CNO FINANCIAL GROUP, INC., 10-Q filed on 8/6/2021
Quarterly Report
v3.21.2
Cover Page - shares
6 Months Ended
Jun. 30, 2021
Jul. 22, 2021
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2021  
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   127,789,178
Entity Central Index Key 0001224608  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2021  
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 $0.01 per share  
Trading Symbol CNO  
Security Exchange Name NYSE  
Rights to purchase Series E Junior Participating Preferred Stock    
Document Information [Line Items]    
Title of 12(b) Security Rights to purchase Series E Junior Participating Preferred Stock  
No Trading Symbol Flag true  
Security Exchange Name NYSE  
5.125% Subordinated Debentures due 2060    
Document Information [Line Items]    
Title of 12(b) Security 5.125% Subordinated Debentures due 2060  
Trading Symbol CNOpA  
Security Exchange Name NYSE  
v3.21.2
CONSOLIDATED BALANCE SHEET - USD ($)
$ in Millions
Jun. 30, 2021
Dec. 31, 2020
Investments:    
Fixed maturities, available for sale, at fair value (net of allowance for credit losses: June 30, 2021 - $2.3 and December 31, 2020 - $2.2; amortized cost: June 30, 2021 - $20,698.0 and December 31, 2020 - $19,921.1) $ 23,806.6 $ 23,383.6
Equity securities at fair value 149.3 151.2
Mortgage loans (net of allowance for credit losses: June 30, 2021 - $8.3 and December 31, 2020 - $11.8) 1,276.9 1,358.7
Policy loans 120.3 123.0
Trading securities 247.0 232.0
Investments held by variable interest entities (net of allowance for credit losses: June 30, 2021 - $3.2 and December 31, 2020 - $15.1; amortized cost: June 30, 2021 - $1,239.0 and December 31, 2020 - $1,211.3) 1,233.5 1,189.4
Other invested assets 1,226.0 1,146.4
Total investments 28,059.6 27,584.3
Cash and cash equivalents - unrestricted 652.5 937.8
Cash and cash equivalents held by variable interest entities 62.3 54.1
Accrued investment income 210.7 205.8
Present value of future profits 235.2 249.4
Deferred acquisition costs 1,051.4 1,027.8
Reinsurance receivables (net of allowance for credit losses: June 30, 2021 - $4.0 and December 31, 2020 - $4.0) 4,460.9 4,584.3
Income tax assets, net 218.6 199.4
Assets held in separate accounts 4.5 4.2
Other assets 564.0 492.8
Total assets 35,519.7 35,339.9
Liabilities for insurance products:    
Policyholder account liabilities 12,840.8 12,540.6
Future policy benefits 11,689.8 11,744.2
Liability for policy and contract claims 528.3 561.8
Unearned and advanced premiums 255.8 252.6
Liabilities related to separate accounts 4.5 4.2
Other liabilities 946.5 821.8
Investment borrowings 1,641.5 1,642.5
Borrowings related to variable interest entities 1,151.6 1,151.8
Notes payable – direct corporate obligations 1,136.9 1,136.2
Total liabilities 30,195.7 29,855.7
Commitments and Contingencies
Shareholders' equity:    
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: June 30, 2021 – 129,105,039; December 31, 2020 – 135,279,119) 1.3 1.3
Additional paid-in capital 2,383.0 2,544.5
Accumulated other comprehensive income 1,995.5 2,186.1
Retained earnings 944.2 752.3
Total shareholders' equity 5,324.0 5,484.2
Total liabilities and shareholders' equity $ 35,519.7 $ 35,339.9
v3.21.2
CONSOLIDATED BALANCE SHEET (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2021
Dec. 31, 2020
Investments:    
Fixed maturities, available for sale, allowance for credit losses $ 2.3 $ 2.2
Fixed maturities, available for sale, amortized cost 20,698.0 19,921.1
Mortgage loans, allowance for credit losses 8.3 11.8
Investments held by variable interest entities, allowance for credit losses 3.2 15.1
Investments held by variable interest entities, amortized cost 1,239.0 1,211.3
Reinsurance receivables, allowance for current expected credit losses $ 4.0 $ 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) 129,105,039 135,279,119
Common stock, shares outstanding (in shares) 129,105,039 135,279,119
v3.21.2
CONSOLIDATED STATEMENT OF OPERATIONS - USD ($)
shares in Thousands, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Revenues:        
Insurance policy income $ 630.5 $ 625.3 $ 1,262.9 $ 1,254.0
Net investment income:        
General account assets 282.1 231.7 564.8 512.0
Policyholder and other special-purpose portfolios 97.1 87.1 152.6 (23.6)
Realized investment gains (losses):        
Net realized investment gains (losses) 25.6 27.9 13.2 (32.2)
Change in allowance for credit losses and other-than-temporary impairment losses 5.7 15.9 15.3 (39.5)
Total realized gains (losses) 31.3 43.8 28.5 (71.7)
Fee revenue and other income 32.1 26.3 70.3 60.7
Total revenues 1,073.1 1,014.2 2,079.1 1,731.4
Benefits and expenses:        
Insurance policy benefits 657.4 540.3 1,116.5 1,031.1
Interest expense 24.0 28.4 48.1 61.8
Amortization 42.6 88.5 142.3 138.7
Other operating costs and expenses 247.5 251.6 480.6 465.4
Total benefits and expenses 971.5 908.8 1,787.5 1,697.0
Income before income taxes 101.6 105.4 291.6 34.4
Income tax expense (benefit):        
Tax expense on period income 23.6 23.4 66.2 7.6
Valuation allowance for deferred tax assets and other tax items 0.0 0.0 0.0 (34.0)
Net income $ 78.0 $ 82.0 $ 225.4 $ 60.8
Basic:        
Weighted average shares outstanding (in shares) 131,016 143,421 132,578 144,625
Net income (in dollars per share) $ 0.59 $ 0.57 $ 1.70 $ 0.42
Diluted:        
Weighted average shares outstanding (in shares) 133,814 143,941 135,233 145,269
Net income (in dollars per share) $ 0.58 $ 0.57 $ 1.67 $ 0.42
