CNO Financial Group, Inc. [CNO-PA] Filings

10-Q 1 cno-20230331.htm 10-Q cno-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number 001-31792

CNO Financial Group, Inc.

Delaware

75-3108137

State of Incorporation

IRS Employer Identification No.

11825 N. Pennsylvania Street

Carmel,

Indiana

46032

(317)

817-6100

Address of principal executive offices

Telephone

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CNO

New York Stock Exchange

Rights to purchase Series E Junior Participating Preferred Stock

New York Stock Exchange

5.125% Subordinated Debentures due 2060

CNOpA

New York Stock Exchange

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

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

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

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

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

Shares of common stock outstanding as of April 25, 2023: 114,553,509

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION		Page

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheet as of March 31 , 202 3 and December 31, 20 2 2	3
	Consolidated Statement of Operations for the three months ended March 31, 202 3 and 202 2	5
	Consolidated Statement of Comprehensive Income (Loss) for the three months ended Mar ch 31 , 202 3 and 202 2	6
	Consolidated Statement of Shareholders' Equity for the three months ended March 31 , 202 3 and 202 2	7
	Consolidated Statement of Cash Flows for the three months ended Mar ch 31 , 202 3 and 202 2	8
	Notes to Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations	70
	Cautionary Statement Regarding Forward-Looking Statements	70
	Overview	72
	Critical Accounting Estimates	75
	Results of Operations	78
	Liquidity and Capital Resources	86
	Investments	92
	Investments in Variable Interest Entities	99
	New Accounting Standards	102

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	102

Item 4.	Controls and Procedures	102


PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	103

Item 1A.	Risk Factors	103

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	103

Item 6.	Exhibits	104

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars in millions)

(unaudited)

ASSETS


	March 31, 2023		December 31, 2022
			(As recast)
Investments:
Fixed maturities, available for sale, at fair value (net of allowance for credit losses: March 31, 2023 - $59.1 and December 31, 2022 - $56.0; amortized cost: March 31, 2023 - $23,517.9 and December 31, 2022 - $23,384.2)	$	21,107.1	$	20,353.4
Equity securities at fair value	106.1		135.3
Mortgage loans (net of allowance for credit losses: March 31, 2023 - $8.4 and December 31, 2022 - $8.0)	1,676.1		1,411.9
Policy loans	123.0		121.6
Trading securities	208.1		207.9
Investments held by variable interest entities (net of allowance for credit losses: March 31, 2023 - $3.5 and December 31, 2022 - $5.5; amortized cost: March 31, 2023 - $1,060.3 and December 31, 2022 - $1,134.2)	1,017.9		1,077.6
Other invested assets	1,097.1		1,034.7
Total investments	25,335.4		24,342.4
Cash and cash equivalents - unrestricted	425.0		575.7
Cash and cash equivalents held by variable interest entities	97.1		69.2
Accrued investment income	241.3		235.6
Present value of future profits	197.6		203.7
Deferred acquisition costs	1,811.3		1,770.9
Reinsurance receivables (net of allowance for credit losses: March 31, 2023 - $2.0 and December 31, 2022 - $2.0)	4,189.6		4,223.4
Market risk benefit asset	57.8		65.3
Income tax assets, net	988.1		1,063.4
Assets held in separate accounts	2.8		2.7
Other assets	669.0		580.8
Total assets	$	34,015.0	$	33,133.1

(continued on next page)

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET, continued

(Dollars in millions)

(unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY


	March 31, 2023		December 31, 2022
			(As recast)
Liabilities:
Liabilities for insurance products:
Policyholder account balances	$	15,302.9	$	15,234.2
Future policy benefits	11,623.3		11,240.2
Market risk benefit liability	17.6		11.3
Liability for life insurance policy claims	67.6		64.1
Unearned and advanced premiums	243.5		235.0
Liabilities related to separate accounts	2.8		2.7
Other liabilities	681.3		693.9
Investment borrowings	1,839.6		1,639.5
Borrowings related to variable interest entities	1,065.4		1,104.6
Notes payable – direct corporate obligations	1,139.2		1,138.8
Total liabilities	31,983.2		31,364.3
Commitments and Contingencies
Shareholders' equity:
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: March 31, 2023 – 114,905,172; December 31, 2022 – 114,343,070)	1.1		1.1
Additional paid-in capital	2,021.1		2,033.8
Accumulated other comprehensive loss	(1,664.4)		(1,957.3)
Retained earnings	1,674.0		1,691.2
Total shareholders' equity	2,031.8		1,768.8
Total liabilities and shareholders' equity	$	34,015.0	$	33,133.1

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(Dollars in millions, except per share data)

(unaudited)


	Three months ended
	March 31,
	2023		2022
			(As recast)
Revenues:
Insurance policy income	$	625.5	$	625.0
Net investment income:
General account assets	292.2		277.5
Policyholder and other special-purpose portfolios	50.8		(69.3)
Investment gains (losses):
Realized investment gains (losses)	(14.6)		18.8
Other investment losses	—		(51.5)

Total investment losses	(14.6)		(32.7)
Fee revenue and other income	52.1		42.4
Total revenues	1,006.0		842.9
Benefits and expenses:
Insurance policy benefits	609.7		333.9
Liability for future policy benefits remeasurement loss	.6		7.0
Change in fair value of market risk benefits	14.8		(32.7)
Interest expense	54.7		23.8
Amortization	55.5		52.3


Other operating costs and expenses	271.7		218.3
Total benefits and expenses	1,007.0		602.6
Income (loss) before income taxes	(1.0)		240.3

Income tax expense (benefit) on period income (loss)	(.2)		56.9

Net income (loss)	$	(.8)	$	183.4
Earnings per common share:
Basic:
Weighted average shares outstanding	114,545,000		118,622,000
Net income (loss)	$	(.01)	$	1.55
Diluted:
Weighted average shares outstanding	114,545,000		121,002,000
Net income (loss)	$	(.01)	$	1.52

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

(unaudited)


	Three months ended
	March 31,
	2023		2022
			(As recast)

Net income (loss)	$	(.8)	$	183.4
Other comprehensive loss, before tax:
Unrealized gains (losses) on investments	626.1		(2,435.1)
Adjustment to discount rate for liability for future policy benefits	(263.3)		1,220.4
Adjustment to instrument-specific credit risk for market risk benefits	.9		6.6
Reclassification adjustments:
For net realized investment (gains) losses included in net income	10.9		7.8
Other comprehensive income (loss) before tax	374.6		(1,200.3)
Income tax (expense) benefit related to items of accumulated other comprehensive income (loss)	(81.7)		265.1
Other comprehensive income (loss), net of tax	292.9		(935.2)
Comprehensive income (loss)	$	292.1	$	(751.8)

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(Dollars in millions, shares in thousands)

(unaudited)


	Common stock			Additional paid-in		Accumulated other comprehensive		Retained
	Shares	Amount		capital		income (loss)		earnings		Total
Balance, December 31, 2021 (as recast)	120,377	$	1.2	$	2,184.2	$	373.7	$	1,125.6	$	3,684.7


Net income	—	—		—		—		183.4		183.4
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax benefit of $265.1)	—	—		—		(935.2)		—		(935.2)
Common stock repurchased	(4,057)	—		(100.0)		—		—		(100.0)
Dividends on common stock	—	—		—		—		(16.0)		(16.0)
Employee benefit plans, net of shares used to pay tax withholdings	921	—		1.5		—		—		1.5
Balance, March 31, 2022 (as recast)	117,241	$	1.2	$	2,085.7	$	(561.5)	$	1,293.0	$	2,818.4

Balance, December 31, 2022 (as recast)	114,343	$	1.1	$	2,033.8	$	(1,957.3)	$	1,691.2	$	1,768.8


