DOCUMENT AND ENTITY INFORMATION - USD ($) $ in Billions	12 Months Ended
DOCUMENT AND ENTITY INFORMATION - USD ($) $ in Billions	Dec. 31, 2018	Feb. 08, 2019	Jun. 30, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	CNO Financial Group, Inc.
Entity Central Index Key	0001224608
Document Type	10-K
Document Period End Date	Dec. 31, 2018
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Entity Filer Category	Large Accelerated Filer
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	Yes
Entity Current Reporting Status	Yes
Amendment Flag	false
Entity Public Float			$ 3.1
Entity Common Stock, Shares Outstanding		160,715,150
Entity Emerging Growth	false
Entity Small Business	false
Entity Shell Company	false

CONSOLIDATED BALANCE SHEET - USD ($) $ in Millions	Dec. 31, 2018	Dec. 31, 2017
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: 2018 - $18,107.8; 2017 - $20,702.1)	$ 18,447.7	$ 22,910.9
Equity securities at fair value (cost: 2018 - $319.8; 2017 - $420.0)	291.0	440.6
Mortgage loans	1,602.1	1,650.6
Policy loans	119.7	116.0
Trading securities	233.1	284.6
Investments held by variable interest entities	1,468.4	1,526.9
Other invested assets	833.4	924.5
Total investments	22,995.4	27,854.1
Cash and cash equivalents - unrestricted	594.2	578.4
Cash and cash equivalents held by variable interest entities	62.4	178.9
Accrued investment income	205.2	245.9
Present value of future profits	343.6	359.6
Deferred acquisition costs	1,322.5	1,026.8
Reinsurance receivables	4,925.4	2,175.2
Income tax assets, net	630.0	366.9
Assets held in separate accounts	4.4	5.0
Other assets	356.7	319.5
Total assets	31,439.8	33,110.3
Liabilities for insurance products:
Policyholder account balances	11,594.1	11,220.7
Future policy benefits	11,082.4	11,521.3
Liability for policy and contract claims	521.9	530.3
Unearned and advanced premiums	253.9	261.7
Liabilities related to separate accounts	4.4	5.0
Other liabilities	632.4	751.8
Investment borrowings	1,645.8	1,646.7
Borrowings related to variable interest entities	1,417.2	1,410.7
Notes payable – direct corporate obligations	916.8	914.6
Total liabilities	28,068.9	28,262.8
Commitments and Contingencies
Shareholders' equity:
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: 2018 - 162,201,692; 2017 - 166,857,931)	1.6	1.7
Additional paid-in capital	2,995.0	3,073.3
Accumulated other comprehensive income	177.7	1,212.1
Retained earnings	196.6	560.4
Total shareholders' equity	3,370.9	4,847.5
Total liabilities and shareholders' equity	$ 31,439.8	$ 33,110.3

CONSOLIDATED BALANCE SHEET (Parentheticals) - USD ($) $ in Millions	Dec. 31, 2018	Dec. 31, 2017
Investments:
Fixed maturities, available for sale, amortized cost	$ 18,107.8	$ 20,702.1
Equity securities cost	$ 319.8	$ 420.0
Shareholders' equity:
Common stock, par value (in USD 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)	162,201,692	166,857,931
Common stock, shares outstanding (in shares)	162,201,692	166,857,931

CONSOLIDATED STATEMENT OF OPERATIONS - USD ($) shares in Thousands, $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Revenues:
Insurance policy income	$ 2,593.1	$ 2,647.3	$ 2,601.1
Net investment income:
General account assets	1,279.7	1,285.4	1,204.1
Policyholder and other special-purpose portfolios	26.5	265.9	121.1
Realized investment gains (losses):
Net realized gains on the transfer of assets related to reinsurance transaction	363.4	0.0	0.0
Other net realized investment gains, excluding impairment losses	(8.7)	77.4	47.9
Other-than-temporary impairments:
Total other-than-temporary impairment losses	(2.6)	(21.9)	(35.9)
Portion of other-than-temporary impairment losses recognized in accumulated other comprehensive income	0.0	(0.9)	3.6
Net impairment losses recognized	(2.6)	(22.8)	(32.3)
Loss on dissolution of variable interest entities	0.0	(4.3)	(7.3)
Total realized gains	352.1	50.3	8.3
Fee revenue and other income	62.1	48.3	50.5
Total revenues	4,313.5	4,297.2	3,985.1
Benefits and expenses:
Insurance policy benefits	2,278.6	2,602.7	2,390.5
Loss related to reinsurance transactions	1,067.6	0.0	75.4
Interest expense	149.8	123.7	116.4
Amortization	264.3	239.3	253.3
Loss on extinguishment of borrowings related to variable interest entities	3.8	9.5	0.0
Other operating costs and expenses	814.2	841.5	796.3
Total benefits and expenses	4,578.3	3,816.7	3,631.9
Income (loss) before income taxes	(264.8)	480.5	353.2
Income tax expense (benefit):
Tax expense (benefit) on period income	(57.6)	162.8	127.8
Valuation allowance for deferred tax assets and other tax items	107.8	142.1	(132.8)
Net income (loss)	$ (315.0)	$ 175.6	$ 358.2
Basic:
Weighted average shares outstanding (in shares)	165,457	170,025	176,638
Net income (in USD per share)	$ (1.90)	$ 1.03	$ 2.03
Diluted:
Weighted average shares outstanding (in shares)	165,457	172,144	178,323
Net income (loss) (in USD per share)	$ (1.90)	$ 1.02	$ 2.01

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ (315.0)	$ 175.6	$ 358.2
Other comprehensive income, before tax:
Unrealized gains (losses) for the period	(1,579.9)	959.3	424.4
Amortization of present value of future profits and deferred acquisition costs	125.5	(29.7)	(27.9)
Amount related to premium deficiencies assuming the net unrealized gains (losses) had been realized	512.0	(310.5)	(46.9)
Reclassification adjustments:
For net realized investment gains (losses) included in net income (loss)	(356.9)	(40.2)	(18.6)
For amortization of the present value of future profits and deferred acquisition costs related to net realized investment gains (losses) included in net income (loss)	(0.4)	1.0	0.7
Unrealized gains (losses) on investments	(1,299.7)	579.9	331.7
Change related to deferred compensation plan	0.0	0.0	8.6
Other comprehensive income (loss) before tax	(1,299.7)	579.9	340.3
Income tax (expense) benefit related to items of accumulated other comprehensive income (loss)	281.6	(195.6)	(120.7)
Other comprehensive income (loss), net of tax	(1,018.1)	384.3	219.6
Comprehensive income (loss)	$ (1,333.1)	$ 559.9	$ 577.8

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - USD ($) $ in Millions	Total	Common stock and additional paid-in capital	Accumulated other comprehensive income	Retained earnings
Balance, beginning of period at Dec. 31, 2015	$ 4,138.5	$ 3,388.6	$ 402.8	$ 347.1
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	358.2			358.2
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense (benefit))	221.1		221.1
Change in noncredit component of impairment losses on fixed maturities, available for sale (net of applicable income tax expense (benefit))	(1.5)		(1.5)
Cost of common stock repurchased	(203.0)	(203.0)
Dividends on common stock	(54.6)			(54.6)
Stock options, restricted stock and performance units	28.2	28.2
Balance, end of period at Dec. 31, 2016	4,486.9	3,213.8	622.4	650.7
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	175.6			175.6
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense (benefit))	382.1		382.1
Change in noncredit component of impairment losses on fixed maturities, available for sale (net of applicable income tax expense (benefit))	2.2		2.2
Reclassification of stranded income tax effects from the Tax Cuts and Jobs Act			205.4	(205.4)
Cost of common stock repurchased	(167.1)	(167.1)
Dividends on common stock	(59.9)			(59.9)
Stock options, restricted stock and performance units	27.4	27.4
Balance, end of period at Dec. 31, 2017	4,847.5	3,075.0	1,212.1	560.4
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(315.0)			(315.0)
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense (benefit))	(1,017.0)		(1,017.0)
Change in noncredit component of impairment losses on fixed maturities, available for sale (net of applicable income tax expense (benefit))	(1.1)		(1.1)
Cost of common stock repurchased	(100.9)	(100.9)
Dividends on common stock	(65.1)			(65.1)
Stock options, restricted stock and performance units	22.5	22.5
Balance, end of period at Dec. 31, 2018	$ 3,370.9	$ 2,996.6	$ 177.7	$ 196.6

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Parentheticals) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement of Stockholders' Equity [Abstract]
Change in unrealized appreciation (depreciation) of investments, applicable income tax expense (benefit)	$ (281.3)	$ 194.4	$ 121.5
Change in noncredit component of impairment losses on fixed maturities, available for sale, applicable income tax expense (benefit)	$ (0.3)	$ 1.2	$ (0.8)

CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Cash flows from operating activities:
Insurance policy income	$ 2,433.4	$ 2,483.2	$ 2,457.0
Net investment income	1,321.2	1,256.3	1,213.9
Fee revenue and other income	62.1	48.3	50.5
Cash and cash equivalents received upon recapture of reinsurance	0.0	0.0	73.6
Insurance policy benefits	(1,910.7)	(1,973.1)	(1,916.0)
Payment to reinsurer pursuant to long-term care business reinsured	(365.0)	0.0	0.0
Interest expense	(141.1)	(120.5)	(106.0)
Deferrable policy acquisition costs	(261.8)	(236.1)	(242.7)
Other operating costs	(788.5)	(747.4)	(747.9)
Income taxes	(31.8)	(77.4)	(6.7)
Net cash from operating activities	317.8	633.3	775.7
Cash flows from investing activities:
Sales of investments	3,210.2	2,460.7	2,828.9
Maturities and redemptions of investments	2,469.0	3,324.6	2,507.2
Purchases of investments	(6,205.8)	(6,141.0)	(6,159.8)
Net sales (purchases) of trading securities	25.9	108.9	(84.2)
Other	(25.0)	(23.4)	(22.5)
Net cash used by investing activities	(525.7)	(270.2)	(930.4)
Cash flows from financing activities:
Issuance of common stock	3.9	8.3	8.4
Payments to repurchase common stock	(108.0)	(168.3)	(210.0)
Common stock dividends paid	(64.8)	(59.6)	(54.8)
Amounts received for deposit products	1,588.5	1,445.9	1,386.7
Withdrawals from deposit products	(1,312.3)	(1,232.6)	(1,181.6)
Issuance of investment borrowings:
Federal Home Loan Bank	150.0	432.0	432.7
Related to variable interest entities	277.6	981.6	493.2
Payments on investment borrowings:
Federal Home Loan Bank	(150.9)	(432.7)	(333.5)
Related to variable interest entities and other	(276.8)	(1,248.6)	(514.9)
Net cash provided (used) by financing activities	107.2	(274.0)	26.2
Net increase (decrease) in cash and cash equivalents	(100.7)	89.1	(128.5)
Cash and cash equivalents - unrestricted and held by variable interest entities, beginning of year	757.3	668.2	796.7
Cash and cash equivalents - unrestricted and held by variable interest entities, end of year	$ 656.6	$ 757.3	$ 668.2

BUSINESS AND BASIS OF PRESENTATION

12 Months Ended

Dec. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BUSINESS AND BASIS OF PRESENTATION

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.

The Company manages its business through the following operating segments: Bankers Life, Washington National and Colonial Penn, which are 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. On September 27, 2018, the Company completed a long-term care reinsurance transaction pursuant to which its wholly-owned subsidiary, Bankers Life and Casualty Company ("Bankers Life"), entered into an agreement with Wilton Reassurance Company ("Wilton Re") to cede all of its legacy (prior to 2003) comprehensive and nursing home long-term care policies (with statutory reserves of $2.7 billion) through 100% indemnity coinsurance, as further described in the note to the consolidated financial statements entitled "Summary of Significant Accounting Policies - Reinsurance". In anticipation of the reinsurance agreement, the Company reorganized its business segments to move the block to be ceded from the "Bankers Life segment" to the "Long-term care in run-off segment" in the third quarter of 2018. All prior period segment disclosures have been revised to conform to management's current view of the Company's operating segments.

•

Bankers Life, which underwrites, markets and distributes Medicare supplement insurance, interest-sensitive life insurance, traditional life insurance, fixed annuities and long-term care insurance products to the middle-income senior market through a dedicated field force of career agents, financial and investment advisors, and sales managers supported by a network of community-based sales offices. The Bankers Life segment includes primarily the business of Bankers Life. Bankers Life also has various distribution and marketing agreements with other insurance companies to use Bankers Life's career agents to distribute Medicare Advantage and prescription drug plan products in exchange for a fee.

•

Washington National, which underwrites, markets and distributes supplemental health (including specified disease, accident and hospital indemnity insurance products) and life insurance to middle-income consumers at home and at the worksite. These products are marketed through Performance Matters Associates, Inc. and through independent marketing organizations and insurance agencies including worksite marketing. The products being marketed are underwritten by Washington National Insurance Company ("Washington National"). This segment's business also includes certain closed blocks of annuities and Medicare supplement policies which are no longer being actively marketed by this segment and were primarily issued or acquired by Washington National.


•	Colonial Penn, which markets primarily graded benefit and simplified issue life insurance directly to customers in the senior middle-income market through television advertising, direct mail, the internet and telemarketing. The Colonial Penn segment includes primarily the business of Colonial Penn Life Insurance Company ("Colonial Penn").

•

Long-term care in run-off consists of: (i) the long-term care business that was recaptured due to the termination of certain reinsurance agreements effective September 30, 2016 (such business is not actively marketed and was issued or acquired by Washington National and Bankers Conseco Life Insurance Company ("BCLIC"); and (ii) certain legacy (prior to 2003) comprehensive and nursing home long-term care policies which were ceded in September 2018 (such business is not actively marketed and was issued by Bankers Life).

We prepare our financial statements 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 2018 presentation. These reclassifications have no effect on net income or shareholders' equity.

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.

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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments

Fixed maturity securities include available for sale bonds and redeemable preferred stocks. We carry these investments at estimated fair value. We record any unrealized gain or loss, net of tax and related adjustments, as a component of shareholders’ equity.

Equity securities include investments in common stock, exchange-traded funds and non-redeemable preferred stock. We carry these investments at estimated fair value. Effective January 1, 2018, changes in the fair value of equity securities are recognized in net income as further described below under the caption "Recently Issued Accounting Standards - Adopted Accounting Standards". Prior to January 1, 2018, changes in the fair value of equity securities were recorded in "Accumulated other comprehensive income".

Mortgage loans held in our investment portfolio are carried at amortized unpaid balances, net of provisions for estimated 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.

Policy loans are stated at current unpaid principal balances. Policy loans are collateralized by the cash surrender value of the life insurance policy. Interest income is recorded as earned using the contractual interest rate.

Trading securities include: (i) investments purchased with the intent of selling in the near team 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.

Other invested assets include: (i) call options purchased in an effort to offset or hedge the effects of certain policyholder benefits related to our fixed index annuity and life insurance products; (ii) Company-owned life insurance ("COLI"); (iii) investments in the common stock of the Federal Home Loan Bank ("FHLB"); and (iv) certain non-traditional investments. We carry the call options at estimated fair value as further described in the section of this note entitled "Accounting for Derivatives". We carry COLI at its cash surrender value which approximates its net realizable value. Non-traditional investments include investments in certain limited partnerships and hedge funds which are accounted for using the equity method; and promissory notes, which are accounted for using the cost method. In accounting for limited partnerships and hedge funds, we consistently use the most recently available financial information provided by the general partner or manager of each of these investments, which is one to three months prior to the end of our reporting period.

Interest income on fixed maturity securities is recognized when earned using a constant effective yield method giving effect to amortization of premiums and accretion of discounts. Prepayment fees are recognized when earned. Dividends on equity securities are recognized when declared.

When we sell a security (other than trading securities), we report the difference between the sale proceeds and amortized cost (determined based on specific identification) as a realized investment gain or loss.

We regularly evaluate our investments for possible impairment as further described in the note to the consolidated financial statements entitled "Investments".

When a security defaults (including mortgage loans) or securities are other-than-temporarily impaired, our policy is to discontinue the accrual of interest and eliminate all previous interest accruals, if we determine that such amounts will not be ultimately realized in full.

Cash and Cash Equivalents

Cash and cash equivalents include commercial paper, invested cash and other investments purchased with original maturities of less than three months. We carry them at amortized cost, which approximates estimated fair value. It is the Company's policy to offset negative cash balances with positive balances in other accounts with the same counterparty when agreements are in place permitting legal right of offset.

Deferred Acquisition Costs

Deferred acquisition costs represent incremental direct costs related to the successful acquisition of new or renewal insurance contracts. For interest-sensitive life or annuity products, we amortize these costs in relation to the estimated gross profits using the interest rate credited to the underlying policies. For other products, we amortize these costs in relation to future anticipated premium revenue using the projected investment earnings rate.

When we realize a gain or loss on investments backing our interest-sensitive life or annuity products, we adjust the amortization to reflect the change in estimated gross profits from the products due to the gain or loss realized and the effect on future investment yields. We also adjust deferred acquisition costs for the change in amortization that would have been recorded if our fixed maturity securities, available for sale, had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. We limit the total adjustment related to the impact of unrealized losses to the total of costs capitalized plus interest related to insurance policies issued in a particular year. We include the impact of this adjustment in accumulated other comprehensive income (loss) within shareholders' equity.

We regularly evaluate the recoverability of the unamortized balance of the deferred acquisition costs. We consider estimated future gross profits or future premiums, expected mortality or morbidity, interest earned and credited rates, persistency and expenses in determining whether the balance is recoverable. If we determine a portion of the unamortized balance is not recoverable, it is charged to amortization expense. In certain cases, the unamortized balance of the deferred acquisition costs may not be deficient in the aggregate, but our estimates of future earnings indicate that profits would be recognized in early periods and losses in later periods. In this case, we increase the amortization of the deferred acquisition costs over the period of profits, by an amount necessary to offset losses that are expected to be recognized in the later years.

Present Value of Future Profits

The present value of future profits is the value assigned to the right to receive future cash flows from policyholder insurance contracts existing at September 10, 2003 (the "Effective Date", the effective date of the bankruptcy reorganization of Conseco, Inc., an Indiana corporation (our "Predecessor")). The discount rate we used to determine the present value of future profits was 12 percent. The balance of this account is amortized and evaluated for recovery in the same manner as described above for deferred acquisition costs. We also adjust the present value of future profits for the change in amortization that would have been recorded if the fixed maturity securities, available for sale, had been sold at their stated aggregate fair value and the proceeds reinvested at current yields, similar to the manner described above for deferred acquisition costs. We limit the total adjustment related to the impact of unrealized losses to the total present value of future profits plus interest.

Recognition of Insurance Policy Income and Related Benefits and Expenses on Insurance Contracts

For interest-sensitive life and annuity contracts that do not involve significant mortality or morbidity risk, the amounts collected from policyholders are considered deposits and are not included in revenue. Revenues for these contracts consist of charges for policy administration, cost of insurance charges and surrender charges assessed against policyholders' account balances. Such revenues are recognized when the service or coverage is provided, or when the policy is surrendered.

We establish liabilities for annuity and interest-sensitive life products equal to the accumulated policy account values, which include an accumulation of deposit payments plus credited interest, less withdrawals and the amounts assessed against the policyholder through the end of the period. In addition, policyholder account values for certain interest-sensitive life products are impacted by our assumptions related to changes of certain non-guaranteed elements that we are allowed to make under the terms of the policy, such as cost of insurance charges, expense loads, credited interest rates and policyholder bonuses. Sales inducements provided to the policyholders of these products are recognized as liabilities over the period that the contract must remain in force to qualify for the inducement. The options attributed to the policyholder related to our fixed index annuity products are accounted for as embedded derivatives as described in the section of this note entitled "Accounting for Derivatives".

Premiums from individual life products (other than interest-sensitive life contracts) and health products are recognized when due. When premiums are due over a significantly shorter period than the period over which benefits are provided, any gross premium in excess of the net premium (i.e., the portion of the gross premium required to provide for all expected future benefits and expenses) is deferred and recognized into revenue in a constant relationship to insurance in force. Benefits are recorded as an expense when they are incurred.

We establish liabilities for traditional life, accident and health insurance, and life contingent payment annuity products using mortality tables in general use in the United States, which are modified to reflect the Company's actual experience when appropriate. We establish liabilities for accident and health insurance products using morbidity tables based on the Company's actual or expected experience. These reserves are computed at amounts that, with additions from estimated future premiums received and with interest on such reserves at estimated future rates, are expected to be sufficient to meet our obligations under the terms of the policy. Liabilities for future policy benefits are computed on a net-level premium method based upon assumptions as to future claim costs, investment yields, mortality, morbidity, withdrawals, policy dividends and maintenance expenses determined when the policies were issued (or with respect to policies inforce at August 31, 2003, the Company's best estimate of such assumptions on the Effective Date). We make an additional provision to allow for potential adverse deviation for some of our assumptions. Once established, assumptions on these products are generally not changed unless a premium deficiency exists. In that case, a premium deficiency reserve is recognized and the future pattern of reserve changes is modified to reflect the relationship of premiums to benefits based on the current best estimate of future claim costs, investment yields, mortality, morbidity, withdrawals, policy dividends and maintenance expenses, determined without an additional provision for potential adverse deviation.

We establish claim reserves based on our estimate of the loss to be incurred on reported claims plus estimates of incurred but unreported claims based on our past experience.

Accounting for Long-term Care Premium Rate Increases

Many of our long-term care policies have been subject to premium rate increases. In some cases, these premium rate increases were materially consistent with the assumptions we used to value the particular block of business at the Effective Date. With respect to certain premium rate increases, some of our policyholders were provided an option to cease paying their premiums and receive a non-forfeiture option in the form of a paid-up policy with limited benefits. In addition, our policyholders could choose to reduce their coverage amounts and premiums in the same proportion, when permitted by our contracts or as required by regulators. The following describes how we account for these policyholder options:

•

Premium rate increases - If premium rate increases reflect a change in our previous rate increase assumptions, the new assumptions are not reflected prospectively in our reserves. Instead, the additional premium revenue resulting from the rate increase is recognized as earned and original assumptions continue to be used to determine changes to liabilities for insurance products unless a premium deficiency exists.


•	Benefit reductions - A policyholder may choose reduced coverage with a proportionate reduction in premium, when permitted by our contracts. This option does not require additional underwriting. Benefit reductions are treated as a partial lapse of coverage, and the balance of our reserves and deferred insurance acquisition costs is reduced in proportion to the reduced coverage.

•

Non-forfeiture benefits offered in conjunction with a rate increase - In some cases, non-forfeiture benefits are offered to policyholders who wish to lapse their policies at the time of a significant rate increase. In these cases, exercise of this option is treated as an extinguishment of the original contract and issuance of a new contract. The balance of our reserves and deferred insurance acquisition costs are released, and a reserve for the new contract is established.

Some of our policyholders may receive a non-forfeiture benefit if they cease paying their premiums pursuant to their original contract (or pursuant to changes made to their original contract as a result of a litigation settlement made prior to the Effective Date or an order issued by the Florida Office of Insurance Regulation). In these cases, exercise of this option is treated as the exercise of a policy benefit, and the reserve for premium paying benefits is reduced, and the reserve for the non-forfeiture benefit is adjusted to reflect the election of this benefit.