v3.21.2
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Statement of Comprehensive Income [Abstract]        
Net income $ 78.0 $ 82.0 $ 225.4 $ 60.8
Other comprehensive income (loss), before tax:        
Unrealized gains (losses) on investments 874.5 1,656.2 (323.7) 330.8
Adjustment to present value of future profits and deferred acquisition costs (75.4) (131.0) 8.2 5.3
Amount related to premium deficiencies assuming the net unrealized gains (losses) had been realized (165.0) (330.5) 97.5 (195.0)
Reclassification adjustments:        
For net realized investment (gains) losses included in net income (25.0) (15.9) (25.5) 49.7
For amortization of the present value of future profits and deferred acquisition costs related to net realized investment (gains) losses included in net income 1.3 0.3 1.3 (3.1)
Other comprehensive income (loss) before tax 610.4 1,179.1 (242.2) 187.7
Income tax (expense) benefit related to items of accumulated other comprehensive income (133.0) (254.1) 51.6 (40.0)
Other comprehensive income (loss), net of tax 477.4 925.0 (190.6) 147.7
Comprehensive income $ 555.4 $ 1,007.0 $ 34.8 $ 208.5
v3.21.2
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, 2019       148,084,000 148,084,000              
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 (benefit)) 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       141,719,000                
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 (benefit)) 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       141,719,000                
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 Dec. 31, 2020 135,279,119     135,279,000                
Balance, beginning of period at Dec. 31, 2020 $ 5,484.2     $ 1.3   2,544.5   2,186.1   752.3    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 225.4                 225.4    
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense (benefit)) (190.6)             (190.6)        
Common stock repurchased (in shares)       (7,600,000)                
Common stock repurchased (187.4)         (187.4)            
Dividends on common stock (33.5)                 (33.5)    
Employee benefit plans, net of shares used to pay tax withholdings (in shares)       1,426,000                
Employee benefit plans, net of shares used to pay tax withholdings $ 25.9         25.9            
Balance, end of period (in shares) at Jun. 30, 2021 129,105,039     129,105,000                
Balance, end of period at Jun. 30, 2021 $ 5,324.0     $ 1.3   2,383.0   1,995.5   944.2    
Balance, beginning of period (in shares) at Mar. 31, 2021       132,268,000                
Balance, beginning of period at Mar. 31, 2021 4,860.7     $ 1.3   2,457.8   1,518.1   883.5    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 78.0                 78.0    
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense (benefit)) 477.4             477.4        
Common stock repurchased (in shares)       (3,491,000)                
Common stock repurchased (87.4)         (87.4)            
Dividends on common stock (17.3)                 (17.3)    
Employee benefit plans, net of shares used to pay tax withholdings (in shares)       328,000                
Employee benefit plans, net of shares used to pay tax withholdings $ 12.6         12.6            
Balance, end of period (in shares) at Jun. 30, 2021 129,105,039     129,105,000                
Balance, end of period at Jun. 30, 2021 $ 5,324.0     $ 1.3   $ 2,383.0   $ 1,995.5   $ 944.2    
v3.21.2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Statement of Stockholders' Equity [Abstract]        
Change in unrealized appreciation (depreciation) of investments, applicable income tax expense (benefit) $ 133.0 $ 254.1 $ (51.6) $ 40.0
v3.21.2
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Cash flows from operating activities:    
Insurance policy income $ 1,179.1 $ 1,151.2
Net investment income 523.8 554.4
Fee revenue and other income 72.4 60.7
Insurance policy benefits (839.6) (808.2)
Interest expense (46.3) (63.9)
Deferrable policy acquisition costs (142.8) (132.4)
Other operating costs (474.7) (431.8)
Income taxes (33.6) (5.0)
Net cash from operating activities 238.3 325.0
Cash flows from investing activities:    
Sales of investments 1,092.5 1,011.1
Maturities and redemptions of investments 1,554.8 912.5
Purchases of investments (3,118.5) (2,296.6)
Net sales (purchases) of trading securities (18.9) 9.6
Other (60.3) (16.2)
Net cash used by investing activities (550.4) (379.6)
Cash flows from financing activities:    
Issuance of common stock 17.5 3.0
Payments to repurchase common stock (187.5) (118.1)
Common stock dividends paid (33.6) (33.6)
Amounts received for deposit products 917.5 762.8
Withdrawals from deposit products (676.8) (654.3)
Issuance of investment borrowings:    
Federal Home Loan Bank 393.7 65.3
Payments on investment borrowings:    
Federal Home Loan Bank (394.7) (66.2)
Related to variable interest entities (1.1) (1.1)
Net cash provided (used) by financing activities 35.0 (42.2)
Net decrease in cash and cash equivalents (277.1) (96.8)
Cash and cash equivalents - unrestricted and held by variable interest entities, beginning of period 991.9 654.7
Cash and cash equivalents - unrestricted and held by variable interest entities, end of period $ 714.8 $ 557.9
v3.21.2
BUSINESS AND BASIS OF PRESENTATION
6 Months Ended
Jun. 30, 2021
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 2020 Annual Report on Form 10-K.

