Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

		
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended March 31, 2016

		
o	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	

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 [ X ]  No [   ]

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [ X ]  No [   ]

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

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

Shares of common stock outstanding as of April 21, 2016:  179,098,447

TABLE OF CONTENTS

	
			
PART I - FINANCIAL INFORMATION	Page	
 	 	 	
Item 1.	Financial Statements (unaudited)	 	
 	 	 	
 	Consolidated Balance Sheet as of March 31, 2016 and December 31, 2015	3	
 	Consolidated Statement of Operations for the three months ended March 31, 2016 and 2015	5	
 	Consolidated Statement of Comprehensive Income for the three months ended March 31, 2016 and 2015	6	
 	Consolidated Statement of Shareholders' Equity for the three months ended March 31, 2016 and 2015	7	
 	Consolidated Statement of Cash Flows for the three months ended March 31, 2016 and 2015	8	
 	Notes to Consolidated Financial Statements	9	
 	 	 	
Item 2.	Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations	50	
 	Cautionary Statement Regarding Forward-Looking Statements	50	
 	Overview	52	
 	Critical Accounting Policies	54	
 	Results of Operations	55	
 	Premium Collections	74	
 	Liquidity and Capital Resources	79	
 	Investments	85	
 	Investments in Variable Interest Entities	94	
 	Other Matters	96	
 	 	 	
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	97	
 	 	 	
Item 4.	Controls and Procedures	97	

PART II - OTHER INFORMATION	 	
 	 	 	
Item 1.	Legal Proceedings	98	
 	 	 	
Item 1A.	Risk Factors	98	
 	 	 	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98	
 	 	 	
Item 6.	Exhibits	99	

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(unaudited)

ASSETS

	
								
 	March 31,
2016	 	December 31,
2015	
 	 	 	 	
Investments:	 	 	 	
Fixed maturities, available for sale, at fair value (amortized cost:  March 31, 2016 - $18,765.4; December 31, 2015 - $18,947.0)	$	20,105.1		 	$	19,882.9		
Equity securities at fair value (cost: March 31, 2016 - $586.0; December 31, 2015 - $447.4)	610.7		 	463.0		
Mortgage loans	1,700.8		 	1,721.0		
Policy loans	110.1		 	109.4		
Trading securities	285.2		 	262.1		
Investments held by variable interest entities	1,691.0		 	1,633.6		
Other invested assets	433.4		 	415.1		
Total investments	24,936.3		 	24,487.1		
Cash and cash equivalents - unrestricted	635.7		 	432.3		
Cash and cash equivalents held by variable interest entities	190.1		 	364.4		
Accrued investment income	247.7		 	237.0		
Present value of future profits	432.2		 	449.0		
Deferred acquisition costs	954.8		 	1,083.3		
Reinsurance receivables	2,839.4		 	2,859.3		
Income tax assets, net	828.8		 	898.8		
Assets held in separate accounts	4.6		 	4.7		
Other assets	388.4		 	309.2		
Total assets	$	31,458.0		 	$	31,125.1		

(continued on next page)

The accompanying notes are an integral part
of the consolidated financial statements.

3

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, continued
(Dollars in millions)
(unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY

	
								
 	March 31,
2016	 	December 31,
2015	
 	 	 	 	
Liabilities:	 	 	 	
Liabilities for insurance products:	 	 	 	
Policyholder account balances	$	10,772.4		 	$	10,762.3		
Future policy benefits	10,768.7		 	10,602.1		
Liability for policy and contract claims	488.7		 	487.8		
Unearned and advanced premiums	292.0		 	286.3		
Liabilities related to separate accounts	4.6		 	4.7		
Other liabilities	788.9		 	707.8		
Investment borrowings	1,548.0		 	1,548.1		
Borrowings related to variable interest entities	1,656.6		 	1,676.4		
Notes payable – direct corporate obligations	911.5		 	911.1		
Total liabilities	27,231.4		 	26,986.6		
Commitments and Contingencies			 			
Shareholders' equity:	 		 	 		
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding:  March 31, 2016 – 179,098,447; December 31, 2015 – 184,028,511)	1.8		 	1.8		
Additional paid-in capital	3,304.3		 	3,386.8		
Accumulated other comprehensive income	540.5		 	402.8		
Retained earnings	380.0		 	347.1		
Total shareholders' equity	4,226.6		 	4,138.5		
Total liabilities and shareholders' equity	$	31,458.0		 	$	31,125.1		

The accompanying notes are an integral part
of the consolidated financial statements.

4

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)

									
 	 	Three months ended	
 	 	March 31,	
 	 	2016	 	2015	
Revenues:	 	 	 	 	
Insurance policy income	 	$	644.4		 	$	636.5		
Net investment income (loss):	 	 	 	 	
General account assets	 	291.0		 	300.1		
Policyholder and other special-purpose portfolios	 	11.7		 	16.6		
Realized investment gains (losses):	 	 	 	 	
Net realized investment gains (losses), excluding impairment losses	 	9.1		 	(1.1	)	
Impairment losses recognized (a)	 	(10.0	)	 	(1.3	)	
Gain on dissolution of a variable interest entity	 	—		 	11.3		
Total realized gains (losses)	 	(.9	)	 	8.9		
Fee revenue and other income	 	14.2		 	16.2		
Total revenues	 	960.4		 	978.3		
Benefits and expenses:	 	 	 	 	
Insurance policy benefits	 	619.0		 	606.0		
Transition expenses	 	—		 	4.5		
Interest expense	 	27.7		 	21.5		
Amortization	 	62.1		 	66.1		
Other operating costs and expenses	 	211.1		 	197.9		
Total benefits and expenses	 	919.9		 	896.0		
Income before income taxes	 	40.5		 	82.3		
Income tax expense:	 	 	 	 	
Tax expense on period income	 	15.0		 	29.5		
Valuation allowance for deferred tax assets	 	(20.0	)	 	—		
Net income	 	$	45.5		 	$	52.8		
Earnings per common share:	 	 	 	 	
Basic:	 	 	 	 	
Weighted average shares outstanding	 	180,350,000		 	200,491,000		
Net income	 	$	.25		 	$	.26		
Diluted:	 	 	 	 	
Weighted average shares outstanding	 	182,128,000		 	202,275,000		
Net income	 	$	.25		 	$	.26		

______________
		
(a)	No portion of the other-than-temporary impairments recognized in the periods was included in accumulated other comprehensive income.	

The accompanying notes are an integral part
of the consolidated financial statements.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in millions)
(unaudited)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Net income	$	45.5		 	$	52.8		
Other comprehensive income, before tax:	 	 	 	
Unrealized gains (losses) for the period	431.1		 	269.0		
Adjustment to present value of future profits and deferred acquisition costs	(45.2	)	 	(9.2	)	
Amount related to premium deficiencies assuming the net unrealized gains (losses) had been realized	(168.0	)	 	(92.1	)	
Reclassification adjustments:	 	 	 	
For net realized investment (gains) losses included in net income	(4.9	)	 	.4		
For amortization of the present value of future profits and deferred acquisition costs related to net realized investment gains (losses) included in net income	.1		 	(.2	)	
Unrealized gains on investments	213.1		 	167.9		
Change related to deferred compensation plan	.6		 	1.3		
Other comprehensive income before tax	213.7		 	169.2		
Income tax expense related to items of accumulated other comprehensive income	(76.0	)	 	(60.3	)	
Other comprehensive income, net of tax	137.7		 	108.9		
Comprehensive income	$	183.2		 	$	161.7		

The accompanying notes are an integral part
of the consolidated financial statements.

6

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions)
(unaudited)

																
 	Common stock and
additional
paid-in capital	 	Accumulated other
 comprehensive income	 	Retained earnings	 	Total	
Balance, December 31, 2014	$	3,734.4		 	$	825.3		 	$	128.5		 	$	4,688.2		
Net income	—		 	—		 	52.8		 	52.8		
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense of $59.9)	—		 	108.2		 	—		 	108.2		
Change in noncredit component of impairment losses on fixed maturities, available for sale (net of applicable income tax expense of $.4)	—		 	.7		 	—		 	.7		
Cost of common stock repurchased	(86.0	)	 	—		 	—		 	(86.0	)	
Dividends on common stock	—		 	—		 	(12.0	)	 	(12.0	)	
Stock options, restricted stock and performance units	1.7		 	—		 	—		 	1.7		
Balance, March 31, 2015	$	3,650.1		 	$	934.2		 	$	169.3		 	$	4,753.6		
 	 	 	 	 	 	 	 	
Balance, December 31, 2015	$	3,388.6		 	$	402.8		 	$	347.1		 	$	4,138.5		
Net income	—		 	—		 	45.5		 	45.5		
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense of $76.0)	—		 	137.7		 	—		 	137.7		
Cost of common stock repurchased	(90.0	)	 	—		 	—		 	(90.0	)	
Dividends on common stock	—		 	—		 	(12.6	)	 	(12.6	)	
Stock options, restricted stock and performance units	7.5		 	—		 	—		 	7.5		
Balance, March 31, 2016	$	3,306.1		 	$	540.5		 	$	380.0		 	$	4,226.6		

The accompanying notes are an integral part
of the consolidated financial statements.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(unaudited)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Cash flows from operating activities:	 	 	 	
Insurance policy income	$	617.3		 	$	592.9		
Net investment income	285.8		 	281.0		
Fee revenue and other income	14.2		 	16.2		
Insurance policy benefits	(487.4	)	 	(474.9	)	
Interest expense	(13.3	)	 	(17.2	)	
Deferrable policy acquisition costs	(62.2	)	 	(58.2	)	
Other operating costs	(212.9	)	 	(216.6	)	
Income taxes	(1.1	)	 	(.7	)	
Net cash from operating activities	140.4		 	122.5		
Cash flows from investing activities:	 		 	 		
Sales of investments	1,181.5		 	452.5		
Maturities and redemptions of investments	349.6		 	320.1		
Purchases of investments	(1,524.9	)	 	(1,019.9	)	
Net purchases of trading securities	(21.7	)	 	(3.7	)	
Change in cash and cash equivalents held by variable interest entities	174.3		 	(90.2	)	
Other	(3.8	)	 	(5.2	)	
Net cash provided (used) by investing activities	155.0		 	(346.4	)	
Cash flows from financing activities:	 		 	 		
Payments on notes payable	—		 	(19.8	)	
Issuance of common stock	.4		 	1.0		
Payments to repurchase common stock	(93.7	)	 	(81.5	)	
Common stock dividends paid	(12.7	)	 	(12.1	)	
Amounts received for deposit products	340.1		 	286.1		
Withdrawals from deposit products	(305.3	)	 	(322.6	)	
Issuance of investment borrowings:	 	 	 	
Related to variable interest entities	2.9		 	239.3		
Payments on investment borrowings:	 	 	 	
Federal Home Loan Bank	(.2	)	 	(.2	)	
Related to variable interest entities and other	(23.5	)	 	(50.9	)	
Investment borrowings - repurchase agreements, net	—		 	(.1	)	
Net cash provided (used) by financing activities	(92.0	)	 	39.2		
Net increase (decrease) in cash and cash equivalents	203.4		 	(184.7	)	
Cash and cash equivalents, beginning of period	432.3		 	611.6		
Cash and cash equivalents, end of period	$	635.7		 	$	426.9		

The accompanying notes are an integral part
of the consolidated financial statements.

8

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

BUSINESS AND BASIS OF PRESENTATION

The following notes should be read together with the notes to the consolidated financial statements included in our 2015 Annual Report on Form 10-K.

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

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

Our unaudited consolidated financial statements reflect normal recurring adjustments that, in the opinion of management, are necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented.  As permitted by rules and regulations of the Securities and Exchange Commission (the "SEC") applicable to quarterly reports on Form 10-Q, we have condensed or omitted certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").  We have reclassified certain amounts from the prior periods to conform to the 2016 presentation.  These reclassifications have no effect on net income or shareholders' equity.  Results for interim periods are not necessarily indicative of the results that may be expected for a full year.

The balance sheet at December 31, 2015, presented herein, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

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

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

INVESTMENTS

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

Our trading securities include: (i) investments purchased with the intent of selling in the near term to generate income; (ii) investments supporting certain insurance liabilities (including investments backing the market strategies of our multibucket annuity products); 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 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.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 March 31, 2016 and December 31, 2015 , were as follows (dollars in millions):

	
								
 	March 31,
2016	 	December 31,
2015	
Net unrealized appreciation (depreciation) on fixed maturity securities, available for sale, on which an other-than-temporary impairment loss has been recognized	$	1.6		 	$	1.6		
Net unrealized gains on all other investments	1,329.6		 	903.4		
Adjustment to present value of future profits (a)	(120.3	)	 	(121.2	)	
Adjustment to deferred acquisition costs	(279.6	)	 	(133.3	)	
Adjustment to insurance liabilities	(82.3	)	 	(14.6	)	
Unrecognized net loss related to deferred compensation plan	(8.0	)	 	(8.6	)	
Deferred income tax liabilities	(300.5	)	 	(224.5	)	
Accumulated other comprehensive income	$	540.5		 	$	402.8		
________
		
(a)	The present value of future profits is the value assigned to the right to receive future cash flows from contracts existing at September 10, 2003, the date Conseco, Inc., an Indiana corporation (our "Predecessor"), emerged from bankruptcy.	

At March 31, 2016 , adjustments to the present value of future profits, deferred acquisition costs, insurance liabilities and deferred tax assets included $(104.8) million , $(138.0) million , $(82.3) million and $115.5 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.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

At March 31, 2016 , the amortized cost, gross unrealized gains and losses, estimated fair value, 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	
Corporate securities	$	11,946.1		 	$	1,188.0		 	$	(226.3	)	 	$	12,907.8		 	$	—		
United States Treasury securities and obligations of United States government corporations and agencies	160.4		 	36.7		 	—		 	197.1		 	—		
States and political subdivisions	1,814.3		 	249.2		 	(3.7	)	 	2,059.8		 	(3.0	)	
Debt securities issued by foreign governments	33.5		 	.5		 	—		 	34.0		 	—		
Asset-backed securities	2,173.2		 	50.8		 	(29.7	)	 	2,194.3		 	—		
Collateralized debt obligations	148.4		 	.1		 	(4.8	)	 	143.7		 	—		
Commercial mortgage-backed securities	1,494.7		 	46.0		 	(23.1	)	 	1,517.6		 	—		
Mortgage pass-through securities	2.8		 	.3		 	—		 	3.1		 	—		
Collateralized mortgage obligations	992.0		 	60.0		 	(4.3	)	 	1,047.7		 	(1.8	)	
Total fixed maturities, available for sale	$	18,765.4		 	$	1,631.6		 	$	(291.9	)	 	$	20,105.1		 	$	(4.8	)	
Equity securities	$	586.0		 	$	26.3		 	$	(1.6	)	 	$	610.7		 	 	

The following table sets forth the amortized cost and estimated fair value of fixed maturities, available for sale, at March 31, 2016 , by contractual maturity.  Actual maturities will differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties.  In addition, 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	$	306.7		 	$	311.2		
Due after one year through five years	2,222.7		 	2,385.4		
Due after five years through ten years	1,574.3		 	1,670.2		
Due after ten years	9,850.6		 	10,831.9		
Subtotal	13,954.3		 	15,198.7		
Structured securities	4,811.1		 	4,906.4		
Total fixed maturities, available for sale	$	18,765.4		 	$	20,105.1		

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

Net Realized Investment Gains (Losses)

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

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Fixed maturity securities, available for sale:	 	 	 	
Gross realized gains on sale	$	98.5		 	$	14.7		
Gross realized losses on sale	(81.0	)	 	(15.4	)	
Impairments:	 	 	 	
Total other-than-temporary impairment losses	(6.3	)	 	(1.3	)	
Other-than-temporary impairment losses recognized in accumulated other comprehensive income	—		 	—		
Net impairment losses recognized	(6.3	)	 	(1.3	)	
Net realized investment gains (losses) from fixed maturities	11.2		 	(2.0	)	
Equity securities	.1		 	2.5		
Commercial mortgage loans	—		 	(2.3	)	
Impairments of other investments	(3.7	)	 	—		
Gain on dissolution of a variable interest entity	—		 	11.3		
Other (a)	(8.5	)	 	(.6	)	
Net realized investment gains (losses)	$	(.9	)	 	$	8.9		
_________________
		
(a)	Changes in the estimated fair value of trading securities that we have elected the fair value option (and are still held as of the end of the respective periods) were $(3.4) million for the three months ended March 31, 2016 . Such amount was insignificant in the 2015 period.	

During the first three months of 2016 , we recognized net realized investment losses of $.9 million , which were comprised of: (i) $10.9 million of net gains from the sales of investments; (ii) the decrease in fair value of certain fixed maturity investments with embedded derivatives of $3.6 million ; (iii) the increase in fair value of embedded derivatives related to a modified coinsurance agreement of $1.8 million ; and (iv) $10.0 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

During the first three months of 2015 , we recognized net realized investment gains of $8.9 million , which were comprised of: (i) $2.5 million of net losses from the sales of investments; (ii) an $11.3 million gain on the dissolution of a variable interest entity ("VIE"); (iii) the increase in fair value of embedded derivatives related to a modified coinsurance agreement of $1.4 million ; and (iv) $1.3 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

During the first three months of 2015 , a VIE that was required to be consolidated was dissolved. A gain of $11.3 million was recognized representing the difference between the borrowings of such VIE and the contractual distributions required following the liquidation of the underlying assets.

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.

During the first three months of 2016 , the $81.0 million of gross realized losses on sales of $388.0 million of fixed maturity securities, available for sale included: (i) $74.5 million related to various corporate securities (including $62.7 million

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

related to sales of investments in the energy sector); (ii) $5.3 million related to commercial mortgage-backed securities; and (iii) $1.2 million related to various other investments. Securities are generally sold at a loss following unforeseen issue-specific events or conditions or shifts in perceived risks.  These reasons include but are not limited to:  (i) changes in the investment environment; (ii) expectation that the market value could deteriorate further; (iii) desire to reduce our exposure to an asset class, an issuer or an industry; (iv) prospective or actual changes in credit quality; or (v) changes in expected portfolio cash flows.

During the first three months of 2016 , we recognized $10.0 million of impairment losses recorded in earnings which included: (i) $6.3 million of writedowns on fixed maturities of a single issuer in the energy sector; and (ii) $3.7 million of writedowns on a direct loan due to borrower specific events. Factors considered in determining the writedowns of investments in the first three months of 2016 included the subordination status of each investment, the impact of recent downgrades and issuer specific events, including the impact of the current low oil prices on issuers in the energy sector.

During the first three months of 2015 , we recognized $1.3 million of impairment losses recorded in earnings on a fixed maturity due to issuer specific events.

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.