Accounting for Certain Marketing Agreements

Bankers Life has entered into various distribution and marketing agreements with other insurance companies to use Bankers Life's career agents to distribute prescription drug and Medicare Advantage plans. These agreements allow Bankers Life to offer these products to current and potential future policyholders without investment in management and infrastructure. We receive fee income related to the plans sold through our distribution channels and incur distribution expenses paid to our agents who sell such products. As further discussed below under the caption "Recently Issued Accounting Standards - Adopted Accounting Standards", we adopted the new revenue recognition guidance which was effective January 1, 2018. The adoption of this new guidance had no impact on the fee revenue we recognized in any calendar year, but did impact the amounts we recognized during each quarterly period within a calendar year.

Reinsurance

In the normal course of business, we seek to limit our loss exposure on any single insured or to certain groups of policies by ceding reinsurance to other insurance enterprises. We currently retain no more than $.8 million of mortality risk on any one policy. We diversify the risk of reinsurance loss by using a number of reinsurers that have strong claims-paying ratings. In each case, the ceding CNO subsidiary is directly liable for claims reinsured in the event the assuming company is unable to pay.

The cost of reinsurance ceded totaled $144.5 million, $105.0 million and $123.9 million in 2018, 2017 and 2016, respectively. We deduct this cost from insurance policy income. Reinsurance recoveries netted against insurance policy benefits totaled $173.5 million, $88.6 million and $130.1 million in 2018, 2017 and 2016, respectively.

From time to time, we assume insurance from other companies. Any costs associated with the assumption of insurance are amortized consistent with the method used to amortize deferred acquisition costs. Reinsurance premiums assumed totaled $28.0 million, $30.4 million and $34.0 million in 2018, 2017 and 2016, respectively. Insurance policy benefits related to reinsurance assumed totaled $36.4 million, $44.7 million and $47.5 million in 2018, 2017 and 2016, respectively.

On September 27, 2018, the Company completed a long-term care reinsurance transaction pursuant to which its wholly-owned subsidiary, Bankers Life, entered into an agreement with Wilton Re to cede all of its legacy (prior to 2003) comprehensive and nursing home long-term care policies (with statutory reserves of $2.7 billion) through 100% indemnity coinsurance. Bankers Life paid a ceding commission of $825 million to reinsure the block, funded through excess capital in the insurance subsidiaries and at the holding company. Bankers Life transferred to Wilton Re assets equal to the statutory liabilities supporting the block plus the ceding commission (subject to a customary post-closing adjustment). In anticipation of the reinsurance agreement, the Company reorganized its business segments to move the block to be ceded from the "Bankers Life segment" to the "Long-term care in run-off segment" in the third quarter of 2018. Accordingly, the Company evaluates and tests for loss recognition separately for the ceded block included in the "Long-term care in run-off segment". CNO recognized a charge related to the transaction of $661.1 million, net of taxes and gains recognized on the assets transferred to Wilton Re. The charge is primarily attributable to loss recognition on the block due to the ceding commission. Including cash flows related to reinsurance in loss recognition testing is consistent with the Company's past practices and policies.

In addition to the reinsurance agreement, Bankers Life and another CNO subsidiary entered into certain other agreements with Wilton Re, including a trust agreement, an administrative services agreement and a transition services agreement.

Wilton Re established a trust account for the benefit of Bankers Life to secure its obligations under the coinsurance agreement. The trust account is required to hold qualified assets with book values equal to the statutory liabilities of the block plus an additional amount, initially $500 million, which declines over time.

In December 2013, two of our insurance subsidiaries entered into 100% coinsurance agreements ceding $495 million of long-term care reserves to Beechwood Re Ltd. ("BRe"). Pursuant to the agreements, the insurance subsidiaries paid an additional premium of $96.9 million to BRe and an amount equal to the related net liabilities. The insurance subsidiaries' ceded reserve credits were secured by assets in market-value trusts subject to a 7% overcollateralization, investment guidelines and periodic true-up provisions. Future payments into the trusts to maintain collateral requirements were the responsibility of BRe.

In September 2016, we terminated the reinsurance agreements with BRe and recaptured the ceded business. As a result of the recapture, we were required to value the assets and liabilities as of the date of recapture based on valuation methodologies that are consistent with the methodologies used by CNO to value its other investments and insurance liabilities. Accordingly, we recognized a loss on the recapture of the long-term care business as summarized below (dollars in millions):



Market value of investments	$	504.7
Insurance liabilities	(552.2		)
Write-off of reinsurance receivables	(17.9		)
Estimated transaction expenses	(10.0		)
Pre-tax loss	(75.4		)
Tax benefit	26.4
Increase in valuation allowance for deferred tax assets	(4.1		)
After-tax loss	$	(53.1	)

Income Taxes

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

A reduction of the net carrying amount of deferred tax assets by establishing a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. In assessing the need for a valuation allowance, all available evidence, both positive and negative, shall be considered to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed. This assessment requires significant judgment and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of carryforward periods, our experience with operating loss and tax credit carryforwards expiring unused, and tax planning strategies. We evaluate the need to establish a valuation allowance for our deferred income tax assets on an ongoing basis. The realization of our deferred tax assets depends upon generating sufficient future taxable income of the appropriate type during the periods in which our temporary differences become deductible and before our NOLs expire.

At December 31, 2018, our valuation allowance for our net deferred tax assets was $193.7 million, as we have determined that it is more likely than not that a portion of our deferred tax assets will not be realized. This determination was made by evaluating each component of the deferred tax assets and assessing the effects of limitations and/or interpretations on the value of such component to be fully recognized in the future.

Investments in Variable Interest Entities

We have concluded that we are the primary beneficiary with respect to certain variable interest entities ("VIEs"), which are consolidated in our financial statements. All of the VIEs are collateralized loan trusts that were established to issue securities to finance the purchase of corporate loans and other permitted investments. The assets held by the trusts are legally isolated and not available to the Company. The liabilities of the VIEs are expected to be satisfied from the cash flows generated by the underlying loans held by the trusts, not from the assets of the Company. The Company has no financial obligation to the VIEs beyond its investment in each VIE.

The investment portfolios held by the VIEs are primarily comprised of commercial bank loans to corporate obligors which are almost entirely rated below-investment grade. Refer to the note to the consolidated financial statements entitled "Investments in Variable Interest Entities" for additional information about VIEs.

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

At December 31, 2018, we held investments in various limited partnerships and hedge funds, in which we are not the primary beneficiary, totaling $507.3 million (classified as other invested assets). At December 31, 2018, we had unfunded commitments to these partnerships and hedge funds totaling $183.8 million. Our maximum exposure to loss on these investments is limited to the amount of our investment.

Investment borrowings

Three of the Company's insurance subsidiaries (Washington National, Bankers Life and Colonial Penn) are members of the FHLB. As members of the FHLB, our insurance subsidiaries have the ability to borrow on a collateralized basis from the FHLB. We are required to hold certain minimum amounts of FHLB common stock as a condition of membership in the FHLB, and additional amounts based on the amount of the borrowings. New guidance effective January 1, 2018, requiring equity investments to be measured at fair value (as described in the section of this note entitled "Recently Issued Accounting Standards - Adopted Accounting Standards") does not apply to FHLB common stock and prohibits such investments from being classified as equity securities subject to the new guidance. Accordingly, we have classified our investment in the FHLB common stock as other invested assets. In order to conform to the current presentation, the prior period investment in the FHLB common stock has been reclassified to other invested assets. At December 31, 2018, the carrying value of the FHLB common stock was $71.1 million. As of December 31, 2018, collateralized borrowings from the FHLB totaled $1.6 billion and the proceeds were used to purchase fixed maturity securities. The borrowings are classified as investment borrowings in the accompanying consolidated balance sheet. The borrowings are collateralized by investments with an estimated fair value of $1.9 billion at December 31, 2018, which are maintained in a custodial account for the benefit of the FHLB. Substantially all of such investments are classified as fixed maturities, available for sale, in our consolidated balance sheet.

The following summarizes the terms of the borrowings from the FHLB by our insurance subsidiaries (dollars in millions):



Amount		Maturity	Interest rate at
borrowed		date	December 31, 2018
$	50.0	February 2019	Variable rate – 2.719%
21.8		July 2019	Variable rate – 2.969%
15.0		October 2019	Variable rate – 3.022%
50.0		May 2020	Variable rate – 2.975%
21.8		June 2020	Fixed rate – 1.960%
25.0		September 2020	Variable rate – 3.449%
100.0		September 2020	Variable rate – 3.166%
50.0		September 2020	Variable rate – 3.166%
75.0		September 2020	Variable rate – 2.923%
100.0		October 2020	Variable rate – 2.518%
50.0		December 2020	Variable rate – 3.047%
100.0		July 2021	Variable rate – 2.986%
100.0		July 2021	Variable rate – 2.956%
57.7		August 2021	Variable rate – 3.112%
28.2		August 2021	Fixed rate – 2.550%
125.0		August 2021	Variable rate – 2.986%
50.0		September 2021	Variable rate – 3.229%
22.0		May 2022	Variable rate – 3.057%
100.0		May 2022	Variable rate – 2.952%
10.0		June 2022	Variable rate – 3.381%
50.0		July 2022	Variable rate – 2.790%
50.0		July 2022	Variable rate – 2.867%
50.0		July 2022	Variable rate – 2.889%
50.0		August 2022	Variable rate – 2.979%
50.0		December 2022	Variable rate – 3.038%
50.0		December 2022	Variable rate – 3.038%
23.9		March 2023	Fixed rate – 2.160%
50.0		July 2023	Variable rate – 2.845%
100.0		July 2023	Variable rate – 2.845%
20.4		June 2025	Fixed rate – 2.940%
$	1,645.8

The variable rate borrowings are pre-payable on each interest reset date without penalty. The fixed rate borrowings are pre-payable subject to payment of a yield maintenance fee based on prevailing market interest rates. At December 31, 2018, the aggregate yield maintenance fee to prepay all fixed rate borrowings was $.1 million.

Interest expense of $41.9 million, $27.0 million and $17.5 million in 2018, 2017 and 2016, respectively, was recognized related to total borrowings from the FHLB.

Accounting for Derivatives

Our fixed index annuity products provide a guaranteed minimum rate of return and a higher potential return that is based on a percentage (the "participation rate") of the amount of increase in the value of a particular index, such as the Standard & Poor's 500 Index, over a specified period. Typically, on each policy anniversary date, a new index period begins. We are generally able to change the participation rate at the beginning of each index period during a policy year, subject to policy minimums. The Company accounts for the options attributed to the policyholder for the estimated life of the policy as embedded derivatives. We are required to record the embedded derivatives related to our fixed index annuity products at estimated fair value.

The value of the embedded derivative is based on the estimated cost to fulfill our commitment to fixed indexed annuity policyholders to purchase a series of annual forward options over the duration of the policy that back the potential return based on a percentage of the amount of increase in the value of the appropriate index. In valuing these options, we are required to make assumptions regarding: (i) future index values to determine both the future notional amounts at each anniversary date and the future prices of the forward starting options; (ii) future annual participation rates; and (iii) non-economic factors related to policy persistency. These assumptions are used to estimate the future cost to purchase the options.

The value of the embedded derivatives is determined based on the present value of estimated future option costs discounted using a risk-free rate adjusted for our non-performance risk and risk margins for non-capital market inputs. The non-performance risk adjustment is determined by taking into consideration publicly available information related to spreads in the secondary market for debt with credit ratings similar to ours. These observable spreads are then adjusted to reflect the priority of these liabilities and the claim paying ability of the issuing insurance subsidiaries.

Risk margins are established to capture non-capital market risks which represent the additional compensation a market participant would require to assume the risks related to the uncertainties regarding the embedded derivatives, including future policyholder behavior related to persistency. The determination of the risk margin is highly judgmental given the lack of a market to assume the risks solely related to the embedded derivatives of our fixed index annuity products.

The determination of the appropriate risk-free rate and non-performance risk is sensitive to the economic and interest rate environment. Accordingly, the value of the derivative is volatile due to external market sensitivities, which may materially affect net income. Additionally, changes in the judgmental assumptions regarding the appropriate risk margin can significantly impact the value of the derivative.

We typically buy call options (including call spreads) referenced to the applicable indices in an effort to offset or hedge potential increases to policyholder benefits resulting from increases in the particular index to which the policy's return is linked.

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

Sales Inducements

Certain of our annuity products offer sales inducements to contract holders in the form of enhanced crediting rates or bonus payments in the initial period of the contract. Certain of our life insurance products offer persistency bonuses credited to the contract holder's balance after the policy has been outstanding for a specified period of time. These enhanced rates and persistency bonuses are considered sales inducements in accordance with GAAP. Such amounts are deferred and amortized in the same manner as deferred acquisition costs. Sales inducements deferred totaled $11.6 million, $2.0 million and $3.4 million during 2018, 2017 and 2016, respectively. Amounts amortized totaled $10.6 million, $8.9 million and $11.4 million during 2018, 2017 and 2016, respectively. The unamortized balance of deferred sales inducements was $43.5 million and $42.5 million at December 31, 2018 and 2017, respectively.

Out-of-Period Adjustments

In 2018, we recorded the net effect of out-of-period adjustments related to the calculation of certain insurance liabilities which increased insurance policy benefits by $2.5 million (of which, $1.4 million related to long-term care reserves in the Bankers Life segment and $1.1 million related to a closed block of payout annuities in the Colonial Penn segment), decreased tax expense by $.5 million and increased our net loss by $2.0 million (or 1 cent per diluted share). In 2017, we recorded the net effect of out-of-period adjustments which decreased insurance policy benefits by $4.2 million, increased other operating costs and expenses by $2.0 million, increased tax expense by $.8 million and increased our net income by $1.4 million (or 1 cent per diluted share). We evaluated these adjustments taking into account both qualitative and quantitative factors and considered the impact of these adjustments in relation to each period, as well as the periods in which they originated. The impact of recognizing these adjustments in prior years was not significant to any individual period. Management believes these adjustments are immaterial to the consolidated financial statements and all previously issued financial statements.

Recently Issued Accounting Standards

Pending Accounting Standards

In February 2016, the Financial Accounting Standards Board (the "FASB") issued authoritative guidance related to accounting for leases, requiring lessees to report most leases on their balance sheets, regardless of whether the lease is classified as a finance lease or an operating lease. For lessees, the initial lease liability is equal to the present value of future lease payments, and a corresponding asset, adjusted for certain items, is also recorded. Expense recognition for lessees will remain similar to current accounting requirements for capital and operating leases. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance will be effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Based on lease contracts in effect at December 31, 2018, the Company's analysis currently indicates that the primary impact of implementation of the new leasing guidance will be the recognition of a "right to use" asset and a "lease liability" of approximately $65 million. The cumulative effect adjustment to retained earnings as of January 1, 2019 is not material.

In June 2016, the FASB issued authoritative guidance related to the measurement of credit losses on financial instruments. The new guidance replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The guidance will be effective for the Company for fiscal years beginning in 2020, including interim periods within the fiscal year. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company has not yet determined the expected impact of adoption of this guidance on its consolidated financial position, results of operations or cash flows.

In January 2017, the FASB issued authoritative guidance that removes Step 2 of the goodwill impairment test under current guidance, which requires a hypothetical purchase price allocation. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount exceeds the reported unit's fair value. Upon adoption, the guidance is to be applied prospectively. The guidance will be effective for the Company on January 1, 2020, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In March 2017, the FASB issued authoritative guidance related to the premium amortization on purchased callable debt securities. The guidance shortens the amortization period for certain callable debt securities held at a premium. Specifically, the new guidance requires the premium to be amortized to the earliest call date. The guidance does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows based on the investments held by the Company at December 31, 2018, that are applicable to this guidance.

In August 2017, the FASB issued authoritative guidance related to derivatives and hedging. The new guidance expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instruments and the hedged item in the financial statements. The new guidance also includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The guidance will be effective for the Company for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Based on the Company's current use of derivatives and hedging activities, the adoption of this guidance is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In August 2018, the FASB issued authoritative guidance that will result in significant changes in the manner we account for and report our insurance contracts, including certain contract riders and deferred acquisition costs. The effective date is January 1, 2021.

The significant provisions of the new standard and differences from current methods are summarized below:

•

Under the current standard, liabilities for future policy benefits for long-duration products are established based on assumptions set at the issue date which are not changed unless there is a premium deficiency. Under the new standard, mortality, morbidity, persistency and expense assumptions must be reviewed for potential changes at least annually. For these assumption changes, the liability for future policy benefits is recomputed and a cumulative catch-up adjustment is recorded in current year income. The interest rate used to discount future cash flows will be based on the current yield of an upper-medium grade fixed income instrument and must be updated each reporting period; changes in the liability resulting from interest rate changes are recorded in accumulated other comprehensive income. Under current methods, the interest rate is based on expected yields on the underlying investment portfolio estimated at the issue date.


•	We will no longer be permitted to include a provision for adverse deviation in calculations of the liability for future policy benefits.


•	Since assumptions are updated regularly, there is no longer a need for premium deficiency testing.


•	The new guidance introduces the concept of market risk benefits for product features such as guaranteed minimum death or income benefits, which must be accounted for at fair value.

•

Deferred acquisition costs will generally be amortized on a constant level basis over the expected term of the contracts. Amortization based on estimated gross profits or gross margins will no longer be permitted. Deferred acquisition costs will no longer need to be tested for impairment and no interest is accreted. Adjustments for the change in amortization that would have occurred if fixed maturity securities, available for sale, had been sold at their aggregate fair value and the proceeds reinvested at current yields (commonly referred to as "shadow adjustments") will no longer be required.


•	Significant additional annual and interim disclosures will be required including requirements for disaggregated rollforwards of the liability for future policy benefits, policyholder account balances, market risk benefits and deferred acquisition costs, as well as qualitative and quantitative information about expected cash flows, estimates and assumptions.

The new guidance is generally required to be adopted on a modified retrospective transition approach, with an option to elect a full retrospective transition if certain criteria are met. The transition approach for deferred acquisition costs is required to be consistent with the transition applied to the liability for future policyholder benefits. Under the modified retrospective approach, an entity would continue to use the existing locked-in investment yield interest rate assumption to calculate the net premium ratio for contracts in-force at the transition date. However, for balance sheet remeasurement purposes, the current upper-medium grade fixed-income corporate instrument yield would be used with the difference in values recognized through accumulated other comprehensive income at transition and subsequently through other comprehensive income. For market risk benefits, retrospective application is required, with the ability to use hindsight to measure fair value components to the extent assumptions in a prior period are unobservable or otherwise unavailable. We are currently in the early stages of implementing our project plan with respect to the new standard. Accordingly, we are continuing to evaluate the impact of adopting this new standard on our consolidated financial condition and results of operations.

In August 2018, the FASB issued authoritative guidance related to changes to the disclosure requirements for fair value measurement. The new guidance removes, modifies and adds certain disclosure requirements. The guidance will be effective for the Company on January 1, 2020. The adoption of such guidance will impact certain fair value disclosures, but will not impact our consolidated financial position, results of operations or cash flows.

Adopted Accounting Standards

In May 2014, the FASB issued authoritative guidance for recognizing revenue from contracts with customers. Certain contracts with customers are specifically excluded from this guidance, including insurance contracts. The core principle of the new guidance is that an entity should recognize revenue when it transfers promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance was effective for the Company on January 1, 2018. The adoption of this new guidance impacted the timing of certain revenues and expenses between quarters of a calendar year for various distribution and marketing agreements with other insurance companies pursuant to which Bankers Life's career agents distribute third party products including prescription drug and Medicare Advantage plans. The annual fee income earned during a calendar year did not change, but the amount recognized during each quarterly period varied based on the sales of such products in each period. Furthermore, we recognized distribution expenses in the same period that the associated fee revenue was earned. Periods prior to the January 1, 2018 adoption date were not restated to reflect the new guidance.

In January 2016, the FASB issued authoritative guidance related to the recognition and measurement of financial assets and financial liabilities which made targeted improvements to GAAP as follows:

(i)

Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.


(ii)	Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.


(iii)	Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.


(iv)	Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.


(v)	Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.


(vi)	Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.


(vii)	Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.

The guidance was effective for the Company on January 1, 2018. Accordingly, the Company recorded a cumulative effect adjustment to the balance sheet as of January 1, 2018, related to certain equity investments that are measured at fair value. The impact of adoption was as follows (dollars in millions):



	January 1, 2018
	Amounts prior to effect of adoption of authoritative guidance		Effect of adoption of authoritative guidance			As adjusted

Accumulated other comprehensive income	$	1,212.1	$	(16.3	)	$	1,195.8
Retained earnings	560.4		16.3			576.7
Total shareholders' equity	4,847.5		—			4,847.5

In August 2016, the FASB issued authoritative guidance related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance addresses eight specific cash flow issues including debt prepayment or debt extinguishment costs, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, and others. The guidance was effective for the Company on January 1, 2018. The adoption of this guidance resulted in reclassifications to certain cash receipts and payments within our consolidated statement of cash flows, but had no impact on our consolidated financial position, results of operations or cash flows. Periods prior to the January 1, 2018 adoption date have been restated to reflect the new guidance.

In November 2016, the FASB issued authoritative guidance to address the diversity in practice that currently exists regarding the classification and presentation of changes in restricted cash on the statement of cash flows. The new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Entities are also required to disclose information about the nature of their restricted cash and restricted cash equivalents. Additionally, if cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item in the statement of financial position, entities will be required to present a reconciliation, either on the face of the statement of cash flows or disclosed in the notes, of the totals in the statement of cash flows to the related line item captions in the statement of financial position. The guidance was effective for the Company on January 1, 2018. The adoption of this guidance impacted the presentation of our consolidated statement of cash flows and related cash flow disclosures, but did not have an impact on our consolidated financial position, results of operations or cash flows. Periods prior to the January 1, 2018 adoption date have been restated to reflect the new guidance.

The impact of adopting the cash flow guidance described above was as follows (dollars in millions):



	2017
	Amounts prior to effect of adoption of authoritative guidance			Restricted cash			COLI death benefits			Distributions received from equity method investments			As adjusted
Cash flows from operating activities:
Net investment income	$	1,229.6		$	—		$	—		$	26.7		$	1,256.3
Other operating costs	(740.9		)	—			(6.5		)	—			(747.4		)
Net cash flow from operating activities	613.1			—			(6.5		)	26.7			633.3

Cash flows from investing activities:
Sales of investments	2,487.4			—			—			(26.7		)	2,460.7
Change in cash and cash equivalents held by variable interest entities	10.4			(10.4		)	—			—			—
Other	(29.9		)	—			6.5			—			(23.4		)
Net cash provided (used) by investing activities	(239.6		)	(10.4		)	6.5			(26.7		)	(270.2		)

Net increase (decrease) in cash and cash equivalents	99.5			(10.4		)	—			—			89.1
Cash and cash equivalents - unrestricted and held by variable interest entities, beginning of period	478.9			189.3			—			—			668.2
Cash and cash equivalents - unrestricted and held by variable interest entities, end of period	578.4			178.9			—			—			757.3



	2016
	Amounts prior to effect of adoption of authoritative guidance			Restricted cash			Distributions received from equity method investments			As adjusted
Cash flows from operating activities:
Net investment income	$	1,201.0		$	—		$	12.9		$	1,213.9
Net cash flow from operating activities	762.8			—			12.9			775.7

Cash flows from investing activities:
Sales of investments	2,841.8			—			(12.9		)	2,828.9
Change in cash and cash equivalents held by variable interest entities	175.1			(175.1		)	—			—
Net cash provided (used) by investing activities	(742.4		)	(175.1		)	(12.9		)	(930.4		)

Net increase (decrease) in cash and cash equivalents	46.6			(175.1		)	—			(128.5		)
Cash and cash equivalents - unrestricted and held by variable interest entities, beginning of period	432.3			364.4			—			796.7
Cash and cash equivalents - unrestricted and held by variable interest entities, end of period	478.9			189.3			—			668.2

In May 2017, the FASB issued authoritative guidance related to which changes to the terms or conditions of a share-based award require an entity to apply modification accounting. The guidance was effective for the Company for fiscal years beginning after December 15, 2017. Early adoption was permitted, including adoption in an interim period. The guidance is to be applied prospectively to an award modified on or after the adoption date. The adoption of this guidance did not have a material impact to the Company's consolidated financial position, results of operations or cash flows.