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

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

Our unaudited consolidated financial statements reflect normal recurring adjustments that, in the opinion of management, are necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented.  As permitted by rules and regulations of the Securities and Exchange Commission (the "SEC") applicable to quarterly reports on Form 10-Q, we have condensed or omitted certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").  We have reclassified certain amounts from the prior periods to conform to the 2021 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. 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, 2020, presented herein, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

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

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

In February 2021, we acquired DirectPath, LLC ("DirectPath"), a leading national provider of year-round, technology-driven employee benefits management services to employers and employees. DirectPath provides personalized benefits education, advocacy and transparency, and communications compliance services that help employers reduce healthcare costs and assist employees with making informed benefits decisions. The purchase price was approximately $50 million with an additional earn‐out if certain financial targets are achieved. The transaction was funded from holding company cash. The amount paid, net of cash held by DirectPath on the date of acquisition, was $47.4 million and is classified as other investing activities on the consolidated statement of cash flows. The net assets acquired totaled $56 million and were primarily comprised of goodwill and other intangible assets of approximately $50 million. The tangible assets acquired and liabilities assumed were recorded at their carrying values which approximated fair value. The intangible assets were recorded at fair value based on various assumptions determined by the Company to be reasonable at the date of acquisition including long-term growth rate, normalized net working capital, internal rate of return, economic life and discount rate. In addition, we recognized
advisory and legal expenses of $3 million in connection with the acquisition (of which, $2.5 million was recognized in the first quarter of 2021). The business of DirectPath is included in our fee income segment.