Net loss	—	—		—		—		(.8)		(.8)
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense of $81.7)	—	—		—		292.9		—		292.9
Common stock repurchased	(633)	—		(15.1)		—		—		(15.1)
Dividends on common stock	—	—		—		—		(16.4)		(16.4)
Employee benefit plans, net of shares used to pay tax withholdings	1,195	—		2.4		—		—		2.4
Balance, March 31, 2023	114,905	$	1.1	$	2,021.1	$	(1,664.4)	$	1,674.0	$	2,031.8

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in millions)

(unaudited)


	Three months ended
	March 31,
	2023		2022
Cash flows from operating activities:
Insurance policy income	$	582.2	$	580.8
Net investment income	315.0		260.5
Fee revenue and other income	50.4		49.8
Insurance policy benefits	(410.9)		(416.8)
Interest expense	(38.6)		(9.7)
Deferrable policy acquisition costs	(89.8)		(83.7)
Other operating costs	(320.2)		(309.9)
Income taxes	(6.2)		(14.6)
Net cash from operating activities	81.9		56.4
Cash flows from investing activities:
Sales of investments	486.5		1,520.6
Maturities and redemptions of investments	276.8		494.9
Purchases of investments	(1,147.7)		(2,995.2)
Net purchases of trading securities	(8.4)		(17.3)
Other	(13.9)		(13.3)
Net cash used by investing activities	(406.7)		(1,010.3)
Cash flows from financing activities:



Issuance of common stock	8.1		4.0
Payments to repurchase common stock	(25.8)		(109.8)
Common stock dividends paid	(17.1)		(16.1)
Amounts received for deposit products	498.3		1,392.6
Withdrawals from deposit products	(422.1)		(364.2)
Issuance of investment borrowings:
Federal Home Loan Bank	620.5		—

Payments on investment borrowings:
Federal Home Loan Bank	(420.4)		(75.3)
Related to variable interest entities	(39.5)		(15.0)


Net cash provided by financing activities	202.0		816.2
Net decrease in cash and cash equivalents	(122.8)		(137.7)
Cash and cash equivalents - unrestricted and held by variable interest entities, beginning of period	644.9		731.7
Cash and cash equivalents - unrestricted and held by variable interest entities, end of period	$	522.1	$	594.0

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

___________________

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 exclusive agents, independent producers (some of whom sell one or more of our product lines exclusively) and direct marketing.

Our unaudited consolidated financial statements reflect normal recurring adjustments that, in the opinion of management, are necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. As permitted by rules and regulations of the Securities and Exchange Commission (the "SEC") applicable to quarterly reports on Form 10-Q, we have condensed or omitted certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Results for interim periods are not necessarily indicative of the results that may be expected for a full year.

Effective January 1, 2023, we adopted Accounting Standards Update 2018-12 ("ASU 2018-12") related to targeted improvements to the accounting for long-duration insurance contracts, with a transition date of January 1, 2021 (the "Transition Date"). The adoption of ASU 2018-12 impacted accounting and presentation related to long-duration insurance contracts and certain related balances for the years ended December 31, 2022 and 2021. Amounts within these interim financial statements, which were previously presented, have been recast to conform with the current accounting and presentation under ASU 2018-12. Disclosures of the impacts of ASU 2018-12 as of the Transition Date are included within the tables in the note to the consolidated financial statements entitled "Recently Adopted Accounting Standards."

Except for balances affected by the adoption of ASU 2018-12, the December 31, 2022 consolidated balance sheet data was derived from the audited consolidated financial statements included in our 2022 Annual Report on Form 10-K. Accordingly, these interim consolidated financial statements should be read together with the consolidated financial statements included in our 2022 Annual Report on Form 10-K.