Impairment losses on equity securities are recognized in net income.  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 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

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 March 31, 2016 , other-than-temporary impairments included in accumulated other comprehensive income totaled $4.8 million (before taxes and related amortization).

The following table summarizes the amount of credit losses recognized in earnings on fixed maturity securities, available for sale, held at the beginning of the period, for which a portion of the other-than-temporary impairment was also recognized in accumulated other comprehensive income for the three months ended March 31, 2016 and 2015 (dollars in millions):

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Credit losses on fixed maturity securities, available for sale, beginning of period	$	(2.6	)	 	$	(1.0	)	
Add: credit losses on other-than-temporary impairments not previously recognized	—		 	—		
Less: credit losses on securities sold	—		 	—		
Less: credit losses on securities impaired due to intent to sell (a)	—		 	—		
Add: credit losses on previously impaired securities	—		 	—		
Less: increases in cash flows expected on previously impaired securities	—		 	—		
Credit losses on fixed maturity securities, available for sale, end of period	$	(2.6	)	 	$	(1.0	)	
__________
		
(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.	

Gross Unrealized Investment Losses

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

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 March 31, 2016 (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	 	$	.6		 	$	—		 	$	—		 	$	—		 	$	.6		 	$	—		
States and political subdivisions	 	14.4		 	(.2	)	 	23.1		 	(3.5	)	 	37.5		 	(3.7	)	
Debt securities issued by foreign governments	 	4.2		 	—		 	—		 	—		 	4.2		 	—		
Corporate securities	 	1,862.3		 	(142.7	)	 	548.5		 	(83.6	)	 	2,410.8		 	(226.3	)	
Asset-backed securities	 	1,118.9		 	(24.8	)	 	162.4		 	(4.9	)	 	1,281.3		 	(29.7	)	
Collateralized debt obligations	 	113.4		 	(4.0	)	 	27.6		 	(.8	)	 	141.0		 	(4.8	)	
Commercial mortgage-backed securities	 	493.5		 	(19.8	)	 	48.5		 	(3.3	)	 	542.0		 	(23.1	)	
Collateralized mortgage obligations	 	281.9		 	(3.3	)	 	28.4		 	(1.0	)	 	310.3		 	(4.3	)	
Total fixed maturities, available for sale	 	$	3,889.2		 	$	(194.8	)	 	$	838.5		 	$	(97.1	)	 	$	4,727.7		 	$	(291.9	)	
Equity securities	 	$	51.4		 	$	(1.1	)	 	$	14.0		 	$	(.5	)	 	$	65.4		 	$	(1.6	)	

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, 2015 (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	 	$	43.6		 	$	(.3	)	 	$	—		 	$	—		 	$	43.6		 	$	(.3	)	
States and political subdivisions	 	156.8		 	(4.1	)	 	14.8		 	(3.5	)	 	171.6		 	(7.6	)	
Debt securities issued by foreign governments	 	20.7		 	(.6	)	 	—		 	—		 	20.7		 	(.6	)	
Corporate securities	 	2,913.6		 	(255.7	)	 	278.9		 	(89.5	)	 	3,192.5		 	(345.2	)	
Asset-backed securities	 	930.3		 	(11.7	)	 	98.4		 	(1.7	)	 	1,028.7		 	(13.4	)	
Collateralized debt obligations	 	96.2		 	(1.8	)	 	36.3		 	(.4	)	 	132.5		 	(2.2	)	
Commercial mortgage-backed securities	 	556.0		 	(16.1	)	 	25.7		 	(1.5	)	 	581.7		 	(17.6	)	
Mortgage pass-through securities	 	—		 	—		 	.1		 	—		 	.1		 	—		
Collateralized mortgage obligations	 	97.8		 	(1.0	)	 	40.8		 	(.6	)	 	138.6		 	(1.6	)	
Total fixed maturities, available for sale	 	$	4,815.0		 	$	(291.3	)	 	$	495.0		 	$	(97.2	)	 	$	5,310.0		 	$	(388.5	)	
Equity securities	 	$	140.1		 	$	(2.4	)	 	$	2.4		 	$	(.4	)	 	$	142.5		 	$	(2.8	)	

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

Based on management's current assessment of investments with unrealized losses at March 31, 2016 , the Company believes the issuers of the securities will continue to meet their obligations (or with respect to equity-type securities, the investment value will recover to its cost basis).  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.

EARNINGS PER SHARE

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

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Net income for basic and diluted earnings per share	$	45.5		 	$	52.8		
Shares:	 		 	 		
Weighted average shares outstanding for basic earnings per share	180,350		 	200,491		
Effect of dilutive securities on weighted average shares:	 		 	 		
Stock options, restricted stock and performance units	1,778		 	1,784		
Weighted average shares outstanding for diluted earnings per share	182,128		 	202,275		

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).

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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; and corporate operations, comprised of holding company activities and certain noninsurance company businesses.

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

The net realized investment gains (losses), fair value changes in embedded derivative liabilities (net of related amortization), fair value changes in the agent deferred compensation plan, loss on extinguishment of debt and other non-operating items consisting primarily of equity in earnings of certain non-strategic investments and 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.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Revenues:	 	 	 	
Bankers Life:	 	 	 	
Insurance policy income:	 	 	 	
Annuities	$	4.8		 	$	5.7		
Health	311.1		 	315.8		
Life	97.3		 	91.2		
Net investment income (a)	214.2		 	226.5		
Fee revenue and other income (a)	6.6		 	6.3		
Total Bankers Life revenues	634.0		 	645.5		
Washington National:	 		 	 		
Insurance policy income:	 		 	 		
Annuities	.5		 	.9		
Health	155.5		 	152.2		
Life	6.1		 	6.4		
Net investment income (a)	60.6		 	65.6		
Fee revenue and other income (a)	.3		 	.4		
Total Washington National revenues	223.0		 	225.5		
Colonial Penn:	 		 	 		
Insurance policy income:	 		 	 		
Health	.7		 	.8		
Life	68.4		 	63.5		
Net investment income (a)	11.0		 	10.7		
Fee revenue and other income (a)	.4		 	.3		
Total Colonial Penn revenues	80.5		 	75.3		
Corporate operations:	 		 	 		
Net investment income	4.0		 	6.7		
Fee and other income	2.5		 	1.9		
Total corporate revenues	6.5		 	8.6		
Total revenues	944.0		 	954.9		

(continued on next page)

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

(continued from previous page)

								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Expenses:	 	 	 	
Bankers Life:	 	 	 	
Insurance policy benefits	$	397.0		 	$	405.3		
Amortization	51.5		 	51.6		
Interest expense on investment borrowings	2.9		 	2.1		
Other operating costs and expenses	105.0		 	104.3		
Total Bankers Life expenses	556.4		 	563.3		
Washington National:	 		 	 		
Insurance policy benefits	133.5		 	135.2		
Amortization	15.1		 	15.3		
Interest expense on investment borrowings	.8		 	.4		
Other operating costs and expenses	47.3		 	46.1		
Total Washington National expenses	196.7		 	197.0		
Colonial Penn:	 		 	 		
Insurance policy benefits	50.5		 	48.6		
Amortization	3.9		 	3.6		
Interest expense on investment borrowings	.1		 	—		
Other operating costs and expenses	32.8		 	29.0		
Total Colonial Penn expenses	87.3		 	81.2		
Corporate operations:	 		 	 		
Interest expense on corporate debt	11.4		 	10.5		
Other operating costs and expenses	14.6		 	9.9		
Total corporate expenses	26.0		 	20.4		
Total expenses	866.4		 	861.9		
Pre-tax operating earnings by segment:	 		 	 		
Bankers Life	77.6		 	82.2		
Washington National	26.3		 	28.5		
Colonial Penn	(6.8	)	 	(5.9	)	
Corporate operations	(19.5	)	 	(11.8	)	
Pre-tax operating earnings	$	77.6		 	$	93.0		
___________________
		
(a)	It is not practicable to provide additional components of revenue by product or services.	

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Total segment revenues                                                                                            	$	944.0		 	$	954.9		
Net realized investment gains (losses)                                           	(.9	)	 	(2.4	)	
Revenues related to certain non-strategic investments and earnings attributable to VIEs	12.3		 	18.3		
Fee revenue related to transition and support services agreements	5.0		 	7.5		
Consolidated revenues                                                                                       	960.4		 	978.3		
 	 	 	 	
Total segment expenses                                                                                            	866.4		 	861.9		
Insurance policy benefits - fair value changes in embedded derivative liabilities	38.0		 	16.9		
Amortization related to fair value changes in embedded derivative liabilities	(8.5	)	 	(4.2	)	
Amortization related to net realized investment gains	.1		 	(.2	)	
Expenses related to certain non-strategic investments and expenses attributable to VIEs	12.9		 	10.5		
Fair value changes related to agent deferred compensation plan	6.0			—		
Transition expenses	—		 	4.5		
Expenses related to transition and support services agreements	5.0		 	6.6		
Consolidated expenses                                                                                       	919.9		 	896.0		
Income before tax	40.5		 	82.3		
Income tax expense:	 	 	 	
Tax expense on period income	15.0		 	29.5		
Valuation allowance for deferred tax assets	(20.0	)	 	—		
Net income	$	45.5		 	$	52.8		

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

ACCOUNTING FOR DERIVATIVES

Our freestanding and embedded derivatives, which are not designated as hedging instruments, are held at fair value and are summarized as follows (dollars in millions):

	
									
 	 	Fair value	
 	 	March 31,
2016	 	December 31, 2015	
Assets:	 	 	 	 	
Other invested assets:	 	 	 	 	
Fixed index call options	 	$	47.0		 	$	41.0		
Interest rate futures	 	(.3	)	 	.1		
Reinsurance receivables	 	(3.2	)	 	(5.0	)	
Total assets	 	$	43.5		 	$	36.1		
Liabilities:	 	 	 	 	
Future policy benefits:	 	 	 	 	
Fixed index products	 	$	1,096.0		 	$	1,057.1		
Total liabilities	 	$	1,096.0		 	$	1,057.1		

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 contractual minimums.  The Company accounts for the options attributed to the policyholder for the estimated life of the contract as embedded derivatives. These accounting requirements often create volatility in the earnings from these products. 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.  The notional amount of these options was $2.3 billion at March 31, 2016 . Such amount did not fluctuate significantly during the first three months of 2016 and 2015.

We utilize United States Treasury interest rate futures primarily to hedge interest rate risk related to anticipated mortgage loan transactions.

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 $140 million in underlying investments held by the ceding reinsurer.

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.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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):

	
									
 	 	Three months ended	
 	 	March 31,	
 	 	2016	 	2015	
Net investment income from policyholder and other special-purpose portfolios:	 	 	 	 	
Fixed index call options	 	$	(9.0	)	 	$	(2.1	)	
Embedded derivative related to reinsurance contract	 	—		 	—		
Total	 	(9.0	)	 	(2.1	)	
Net realized gains (losses):	 	 	 	 	
Interest rate futures	 	(1.0	)	 	(1.7	)	
Embedded derivative related to modified coinsurance agreement	 	1.8		 	—		
Total	 	.8		 	(1.7	)	
Insurance policy benefits:	 	 	 	 	
Embedded derivative related to fixed index annuities	 	(34.9	)	 	(17.8	)	
Total	 	$	(43.1	)	 	$	(21.6	)	

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 March 31, 2016 , all of our counterparties were rated "A-" or higher by Standard & Poor's Corporation ("S&P").

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.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table summarizes information related to derivatives with master netting arrangements or collateral as of March 31, 2016 and December 31, 2015 (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	
March 31, 2016:	 	 	
 	Fixed index call options	 	$	47.0		 	$	—		 	$	47.0		 	$	—		 	$	—		 	$	47.0		
 	Interest rate futures	 	(.3	)	 	.7		 	.4		 	—		 	—		 	.4		
December 31, 2015:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Fixed index call options	 	41.0		 	—		 	41.0		 	—		 	—		 	41.0		
 	Interest rate futures	 	.1		 	1.5		 	1.6		 	—		 	—		 	1.6		

REINSURANCE

The cost of reinsurance ceded totaled $33.6 million and $33.9 million in the first quarters of 2016 and 2015 , respectively.  We deduct this cost from insurance policy income.  Reinsurance recoveries netted against insurance policy benefits totaled $40.4 million and $39.4 million in the first quarters of 2016 and 2015 , 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 $8.8 million and $9.9 million in the first quarters of 2016 and 2015 , respectively.

INCOME TAXES

The Company's interim tax expense is based upon the estimated annual effective tax rate for the respective period. Under authoritative guidance, certain items are required to be excluded from the estimated annual effective tax rate calculation. Such items include changes in judgment about the realizability of deferred tax assets resulting from changes in projections of income expected to be available in future years, and items deemed to be unusual, infrequent, or that can not be reliably estimated. In these cases, the actual tax expense or benefit applicable to that item is treated discretely and is reported in the same period as the related item. The components of income tax expense are as follows (dollars in millions):

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Current tax expense	$	4.1		 	$	2.9		
Deferred tax expense	10.9		 	26.4		
Income tax expense calculated based on estimated annual effective tax rate	15.0		 	29.3		
Income tax expense on discrete items:	 	 	 	
Change in valuation allowance	(20.0	)	 	—		
Other items	—		 	.2		
Total income tax expense	$	(5.0	)	 	$	29.5		

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

A reconciliation of the U.S. statutory corporate tax rate to the estimated annual effective rate, before discrete items, reflected in the consolidated statement of operations is as follows:

	
						
 	Three months ended	
 	March 31,	
 	2016	 	2015	
U.S. statutory corporate rate	35.0	%	 	35.0	 %	
Non-taxable income and nondeductible benefits, net	.8		 	(.8	)	
State taxes	1.2		 	1.4		
Estimated annual effective tax rate	37.0	%	 	35.6	 %	

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

	
								
 	March 31,
2016	 	December 31,
2015	
Deferred tax assets:	 	 	 	
Net federal operating loss carryforwards	$	883.4		 	$	916.3		
Net state operating loss carryforwards	13.9		 	14.1		
Tax credits	57.2		 	55.3		
Capital loss carryforwards	12.2		 	13.8		
Investments	19.7		 	26.5		
Insurance liabilities	624.8		 	600.3		
Other	63.9		 	63.0		
Gross deferred tax assets	1,675.1		 	1,689.3		
Deferred tax liabilities:	 		 	 		
Present value of future profits and deferred acquisition costs	(303.4	)	 	(305.4	)	
Accumulated other comprehensive income	(298.6	)	 	(223.8	)	
Gross deferred tax liabilities	(602.0	)	 	(529.2	)	
Net deferred tax assets before valuation allowance	1,073.1		 	1,160.1		
Valuation allowance	(193.5	)	 	(213.5	)	
Net deferred tax assets	879.6		 	946.6		
Current income taxes accrued	(50.8	)	 	(47.8	)	
Income tax assets, net	$	828.8		 	$	898.8		

Our income tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax bases of assets and liabilities, capital loss carryforwards and net operating loss carryforwards ("NOLs"). 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

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 capital loss carryforwards and life and non-life NOLs expire.

Based on our assessment, it appears more likely than not that $879.6 million of our net deferred tax assets of $1,073.1 million will be realized through future taxable earnings. Accordingly, we have established a deferred tax valuation allowance of $193.5 million at March 31, 2016 ( $176.5 million of which relates to our net federal operating loss carryforwards; $10 million relates to state operating loss carryforwards; and $7 million relates to capital loss carryforwards). 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 investment strategies, reinsurance transactions and the impact of the sale of Conseco Life Insurance Company ("CLIC", a wholly owned subsidiary prior to its sale in July 2014). Our estimates of future taxable income are based on evidence we consider to be objective and verifiable. In the first three months of 2016, we reduced the valuation allowance for deferred tax assets by $20.0 million primarily related to higher expected non-life income from: (i) our recently announced investment in Tennenbaum Capital Partners, LLC ("TCP"); and (ii) approximately $250 million of additional investments to be made over time in various TCP managed funds and strategies. The investment in TCP is further discussed in the note to the consolidated financial statements entitled "Subsequent Event".

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 remain flat for two years and then increase by 3 percent for the next five years, and level taxable income is assumed thereafter. Our deferred tax valuation model was adjusted to reflect our investment in TCP. In the projections used for our analysis, our adjusted average taxable income (based on the level of recent normalized taxable income) of approximately $345 million has not changed, however, the amount characterized as non-life taxable income increased by approximately $10 million and the amount characterized as life taxable income decreased by $10 million . Accordingly, our adjusted average taxable income is comprised of $85 million of non-life taxable income and $260 million of life taxable income.

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

Section 382 of the Code imposes limitations on a corporation's ability to use its NOLs when the company undergoes an ownership change.  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 ( 2.65 percent at March 31, 2016 ), 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 March 31, 2016 , we were below the 50 percent ownership change level that would trigger further impairment of our ability to utilize our NOLs.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

As of March 31, 2016 , we had $2.5 billion of federal NOLs. The following table summarizes the expiration dates of our loss carryforwards assuming the Internal Revenue Service ("IRS") ultimately agrees with the position we have taken with respect to the loss on our investment in Conseco Senior Health Insurance Company ("CSHI") and other uncertain tax positions(dollars in millions):

	
													
Year of expiration	 	Net operating loss carryforwards	 	Total loss	
 	 	Life	 	Non-life	 	carryforwards	
2023	 	$	449.4		 	$	1,916.8		 	$	2,366.2		
2025	 	—		 	91.5		 	91.5		
2026	 	—		 	207.4		 	207.4		
2027	 	—		 	4.9		 	4.9		
2028	 	—		 	203.7		 	203.7		
2029	 	—		 	146.6		 	146.6		
2032	 	—		 	44.0		 	44.0		
Subtotal	 	449.4		 	2,614.9		 	3,064.3		
Less:	 	 	 	 	 	 	
Unrecognized tax benefits	 	(342.9	)	 	(197.4	)	 	(540.3	)	
Total	 	$	106.5		 	$	2,417.5		 	$	2,524.0		

In addition, at March 31, 2016 , we had $34.9 million of capital loss carryforwards that expire in 2020.

We had deferred tax assets related to NOLs for state income taxes of $13.9 million and $14.1 million at March 31, 2016 and December 31, 2015 , respectively.  The related state NOLs are available to offset future state taxable income in certain states through 2025.

We recognized an $878 million ordinary loss on our investment in CSHI which was worthless when it was transferred to an independent trust in 2008. Of this loss, $742 million has been reported as a life loss and $136 million as a non-life loss. The IRS has disagreed with our ordinary loss treatment and believes that it should be treated as a capital loss, subject to a five year carryover. If the IRS position is ultimately determined to be correct, $473 million would have expired unused in 2013. Due to this uncertainty, we have not recognized a tax benefit of $166.0 million . However, if this unrecognized tax benefit would have been recognized, we would also have established a valuation allowance of $34.0 million at March 31, 2016 .

