.0

 
$
111.2

 
$
132.5

 
$
103.1

 
$
56.9

 
$
636.2

 
$
1,062.9

 
$
1,079.2

 
$
2,953.0

60% to less than 70%
 
19.1

 
11.5

 
24.0

 
3.8

 
46.5

 
84.6

 
189.5

 
187.6

 
296.8

70% to less than 80%
 

 
12.3

 

 

 

 
73.0

 
85.3

 
83.9

 
114.1

80% to less than 90%
 

 

 

 

 
10.0

 
26.1

 
36.1

 
30.8

 
41.7

Total
 
$
42.1

 
$
135.0

 
$
156.5

 
$
106.9

 
$
113.4

 
$
819.9

 
$
1,373.8

 
$
1,381.5

 
$
3,405.6

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

The following table summarizes changes in the allowance for credit losses related to mortgage loans for the three months ended June 30, 2020 (dollars in millions):

 
 
Mortgage loans
Allowance for credit losses at March 31, 2020
 
$
8.3

Current period provision for expected credit losses
 
3.3

Initial allowance recognized for purchased financial assets with credit deterioration
 

Write-offs charged against the allowance
 

Recoveries of amounts previously written off
 

Allowance for credit losses at June 30, 2020
 
$
11.6



The following table summarizes changes in the allowance for credit losses related to mortgage loans for the six months ended June 30, 2020 (dollars in millions):

 
 
Mortgage loans
Allowance for credit losses at January 1, 2020
 
$
6.7

Current period provision for expected credit losses
 
4.9

Initial allowance recognized for purchased financial assets with credit deterioration
 

Write-offs charged against the allowance
 

Recoveries of amounts previously written off
 

Allowance for credit losses at June 30, 2020
 
$
11.6



Net Realized Investment Gains (Losses)

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

 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2020
 
2019
 
2020
 
2019
Fixed maturity securities, available for sale:
 
 
 
 
 
 
 
Gross realized gains on sale
$
26.9

 
$
5.9

 
$
38.8

 
$
66.8

Gross realized losses on sale
(29.0
)
 
(.8
)
 
(50.4
)
 
(52.3
)
Change in allowance for credit losses and other-than-temporary impairment losses
9.2

 

 
(16.7
)
 
(2.2
)
Net realized investment gains (losses) from fixed maturities
7.1

 
5.1

 
(28.3
)
 
12.3

Equity securities, including change in fair value (a)
5.5

 
.1

 
(10.2
)
 
10.8

Change in allowance for credit losses of other investments (b)
6.7

 

 
(22.8
)
 

Loss on dissolution of variable interest entity

 
(5.1
)
 

 
(5.1
)
Other (c)
24.5

 
5.2

 
(10.4
)
 
3.4

Net realized investment gains (losses)
$
43.8

 
$
5.3

 
$
(71.7
)
 
$
21.4


_________________
(a)
The change in the estimated fair value of equity securities still held at June 30, 2020 was $(7.6) million.
(b)
The three and six months ended June 30, 2020, includes $9.9 million and $(17.9) million, respectively, related to the change in allowance for credit losses related to investments held by variable interest entities ("VIEs").
(c)
The change in the estimated fair value of certain structured securities held at June 30, 2020 that we have elected the fair value option and classify as trading securities was $(6.6) million.

During the first six months of 2020, we recognized net realized investment losses of $71.7 million, which were comprised of: (i) $15.2 million of net losses from the sales of investments; (ii) $10.2 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 $6.9 million; (iv) the increase in fair value of embedded derivatives related to a modified coinsurance agreement of $.1 million; and (v) an increase in the allowance for credit losses and other-than-temporary impairment losses of $39.5 million.

During the first six months of 2019, we recognized net realized investment gains of $21.4 million, which were comprised of: (i) $5.3 million of net gains from the sales of investments; (ii) $5.1 million of losses on the dissolution of a VIE;(iii) $10.8 million of gains related to equity securities, including the change in fair value; (iv) the increase in fair value of certain fixed maturity investments with embedded derivatives of $7.7 million; (v) the increase in fair value of embedded derivatives related to a modified coinsurance agreement of $4.9 million; and (v) $2.2 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

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

At June 30, 2020, there were no fixed maturity investments in default.

During the first six months of 2020, the $50.4 million of realized losses on sales of $402.4 million of fixed maturity securities, available for sale included: (i) $15.1 million related to various corporate securities; (ii) $25.0 million related to commercial mortgage-backed securities; and (iii) $10.3 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, including changes in relative value among potential
investment strategies; (ii) expectation that the market value could deteriorate; (iii) our desire to reduce our exposure to an asset class, an issuer or an industry; (iv) prospective or actual changes in credit quality; or (v) changes in expected portfolio cash flows.

During the first six months of 2019, the $52.3 million of realized losses on sales of $877.4 million of fixed maturity securities, available for sale, included: (i) $45.2 million related to various corporate securities; and (ii) $7.1 million related to various other investments.

During the first six months of 2019, we recognized $2.2 million of impairment losses recorded in earnings related to a corporate security due to an issuer specific event.