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

The accompanying financial statements are unaudited and 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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following summarizes the significant accounting policies that have been added or updated as a result of the adoption of ASU 2018-12:

Deferred acquisition costs, present value of future profits and sales inducements

Deferred acquisition costs represent policy acquisition costs that have been capitalized and are subject to amortization. Capitalized costs are incremental costs directly related to the successful acquisition of new or renewal insurance contracts.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

___________________

Such costs consist primarily of commissions, underwriting, sales and contract issuance and processing expenses. Contracts are grouped by contract type and issue year into cohorts consistent with the grouping used in estimating the associated liability. Deferred acquisition costs are amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. For life and health insurance products, the constant level basis used is policy counts. For all annuity products, the constant level basis used is the initial deposit in force. The constant level bases used for amortization are projected using mortality and lapse assumptions that are based on our experience, industry data, and other factors and are consistent with those used for the liability for future policy benefits. If those projected assumptions change in future periods, they will be reflected in the cohort level amortization basis at the time. Unexpected lapses, due to higher mortality and lapse experience than expected, are recognized in the current period as a reduction of the capitalized balances. Changes in future estimates are recognized prospectively over the remaining expected contract term. The carrying amount of deferred acquisition costs is not subject to recovery testing upon the adoption of ASU 2018-12.

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 of the bankruptcy reorganization of our Predecessor). The present value of future profits is amortized in the same manner as described above for deferred acquisition costs, although such balances are subject to periodic recovery testing.

Certain of our annuity products offer sales inducements to contract holders in the form of enhanced crediting rates or bonus payments in the initial period of the contract. Certain of our life insurance products offer persistency bonuses credited to the contract holder's balance after the policy has been outstanding for a specified period of time. These enhanced rates and persistency bonuses are considered sales inducements in accordance with GAAP. Such amounts are deferred and amortized in the same manner as deferred acquisition costs (and are classified as deferred acquisition costs in the consolidated balance sheet). Unlike deferred acquisition costs, such amounts are considered contractual cash flows and, as a result, are subject to periodic recovery testing.

Market risk benefits

Market risk benefits ("MRBs") are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk and expose the Company to other-than-nominal capital market risk. Many of our fixed indexed annuity products include a guaranteed living withdrawal benefit ("GLWB") that is considered a MRB. MRBs are measured at fair value using an option-based valuation model based on amount of exposure, market data, Company experience and other factors. Changes in fair value are recognized in earnings each period with the exception of the portion of the change in fair value due to a change in the instrument-specific credit risk, which is recognized in accumulated other comprehensive income (loss). MRBs in an asset position are presented separately from those in a liability position as there is no legal right of offset between contracts.

Policyholder account balances

Policyholder account balances represent the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. It includes the accumulated account deposits, plus interest credited, less policyholder withdrawals and, if applicable, charges assessed. This balance also includes liabilities for the funding agreement-backed notes ("FABN").

Liability for future policy benefits

The liability for future policy benefits is the present value of estimated future policy benefits to be paid to or on behalf of policyholders and certain related expenses (where the timing and amount of payment depends on policyholder mortality or morbidity), less the present value of estimated future net premiums to be collected from policyholders (where net premiums are gross premiums multiplied by the net-to-gross ratio discussed below). The liability for future policy benefits is accrued over time as premium revenue is recognized. The liability is estimated using current assumptions that include discount rates, mortality, morbidity, lapse/withdrawal rates and expenses. Such assumptions are based on our historical experience, industry data, and other factors that are inherently uncertain.

This liability also includes the amount of total reserves above (below) policyholder account balances for our fixed indexed annuity products due to the valuation of the related embedded derivative.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

___________________

The liability for future policy benefits is established using a net premium ratio approach where net premiums (the portion of gross premiums required to fund expected insurance benefits and claims settlement expenses) under the contract are accrued each period as the liability for future policy benefits. The net premium ratio used to accrue the liability for future policy benefits in each period is determined by using the historical and present value of expected future benefits and claim adjustment expenses for the cohort divided by the historical and present value of expected future gross premiums for the cohort.