The IRS has completed the examination for 2004 and 2008 through 2010 and has proposed two adjustments to which we disagree, including the adjustment to classify the loss on our investment in CSHI as a capital loss as described above. The Company is contesting these adjustments through the IRS Appeals Office. Although the resolution of the Appeals could occur in the next 12 months, there is no reasonable basis to estimate the changes in unrecognized tax benefits that may occur. The IRS has also begun an examination of 2011 and 2012. In connection with this exam, we have agreed to extend the statute of limitations to September 10, 2017. The Company’s various state income tax returns are generally open for tax years beginning in 2012, 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.

We currently expect to utilize all of our remaining life NOLs in the second quarter of 2016, absent a favorable outcome on the classification of the loss on our investment in CSHI. After all of the life NOLs are utilized, we will begin making cash tax payments equal to the effective federal tax rate applied to 65 percent of our life insurance company taxable income due to the limitations on the extent to which we can use non-life NOLs to offset life insurance company taxable income. We will continue to pay tax on only 65 percent of our life insurance company taxable income until all non-life NOLs are utilized or expire.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

NOTES PAYABLE - DIRECT CORPORATE OBLIGATIONS

The following notes payable were direct corporate obligations of the Company as of March 31, 2016 and December 31, 2015 (dollars in millions):

	
								
 	March 31,
2016	 	December 31,
2015	
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 issue costs	(13.5	)	 	(13.9	)	
Direct corporate obligations	$	911.5		 	$	911.1		

Revolving Credit Agreement

On May 19, 2015, the Company entered into a revolving credit agreement, with KeyBank National Association, as administrative agent (the "Agent"), and the lenders from time to time party thereto (the "Revolving Credit Agreement"). On May 19, 2015, the Company made an initial drawing of $100.0 million under the Revolving Credit Agreement, resulting in $50.0 million available for additional borrowings. The Revolving Credit Agreement matures on May 19, 2019.

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 of initially 1.00% per annum), or a eurodollar rate plus an applicable margin of initially 2.00% per annum. At March 31, 2016 , the interest rate on the amounts outstanding under the Revolving Credit Agreement was 2.43 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.

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 30.0 percent (such ratio was 20.3 percent at March 31, 2016 ); (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 441 percent at March 31, 2016 ); 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 $3,686.1 million at March 31, 2016 compared to the minimum requirement of $2,677 million ).

Scheduled Repayment of our Direct Corporate Obligations

The scheduled repayment of our direct corporate obligations was as follows at March 31, 2016 (dollars in millions):

	
				
Year ending March 31,	 	
2017	$	—		
2018	—		
2019	—		
2020	100.0		
2021	325.0		
Thereafter	500.0		
 	$	925.0		

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

INVESTMENT BORROWINGS

Three of the Company's insurance subsidiaries (Washington National Insurance Company ("Washington National"), Bankers Life and Casualty Company ("Bankers Life") and Colonial Penn Life Insurance Company ("Colonial Penn")) are members of the Federal Home Loan Bank ("FHLB").  As members of the FHLB, our insurance subsidiaries have the ability to borrow on a collateralized basis from the FHLB. We are required to hold certain minimum amounts of FHLB common stock as a condition of membership in the FHLB, and additional amounts based on the amount of the borrowings.  At March 31, 2016 , the carrying value of the FHLB common stock was $74.2 million .  As of March 31, 2016 , collateralized borrowings from the FHLB totaled $1.5 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 $1.8 billion at March 31, 2016 , 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.  

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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	 	March 31, 2016	
$	57.7		 	June 2017	 	Variable rate – 0.871%	
50.0		 	August 2017	 	Variable rate – 0.817%	
75.0		 	August 2017	 	Variable rate – 0.779%	
100.0		 	October 2017	 	Variable rate – 1.052%	
50.0		 	November 2017	 	Variable rate – 1.145%	
50.0		 	January 2018	 	Variable rate – 0.967%	
50.0		 	January 2018	 	Variable rate – 0.959%	
50.0		 	February 2018	 	Variable rate – 0.930%	
50.0		 	February 2018	 	Variable rate – 0.707%	
22.0		 	February 2018	 	Variable rate – 0.966%	
100.0		 	May 2018	 	Variable rate – 0.883%	
50.0		 	July 2018	 	Variable rate – 1.091%	
50.0		 	August 2018	 	Variable rate – 0.737%	
10.0		 	December 2018	 	Variable rate – 0.951%	
50.0		 	January 2019	 	Variable rate – 1.040%	
50.0		 	February 2019	 	Variable rate – 0.707%	
100.0		 	March 2019	 	Variable rate – 0.921%	
21.8		 	July 2019	 	Variable rate – 0.922%	
15.0		 	October 2019	 	Variable rate – 1.134%	
50.0		 	May 2020	 	Variable rate – 0.956%	
21.8		 	June 2020	 	Fixed rate – 1.960%	
25.0		 	September 2020	 	Variable rate – 1.253%	
100.0		 	September 2020	 	Variable rate – 1.093%	
50.0		 	September 2020	 	Variable rate – 1.093%	
75.0		 	September 2020	 	Variable rate – 0.749%	
100.0		 	October 2020	 	Variable rate – 0.723%	
50.0		 	December 2020	 	Variable rate – 1.138%	
28.2		 	August 2021	 	Fixed rate – 2.550%	
26.0		 	March 2023	 	Fixed rate – 2.160%	
20.5		 	June 2025	 	Fixed rate – 2.940%	
$	1,548.0		 	 	 	 	

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 March 31, 2016 , the aggregate yield maintenance fee to prepay all fixed rate borrowings was $4.5 million .

Interest expense of $3.8 million and $2.5 million in the first three months of 2016 and 2015 , respectively, was recognized related to total borrowings from the FHLB.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

CHANGES IN COMMON STOCK

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

	
				
Balance, December 31, 2015	184,029		 	
Treasury stock purchased and retired	(5,331	)	 	
Stock options exercised	51		 	
Restricted and performance stock vested	349		(a)	
Balance, March 31, 2016	179,098		 	
____________________
		
(a)	Such amount was reduced by 182 thousand shares 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 the first three months of 2016 , we repurchased 5.3 million shares of common stock for $90.0 million under our securities repurchase program. The Company had remaining repurchase authority of $365.7 million as of March 31, 2016 .

In the first three months of 2016 , dividends declared on common stock totaled $12.6 million ( $0.07 per common share).

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 holders 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 $1.0 million and $.8 million during the three months ended March 31, 2016 and 2015 , respectively.  Amounts amortized totaled $1.7 million and $2.8 million during the three months ended March 31, 2016 and 2015 , respectively.  The unamortized balance of deferred sales inducements was $56.7 million and $57.4 million at March 31, 2016 and December 31, 2015 , respectively.  The balance of insurance liabilities for persistency bonus benefits was $.8 million and $.9 million at March 31, 2016 and December 31, 2015 , respectively.

RECENTLY ISSUED ACCOUNTING STANDARDS

Pending Accounting Standards

In May 2014, the Financial Accounting Standards Board (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. In March 2016, the FASB issued amendments that clarify the implementation guidance on principal versus agent considerations. In July 2015, the guidance was updated and will now be effective for the Company on January 1, 2018 and permits two methods of transition upon adoption; full retrospective and modified retrospective. Under the full retrospective method, prior periods would be restated under the new revenue standard, providing for comparability in all periods presented. Under the modified retrospective method, prior periods would not be restated. Instead, revenues and other disclosures for pre-2017 periods would be provided in the notes to the financial statements as previously reported under the current revenue standard. The Company is currently assessing the impact the guidance will have upon adoption.

In May 2015, the FASB issued authoritative guidance which requires additional disclosures related to short-duration contracts. The guidance will require insurance entities to disclose for annual reporting periods information about the liability for unpaid claims and claim adjustment expenses. The guidance also requires insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements. Additionally, the guidance requires insurance entities to disclose for annual and interim reporting periods a rollforward of the liability for unpaid claims and claim

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

adjustment expenses. For health insurance claims, the guidance requires the disclosure of the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. The guidance will be effective for the Company for annual periods beginning after December 15, 2015, and the interim periods within annual periods beginning after December 15, 2016. The Company is currently assessing the impact the guidance will have on its disclosures upon adoption. The adoption of this guidance will have no effect on our financial position or results of operations.

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.	

An entity should apply this guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair
values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of the guidance. The guidance will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of the guidance is not permitted; except that item (v) above is permitted to be adopted early as of the beginning of the fiscal year of adoption. The Company is currently assessing the impact the guidance will have upon adoption.

In February 2016, 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. Early adoption is permitted. The Company is currently assessing the impact the guidance will have upon adoption.

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 will be effective for the Company for fiscal years beginning after

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. The Company is currently assessing the impact the guidance will have upon adoption.
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, 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 will be effective for the Company for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Transition guidance varies between retrospective, modified retrospective and prospective depending on the specific change required. Early adoption is permitted. The Company is currently assessing the impact the guidance will have upon adoption.
Adopted Accounting Standards

In August 2014, the FASB issued authoritative guidance related to measuring the financial assets and the financial liabilities of a consolidated collateralized financing entity which provides a measurement alternative for an entity that consolidates collateralized financing entities. A collateralized financing entity is a VIE with no more than nominal equity that holds financial assets and issues beneficial interests in those financial assets; the beneficial interests have contractual recourse only to the related assets of the collateralized financing entity and are classified as financial liabilities. If elected, the alternative method results in the reporting entity measuring both the financial assets and the financial liabilities of the collateralized financing entity using the more observable of the two fair value measurements, which effectively removes measurement differences between the financial assets and the financial liabilities of the collateralized financing entity previously recorded as net income (loss) attributable to non-controlling and other beneficial interests and as an adjustment to appropriated retained earnings. The reporting entity continues to measure its own beneficial interests in the collateralized financing entity (other than those that represent compensation for services) at fair value. The guidance was effective for the Company for interim and annual periods beginning in 2016. A reporting entity may apply the guidance using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the annual period of adoption. A reporting entity may also apply the guidance retrospectively to all relevant prior periods. The adoption of this guidance had no impact on our consolidated financial statements.

In February 2015, the FASB issued authoritative guidance which updates the analysis that a reporting entity must perform to determine whether it should consolidate certain legal entities. Such guidance: (i) modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities; (ii) eliminates the presumption that a general partner should consolidate a limited partnership; (iii) affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (iv) provides a scope exception from consolidation guidance for certain investment funds. The guidance was effective for the Company for interim and annual periods beginning in 2016. A reporting entity may apply the guidance using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the annual period of adoption. A reporting entity may also apply the guidance retrospectively to all relevant prior periods. The adoption of this guidance did not have a material impact on our consolidated financial statements.

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

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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.

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 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 38 states and the District of Columbia are currently participating in this examination.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

CONSOLIDATED STATEMENT OF CASH FLOWS

The following disclosures supplement our consolidated statement of cash flows.

The following reconciles net income (loss) to net cash from operating activities (dollars in millions):

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Cash flows from operating activities:	 	 	 	
Net income	$	45.5		 	$	52.8		
Adjustments to reconcile net income to net cash from operating activities:	 	 	 		
Amortization and depreciation	68.2		 	71.0		
Income taxes	(6.1	)	 	28.9		
Insurance liabilities	103.7		 	88.2		
Accrual and amortization of investment income	(16.9	)	 	(35.7	)	
Deferral of policy acquisition costs	(62.2	)	 	(58.2	)	
Net realized investment (gains) losses	.9		 	(8.9	)	
Transition expenses	—		 	4.5		
Other	7.3		 	(20.1	)	
Net cash from operating activities	$	140.4		 	$	122.5		

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

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Stock options, restricted stock and performance units	$	10.2		 	$	4.3		

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.  The Company has no financial obligation to the VIEs beyond its investment in each VIE.

Certain of our insurance 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.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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

	
												
 	March 31, 2016	
 	VIEs	 	Eliminations	 	Net effect on
consolidated
balance sheet	
Assets:	 	 	 	 	 	
Investments held by variable interest entities	$	1,691.0		 	$	—		 	$	1,691.0		
Notes receivable of VIEs held by insurance subsidiaries	—		 	(203.4	)	 	(203.4	)	
Cash and cash equivalents held by variable interest entities	190.1		 	—		 	190.1		
Accrued investment income	3.7		 	(.1	)	 	3.6		
Income tax assets, net	24.6		 	(1.8	)	 	22.8		
Other assets	6.5		 	(1.9	)	 	4.6		
Total assets	$	1,915.9		 	$	(207.2	)	 	$	1,708.7		
Liabilities:	 		 	 		 	 		
Other liabilities	$	101.6		 	$	(7.3	)	 	$	94.3		
Borrowings related to variable interest entities	1,656.6		 	—		 	1,656.6		
Notes payable of VIEs held by insurance subsidiaries	203.1		 	(203.1	)	 	—		
Total liabilities	$	1,961.3		 	$	(210.4	)	 	$	1,750.9		

	
												
 	December 31, 2015	
 	VIEs	 	Eliminations	 	Net effect on
consolidated
balance sheet	
Assets:	 	 	 	 	 	
Investments held by variable interest entities	$	1,633.6		 	$	—		 	$	1,633.6		
Notes receivable of VIEs held by insurance subsidiaries	—		 	(204.3	)	 	(204.3	)	
Cash and cash equivalents held by variable interest entities	364.4		 	—		 	364.4		
Accrued investment income	3.3		 	—		 	3.3		
Income tax assets, net	26.0		 	(1.9	)	 	24.1		
Other assets	1.4		 	(1.5	)	 	(.1	)	
Total assets	$	2,028.7		 	$	(207.7	)	 	$	1,821.0		
Liabilities:	 		 	 		 	 		
Other liabilities	$	196.6		 	$	(7.2	)	 	$	189.4		
Borrowings related to variable interest entities	1,676.4		 	—		 	1,676.4		
Notes payable of VIEs held by insurance subsidiaries	204.0		 	(204.0	)	 	—		
Total liabilities	$	2,077.0		 	$	(211.2	)	 	$	1,865.8		

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 March 31, 2016 , such loans had an amortized cost of $1,725.8 million ; gross unrealized gains of $2.6 million ; gross unrealized losses of $37.4 million ; and an estimated fair value of $1,691.0 million .

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The following table sets forth the amortized cost and estimated fair value of the investments held by the VIEs at March 31, 2016 , 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 in one year or less	$	4.8		 	$	4.8		
Due after one year through five years	898.4		 	878.0		
Due after five years through ten years	822.6		 	808.2		
Total	$	1,725.8		 	$	1,691.0		

During the first three months of 2016 , the VIEs recognized net realized investment losses of $6.4 million . During the first three months of 2015 , the VIEs recognized net realized investment losses of $.9 million .

At March 31, 2016 , there was one investment held by the VIEs in default or considered nonperforming with an amortized cost and carrying value of $2.3 million and $1.3 million , respectively.

During the first three months of 2016 , $26.2 million of investments held by the VIEs were sold which resulted in gross investment losses (before income taxes) of $6.5 million . During the first three months of 2015 , $28.3 million of investments held by the VIEs were sold which resulted in gross investment losses (before income taxes) of $1.0 million .

At March 31, 2016 , the VIEs held:  (i) investments with a fair value of $958.4 million and gross unrealized losses of $19.0 million that had been in an unrealized loss position for less than twelve months; and (ii) investments with a fair value of $288.7 million and gross unrealized losses of $18.4 million that had been in an unrealized loss position for greater than twelve months.

At December 31, 2015 , the VIEs held: (i) investments with a fair value of $1,178.7 million and gross unrealized losses of $23.9 million that had been in an unrealized loss position for less than twelve months; and (ii) investments with a fair value of $294.3 million and gross unrealized losses of $22.3 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.

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 March 31, 2016 , we held investments in various limited partnerships, in which we are not the primary beneficiary, totaling $108.8 million (classified as other invested assets).  At March 31, 2016 , we had unfunded commitments to these partnerships of $66.7 million .  Our maximum exposure to loss on these investments is limited to the amount of our investment.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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, cash and cash equivalents, separate account assets and embedded derivatives.  We carry our company-owned life insurance policy, 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 and policy loans, 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 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.	

Certain investments classified as other invested assets with a carrying value of $77.9 million and $92.7 million as of March 31, 2016 and December 31, 2015 , respectively, have not been classified in the fair value hierarchy as the fair value of these investments is measured using the net asset value per share practical expedient.

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

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 the first three months of 2016 and 2015 .