Prior to January 1, 2020, we regularly evaluated all of our investments with unrealized losses for possible impairment.  Our assessment of whether unrealized losses were "other than temporary" required significant judgment.  Factors considered included: (i) the extent to which fair value was less than the cost basis; (ii) the length of time that the fair value had been less than cost; (iii) whether the unrealized loss was event driven, credit-driven or a result of changes in market interest rates or risk premium; (iv) the near-term prospects for specific events, developments or circumstances likely to affect the value of the investment; (v) the investment's rating and whether the investment was investment-grade and/or had been downgraded since its purchase; (vi) whether the issuer was current on all payments in accordance with the contractual terms of the investment and was expected to meet all of its obligations under the terms of the investment; (vii) whether we intended to sell the investment or it was more likely than not that circumstances would require us to sell the investment before recovery occurs; (viii) the underlying current and prospective asset and enterprise values of the issuer and the extent to which the recoverability of the carrying value of our investment would be affected by changes in such values; (ix) projections of, and unfavorable changes in, cash flows on structured securities including mortgage-backed and asset-backed securities; (x) our best estimate of the value of any collateral; and (xi) other objective and subjective factors.

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 summarizes the amount of credit losses recognized in earnings on fixed maturity securities, available for sale, held at the beginning of the period, for which a portion of the other-than-temporary impairment was also recognized in accumulated other comprehensive income for the three months ended June 30, 2019 (dollars in millions):

 
Three months ended
 
Six months ended
 
June 30,
2019
 
June 30,
2019
Credit losses on fixed maturity securities, available for sale, beginning of period
$
(.2
)
 
$
(.2
)
Add: credit losses on other-than-temporary impairments not previously recognized

 

Less: credit losses on securities sold

 

Less: credit losses on securities impaired due to intent to sell (a)

 

Add: credit losses on previously impaired securities

 

Less: increases in cash flows expected on previously impaired securities

 

Credit losses on fixed maturity securities, available for sale, end of period
$
(.2
)
 
$
(.2
)
__________
(a)
Represents securities for which the amount previously recognized in accumulated other comprehensive income was recognized in earnings because we intend to sell the security or we more likely than not will be required to sell the security before recovery of its amortized cost basis.
v3.20.2
EARNINGS PER SHARE
6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
EARNINGS PER SHARE
EARNINGS PER SHARE

A reconciliation of net income and shares used to calculate basic and diluted earnings per share is as follows (dollars in millions and shares in thousands):

 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2020
 
2019
 
2020
 
2019
Net income for basic and diluted earnings per share
$
82.0

 
$
37.6

 
$
60.8

 
$
89.4

Shares:
 

 
 

 
 
 
 
Weighted average shares outstanding for basic earnings per share
143,421

 
158,816

 
144,625

 
159,882

Effect of dilutive securities on weighted average shares:
 

 
 

 
 
 
 
Amounts related to employee benefit plans
520

 
919

 
644

 
1,080

Weighted average shares outstanding for diluted earnings per share
143,941

 
159,735

 
145,269

 
160,962



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).
v3.20.2
BUSINESS SEGMENTS
6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
BUSINESS SEGMENTS
BUSINESS SEGMENTS

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

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

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

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

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

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

The Worksite Division focuses on worksite and group sales for businesses, associations, and other membership groups, interacting with customers at their place of employment. By creating a dedicated Worksite Division, we bring a sharper focus to this high-growth business while further capitalizing on the strength of our recent acquisition of Web Benefits Design Corporation ("WBD"). The individual results for the Worksite Division are currently not significant pursuant to accounting standards. Sales in the Worksite Division have been particularly adversely impacted by the COVID-19 pandemic given the challenges of interacting with customers at their place of employment. We plan to analyze the profitability of the insurance products of the Consumer and Worksite Divisions separately when the Worksite Division becomes significant.

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

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

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

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

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

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

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

 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2020
 
2019
 
2020
 
2019
Revenues:
 
 
 
 
 
 
 
Annuity:
 
 
 
 
 
 
 
Insurance policy income
$
4.5

 
$
4.2

 
$
10.1

 
$
10.8

Net investment income
116.6

 
114.8

 
234.0

 
230.6

Total annuity revenues
121.1

 
119.0

 
244.1

 
241.4

Health:
 
 
 
 
 
 
 
Insurance policy income
360.1

 
358.1

 
722.2

 
716.3

Net investment income
36.1

 
35.8

 
72.2

 
72.0

Total health revenues
396.2

 
393.9

 
794.4

 
788.3

Life:
 
 
 
 
 
 
 
Insurance policy income
194.3

 
189.0

 
388.4

 
376.2

Net investment income
34.7

 
34.8

 
69.0

 
69.3

Total life revenues
229.0

 
223.8

 
457.4

 
445.5

Long-term care:
 
 
 
 
 
 
 
Insurance policy income
66.4

 
67.0

 
133.3

 
134.3

Net investment income
34.0

 
34.0

 
68.3

 
67.3

Total long-term care revenues
100.4

 
101.0

 
201.6

 
201.6

Investment income (loss) not allocated to product lines:
 
 
 
 
 
 
 
Related to fixed index products
50.7

 
23.0

 
(85.8
)
 
66.6

Other investment income
37.1

 
76.0

 
109.5

 
149.2

Fee revenue and other income:
 
 
 
 
 
 
 
Fee income
20.7

 
15.8

 
49.5

 
41.6

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