Our long duration insurance contracts are grouped into annual calendar-year cohorts primarily based on the contractual issue date, marketing distribution channel, legal entity and product type. Single premium contracts are grouped into separate cohorts from other traditional products. Riders are generally combined with the base policy. Insurance contracts which were issued prior to September 10, 2003 (the effective date of the bankruptcy reorganization of Conseco, Inc. (the "Predecessor")) are grouped by marketing distribution channel, legal entity and product type in a single issue year cohort. The liability is adjusted for differences between actual and expected experience. We review our historical and future cash flow assumptions quarterly and update the net premium ratio used to calculate the liability each time the assumptions are changed. Each quarter, we update our estimates of cash flows expected over the entire life of a group of contracts using actual historical experience and current future cash flow assumptions. These updated cash flows are used to calculate the revised net premiums and net premium ratio, which are used to derive an updated liability for future policy benefits as of the beginning of the current reporting period, discounted at the original contract issuance discount rate. This amount is then compared to the carrying amount of the liability as of that same date, before the updating of cash flow assumptions, to determine the current period change in liability estimate. This current period change in the liability is the liability remeasurement gain or loss and is presented as a separate component of benefit expense in the consolidated statement of operations. In subsequent periods, the revised net premiums are used to measure the liability for future policy benefits, subject to future revisions.

If a cohort is in a loss position where the liability for future policy benefits plus the present value of expected future gross premiums is determined to be insufficient to provide for expected future policy benefits and claim settlement costs, the net to gross ratio is capped at 100 percent. When this occurs, all changes in expected benefits resulting from both actual experience deviations and changes in future assumptions are recognized immediately.

The locked-in discount rate is generally based on expected investment returns at contract inception for contracts issued prior to January 1, 2021 and the upper medium grade fixed income corporate instrument yield ("A" credit rated corporate bond yield) at contract inception for contracts issued after January 1, 2021. The contract inception date for contracts issued by the Predecessor is September 10, 2003. The discount rate in effect at contract inception is locked-in for the calculation of the net to gross ratio and accretion of interest cost on the liability is recorded through net income. However, for balance sheet remeasurement purposes, the discount rate is updated using the current rate at each reporting period with the impact resulting from such updates recorded in other comprehensive income.

We develop discount rate curves for discounting cash flows to calculate the liability for future policy benefits based on the duration characteristics of the underlying liabilities. For liability cash flows that are projected beyond the duration of market-observable A-credit-rated fixed-income instruments, we use the last market-observable yield level and use linear interpolation to determine yield assumptions for durations that do not have market-observable yields.

Liability for life insurance policy claims

The liability for life insurance policy claims include life policy and contract claims, including incurred but not reported claims. The liability for these claims is based on our estimated ultimate cost to settle all claims that have been incurred as of the reporting date. Such amounts are estimated based on an analysis of historical patterns of claims, which are continually reviewed and updated. Adjustments resulting from differences between our estimates and actual payments are recognized in the period the estimates are made or claims are paid.

Deferred profit liability

For limited-payment products, gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability ("DPL"). Gross premiums are measured using assumptions consistent with those used in the measurement of the liability for future policy benefits, including discount rate, mortality, lapses and expenses.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

___________________

The DPL is amortized and recognized in insurance policy benefits in proportion to insurance in force for life insurance contracts and expected future benefit payments for annuity contracts. Interest is accreted on the balance of the DPL using the discount rate determined at contract issuance. We review and update the estimate of cash flows for the DPL at the same time as the estimate of cash flows for the liability for future policy benefits. When cash flows are updated, the updated estimates are used to recalculate the DPL at contract issuance. The recalculated DPL as of the beginning of the current reporting period is compared to the carrying amount of the DPL as of the beginning of the current reporting period and any difference is recognized as either a charge or credit to insurance policy benefits.

On the balance sheet, the DPL is recorded as a component of the liability for future policy benefits and was $57.7 million at March 31, 2023.

Reinsurance

We have determined that each of our reinsurance agreements provide indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Such reinsurance permits recovery of the reinsured losses from reinsurers, although it does not discharge our primary liability as the direct insurer of the risks reinsured.

The reinsurance recoverable for traditional and limited-payment contracts is generally measured using a net premium ratio approach to accrue the projected net gain or loss on reinsurance in proportion to the gross premiums of the underlying reinsured cohorts. Such amount is adjusted on a quarterly basis for actual experience and at least once a year for any changes in cash flow assumptions.