In March 2016, the FASB issued authoritative guidance that clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under this guidance is required to assess the embedded call (put) options solely in accordance with a four-step decision sequence. The guidance was effective for the Company on January 1, 2017. The adoption of this guidance had no effect on our consolidated financial statements.

In March 2016, the FASB issued authoritative guidance related to several aspects of the accounting for share-based payment transactions, including the income tax consequences, accounting policy for forfeiture rate assumptions, classification of awards as either equity or liabilities and classification on the statement of cash flows. The new guidance requires all income tax effects of stock-based compensation awards to be recognized in the income statement when the awards vest or are settled. The new guidance also allows an employer to withhold shares upon settlement of an award to satisfy the employer's tax withholding requirements up to the highest marginal tax rate applicable to employees, without resulting in liability classification of the award. Current guidance strictly limits the withholding to the employer's minimum statutory tax withholding requirement. The guidance was effective for the Company on January 1, 2017. The impact of adoption was as follows (dollars in millions):



	January 1, 2017
				Effect of Adoption of Authoritative Guidance
	Amounts prior to effect of adoption of authoritative guidance			Election to account for forfeitures as they occur			Recognition of excess tax benefits			As adjusted

Income tax assets	$	1,029.9		$	.3		$	15.7		$	1,045.9
Valuation allowance for deferred income tax assets	(240.2		)	—			(15.7		)	(255.9		)
Income tax assets, net	789.7			.3			—			790.0
Total assets	31,975.2			.3			—			31,975.5

Additional paid-in capital	3,212.1			.9			—			3,213.0
Retained earnings	650.7			(.6		)	—			650.1
Total shareholders' equity	4,486.9			.3			—			4,487.2

Total liabilities and shareholders' equity	31,975.2			.3			—			31,975.5

In October 2016, the FASB issued authoritative guidance to amend the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The guidance was effective for the Company on January 1, 2017. The adoption of this guidance had no impact on our consolidated financial statements.

In February 2018, the FASB issued authoritative guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Reform Act") enacted by the U.S. federal government on December 22, 2017. Such guidance only relates to the reclassification of the income tax effects of the Tax Reform Act. The Company early adopted this guidance and elected to reclassify the income tax effects of the Tax Reform Act from accumulated other comprehensive income as of December 31, 2017. As a result of such reclassification, retained earnings decreased by $205.4 million and accumulated other comprehensive income increased by $205.4 million. Such amount represents the decrease in the income tax rate from 35 percent to 21 percent on the net unrealized gains of our fixed maturity securities, available for sale, equity securities and certain other invested assets, net of related adjustments, included in accumulated other comprehensive income. Refer to the note to the consolidated financial statements entitled "Income Taxes" for additional information related to the Tax Reform Act.

INVESTMENTS

12 Months Ended

Dec. 31, 2018

Investments, Debt and Equity Securities [Abstract]

INVESTMENTS

At December 31, 2018, 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
Investment grade (a):
Corporate securities	$	10,306.1	$	402.4	$	(319.2	)	$	10,389.3	$	—
United States Treasury securities and obligations of United States government corporations and agencies	152.9		22.1		(.2		)	174.8		—
States and political subdivisions	1,725.8		144.6		(2.6		)	1,867.8		—
Debt securities issued by foreign governments	60.3		.9		(1.7		)	59.5		—
Asset-backed securities	1,513.2		21.9		(6.7		)	1,528.4		—
Collateralized debt obligations	325.3		—		(13.5		)	311.8		—
Commercial mortgage-backed securities	1,445.0		16.6		(20.4		)	1,441.2		—
Mortgage pass-through securities	1.5		.1		—			1.6		—
Collateralized mortgage obligations	347.6		11.4		(3.9		)	355.1		(.2		)
Total investment grade fixed maturities, available for sale	15,877.7		620.0		(368.2		)	16,129.5		(.2		)
Below-investment grade (a) (b):
Corporate securities	862.4		2.3		(51.0		)	813.7		—
Asset-backed securities	1,038.9		108.4		(.9		)	1,146.4		—
Collateralized debt obligations	12.7		—		(1.7		)	11.0		—
Commercial mortgage-backed securities	77.9		.2		(1.3		)	76.8		—
Collateralized mortgage obligations	238.2		32.3		(.2		)	270.3		(.3		)
Total below-investment grade fixed maturities, available for sale	2,230.1		143.2		(55.1		)	2,318.2		(.3		)
Total fixed maturities, available for sale	$	18,107.8	$	763.2	$	(423.3	)	$	18,447.7	$	(.5	)

_______________

(a)

Investment ratings are assigned the second lowest rating by Nationally Recognized Statistical Rating Organizations ("NRSROs") (Moody's Investor Services, Inc. ("Moody's"), S&P Global Ratings ("S&P") or Fitch Ratings ("Fitch")), or if not rated by such firms, the rating assigned by the National Association of Insurance Commissioners (the "NAIC"). NAIC designations of "1" or "2" include fixed maturities generally rated investment grade (rated "Baa3" or higher by Moody's or rated "BBB-" or higher by S&P and Fitch). NAIC designations of "3" through "6" are referred to as below-investment grade (which generally are rated "Ba1" or lower by Moody's or rated "BB+" or lower by S&P and Fitch). References to investment grade or below-investment grade throughout our consolidated financial statements are determined as described above.


(b)	Certain structured securities rated below-investment grade by NRSROs may be assigned a NAIC 1 or NAIC 2 designation based on the cost basis of the security relative to estimated recoverable amounts as determined by the NAIC. Refer to the table below for a summary of our fixed maturity securities, available for sale, by NAIC designations.

The NAIC evaluates the fixed maturity investments of insurers for regulatory and capital assessment purposes and assigns securities to one of six credit quality categories called NAIC designations, which are used by insurers when preparing their annual statements based on statutory accounting principles. The NAIC designations are generally similar to the credit quality designations of the NRSROs for marketable fixed maturity securities, except for certain structured securities. However, certain structured securities rated below investment grade by the NRSROs can be assigned NAIC 1 or NAIC 2 designations depending on the cost basis of the holding relative to estimated recoverable amounts as determined by the NAIC. The following summarizes the NAIC designations and NRSRO equivalent ratings:



NAIC Designation		NRSRO Equivalent Rating
1		AAA/AA/A
2		BBB
3		BB
4		B
5		CCC and lower
6		In or near default

A summary of our fixed maturity securities, available for sale, by NAIC designations (or for fixed maturity securities held by non-regulated entities, based on NRSRO ratings) as of December 31, 2018 is as follows (dollars in millions):



NAIC designation	Amortized cost		Estimated fair value		Percentage of total estimated fair value
1	$	8,836.9	$	9,311.7	50.5	%
2	8,353.6		8,270.0		44.8
Total NAIC 1 and 2 (investment grade)	17,190.5		17,581.7		95.3
3	674.1		641.4		3.5
4	218.0		200.3		1.1
5	19.7		18.9		.1
6	5.5		5.4		—
Total NAIC 3,4,5 and 6 (below-investment grade)	917.3		866.0		4.7
	$	18,107.8	$	18,447.7	100.0	%

At December 31, 2017, 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, and equity securities 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
Investment grade:
Corporate securities	$	12,419.3	$	1,670.7	$	(14.6	)	$	14,075.4	$	—
United States Treasury securities and obligations of United States government corporations and agencies	146.4		31.5		(.2		)	177.7		—
States and political subdivisions	1,819.9		234.8		(.4		)	2,054.3		—
Debt securities issued by foreign governments	79.5		3.8		(.2		)	83.1		—
Asset-backed securities	1,730.7		39.7		(3.2		)	1,767.2		—
Collateralized debt obligations	257.1		2.3		—			259.4		—
Commercial mortgage-backed securities	1,304.1		33.2		(9.1		)	1,328.2		—
Mortgage pass-through securities	1.8		.2		—			2.0		—
Collateralized mortgage obligations	293.9		16.4		(.2		)	310.1		(.2		)
Total investment grade fixed maturities, available for sale	18,052.7		2,032.6		(27.9		)	20,057.4		(.2		)
Below-investment grade:
Corporate securities	867.0		28.4		(12.4		)	883.0		—
States and political subdivisions	2.0		—		—			2.0		—
Asset-backed securities	1,355.2		132.9		(.9		)	1,487.2		—
Commercial mortgage-backed securities	49.9		.6		(1.2		)	49.3		—
Collateralized mortgage obligations	375.3		56.8		(.1		)	432.0		(.8		)
Total below-investment grade fixed maturities, available for sale	2,649.4		218.7		(14.6		)	2,853.5		(.8		)
Total fixed maturities, available for sale	$	20,702.1	$	2,251.3	$	(42.5	)	$	22,910.9	$	(1.0	)
Equity securities	$	420.0	$	23.6	$	(3.0	)	$	440.6

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 December 31, 2018 and 2017, were as follows (dollars in millions):



	2018			2017
Net unrealized appreciation on fixed maturity securities, available for sale, on which an other-than-temporary impairment loss has been recognized	$	1.2		$	2.6
Net unrealized gains on all other investments	271.3			2,227.3
Adjustment to present value of future profits (a)	(4.5		)	(94.0		)
Adjustment to deferred acquisition costs	(38.3		)	(292.6		)
Adjustment to insurance liabilities	(2.5		)	(295.8		)
Deferred income tax liabilities	(49.5		)	(335.4		)
Accumulated other comprehensive income	$	177.7		$	1,212.1

________


(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 our Predecessor emerged from bankruptcy.

At December 31, 2018, adjustments to the insurance liabilities and deferred tax assets included $(2.5) million and $.5 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, 2017, adjustments to the present value of future profits, deferred acquisition costs, insurance liabilities and deferred tax assets included $(83.8) million, $(134.9) million, $(295.8) million and $111.1 million, respectively, for premium deficiencies that would exist on certain blocks of business (primarily long-term care products) 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.

Below-Investment Grade Securities

At December 31, 2018, the amortized cost of the Company's below-investment grade fixed maturity securities was $2,230.1 million, or 12 percent of the Company's fixed maturity portfolio. The estimated fair value of the below-investment grade portfolio was $2,318.2 million, or 104 percent of the amortized cost.

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

Contractual Maturity

The following table sets forth the amortized cost and estimated fair value of fixed maturities, available for sale, at December 31, 2018, 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 debt obligations, commercial mortgage-backed securities, mortgage pass-through securities and collateralized mortgage obligations, 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	$	405.6	$	409.8
Due after one year through five years	1,346.8		1,377.1
Due after five years through ten years	1,648.2		1,625.7
Due after ten years	9,706.9		9,892.5
Subtotal	13,107.5		13,305.1
Structured securities	5,000.3		5,142.6
Total fixed maturities, available for sale	$	18,107.8	$	18,447.7

Net Investment Income

Net investment income consisted of the following (dollars in millions):



	2018			2017		2016
General account assets:
Fixed maturities	$	1,100.3		$	1,133.8	$	1,081.4
Equity securities	22.8			22.5		19.4
Mortgage loans	82.0			91.5		91.0
Policy loans	8.0			7.7		7.3
Other invested assets	79.2			47.2		26.4
Cash and cash equivalents	10.9			5.9		2.0
Policyholder and other special-purpose portfolios:
Trading securities (a)	8.5			12.8		12.2
Options related to fixed index products:
Option income (loss)	122.3			110.3		(40.1		)
Change in value of options	(165.3		)	52.2		69.3
Other special-purpose portfolios	61.0			90.6		79.7
Gross investment income	1,329.7			1,574.5		1,348.6
Less investment expenses	23.5			23.2		23.4
Net investment income	$	1,306.2		$	1,551.3	$	1,325.2

_________________


(a)	Changes in the estimated fair value for trading securities still held as of the end of the respective years and included in net investment income were nil, $3.8 million and $(.2) million for the years ended December 31, 2018, 2017 and 2016, respectively.

At December 31, 2018, the carrying value of fixed maturities and mortgage loans that were non-income producing during 2018 totaled $4.8 million and $7.8 million, respectively.

Net Realized Investment Gains (Losses)

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



	2018			2017			2016
Fixed maturity securities, available for sale:
Gross realized gains on sale	$	65.7		$	68.0		$	137.7
Gross realized losses on sale	(65.8		)	(24.2		)	(95.2		)
Impairments:
Total other-than-temporary impairment losses	(.5		)	(12.5		)	(15.2		)
Other-than-temporary impairment losses recognized in accumulated other comprehensive income	—			(.9		)	3.6
Net impairment losses recognized	(.5		)	(13.4		)	(11.6		)
Net realized investment gains (losses) from fixed maturities	(.6		)	30.4			30.9
Equity securities, including change in fair value (a)	(38.2		)	11.6			20.9
Mortgage loans	(1.3		)	1.1			—
Impairments of other investments	(2.1		)	(9.4		)	(20.7		)
Loss on dissolution of variable interest entities	—			(4.3		)	(7.3		)
Other (a) (b)	30.9			20.9			(15.5		)
Net realized investment gains (losses) before net realized gains on the transfer of assets related to reinsurance transaction	(11.3		)	50.3			8.3
Net realized gains on the transfer of assets related to reinsurance transaction	363.4			—			—
Net realized investment gains (losses)	$	352.1		$	50.3		$	8.3

_________________


(a)	Changes in the estimated fair value of trading securities that we have elected the fair value option and equity securities (and are still held as of the end of the respective years) were $(31.9) million, $12.8 million and $(.5) million for the years ended December 31, 2018, 2017 and 2016, respectively.


(b)	In April 2016, the Company announced that it had invested in a non-controlling minority interest in Tennenbaum Capital Partners, LLC ("TCP"), a Los Angeles-based investment management firm. In August 2018, Blackrock, Inc. announced the completion of its acquisition of TCP. The sale of our interest in TCP resulted in a significant portion of the net realized gains in 2018.

During 2018, we recognized net realized investment gains of $352.1 million, which were comprised of: (i) $40.1 million of net gains from the sales of investments; (ii) $363.4 million of gains on the transfer of assets (substantially all of which were fixed maturities) related to reinsurance transaction; (iii) $38.2 million of losses related to equity securities, including the change in fair value; (iv) the decrease in fair value of certain fixed maturity investments with embedded derivatives of $5.5 million; (v) the decrease in fair value of embedded derivatives related to a modified coinsurance agreement of $5.1 million; and (vi) $2.6 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

During 2017 and 2016, VIEs that were required to be consolidated were dissolved. We recognized losses of $4.3 million and $7.3 million during 2017 and 2016, respectively, representing the difference between the borrowings of such VIEs and the contractual distributions required following the liquidation of the underlying assets.

During 2017, we recognized net realized investment gains of $50.3 million, which were comprised of: (i) $63.1 million of net gains from the sales of investments; (ii) $4.3 million of losses on the dissolution of VIEs; (iii) the increase in fair value of certain fixed maturity investments with embedded derivatives of $11.5 million; (iv) the increase in fair value of embedded derivatives related to a modified coinsurance agreement of $2.8 million; and (v) $22.8 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

During 2016, we recognized net realized investment gains of $8.3 million, which were comprised of: (i) $47.5 million of net gains from the sales of investments; (ii) a $7.3 million loss on the dissolution of a VIE; (iii) the decrease in fair value of certain fixed maturity investments with embedded derivatives of $.4 million; (iv) the increase in fair value of embedded derivatives related to a modified coinsurance agreement of $.8 million; and (v) $32.3 million of writedowns of investments for other than temporary declines in fair value recognized through net income ($35.9 million, prior to the $3.6 million of impairment losses recognized through accumulated other comprehensive income).

At December 31, 2018, there were no fixed maturity investments in default.

During 2018, the $65.8 million of realized losses on sales of $1,295.8 million of fixed maturity securities, available for sale, included: (i) $54.0 million related to various corporate securities; (ii) $4.1 million related to commercial mortgage-backed securities; (iii) $4.1 million related to asset-backed securities; and (iv) $3.6 million related to various other investments. Securities are generally sold at a loss following unforeseen issuer-specific events or conditions or shifts in perceived relative values. These reasons include but are not limited to: (i) changes in the investment environment; (ii) expectation that the market value could deteriorate; (iii) our desire to reduce our exposure to an asset class, an issuer or an industry; (iv) prospective or actual changes in credit quality; or (v) changes in expected portfolio cash flows.

During 2018, we recognized $2.6 million of impairment losses recorded in earnings which included: (i) $2.1 million related to a mortgage loan due to issuer specific events; and (ii) $.5 million related to a corporate security.

During 2017, the $24.2 million of realized losses on sales of $427.6 million of fixed maturity securities, available for sale included: (i) $16.8 million related to various corporate securities; (ii) $3.6 million related to commercial mortgage-backed securities; and (iii) $3.8 million related to various other investments.

During 2017, we recognized $22.8 million of impairment losses recorded in earnings which included: (i) $6.7 million of writedowns on fixed maturities in the energy sector; (ii) $5.2 million of writedowns related to a mortgage loan; and (iii) $10.9 million of writedowns on other investments. Factors considered in determining the writedowns of investments in 2017 included changes in the estimated recoverable value of the assets related to each investment and the timing of and complexities related to the recovery process.

During 2016, the $95.2 million of realized losses on sales of $790.2 million of fixed maturity securities, available for sale, included: (i) $79.2 million related to various corporate securities (including $63.5 million related to sales of investments in the energy sector); (ii) $5.8 million related to commercial mortgage-backed securities; (iii) $5.7 million related to asset-backed securities; and (iv) $4.5 million related to various other investments.

During 2016, we recognized $32.3 million of impairment losses recorded in earnings which included: (i) $9.3 million of writedowns on fixed maturities in the energy sector; (ii) $3.7 million of writedowns on a direct loan due to borrower specific events; (iii) $12.7 million of writedowns on a privately placed preferred stock of an entity formed to construct and operate a chemical plant; (iv) $1.2 million of writedowns of investments held by VIEs due to other-than-temporary declines in value; and (v) $5.4 million of losses on other investments. Factors considered in determining the writedowns of investments in 2016 included the subordination status of each investment, the impact of recent downgrades and issuer specific events, including the impact of low oil prices on issuers in the energy sector.

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

The following summarizes the investments sold at a loss during 2018 which had been continuously in an unrealized loss position exceeding 20 percent of the amortized cost basis prior to the sale for the period indicated (dollars in millions):



		At date of sale
	Number of issuers	Amortized cost		Fair value
Less than 6 months prior to sale	5	$	56.3	$	44.0
Greater than 12 months prior to sale	1	.1		—
	6	$	56.4	$	44.0

We regularly evaluate all of our investments with unrealized losses for possible impairment. Our assessment of whether unrealized losses are "other than temporary" requires significant judgment. Factors considered include: (i) the extent to which fair value is less than the cost basis; (ii) the length of time that the fair value has been less than cost; (iii) whether the unrealized loss is event driven, credit-driven or a result of changes in market interest rates or risk premium; (iv) the near-term prospects for specific events, developments or circumstances likely to affect the value of the investment; (v) the investment's rating and whether the investment is investment-grade and/or has been downgraded since its purchase; (vi) whether the issuer is current on all payments in accordance with the contractual terms of the investment and is expected to meet all of its obligations under the terms of the investment; (vii) whether we intend to sell the investment or it is more likely than not that circumstances will require us to sell the investment before recovery occurs; (viii) the underlying current and prospective asset and enterprise values of the issuer and the extent to which the recoverability of the carrying value of our investment may be affected by changes in such values; (ix) projections of, and unfavorable changes in, cash flows on structured securities including mortgage-backed and asset-backed securities; (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 manner in which impairment losses on fixed maturity securities, available for sale, are recognized in the financial statements is dependent on the facts and circumstances related to the specific security. If we intend to sell a security or it is more likely than not that we would be required to sell a security before the recovery of its amortized cost, the security is other-than-temporarily impaired and the full amount of the impairment is recognized as a loss through earnings. If we do not expect to recover the amortized cost basis, we do not plan to sell the security, and if it is not more likely than not that we would be required to sell a security before the recovery of its amortized cost, less any current period credit loss, the recognition of the other-than-temporary impairment is bifurcated. We recognize the credit loss portion in net income and the noncredit loss portion in accumulated other comprehensive income.

We estimate the amount of the credit loss component of a fixed maturity security impairment as the difference between amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate of future cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating-rate security. The methodology and assumptions for establishing the best estimate of future cash flows vary depending on the type of security.

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 from scenario-based outcomes of expected corporate restructurings or the disposition of assets using bond-specific facts and circumstances. The previous amortized cost basis less the impairment recognized in net income becomes the security's new cost basis. We accrete the new cost basis to the estimated future cash flows over the expected remaining life of the security, except when the security is in default or considered nonperforming.

The remaining noncredit impairment, which is recorded in accumulated other comprehensive income, is the difference between the security's estimated fair value and our best estimate of future cash flows discounted at the effective interest rate prior to impairment. The remaining noncredit impairment typically represents changes in the market interest rates, current market liquidity and risk premiums. As of December 31, 2018, other-than-temporary impairments included in accumulated other comprehensive income totaled $.5 million (before taxes and related amortization).

Mortgage loans are impaired when it is probable that we will not collect the contractual principal and interest on the loan. We measure impairment based upon the difference between the carrying value of the loan and the estimated fair value of the collateral securing the loan less cost to sell.

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 years ended December 31, 2018, 2017 and 2016 (dollars in millions):



	Year ended
	December 31,
	2018			2017			2016
Credit losses on fixed maturity securities, available for sale, beginning of period	$	(2.8	)	$	(5.5	)	$	(2.6	)
Add: credit losses on other-than-temporary impairments not previously recognized	—			—			(3.0		)
Less: credit losses on securities sold	2.6			4.7			.1
Less: credit losses on securities impaired due to intent to sell (a)	—			—			—
Add: credit losses on previously impaired securities	—			(2.0		)	—
Less: increases in cash flows expected on previously impaired securities	—			—			—
Credit losses on fixed maturity securities, available for sale, end of period	$	(.2	)	$	(2.8	)	$	(5.5	)

__________


(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.

Investments with Unrealized Losses

The following table sets forth the amortized cost and estimated fair value of those fixed maturities, available for sale, with unrealized losses at December 31, 2018, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties. Structured securities frequently include provisions for periodic principal payments and permit periodic unscheduled payments.