DirectPath's education services engage and enroll employees in worksite benefits plans through face-to-face, virtual and telephonic enrollment. The Company’s advocacy and transparency services help employees select cost-effective medical providers and resolve claims issues, while enabling employers to reduce administrative and healthcare costs. Its communications compliance services manage governance and regulatory communications for corporate benefits plans. DirectPath operates direct nationwide and serves 400 employers with a covered employee base of more than 2.5 million people. DirectPath's clients range in size from small- and medium-sized businesses to Fortune 100 companies.
v3.21.2
INVESTMENTS
6 Months Ended
Jun. 30, 2021
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; and (ii) certain fixed maturity securities containing embedded derivatives for which we have elected the fair value option.  The change in fair value of the income generating investments is recognized in income from policyholder and other special-purpose portfolios (a component of net investment income). The change in fair value of securities with embedded derivatives is recognized in realized investment gains (losses).

We review our available for sale fixed maturity securities with unrealized losses to determine whether such impairments are the result of credit losses. We analyze various factors to make such determinations including, but not limited to: (i) actions taken by rating agencies; (ii) default by the issuer; (iii) the significance of the decline; (iv) an assessment of our intent to sell the security before recovering the security's amortized cost; (v) an economic analysis of the issuer's industry; and (vi) the financial strength, liquidity, and recoverability of the issuer. We perform a security by security review each quarter to evaluate whether a credit loss has occurred.

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

If a portion of the decline is due to credit-related factors, we separate the credit loss component of the impairment from the amount related to all other factors. The credit loss component is recorded as an allowance and reported in 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 (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 uncollectable, the remaining amortized cost will be written off.
  
If we intend to sell an impaired fixed maturity security, available for sale, or identify an impaired fixed maturity security, available for sale, for which it is more likely than not we will be required to sell before anticipated recovery, the difference between the fair value and the amortized cost is included in 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, 2021 and December 31, 2020, were as follows (dollars in millions):
June 30,
2021
December 31,
2020
Net unrealized gains on investments having no allowance for credit losses $3,113.2 $3,466.3 
Unrealized losses on investments with an allowance for credit losses (6.1)(10.0)
Adjustment to present value of future profits (a)(9.1)(10.2)
Adjustment to deferred acquisition costs(450.2)(458.0)
Adjustment to insurance liabilities(99.4)(197.5)
Deferred income tax liabilities(552.9)(604.5)
Accumulated other comprehensive income$1,995.5 $2,186.1 
________
(a)The present value of future profits is the value assigned to the right to receive future cash flows from contracts existing at September 10, 2003, the date Conseco, Inc., an Indiana corporation, emerged from bankruptcy.

At June 30, 2021, adjustments to the present value of future profits, deferred acquisition costs, insurance liabilities and deferred tax assets included $(7.9) million, $(134.7) million, $(99.4) million and $52.4 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 December 31, 2020, adjustments to the present value of future profits, deferred acquisition costs, insurance liabilities and deferred tax assets included $(8.6) million, $(133.4) million, $(197.5) million and $73.7 million, respectively, for premium deficiencies that would exist on certain blocks of business if unrealized gains on the assets backing such products had been realized and the proceeds from the sales of such assets were invested at then current yields.

At June 30, 2021, the amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses and estimated fair value of fixed maturities, available for sale, were as follows (dollars in millions):
Amortized costGross unrealized gainsGross unrealized lossesAllowance for credit lossesEstimated fair value
Corporate securities$12,888.6 $2,370.5 $(13.3)$(2.3)$15,243.5 
United States Treasury securities and obligations of United States government corporations and agencies164.3 51.0 (.7)— 214.6 
States and political subdivisions2,454.7 346.7 (.5)— 2,800.9 
Foreign governments67.0 13.0 — — 80.0 
Asset-backed securities962.5 50.8 (1.2)— 1,012.1 
Agency residential mortgage-backed securities44.7 4.9 — — 49.6 
Non-agency residential mortgage-backed securities1,732.3 173.2 (.2)— 1,905.3 
Collateralized loan obligations457.8 2.5 (.7)— 459.6 
Commercial mortgage-backed securities1,926.1 116.4 (1.5)— 2,041.0 
Total fixed maturities, available for sale$20,698.0 $3,129.0 $(18.1)$(2.3)$23,806.6 
At December 31, 2020, the amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses and estimated fair value of fixed maturities, available for sale, were as follows (dollars in millions):
Amortized costGross unrealized gainsGross unrealized lossesAllowance for credit lossesEstimated fair value
Corporate securities$12,054.7 $2,696.3 $(9.9)$(1.9)$14,739.2 
United States Treasury securities and obligations of United States government corporations and agencies163.8 71.9 (.2)— 235.5 
States and political subdivisions2,296.6 358.9 (1.3)(.3)2,653.9 
Foreign governments82.4 20.4 — — 102.8 
Asset-backed securities1,024.4 45.1 (7.4)— 1,062.1 
Agency residential mortgage-backed securities52.7 5.7 — — 58.4 
Non-agency residential mortgage-backed securities1,913.5 181.2 (2.1)— 2,092.6 
Collateralized loan obligations461.9 .6 (3.6)— 458.9 
Commercial mortgage-backed securities1,871.1 116.4 (7.3)— 1,980.2 
Total fixed maturities, available for sale$19,921.1 $3,496.5 $(31.8)$(2.2)$23,383.6 