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 credit default rates, delinquencies, 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

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 the prices received from third parties are 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 include:  benchmark yields, reported trades, broker dealer quotes, issuer spreads, benchmark securities, bids, offers and reference 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 47 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.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at March 31, 2016 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	$	—		 	$	12,734.5		 	$	173.3		 	$	12,907.8		
United States Treasury securities and obligations of United States government corporations and agencies	—		 	197.1		 	—		 	197.1		
States and political subdivisions	—		 	2,059.8		 	—		 	2,059.8		
Debt securities issued by foreign governments	—		 	34.0		 	—		 	34.0		
Asset-backed securities	—		 	2,150.5		 	43.8		 	2,194.3		
Collateralized debt obligations	—		 	143.7		 	—		 	143.7		
Commercial mortgage-backed securities	—		 	1,516.5		 	1.1		 	1,517.6		
Mortgage pass-through securities	—		 	3.1		 	—		 	3.1		
Collateralized mortgage obligations	—		 	1,047.7		 	—		 	1,047.7		
Total fixed maturities, available for sale	—		 	19,886.9		 	218.2		 	20,105.1		
Equity securities - corporate securities	401.7		 	176.6		 	32.4		 	610.7		
Trading securities:	 		 	 		 	 		 	 		
Corporate securities	—		 	20.2		 	—		 	20.2		
United States Treasury securities and obligations of United States government corporations and agencies	—		 	1.6		 	—		 	1.6		
Asset-backed securities	—		 	43.1		 	—		 	43.1		
Collateralized debt obligations	—		 	1.9		 	—		 	1.9		
Commercial mortgage-backed securities	—		 	111.9		 	39.0		 	150.9		
Collateralized mortgage obligations	—		 	62.4		 	—		 	62.4		
Equity securities	5.1		 	—		 	—		 	5.1		
Total trading securities	5.1		 	241.1		 	39.0		 	285.2		
Investments held by variable interest entities - corporate securities	—		 	1,691.0		 	—		 	1,691.0		
Other invested assets - derivatives	.4		 	47.0		 	—		 	47.4		
Assets held in separate accounts	—		 	4.6		 	—		 	4.6		
Total assets carried at fair value by category	$	407.2		 	$	22,047.2		 	$	289.6		 	$	22,744.0		
 	 	 	 	 	 	 	 	
Liabilities:	 		 	 		 	 		 	 		
Future policy benefits - embedded derivatives associated with fixed index annuity products	$	—		 	$	—		 	$	1,096.0		 	$	1,096.0		

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at December 31, 2015 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	$	—		 	$	12,698.1		 	$	170.4		 	$	12,868.5		
United States Treasury securities and obligations of United States government corporations and agencies	—		 	194.5		 	—		 	194.5		
States and political subdivisions	—		 	2,104.2		 	—		 	2,104.2		
Debt securities issued by foreign governments	—		 	20.7		 	—		 	20.7		
Asset-backed securities	—		 	1,816.3		 	35.9		 	1,852.2		
Collateralized debt obligations	—		 	186.7		 	—		 	186.7		
Commercial mortgage-backed securities	—		 	1,604.2		 	1.1		 	1,605.3		
Mortgage pass-through securities	—		 	3.3		 	.1		 	3.4		
Collateralized mortgage obligations	—		 	1,047.4		 	—		 	1,047.4		
Total fixed maturities, available for sale	—		 	19,675.4		 	207.5		 	19,882.9		
Equity securities - corporate securities	254.9		 	176.1		 	32.0		 	463.0		
Trading securities:	 		 	 		 	 		 	 		
Corporate securities	—		 	21.5		 	—		 	21.5		
United States Treasury securities and obligations of United States government corporations and agencies	—		 	1.9		 	—		 	1.9		
Asset-backed securities	—		 	35.5		 	—		 	35.5		
Collateralized debt obligations	—		 	2.1		 	—		 	2.1		
Commercial mortgage-backed securities	—		 	118.1		 	39.9		 	158.0		
Collateralized mortgage obligations	—		 	38.2		 	—		 	38.2		
Equity securities	4.9		 	—		 	—		 	4.9		
Total trading securities	4.9		 	217.3		 	39.9		 	262.1		
Investments held by variable interest entities - corporate securities	—		 	1,633.6		 	—		 	1,633.6		
Other invested assets - derivatives	1.6		 	41.0		 	—		 	42.6		
Assets held in separate accounts	—		 	4.7		 	—		 	4.7		
Total assets carried at fair value by category	$	261.4		 	$	21,748.1		 	$	279.4		 	$	22,288.9		
 	 	 	 	 	 	 	 	
Liabilities:	 		 	 		 	 		 	 		
Future policy benefits - embedded derivatives associated with fixed index annuity products	$	—		 	$	—		 	$	1,057.1		 	$	1,057.1		

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

For those financial instruments disclosed at fair value, we use the following methods and assumptions to determine the estimated fair values:

Mortgage loans and policy loans.   We discount future expected cash flows based on interest rates currently being offered for similar loans with similar risk characteristics.  We aggregate loans with similar characteristics in our calculations.  The fair value of policy loans approximates their carrying value.

Company-owned life insurance is backed by a series of mutual funds and is carried at cash surrender value which approximates estimated fair value.

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.

Liabilities for policyholder account balances.   The estimated fair value of insurance liabilities for policyholder account balances was approximately equal to its carrying value as interest rates credited on the vast majority of account balances approximate current rates paid on similar products and because these rates are not generally guaranteed beyond one year.

Investment borrowings, notes payable and borrowings related to variable interest entities.   For publicly traded debt, we use current fair values.  For other notes, we use discounted cash flow analyses based on our current incremental borrowing rates for similar types of borrowing arrangements.

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

																				
 	March 31, 2016	
 	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	$	—		 	$	—		 	$	1,803.4		 	$	1,803.4		 	$	1,700.8		
Policy loans	—		 	—		 	110.1		 	110.1		 	110.1		
Other invested assets:	 	 	 	 	 	 	 	 	 	
Company-owned life insurance	—		 	159.0		 	—		 	159.0		 	159.0		
Cash and cash equivalents:	 	 	 	 	 	 	 	 	 	
Unrestricted	544.7		 	91.0		 	—		 	635.7		 	635.7		
Held by variable interest entities	190.1		 	—		 	—		 	190.1		 	190.1		
Liabilities:	 	 	 	 	 	 	 	 	 	
Policyholder account balances	—		 	—		 	10,772.4		 	10,772.4		 	10,772.4		
Investment borrowings	—		 	1,552.5		 	—		 	1,552.5		 	1,548.0		
Borrowings related to variable interest entities	—		 	1,625.7		 	—		 	1,625.7		 	1,656.6		
Notes payable – direct corporate obligations	—		 	941.5		 	—		 	941.5		 	911.5		

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

	
																				
 	December 31, 2015	
 	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	$	—		 	$	—		 	$	1,772.4		 	$	1,772.4		 	$	1,721.0		
Policy loans	—		 	—		 	109.4		 	109.4		 	109.4		
Other invested assets:	 	 	 	 	 	 	 	 	 	
Company-owned life insurance	—		 	158.1		 	—		 	158.1		 	158.1		
Cash and cash equivalents:	 	 	 	 	 	 	 	 	 	
Unrestricted	432.3		 	—		 	—		 	432.3		 	432.3		
Held by variable interest entities	364.4		 	—		 	—		 	364.4		 	364.4		
Liabilities:	 	 	 	 	 	 	 	 	 	
Policyholder account balances	—		 	—		 	10,762.3		 	10,762.3		 	10,762.3		
Investment borrowings	—		 	1,549.8		 	—		 	1,549.8		 	1,548.1		
Borrowings related to variable interest entities	—		 	1,673.6		 	—		 	1,673.6		 	1,676.4		
Notes payable – direct corporate obligations	—		 	937.8		 	—		 	937.8		 	911.1		

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 three months ended March 31, 2016 (dollars in millions):

																																	
 	 	March 31, 2016	 	 	
 	 	Beginning balance as of December 31, 2015	 	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 March 31, 2016	 	Amount of total gains (losses) for the three months ended March 31, 2016 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	 	$	170.4		 	$	(15.4	)	 	$	(11.1	)	 	$	9.1		 	$	20.3		 	$	—		 	$	173.3		 	$	(6.3	)	
Asset-backed securities	 	35.9		 	20.9		 	—		 	.7		 	—		 	(13.7	)	 	43.8		 	—		
Commercial mortgage-backed securities	 	1.1		 	—		 	—		 	—		 	—		 	—		 	1.1		 	—		
Mortgage pass-through securities	 	.1		 	(.1	)	 	—		 	—		 	—		 	—		 	—		 	—		
Total fixed maturities, available for sale	 	207.5		 	5.4		 	(11.1	)	 	9.8		 	20.3		 	(13.7	)	 	218.2		 	(6.3	)	
Equity securities - corporate securities	 	32.0		 	1.1		 	—		 	(.7	)	 	—		 	—		 	32.4		 	—		
Trading securities - commercial mortgage-backed securities	 	39.9		 	(1.1	)	 	—		 	.2		 	—		 	—		 	39.0		 	.2		
Liabilities:	 	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Future policy benefits - embedded derivatives associated with fixed index annuity products	 	(1,057.1	)	 	(4.0	)	 	(34.9	)	 	—		 	—		 	—		 	(1,096.0	)	 	(34.9	)	

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

_________
		
(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 three months ended March 31, 2016 (dollars in millions):	

																				
 	Purchases	 	Sales	 	Issuances	 	Settlements	 	Purchases, sales, issuances and settlements, net	
Assets:	 	 	 	 	 	 	 	 	 	
Fixed maturities, available for sale:	 	 	 	 	 	 	 	 	 	
Corporate securities	$	—		 	$	(15.4	)	 	$	—		 	$	—		 	$	(15.4	)	
Asset-backed securities	21.0		 	(.1	)	 	—		 	—		 	20.9		
Mortgage pass-through securities	—		 	(.1	)	 	—		 	—		 	(.1	)	
Total fixed maturities, available for sale	21.0		 	(15.6	)	 	—		 	—		 	5.4		
Equity securities - corporate securities	1.1		 	—		 	—		 	—		 	1.1		
Trading securities - commercial mortgage-backed securities	—		 	(1.1	)	 	—		 	—		 	(1.1	)	
Liabilities:	 	 	 	 	 	 	 	 	 	
Future policy benefits - embedded derivatives associated with fixed index annuity products	(34.0	)	 	14.2		 	(.2	)	 	16.0		 	(4.0	)	

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 three months ended March 31, 2015 (dollars in millions):

	
																																
 	March 31, 2015	 	 	
 	Beginning balance as of December 31, 2014	 	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 March 31, 2015	 	Amount of total gains (losses) for the three months ended March 31, 2015 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	$	365.9		 	$	(20.1	)	 	$	(1.3	)	 	$	(.8	)	 	$	9.1		 	$	(216.8	)	 	$	136.0		 	$	—		
States and political subdivisions	35.5		 	—		 	—		 	—		 	—		 	(35.5	)	 	—		 	—		
Asset-backed securities	59.2		 	(.8	)	 	—		 	1.4		 	10.0		 	(4.0	)	 	65.8		 	—		
Commercial mortgage-backed securities	1.2		 	—		 	—		 	(.5	)	 	1.4		 	—		 	2.1		 	—		
Mortgage pass-through securities	.4		 	(.2	)	 	—		 	—		 	—		 	—		 	.2		 	—		
Total fixed maturities, available for sale	462.2		 	(21.1	)	 	(1.3	)	 	.1		 	20.5		 	(256.3	)	 	204.1		 	—		
Equity securities - corporate securities	28.0		 	1.0		 	—		 	—		 	—		 	—		 	29.0		 	—		
Trading securities - commercial mortgage-backed securities	28.6		 	—		 	—		 	—		 	—		 	(28.6	)	 	—		 	—		
Liabilities:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Future policy benefits - embedded derivatives associated with fixed index annuity products	(1,081.5	)	 	(2.8	)	 	(17.8	)	 	—		 	—		 	—		 	(1,102.1	)	 	(17.8	)	

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

____________
		
(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 three months ended March 31, 2015 (dollars in millions):	

	
																				
 	Purchases	 	Sales	 	Issuances	 	Settlements	 	Purchases, sales, issuances and settlements, net	
Assets:	 	 	 	 	 	 	 	 	 	
Fixed maturities, available for sale:	 	 	 	 	 	 	 	 	 	
Corporate securities	$	.1		 	$	(20.2	)	 	$	—		 	$	—		 	$	(20.1	)	
Asset-backed securities	9.9		 	(10.7	)	 	—		 	—		 	(.8	)	
Mortgage pass-through securities	—		 	(.2	)	 	—		 	—		 	(.2	)	
Total fixed maturities, available for sale	10.0		 	(31.1	)	 	—		 	—		 	(21.1	)	
Equity securities - corporate securities	1.0		 	—		 	—		 	—		 	1.0		
Liabilities:	 	 	 	 	 	 	 	 	 	
Future policy benefits - embedded derivatives associated with fixed index annuity products	(30.4	)	 	11.4		 	(1.6	)	 	17.8		 	(2.8	)	

At March 31, 2016 , 48 percent of our Level 3 fixed maturities, available for sale, were investment grade and 79 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.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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 March 31, 2016 (dollars in millions):

	
										
 	Fair value at March 31, 2016	 	Valuation techniques	 	Unobservable inputs	 	Range (weighted average)	
Assets:	 	 	 	 	 	 	 	
Corporate securities (a)	$	78.8		 	Discounted cash flow analysis	 	Discount margins	 	1.80% - 11.29% (5.55%)	
Asset-backed securities (b)	22.8		 	Discounted cash flow analysis	 	Discount margins	 	2.89% - 4.25% (3.47%)	
Equity security (c)	32.4		 	Market approach	 	Projected cash flows	 	Not applicable	
Other assets categorized as Level 3 (d)	155.6		 	Unadjusted third-party price source	 	Not applicable	 	Not applicable	
Total	289.6		 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	
Future policy benefits (e)	1,096.0		 	Discounted projected embedded derivatives	 	Projected portfolio yields	 	5.15% - 5.61% (5.42%)	
 	 	 	 	 	Discount rates	 	0.00% - 2.80% (1.44%)	
 	 	 	 	 	Surrender rates	 	1.67% - 46.56% (14.09%)	
________________________________
		
(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)	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.	
		
(c)	Equity security - This equity security represents an investment in a company that is constructing a manufacturing facility. The significant unobservable input is the cash flows that will be generated upon completion of the manufacturing facility. Given the nature of this investment, the best current indicator of value is the cost basis of the investment, which we believe approximates market value.	
		
(d)	Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources.	
		
(e)	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 the Treasury rate adjusted by a margin. 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.	

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
___________________

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, 2015 (dollars in millions):

	
										
 	Fair value at December 31, 2015	 	Valuation techniques	 	Unobservable inputs	 	Range (weighted average)	
Assets:	 	 	 	 	 	 	 	
Corporate securities (a)	$	76.9		 	Discounted cash flow analysis	 	Discount margins	 	1.65% - 9.74% (5.35%)	
Asset-backed securities (b)	22.2		 	Discounted cash flow analysis	 	Discount margins	 	2.83% - 4.45% (3.50%)	
Equity security (c)	32.0		 	Market approach	 	Projected cash flows	 	Not applicable	
Other assets categorized as Level 3 (d)	148.3		 	Unadjusted third-party price source	 	Not applicable	 	Not applicable	
Total	279.4		 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	
Future policy benefits (e)	1,057.1		 	Discounted projected embedded derivatives	 	Projected portfolio yields	 	5.15% - 5.61% (5.42%)	
 	 	 	 	 	Discount rates	 	0.00 - 3.18% (1.94%)	
 	 	 	 	 	Surrender rates	 	1.67% - 46.56% (14.09%)	
________________________________
		
(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)	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.	
		
(c)	Equity security - This equity security represents an investment in a company that is constructing a manufacturing facility. The significant unobservable input is the cash flows that will be generated upon completion of the manufacturing facility. Given the nature of this investment, the best current indicator of value is the cost basis of the investment, which we believe approximates market value.	
		
(d)	Other assets categorized as Level 3 - For these assets, there were no adjustments to quoted market prices obtained from third-party pricing sources.	
		
(e)	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 the Treasury rate adjusted by a margin. 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.	

SUBSEQUENT EVENT

In April 2016, the Company announced that it has invested in a non-controlling minority interest in TCP, a Los Angeles-based investment management firm with over $6 billion in assets under management. In addition, the Company has agreed to make general account investments over a period of time of approximately $250 million in TCP’s managed funds and strategies.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	

In this section, we review the consolidated financial condition of CNO at March 31, 2016 , and its consolidated results of operations for the three months ended March 31, 2016 and 2015 , and, where appropriate, factors that may affect future financial performance. Please read this discussion in conjunction with the accompanying consolidated financial statements and notes.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Our statements, trend analyses and other information contained in this report and elsewhere (such as in filings by CNO with the SEC, press releases, presentations by CNO or its management or oral statements) relative to markets for CNO's products and trends in CNO's operations or financial results, as well as other statements, contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995.  Forward-looking statements typically are identified by the use of terms such as "anticipate," "believe," "plan," "estimate," "expect," "project," "intend," "may," "will," "would," "contemplate," "possible," "attempt," "seek," "should," "could," "goal," "target," "on track," "comfortable with," "optimistic," "guidance," "outlook" and similar words, although some forward-looking statements are expressed differently.  You should consider statements that contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business conditions, our results of operations, financial position, and our business outlook or they state other "forward-looking" information based on currently available information.  The "Risk Factors" section of our 2015 Annual Report on Form 10-K provides examples of risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements.  Assumptions and other important factors that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, among other things:

•	changes in or sustained low interest rates causing reductions in investment income, the margins of our fixed annuity and life insurance businesses, and sales of, and demand for, our products;	

•	expectations of lower future investment earnings may cause us to accelerate amortization, write down the balance of insurance acquisition costs or establish additional liabilities for insurance products;	

•	general economic, market and political conditions, including the performance of the financial markets which may affect the value of our investments as well as our ability to raise capital or refinance existing indebtedness and the cost of doing so;	

•	the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are subject;	

•	our ability to make anticipated changes to certain non-guaranteed elements of our life insurance products;	

•	our ability to obtain adequate and timely rate increases on our health products, including our long-term care business;	

•	the receipt of any required regulatory approvals for dividend and surplus debenture interest payments from our insurance subsidiaries;	

•	mortality, morbidity, the increased cost and usage of health care services, persistency, the adequacy of our previous reserve estimates and other factors which may affect the profitability of our insurance products;	

•	changes in our assumptions related to deferred acquisition costs or the present value of future profits;	

•	the recoverability of our deferred tax assets and the effect of potential ownership changes and tax rate changes on their value;	

•	our assumption that the positions we take on our tax return filings will not be successfully challenged by the IRS;	

•	changes in accounting principles and the interpretation thereof;	

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________

•	our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debt agreements;	

•	our ability to achieve anticipated expense reductions and levels of operational efficiencies including improvements in claims adjudication and continued automation and rationalization of operating systems;	

•	performance and valuation of our investments, including the impact of realized losses (including other-than-temporary impairment charges);	

•	our ability to identify products and markets in which we can compete effectively against competitors with greater market share, higher ratings, greater financial resources and stronger brand recognition;	

•	our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs;	

•	our ability to maintain effective controls over financial reporting;	

•	our ability to continue to recruit and retain productive agents and distribution partners;	

•	customer response to new products, distribution channels and marketing initiatives;	

•	our ability to achieve additional upgrades of the financial strength ratings of CNO and our insurance company subsidiaries as well as the impact of our ratings on our business, our ability to access capital, and the cost of capital;	

•	regulatory changes or actions, including those relating to regulation of the financial affairs of our insurance companies, such as the payment of dividends and surplus debenture interest to us, regulation of the sale, underwriting and pricing of products, and health care regulation affecting health insurance products;	

•	changes in the Federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products or affect the value of our deferred tax assets;	

•	availability and effectiveness of reinsurance arrangements, as well as any defaults or failure of reinsurers to perform;	

•	the performance of third party service providers and potential difficulties arising from outsourcing arrangements;	

•	the growth rate of sales, collected premiums, annuity deposits and assets;	

•	interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems;	

•	events of terrorism, cyber attacks, natural disasters or other catastrophic events, including losses from a disease pandemic;	

•	ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; and	

•	the risk factors or uncertainties listed from time to time in our filings with the SEC.	

Other factors and assumptions not identified above are also relevant to the forward-looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected.

All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement.  Our forward-looking statements speak only as of the date made.  We assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking statements.

The reporting of risk-based capital ("RBC") measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________

OVERVIEW

We are 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.  We focus on serving the senior and middle-income markets, 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’s insurance segments are described below:

•	Bankers Life,   which 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 plans ("PDP") products in exchange for a fee.	

•	Washington National, which 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 of Texas, Inc. ("PMA") and through independent marketing organizations and insurance agencies including worksite marketing.  The products being marketed are underwritten by 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.	