	Amortized cost		Estimated fair value
	(Dollars in millions)
Due in one year or less	$	61.3	$	61.0
Due after one year through five years	285.4		278.9
Due after five years through ten years	1,081.1		1,028.8
Due after ten years	4,633.4		4,317.8
Subtotal	6,061.2		5,686.5
Structured securities	2,137.8		2,089.2
Total	$	8,199.0	$	7,775.7

The following summarizes the investments in our portfolio rated below-investment grade which have been continuously in an unrealized loss position exceeding 20 percent of the cost basis for the period indicated as of December 31, 2018 (dollars in millions):



	Number of issuers	Cost basis		Unrealized loss			Estimated fair value
Less than 6 months	4	$	18.4	$	(4.5	)	$	13.9
Greater than or equal to 6 months and less than 12 months	2	12.1		(4.6		)	7.5
		$	30.5	$	(9.1	)	$	21.4

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, 2018 (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
United States Treasury securities and obligations of United States government corporations and agencies	$	2.0	$	—		$	19.2	$	(.2	)	$	21.2	$	(.2	)
States and political subdivisions	91.3		(1.3		)	33.3		(1.3		)	124.6		(2.6		)
Debt securities issued by foreign governments	16.8		(.7		)	15.1		(1.0		)	31.9		(1.7		)
Corporate securities	4,702.9		(280.9		)	805.9		(89.3		)	5,508.8		(370.2		)
Asset-backed securities	572.4		(3.7		)	238.0		(4.0		)	810.4		(7.7		)
Collateralized debt obligations	318.9		(15.2		)	—		—			318.9		(15.2		)
Commercial mortgage-backed securities	560.3		(6.2		)	281.1		(15.4		)	841.4		(21.6		)
Collateralized mortgage obligations	46.1		(.6		)	72.4		(3.5		)	118.5		(4.1		)
Total fixed maturities, available for sale	$	6,310.7	$	(308.6	)	$	1,465.0	$	(114.7	)	$	7,775.7	$	(423.3	)

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, 2017 (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
United States Treasury securities and obligations of United States government corporations and agencies	$	28.2	$	(.2	)	$	.7	$	—		$	28.9	$	(.2	)
States and political subdivisions	18.3		(.1		)	14.9		(.3		)	33.2		(.4		)
Debt securities issued by foreign governments	7.7		(.1		)	5.4		(.1		)	13.1		(.2		)
Corporate securities	470.5		(6.8		)	359.7		(20.2		)	830.2		(27.0		)
Asset-backed securities	601.4		(2.0		)	122.2		(2.1		)	723.6		(4.1		)
Collateralized debt obligations	3.0		—			—		—			3.0		—
Commercial mortgage-backed securities	276.8		(1.7		)	218.2		(8.6		)	495.0		(10.3		)
Collateralized mortgage obligations	20.5		(.2		)	11.5		(.1		)	32.0		(.3		)
Total fixed maturities, available for sale	$	1,426.4	$	(11.1	)	$	732.6	$	(31.4	)	$	2,159.0	$	(42.5	)
Equity securities	$	58.7	$	(1.7	)	$	21.2	$	(1.3	)	$	79.9	$	(3.0	)

Based on management's current assessment of investments with unrealized losses at December 31, 2018, 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.

Structured Securities

At December 31, 2018, fixed maturity investments included structured securities with an estimated fair value of $5.1 billion (or 28 percent of all fixed maturity securities). The yield characteristics of structured securities generally differ in some respects from those of traditional corporate fixed-income securities or government securities. For example, interest and principal payments on structured securities may occur more frequently, often monthly. In many instances, we are subject to variability in the amount and timing of principal and interest payments. For example, in many cases, partial prepayments may occur at the option of the issuer and prepayment rates are influenced by a number of factors that cannot be predicted with certainty, including: the relative sensitivity of prepayments on the underlying assets backing the security to changes in interest rates and asset values; the availability of alternative financing; a variety of economic, geographic and other factors; the timing, pace and proceeds of liquidations of defaulted collateral; and various security-specific structural considerations (for example, the repayment priority of a given security in a securitization structure). In addition, the total amount of payments for non-agency structured securities may be affected by changes to cumulative default rates or loss severities of the related collateral.

Historically, the rate of prepayments on structured securities has tended to increase when prevailing interest rates have declined significantly in absolute terms and also relative to the interest rates on the underlying collateral. The yields recognized on structured securities purchased at a discount to par will generally increase (relative to the stated rate) when the underlying collateral prepays faster than expected. The yields recognized on structured securities purchased at a premium will decrease (relative to the stated rate) when the underlying collateral prepays faster than expected. When interest rates decline, the proceeds from prepayments may be reinvested at lower rates than we were earning on the prepaid securities. When interest rates increase, prepayments may decrease below expected levels. When this occurs, the average maturity and duration of structured securities increases, decreasing the yield on structured securities purchased at discounts and increasing the yield on those purchased at a premium because of a decrease in the annual amortization of premium.

For structured securities included in fixed maturities, available for sale, that were purchased at a discount or premium, we recognize investment income using an effective yield based on anticipated future prepayments and the estimated final maturity of the securities. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. For credit sensitive mortgage-backed and asset-backed securities, and for securities that can be prepaid or settled in a way that we would not recover substantially all of our investment, the effective yield is recalculated on a prospective basis. Under this method, the amortized cost basis in the security is not immediately adjusted and a new yield is applied prospectively. For all other structured and asset-backed securities, the effective yield is recalculated when changes in assumptions are made, and reflected in our income on a retrospective basis. Under this method, the amortized cost basis of the investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the securities. Such adjustments were not significant in 2018.

For purchased credit impaired securities, at acquisition, the difference between the undiscounted expected future cash flows and the recorded investment in the securities represents the initial accretable yield, which is accreted into net investment income over the securities’ remaining lives on a level-yield basis. Subsequently, effective yields recognized on purchased credit impaired securities are recalculated and adjusted prospectively to reflect changes in the contractual benchmark interest rates on variable rate securities and any significant increases in undiscounted expected future cash flows arising due to reasons other than interest rate changes. Significant decreases in expected cash flows arising from credit events would result in impairment if such security's fair value is below amortized cost.

The following table sets forth the par value, amortized cost and estimated fair value of structured securities, summarized by interest rates on the underlying collateral, at December 31, 2018 (dollars in millions):



	Par value		Amortized cost		Estimated fair value
Below 4 percent	$	1,826.2	$	1,688.5	$	1,731.4
4 percent – 5 percent	1,868.9		1,764.6		1,812.5
5 percent – 6 percent	1,160.0		1,080.4		1,121.0
6 percent – 7 percent	178.5		167.1		173.8
7 percent – 8 percent	69.9		70.5		74.2
8 percent and above	229.1		229.2		229.7
Total structured securities	$	5,332.6	$	5,000.3	$	5,142.6

The amortized cost and estimated fair value of structured securities at December 31, 2018, summarized by type of security, were as follows (dollars in millions):



			Estimated fair value
Type	Amortized cost		Amount		Percent of fixed maturities
Pass-throughs, sequential and equivalent securities	$	514.3	$	546.3	3.0	%
Planned amortization classes, target amortization classes and accretion-directed bonds	64.4		72.0		.4
Commercial mortgage-backed securities	1,522.9		1,518.0		8.2
Asset-backed securities	2,552.1		2,674.8		14.5
Collateralized debt obligations	338.0		322.8		1.8
Other	8.6		8.7		—
Total structured securities	$	5,000.3	$	5,142.6	27.9	%

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

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

Mortgage Loans

At December 31, 2018, the mortgage loan balance was primarily comprised of commercial mortgage loans. Approximately 13 percent, 10 percent, 8 percent and 6 percent of the commercial mortgage loan balance were on properties located in California, Texas, Maryland and North Carolina, respectively. No other state comprised greater than five percent of the commercial mortgage loan balance. At December 31, 2018, there was one mortgage loan in process of foreclosure with a carrying value of $7.8 million. There were no other mortgage loans that were noncurrent at December 31, 2018. Our commercial mortgage loan portfolio is comprised of large commercial mortgage loans. Our loans have risk characteristics that are individually unique. Accordingly, we measure potential losses on a loan-by-loan basis rather than establishing an allowance for losses on mortgage loans. At December 31, 2018, we held residential mortgage loan investments with a carrying value of $149.6 million and a fair value of $149.1 million.

The following table provides the carrying value and estimated fair value of our outstanding commercial mortgage loans and the underlying collateral as of December 31, 2018 (dollars in millions):



			Estimated fair value
Loan-to-value ratio (a)	Carrying value		Mortgage loans		Collateral
Less than 60%	$	918.2	$	936.9	$	2,425.1
60% to 70%	315.2		318.2		496.7
Greater than 70% to 80%	173.2		176.1		236.3
Greater than 80% to 90%	13.7		13.1		16.5
Greater than 90%	32.2		31.1		34.5
Total	$	1,452.5	$	1,475.4	$	3,209.1

________________


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

Other Investment Disclosures

Life insurance companies are required to maintain certain investments on deposit with state regulatory authorities. Such assets had aggregate carrying values of $39.0 million and $38.5 million at December 31, 2018 and 2017, respectively.

The Company had no fixed maturity investments that were in excess of 10 percent of shareholders' equity at December 31, 2018 and 2017.

FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

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

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

Valuation Hierarchy

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


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

•

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

•

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

At each reporting date, we classify assets and liabilities into the three input levels based on the lowest level of input that is significant to the measurement of fair value for each asset and liability reported at fair value. This classification is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and overall market conditions. Our assessment of the significance of a particular input to the fair value measurement and the ultimate classification of each asset and liability requires judgment and is subject to change from period to period based on the observability of the valuation inputs. Any transfers between levels are reported as having occurred at the beginning of the period. There were no transfers between Level 1 and Level 2 in both 2018 and 2017.

The vast majority of our fixed maturity and equity securities, including those held in trading portfolios and those held by consolidated VIEs, short-term and separate account assets use Level 2 inputs for the determination of fair value. These fair values are obtained primarily from independent pricing services, which use Level 2 inputs for the determination of fair value. Our Level 2 assets are valued as follows:

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

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

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

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

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

Equity securities (primarily comprised of non-redeemable preferred stock) are generally priced using the market approach. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, issuer rating, benchmark yields, maturity, and credit spreads.


•	Investments held by VIEs

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


•	Other invested assets - derivatives

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

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

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

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

For securities that are not priced by pricing services and may not be reliably priced using pricing models, we obtain broker quotes. These broker quotes are non-binding and represent an exit price, but assumptions used to establish the fair value may not be observable and therefore represent Level 3 inputs. Approximately 35 percent of our Level 3 fixed maturity securities were valued using unadjusted broker quotes or broker-provided valuation inputs. The remaining Level 3 fixed maturity investments do not have readily determinable market prices and/or observable inputs. For these securities, we use internally developed valuations. Key assumptions used to determine fair value for these securities may include risk premiums, projected performance of underlying collateral and other factors involving significant assumptions which may not be reflective of an active market. For certain investments, we use a matrix or model process to develop a security price where future cash flow expectations are discounted at an estimated market rate. The pricing matrix incorporates term interest rates as well as a spread level based on the issuer's credit rating, other factors relating to the issuer, and the security's maturity. In some instances issuer-specific spread adjustments, which can be positive or negative, are made based upon internal analysis of security specifics such as liquidity, deal size, and time to maturity.

For certain embedded derivatives, we use actuarial assumptions in the determination of fair value which we consider to be Level 3 inputs.

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at December 31, 2018 is as follows (dollars in millions):



	Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:
Fixed maturities, available for sale:
Corporate securities	$	—	$	11,044.4	$	158.6	$	11,203.0
United States Treasury securities and obligations of United States government corporations and agencies	—		174.8		—		174.8
States and political subdivisions	—		1,867.8		—		1,867.8
Debt securities issued by foreign governments	—		58.5		1.0		59.5
Asset-backed securities	—		2,662.8		12.0		2,674.8
Collateralized debt obligations	—		322.8		—		322.8
Commercial mortgage-backed securities	—		1,518.0		—		1,518.0
Mortgage pass-through securities	—		1.6		—		1.6
Collateralized mortgage obligations	—		625.4		—		625.4
Total fixed maturities, available for sale	—		18,276.1		171.6		18,447.7
Equity securities - corporate securities	181.1		100.4		9.5		291.0
Trading securities:
Asset-backed securities	—		86.5		—		86.5
Commercial mortgage-backed securities	—		93.6		—		93.6
Collateralized mortgage obligations	—		53.0		—		53.0
Total trading securities	—		233.1		—		233.1
Investments held by variable interest entities - corporate securities	—		1,468.4		—		1,468.4
Other invested assets - derivatives	—		26.6		—		26.6
Assets held in separate accounts	—		4.4		—		4.4
Total assets carried at fair value by category	$	181.1	$	20,109.0	$	181.1	$	20,471.2

Liabilities:
Future policy benefits - embedded derivatives associated with fixed index annuity products	$	—	$	—	$	1,289.0	$	1,289.0

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at December 31, 2017 is as follows (dollars in millions):



	Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:
Fixed maturities, available for sale:
Corporate securities	$	—	$	14,728.0	$	230.4	$	14,958.4
United States Treasury securities and obligations of United States government corporations and agencies	—		177.7		—		177.7
States and political subdivisions	—		2,056.3		—		2,056.3
Debt securities issued by foreign governments	—		79.2		3.9		83.1
Asset-backed securities	—		3,230.2		24.2		3,254.4
Collateralized debt obligations	—		259.4		—		259.4
Commercial mortgage-backed securities	—		1,377.5		—		1,377.5
Mortgage pass-through securities	—		2.0		—		2.0
Collateralized mortgage obligations	—		742.1		—		742.1
Total fixed maturities, available for sale	—		22,652.4		258.5		22,910.9
Equity securities - corporate securities	287.8		131.6		21.2		440.6
Trading securities:
Corporate securities	—		21.6		—		21.6
United States Treasury securities and obligations of United States government corporations and agencies	—		.5		—		.5
Asset-backed securities	—		95.8		—		95.8
Collateralized debt obligations	—		2.7		—		2.7
Commercial mortgage-backed securities	—		92.5		—		92.5
Collateralized mortgage obligations	—		68.7		—		68.7
Equity securities	2.8		—		—		2.8
Total trading securities	2.8		281.8		—		284.6
Investments held by variable interest entities - corporate securities	—		1,522.0		4.9		1,526.9
Other invested assets - derivatives	—		170.2		—		170.2
Assets held in separate accounts	—		5.0		—		5.0
Total assets carried at fair value by category	$	290.6	$	24,763.0	$	284.6	$	25,338.2

Liabilities:
Future policy benefits - embedded derivatives associated with fixed index annuity products	$	—	$	—	$	1,334.8	$	1,334.8

The fair value measurements for our financial instruments disclosed at fair value on a recurring basis are as follows (dollars in millions):



	December 31, 2018
	Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total estimated fair value		Total carrying amount
Assets:
Mortgage loans	$	—	$	—	$	1,624.5	$	1,624.5	$	1,602.1
Policy loans	—		—		119.7		119.7		119.7
Other invested assets:
Company-owned life insurance	—		171.7		—		171.7		171.7
Cash and cash equivalents:
Unrestricted	594.2		—		—		594.2		594.2
Held by variable interest entities	62.4		—		—		62.4		62.4
Liabilities:
Policyholder account balances	—		—		11,594.1		11,594.1		11,594.1
Investment borrowings	—		1,645.9		—		1,645.9		1,645.8
Borrowings related to variable interest entities	—		1,399.8		—		1,399.8		1,417.2
Notes payable – direct corporate obligations	—		896.3		—		896.3		916.8



	December 31, 2017
	Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total estimated fair value		Total carrying amount
Assets:
Mortgage loans	$	—	$	—	$	1,677.3	$	1,677.3	$	1,650.6
Policy loans	—		—		116.0		116.0		116.0
Other invested assets:
Company-owned life insurance	—		182.3		—		182.3		182.3
Cash and cash equivalents:
Unrestricted	578.4		—		—		578.4		578.4
Held by variable interest entities	178.9		—		—		178.9		178.9
Liabilities:
Policyholder account balances	—		—		11,220.7		11,220.7		11,220.7
Investment borrowings	—		1,648.8		—		1,648.8		1,646.7
Borrowings related to variable interest entities	—		1,432.9		—		1,432.9		1,410.7
Notes payable – direct corporate obligations	—		962.3		—		962.3		914.6

The following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value for the year ended December 31, 2018 (dollars in millions):



	December 31, 2018
	Beginning balance as of December 31, 2017			Purchases, sales, issuances and settlements, net (b)			Total realized and unrealized gains (losses) included in net income			Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)			Transfers into Level 3 (a)		Transfers out of Level 3 (a)			Ending balance as of December 31, 2018			Amount of total gains (losses) for the year ended December 31, 2018 included in our net income relating to assets and liabilities still held as of the reporting date
Assets:
Fixed maturities, available for sale:
Corporate securities	$	230.4		$	(24.6	)	$	.2		$	(5.3	)	$	12.7	$	(54.8	)	$	158.6		$	(.5	)
Debt securities issued by foreign governments	3.9			(2.9		)	(.1		)	.1			—		—			1.0			—
Asset-backed securities	24.2			(11.5		)	—			(.7		)	—		—			12.0			—
Total fixed maturities, available for sale	258.5			(39.0		)	.1			(5.9		)	12.7		(54.8		)	171.6			(.5		)
Equity securities - corporate securities	21.2			(10.9		)	(.8		)	—			—		—			9.5			—
Investments held by variable interest entities - corporate securities	4.9			—			—			—			—		(4.9		)	—			—
Liabilities:
Future policy benefits - embedded derivatives associated with fixed index annuity products	(1,334.8		)	(62.0		)	107.8			—			—		—			(1,289.0		)	107.8

_________


(a)	Transfers into Level 3 are the result of unobservable inputs utilized within valuation methodologies for assets that were previously valued using observable inputs. Transfers out of Level 3 are due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company is able to validate.

(b)

Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the year ended December 31, 2018 (dollars in millions):



	Purchases			Sales			Issuances		Settlements		Purchases, sales, issuances and settlements, net
Assets:
Fixed maturities, available for sale:
Corporate securities	$	32.4		$	(57.0	)	$	—	$	—	$	(24.6	)
Debt securities issued by foreign governments	3.0			(5.9		)	—		—		(2.9		)
Asset-backed securities	—			(11.5		)	—		—		(11.5		)
Total fixed maturities, available for sale	35.4			(74.4		)	—		—		(39.0		)
Equity securities - corporate securities	—			(10.9		)	—		—		(10.9		)
Liabilities:
Future policy benefits - embedded derivatives associated with fixed index annuity products	(177.6		)	16.5			16.7		82.4		(62.0		)

The following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value for the year ended December 31, 2017 (dollars in millions):



	December 31, 2017
	Beginning balance as of December 31, 2016			Purchases, sales, issuances and settlements, net (b)			Total realized and unrealized gains (losses) included in net income		Total realized and unrealized gains (losses) included in accumulated other comprehensive income (loss)			Transfers into Level 3 (a)		Transfers out of Level 3 (a)			Ending balance as of December 31, 2017			Amount of total gains (losses) for the year ended December 31, 2017 included in our net income relating to assets and liabilities still held as of the reporting date
Assets:
Fixed maturities, available for sale:
Corporate securities	$	258.5		$	(70.4	)	$	5.8	$	5.3		$	31.2	$	—		$	230.4		$	(8.0	)
Debt securities issued by foreign governments	3.9			—			—		—			—		—			3.9			—
Asset-backed securities	60.4			(4.3		)	—		.7			—		(32.6		)	24.2			—
Collateralized debt obligations	5.4			(2.5		)	—		—			—		(2.9		)	—			—
Commercial mortgage-backed securities	32.0			(1.2		)	.1		(.1		)	—		(30.8		)	—			—
Total fixed maturities, available for sale	360.2			(78.4		)	5.9		5.9			31.2		(66.3		)	258.5			(8.0		)
Equity securities - corporate securities	25.2			(8.5		)	6.3		(1.8		)	—		—			21.2			—
Investments held by variable interest entities - corporate securities	—			4.9			—		—			—		—			4.9			—
Liabilities:
Future policy benefits - embedded derivatives associated with fixed index annuity products	(1,092.3		)	(267.5		)	25.0		—			—		—			(1,334.8		)	25.0

____________


(a)	Transfers into Level 3 are the result of unobservable inputs utilized within valuation methodologies for assets that were previously valued using observable inputs. Transfers out of Level 3 are due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company is able to validate.

(b)

Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity and equity securities and changes to embedded derivative instruments related to insurance products resulting from the issuance of new contracts, or changes to existing contracts. The following summarizes such activity for the year ended December 31, 2017 (dollars in millions):



	Purchases			Sales			Issuances			Settlements		Purchases, sales, issuances and settlements, net
Assets:
Fixed maturities, available for sale:
Corporate securities	$	76.6		$	(147.0	)	$	—		$	—	$	(70.4	)
Asset-backed securities	—			(4.3		)	—			—		(4.3		)
Collateralized debt obligations	—			(2.5		)	—			—		(2.5		)
Commercial mortgage-backed securities	—			(1.2		)	—			—		(1.2		)
Total fixed maturities, available for sale	76.6			(155.0		)	—			—		(78.4		)
Equity securities - corporate securities	—			(8.5		)	—			—		(8.5		)
Investments held by variable interest entities - corporate securities	8.9			(4.0		)	—			—		4.9
Liabilities:
Future policy benefits - embedded derivatives associated with fixed index annuity products	(178.9		)	5.4			(159.3		)	65.3		(267.5		)

At December 31, 2018, 53 percent of our Level 3 fixed maturities, available for sale, were investment grade and 92 percent of our Level 3 fixed maturities, available for sale, consisted of corporate securities.

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

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

The amount presented for gains (losses) included in our net loss for assets and liabilities still held as of the reporting date primarily represents impairments for fixed maturities, available for sale, changes in fair value of trading securities and certain derivatives and changes in fair value of embedded derivative instruments included in liabilities for insurance products that exist as of the reporting date.

The following table provides additional information about the significant unobservable (Level 3) inputs developed internally by the Company to determine fair value for certain assets and liabilities carried at fair value at December 31, 2018 (dollars in millions):



	Fair value at December 31, 2018		Valuation techniques	Unobservable inputs	Range (weighted average)
Assets:
Corporate securities (a)	$	91.1	Discounted cash flow analysis	Discount margins	1.55% - 9.52% (4.47%)
Corporate securities (b)	4.8		Recovery method	Percent of recovery expected	61.03%
Asset-backed securities (c)	11.9		Discounted cash flow analysis	Discount margins	2.30%
Equity securities (d)	1.2		Market comparables	EBITDA multiples	1.1X
Equity securities (e)	8.3		Recovery method	Percent of recovery expected	59.27% - 100.00% (59.52%)
Other assets categorized as Level 3 (f)	63.8		Unadjusted third-party price source	Not applicable	Not applicable
Total	181.1
Liabilities:
Future policy benefits (g)	1,289.0		Discounted projected embedded derivatives	Projected portfolio yields	5.11% - 5.15% (5.11%)
				Discount rates	2.20% - 4.02% (2.75%)
				Surrender rates	1.30% - 37.30% (12.40%)

________________________________


(a)	Corporate securities - The significant unobservable input used in the fair value measurement of our corporate securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement.