The following table sets forth the amortized cost and estimated fair value of fixed maturities, available for sale, at June 30, 2021, by contractual maturity.  Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.  Structured securities (such as asset-backed securities, agency residential mortgage-backed securities, non-agency residential mortgage-backed securities, collateralized loan obligations and commercial mortgage-backed securities, collectively referred to as "structured securities") frequently include provisions for periodic principal payments and permit periodic unscheduled payments.
Amortized
cost
Estimated
fair
value
 (Dollars in millions)
Due in one year or less$237.0 $240.5 
Due after one year through five years1,081.0 1,150.7 
Due after five years through ten years1,440.6 1,584.1 
Due after ten years12,816.0 15,363.7 
Subtotal15,574.6 18,339.0 
Structured securities5,123.4 5,467.6 
Total fixed maturities, available for sale$20,698.0 $23,806.6 
The following table sets forth the amortized cost and estimated fair value of fixed maturities, available for sale, at December 31, 2020, by contractual maturity.
Amortized
cost
Estimated
fair
value
 (Dollars in millions)
Due in one year or less$388.7 $396.4 
Due after one year through five years987.4 1,052.9 
Due after five years through ten years1,540.4 1,715.6 
Due after ten years11,681.0 14,566.5 
Subtotal14,597.5 17,731.4 
Structured securities5,323.6 5,652.2 
Total fixed maturities, available for sale$19,921.1 $23,383.6 

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, 2021 (dollars in millions):

 Less than 12 months12 months or greaterTotal
Description of securitiesFair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Corporate securities$211.7 $(7.2)$9.2 $(.1)$220.9 $(7.3)
United States Treasury securities and obligations of United States government corporations and agencies18.9 (.7)— — 18.9 (.7)
States and political subdivisions41.7 (.5)— — 41.7 (.5)
Asset-backed securities25.4 — 29.4 (1.2)54.8 (1.2)
Non-agency residential mortgage-backed securities37.6 (.1)16.3 (.1)53.9 (.2)
Collateralized loan obligations99.3 (.4)76.3 (.3)175.6 (.7)
Commercial mortgage-backed securities115.4 (.3)59.9 (1.2)175.3 (1.5)
Total fixed maturities, available for sale$550.0 $(9.2)$191.1 $(2.9)$741.1 $(12.1)
The following table summarizes the gross unrealized losses and fair values of our investments with unrealized losses for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that such securities have been in a continuous unrealized loss position, at December 31, 2020 (dollars in millions):

 Less than 12 months12 months or greaterTotal
Description of securitiesFair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Corporate securities$110.0 $(2.6)$5.6 $(.2)$115.6 $(2.8)
United States Treasury securities and obligations of United States government corporations and agencies17.9 (.2)— — 17.9 (.2)
States and political subdivisions8.6 (.1)— — 8.6 (.1)
Asset-backed securities146.9 (4.1)26.0 (3.3)172.9 (7.4)
Non-agency residential mortgage-backed securities173.2 (1.5)42.2 (.6)215.4 (2.1)
Collateralized loan obligations151.4 (1.5)178.7 (2.1)330.1 (3.6)
Commercial mortgage-backed securities277.0 (6.3)72.3 (1.0)349.3 (7.3)
Total fixed maturities, available for sale$885.0 $(16.3)$324.8 $(7.2)$1,209.8 $(23.5)