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The following summarizes our earnings for the three months ending March 31, 2016 and 2015 (dollars in millions, except per share data):

								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
EBIT (a non-GAAP measure) (a):	 	 	 	
Bankers Life	$	77.6		 	$	82.2		
Washington National	26.3		 	28.5		
Colonial Penn	(6.8	)	 	(5.9	)	
EBIT from business segments	97.1		 	104.8		
Corporate operations, excluding corporate interest expense	(8.1	)	 	(1.3	)	
EBIT	89.0		 	103.5		
Corporate interest expense	(11.4	)	 	(10.5	)	
Operating earnings before taxes	77.6		 	93.0		
Tax expense on operating income	28.0		 	32.9		
Net operating income (a)	49.6		 	60.1		
Net realized investment gains (losses) (net of related amortization and taxes)	(.6	)	 	(1.4	)	
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)	(19.2	)	 	(8.3	)	
Fair value changes related to agent deferred compensation plan (net of taxes)	(3.9	)	 	—		
Valuation allowance for deferred tax assets	20.0		 	—		
Other	(.4	)	 	2.4		
Net income	$	45.5		 	$	52.8		
Per diluted share:	 	 	 	
Net operating income	$	.27		 	$	.30		
Net realized investment gains (losses) (net of related amortization and taxes)	—		 	(.01	)	
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)	(.11	)	 	(.04	)	
Fair value changes related to agent deferred compensation plan (net of taxes)	(.02	)	 	—		
Valuation allowance for deferred tax assets	.11		 	—		
Other	—		 	.01		
Net income	$	.25		 	$	.26		

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____________
		
(a)	Management believes that an analysis of net operating income provides a clearer comparison of the operating results of the Company from period to period because it excludes:  (i) net realized investment gains or losses, net of related amortization and taxes; (ii) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and taxes; (iii) fair value changes related to the agent deferred compensation plan, net of taxes; (iv) loss on extinguishment of debt, net of taxes; (v) changes in the valuation allowance for deferred tax assets; and (vi) other non-operating items consisting primarily of equity in earnings of certain non-strategic investments and earnings attributable to variable interest entities . Net realized investment gains or losses include: (i) gains or losses on the sales of investments; (ii) other-than-temporary impairments recognized through net income; and (iii) changes in fair value of certain fixed maturity investments with embedded derivatives.  EBIT is presented as net operating income excluding corporate interest expense and income tax expense. The table above reconciles the non-GAAP measures to the corresponding GAAP measure.	

In addition, management uses these non-GAAP financial measures in its budgeting process, financial analysis of segment performance and in assessing the allocation of resources. We believe these non-GAAP financial measures enhance an investor’s understanding of our financial performance and allows them to make more informed judgments about the Company as a whole. These measures also highlight operating trends that might not otherwise be transparent. However, EBIT and net operating income are not measurements of financial performance under GAAP and should not be considered as alternatives to cash flow from operating activities, as measures of liquidity, or as alternatives to net income as measures of our operating performance or any other measures of performance derived in accordance with GAAP. In addition, EBIT and net operating income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. EBIT and net operating income have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP. Our definitions and calculation of EBIT and net operating income are not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation.

CRITICAL ACCOUNTING POLICIES

Refer to "Critical Accounting Policies" in our 2015 Annual Report on Form 10-K for information on our other accounting policies that we consider critical in preparing our consolidated financial statements.

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RESULTS OF OPERATIONS

The following tables and narratives summarize the operating results of our segments (dollars in millions):

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Pre-tax operating earnings (a non-GAAP measure) (a):	 	 	 	
Bankers Life	$	77.6		 	$	82.2		
Washington National	26.3		 	28.5		
Colonial Penn	(6.8	)	 	(5.9	)	
Corporate operations	(19.5	)	 	(11.8	)	
 	77.6		 	93.0		
Net realized investment gains (losses), net of related amortization:	 	 	 	
Bankers Life	(6.5	)	 	(3.8	)	
Washington National	13.0		 	(.2	)	
Colonial Penn	(1.2	)	 	.1		
Corporate operations	(6.3	)	 	1.7		
 	(1.0	)	 	(2.2	)	
Fair value changes in embedded derivative liabilities, net of related amortization:	 	 	 	
Bankers Life	(29.1	)	 	(12.6	)	
Washington National	(.4	)	 	(.1	)	
 	(29.5	)	 	(12.7	)	
Equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests:	 	 	 	
Corporate operations	(.6	)	 	7.8		
Net revenue (expense) pursuant to transition and support services agreements:	 	 	 	
Corporate operations	—		 	.9		
Fair value changes related to agent deferred compensation plan:	 	 	 	
Corporate operations	(6.0	)	 	—		
Transition expenses	 	 	 	
Corporate operations	—		 	(4.5	)	
Income (loss) before income taxes:	 	 	 	
Bankers Life	42.0		 	65.8		
Washington National	38.9		 	28.2		
Colonial Penn	(8.0	)	 	(5.8	)	
Corporate operations	(32.4	)	 	(5.9	)	
Income before income taxes	$	40.5		 	$	82.3		

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(a)	These non-GAAP measures as presented in the above table and in the following segment financial data and discussions of segment results exclude net realized investment gains (losses), fair value changes in embedded derivative liabilities, net of related amortization, fair value changes related to the agent deferred compensation plan, equity in earnings of certain non-strategic investments and earnings attributable to VIEs, net revenue pursuant to transition and support services agreements , loss on extinguishment of debt and before income taxes.  These are considered non-GAAP financial measures.  A non-GAAP measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.	

These non-GAAP financial measures of "pre-tax operating earnings" differ from "income (loss) before income taxes" as presented in our consolidated statement of operations prepared in accordance with GAAP due to the exclusion of realized investment gains (losses), fair value changes in embedded derivative liabilities, net of related amortization, fair value changes related to the agent deferred compensation plan, equity in earnings of certain non-strategic investments and earnings attributable to VIEs, net revenue pursuant to transition and support services agreements and loss on extinguishment of debt.  We measure segment performance excluding these items because we believe that this performance measure is a better indicator of the ongoing businesses 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 realized investment gains (losses), and a long-term focus is necessary to maintain profitability over the life of the business. Realized investment gains (losses), fair value changes in embedded derivative liabilities, fair value changes related to the agent deferred compensation plan and equity in earnings of certain non-strategic investments and earnings attributable to VIEs depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments.  However, "pre-tax operating earnings" does not replace "income (loss) before income taxes" as a measure of overall profitability.

We may experience realized investment gains (losses), which will affect future earnings levels since our underlying business is long-term in nature and we need to earn the assumed interest rates on the investments backing our liabilities for insurance products to maintain the profitability of our business.  In addition, management uses this non-GAAP financial measure in its budgeting process, financial analysis of segment performance and in assessing the allocation of resources. We believe these non-GAAP financial measures enhance an investor's understanding of our financial performance and allows them to make more informed judgments about the Company as a whole.  These measures also highlight operating trends that might not otherwise be transparent.  The table above reconciles the non-GAAP measure to the corresponding GAAP measure.

General: CNO is the top tier 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. We distribute these products through our Bankers Life segment, which utilizes a career agency force, through our Washington National segment, which utilizes independent producers and through our Colonial Penn segment, which utilizes direct response marketing.

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Bankers Life (dollars in millions)

								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Premium collections:	 	 	 	
Annuities	$	233.6		 	$	171.7		
Medicare supplement and other supplemental health	313.1		 	304.6		
Life	114.0		 	107.9		
Total collections	$	660.7		 	$	584.2		
Average liabilities for insurance products:	 	 	 	
Fixed index annuities	$	4,327.5		 	$	3,952.1		
Fixed interest annuities	3,297.5		 	3,623.5		
SPIAs and supplemental contracts:	 	 	 	
Mortality based	181.4		 	194.4		
Deposit based	155.3		 	152.3		
Health:	 	 	 	
Long-term care	4,814.2		 	5,067.8		
Medicare supplement	339.3		 	336.9		
Other health	48.7		 	47.7		
Life:	 	 	 	
Interest sensitive	689.2		 	614.9		
Non-interest sensitive	989.7		 	911.6		
Total average liabilities for insurance products, net of reinsurance ceded	$	14,842.8		 	$	14,901.2		
Revenues:	 	 	 	
Insurance policy income	$	413.2		 	$	412.7		
Net investment income:	 	 	 	
General account invested assets	222.0		 	229.2		
Fixed index products	(7.8	)	 	(2.7	)	
Fee revenue and other income	6.6		 	6.3		
Total revenues	634.0		 	645.5		
Expenses:	 	 	 	
Insurance policy benefits	360.2		 	363.4		
Amounts added to policyholder account balances:	 	 	 	
Cost of interest credited to policyholders	28.1		 	30.3		
Cost of options to fund index credits, net of forfeitures	16.9		 	14.3		
Market value changes credited to policyholders	(8.2	)	 	(2.7	)	
Amortization related to operations	51.5		 	51.6		
Interest expense on investment borrowings	2.9		 	2.1		
Other operating costs and expenses	105.0		 	104.3		
Total benefits and expenses	556.4		 	563.3		
Income before net realized investment gains (losses), net of related amortization, and fair value changes in embedded derivative liabilities, net of related amortization, and income taxes	77.6		 	82.2		
Net realized investment gains (losses)	(6.6	)	 	(4.0	)	
Amortization related to net realized investment gains (losses)	.1		 	.2		
Net realized investment gains (losses), net of related amortization	(6.5	)	 	(3.8	)	
Insurance policy benefits - fair value changes in embedded derivative liabilities	(36.7	)	 	(16.2	)	
Amortization related to fair value changes in embedded derivative liabilities	7.6		 	3.6		
Fair value changes in embedded derivative liabilities, net of related amortization	(29.1	)	 	(12.6	)	
Income before income taxes	$	42.0		 	$	65.8		

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 	Three months ended	
 	March 31,	
 	2016	 	2015	
Health benefit ratios:	 	 	 	
All health lines:	 	 	 	
Insurance policy benefits	$	294.4		 	$	299.0		
Benefit ratio (a)	94.6	%	 	94.7	%	
Medicare supplement:	 	 	 	
Insurance policy benefits	$	137.0		 	$	130.1		
Benefit ratio (a)	71.1	%	 	67.4	%	
Long-term care:	 	 	 	
Insurance policy benefits	$	157.4		 	$	168.9		
Benefit ratio (a)	132.9	%	 	137.8	%	
Interest-adjusted benefit ratio (b)	75.3	%	 	83.0	%	
______________
		
(a)	We calculate benefit ratios by dividing the related product's insurance policy benefits by insurance policy income.	
		
(b)	We calculate the interest-adjusted benefit ratio (a non-GAAP measure) for Bankers Life's long-term care products by dividing such product's insurance policy benefits less the imputed interest income on the accumulated assets backing the insurance liabilities by policy income. These are considered non-GAAP financial measures. A non-GAAP measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.	

These non-GAAP financial measures of "interest-adjusted benefit ratios" differ from "benefit ratios" due to the deduction of imputed interest income on the accumulated assets backing the insurance liabilities from the product's insurance policy benefits used to determine the ratio. Interest income is an important factor in measuring the performance of health products that are expected to be inforce for a longer duration of time, are not subject to unilateral changes in provisions (such as non-cancelable or guaranteed renewable contracts) and require the performance of various functions and services (including insurance protection) for an extended period of time. The net cash flows from long-term care products generally cause an accumulation of amounts in the early years of a policy (accounted for as reserve increases) that will be paid out as benefits in later policy years (accounted for as reserve decreases). Accordingly, as the policies age, the benefit ratio will typically increase, but the increase in benefits will be partially offset by the imputed interest income earned on the accumulated assets. The interest-adjusted benefit ratio reflects the effects of such interest income offset (which is equal to the tabular interest on the related insurance liabilities). Since interest income is an important factor in measuring the performance of this product, management believes a benefit ratio that includes the effect of interest income is useful in analyzing product performance. We utilize the interest-adjusted benefit ratio in measuring segment performance because we believe that this performance measure is a better indicator of the ongoing businesses and trends in the business. However, the "interest-adjusted benefit ratio" does not replace the "benefit ratio" as a measure of current period benefits to current period insurance policy income. Accordingly, management reviews both "benefit ratios" and "interest-adjusted benefit ratios" when analyzing the financial results attributable to these products. The imputed investment income earned on the accumulated assets backing Bankers Life's long-term care reserves was $68.2 million and $67.1 million in the three months ended March 31, 2016 and 2015 , respectively.

Total premium collections were $660.7 million in the first quarter of 2016 , up 13 percent from 2015 , reflecting an increase in premiums from annuity products and strong persistency in the Medicare supplement and life blocks of business. See "Premium Collections" for further analysis of Bankers Life's premium collections.

Average liabilities for insurance products, net of reinsurance ceded were $14.8 billion in the first quarter of 2016 , down .4 percent from 2015 . Such average liabilities for long-term care products were increased by $30 million and $393 million in the first quarters of 2016 and 2015 , respectively, to reflect the premium deficiencies that would exist 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

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current yields. Such increase is reflected as a reduction of accumulated other comprehensive income. Excluding the impact of the aforementioned item, the increase in average liabilities for insurance products was primarily due to new sales and the amounts added to policyholder account balances on interest-sensitive products.

Insurance policy income is comprised of premiums earned on policies which provide mortality or morbidity coverage and fees and other charges assessed on other policies.

Net investment income on general account invested assets (which excludes income on policyholder accounts) was $222.0 million in the first quarter of 2016 , down 3.1 percent from 2015 . The first quarter of 2016 reflects $7 million of lower investment income from alternative investments compared to the 2015 period. Prepayment income was $4.0 million and $4.4 million in the first quarters of 2016 and 2015 , respectively.

Net investment income related to fixed index products represents the change in the estimated fair value of options which are purchased in an effort to offset or hedge certain potential benefits accruing to the policyholders of our fixed index products. Our fixed index products are designed so that investment income spread is expected to be more than adequate to cover the cost of the options and other costs related to these policies.  Net investment losses related to fixed index products was $7.8 million and $2.7 million in the first quarters of 2016 and 2015 , respectively. Such amounts were substantially offset by the corresponding charge (credit) to amounts added to policyholder account balances - market value changes credited to policyholders . Such income and related charges fluctuate based on the value of options embedded in the segment's fixed index annuity policyholder account balances subject to this benefit and to the performance of the index to which the returns on such products are linked.

Fee revenue and other income was $6.6 million and $6.3 million in the first quarters of 2016 and 2015 , respectively. These amounts include revenues earned under distribution and marketing agreements to sell Medicare Advantage and PDP products of other insurance companies. The increase reflects the larger in-force block of third party products.

Insurance policy benefits fluctuated as a result of the factors summarized below for benefit ratios.  Benefit ratios are calculated by dividing the related insurance product’s insurance policy benefits by insurance policy income.

The Medicare supplement business consists of both individual and group policies.  Government regulations generally require us to attain and maintain a ratio of total benefits incurred to total premiums earned (excluding changes in policy benefit reserves), after three years from the original issuance of the policy and over the lifetime of the policy, of not less than 65 percent on individual products and not less than 75 percent on group products, as determined in accordance with statutory accounting principles.  Since the insurance product liabilities we establish for Medicare supplement business are subject to significant estimates, the ultimate claim liability we incur for a particular period is likely to be different than our initial estimate. Our benefit ratios were 71.1 percent and 67.4 percent in the first quarters of 2016 and 2015 , respectively. The benefit ratio in the first quarter of 2015 was impacted by favorable experience in a small block of supplemental health policies that are aggregated with these policies due to their relative immateriality. We continue to expect the Medicare supplement benefit ratio to be in the range of 70 percent to 73 percent during 2016.

The net cash flows from our long-term care products generally cause an accumulation of amounts in the early years of a policy (accounted for as reserve increases) which will be paid out as benefits in later policy years (accounted for as reserve decreases). Accordingly, as the policies age, the benefit ratio typically increases, but the increase in reserves is partially offset by investment income earned on the accumulated assets.  The benefit ratio on our long-term care business in the Bankers Life segment was 132.9 percent and 137.8 percent in the first quarters of 2016 and 2015 , respectively.  The interest-adjusted benefit ratio on this business was 75.3 percent and 83.0 percent in the first quarters of 2016 and 2015 , respectively.  The interest-adjusted benefit ratio in the first quarter of 2016 was favorably impacted by $8 million of reserve releases related to policyholder decisions to surrender or reduce coverage following rate increases. The interest-adjusted benefit ratio in the first quarter of 2016 excluding the favorable reserve releases related to rate increases was 82.4 percent. We continue to expect the long-term care interest-adjusted benefit ratio to be in the range of 81 percent to 86 percent during 2016, excluding the reserve-related impacts of rate increase actions. We also expect that the impacts of rate increases will continue to favorably impact the interest-adjusted benefit ratio in 2016.

Our projections of estimated future profits on the long-term care block indicate that profits will be recognized in earlier years, followed by losses in later years. We recognize future loss reserves during the period the block is profitable to offset the

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losses in the future period. As a result of the projected future losses, the interest-adjusted benefit ratio will increase on this block as it ages and as new business becomes less of a component of the overall inforce. We estimate the future loss reserve based on our current best estimates of morbidity, persistency, premium rates, maintenance expense, commissions and investment yields, which estimates are generally updated annually. We increased the future loss reserve related to our long-term care blocks of business by $8.9 million and $9.0 million in the first quarters of 2016 and 2015 , respectively. The future loss reserves on this long-term care business totaled $167.2 million at March 31, 2016.

Amounts added to policyholder account balances - cost of interest credited to policyholders were $28.1 million and $30.3 million in the first quarters of 2016 and 2015 , respectively. The weighted average crediting rate for these products was 2.8 percent in both the first quarters of 2016 and 2015 . The average liabilities of the fixed interest annuity block were $3.3 billion and $3.6 billion in the first three months of 2016 and 2015 , respectively. The decrease in the liabilities related to these annuities reflects the lower sales of these products in the current low interest rate environment and consumer preference for fixed index products.

Amounts added to policyholder account balances for fixed index products represent 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 S&P 500 Index, over a specified period. Such amounts include our cost to fund the annual index credits, net of policies that are canceled prior to their anniversary date (classified as cost of options to fund index credits, net of forfeitures ). Market value changes in the underlying indices during a specified period of time are classified as market value changes credited to policyholders . Such market value changes are generally offset by the net investment income related to fixed index products discussed above.

Amortization related to operations includes amortization of deferred acquisition costs and the present value of future profits. Deferred acquisition costs and the present value of future profits are collectively referred to as "insurance acquisition costs". Insurance acquisition costs are generally amortized either:  (i) in relation to the estimated gross profits for interest-sensitive life and annuity products; or (ii) in relation to actual and expected premium revenue for other products.  In addition, for interest-sensitive life and annuity products, we are required to adjust the total amortization recorded to date through the statement of operations if actual experience or other evidence suggests that earlier estimates of future gross profits should be revised. Accordingly, amortization for interest-sensitive life and annuity products is dependent on the profits realized during the period and on our expectation of future profits.  For other products, we amortize insurance acquisition costs in relation to actual and expected premium revenue, and amortization is only adjusted if expected premium revenue changes or if we determine the balance of these costs is not recoverable from future profits.  Bankers Life’s amortization expense was $51.5 million and $51.6 million in the first quarters of 2016 and 2015 , respectively.