(b)	Corporate securities - The significant unobservable input used in the fair value measurement of these corporate securities is percentage of recovery expected. Significant increases (decreases) in percentage of recovery expected in isolation would result in a significantly higher (lower) fair value measurement.


(c)	Asset-backed securities - The significant unobservable input used in the fair value measurement of these asset-backed securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement.


(d)	Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is multiples of earnings before interest, taxes, depreciation and amortization ("EBITDA"). Generally, increases (decreases) in the EBITDA multiples would result in higher (lower) fair value measurements.


(e)	Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is percentage of recovery expected. Significant increases (decreases) in percentage of recovery expected in isolation would result in a significantly higher (lower) fair value measurement.


(f)	Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources.

(g)

Future policy benefits - The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed index annuity products are projected portfolio yields, discount rates and surrender rates. Increases (decreases) in projected portfolio yields in isolation would lead to a higher (lower) fair value measurement. The discount rate is based on risk free rates (U.S. Treasury rates for similar durations) adjusted for our non-performance risk and risk margins for non-capital market inputs. Increases (decreases) in the discount rates would lead to a lower (higher) fair value measurement. Assumed surrender rates are used to project how long the contracts remain in force. Generally, the longer the contracts are assumed to be in force the higher the fair value of the embedded derivative.

The following table provides additional information about the significant unobservable (Level 3) inputs developed internally by the Company to determine fair value for certain assets and liabilities carried at fair value at December 31, 2017 (dollars in millions):



	Fair value at December 31, 2017		Valuation techniques	Unobservable inputs	Range (weighted average)
Assets:
Corporate securities (a)	$	149.2	Discounted cash flow analysis	Discount margins	1.45% - 71.29% (6.96%)
Corporate securities (b)	2.8		Recovery method	Percent of recovery expected	0% - 21.73% (18.42%)
Asset-backed securities (c)	24.2		Discounted cash flow analysis	Discount margins	1.80% - 3.71% (2.67%)
Equity securities (d)	1.1		Market comparables	EBITDA multiples	1.1X
Equity securities (e)	20.1		Recovery method	Percent of recovery expected	59.1%
Other assets categorized as Level 3 (f)	87.2		Unadjusted third-party price source	Not applicable	Not applicable
Total	284.6
Liabilities:
Future policy benefits (g)	1,334.8		Discounted projected embedded derivatives	Projected portfolio yields	5.15% - 5.61% (5.60%)
				Discount rates	0.92% - 2.51% (2.00%)
				Surrender rates	1.20% - 46.40% (12.30%)

________________________________


(a)	Corporate securities - The significant unobservable input used in the fair value measurement of our corporate securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement.


(b)	Corporate securities - The significant unobservable input used in the fair value measurement of these corporate securities is percentage of recovery expected. Significant increases (decreases) in percentage of recovery expected in isolation would result in a significantly higher (lower) fair value measurement.


(c)	Asset-backed securities - The significant unobservable input used in the fair value measurement of these asset-backed securities is discount margin added to a riskless market yield. Significant increases (decreases) in discount margin in isolation would result in a significantly lower (higher) fair value measurement.


(d)	Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is EBITDA multiples. Generally, increases (decreases) in EBITDA multiples would result in higher (lower) fair value measurements.


(e)	Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is percentage of recovery expected. Significant increases (decreases) in percentage of recovery expected in isolation would result in a significantly higher (lower) fair value measurement.


(f)	Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources.

(g)

Future policy benefits - The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed index annuity products are projected portfolio yields, discount rates and surrender rates. Increases (decreases) in projected portfolio yields in isolation would lead to a higher (lower) fair value measurement. The discount rate is based on risk free rates (U.S. Treasury rates for similar durations) adjusted for our non-performance risk and risk margins for non-capital market inputs. Increases (decreases) in the discount rates would lead to a lower (higher) fair value measurement. Assumed surrender rates are used to project how long the contracts remain in force. Generally, the longer the contracts are assumed to be in force the higher the fair value of the embedded derivative.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

LIABILITIES FOR INSURANCE PRODUCTS

12 Months Ended

Dec. 31, 2018

Insurance [Abstract]

LIABILITIES FOR INSURANCE PRODUCTS

Our future policy benefits are summarized as follows (dollars in millions):



	Withdrawal assumption	Morbidity assumption	Mortality assumption	Interest rate assumption	2018		2017

Long-term care	Company experience	Company experience	Company experience	6%	$	5,277.9	$	5,669.0
Traditional life insurance contracts	Company experience	Company experience	(a)	5%	2,461.6		2,401.2
Accident and health contracts	Company experience	Company experience	Company experience	5%	2,944.5		2,812.0
Interest-sensitive life insurance contracts	Company experience	Company experience	Company experience	5%	30.3		44.9
Annuities and supplemental contracts with life contingencies	Company experience	Company experience	(b)	4%	368.1		594.2
Total					$	11,082.4	$	11,521.3

____________________


(a)	Principally, modifications of: (i) the 1965 ‑ 70 and 1975 - 80 Basic Tables; and (ii) the 1941, 1958 and 1980 Commissioners' Standard Ordinary Tables; as well as Company experience.


(b)	Principally, modifications of: (i) the 1971 Individual Annuity Mortality Table; (ii) the 1983 Table "A"; and (iii) the Annuity 2000 Mortality Table; as well as Company experience.

Our policyholder account balances are summarized as follows (dollars in millions):



	2018		2017
Fixed index annuities	$	6,657.8	$	5,942.2
Other annuities	3,793.8		4,183.8
Interest-sensitive life insurance contracts	1,142.5		1,094.7
Total	$	11,594.1	$	11,220.7

The Company establishes reserves for insurance policy benefits based on assumptions as to investment yields, mortality, morbidity, withdrawals, lapses and maintenance expenses. These reserves include amounts for estimated future payment of claims based on actuarial assumptions. The balance includes provision for the Company's best estimate of the future policyholder benefits to be incurred on this business, given recent and expected future changes in experience.

Changes in the unpaid claims reserve (included in claims payable) and disabled life reserves related to accident and health insurance (included in the liability for future policy benefits) were as follows (dollars in millions):



	2018			2017			2016
Balance, beginning of year	$	1,828.2		$	1,777.6		$	1,731.8
Less reinsurance (receivables) payables	15.1			14.0			(130.0		)
Net balance, beginning of year	1,843.3			1,791.6			1,601.8
Incurred claims related to:
Current year	1,480.0			1,548.1			1,526.4
Prior years (a)	(41.5		)	(26.7		)	96.6
Total incurred	1,438.5			1,521.4			1,623.0
Interest on claim reserves	71.8			78.4			75.3
Paid claims related to:
Current year	(849.4		)	(845.5		)	(837.2		)
Prior years	(630.6		)	(702.6		)	(671.3		)
Total paid	(1,480.0		)	(1,548.1		)	(1,508.5		)
Reserves ceded pursuant to reinsurance transaction	(956.7		)	—			—
Net balance, end of year	916.9			1,843.3			1,791.6
Add reinsurance receivables (payables)	951.1			(15.1		)	(14.0		)
Balance, end of year	$	1,868.0		$	1,828.2		$	1,777.6

___________


(a)	The reserves and liabilities we establish are necessarily based on estimates, assumptions and prior years' statistics. Such amounts will fluctuate based upon the estimation procedures used to determine the amount of unpaid losses. It is possible that actual claims will exceed our reserves and have a material adverse effect on our results of operations and financial condition.

INCOME TAXES

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

INCOME TAXES

The components of income tax expense (benefit) were as follows (dollars in millions):



	2018			2017			2016
Current tax expense (benefit)	$	(2.8	)	$	90.8		$	(45.2	)
Deferred tax expense	93.1			72.0			173.0
Valuation allowance applicable to current year income	8.9			(15.3		)	(14.0		)
Income tax expense calculated based on annual effective tax rate	99.2			147.5			113.8
Tax benefit on long-term care reinsurance transaction	(147.9		)	—			—
Income tax expense on discrete items:
Change in valuation allowance	95.7			(13.4		)	40.7
Impact of federal tax reform	—			310.6			—
Change in valuation allowance related to federal tax reform	—			(138.1		)	—
IRS settlement	—			—			(170.4		)
Other items	3.2			(1.7		)	10.9
Total income tax expense (benefit)	$	50.2		$	304.9		$	(5.0	)

On December 22, 2017, the Tax Reform Act was signed into law and enacted a broad range of changes to the Internal Revenue Code (the "Code") including individual and corporate reforms and numerous changes to U.S. international tax provisions. The Tax Reform Act reduced the corporate tax rate to 21 percent from 35 percent effective January 1, 2018, and made significant changes to the taxation of life insurance companies. Among other things, the Tax Reform Act modified the computation of life insurance reserves, increased the capitalization rate and extended the amortization period for policy acquisition costs, imposed limitations on the deductibility of performance-based compensation to "covered employees" and interest expense, and allowed for the expensing of certain capital expenditures. For NOLs arising after December 31, 2017, the Tax Reform Act limits the ability to utilize NOL carryforwards to 80% of taxable income. In addition, NOLs arising after 2017 can be carried forward indefinitely, but carryback is prohibited. As a result of the reduction in the federal corporate income tax rate, we reduced the value of our net deferred tax assets by $172.5 million (net of the reduction in the valuation allowance for deferred tax assets) which was recorded as additional income tax expense for the year ended December 31, 2017.

The $172.5 million adjustment to our net deferred tax assets was a provisional amount as defined in the Securities and Exchange Commission's (the "SEC") Staff Accounting Bulletin No. 118 ("SAB 118"), issued in December 2017 to address complexities in completing the calculations resulting from the Tax Reform Act. Although we were able to make a reasonable estimate of the impact of the Tax Reform Act based on the information available, we required additional time within the measurement period permitted under SAB 118 to complete our analysis of the calculations of life insurance tax reserves and future period taxable income used to estimate our deferred tax valuation allowance. We completed our analysis in the fourth quarter of 2018 and there were no material changes to our previous estimates.

A reconciliation of the U.S. statutory corporate tax rate to the effective rate reflected in the consolidated statement of operations is as follows:



	2018		2017		2016
U.S. statutory corporate rate	21.0	%	35.0	%	35.0	%
Valuation allowance	(39.5	)	(6.0	)	7.6
Non-taxable income and nondeductible benefits, net	.6		(2.0	)	(1.1	)
State taxes	(1.1	)	.6		2.2
Impact of federal tax reform	—		64.7		—
Change in valuation allowance related to federal tax reform	—		(28.8	)	—
Impact of IRS settlement	—		—		(48.2	)
Other items	—		—		3.1
Effective tax rate	(19.0	)%	63.5	%	(1.4	)%

The components of the Company's income tax assets and liabilities are summarized below (dollars in millions):



	2018			2017
Deferred tax assets:
Net federal operating loss carryforwards	$	685.1		$	489.6
Net state operating loss carryforwards	14.5			9.3
Investments	—			4.3
Insurance liabilities	283.9			415.8
Other	46.3			48.9
Gross deferred tax assets	1,029.8			967.9
Deferred tax liabilities:
Investments	(10.1		)	—
Present value of future profits and deferred acquisition costs	(171.1		)	(165.4		)
Accumulated other comprehensive income	(50.2		)	(337.2		)
Gross deferred tax liabilities	(231.4		)	(502.6		)
Net deferred tax assets before valuation allowance	798.4			465.3
Valuation allowance	(193.7		)	(89.1		)
Net deferred tax assets	604.7			376.2
Current income taxes prepaid (accrued)	25.3			(9.3		)
Income tax assets, net	$	630.0		$	366.9

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

A reduction of the net carrying amount of deferred tax assets by establishing a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. In assessing the need for a valuation allowance, all available evidence, both positive and negative, shall be considered to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed. This assessment requires significant judgment and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of carryforward periods, our experience with operating loss and tax credit carryforwards expiring unused, and tax planning strategies. We evaluate the need to establish a valuation allowance for our deferred income tax assets on an ongoing basis. The realization of our deferred tax assets depends upon generating sufficient future taxable income of the appropriate type during the periods in which our temporary differences become deductible and before our NOLs expire.

Based on our assessment, it appears more likely than not that $604.7 million of our total deferred tax assets of $798.4 million will be realized through future taxable earnings. Accordingly, we have established a deferred tax valuation allowance of $193.7 million at December 31, 2018 ($189.9 million of which relates to our net federal operating loss carryforwards and $3.8 million relates to state operating loss carryforwards). As a result of the completion of the long-term care reinsurance transaction in the third quarter of 2018, we increased the valuation allowance for deferred tax assets by $104.8 million. The increase in life company NOLs generated by the tax loss on the reinsurance transaction is expected to impact our ability to utilize non-life NOLs in the future. Accordingly, we increased the valuation allowance for deferred taxes by $104.8 million. We will continue to assess the need for a valuation allowance in the future. If future results are less than projected, an increase to the valuation allowance may be required to reduce the deferred tax asset, which could have a material impact on our results of operations in the period in which it is recorded.

We use a deferred tax valuation model to assess the need for a valuation allowance. Our model is adjusted to reflect changes in our projections of future taxable income including changes resulting from the Tax Reform Act, investment strategies, the impact of the sale or reinsurance of business and the recapture of business previously ceded. Our estimates of future taxable income are based on evidence we consider to be objective and verifiable.

At December 31, 2018, our projection of future taxable income for purposes of determining the valuation allowance is based on our adjusted average annual taxable income which is assumed to increase by approximately 3.5 percent for the next five years, and level taxable income thereafter. In the projections used for our analysis, our adjusted average taxable income of approximately $465 million consisted of $85 million of non-life taxable income and $380 million of life taxable income.

Based on our assessment, we recognized an increase to the allowance for deferred tax assets of $104.6 million in 2018. We have evaluated the recovery of our deferred tax assets and assessed the effect of limitations and/or interpretations on their value and have concluded that it is more likely than not that the value recognized will be fully realized in the future.

Changes in our valuation allowance are summarized as follows (dollars in millions):



Balance, December 31, 2015	$	213.5
Increase in 2016	26.7			(a)
Balance, December 31, 2016	240.2
Decrease in 2017	(166.8		)	(b)
Cumulative effect of accounting change	15.7			(c)
Balance, December 31, 2017	89.1
Increase in 2018	104.6			(d)
Balance, December 31, 2018	$	193.7

___________________


(a)	The 2016 increase to the deferred tax valuation allowance primarily resulted from additional non-life NOLs due to the settlement with the Internal Revenue Service (the "IRS").

(b)

The 2017 decrease to the deferred tax valuation allowance includes: (i) $138.1 million related to a reduction in the federal corporate income tax rate and other changes from the Tax Reform Act; (ii) $13.4 million of reductions to the deferred tax valuation allowance primarily related to the recognition of capital gains; and (iii) $15.3 million of reductions in the deferred tax valuation allowance reflecting higher current year taxable income than previously reflected in our deferred tax valuation model.

(c)

Effective January 1, 2017, the Company adopted new authoritative guidance related to several aspects of the accounting for share-based payment transactions, including the income tax consequences. Under the new guidance, any excess tax benefits are recognized as an income tax benefit in the income statement. The new guidance is applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings for all tax benefits that were not previously recognized because the related tax deduction had not reduced taxes payable. The Company had NOL carryforwards of $15.7 million related to deductions for stock options and restricted stock on the date of adoption. However, a corresponding valuation allowance of $15.7 million was recognized as a result of adopting this guidance. Therefore, there was no impact to our consolidated financial statements related to the initial adoption of this provision of the new guidance.


(d)	The 2018 increase to the deferred tax valuation allowance includes: (i) an increase of $104.8 million due to the life NOLs generated by the tax loss on the long-term care reinsurance transaction; and (ii) other changes netting to $(.2) million.

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

The Code limits the extent to which losses realized by a non-life entity (or entities) may offset income from a life insurance company (or companies) to the lesser of: (i) 35 percent of the income of the life insurance company; or (ii) 35 percent of the total loss of the non-life entities (including NOLs of the non-life entities). This limitation is the primary reason a valuation allowance for NOLs is required. There is no similar limitation on the extent to which losses realized by a life insurance entity (or entities) may offset income from a non-life entity (or entities).

Section 382 of the Code imposes limitations on a corporation's ability to use its NOLs when the company undergoes a 50 percent ownership change over a three year period. Future transactions and the timing of such transactions could cause an ownership change for Section 382 income tax purposes. Such transactions may include, but are not limited to, additional repurchases under our securities repurchase program, issuances of common stock and acquisitions or sales of shares of CNO stock by certain holders of our shares, including persons who have held, currently hold or may accumulate in the future five percent or more of our outstanding common stock for their own account. Many of these transactions are beyond our control. If an additional ownership change were to occur for purposes of Section 382, we would be required to calculate an annual restriction on the use of our NOLs to offset future taxable income. The annual restriction would be calculated based upon the value of CNO's equity at the time of such ownership change, multiplied by a federal long-term tax exempt rate (2.51 percent at December 31, 2018), and the annual restriction could limit our ability to use a substantial portion of our NOLs to offset future taxable income. We regularly monitor ownership change (as calculated for purposes of Section 382) and, as of December 31, 2018, we were below the 50 percent ownership change level that would trigger further impairment of our ability to utilize our NOLs.

In 2009, the Company's Board of Directors adopted a Section 382 Rights Agreement designed to protect shareholder value by preserving the value of our tax assets primarily associated with tax NOLs under Section 382. The Section 382 Rights Agreement was adopted to reduce the likelihood of an ownership change occurring by deterring the acquisition of stock that would create "5 percent shareholders" as defined in Section 382. The Section 382 Rights Agreement has been amended three times, most recently effective November 13, 2017 (the "Third Amended Section 382 Rights Agreement"). The Third Amended Section 382 Rights Agreement extended the expiration date of the Section 382 Rights Agreement to November 13, 2020, updated the purchase price of the rights described below and provided for a new series of preferred stock relating to the rights that is substantially identical to the prior series of preferred stock. The Third Amended Section 382 Rights Agreement was approved by the Company’s stockholders at the Company’s 2018 annual meeting.

Under the Section 382 Rights Agreement, one right was distributed for each share of our common stock outstanding as of the close of business on January 30, 2009 and for each share issued after that date. Pursuant to the Third Amended Section 382 Rights Agreement, if any person or group (subject to certain exemptions) becomes an owner of more than 4.99 percent of the Company's outstanding common stock (or any other interest in the Company that would be treated as "stock" under applicable Section 382 regulations) without the approval of the Board of Directors, there would be a triggering event causing significant dilution in the voting power and economic ownership of that person or group. Shareholders who held more than 4.99 percent of the Company's outstanding common stock as of December 6, 2011 will trigger a dilutive event only if they acquire additional shares exceeding one percent of our outstanding shares without prior approval from the Board of Directors.

In 2010, our shareholders approved an amendment to CNO's certificate of incorporation designed to prevent certain transfers of common stock which could otherwise adversely affect our ability to use our NOLs (the "Original Section 382 Charter Amendment"). Subject to the provisions set forth in the Original Section 382 Charter Amendment, transfers of our common stock would be void and of no effect if the effect of the purported transfer would be to: (i) increase the direct or indirect ownership of our common stock by any person or public group (as such term is defined in the regulations under Section 382) from less than 5% to 5% or more of our common stock; (ii) increase the percentage of our common stock owned directly or indirectly by a person or public group owning or deemed to own 5% or more of our common stock; or (iii) create a new public group. The Original Section 382 Charter Amendment was amended and extended in 2013 and in 2016 (the "2016 Section 382 Charter Amendment"). The expiration date for the 2016 Section 382 Charter Amendment is July 31, 2019.

Pursuant to the Tax Reform Act, NOLs generated subsequent to 2017 do not have an expiration date. We have $3.3 billion of federal NOLs as of December 31, 2018, as summarized below (dollars in millions):



	Net operating loss
Year of expiration	carryforwards
2023	$	1,751.9
2025	85.2
2026	149.9
2027	10.8
2028	80.3
2029	213.2
2030	.3
2031	.2
2032	44.4
2033	.6
2034	.9
2035	.8
Total federal non-life NOLs	2,338.5
Post 2017 life NOLs with no expiration	923.9
Total federal NOLs	$	3,262.4

The loss on the reinsurance transaction that was completed in September 2018 resulted in a life NOL of $930.7 million. The life NOL is expected to be used to offset 80 percent of our future life insurance company taxable income due to limitations prescribed in the Tax Reform Act. Our life NOL has no expiration date and we expect it to be fully utilized over the next three to four years, depending on the level of life taxable income during such period. Our non-life NOLs can be used to offset 35 percent of remaining life insurance company taxable income after application of the life NOLs, until all non-life NOLs are utilized or expire.

We also had deferred tax assets related to NOLs for state income taxes of $14.5 million and $9.3 million at December 31, 2018 and 2017, respectively. The related state NOLs are available to offset future state taxable income in certain states through 2033.

There were no unrecognized tax benefits in either 2018 or 2017.

In the fourth quarter of 2016, we reached a settlement with the IRS related to two uncertain tax positions: (i) $280.7 million of life NOLs and $130.0 million of non-life NOLs related to the classification of the loss on our investment in Conseco Senior Health Insurance Company when it was transferred to an independent trust in 2008; and (ii) $66.7 million of non-life NOLs related to a bad debt deduction with respect to a stock purchase loan made by our Predecessor to a member of its board of directors. The settlement resulted in a reduction to tax expense of approximately $118.7 million in the fourth quarter of 2016 (the period in which these matters were settled and the fully executed documentation was received). The $118.7 million benefit includes: (i) a $98.2 million tax benefit related to additional life NOLs; (ii) a $17.1 million tax benefit related to additional non-life NOLs (net of an increase to the deferred tax valuation allowance of $51.7 million); and (iii) a $3.4 million reduction in interest recognized in prior periods on alternative minimum tax that will no longer be required to be paid.

The Company’s various state income tax returns are generally open for tax years beginning in 2015, based on individual state statutes of limitation. Generally, for tax years which generate NOLs, capital losses or tax credit carryforwards, the statute remains open until the expiration of the statute of limitations for the tax year in which such carryforwards are utilized. The outcome of tax audits cannot be predicted with certainty. If the Company’s tax audits are not resolved in a manner consistent with management’s expectations, the Company may be required to adjust its provision for income taxes.

NOTES PAYABLE - DIRECT CORPORATE OBLIGATIONS

12 Months Ended

Dec. 31, 2018

Debt Disclosure [Abstract]

NOTES PAYABLE - DIRECT CORPORATE OBLIGATIONS

The following notes payable were direct corporate obligations of the Company as of December 31, 2018 and 2017 (dollars in millions):



	2018			2017
4.500% Senior Notes due May 2020	$	325.0		$	325.0
5.250% Senior Notes due May 2025	500.0			500.0
Revolving Credit Agreement (as defined below)	100.0			100.0
Unamortized debt issuance costs	(8.2		)	(10.4		)
Direct corporate obligations	$	916.8		$	914.6

Notes

On May 19, 2015, the Company executed the Indenture, dated as of May 19, 2015 (the "Base Indenture") and the First Supplemental Indenture, dated as of May 19, 2015 (the "Supplemental Indenture" and, together with the Base Indenture, the "Indenture"), between the Company and Wilmington Trust, National Association, as trustee (the "Trustee") pursuant to which the Company issued $325.0 million aggregate principal amount of 4.500% Senior Notes due 2020 (the "2020 Notes") and $500.0 million aggregate principal amount of 5.250% Senior Notes due 2025 (the "2025 Notes" and, together with the 2020 Notes, the "Notes").