RECENTLY ADOPTED ACCOUNTING STANDARDS

We adopted ASU 2018-12 effective January 1, 2023. The new guidance: (i) improves the timeliness of recognizing changes in the liability for future benefits and modifies the rate used to discount future cash flows; (ii) simplifies and improves the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts; (iii) simplifies the amortization of deferred acquisition costs; and (iv) requires enhanced disclosures, including disaggregated rollforwards of the liability for future policy benefits, policyholder account liabilities, market risk benefits and deferred acquisition costs. Additionally, qualitative and quantitative information about expected cash flows, estimates and assumptions is required. The new measurement guidance for traditional and limited-payment contract liabilities and the new guidance for the amortization of deferred acquisition costs was adopted on a modified retrospective transition approach. For contracts in-force at the transition date, we continue to use the existing locked-in investment yield interest rate assumption to calculate the net premium ratio, rather than the upper-medium grade fixed-income corporate instrument yield. However, for balance sheet remeasurement purposes, the current upper-medium grade fixed-income corporate instrument yield is used at transition through accumulated other comprehensive income (loss) and subsequently through other comprehensive income. For market risk benefits, we use the required retrospective application and were able to use hindsight to measure fair value components to the extent assumptions in a prior period are unobservable or otherwise unavailable.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

___________________

We selected the modified retrospective transition method, except for market risk benefits where we are required to use the full retrospective approach. Pursuant to ASU 2018-12, the account balances subject to the guidance were recast on the Transition Date. The following summarizes the impact of adoption on the Transition Date (dollars in millions):


	January 1, 2021
	Amounts prior
	to adoption of		Effect of
	ASU 2018-12		adoption			As recast
Present value of future profits	$	249.4	$	10.2		$	259.6
Deferred acquisition costs	1,027.8		458.0			1,485.8
Reinsurance receivables	4,584.3		144.1			4,728.4
Market risk benefit asset	—		2.5			2.5
Income tax assets, net	199.4		607.0			806.4
Total assets	35,339.9		1,221.8			36,561.7

Policyholder account balances	12,540.6		(172.9)			12,367.7
Future policy benefits	11,744.2		3,960.7			15,704.9
Market risk benefit liability	—		114.8			114.8
Liability for policy and contract claims	561.8		(470.1)			91.7
Total liabilities	29,855.7		3,432.5			33,288.2

Retained earnings	752.3		(130.9)		(a)

CNO Financial Group, Inc. [CNO-PA] Filings
CNO Financial Group, Inc. [CNO] Filings
10-Q	[2023-05-10]
10-K	[2023-02-24]
10-Q	[2022-11-04]
10-Q	[2022-08-05]
10-Q	[2022-05-06]
10-K	[2022-02-24]
10-Q	[2021-11-04]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-02-24]
10-Q	[2020-11-06]
10-Q	[2020-08-07]
10-Q	[2020-05-11]
10-K	[2020-02-25]
10-Q	[2019-11-06]
10-Q	[2019-08-06]
10-Q	[2019-05-03]
10-K	[2019-02-26]
10-Q	[2018-11-05]
10-Q	[2018-08-03]
10-Q	[2018-05-02]
10-K	[2018-02-23]
10-Q	[2017-11-01]
10-Q	[2017-08-04]
10-Q	[2017-05-03]
10-K	[2017-02-21]
10-Q	[2016-11-07]
10-Q	[2016-08-02]
10-Q	[2016-05-04]
10-K	[2016-02-19]
10-Q	[2015-11-03]
10-Q	[2015-08-03]
10-Q	[2015-05-05]
10-K	[2015-02-20]
10-Q	[2014-11-06]
10-Q	[2014-08-05]
10-Q	[2014-05-06]
10-K	[2014-02-24]

CNO Financial Group, Inc. [CNO-PA] Filings

CNO Financial Group, Inc. [CNO] Filings