Interest expense on investment borrowings represents interest expense on collateralized borrowings as further described in the note to the consolidated financial statements entitled "Investment Borrowings".

Other operating costs and expenses in our Bankers Life segment were $105.0 million in the first quarter of 2016 , up .7 percent from 2015 . Other operating costs and expenses include the following (dollars in millions):

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Commission expense and agent manager benefits	$	15.9		 	$	16.6		
Other operating expenses	89.1		 	87.7		
Total	$	105.0		 	$	104.3		

Net realized investment gains (losses) fluctuate from period to period. During the first three months of 2016 , we recognized net realized investment losses of $6.6 million, which were comprised of: (i) $4.9 million of net gains from the sales of investments; (ii) the decrease in fair value of certain fixed maturity investments with embedded derivatives of $3.1 million; and (iii) $8.4 million of writedowns of investments for other than temporary declines in fair value recognized through net income. During the first three months of 2015 , we recognized $2.9 million of net losses from the sales of investments

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(primarily fixed maturities) and $1.1 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

Amortization related to net realized investment gains (losses) is the increase or decrease in the amortization of insurance acquisition costs which results from realized investment gains or losses. When we sell securities which back our interest-sensitive life and annuity products at a gain (loss) and reinvest the proceeds at a different yield, we increase (reduce) the amortization of insurance acquisition costs in order to reflect the change in estimated gross profits due to the gains (losses) realized and the resulting effect on estimated future yields. Sales of fixed maturity investments resulted in a decrease in the amortization of insurance acquisition costs of $.1 million and $.2 million in the first quarters of 2016 and 2015 , respectively.

Insurance policy benefits - fair value changes in embedded derivative liabilities represents fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities.

Amortization related to fair value changes in embedded derivative liabilities is the increase or decrease in the amortization of insurance acquisition costs which results from changes in interest rates used to discount embedded derivative liabilities related to our fixed index annuities.

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Washington National (dollars in millions)

								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Premium collections:	 	 	 	
Supplemental health and other health	$	141.6		 	$	133.2		
Medicare supplement	16.4		 	18.2		
Life	7.2		 	6.9		
Annuity	.3		 	.4		
Total collections	$	165.5		 	$	158.7		
Average liabilities for insurance products:	 	 	 	
Fixed index annuities	$	363.5		 	$	401.0		
Fixed interest annuities	111.2		 	124.9		
SPIAs and supplemental contracts:	 	 	 	
Mortality based	248.5		 	267.5		
Deposit based	265.5		 	257.3		
Separate Accounts	4.7		 	5.5		
Health:	 	 	 	
Supplemental health	2,558.0		 	2,455.3		
Medicare supplement	29.5		 	33.5		
Other health	14.3		 	15.1		
Life:	 	 	 	
Interest sensitive	150.5		 	153.5		
Non-interest sensitive	182.3		 	188.4		
Total average liabilities for insurance products, net of reinsurance ceded	$	3,928.0		 	$	3,902.0		
Revenues:	 	 	 	
Insurance policy income	$	162.1		 	$	159.5		
Net investment income:	 	 	 	
General account invested assets	61.7		 	64.6		
Fixed index products	(1.2	)	 	.6		
Trading account income related to policyholder accounts	.1		 	.4		
Fee revenue and other income	.3		 	.4		
Total revenues	223.0		 	225.5		
Expenses:	 	 	 	
Insurance policy benefits	129.1		 	129.0		
Amounts added to policyholder account balances:	 	 	 	
Cost of interest credited to policyholders	3.5		 	3.7		
Cost of options to fund index credits, net of forfeitures	1.7		 	1.5		
Market value changes credited to policyholders	(.8	)	 	1.0		
Amortization related to operations	15.1		 	15.3		
Interest expense on investment borrowings	.8		 	.4		
Other operating costs and expenses	47.3		 	46.1		
Total benefits and expenses	196.7		 	197.0		
Income before net realized investment gains (losses) and fair value changes in embedded derivative liabilities, net of related amortization, and income taxes	26.3		 	28.5		
Net realized investment gains (losses)	13.2		 	(.2	)	
Amortization related to net realized investment gains (losses)	(.2	)	 	—		
Net realized investment gains (losses), net of related amortization	13.0		 	(.2	)	
Insurance policy benefits - fair value changes in embedded derivative liabilities	(1.3	)	 	(.7	)	
Amortization related to fair value changes in embedded derivative liabilities	.9		 	.6		
Fair value changes in embedded derivative liabilities, net of related amortization	(.4	)	 	(.1	)	
Income before income taxes	$	38.9		 	$	28.2		

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Health benefit ratios:	 	 	 	
Medicare supplement:	 	 	 	
Insurance policy benefits	$	10.6		 	$	12.3		
Benefit ratio (a)	65.1	%	 	63.2	%	
Supplemental health and other:	 	 	 	
Insurance policy benefits	$	113.0		 	$	109.4		
Benefit ratio (a)	81.2	%	 	82.4	%	
Interest-adjusted benefit ratio (b)	57.7	%	 	57.6	%	

_________________
		
(a)	We calculate benefit ratios by dividing the related product’s insurance policy benefits by insurance policy income.	
		
(b)	We calculate the interest-adjusted benefit ratio (a non-GAAP measure) for Washington National's supplemental health products by dividing such product’s insurance policy benefits less the imputed interest income on the accumulated assets backing the insurance liabilities by policy income.  These are considered non-GAAP financial measures.  A non-GAAP measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.	

These non-GAAP financial measures of "interest-adjusted benefit ratios" differ from "benefit ratios" due to the deduction of imputed interest income on the accumulated assets backing the insurance liabilities from the product’s insurance policy benefits used to determine the ratio.  Interest income is an important factor in measuring the performance of health products that are expected to be inforce for a longer duration of time, are not subject to unilateral changes in provisions (such as non-cancelable or guaranteed renewable contracts) and require the performance of various functions and services (including insurance protection) for an extended period of time.  The net cash flows from supplemental health products generally cause an accumulation of amounts in the early years of a policy (accounted for as reserve increases) that will be paid out as benefits in later policy years (accounted for as reserve decreases).  Accordingly, as the policies age, the benefit ratio will typically increase, but the increase in benefits will be partially offset by the imputed interest income earned on the accumulated assets.  The interest-adjusted benefit ratio reflects the effects of such interest income offset (which is equal to the tabular interest on the related insurance liabilities). Since interest income is an important factor in measuring the performance of these products, management believes a benefit ratio that includes the effect of interest income is useful in analyzing product performance.  We utilize the interest-adjusted benefit ratio in measuring segment performance because we believe that this performance measure is a better indicator of the ongoing businesses and trends in the business.  However, the "interest-adjusted benefit ratio" does not replace the "benefit ratio" as a measure of current period benefits to current period insurance policy income. Accordingly, management reviews both "benefit ratios" and "interest-adjusted benefit ratios" when analyzing the financial results attributable to these products.  The imputed investment income earned on the accumulated assets backing the supplemental health reserves was $32.7 million and $32.8 million in the three months ended March 31, 2016 and 2015 , respectively.

Total premium collections were $165.5 million in the first quarter of 2016 , up 4.3 percent from 2015 , driven by sales and persistency of the segment's supplemental health block. See "Premium Collections" for further analysis of fluctuations in premiums collected by product.

Average liabilities for insurance products, net of reinsurance ceded were $3.9 billion in the first quarter of 2016 , up .7 percent from 2015 , reflecting an increase in the supplemental health block; partially offset by the run-off of the annuity blocks.

Insurance policy income is comprised of premiums earned on traditional insurance policies which provide mortality or morbidity coverage and fees and other charges assessed on other policies. Such income increased in recent periods as

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________

supplemental health premiums have increased consistent with sales; partially offset by the decrease in Medicare supplement premiums.

Net investment income on general account invested assets (which excludes income on policyholder accounts) was $61.7 million in the first quarter of 2016 , down 4.5 percent from 2015 . The first quarter of 2016 reflects $3 million of lower investment income from alternative investments compared to the 2015 period.

Net investment income related to fixed index products represents the change in the estimated fair value of options which are purchased in an effort to offset or hedge certain potential benefits accruing to the policyholders of our fixed index products. Our fixed index products are designed so that investment income spread is expected to be more than adequate to cover the cost of the options and other costs related to these policies. Net investment income (loss) related to fixed index products was $(1.2) million and $.6 million in the first quarters of 2016 and 2015 , respectively. Such amounts were substantially offset by the corresponding charge to amounts added to policyholder account balances - market value changes credited to policyholders .  Such income and related charges fluctuate based on the value of options embedded in the segment's fixed index annuity policyholder account balances subject to this benefit and to the performance of the index to which the returns on such products are linked.

Trading account income related to policyholder accounts represents the income on investments backing the market strategies of certain annuity products which provide for different rates of cash value growth based on the experience of a particular market strategy. The income on our trading account securities is designed to substantially offset certain amounts included in insurance policy benefits related to the aforementioned annuity products.

Insurance policy benefits fluctuated as a result of the factors summarized below. Benefit ratios are calculated by dividing the related insurance product's insurance policy benefits by insurance policy income.

Washington National's supplemental health products (including specified disease, accident and hospital indemnity products) generally provide fixed or limited benefits. For example, payments under cancer insurance policies are generally made directly to, or at the direction of, the policyholder following diagnosis of, or treatment for, a covered type of cancer. Approximately three-fourths of our supplemental health policies inforce (based on policy count) are sold with return of premium or cash value riders. The return of premium rider generally provides that after a policy has been inforce for a specified number of years or upon the policyholder reaching a specified age, we will pay to the policyholder, or a beneficiary under the policy, the aggregate amount of all premiums paid under the policy, without interest, less the aggregate amount of all claims incurred under the policy. The cash value rider is similar to the return of premium rider, but also provides for payment of a graded portion of the return of premium benefit if the policy terminates before the return of premium benefit is earned. Accordingly, the net cash flows from these products generally result in the accumulation of amounts in the early years of a policy (reflected in our earnings as reserve increases) which will be paid out as benefits in later policy years (reflected in our earnings as reserve decreases which offset the recording of benefit payments). As the policies age, the benefit ratio will typically increase, but the increase in benefits will be partially offset by investment income earned on the accumulated assets. The benefit ratio will fluctuate depending on the claim experience during the year.

Insurance margins (insurance policy income less insurance policy benefits) on supplemental health products were $26.2 million and $23.4 million in the first quarters of 2016 and 2015 , respectively. The increase in margin is primarily due to higher insurance policy income on these products in the 2016 period. The interest-adjusted benefit ratio on this supplemental health business was 57.7 percent and 57.6 percent in the first quarters of 2016 and 2015 , respectively. We continue to expect the supplemental health interest-adjusted benefit ratio to be in the range of 56 percent to 59 percent during 2016.

Washington National's Medicare supplement business primarily consists of individual policies. The insurance product liabilities we establish for our Medicare supplement business are subject to significant estimates and the ultimate claim liability we incur for a particular period is likely to be different than our initial estimate.  Governmental regulations generally require us to attain and maintain a ratio of total benefits incurred to total premiums earned (excluding changes in policy benefit reserves), after three years from the original issuance of the policy and over the lifetime of the policy, of not less than 65 percent on these products, as determined in accordance with statutory accounting principles. Insurance margins (insurance policy income less insurance policy benefits) on these products were $5.7 million and $7.1 million in the first quarters of 2016 and 2015 , respectively. Such decrease reflects the run-off of this block of business.

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Amounts added to policyholder account balances - cost of interest credited to policyholders were $3.5 million and $3.7 million in the first quarters of 2016 and 2015 , respectively.

Amounts added to policyholder account balances for fixed index products represent 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 S&P 500 Index, over a specified period. Such amounts include our cost to fund the annual index credits, net of policies that are canceled prior to their anniversary date (classified as cost of options to fund index credits, net of forfeitures ). Market value changes in the underlying indices during a specified period of time are classified as market value changes credited to policyholders . Such market value changes are generally offset by the net investment income related to fixed index products discussed above.

Amortization related to operations includes amortization of insurance acquisition costs. Insurance acquisition costs are generally amortized in relation to actual and expected premium revenue, and amortization is only adjusted if expected premium revenue changes or if we determine the balance of these costs is not recoverable from future profits. Such amounts were generally consistent with the related premium revenue. A revision to our current assumptions could result in increases or decreases to amortization expense in future periods.

Interest expense on investment borrowings represents interest expense on collateralized borrowings as further described in the note to the consolidated financial statements entitled "Investment Borrowings".

Other operating costs and expenses were $47.3 million and $46.1 million in the first quarters of 2016 and 2015 , respectively. Other operating costs and expenses include commission expense of $17.4 million and $17.7 million in the first quarters of 2016 and 2015 , respectively.

Net realized investment gains (losses) fluctuate each period. During the first three months of 2016 , we recognized net realized investment gains of $13.2 million, which were comprised of: (i) $13.2 million of net gains from the sales of investments; (ii) the decrease in fair value of certain fixed maturity investments with embedded derivatives of $.4 million; (iii) the increase in fair value of embedded derivatives related to a modified coinsurance agreement of $1.8 million; and (iv) $1.4 million of writedowns of investments for other than temporary declines in fair value recognized through net income. During the first three months of 2015 , we recognized net realized investment losses of $1.4 million from the sales of investments; the increase in fair value of embedded derivatives related to a modified coinsurance agreement of $1.4 million; and $.2 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

Amortization related to net realized investment gains (losses) is the increase or decrease in the amortization of insurance acquisition costs which results from realized investment gains or losses. When we sell securities which back our interest-sensitive life and annuity products at a gain (loss) and reinvest the proceeds at a different yield (or when we have the intent to sell the impaired investments before an anticipated recovery in value occurs), we increase (reduce) the amortization of insurance acquisition costs in order to reflect the change in estimated gross profits due to the gains (losses) realized and the resulting effect on estimated future yields. Sales of fixed maturity investments resulted in an increase in the amortization of insurance acquisition costs of $.2 million in the first three months of 2016 .

Insurance policy benefits - fair value changes in embedded derivative liabilities represents fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities.

Amortization related to fair value changes in embedded derivative liabilities is the increase or decrease in the amortization of insurance acquisition costs which results from changes in interest rates used to discount embedded derivative liabilities related to our fixed index annuities.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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Colonial Penn (dollars in millions)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Premium collections:	 	 	 	
Life	$	69.5		 	$	64.4		
Supplemental health	.6		 	.7		
Total collections	$	70.1		 	$	65.1		
Average liabilities for insurance products:	 	 	 	
SPIAs - mortality based	$	71.2		 	$	76.2		
Health:	 	 	 	
Medicare supplement	6.8		 	8.5		
Other health	4.3		 	4.5		
Life:	 	 	 	
Interest sensitive	16.2		 	16.6		
Non-interest sensitive	680.6		 	661.5		
Total average liabilities for insurance products, net of reinsurance ceded	$	779.1		 	$	767.3		
Revenues:	 	 	 	
Insurance policy income	$	69.1		 	$	64.3		
Net investment income on general account invested assets	11.0		 	10.7		
Fee revenue and other income	.4		 	.3		
Total revenues	80.5		 	75.3		
Expenses:	 	 	 	
Insurance policy benefits	50.4		 	48.3		
Amounts added to annuity and interest-sensitive life product account balances	.1		 	.3		
Amortization related to operations	3.9		 	3.6		
Interest expense on investment borrowings	.1		 	—		
Other operating costs and expenses	32.8		 	29.0		
Total benefits and expenses	87.3		 	81.2		
Income (loss) before net realized investment gains (losses) and income taxes	(6.8	)	 	(5.9	)	
Net realized investment gains (losses)	(1.2	)	 	.1		
Income (loss) before income taxes	$	(8.0	)	 	$	(5.8	)	

This segment's results are significantly impacted by the accounting standard related to deferred acquisition costs. We are not able to defer most of Colonial Penn's direct response advertising costs although such costs generate predictable sales and future in-force profits. We plan to continue to invest in this segment's business, including the development of new products and markets. The amount of our investment in new business during a particular period will have a significant impact on this segment's results. We continue to expect this segment to report earnings in 2016 in the range of breakeven to $6 million. The range of earnings we expect to report in 2016 reflects uncertainty related to how the U.S. presidential election will impact the cost of television advertising.

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Total premium collections were $70.1 million in the first quarter of 2016 , up 7.7 percent from 2015 . The increase was driven by increased sales and steady persistency. See "Premium Collections" for further analysis of Colonial Penn's premium collections.

Average liabilities for insurance products, net of reinsurance ceded have increased as a result of growth in the core graded benefit and simplified issue life insurance block in this segment.

Insurance policy income is comprised of premiums earned on policies which provide mortality or morbidity coverage and fees and other charges assessed on other policies. The increase in such income reflects the growth in the block of graded benefit and simplified issue life insurance business.

Net investment income on general account invested assets increased slightly in the 2016 period primarily due to the increase in invested assets as a result of the growth in this segment.

Insurance policy benefits fluctuated primarily due to the growth in this segment.

Amortization related to operations includes amortization of insurance acquisition costs. Insurance acquisition costs in the Colonial Penn segment are amortized in relation to actual and expected premium revenue, and amortization is only adjusted if expected premium revenue changes or if we determine the balance of these costs is not recoverable from future profits. Such amounts were generally consistent with the related premium revenue and gross profits for such periods and the assumptions we made when we established the present value of future profits. A revision to our current assumptions could result in increases or decreases to amortization expense in future periods.

Other operating costs and expenses in our Colonial Penn segment fluctuate primarily due to changes in the marketing expenses incurred to generate new business. Marketing expenses were higher in the 2016 period as compared to the corresponding period in 2015 primarily due to higher advertising costs in a U.S. presidential election year. We continue to face increased competition from other insurance companies who also distribute products through direct marketing. In addition, the demand and cost of television advertising appropriate for Colonial Penn's campaigns has fluctuated widely in certain periods. In some periods, increased advertising costs have resulted in decisions to lower our planned spending. These factors may reoccur in the future.

Net realized investment gains (losses) fluctuated each period. During the first three months of 2016 , we recognized net realized investment losses of $1.2 million, which were comprised of: (i) $.9 million of net losses from the sales of investments; (ii) the decrease in fair value of certain fixed maturity investments with embedded derivatives of $.1 million; and (iii) $.2 million of writedowns of investments for other than temporary declines in fair value recognized through net income. During the first three months of 2015 , we recognized $.1 million of net gains from the sales of investments (primarily fixed maturities).