The Company used the proceeds of the offering of the Notes, together with borrowings under the Revolving Credit Agreement (as defined below): (i) to repay all amounts outstanding under our previous senior secured credit agreement; (ii) to redeem and satisfy and discharge all of the outstanding 6.375% Senior Secured Notes due October 2020; and (iii) to pay fees and expenses related to the offering of the Notes and the foregoing transactions. The remaining proceeds of the Notes and the borrowings under the Revolving Credit Agreement were used for general corporate purposes, including share repurchases.

The 2020 Notes mature on May 30, 2020, and the 2025 Notes mature on May 30, 2025. Interest on the 2020 Notes is payable at 4.500% per annum. Interest on the 2025 Notes is payable at 5.250% per annum. Interest on the Notes is payable semi-annually in cash in arrears on May 30 and November 30 of each year, commencing on November 30, 2015.

The Notes are the Company's senior unsecured obligations and rank equally with the Company's other senior unsecured and unsubordinated debt from time to time outstanding, including obligations under the Revolving Credit Agreement (as defined below). The Notes are effectively subordinated to all of the Company's existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness. The Notes are structurally subordinated to all existing and future indebtedness and other liabilities of the Company's subsidiaries.

The Company may redeem some or all of the 2020 Notes at any time or from time to time at a "make-whole" redemption price plus accrued and unpaid interest to, but not including, the redemption date.

Prior to February 28, 2025, the Company may redeem some or all of the 2025 Notes at any time or from time to time at a "make-whole" redemption price plus accrued and unpaid interest to, but not including, the redemption date. On and after February 28, 2025, the Company may redeem some or all of the 2025 Notes at any time or from time to time at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest to, but not including, the redemption date.

Upon the occurrence of a Change of Control Repurchase Event (as defined in the Indenture), the Company will be required to make an offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

The Indenture contains covenants that restrict the Company’s ability, with certain exceptions, to:


•	incur certain subsidiary indebtedness without also guaranteeing the Notes;


•	create liens;


•	enter into sale and leaseback transactions;


•	issue, sell, transfer or otherwise dispose of any shares of capital stock of any Insurance Subsidiary (as defined in the Indenture); and


•	consolidate or merge with or into other companies or transfer all or substantially all of the Company’s assets.

The Indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include nonpayment, breach of covenants in the Indenture, failure to pay at maturity or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. Generally, if an event of default occurs, the Trustee or holders of at least 25% in principal amount of the then outstanding Notes may declare the principal of and accrued but unpaid interest, including any additional interest, on all of the Notes to be due and payable.

Revolving Credit Agreement

On May 19, 2015, the Company entered into a $150.0 million four-year unsecured revolving credit facility with KeyBank National Association, as administrative agent (the "Agent"), and the lenders from time to time party thereto. On May 19, 2015, the Company made an initial drawing of $100.0 million under the revolving credit facility, resulting in $50.0 million available for additional borrowings. On October 13, 2017, the Company entered into an amendment and restatement agreement (the "Amendment Agreement") with respect to its revolving credit agreement (as amended by the Amendment Agreement, the "Revolving Credit Agreement"). The Amendment Agreement, among other things, increased the total commitments available under the revolving credit facility from $150.0 million to $250.0 million, increased the aggregate amount of additional incremental loans the Company may incur from $50.0 million to $100.0 million and extended the maturity date of the revolving credit facility from May 19, 2019 to the earlier of October 13, 2022 and the date that is six months prior to the maturity date of the 2020 Notes, which is November 30, 2019.

The Revolving Credit Agreement includes an uncommitted subfacility for swingline loans of up to $5.0 million, and up to $5.0 million of the Revolving Credit Agreement is available for the issuance of letters of credit. The Company may incur additional incremental loans under the Revolving Credit Agreement in an aggregate principal amount of up to $100.0 million provided that there are no events of default and subject to certain other terms and conditions including the delivery of certain documentation.

The interest rates with respect to loans under the Revolving Credit Agreement are based on, at the Company's option, a floating base rate (defined as a per annum rate equal to the highest of: (i) the federal funds rate plus 0.50%; (ii) the "prime rate" of the Agent; and (iii) the eurodollar rate for a one-month interest period plus an applicable margin based on the Company's unsecured debt rating), or a eurodollar rate plus an applicable margin based on the Company's unsecured debt rating. The margins under the Revolving Credit Agreement range from 1.375 percent to 2.125 percent (1.75 percent to 2.25 percent prior to the Amendment Agreement), in the case of loans at the eurodollar rate, and 0.375 percent to 1.125 percent (.75 percent to 1.25 percent prior to the Amendment Agreement), in the case of loans at the base rate. At December 31, 2018, the interest rate on the amounts outstanding under the Revolving Credit Agreement was 4.15 percent. In addition, the daily average undrawn portion of the Revolving Credit Agreement accrues a commitment fee payable quarterly in arrears. The applicable margin for, and the commitment fee applicable to, the Revolving Credit Agreement, will be adjusted from time to time pursuant to a ratings based pricing grid. In addition, a fronting fee, in an amount equal to 0.125% per annum on the aggregate face amount of the outstanding letters of credit, will be payable to the issuers of such letters of credit.

The Revolving Credit Agreement contains certain financial, affirmative and negative covenants. The negative covenants in the Revolving Credit Agreement include restrictions that relate to, among other things and subject to customary baskets, exceptions and limitations for facilities of this type:


•	subsidiary debt;


•	liens;


•	restrictive agreements;


•	restricted payments during the continuance of an event of default;


•	disposition of assets and sale and leaseback transactions;


•	transactions with affiliates;


•	change in business;


•	fundamental changes;


•	modification of certain agreements; and


•	changes to fiscal year.

The Revolving Credit Agreement requires the Company to maintain (each as calculated in accordance with the Revolving Credit Agreement): (i) a debt to total capitalization ratio of not more than 35.0 percent (30.0 percent prior to the Amendment Agreement) (such ratio was 22.5 percent at December 31, 2018); (ii) an aggregate ratio of total adjusted capital to company action level risk-based capital for the Company's insurance subsidiaries of not less than 250 percent (such ratio was estimated to be 393 percent at December 31, 2018); and (iii) a minimum consolidated net worth of not less than the sum of (x) $2,674 million plus (y) 50.0% of the net equity proceeds received by the Company from the issuance and sale of equity interests in the Company (the Company's consolidated net worth was $3,193.2 million at December 31, 2018 compared to the minimum requirement of $2,687.4 million).

The Revolving Credit Agreement provides for customary events of default (subject in certain cases to customary grace and cure periods), which include, without limitation, the following:


•	non-payment;


•	breach of representations, warranties or covenants;


•	cross-default and cross-acceleration;


•	bankruptcy and insolvency events;


•	judgment defaults;


•	actual or asserted invalidity of documentation with respect to the Revolving Credit Agreement;


•	change of control; and


•	customary ERISA defaults.

If an event of default under the Revolving Credit Agreement occurs and is continuing, the Agent may accelerate the amounts and terminate all commitments outstanding under the Revolving Credit Agreement.

Scheduled Repayment of our Direct Corporate Obligations

The scheduled repayment of our direct corporate obligations was as follows at December 31, 2018 (dollars in millions):



Year ending December 31,
2019	$	100.0	(a)
2020	325.0
2021	—
2022	—
2023	—
Thereafter	500.0
	$	925.0

_________________________


(a)	The maturity date of the Revolving Credit Agreement is the earlier of October 13, 2022 and the date that is six months prior to the maturity date of the Company’s 4.50% senior notes due 2020, which is November 30, 2019.

LITIGATION AND OTHER LEGAL PROCEEDINGS

12 Months Ended

Dec. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

LITIGATION AND OTHER LEGAL PROCEEDINGS

Legal Proceedings

The Company and its subsidiaries are involved in various legal actions in the normal course of business, in which claims for compensatory and punitive damages are asserted, some for substantial amounts. We recognize an estimated loss from these loss contingencies when we believe it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Some of the pending matters have been filed as purported class actions and some actions have been filed in certain jurisdictions that permit punitive damage awards that are disproportionate to the actual damages incurred. The amounts sought in certain of these actions are often large or indeterminate and the ultimate outcome of certain actions is difficult to predict. In the event of an adverse outcome in one or more of these matters, there is a possibility that the ultimate liability may be in excess of the liabilities we have established and could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, the resolution of pending or future litigation may involve modifications to the terms of outstanding insurance policies or could impact the timing and amount of rate increases, which could adversely affect the future profitability of the related insurance policies. Based upon information presently available, and in light of legal, factual and other defenses available to the Company and its subsidiaries, the Company does not believe that it is probable that the ultimate liability from either pending or threatened legal actions, after consideration of existing loss provisions, will have a material adverse effect on the Company's consolidated financial condition, operating results or cash flows. However, given the inherent difficulty in predicting the outcome of legal proceedings, there exists the possibility that such legal actions could have a material adverse effect on the Company's consolidated financial condition, operating results or cash flows.

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

On September 29, 2016, Washington National and BCLIC commenced an arbitration proceeding seeking compensatory, consequential and punitive damages against BRe based upon BRe’s incurable material breaches of the long-term care reinsurance agreements, conversion, fraud, and breaches of fiduciary duties and the obligation to deal honestly and in good faith. BRe filed a counterclaim against Washington National and BCLIC in the arbitration alleging damages relating to the reinsurance agreements and their termination. In addition, on September 29, 2016, a complaint was filed by BCLIC and Washington National in the United States District Court for the Southern District of New York, Bankers Conseco Life Insurance Company and Washington National Insurance Company v. Moshe M. Feuer, Scott Taylor and David Levy, Case No. 16-cv-7646, alleging, among other claims, fraud/fraudulent concealment, and violation of the Racketeer Influenced and Corrupt Organizations Act. These allegations relate to the long-term care reinsurance agreements between BRe and Washington National and BCLIC, respectively, and emanate from the undisclosed relationships between and among the defendants (who were the principal owners and officers of BRe) and Platinum Partners, LP and its affiliates ("Platinum"). On April 27, 2017, an amended complaint was filed adding Beechwood Capital Group, LLC as a defendant. On March 13, 2018, the District Court granted defendants' motion to compel arbitration of Washington National's and BCLIC's claims and the litigation is now stayed pending the outcome of the arbitration. Washington National and BCLIC intend to vigorously pursue their claims for damages and other remedies in the arbitration and the litigation described above.

By public notice dated July 26, 2017, the Cayman Islands Monetary Authority advised that, effective July 25, 2017, two individuals (the "Controllers") had been appointed pursuant to Section 24(2)(h) of the Cayman Islands Insurance Law to assume control of the affairs of BRe. According to the public notice, effective with their appointment, the Controllers assumed immediate control of the affairs of BRe and have all the powers necessary to administer the affairs of BRe including power to terminate its insurance business. The Controllers are responsible for assessing the financial position of BRe and submitting a report to the Cayman Islands Monetary Authority. On August 10, 2018, the Cayman Islands Monetary Authority filed a public petition in the Grand Court of the Cayman Islands to officially wind up BRe, concluding that BRe was now of doubtful solvency. On November 27, 2018, the Grand Court of the Cayman Islands granted the petition to officially wind up BRe and appointed the current Controllers of BRe to be its Joint Official Liquidators.

On December 19, 2018, Melanie Cyganowski, as Equity Receiver for Platinum Partners Credit Opportunities Master Fund, LP and other Platinum entities (the "PPCO Receiver") brought an action in the United States District Court for the Southern District of New York, Cyganowski v. Beechwood Re Ltd, et al., Case No. 18-cv-12018, alleging, among other claims, fraud, aiding and abetting fraud, fraudulent transfer and violation of the Racketeer Influenced and Corrupt Organizations Act against numerous defendants, including BRe and many of its affiliates, CNO Financial Group, Inc., BCLIC, Washington National and 40|86 Advisors, Inc. The PPCO Receiver alleges that Platinum insiders conspired with BRe and its principals and affiliates in a massive fraudulent scheme to enrich the Platinum and BRe insiders to the detriment of Platinum investors and creditors. The PPCO Receiver alleges that CNO Financial Group, Inc., BCLIC, Washington National and 40|86 Advisors, Inc. have liability for the fraudulent scheme of the Platinum and BRe insiders under a theory that they turned a blind eye to the fraudulent scheme due to their desire to transfer unprofitable legacy portfolios of long-term care insurance via the reinsurance transactions with BRe. CNO Financial Group, Inc., BCLIC, Washington National and 40|86 Advisors, Inc. are vigorously contesting the PPCO Receiver’s claims.

Regulatory Examinations and Fines

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

In August 2011, we were notified of an examination to be done on behalf of a number of states for the purpose of determining compliance with unclaimed property laws by the Company and its subsidiaries. Such examination has included inquiries related to the use of data available on the U.S. Social Security Administration's Death Master File ("SSADMF") to identify instances where benefits under life insurance policies, annuities and retained asset accounts are payable. We are continuing to provide information to the examiners in response to their requests. A total of 40 states and the District of Columbia participated in this examination. In November 2018, we entered into a Global Resolution Agreement for compliance with laws and regulations concerning the identification, reporting and escheatment of unclaimed contract benefits or abandoned funds. Under the terms of the Global Resolution Agreement, a third-party auditor acting on behalf of the signatory jurisdictions will compare expanded matching criteria to the SSADMF to identify deceased insureds and contract holders where a valid claim has not been made.

Guaranty Fund Assessments

The balance sheet at December 31, 2018, included: (i) accruals of $10.6 million, representing our estimate of all known assessments that will be levied against the Company's insurance subsidiaries by various state guaranty associations based on premiums written through December 31, 2018; and (ii) receivables of $18.0 million that we estimate will be recovered through a reduction in future premium taxes as a result of such assessments. At December 31, 2017, such guaranty fund assessment accruals were $14.1 million and such receivables were $20.0 million. These estimates are subject to change when the associations determine more precisely the losses that have occurred and how such losses will be allocated among the insurance companies. We recognized expense for such assessments of $2.3 million, $11.0 million and $2.8 million in 2018, 2017 and 2016, respectively.

Guarantees

In accordance with the terms of the employment agreements of two of the Company's former chief executive officers, certain wholly-owned subsidiaries of the Company are the guarantors of the former executives' nonqualified supplemental retirement benefits. The liability for such benefits was $23.5 million and $24.2 million at December 31, 2018 and 2017, respectively, and is included in the caption "Other liabilities" in the consolidated balance sheet.

Leases and Certain Other Long-Term Commitments

The Company rents office space, equipment and computer software under noncancellable operating lease agreements. In addition, the Company has entered into certain sponsorship agreements which require future payments. Total expense pursuant to these lease and sponsorship agreements was $67.0 million, $61.4 million and $56.8 million in 2018, 2017 and 2016, respectively. Future required minimum payments as of December 31, 2018, were as follows (dollars in millions):



2019	$	22.2
2020	18.7
2021	14.3
2022	11.0
2023	8.7
Thereafter	1.4
Total	$	76.3

AGENT DEFERRED COMPENSATION PLAN

12 Months Ended

Dec. 31, 2018

Retirement Benefits [Abstract]

AGENT DEFERRED COMPENSATION PLAN

For our agent deferred compensation plan, it is our policy to immediately recognize changes in the actuarial benefit obligation resulting from either actual experience being different than expected or from changes in actuarial assumptions.

One of our insurance subsidiaries has a noncontributory, unfunded deferred compensation plan for qualifying members of its career agency force. Benefits are based on years of service and career earnings. In 2016, the agent deferred compensation plan was amended to: (i) freeze participation in the plan; (ii) freeze benefits accrued under the plan; and (iii) add a limited cashout feature. During the third quarter of 2016, we made lump sum settlement distributions to plan participants with account balances that were below a certain threshold consistent with the provision of the amended plan. We recognized a pre-tax gain of $6.1 million related to the settlement distributions in the third quarter of 2016.

The actuarial measurement date of this deferred compensation plan is December 31. The liability recognized in the consolidated balance sheet for the agent deferred compensation plan was $155.7 million and $168.2 million at December 31, 2018 and 2017, respectively. Expenses incurred on this plan were $(5.2) million, $18.8 million and $8.1 million during 2018, 2017 and 2016, respectively (including the recognition of gains (losses) of $11.9 million, $(12.2) million and $3.1 million in 2018, 2017 and 2016, respectively, primarily resulting from: (i) changes in the discount rate assumption used to determine the deferred compensation plan liability to reflect current investment yields; (ii) changes in mortality table assumptions; and (iii) the aforementioned settlement distributions in 2016). We purchased COLI as an investment vehicle to fund the agent deferred compensation plan. The COLI assets are not assets of the agent deferred compensation plan, and as a result, are accounted for outside the plan and are recorded in the consolidated balance sheet as other invested assets. The carrying value of the COLI assets was $171.7 million and $182.3 million at December 31, 2018 and 2017, respectively. Death benefits related to the COLI and changes in the cash surrender value (which approximates net realizable value) of the COLI assets are recorded as net investment income (loss) on special-purpose portfolios and totaled $(10.6) million, $24.6 million and $6.9 million in 2018, 2017 and 2016, respectively.

We used the following assumptions for the deferred compensation plan to calculate:



	2018		2017
Benefit obligations:
Discount rate	4.25	%	3.75	%
Net periodic cost:
Discount rate	3.75	%	4.25	%

The discount rate is based on the yield of a hypothetical portfolio of high quality debt instruments which could effectively settle plan benefits on a present value basis as of the measurement date.

The benefits expected to be paid pursuant to our agent deferred compensation plan as of December 31, 2018 were as follows (dollars in millions):



2019	$	7.5
2020	7.8
2021	8.0
2022	8.3
2023	8.6
2024 - 2028	45.7

One of our insurance subsidiaries has another unfunded nonqualified deferred compensation program for qualifying members of its career agency force. Such agents may defer a certain percentage of their net commissions into the program. In addition, annual Company contributions are made based on the agent's production and vest over a period of five to 10 years. The liability recognized in the consolidated balance sheet for this program was $28.4 million and $22.9 million at December 31, 2018 and 2017, respectively. Company contribution expense totaled $5.5 million, $6.6 million and $4.4 million in 2018, 2017 and 2016, respectively. We purchased Trust-Owned Life Insurance ("TOLI") as an investment vehicle to fund the program. The TOLI assets are not assets of the program, and as a result, are accounted for outside the program and are recorded in the consolidated balance sheet as other invested assets. The carrying value of the TOLI assets was $22.9 million and $18.0 million at December 31, 2018 and 2017, respectively.

The Company has a qualified defined contribution plan for which substantially all employees are eligible. Company contributions, which match a portion of certain voluntary employee contributions to the plan, totaled $5.8 million, $5.5 million and $5.3 million in 2018, 2017 and 2016, respectively. Employer matching contributions are discretionary.

DERIVATIVES

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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
	2018			2017
Assets:
Other invested assets:
Fixed index call options	$	26.6		$	170.2
Reinsurance receivables	(6.5		)	(1.4		)
Total assets	$	20.1		$	168.8
Liabilities:
Future policy benefits:
Fixed index products	$	1,289.0		$	1,334.8
Total liabilities	$	1,289.0		$	1,334.8

The activity associated with freestanding derivative instruments is measured as either the notional or the number of contracts. The activity associated with the fixed index annuity embedded derivatives are shown by the number of policies. The following table represents activity associated with derivative instruments as of the dates indicated:



	Measurement	December 31, 2017		Additions		Maturities/terminations			December 31, 2018
Fixed index annuities - embedded derivative	Policies	104,689		12,189		(8,048		)	108,830
Fixed index call options	Notional (a)	$	3,005.8	$	3,043.2	$	(3,028.5	)	$	3,020.5

_________________

(a) Dollars in millions.

We are required to establish an embedded derivative related to a modified coinsurance agreement pursuant to which we assume the risks of a block of health insurance business. The embedded derivative represents the mark-to-market adjustment for approximately $123 million in underlying investments held by the ceding reinsurer.

The following table provides the pre-tax gains (losses) recognized in net income for derivative instruments, which are not designated as hedges for the periods indicated (dollars in millions):



	2018			2017		2016
Net investment income from policyholder and other special-purpose portfolios:
Fixed index call options	$	(43.0	)	$	162.5	$	29.2
Net realized gains (losses):
Interest rate futures	—			—		(1.1		)
Embedded derivative related to modified coinsurance agreement	(5.1		)	2.8		.8
Total	(5.1		)	2.8		(.3		)
Insurance policy benefits:
Embedded derivative related to fixed index annuities	107.8			25.0		60.8
Total	$	59.7		$	190.3	$	89.7

Derivative Counterparty Risk

If the counterparties to the call options fail to meet their obligations, we may recognize a loss. We limit our exposure to such a loss by diversifying among several counterparties believed to be strong and creditworthy. At December 31, 2018, all of our counterparties were rated "A-" or higher by S&P.

From time to time, we enter into exchange-traded interest rate future contracts. The contracts are marked to market and margined on a daily basis. The Company has minimal exposure to credit-related losses in the event of nonperformance.

The Company and its subsidiaries are parties to master netting arrangements with its counterparties related to entering into various derivative contracts. Exchange-traded derivatives require margin accounts which we offset.

The following table summarizes information related to derivatives with master netting arrangements or collateral as of December 31, 2018 and 2017 (dollars in millions):



								Gross amounts not offset in the balance sheet
		Gross amounts recognized		Gross amounts offset in the balance sheet		Net amounts of assets presented in the balance sheet		Financial instruments		Cash collateral received		Net amount
December 31, 2018:
	Fixed index call options	$	26.6	$	—	$	26.6	$	—	$	—	$	26.6
December 31, 2017:
	Fixed index call options	170.2		—		170.2		—		—		170.2

SHAREHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

SHAREHOLDERS' EQUITY

Changes in the number of shares of common stock outstanding were as follows (shares in thousands):



	2018		2017		2016
Balance, beginning of year	166,858		173,754		184,029
Treasury stock purchased and retired	(5,486	)	(7,808	)	(11,688	)
Stock options exercised (a)	378		725		978
Restricted and performance stock vested (b)	452		187		435
Balance, end of year	162,202		166,858		173,754

____________________


(a)	In 2018, such amount was reduced by 69 thousand shares which were tendered to the Company for the payment of the exercise price and required federal and state tax withholdings.


(b)	In 2018, 2017 and 2016, such amount was reduced by 242 thousand, 103 thousand and 191 thousand shares, respectively, which were tendered to the Company for the payment of required federal and state tax withholdings owed on the vesting of restricted and performance stock.

In May 2011, the Company announced a securities repurchase program of up to $100.0 million. In February 2012, June 2012, December 2012, December 2013, November 2014, November 2015 and May 2017, the Company's Board of Directors approved, in aggregate, an additional $1,900.0 million to repurchase the Company's outstanding securities. In 2018, 2017 and 2016, we repurchased 5.5 million, 7.8 million and 11.7 million shares, respectively, for $100.9 million, $167.1 million and $203.0 million, respectively, under the securities repurchase program. The Company had remaining repurchase authority of $284.6 million as of December 31, 2018.