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

The following table summarizes changes in the allowance for credit losses related to fixed maturities, available for sale, for the six months ended June 30, 2021 (dollars in millions):
Corporate securitiesStates and political subdivisionsTotal
Allowance at December 31, 2020$1.9 $.3 $2.2 
Additions for securities for which credit losses were not previously recorded1.9 .1 2.0 
Additions for purchased securities with deteriorated credit— — — 
Additions (reductions) for securities where an allowance was previously recorded(1.0)(.4)(1.4)
Reduction for securities sold during the period(.5)— (.5)
Reduction for securities for which the Company made the decision to sell where an allowance was previously recorded— — — 
Write-offs— — — 
Recoveries of previously written-off amount— — — 
Allowance at June 30, 2021$2.3 $— $2.3 
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 securitiesStates and political subdivisionsForeign governmentsNon-agency residential mortgage-backed securitiesAsset-backed securitiesTotal
Allowance at March 31, 2020$18.2 $.6 $.1 $1.0 $— $19.9 
Additions for securities for which credit losses were not previously recorded4.2 — — — .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 securitiesStates and political subdivisionsForeign governmentsNon-agency residential mortgage-backed securitiesAsset-backed securitiesTotal
Allowance at January 1, 2020$2.1 $— $— $— $— $2.1 
Additions for securities for which credit losses were not previously recorded21.7 .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, 2021, the mortgage loan balance was primarily comprised of commercial mortgage loans. At June 30, 2021, there were no commercial mortgage loans in process of foreclosure. At June 30, 2021, we held residential mortgage loan investments with an amortized cost and fair value of $66.3 million and $67.1 million, respectively. At June 30, 2021, there were 14 residential mortgage loans that were noncurrent with a carrying value of $4.5 million (of which, 10 such loans with a carrying value of $3.5 million were in forbearance and 4 loans with a carrying value of $1.0 million were in foreclosure). There were no other mortgage loans that were noncurrent at June 30, 2021.

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, 2021 (dollars in millions):
Estimated fair
value
Loan-to-value ratio (a)20212020201920182017PriorTotal amortized costMortgage loansCollateral
Less than 60%$40.3 $28.5 $87.7 $113.5 $65.5 $620.5 $956.0 $1,017.6 $2,883.2 
60% to less than 70%20.0 6.0 — 8.4 10.6 77.5 122.5 125.8 189.2 
70% to less than 80%— 12.6 12.1 — — 42.2 66.9 68.5 92.5 
80% to less than 90%— — — — — 63.5 63.5 61.3 76.5 
90% or greater— — — — — 10.0 10.0 7.8 10.7 
Total$60.3 $47.1 $99.8 $121.9 $76.1 $813.7 $1,218.9 $1,281.0 $3,252.1 
________________
(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, 2021 and 2020 (dollars in millions):
20212020
Allowance for credit losses at March 31$8.8 $8.3 
Current period provision for expected credit losses(.5)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$8.3 $11.6 
The following table summarizes changes in the allowance for credit losses related to mortgage loans for the six months ended June 30, 2021 (dollars in millions):
Mortgage loans
Allowance for credit losses at December 31, 2020$11.8 
Current period provision for expected credit losses(3.5)
Initial allowance recognized for purchased financial assets with credit deterioration— 
Write-offs charged against the allowance— 
Recoveries of amounts previously written off— 
Allowance for credit losses at June 30, 2021$8.3 

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 losses4.9 
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 endedSix months ended
June 30,June 30,
 2021202020212020
Fixed maturity securities, available for sale: 
Gross realized gains on sale$25.5 $26.9 $38.7 $38.8 
Gross realized losses on sale(4.4)(29.0)(18.2)(50.4)
Change in allowance for credit losses and other-than-temporary impairment losses3.0 9.2 (.1)(16.7)
Net realized investment gains (losses) from fixed maturities24.1 7.1 20.4 (28.3)
Equity securities, including change in fair value (a)1.6 5.5 (.2)(10.2)
Change in allowance for credit losses and other-than-temporary impairment losses of other investments (b)2.7 6.7 15.4 (22.8)
Other (c)2.9 24.5 (7.1)(10.4)
Net realized investment gains (losses)$31.3 $43.8 $28.5 $(71.7)
_________________
(a)    Changes in the estimated fair value of equity securities (that are still held as of the end of the respective periods) were $0.4 million and $(7.6) million for the six months ended June 30, 2021 and 2020, respectively.
(b)    Changes in the allowance for credit losses includes $2.2 million and $11.9 million in the three and six months ended June 30, 2021, respectively, and $9.9 million and $(17.9) million in the three and six months ended June 30, 2020, respectively, related to investments held by variable interest entities ("VIEs").
(c)    Change in the estimated fair value of trading securities that we have elected the fair value option (that are still held as of the end of the respective periods) were $0.7 million and $(6.6) million in the six months ended June 30, 2021 and 2020, respectively.