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Corporate Operations (dollars in millions)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Corporate operations:	 	 	 	
Interest expense on corporate debt	$	(11.4	)	 	$	(10.5	)	
Net investment income (loss):	 	 	 	
General investment portfolio	1.3		 	1.8		
Other special-purpose portfolios:	 	 	 	
COLI	(.9	)	 	2.0		
Investments held in a rabbi trust	.1		 	.3		
Other trading account activities	3.5		 	2.6		
Fee revenue and other income	2.5		 	1.9		
Other operating costs and expenses	(14.6	)	 	(9.9	)	
Loss before net realized investment gains (losses), equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests, net revenue pursuant to transition and support services agreements, loss on extinguishment of debt and income taxes	(19.5	)	 	(11.8	)	
Net realized investment gains (losses)	(6.3	)	 	1.7		
Equity in earnings of certain non-strategic investments and earnings attributable to VIEs	(.6	)	 	7.8		
Transition expenses	—		 	(4.5	)	
Net revenue (expense) pursuant to transition and support services agreements	—		 	.9		
Fair value changes related to agent deferred compensation plan	(6.0	)	 	—		
Loss before income taxes	$	(32.4	)	 	$	(5.9	)	

Interest expense on corporate debt has been primarily impacted by the debt refinancing transactions completed in May 2015, along with the mix of interest rates on the related outstanding borrowings. Our average corporate debt outstanding was $925.0 million and $796.9 million in the first three months of 2016 and 2015 , respectively. The average interest rate on our debt was 4.7 percent and 4.5 percent in the first three months of 2016 and 2015 , respectively. The 2016 period also reflects lower amortization of discount and issuance costs primarily due to the extended maturity profile of the debt incurred in our debt refinancing transactions.

Net investment income on general investment portfolio fluctuates based on the amount and type of invested assets in the corporate operations segment.

Net investment income on other special-purpose portfolios includes the income (loss) from:  (i) investments related to deferred compensation plans held in a rabbi trust (which is offset by amounts included in other operating costs and expenses as the investment results are allocated to participants' account balances); (ii) trading account activities; and (iii) income (loss) from Company-owned life insurance ("COLI") equal to the difference between the return on these investments (representing the change in value of the underlying investments) and our overall portfolio yield.  COLI is utilized as an investment vehicle to fund Bankers Life's agent deferred compensation plan.  For segment reporting, the Bankers Life segment is allocated a return on these investments equivalent to the yield on the Company’s overall portfolio, with any difference in the actual COLI return allocated to the Corporate operations segment.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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Fee revenue and other income includes the fees our wholly-owned investment advisor earns for managing portfolios of commercial bank loans for investment trusts. These trusts are consolidated as VIEs in our consolidated financial statements, but the fees are reflected as revenues and the fee expense is reflected in the earnings attributable to non-controlling interests. This fee revenue fluctuates consistent with the size of the loan portfolios.

Other operating costs and expenses include general corporate expenses, net of amounts charged to subsidiaries for services provided by the corporate operations. These amounts fluctuate as a result of expenses such as consulting and legal costs which often vary from period to period. Such expenses in the first three months of 2016 included $3 million of accelerated stock compensation expense related to retirement eligible employees. Since certain stock-based compensation awards granted to retirement eligible employees do not require the employee to provide any further service to retain the award, 100 percent of the compensation expense was recognized when the awards were granted in the first quarter of 2016.

Net realized investment gains (losses) often fluctuate each period. During the first three months of 2016 , net realized investment losses in this segment included $6.3 million of net losses from the sales of investments (including $6.4 million of losses recognized by the VIEs and $.1 million of net gains on other investment sales). During the first three months of 2015 , net realized investment gains in this segment included $1.7 million of net gains from the sales of investments (including $.9 million of losses recognized by the VIEs and $2.6 million of net gains on other investment sales).

Equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests include the earnings attributable to non-controlling interests in certain VIEs that we are required to consolidate and certain private companies that were acquired in the commutation of an investment made by our Predecessor, net of affiliated amounts. This amount included an $11.3 million gain in the first quarter of 2015 on the dissolution of a VIE. Such earnings are not indicative and are unrelated to the Company's underlying fundamentals.

Transition expenses include one-time expenses associated with our comprehensive agreement with Cognizant for our application development, maintenance and testing functions as well as select information technology infrastructure operations. Transition expenses were $4.5 million in the three months ended March 31, 2015 .

Net revenue (expense) pursuant to transition and support services agreements represents the difference between the fees we receive from Wilton Reassurance Company and the overhead costs incurred to provide such services under the agreements subsequent to the sale of CLIC.

Fair value changes related to agent deferred compensation plan related to changes in the underlying actuarial assumptions used to value liabilities for our agent deferred compensation plan.

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EBIT from Business Segments Summarized by In-Force and New Business

Management believes that an analysis of EBIT separated between in-force and new business provides increased clarity around the value drivers of our business, particularly since the new business results are significantly impacted by the rate of sales, mix of business and the distribution channel through which new sales are made. EBIT from new business includes pre-tax revenues and expenses associated with new sales of our insurance products during the first year after the sale is completed. EBIT from in-force business includes all pre-tax revenues and expenses associated with sales of insurance products that were completed more than one year before the end of the reporting period. The allocation of certain revenues and expenses between new and in-force business is based on estimates, which we believe are reasonable.

The following summarizes our earnings, separated between in-force and new business on a consolidated basis and for each of our operating segments for the three months ended March 31, 2016 and 2015 :

Business segments - total (dollars in millions)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
EBIT from In-Force Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	559.2		 	$	549.8		
Net investment income and other	287.8		 	301.4		
Total revenues	847.0		 	851.2		
Benefits and expenses:	 	 	 	
Insurance policy benefits	526.5		 	531.3		
Amortization	64.2		 	65.0		
Other expenses	93.9		 	87.1		
Total benefits and expenses	684.6		 	683.4		
EBIT from In-Force Business	$	162.4		 	$	167.8		
 	 	 	 	
EBIT from New Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	85.2		 	$	86.7		
Net investment income and other	5.3		 	8.4		
Total revenues	90.5		 	95.1		
Benefits and expenses:	 	 	 	
Insurance policy benefits	54.5		 	57.8		
Amortization	6.3		 	5.5		
Other expenses	95.0		 	94.8		
Total benefits and expenses	155.8		 	158.1		
EBIT from New Business	$	(65.3	)	 	$	(63.0	)	
 	 	 	 	
EBIT from In-Force and New Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	644.4		 	$	636.5		
Net investment income and other	293.1		 	309.8		
Total revenues	937.5		 	946.3		
Benefits and expenses:	 	 	 	
Insurance policy benefits	581.0		 	589.1		
Amortization	70.5		 	70.5		
Other expenses	188.9		 	181.9		
Total benefits and expenses	840.4		 	841.5		
EBIT from In-Force and New Business	$	97.1		 	$	104.8		

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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Bankers Life (dollars in millions)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
EBIT from In-Force Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	361.4		 	$	357.9		
Net investment income and other	215.5		 	224.4		
Total revenues	576.9		 	582.3		
Benefits and expenses:	 	 	 	
Insurance policy benefits	362.0		 	365.9		
Amortization	46.8		 	47.5		
Other expenses	49.7		 	46.6		
Total benefits and expenses	458.5		 	460.0		
EBIT from In-Force Business	$	118.4		 	$	122.3		
 	 	 	 	
EBIT from New Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	51.8		 	$	54.8		
Net investment income and other	5.3		 	8.4		
Total revenues	57.1		 	63.2		
Benefits and expenses:	 	 	 	
Insurance policy benefits	35.0		 	39.4		
Amortization	4.7		 	4.1		
Other expenses	58.2		 	59.8		
Total benefits and expenses	97.9		 	103.3		
EBIT from New Business	$	(40.8	)	 	$	(40.1	)	
 	 	 	 	
EBIT from In-Force and New Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	413.2		 	$	412.7		
Net investment income and other	220.8		 	232.8		
Total revenues	634.0		 	645.5		
Benefits and expenses:	 	 	 	
Insurance policy benefits	397.0		 	405.3		
Amortization	51.5		 	51.6		
Other expenses	107.9		 	106.4		
Total benefits and expenses	556.4		 	563.3		
EBIT from In-Force and New Business	$	77.6		 	$	82.2		

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Washington National (dollars in millions)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
EBIT from In-Force Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	142.5		 	$	140.0		
Net investment income and other	60.9		 	66.0		
Total revenues	203.4		 	206.0		
Benefits and expenses:	 	 	 	
Insurance policy benefits	122.4		 	123.9		
Amortization	13.7		 	14.1		
Other expenses	36.0		 	33.1		
Total benefits and expenses	172.1		 	171.1		
EBIT from In-Force Business	$	31.3		 	$	34.9		
 	 	 	 	
EBIT from New Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	19.6		 	$	19.5		
Net investment income and other	—		 	—		
Total revenues	19.6		 	19.5		
Benefits and expenses:	 	 	 	
Insurance policy benefits	11.1		 	11.3		
Amortization	1.4		 	1.2		
Other expenses	12.1		 	13.4		
Total benefits and expenses	24.6		 	25.9		
EBIT from New Business	$	(5.0	)	 	$	(6.4	)	
 	 	 	 	
EBIT from In-Force and New Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	162.1		 	$	159.5		
Net investment income and other	60.9		 	66.0		
Total revenues	223.0		 	225.5		
Benefits and expenses:	 	 	 	
Insurance policy benefits	133.5		 	135.2		
Amortization	15.1		 	15.3		
Other expenses	48.1		 	46.5		
Total benefits and expenses	196.7		 	197.0		
EBIT from In-Force and New Business	$	26.3		 	$	28.5		

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Colonial Penn (dollars in millions)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
EBIT from In-Force Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	55.3		 	$	51.9		
Net investment income and other	11.4		 	11.0		
Total revenues	66.7		 	62.9		
Benefits and expenses:	 	 	 	
Insurance policy benefits	42.1		 	41.5		
Amortization	3.7		 	3.4		
Other expenses	8.2		 	7.4		
Total benefits and expenses	54.0		 	52.3		
EBIT from In-Force Business	$	12.7		 	$	10.6		
 	 	 	 	
EBIT from New Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	13.8		 	$	12.4		
Net investment income and other	—		 	—		
Total revenues	13.8		 	12.4		
Benefits and expenses:	 	 	 	
Insurance policy benefits	8.4		 	7.1		
Amortization	.2		 	.2		
Other expenses	24.7		 	21.6		
Total benefits and expenses	33.3		 	28.9		
EBIT from New Business	$	(19.5	)	 	$	(16.5	)	
 	 	 	 	
EBIT from In-Force and New Business	 	 	 	
Revenues:	 	 	 	
Insurance policy income	$	69.1		 	$	64.3		
Net investment income and other	11.4		 	11.0		
Total revenues	80.5		 	75.3		
Benefits and expenses:	 	 	 	
Insurance policy benefits	50.5		 	48.6		
Amortization	3.9		 	3.6		
Other expenses	32.9		 	29.0		
Total benefits and expenses	87.3		 	81.2		
EBIT from In-Force and New Business	$	(6.8	)	 	$	(5.9	)	

The above analysis of EBIT, separated between in-force and new business, illustrates how our segments are impacted by the rate of sales, mix of business and distribution channel through which new sales are made. In addition, when the impacts from new business are separated, the value drivers of our in-force business are more apparent.

The EBIT from in-force business in the Bankers Life segment (as summarized on page 71) decreased in the 2016 period primarily due to lower investment income in the 2016 period as further described in the segment's results of operations section.

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The EBIT from in-force business in the Washington National segment (as summarized on page 72) decreased in the 2016 period primarily due to lower investment income in the 2016 period as further described in the segment's results of operations section.

The EBIT from in-force business in the Colonial Penn segment (as summarized on page 73) reflects the growth in the block. The EBIT from new business in the Colonial Penn segment in the 2016 period primarily reflects higher marketing costs. The vast majority of the costs to generate new business in this segment are not deferrable and EBIT will fluctuate based on management's decisions on how much marketing costs to incur in each period.

PREMIUM COLLECTIONS

In accordance with GAAP, insurance policy income in our consolidated statement of operations consists of premiums earned for traditional insurance policies that have life contingencies or morbidity features.  For annuity and interest-sensitive life contracts, premiums collected are not reported as revenues, but as deposits to insurance liabilities.  We recognize revenues for these products over time in the form of investment income and surrender or other charges.

Our insurance segments sell products through three primary distribution channels - career agents (our Bankers Life segment), direct marketing (our Colonial Penn segment) and independent producers (our Washington National segment).  Our career agency force in the Bankers Life segment sells primarily Medicare supplement and long-term care insurance policies, life insurance and annuities.  These agents visit the customer's home, which permits one-on-one contact with potential policyholders and promotes strong personal relationships with existing policyholders.  Our direct marketing distribution channel in the Colonial Penn segment is engaged primarily in the sale of graded benefit life and simplified issue life insurance policies which are sold directly to the policyholder.  Our Washington National segment sells primarily supplemental health and life insurance.  These products are marketed through PMA, a wholly-owned subsidiary that specializes in marketing and distributing health products, and through independent marketing organizations and insurance agencies, including worksite marketing.

Agents, insurance brokers and marketing companies who market our products and prospective purchasers of our products use the financial strength ratings of our insurance subsidiaries as an important factor in determining whether to market or purchase.  Ratings have the most impact on our sales of supplemental health and life products to consumers at the worksite.  The current financial strength ratings of our primary insurance subsidiaries from Fitch Ratings ("Fitch"), A.M. Best Company ("A.M. Best"), S&P and Moody's Investor Services, Inc. ("Moody's") are "BBB+", "A-", "BBB+" and "Baa1", respectively.  For a description of these ratings and additional information on our ratings, see "Financial Strength Ratings of our Insurance Subsidiaries".

We set premium rates on our health insurance policies based on facts and circumstances known at the time we issue the policies using assumptions about numerous variables, including the actuarial probability of a policyholder incurring a claim, the probable size of the claim, and the interest rate earned on our investment of premiums.  We also consider historical claims information, industry statistics, the rates of our competitors and other factors.  If our actual claims experience is less favorable than we anticipated and we are unable to raise our premium rates, our financial results may be adversely affected.  We generally cannot raise our health insurance premiums in any state until we obtain the approval of the state insurance regulator.  We review the adequacy of our premium rates regularly and file for rate increases on our products when we believe such rates are too low.  It is likely that we will not be able to obtain approval for all requested premium rate increases.  If such requests are denied in one or more states, our net income may decrease.  If such requests are approved, increased premium rates may reduce the volume of our new sales and may cause existing policyholders to lapse their policies.  If the healthier policyholders allow their policies to lapse, this would reduce our premium income and profitability in the future.

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Total premium collections by segment were as follows:

Bankers Life (dollars in millions)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Premiums collected by product:	 	 	 	
Annuities:	 	 	 	
Fixed index (first-year)	$	199.9		 	$	150.2		
Other fixed interest (first-year)	31.9		 	20.0		
Other fixed interest (renewal)	1.8		 	1.5		
Subtotal - other fixed interest annuities	33.7		 	21.5		
Total annuities	233.6		 	171.7		
Health:	 	 	 	
Medicare supplement (first-year)	18.4		 	19.4		
Medicare supplement (renewal)	168.5		 	160.9		
Subtotal - Medicare supplement	186.9		 	180.3		
Long-term care (first-year)	4.4		 	4.0		
Long-term care (renewal)	115.2		 	114.1		
Subtotal - long-term care	119.6		 	118.1		
Supplemental health (first-year)	1.3		 	1.5		
Supplemental health (renewal)	3.7		 	2.9		
Subtotal – supplemental health	5.0		 	4.4		
Other health (renewal)	1.6		 	1.8		
Total health	313.1		 	304.6		
Life insurance:	 	 	 	
Traditional (first-year)	20.8		 	20.5		
Traditional (renewal)	50.2		 	46.1		
Subtotal - traditional	71.0		 	66.6		
Interest-sensitive (first-year)	17.8		 	21.9		
Interest-sensitive (renewal)	25.2		 	19.4		
Subtotal - interest-sensitive	43.0		 	41.3		
Total life insurance	114.0		 	107.9		
Collections on insurance products:	 		 	 		
Total first-year premium collections on insurance products	294.5		 	237.5		
Total renewal premium collections on insurance products	366.2		 	346.7		
Total collections on insurance products	$	660.7		 	$	584.2		

Annuities in this segment include fixed index and other fixed interest annuities sold to the senior market. Annuity collections in this segment increased 36 percent, to $233.6 million , in the first quarter of 2016 , as compared to the same period in 2015 . The increase in premium collections in the first quarter of 2016 is consistent with our marketing efforts to increase fixed index annuity sales.

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Health products include Medicare supplement, long-term care and other insurance products. Our profits on health policies depend on the overall level of sales, the length of time the business remains inforce, investment yields, claims experience and expense management.

Collected premiums on Medicare supplement policies in the Bankers Life segment increased 3.7 percent, to $186.9 million , in the first quarter of 2016 , as compared to the same period in 2015 . Such increase reflects the growth in the block due to additional sales and strong persistency.
  
Premiums collected on Bankers Life's long-term care policies increased 1.3 percent, to $119.6 million , in the first quarter of 2016 , as compared to the same period in 2015 .

Life products in this segment include traditional and interest-sensitive life products. Life premiums collected in this segment increased 5.7 percent, to $114.0 million , in the first quarter of 2016 , as compared to the same period in 2015 , reflecting strong persistency.

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Washington National (dollars in millions)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Premiums collected by product:	 	 	 	
Health:	 	 	 	
Medicare supplement (renewal)	$	16.4		 	$	18.2		
Supplemental health (first-year)	18.5		 	18.2		
Supplemental health (renewal)	122.6		 	114.5		
Subtotal – supplemental health	141.1		 	132.7		
Other health (renewal)	.5		 	.5		
Total health	158.0		 	151.4		
Life insurance:	 	 	 	
Traditional (first-year)	.2		 	.1		
Traditional (renewal)	2.6		 	3.0		
Subtotal - traditional	2.8		 	3.1		
Interest-sensitive (first-year)	1.4		 	.9		
Interest-sensitive (renewal)	3.0		 	2.9		
Subtotal - interest-sensitive	4.4		 	3.8		
    Total life insurance	7.2		 	6.9		
Annuities:	 	 	 	
Fixed index (renewal)	.2		 	.3		
Other fixed interest (renewal)	.1		 	.1		
Total annuities	.3		 	.4		
Collections on insurance products:	 	 	 	
Total first-year premium collections on insurance products	20.1		 	19.2		
Total renewal premium collections on insurance products	145.4		 	139.5		
Total collections on insurance products	$	165.5		 	$	158.7		

Health products in the Washington National segment include Medicare supplement, supplemental health and other insurance products. Our profits on health policies depend on the overall level of sales, the length of time the business remains inforce, investment yields, claim experience and expense management.