In 2018, 2017 and 2016, dividends declared on common stock totaled $65.1 million ($0.39 per common share), $59.6 million ($0.35 per common share) and $54.8 million ($0.31 per common share), respectively. In May 2018, the Company increased its quarterly common stock dividend to $0.10 per share from $0.09 per share. In May 2017, the Company increased its quarterly common stock dividend to $0.09 per share from $0.08 per share. In May 2016, the Company increased its quarterly common stock dividend to $0.08 per share from $0.07 per share.

The Company has a long-term incentive plan which permits the grant of CNO incentive or non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance shares or units and certain other equity-based awards to certain directors, officers and employees of the Company and certain other individuals who perform services for the Company. As of December 31, 2018, 5.3 million shares remained available for issuance under the plan. Our stock option awards are generally granted with an exercise price equal to the market price of the Company's stock on the date of grant and a maximum term of ten years. Our stock option awards granted in 2007 through 2009 generally vested on a graded basis over a three year service term and expired five years from the date of grant. Our stock options granted in 2010 through 2014 generally vest on a graded basis over a three year service term and expire seven years from the date of grant. Our stock options granted in 2015 through 2018 generally vest on a graded basis over a three year service term and expire ten years from the date of grant. In 2018, one grant of 1.6 million stock options vests on a graded basis over a five year service term and expires ten years from the date of grant. The vesting periods for our awards of restricted stock and restricted stock units (collectively "restricted stock") range from immediate vesting to a period of three years.

A summary of the Company's stock option activity and related information for 2018 is presented below (shares in thousands; dollars in millions, except per share amounts):



	Shares		Weighted average exercise price			Weighted average remaining life (in years)	Aggregate intrinsic value
Outstanding at the beginning of the year	5,121		$	15.95
Options granted	2,112		21.03
Exercised	(447	)	(10.94		)		$	3.1
Forfeited or terminated	(247	)	(20.29		)
Outstanding at the end of the year	6,539		17.77			5.8	$	44.4
Options exercisable at the end of the year	3,247					3.5	$	26.7
Available for future grant	5,296

A summary of the Company's stock option activity and related information for 2017 is presented below (shares in thousands; dollars in millions, except per share amounts):



	Shares		Weighted average exercise price			Weighted average remaining life (in years)	Aggregate intrinsic value
Outstanding at the beginning of the year	5,354		$	14.73
Options granted	729		21.06
Exercised	(237	)	(17.81		)		$	5.2
Forfeited or terminated	(725	)	(11.43		)
Outstanding at the end of the year	5,121		15.95			5.4	$	37.2
Options exercisable at the end of the year	2,440					3.0	$	19.2
Available for future grant	7,488

A summary of the Company's stock option activity and related information for 2016 is presented below (shares in thousands; dollars in millions, except per share amounts):



	Shares		Weighted average exercise price			Weighted average remaining life (in years)	Aggregate intrinsic value
Outstanding at the beginning of the year	5,199		$	13.32
Options granted	1,706		17.45
Exercised	(978	)	(8.70		)		$	6.1
Forfeited or terminated	(573	)	(20.41		)
Outstanding at the end of the year	5,354		14.73			5.9	$	37.1
Options exercisable at the end of the year	2,187					2.7	$	15.1
Available for future grant	4,620

We recognized compensation expense related to stock options totaling $5.6 million ($4.5 million after income taxes) in 2018, $6.3 million ($4.1 million after income taxes) in 2017 and $12.2 million ($7.9 million after income taxes) in 2016. Compensation expense related to stock options reduced both basic and diluted earnings per share by three cents in 2018, two cents in 2017 and four cents in 2016. At December 31, 2018, the unrecognized compensation expense for non-vested stock options totaled $8.9 million which is expected to be recognized over a weighted average period of 3.5 years. Cash received by the Company from the exercise of stock options was $3.9 million, $8.3 million and $8.4 million during 2018, 2017 and 2016, respectively.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions:



	2018			2017			2016
	Grants			Grants			Grants
Weighted average risk-free interest rates	2.9		%	2.2		%	1.4		%
Weighted average dividend yields	1.9		%	1.5		%	1.6		%
Volatility factors	27		%	32		%	36		%
Weighted average expected life (in years)	6.4			6.3			6.3
Weighted average fair value per share	$	5.49		$	6.20		$	5.48

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is based on the Company's history and expectation of dividend payouts. Volatility factors are based on the weekly historical volatility of the Company's common stock equal to the expected life of the option. The expected life is based on the average of the graded vesting period and the contractual terms of the option.

The exercise price was equal to the market price of our stock on the date of grant for all options granted in 2018, 2017 and 2016.

The following table summarizes information about stock options outstanding at December 31, 2018 (shares in thousands):



		Options outstanding			Options exercisable
Range of exercise prices	Number outstanding	Remaining life (in years)	Average exercise price		Number exercisable	Average exercise price
$6.77 - $7.51	339	0.2	$	7.50	339	$	7.50
$10.88 - $16.22	635	1.2	10.99		634	10.98
$16.42 - $21.57	5,565	6.7	19.17		2,274	17.54
	6,539				3,247

During 2018, 2017 and 2016, the Company granted restricted stock of .4 million, .3 million and .4 million, respectively, to certain directors, officers and employees of the Company at a weighted average fair value of $22.36 per share, $20.87 per share and $18.17 per share, respectively. The fair value of such grants totaled $9.7 million, $6.9 million and $7.3 million in 2018, 2017 and 2016, respectively. Such amounts are recognized as compensation expense over the vesting period of the restricted stock. A summary of the Company's non-vested restricted stock activity for 2018 is presented below (shares in thousands):



	Shares		Weighted average grant date fair value
Non-vested shares, beginning of year	535		$	19.65
Granted	434		22.36
Vested	(216	)	(19.28		)
Forfeited	(18	)	(21.56		)
Non-vested shares, end of year	735		21.31

At December 31, 2018, the unrecognized compensation expense for non-vested restricted stock totaled $7.7 million which is expected to be recognized over a weighted average period of 2.0 years. At December 31, 2017, the unrecognized compensation expense for non-vested restricted stock totaled $5.5 million. We recognized compensation expense related to restricted stock awards totaling $7.1 million, $6.1 million and $3.1 million in 2018, 2017 and 2016, respectively. The fair value of restricted stock that vested during 2018, 2017 and 2016 was $4.2 million, $2.7 million and $2.1 million, respectively.

Effective January 1, 2017, the Company adopted new authoritative guidance related to several aspects of the accounting for share-based payment transactions, including the accounting policy for forfeiture rate assumptions. Under the new guidance, we elected to account for forfeitures as they occur. The impact of adoption of this provision of the guidance increased additional paid-in capital by $.9 million, decreased retained earnings by $.6 million and increased income tax assets by $.3 million. Prior to 2017, authoritative guidance required us to estimate the amount of unvested stock-based awards that would be forfeited in future periods and reduce the amount of compensation expense recognized over the applicable service period to reflect such estimate.

In 2018, 2017 and 2016 the Company granted performance units totaling 319,920, 452,900 and 507,976, respectively, pursuant to its long-term incentive plan to certain officers of the Company. The criteria for payment for such awards are based on certain company-wide performance levels that must be achieved within a specified performance time (generally three years), each as defined in the award. The performance units granted in 2018, 2017 and 2016 provide for a payout of up to 200 percent of the award if certain performance thresholds are achieved. Unless antidilutive, the diluted weighted average shares outstanding would reflect the number of performance units expected to be issued, using the treasury stock method.

A summary of the Company's performance units is presented below (shares in thousands):



	Total shareholder return awards		Operating return on equity awards
Awards outstanding at December 31, 2015	549		549
Granted in 2016	254		254
Additional shares issued pursuant to achieving certain performance criteria (a)	87		65
Shares vested in 2016	(261	)	(239	)
Forfeited	(59	)	(59	)
Awards outstanding at December 31, 2016	570		570
Granted in 2017	226		226
Additional shares issued pursuant to achieving certain performance criteria (a)	—		30
Shares vested in 2017	—		(144	)
Forfeited	(167	)	(53	)
Awards outstanding at December 31, 2017	629		629
Granted in 2018	160		160
Additional shares issued pursuant to achieving certain performance criteria (a)	—		123
Shares vested in 2018	(160	)	(318	)
Forfeited	(61	)	(26	)
Awards outstanding at December 31, 2018	568		568

_________________________

(a) The performance units that vested in 2016, 2017 and 2018 provided for a payout of up to 150 percent, 150 percent and 200 percent, respectively, of the award if certain performance levels were achieved.

The grant date fair value of the performance units awarded was $8.1 million and $11.2 million in 2018 and 2017, respectively. We recognized compensation expense of $12.0 million, $9.0 million and $7.7 million in 2018, 2017 and 2016, respectively, related to the performance units.

As further discussed in the footnote to the consolidated financial statements entitled "Income Taxes", the Company's Board of Directors adopted the Section 382 Rights Agreement in 2009 and has amended and extended the Section 382 Rights Agreement on three occasions. The Section 382 Rights Agreement, as amended, is designed to protect shareholder value by preserving the value of our tax assets primarily associated with NOLs. At the time the Section 382 Rights Agreement was adopted, the Company declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock. The dividend was payable on January 30, 2009, to the shareholders of record as of the close of business on that date and a Right is also attached to each share of CNO common stock issued after that date. Pursuant to the Section 382 Rights Agreement, as amended, each Right entitles the shareholder to purchase from the Company one one-thousandth of a share of Series D Junior Participating Preferred Stock, par value $.01 per share (the "Junior Preferred Stock") of the Company at a price of $90.00 per one one-thousandth of a share of Junior Preferred Stock. The description and terms of the Rights are set forth in the Section 382 Rights Agreement, as amended. The Rights would become exercisable in the event any person or group (subject to certain exemptions) becomes an owner of more than 4.99 percent of the outstanding stock of CNO (a "Threshold Holder") without the approval of the Board of Directors or an existing shareholder who is currently a Threshold Holder acquires additional shares exceeding one percent of our outstanding shares without prior approval from the Board of Directors.

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):



	2018			2017		2016
Net income (loss) for diluted earnings per share	$	(315.0	)	$	175.6	$	358.2
Shares:
Weighted average shares outstanding for basic earnings per share	165,457			170,025		176,638
Effect of dilutive securities on weighted average shares:
Stock options, restricted stock and performance units	—			2,119		1,685
Weighted average shares outstanding for diluted earnings per share	165,457			172,144		178,323

In 2018, equivalent common shares of 2,104,000 (related to stock options, restricted stock and performance units) were not included in the diluted weighted average shares outstanding, because their inclusion would have been antidilutive due to the net loss recognized by the Company in such period.

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).

OTHER OPERATING STATEMENT DATA

12 Months Ended

Dec. 31, 2018

Insurance [Abstract]

OTHER OPERATING STATEMENT DATA

Insurance policy income consisted of the following (dollars in millions):



	2018			2017			2016
Direct premiums collected	$	4,150.3		$	4,013.4		$	3,942.7
Reinsurance assumed	27.8			30.2			33.8
Reinsurance ceded	(156.2		)	(114.4		)	(132.9		)
Premiums collected, net of reinsurance	4,021.9			3,929.2			3,843.6
Change in unearned premiums	6.5			19.0			6.2
Less premiums on interest-sensitive life and products without mortality and morbidity risk which are recorded as additions to insurance liabilities	(1,588.5		)	(1,445.9		)	(1,386.7		)
Premiums on traditional products with mortality or morbidity risk	2,439.9			2,502.3			2,463.1
Fees and surrender charges on interest-sensitive products	153.2			145.0			138.0
Insurance policy income	$	2,593.1		$	2,647.3		$	2,601.1

The four states with the largest shares of 2018 collected premiums were Florida (10 percent), Pennsylvania (6 percent), Texas (5 percent) and Iowa (5 percent). No other state accounted for more than five percent of total collected premiums.

Other operating costs and expenses were as follows (dollars in millions):



	2018		2017		2016
Commission expense	$	122.8	$	115.6	$	110.5
Salaries and wages	233.2		237.3		231.0
Other	458.2		488.6		454.8
Total other operating costs and expenses	$	814.2	$	841.5	$	796.3

Changes in the present value of future profits were as follows (dollars in millions):



	2018			2017			2016
Balance, beginning of year	$	359.6		$	401.8		$	449.0
Amortization	(45.1		)	(54.4		)	(62.2		)
Effect of reinsurance transaction	(60.4		)	—			—
Amounts related to changes in unrealized investment gains (losses) on fixed maturities, available for sale	89.5			12.2			15.0
Balance, end of year	$	343.6		$	359.6		$	401.8

Based on current conditions and assumptions as to future events on all policies inforce, the Company expects to amortize approximately 10 percent of the December 31, 2018 balance of the present value of future profits in 2019, 9 percent in 2020, 8 percent in 2021, 8 percent in 2022 and 7 percent in 2023. The discount rate used to determine the amortization of the present value of future profits averaged approximately 5 percent in the years ended December 31, 2018, 2017 and 2016.

In accordance with authoritative guidance, we are required to amortize the present value of future profits in relation to estimated gross profits for interest-sensitive life products and annuity products. Such guidance also requires that estimates of expected gross profits used as a basis for amortization be evaluated regularly, and that the total amortization recorded to date be adjusted by a charge or credit to the statement of operations, if actual experience or other evidence suggests that earlier estimates should be revised.

Changes in deferred acquisition costs were as follows (dollars in millions):



	2018			2017			2016
Balance, beginning of year	$	1,026.8		$	1,044.7		$	1,083.3
Additions	261.8			236.1			242.7
Amortization	(219.2		)	(184.9		)	(191.1		)
Effect of reinsurance transaction	(1.2		)	—			—
Amounts related to changes in unrealized investment gains (losses) on fixed maturities, available for sale	254.3			(69.1		)	(90.2		)
Balance, end of year	$	1,322.5		$	1,026.8		$	1,044.7

CONSOLIDATED STATEMENT CASH FLOWS

12 Months Ended

Dec. 31, 2018

Supplemental Cash Flow Elements [Abstract]

CONSOLIDATED STATEMENT OF CASH FLOWS

The following disclosures supplement our consolidated statement of cash flows.

The following reconciles net income to net cash provided by operating activities (dollars in millions):



	2018			2017			2016
Cash flows from operating activities:
Net income (loss)	$	(315.0	)	$	175.6		$	358.2
Adjustments to reconcile net income to net cash from operating activities:
Amortization and depreciation	292.2			265.4			275.0
Income taxes	18.4			227.5			(11.7		)
Insurance liabilities	207.8			464.7			332.8
Accrual and amortization of investment income	14.9			(294.9		)	(111.3		)
Deferral of policy acquisition costs	(261.7		)	(236.1		)	(242.7		)
Net realized investment (gains) losses	11.3			(50.3		)	(8.3		)
Net realized gains on the transfer of assets related to reinsurance transaction	(363.4		)	—			—
Loss related to reinsurance transactions	1,067.6			—			75.4
Payment to reinsurer pursuant to long-term care business reinsured	(365.0		)	—			—
Cash and cash equivalents received upon recapture of reinsurance	—			—			73.6
Loss on extinguishment of borrowings related to variable interest entities	3.8			9.5			—
Other	6.9			71.9			34.7
Net cash from operating activities	$	317.8		$	633.3		$	775.7

The following summarizes the impact of the reinsurance transaction completed on September 27, 2018 (dollars in millions):



Investments transferred	$	(3,582.1	)	(a)
Cash paid to reinsurer	(365.0		)
Accrued interest on investments transferred	(51.6		)
Present value of future profits and deferred acquisition costs written-off	(61.6		)
Reinsurance receivables	2,818.0
Transaction expenses and other	(14.6		)
Release of future loss reserve	189.3
Subtotal	(1,067.6		)
Realized gains on investments transferred	363.4
Pre-tax loss related to reinsurance transaction	$	(704.2	)

______________


(a)	Such non-cash amounts are not included in the consolidated statement of cash flows.

Other non-cash items not reflected in the investing and financing activities sections of the consolidated statement of cash flows (dollars in millions):



	2018		2017		2016
Stock options, restricted stock and performance units	$	24.7	$	21.4	$	23.0
Market value of investments recaptured in connection with the termination of reinsurance agreements with BRe	—		—		431.1

STATUTORY INFORMATION (BASED ON NON-GAAP MEASURES)

12 Months Ended

Dec. 31, 2018

Insurance [Abstract]

STATUTORY INFORMATION (BASED ON NON-GAAP MEASURES)

Statutory accounting practices prescribed or permitted by regulatory authorities for the Company's insurance subsidiaries differ from GAAP. The Company's insurance subsidiaries reported the following amounts to regulatory agencies, after appropriate elimination of intercompany accounts among such subsidiaries (dollars in millions):



	2018		2017
Statutory capital and surplus	$	1,652.8	$	1,904.4
Asset valuation reserve	233.3		246.8
Interest maintenance reserve	425.0		487.0
Total	$	2,311.1	$	2,638.2

Statutory capital and surplus included investments in upstream affiliates of $42.6 million at both December 31, 2018 and 2017, which were eliminated in the consolidated financial statements prepared in accordance with GAAP.

Statutory earnings build the capital required by ratings agencies and regulators. Statutory earnings, fees and interest paid by the insurance companies to the parent company create the "cash flow capacity" the parent company needs to meet its obligations, including debt service. The consolidated statutory net income (loss) (a non-GAAP measure) of our insurance subsidiaries was $(293.3) million (including approximately $541 million loss related to a reinsurance transaction), $352.3 million and $256.6 million (including approximately $110 million loss on the recapture of long-term care business) in 2018, 2017 and 2016, respectively. Included in such net income were net realized capital gains (losses), net of income taxes, of $43.8 million, $(9.9) million and $(29.7) million in 2018, 2017 and 2016, respectively. In addition, such net income included pre-tax amounts for fees and interest paid to CNO or its non-life subsidiaries totaling $159.2 million, $158.3 million and $153.9 million in 2018, 2017 and 2016, respectively.

Insurance regulators may prohibit the payment of dividends or other payments by our insurance subsidiaries to parent companies if they determine that such payment could be adverse to our policyholders or contract holders. Otherwise, the ability of our insurance subsidiaries to pay dividends is subject to state insurance department regulations. Insurance regulations generally permit dividends to be paid from statutory earned surplus of the insurance company without regulatory approval for any 12-month period in amounts equal to the greater of (or in some states, the lesser of): (i) statutory net gain from operations or statutory net income for the prior year; or (ii) 10 percent of statutory capital and surplus as of the end of the preceding year. However, as each of the immediate insurance subsidiaries of CDOC, Inc. ("CDOC", our wholly owned subsidiary and the immediate parent of Washington National and Conseco Life Insurance Company of Texas) has negative earned surplus, any dividend payments from the insurance subsidiaries to CNO requires the prior approval of the director or commissioner of the applicable state insurance department. During 2018, our insurance subsidiaries paid dividends of $213.9 million to CDOC. CDOC made a capital contribution of $265.0 million to its insurance subsidiaries in 2018.

The payment of interest on surplus debentures requires either prior written notice or approval of the director or commissioner of the applicable state insurance department. Dividends and other payments from our non-insurance subsidiaries to CNO or CDOC do not require approval by any regulatory authority or other third party.

In accordance with an order from the Florida Office of Insurance Regulation, Washington National may not distribute funds to any affiliate or shareholder, except pursuant to agreements that have been approved, without prior notice to the Florida Office of Insurance Regulation. In addition, the risk-based capital ("RBC") and other capital requirements described below can also limit, in certain circumstances, the ability of our insurance subsidiaries to pay dividends.

RBC requirements provide a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks and the need for possible regulatory attention. The RBC requirements provide four levels of regulatory attention, varying with the ratio of the insurance company's total adjusted capital (defined as the total of its statutory capital and surplus, asset valuation reserve and certain other adjustments) to its RBC (as measured on December 31 of each year) as follows: (i) if a company's total adjusted capital is less than 100 percent but greater than or equal to 75 percent of its RBC, the company must submit a comprehensive plan to the regulatory authority proposing corrective actions aimed at improving its capital position (the "Company Action Level"); (ii) if a company's total adjusted capital is less than 75 percent but greater than or equal to 50 percent of its RBC, the regulatory authority will perform a special examination of the company and issue an order specifying the corrective actions that must be taken; (iii) if a company's total adjusted capital is less than 50 percent but greater than or equal to 35 percent of its RBC, the regulatory authority may take any action it deems necessary, including placing the company under regulatory control; and (iv) if a company's total adjusted capital is less than 35 percent of its RBC, the regulatory authority must place the company under its control. In addition, the RBC requirements provide for a trend test if a company's total adjusted capital is between 100 percent and 150 percent of its RBC at the end of the year. The trend test calculates the greater of the decrease in the margin of total adjusted capital over RBC: (i) between the current year and the prior year; and (ii) for the average of the last 3 years. It assumes that such decrease could occur again in the coming year. Any company whose trended total adjusted capital is less than 95 percent of its RBC would trigger a requirement to submit a comprehensive plan as described above for the Company Action Level. The 2018 statutory annual statements of each of our insurance subsidiaries reflect total adjusted capital in excess of the levels that would subject our subsidiaries to any regulatory action.

In addition, although we are under no obligation to do so, we may elect to contribute additional capital or retain greater amounts of capital to strengthen the surplus of certain insurance subsidiaries. Any election to contribute or retain additional capital could impact the amounts our insurance subsidiaries pay as dividends to the holding company. The ability of our insurance subsidiaries to pay dividends is also impacted by various criteria established by rating agencies to maintain or receive higher ratings and by the capital levels that we target for our insurance subsidiaries.

At December 31, 2018, the consolidated RBC ratio of our insurance subsidiaries exceeded the minimum RBC requirement included in our Revolving Credit Agreement. See the note to the consolidated financial statements entitled "Notes Payable - Direct Corporate Obligations" for further discussion of various financial ratios and balances we are required to maintain. We calculate the consolidated RBC ratio by assuming all of the assets, liabilities, capital and surplus and other aspects of the business of our insurance subsidiaries are combined together in one insurance subsidiary, with appropriate intercompany eliminations.

BUSINESS SEGMENTS

12 Months Ended

Dec. 31, 2018

Segment Reporting [Abstract]

BUSINESS SEGMENTS

The Company manages its business through the following operating segments: Bankers Life, Washington National and Colonial Penn, which are 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. On September 27, 2018, the Company completed a long-term care reinsurance transaction pursuant to which its wholly-owned subsidiary, Bankers Life, entered into an agreement to cede all of its legacy (prior to 2003) comprehensive and nursing home long-term care policies (with statutory reserves of $2.7 billion) through 100% indemnity coinsurance, as further described in the note to the consolidated financial statements entitled "Summary of Significant Accounting Policies - Reinsurance". In anticipation of the reinsurance agreement, the Company reorganized its business segments to move the block to be ceded from the "Bankers Life segment" to the "Long-term care in run-off segment" in the third quarter of 2018. All prior period segment disclosures have been revised to conform to management's current view of the Company's operating segments.