During the first six months of 2021, we recognized net realized investment gains of $28.5 million, which were comprised of: (i) $13.9 million of net gains from the sales of investments; (ii) $0.2 million of losses related to equity securities, including the change in fair value; (iii) the increase in fair value of certain fixed maturity investments with embedded derivatives of $0.7 million; (iv) the decrease in fair value of embedded derivatives related to a modified coinsurance agreement of $1.2 million; and (v) a decrease in the allowance for credit losses of $15.3 million.

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 $0.1 million; and (v) an increase in the allowance for credit losses and other-than-temporary impairment losses of $39.5 million.

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

At June 30, 2021, there were no fixed maturity investments in default.

During the first six months of 2021, the $18.2 million of gross realized losses on sales of $310.7 million of fixed maturity securities, available for sale, primarily related to various corporate securities. Securities are generally sold at a loss following unforeseen issuer-specific events or conditions or shifts in perceived relative values.  These reasons include but are
not limited to: (i) changes in the investment environment; (ii) expectation that the market value could deteriorate; (iii) our desire to reduce our exposure to an asset class, an issuer or an industry; (iv) prospective or actual changes in credit quality; or (v) changes in expected portfolio cash flows.

During the first six months of 2020, the $50.4 million of gross 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.

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.
v3.21.2
EARNINGS PER SHARE
6 Months Ended
Jun. 30, 2021
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 endedSix months ended
June 30,June 30,
 2021202020212020
Net income for basic and diluted earnings per share$78.0 $82.0 $225.4 $60.8 
Shares:  
Weighted average shares outstanding for basic earnings per share131,016 143,421 132,578 144,625 
Effect of dilutive securities on weighted average shares:  
Amounts related to employee benefit plans2,798 520 2,655 644 
Weighted average shares outstanding for diluted earnings per share133,814 143,941 135,233 145,269 

.
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).
v3.21.2
BUSINESS SEGMENTS
6 Months Ended
Jun. 30, 2021
Segment Reporting [Abstract]  
BUSINESS SEGMENTS
BUSINESS SEGMENTS

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

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

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

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

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

The Worksite Division focuses on worksite and group sales for businesses, associations, and other membership groups, interacting with customers at their place of employment. By creating a dedicated Worksite Division, we are bringing a sharper focus to this high-growth business while further capitalizing on the strength of our recent acquisitions of Web Benefits Design Corporation ("WBD") in April 2019 and DirectPath in February 2021. Sales in the Worksite Division have been particularly adversely impacted by the COVID-19 pandemic given the challenges of interacting with customers at their place of employment.

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

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 alternative investments income not allocated to product lines), net of interest expense on corporate debt.

Our fee and other revenue segment includes the earnings generated from sales of third-party insurance products, services provided by WBD (our wholly owned on-line benefit administration firm), DirectPath (a national provider of year-round technology-driven employee benefits management services) and the operations of our broker-dealer and registered investment advisor.
Expenses not allocated to product lines include the expenses of our corporate operations, excluding interest expense on debt.

We measure segment performance by excluding 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, 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 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 endedSix months ended
June 30,June 30,
 2021202020212020
Revenues:  
Annuity:  
Insurance policy income$4.3 $4.5 $9.7 $10.1 
Net investment income114.9 116.6 230.6 234.0 
Total annuity revenues119.2 121.1 240.3 244.1 
Health:
Insurance policy income415.4 426.5 831.9 855.5 
Net investment income71.6 70.1 143.1 140.5 
Total health revenues 487.0 496.6 975.0 996.0 
Life:
Insurance policy income210.8 194.3 421.3 388.4 
Net investment income36.1 34.7 71.9 69.0 
Total life revenues246.9 229.0 493.2 457.4 
Change in market values of the underlying options supporting the fixed index annuity and life products (offset by market value changes credited to policyholder balances)76.1 50.7 118.6 (85.8)
Investment income not allocated to product lines72.5 37.1 137.4 109.5 
Fee revenue and other income:
Fee income31.1 20.7 63.4 49.5 
Amounts netted in expenses not allocated to product lines1.8 1.7 8.6 3.5 
Total segment revenues$1,034.6 $956.9 $2,036.5 $1,774.2 