We measure segment performance by excluding the loss related to reinsurance transactions, net realized investment gains (losses), fair value changes in embedded derivative liabilities (net of related amortization), fair value changes and amendment in 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 loss related to reinsurance transactions, net realized investment gains (losses), fair value changes in embedded derivative liabilities (net of related amortization), fair value changes and amendment in 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 was as follows (dollars in millions):



	2018			2017		2016
Revenues:
Bankers Life:
Insurance policy income:
Annuities	$	18.5		$	20.3	$	22.0
Health	1,023.3			1,038.2		1,035.2
Life	416.7			415.2		393.0
Net investment income (a)	762.9			918.2		751.5
Fee revenue and other income (a)	51.9			44.1		34.4
Total Bankers Life revenues	2,273.3			2,436.0		2,236.1
Washington National:
Insurance policy income:
Annuities	1.4			2.1		2.9
Health	658.9			642.9		627.9
Life	27.3			26.4		25.0
Net investment income (a)	259.8			270.2		259.3
Fee revenue and other income (a)	.9			1.0		1.3
Total Washington National revenues	948.3			942.6		916.4
Colonial Penn:
Insurance policy income:
Health	1.7			2.1		2.6
Life	296.9			289.7		278.8
Net investment income (a)	44.6			44.4		44.2
Fee revenue and other income (a)	1.8			1.3		1.1
Total Colonial Penn revenues	345.0			337.5		326.7
Long-term care in run-off:
Insurance policy income - health	148.4			210.4		213.7
Net investment income (a)	172.7			223.7		194.7
Total Long-term care in run-off revenues	321.1			434.1		408.4
Corporate operations:
Net investment income	(5.6		)	35.5		16.6
Fee revenue and other income	6.7			8.5		10.0
Total corporate revenues	1.1			44.0		26.6
Total revenues	$	3,888.8		$	4,194.2	$	3,914.2

(continued on next page)

(continued from previous page)



	2018			2017			2016
Expenses:
Bankers Life:
Insurance policy benefits	$	1,311.9		$	1,474.9		$	1,283.2
Amortization	171.3			153.3			163.9
Interest expense on investment borrowings	29.7			19.8			13.2
Other operating costs and expenses	419.8			420.5			400.2
Total Bankers Life expenses	1,932.7			2,068.5			1,860.5
Washington National:
Insurance policy benefits	556.5			581.1			561.7
Amortization	55.8			58.8			59.1
Interest expense on investment borrowings	10.8			6.3			3.7
Other operating costs and expenses	203.3			198.1			189.0
Total Washington National expenses	826.4			844.3			813.5
Colonial Penn:
Insurance policy benefits	207.2			199.6			201.9
Amortization	17.8			16.3			15.3
Interest expense on investment borrowings	1.4			.9			.6
Other operating costs and expenses	103.8			98.1			107.2
Total Colonial Penn expenses	330.2			314.9			325.0
Long-term care in run-off:
Insurance policy benefits	271.3			344.2			355.0
Amortization	7.0			10.3			12.6
Other operating costs and expenses	19.9			26.5			22.4
Total Long-term care in run-off expenses	298.2			381.0			390.0
Corporate operations:
Interest expense on corporate debt	48.0			46.5			45.8
Other operating costs and expenses	72.1			84.3			69.1
Total corporate expenses	120.1			130.8			114.9
Total expenses	3,507.6			3,739.5			3,503.9
Pre-tax operating earnings by segment:
Bankers Life	340.6			367.5			375.6
Washington National	121.9			98.3			102.9
Colonial Penn	14.8			22.6			1.7
Long-term care in run-off	22.9			53.1			18.4
Corporate operations	(119.0		)	(86.8		)	(88.3		)
Pre-tax operating earnings	$	381.2		$	454.7		$	410.3

___________________


(a)	It is not practicable to provide additional components of revenue by product or services.

A reconciliation of segment revenues and expenses to consolidated revenues and expenses and net income is as follows (dollars in millions):



	2018			2017			2016
Total segment revenues	$	3,888.8		$	4,194.2		$	3,914.2
Net realized investment gains (losses)	(11.3		)	50.3			8.3
Net realized gains on the transfer of assets related to reinsurance transaction	363.4			—			—
Revenues related to earnings attributable to VIEs	67.4			52.7			52.6
Fee revenue related to transition and support services agreements	5.2			—			10.0
Consolidated revenues	4,313.5			4,297.2			3,985.1

Total segment expenses	3,507.6			3,739.5			3,503.9
Insurance policy benefits - fair value changes in embedded derivative liabilities	(68.3		)	2.9			(11.3		)
Amortization related to fair value changes in embedded derivative liabilities	12.8			(.4		)	1.7
Amortization related to net realized investment gains (losses)	(.4		)	1.0			.7
Expenses attributable to VIEs	65.8			61.5			54.6
Fair value changes and amendment related to agent deferred compensation plan	(11.9		)	12.2			(3.1		)
Loss related to reinsurance transactions	1,067.6			—			75.4
Expenses related to transition and support services agreements	5.1			—			10.0
Consolidated expenses	4,578.3			3,816.7			3,631.9
Income (loss) before tax	(264.8		)	480.5			353.2
Income tax expense (benefit):
Tax expense (benefit) on period income (loss)	(57.6		)	162.8			127.8
Valuation allowance for deferred tax assets and other tax items	107.8			142.1			(132.8		)
Net income (loss)	$	(315.0	)	$	175.6		$	358.2

Segment balance sheet information was as follows (dollars in millions):



	2018		2017
Assets:
Bankers Life	$	17,457.0	$	17,474.5
Washington National	7,385.0		7,674.3
Colonial Penn	1,031.3		1,059.3
Long-term care in run-off	3,419.9		4,353.3
Corporate operations	2,146.6		2,548.9
Total assets	$	31,439.8	$	33,110.3
Liabilities:
Bankers Life	$	15,262.0	$	14,747.6
Washington National	6,079.2		6,101.5
Colonial Penn	940.0		921.0
Long-term care in run-off	3,348.8		3,864.4
Corporate operations	2,438.9		2,628.3
Total liabilities	$	28,068.9	$	28,262.8

The following table presents selected financial information of our segments (dollars in millions):



Segment	Present value of future profits		Deferred acquisition costs		Insurance liabilities
2018
Bankers Life	$	86.5	$	863.2	$	13,714.6
Washington National	226.9		342.7		5,556.1
Colonial Penn	30.2		116.6		845.7
Long-term care in run-off	—		—		3,340.3
Total	$	343.6	$	1,322.5	$	23,456.7
2017
Bankers Life	$	81.1	$	606.5	$	13,257.2
Washington National	243.7		310.8		5,590.7
Colonial Penn	34.8		109.5		834.4
Long-term care in run-off	—		—		3,856.7
Total	$	359.6	$	1,026.8	$	23,539.0

QUARTERLY FINANCIAL DATA (UNAUDITED)

12 Months Ended

Dec. 31, 2018

Quarterly Financial Data [Abstract]

QUARTERLY FINANCIAL DATA (UNAUDITED)

We compute earnings per common share for each quarter independently of earnings per share for the year. The sum of the quarterly earnings per share may not equal the earnings per share for the year because of: (i) transactions affecting the weighted average number of shares outstanding in each quarter; and (ii) the uneven distribution of earnings during the year. Quarterly financial data (unaudited) were as follows (dollars in millions, except per share data):



2018	1st Qtr.		2nd Qtr.		3rd Qtr.			4th Qtr.
Revenues	$	1,007.8	$	1,046.3	$	1,481.2		$	778.2
Income (loss) before income taxes	$	108.1	$	129.8	$	(539.8	)	$	37.1
Income tax expense (benefit)	23.8		27.6		(10.0		)	8.8
Net income (loss)	$	84.3	$	102.2	$	(529.8	)	$	28.3
Earnings per common share:
Basic:
Net income (loss)	$	.50	$	.62	$	(3.22	)	$	.17
Diluted:
Net income (loss)	$	.50	$	.61	$	(3.22	)	$	.17

2017	1st Qtr.		2nd Qtr.		3rd Qtr.			4th Qtr. (a)
Revenues	$	1,070.7	$	1,057.1	$	1,079.3		$	1,090.1
Income before income taxes	$	96.7	$	128.5	$	129.9		$	125.4
Income tax expense	34.4		45.1		29.1			196.3
Net income (loss)	$	62.3	$	83.4	$	100.8		$	(70.9	)
Earnings per common share:
Basic:
Net income (loss)	$	.36	$	.49	$	.60		$	(.42	)
Diluted:
Net income (loss)	$	.36	$	.48	$	.59		$	(.42	)

___________________


(a)	In the fourth quarter of 2017, our net loss reflected the unfavorable impact of $172.5 million related to the Tax Reform Act which was enacted in December 2017.

INVESTMENTS IN VARIABLE INTEREST ENTITIES

12 Months Ended

Dec. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

INVESTMENTS IN VARIABLE INTEREST ENTITIES

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

All of the VIEs are collateralized loan trusts that were established to issue securities to finance the purchase of corporate loans and other permitted investments. The assets held by the trusts are legally isolated and not available to the Company. The liabilities of the VIEs are expected to be satisfied from the cash flows generated by the underlying loans held by the trusts, not from the assets of the Company. During 2017 and 2016, VIEs that were required to be consolidated were dissolved. We recognized losses of $4.3 million and $7.3 million during 2017 and 2016, respectively, representing the difference between the borrowings of such VIEs and the contractual distributions required following the liquidation of the underlying assets. The scheduled repayment of the remaining principal balance of the borrowings related to the VIEs are as follows: $3.6 million in 2019; $2.1 million in 2020; $27.6 million in 2021; $99.7 million in 2022; $340.5 million in 2023; $314.1 million in 2024; $183.3 million in 2025; $120.1 million in 2026; $63.4 million in 2027; $268.7 million in 2028; and $7.0 million in 2030. The Company has no financial obligation to the VIEs beyond its investment in each VIE.

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

The following table provides supplemental information about the assets and liabilities of the VIEs which have been consolidated (dollars in millions):



	December 31, 2018
	VIEs		Eliminations			Net effect on consolidated balance sheet
Assets:
Investments held by variable interest entities	$	1,468.4	$	—		$	1,468.4
Notes receivable of VIEs held by subsidiaries	—		(142.8		)	(142.8		)
Cash and cash equivalents held by variable interest entities	62.4		—			62.4
Accrued investment income	2.3		—			2.3
Income tax assets, net	15.3		—			15.3
Other assets	5.3		(2.6		)	2.7
Total assets	$	1,553.7	$	(145.4	)	$	1,408.3
Liabilities:
Other liabilities	$	53.9	$	(5.3	)	$	48.6
Borrowings related to variable interest entities	1,417.2		—			1,417.2
Notes payable of VIEs held by subsidiaries	155.2		(155.2		)	—
Total liabilities	$	1,626.3	$	(160.5	)	$	1,465.8



	December 31, 2017
	VIEs		Eliminations			Net effect on consolidated balance sheet
Assets:
Investments held by variable interest entities	$	1,526.9	$	—		$	1,526.9
Notes receivable of VIEs held by insurance subsidiaries	—		(155.5		)	(155.5		)
Cash and cash equivalents held by variable interest entities	178.9		—			178.9
Accrued investment income	2.6		(.1		)	2.5
Income tax assets, net	.7		—			.7
Other assets	10.0		(1.5		)	8.5
Total assets	$	1,719.1	$	(157.1	)	$	1,562.0
Liabilities:
Other liabilities	$	158.3	$	(4.4	)	$	153.9
Borrowings related to variable interest entities	1,410.7		—			1,410.7
Notes payable of VIEs held by insurance subsidiaries	167.6		(167.6		)	—
Total liabilities	$	1,736.6	$	(172.0	)	$	1,564.6

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



	2018			2017			2016
Revenues:
Net investment income – policyholder and other special-purpose portfolios	$	81.5		$	69.8		$	78.9
Fee revenue and other income	7.6			5.9			6.4
Total revenues	89.1			75.7			85.3
Expenses:
Interest expense	59.9			50.2			53.1
Other operating expenses	2.1			1.8			1.5
Total expenses	62.0			52.0			54.6
Income before net realized investment losses and income taxes	27.1			23.7			30.7
Net realized investment losses	(3.6		)	(5.6		)	(20.4		)
Loss on extinguishment of borrowings	(3.8		)	(9.5		)	—
Income before income taxes	$	19.7		$	8.6		$	10.3

The investment portfolios held by the VIEs are primarily comprised of commercial bank loans to corporate obligors which are almost entirely rated below-investment grade. At December 31, 2018, such loans had an amortized cost of $1,534.2 million; gross unrealized gains of $1.2 million; gross unrealized losses of $67.0 million; and an estimated fair value of $1,468.4 million.

The following table sets forth the amortized cost and estimated fair value of the investments held by the VIEs at December 31, 2018, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.



	Amortized cost		Estimated fair value
	(Dollars in millions)
Due after one year through five years	$	621.9	$	594.5
Due after five years through ten years	912.3		873.9
Total	$	1,534.2	$	1,468.4

The following table sets forth the amortized cost and estimated fair value of those investments held by the VIEs with unrealized losses at December 31, 2018, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.



	Amortized cost		Estimated fair value
	(Dollars in millions)
Due after one year through five years	$	615.6	$	587.0
Due after five years through ten years	904.7		866.3
Total	$	1,520.3	$	1,453.3

During 2018, the VIEs recognized net realized investment losses of $3.6 million from the sales of fixed maturities. During 2017, the VIEs recognized net realized investment losses of $5.6 million which were comprised of: (i) $1.2 million of net gains from the sales of fixed maturities; (ii) $4.3 million of losses on the dissolution of VIEs; and (iii) $2.5 million of writedowns of investments for other than temporary declines in fair value recognized through net income. During 2016, the VIEs recognized net realized investment losses of $20.4 million which were comprised of: (i) $11.9 million of net losses from the sales of fixed maturities; (ii) a $7.3 million loss on the dissolution of a VIE; and (iii) $1.2 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

At December 31, 2018, there were no investments held by the VIEs that were in default.

During 2018, $57.2 million of investments held by the VIEs were sold which resulted in gross investment losses (before income taxes) of $3.8 million. During 2017, $109.6 million of investments held by the VIEs were sold which resulted in gross investment losses (before income taxes) of $3.0 million. During 2016, $192.2 million of investments held by the VIEs were sold which resulted in gross investment losses (before income taxes) of $20.3 million.

At December 31, 2018, the VIEs held: (i) investments with a fair value of $1,315.7 million and gross unrealized losses of $55.7 million that had been in an unrealized loss position for less than twelve months; and (ii) investments with a fair value of $137.6 million and gross unrealized losses of $11.3 million that had been in an unrealized loss position for greater than twelve months.

At December 31, 2017, the VIEs held: (i) investments with a fair value of $445.4 million and gross unrealized losses of $4.9 million that had been in an unrealized loss position for less than twelve months; and (ii) investments with a fair value of $28.4 million and gross unrealized losses of $1.7 million that had been in an unrealized loss position for greater than twelve months.

The investments held by the VIEs are evaluated for other-than-temporary declines in fair value in a manner that is consistent with the Company's fixed maturities, available for sale.

SCHEDULE II - Condensed Financial Information of Registrant (Parent Company)

12 Months Ended

Dec. 31, 2018

Condensed Financial Information Disclosure [Abstract]

SCHEDULE II - Condensed Financial Information of Registrant (Parent Company)

SCHEDULE II

Condensed Financial Information of Registrant (Parent Company)

Balance Sheet

as of December 31, 2018 and 2017

(Dollars in millions)



ASSETS
	2018		2017
Cash and cash equivalents - unrestricted	$	205.9	$	161.1
Equity securities at fair value (cost: 2018 - $20.3; 2017 - $225.7)	20.0		243.6
Investment in wholly-owned subsidiaries (eliminated in consolidation)	4,115.6		5,440.7
Income tax assets, net	137.1		129.6
Receivable from subsidiaries (eliminated in consolidation)	4.6		6.3
Other assets	1.7		12.7
Total assets	$	4,484.9	$	5,994.0

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable	$	916.8	$	914.6
Payable to subsidiaries (eliminated in consolidation)	135.7		143.0
Other liabilities	61.5		88.9
Total liabilities	1,114.0		1,146.5
Commitments and Contingencies
Shareholders' equity:
Common stock and additional paid-in capital ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: 2018 - 162,201,692; 2017 - 166,857,931)	2,996.6		3,075.0
Accumulated other comprehensive income	177.7		1,212.1
Retained earnings	196.6		560.4
Total shareholders' equity	3,370.9		4,847.5
Total liabilities and shareholders' equity	$	4,484.9	$	5,994.0

The accompanying notes are an integral part

of the condensed financial statements.

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

SCHEDULE II

Condensed Financial Information of Registrant (Parent Company)

Statement of Operations

for the years ended December 31, 2018, 2017 and 2016

(Dollars in millions)



	2018			2017			2016
Revenues:
Net investment income	$	14.3		$	14.2		$	15.6
Net realized investment gains (losses)	(4.3		)	2.4			17.7
Total revenues	10.0			16.6			33.3
Expenses:
Interest expense	48.0			46.5			45.8
Intercompany expenses (eliminated in consolidation)	2.9			1.7			.9
Operating costs and expenses	40.0			75.4			48.2
Total expenses	90.9			123.6			94.9
Loss before income taxes and equity in undistributed earnings of subsidiaries	(80.9		)	(107.0		)	(61.6		)
Income tax expense (benefit)	(20.8		)	27.4			(54.6		)
Loss before equity in undistributed earnings of subsidiaries	(60.1		)	(134.4		)	(7.0		)
Equity in undistributed earnings (losses) of subsidiaries (eliminated in consolidation)	(254.9		)	310.0			365.2
Net income (loss)	$	(315.0	)	$	175.6		$	358.2

The accompanying notes are an integral part

of the condensed financial statements.

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

SCHEDULE II

Condensed Financial Information of Registrant (Parent Company)

Statement of Cash Flows

for the years ended December 31, 2018, 2017 and 2016

(Dollars in millions)



	2018			2017			2016
Cash flows from operating activities	$	(107.2	)	$	(181.8	)	$	(110.7	)
Cash flows from investing activities:
Sales of investments	250.1			54.9			305.0
Purchases of investments	(30.9		)	(123.6		)	(198.4		)
Net sales of trading securities	8.3			9.1			12.0
Dividends received from consolidated subsidiary, net of capital contributions of $265.0 in 2018, nil in 2017 and $200.0 in 2016*	(40.1		)	363.5			92.5
Net cash provided by investing activities	187.4			303.9			211.1
Cash flows from financing activities:
Issuance of common stock	3.9			8.3			8.4
Payments to repurchase common stock	(108.0		)	(168.3		)	(210.0		)
Common stock dividends paid	(64.8		)	(59.6		)	(54.8		)
Issuance of notes payable to affiliates*	227.7			310.8			217.1
Payments on notes payable to affiliates*	(94.2		)	(158.3		)	(83.9		)
Net cash used by financing activities	(35.4		)	(67.1		)	(123.2		)
Net increase (decrease) in cash and cash equivalents	44.8			55.0			(22.8		)
Cash and cash equivalents, beginning of the year	161.1			106.1			128.9
Cash and cash equivalents, end of the year	$	205.9		$	161.1		$	106.1

* Eliminated in consolidation

The accompanying notes are an integral part

of the condensed financial statements.

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

SCHEDULE II

Notes to Condensed Financial Information

1. Basis of Presentation

The condensed financial information should be read in conjunction with the consolidated financial statements of CNO Financial Group, Inc. The condensed financial information includes the accounts and activity of the parent company.

SCHEDULE IV - REINSURANCE

12 Months Ended

Dec. 31, 2018

SEC Schedule, 12-17, Insurance Companies, Reinsurance [Abstract]

Schedule II - Reinsurance

SCHEDULE IV

Reinsurance

for the years ended December 31, 2018, 2017 and 2016

(Dollars in millions)



	2018			2017			2016
Life insurance inforce:
Direct	$	27,662.8		$	27,154.3		$	27,048.1
Assumed	114.4			120.5			128.7
Ceded	(3,321.3		)	(3,452.6		)	(3,604.0		)
Net insurance inforce	$	24,455.9		$	23,822.2		$	23,572.8
Percentage of assumed to net	.5		%	.5		%	.5		%



	2018			2017			2016
Insurance policy income:
Direct	$	2,556.4		$	2,576.9		$	2,553.0
Assumed	28.0			30.4			34.0
Ceded	(144.5		)	(105.0		)	(123.9		)
Net premiums	$	2,439.9		$	2,502.3		$	2,463.1
Percentage of assumed to net	1.1		%	1.2		%	1.4		%

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Segments

The Company manages its business through the following operating segments: Bankers Life, Washington National and Colonial Penn, which are 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. On September 27, 2018, the Company completed a long-term care reinsurance transaction pursuant to which its wholly-owned subsidiary, Bankers Life and Casualty Company ("Bankers Life"), entered into an agreement with Wilton Reassurance Company ("Wilton Re") to cede all of its legacy (prior to 2003) comprehensive and nursing home long-term care policies (with statutory reserves of $2.7 billion) through 100% indemnity coinsurance, as further described in the note to the consolidated financial statements entitled "Summary of Significant Accounting Policies - Reinsurance". In anticipation of the reinsurance agreement, the Company reorganized its business segments to move the block to be ceded from the "Bankers Life segment" to the "Long-term care in run-off segment" in the third quarter of 2018. All prior period segment disclosures have been revised to conform to management's current view of the Company's operating segments.

•

Bankers Life, which underwrites, markets and distributes Medicare supplement insurance, interest-sensitive life insurance, traditional life insurance, fixed annuities and long-term care insurance products to the middle-income senior market through a dedicated field force of career agents, financial and investment advisors, and sales managers supported by a network of community-based sales offices. The Bankers Life segment includes primarily the business of Bankers Life. Bankers Life also has various distribution and marketing agreements with other insurance companies to use Bankers Life's career agents to distribute Medicare Advantage and prescription drug plan products in exchange for a fee.

•

Washington National, which underwrites, markets and distributes supplemental health (including specified disease, accident and hospital indemnity insurance products) and life insurance to middle-income consumers at home and at the worksite. These products are marketed through Performance Matters Associates, Inc. and through independent marketing organizations and insurance agencies including worksite marketing. The products being marketed are underwritten by Washington National Insurance Company ("Washington National"). This segment's business also includes certain closed blocks of annuities and Medicare supplement policies which are no longer being actively marketed by this segment and were primarily issued or acquired by Washington National.


•	Colonial Penn, which markets primarily graded benefit and simplified issue life insurance directly to customers in the senior middle-income market through television advertising, direct mail, the internet and telemarketing. The Colonial Penn segment includes primarily the business of Colonial Penn Life Insurance Company ("Colonial Penn").

•

Long-term care in run-off consists of: (i) the long-term care business that was recaptured due to the termination of certain reinsurance agreements effective September 30, 2016 (such business is not actively marketed and was issued or acquired by Washington National and Bankers Conseco Life Insurance Company ("BCLIC"); and (ii) certain legacy (prior to 2003) comprehensive and nursing home long-term care policies which were ceded in September 2018 (such business is not actively marketed and was issued by Bankers Life).

Basis of Accounting

We prepare our financial statements 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 2018 presentation. These reclassifications have no effect on net income or shareholders' equity.

Consolidation

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.

Use of Estimates