(continued on next page)
(continued from previous page)
Three months endedSix months ended
June 30,June 30,
 2021202020212020
Expenses:
Annuity:
Insurance policy benefits$1.3 $(107.7)$7.5 $(102.2)
Interest credited36.9 43.6 75.6 85.6 
Amortization and non-deferred commissions15.0 61.4 33.3 77.4 
Total annuity expenses 53.2 (2.7)116.4 60.8 
Health:
Insurance policy benefits323.3 359.0 629.9 712.8 
Amortization and non-deferred commissions42.8 42.1 99.5 100.8 
Total health expenses366.1 401.1 729.4 813.6 
Life:
Insurance policy benefits149.5 147.8 313.1 279.7 
Interest credited 11.0 10.9 21.6 21.2 
Amortization, non-deferred commissions and advertising expense46.7 34.2 91.7 76.1 
Total life expenses207.2 192.9 426.4 377.0 
Allocated expenses 141.6 128.1 282.7 264.7 
Expenses not allocated to product lines25.6 40.2 54.4 55.8 
Market value changes of options credited to fixed index annuity and life policyholders76.1 50.7 118.6 (85.8)
Amounts netted in investment income not allocated to product lines:
Interest expense 18.1 19.4 36.3 42.1 
Other expenses 6.6 9.5 10.3 1.8 
Expenses netted in fee revenue:
Distribution and commission expenses24.5 15.5 49.5 36.5 
Total segment expenses919.0 854.7 1,824.0 1,566.5 
Pre-tax measure of profitability:
Annuity margin66.0 123.8 123.9 183.3 
Health margin120.9 95.5 245.6 182.4 
Life margin39.7 36.1 66.8 80.4 
Total insurance product margin226.6 255.4 436.3 446.1 
Allocated expenses(141.6)(128.1)(282.7)(264.7)
Income from insurance products85.0 127.3 153.6 181.4 
Fee income6.6 5.2 13.9 13.0 
Investment income not allocated to product lines47.8 8.2 90.8 65.6 
Expenses not allocated to product lines(23.8)(38.5)(45.8)(52.3)
Operating earnings before taxes 115.6 102.2 212.5 207.7 
Income tax expense on operating income 26.5 22.8 48.2 44.0 
Net operating income $89.1 $79.4 $164.3 $163.7 
A reconciliation of segment revenues and expenses to consolidated revenues and expenses and net income is as follows (dollars in millions):
Three months endedSix months ended
June 30,June 30,
 2021202020212020
Total segment revenues$1,034.6 $956.9 $2,036.5 $1,774.2 
Net realized investment gains (losses)31.3 43.8 28.5 (71.7)
Revenues related to earnings attributable to VIEs7.2 8.7 14.1 19.4 
Fee revenue related to transition services agreement— 4.8 — 9.5 
Consolidated revenues1,073.1 1,014.2 2,079.1 1,731.4 
Total segment expenses919.0 854.7 1,824.0 1,566.5 
Insurance policy benefits - fair value changes in embedded derivative liabilities
59.3 36.0 (49.8)119.8 
Amortization related to fair value changes in embedded derivative liabilities
(14.4)(8.9)12.6 (26.0)
Amortization related to net realized investment gains (losses)1.3 .3 1.3 (3.1)
Expenses attributable to VIEs6.3 9.4 12.6 20.4 
Fair value changes related to agent deferred compensation plan— 13.2 (13.2)13.2 
Expenses related to transition services agreement— 4.1 — 6.2 
Consolidated expenses971.5 908.8 1,787.5 1,697.0 
Income before tax101.6 105.4 291.6 34.4 
Income tax expense (benefit):
Tax expense on period income23.6 23.4 66.2 7.6 
Valuation allowance for deferred tax assets and other tax items— — — (34.0)
Net income$78.0 $82.0 $225.4 $60.8 
v3.21.2
ACCOUNTING FOR DERIVATIVES
6 Months Ended
Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
ACCOUNTING FOR DERIVATIVES
ACCOUNTING FOR DERIVATIVES

Our freestanding and embedded derivatives, which are not designated as hedging instruments, are held at fair value and are summarized as follows (dollars in millions):
Fair value
June 30,
2021
December 31, 2020
Assets:
Other invested assets:
Fixed index call options$253.3 $216.7 
Other