Collected premiums on Medicare supplement policies in the Washington National segment decreased in the 2016 period due to the run-off of this block of business.

Premiums collected on supplemental health products (including specified disease, accident and hospital indemnity insurance products) increased 6.3 percent, to $141.1 million , in the first quarter of 2016 , as compared to the same period in 2015 . Such increase is due to new sales in recent periods and persistency.

Overall, excluding premiums from the Washington National Medicare supplement and annuity blocks which are in run-off, collected premiums were up 6.2 percent, to $148.8 million, in the first quarter of 2016 , as compared to the same period in 2015 , driven by strong sales and persistency.

Life premiums collected in the Washington National segment increased 4.3 percent, to $7.2 million , in the first quarter of 2016 , as compared to the same period in 2015 .

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Annuities in this segment include fixed index and other fixed interest annuities. We are no longer actively pursuing sales of annuity products in this segment.

Colonial Penn (dollars in millions)

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Premiums collected by product:	 	 	 	
Life insurance:	 	 	 	
Traditional (first-year)	$	14.0		 	$	12.6		
Traditional (renewal)	55.4		 	51.7		
Subtotal - traditional	69.4		 	64.3		
Interest-sensitive (all renewal)	.1		 	.1		
Total life insurance	69.5		 	64.4		
Health (all renewal):	 	 	 	
Medicare supplement	.5		 	.7		
Other health	.1		 	—		
Total health	.6		 	.7		
Collections on insurance products:	 	 	 	
Total first-year premium collections on insurance products	14.0		 	12.6		
Total renewal premium collections on insurance products	56.1		 	52.5		
Total collections on insurance products	$	70.1		 	$	65.1		

Life products in this segment are sold primarily to the senior market. Life premiums collected in this segment increased 7.9 percent, to $69.5 million , in the first quarter of 2016 , as compared to the same period in 2015 . Graded benefit life products sold through our direct response marketing channel accounted for $68.9 million and $63.9 million of our total collected premiums in the first quarters of 2016 and 2015 , respectively. Premiums collected reflect strong sales in the 2016 period reflecting lead diversification and sales productivity initiatives.

Health products include Medicare supplement and other insurance products. Our profits on health policies depend on the overall level of sales, the length of time the business remains in-force, investment yields, claims experience and expense management. Premiums collected on these products have decreased as we do not currently market these products through this segment.

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LIQUIDITY AND CAPITAL RESOURCES

Our capital structure as of March 31, 2016 and December 31, 2015 was as follows (dollars in millions):

	
								
 	March 31,
2016	 	December 31, 2015	
Total capital:	 	 	 	
Corporate notes payable	$	911.5		 	$	911.1		
Shareholders’ equity:	 	 	 		
Common stock	1.8		 	1.8		
Additional paid-in capital	3,304.3		 	3,386.8		
Accumulated other comprehensive income	540.5		 	402.8		
Retained earnings	380.0		 	347.1		
Total shareholders’ equity	4,226.6		 	4,138.5		
Total capital	$	5,138.1		 	$	5,049.6		

The following table summarizes certain financial ratios as of and for the three months ended March 31, 2016 and as of and for the year ended December 31, 2015 :

	
								
 	March 31,
2016	 	December 31, 2015	
Book value per common share	$	23.60		 	$	22.49		
Book value per common share, excluding accumulated other comprehensive income (a)	20.58		 	20.30		
Ratio of earnings to fixed charges	1.66X		 	2.59X		
Debt to total capital ratios:	 	 	 	
Corporate debt to total capital	17.7	%	 	18.0	%	
Corporate debt to total capital, excluding accumulated other comprehensive income (a)	19.8	%	 	19.6	%	
_____________________
		
(a)	This non-GAAP measure differs from the corresponding GAAP measure presented immediately above, because accumulated other comprehensive income has been excluded from the value of capital used to determine this measure.  Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in accumulated other comprehensive income.  Such volatility is often caused by changes in the estimated fair value of our investment portfolio resulting from changes in general market interest rates rather than the business decisions made by management.  However, this measure does not replace the corresponding GAAP measure.	

Liquidity for Insurance Operations

Our insurance companies generally receive adequate cash flows from premium collections and investment income to meet their obligations.  Life insurance, long-term care insurance and annuity liabilities are generally long-term in nature.  Life and annuity policyholders may, however, withdraw funds or surrender their policies, subject to any applicable penalty provisions; there are generally no withdrawal or surrender benefits for long-term care insurance.  We actively manage the relationship between the duration of our invested assets and the estimated duration of benefit payments arising from contract liabilities.

Three of the Company's insurance subsidiaries (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.  At March 31, 2016 , the carrying value of the FHLB common stock was $74.2 million .  As of March 31, 2016 , collateralized borrowings from the FHLB totaled $1.5 billion and the proceeds were used to purchase fixed maturity securities.  The borrowings are classified as investment borrowings in the accompanying

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consolidated balance sheet.  The borrowings are collateralized by investments with an estimated fair value of $1.8 billion at March 31, 2016 , which are maintained in custodial accounts for the benefit of the FHLB.  

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	 	March 31, 2016	
$	57.7		 	June 2017	 	Variable rate – 0.699%	
50.0		 	August 2017	 	Variable rate – 0.562%	
75.0		 	August 2017	 	Variable rate – 0.543%	
100.0		 	October 2017	 	Variable rate – 0.751%	
50.0		 	November 2017	 	Variable rate – 0.917%	
50.0		 	January 2018	 	Variable rate – 0.670%	
50.0		 	January 2018	 	Variable rate – 0.656%	
50.0		 	February 2018	 	Variable rate – 0.654%	
50.0		 	February 2018	 	Variable rate – 0.452%	
22.0		 	February 2018	 	Variable rate – 0.742%	
100.0		 	May 2018	 	Variable rate – 0.872%	
50.0		 	July 2018	 	Variable rate – 0.793%	
50.0		 	August 2018	 	Variable rate – 0.482%	
10.0		 	December 2018	 	Variable rate – 0.807%	
50.0		 	January 2019	 	Variable rate – 0.737%	
50.0		 	February 2019	 	Variable rate – 0.452%	
100.0		 	March 2019	 	Variable rate – 0.831%	
21.8		 	July 2019	 	Variable rate – 0.892%	
15.0		 	October 2019	 	Variable rate – 0.837%	
50.0		 	May 2020	 	Variable rate – 0.851%	
21.8		 	June 2020	 	Fixed rate – 1.960%	
25.0		 	September 2020	 	Variable rate – 0.951%	
100.0		 	September 2020	 	Variable rate – 1.082%	
50.0		 	September 2020	 	Variable rate – 1.082%	
75.0		 	September 2020	 	Variable rate – 0.723%	
100.0		 	October 2020	 	Variable rate – 0.723%	
50.0		 	December 2020	 	Variable rate – 0.951%	
28.2		 	August 2021	 	Fixed rate – 2.550%	
26.0		 	March 2023	 	Fixed rate – 2.160%	
20.5		 	June 2025	 	Fixed rate – 2.940%	
$	1,548.0		 	 	 	 	

State laws generally give state insurance regulatory agencies broad authority to protect policyholders in their jurisdictions. Regulators have used this authority in the past to restrict the ability of our insurance subsidiaries to pay any dividends or other amounts without prior approval. We cannot be assured that the regulators will not seek to assert greater supervision and control over our insurance subsidiaries' businesses and financial affairs.

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Our estimated consolidated statutory RBC ratio of 441 percent at March 31, 2016 , reflects estimated consolidated statutory operating earnings of $80 million and dividends to the holding company of $88.7 million during the first three months of 2016 . Statutory earnings will often fluctuate on a quarterly basis due to the application of statutory accounting principles.

Financial Strength Ratings of our Insurance Subsidiaries

Financial strength ratings provided by Fitch, A.M. Best, S&P and Moody's are the rating agency's opinions of the ability of our insurance subsidiaries to pay policyholder claims and obligations when due.

On April 22, 2016, Fitch affirmed the financial strength ratings of our primary insurance subsidiaries of "BBB+" and the outlook for these rating is positive. A "BBB" rating, in Fitch's opinion, indicates that there is currently a low expectation of ceased or interrupted payments. The capacity to meet policyholder and contract obligations on a timely basis is considered adequate, but adverse changes in circumstances and economic conditions are more likely to impact this capacity. Fitch ratings for the industry range from "AAA Exceptionally Strong" to "C Distressed" and some companies are not rated. Pluses and minuses show the relative standing within a category. Fitch has nineteen possible ratings. There are seven ratings above the "BBB+" rating of our primary insurance subsidiaries and eleven ratings that are below that rating.

On August 26, 2015, A.M. Best upgraded the financial strength ratings of our primary insurance subsidiaries to "A-" from "B++" and the outlook for these ratings is stable. The "A-" rating is assigned to companies that have an excellent ability, in A.M. Best's opinion, to meet their ongoing obligations to policyholders.  A.M. Best ratings for the industry currently range from "A++ (Superior)" to "F (In Liquidation)" and some companies are not rated.  An "A++" rating indicates a superior ability to meet ongoing obligations to policyholders.  A.M. Best has sixteen possible ratings.  There are three ratings above the "A-" rating of our primary insurance subsidiaries and twelve ratings that are below that rating.

On June 18, 2015, S&P affirmed the financial strength ratings of "BBB+" of our primary insurance subsidiaries and revised the outlook for these ratings to positive from stable. On July 2, 2014, S&P upgraded the financial strength ratings of our primary insurance subsidiaries to "BBB+" from "BBB". S&P financial strength ratings range from "AAA" to "R" and some companies are not rated.  An insurer rated "BBB" or higher is regarded as having financial security characteristics that outweigh any vulnerabilities, and is highly likely to have the ability to meet financial commitments. An insurer rated "BBB", in S&P's opinion, has good financial security characteristics, but is more likely to be affected by adverse business conditions than are higher-rated insurers.  Pluses and minuses show the relative standing within a category.  S&P has twenty-one possible ratings.  There are seven ratings above the "BBB+" rating of our primary insurance subsidiaries and thirteen ratings that are below that rating.

On May 11, 2015, Moody's upgraded the financial strength ratings of our primary insurance subsidiaries to "Baa1" from "Baa2" and the outlook for these ratings is stable. On March 27, 2014, Moody's upgraded the financial strength ratings of our primary insurance subsidiaries to "Baa2" from "Baa3". Moody’s financial strength ratings range from "Aaa" to "C".  These ratings may be supplemented with numbers "1", "2", or "3" to show relative standing within a category.  In Moody's view, an insurer rated "Baa" offers adequate financial security, however, certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Moody's has twenty-one possible ratings.  There are seven ratings above the "Baa1" rating of our primary insurance subsidiaries and thirteen ratings that are below that rating.

Rating agencies have increased the frequency and scope of their credit reviews and requested additional information from the companies that they rate, including us.  They may also adjust upward the capital and other requirements employed in the rating agency models for maintenance of certain ratings levels.  We cannot predict what actions rating agencies may take, or what actions we may take in response.  Accordingly, downgrades and outlook revisions related to us or the life insurance industry may occur in the future at any time and without notice by any rating agency.  These could increase policy surrenders and withdrawals, adversely affect relationships with our distribution channels, reduce new sales, reduce our ability to borrow and increase our future borrowing costs.

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Liquidity of the Holding Companies

Availability and Sources and Uses of Holding Company Liquidity; Limitations on Ability of Insurance Subsidiaries to Make Dividend and Surplus Debenture Interest Payments to the Holding Companies; Limitations on Holding Company Activities

At March 31, 2016 , CNO, CDOC, Inc. ("CDOC", our wholly owned subsidiary and the immediate parent of Washington National and Conseco Life Insurance Company of Texas ("CLTX")) and our other non-insurance subsidiaries held: (i) unrestricted cash and cash equivalents of $122.6 million; (ii) fixed income investments of $122.8 million; and (iii) equity securities of $129.3 million.  CNO and CDOC are holding companies with no business operations of their own; they depend on their operating subsidiaries for cash to make principal and interest payments on debt, and to pay administrative expenses and income taxes.  CNO and CDOC receive cash from insurance subsidiaries, consisting of dividends and distributions, interest payments on surplus debentures and tax-sharing payments, as well as cash from non-insurance subsidiaries consisting of dividends, distributions, loans and advances.  The principal non-insurance subsidiaries that provide cash to CNO and CDOC are 40|86 Advisors, Inc. ("40|86 Advisors"), which receives fees from the insurance subsidiaries for investment services, and CNO Services, LLC which receives fees from the insurance subsidiaries for providing administrative services.  The agreements between our insurance subsidiaries and CNO Services, LLC and 40|86 Advisors, respectively, were previously approved by the domestic insurance regulator for each insurance company, and any payments thereunder do not require further regulatory approval.

The following summarizes the current ownership structure of CNO’s primary subsidiaries:

The ability of our insurance subsidiaries to pay dividends is subject to state insurance department regulations and is based on the financial statements of our insurance subsidiaries prepared in accordance with statutory accounting practices prescribed or permitted by regulatory authorities, which differ from GAAP.  These regulations generally permit dividends to be paid from statutory earned surplus of the insurance company for any 12-month period in amounts equal to the greater of (or in a few states, the lesser of):  (i) statutory net gain from operations or net income for the prior year; or (ii) 10 percent of statutory capital and surplus as of the end of the preceding year. This type of dividend is referred to as an "ordinary dividend". Any dividend in excess of these levels or from an insurance company that has negative earned surplus requires the approval of the director or commissioner of the applicable state insurance department and is referred to as an "extraordinary dividend".  Each of the direct insurance subsidiaries of CDOC has significant negative earned surplus and any dividend payments from the subsidiaries of CDOC would be considered extraordinary dividends and, therefore, require the approval of the director or commissioner of the applicable state insurance department.  In the first three months of 2016 , our insurance subsidiaries paid extraordinary dividends to CDOC totaling $88.7 million.  We expect to receive regulatory approval for future dividends from our subsidiaries, but there can be no assurance that such payments will be approved or that the financial condition of our insurance subsidiaries will not change, making future approvals less likely.

CDOC holds surplus debentures from CLTX with an aggregate principal amount of $749.6 million.  Interest payments on those surplus debentures do not require additional approval provided the RBC ratio of CLTX exceeds 100 percent (but do require prior written notice to the Texas state insurance department).  The estimated RBC ratio of CLTX was 384 percent at March 31, 2016 .  CDOC also holds a surplus debenture from Colonial Penn with a principal balance of $160.0 million. Interest payments on that surplus debenture require prior approval by the Pennsylvania state insurance department. Dividends and other

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payments from our non-insurance subsidiaries, including 40|86 Advisors and CNO Services, LLC, to CNO or CDOC do not require approval by any regulatory authority or other third party.  However, insurance regulators may prohibit payments by our insurance subsidiaries to parent companies if they determine that such payments could be adverse to our policyholders or contractholders.

The insurance subsidiaries of CDOC receive funds to pay dividends primarily from:  (i) the earnings of their direct businesses; (ii) tax sharing payments received from subsidiaries (if applicable); and (iii) with respect to CLTX, dividends received from subsidiaries.  At March 31, 2016 , the subsidiaries of CLTX had earned surplus (deficit) as summarized below (dollars in millions):

	
							
Subsidiaries of CLTX	 	Earned surplus (deficit)	 	Additional information	
Bankers Life	 	$	452.4		 	(a)	
Colonial Penn	 	(297.5	)	 	(b)	
____________________
		
(a)	Bankers Life paid ordinary dividends of $60.0 million to CLTX in the first three months of 2016 .	
		
(b)	The deficit is primarily due to transactions which occurred several years ago, including a tax planning transaction and the fee paid to recapture a block of business previously ceded to an unaffiliated insurer.	

A significant deterioration in the financial condition, earnings or cash flow of the material subsidiaries of CNO or CDOC for any reason could hinder such subsidiaries' ability to pay cash dividends or other disbursements to CNO and/or CDOC, which, in turn, could limit CNO's ability to meet debt service requirements and satisfy other financial obligations.  In addition, we may choose to retain capital in our insurance subsidiaries or to contribute additional capital to our insurance subsidiaries to strengthen their surplus, and these decisions could limit the amount available at our top tier insurance subsidiaries to pay dividends to the holding companies. CDOC made no capital contributions to its insurance subsidiaries in the first three months of 2016 .

In the first three months of 2016 , we repurchased 5.3 million shares of common stock for $90.0 million under our securities repurchase program. The Company has remaining repurchase authority of $365.7 million as of March 31, 2016 . We anticipate repurchasing a total of approximately $275 million to $375 million of our common stock during 2016, absent compelling alternatives including, but not limited to, investment in our business, dividends on common stock, acquisition transactions or ceding commissions related to reinsurance transactions. The amount and timing of the securities repurchases (if any) will be based on business and market conditions and other factors.

We have previously disclosed that our strategic priorities include a reduction of our relative long-term care exposure by approximately one-half over the next three to six years. To achieve this goal, it is likely that we will need to transfer the risks of a portion of this business through one or more reinsurance transactions. A substantial ceding commission could be paid by the Company to transfer long-term care risk through reinsurance, depending on the specific types of risks and amounts ceded. The payment of a ceding commission by the Company would likely result in the recognition of a loss upon the completion of a reinsurance transaction. Due to our current tax position, it is likely that a portion of the tax benefit recognized on the loss would not be realized and we may be required to increase our valuation allowance for deferred tax assets. Although we believe reducing our exposure to the risk of long-term care business through reinsurance would benefit the Company in the long term, such a transaction could initially adversely impact certain aspects of our financial position, results of operations and/or cash flow, including the cash available to repurchase shares of our common stock.
In the first three months of 2016 , dividends declared on common stock totaled $12.6 million ( $0.07 per common share).

On April 22, 2016, Fitch affirmed the issuer credit and secured debt ratings of "BB+" and the outlook for these ratings is positive. The rating outlook indicates the direction a rating is likely to move over a one to two year period. In Fitch's view, an obligation rated "BB" indicates an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments. Pluses and minuses show the relative standing within a category. Fitch has a total of 21 possible ratings ranging from "AAA" to "D". There are ten ratings above CNO's "BB+" rating and ten ratings that are below its rating.

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On August 26, 2015, A.M. Best upgraded our issuer credit and senior secured debt ratings to "bbb-" from "bb+" and the outlook for these ratings is stable. In A.M. Best's view, a company rated "bbb-" has an adequate ability to meet the terms of its obligations; however, the issuer is more susceptible to changes in economic or other conditions. Pluses and minuses show the relative standing within a category. A.M. Best has a total of 22 possible ratings ranging from "aaa (Exceptional)" to "d (In default)". There are nine ratings above CNO's "bbb-" rating and twelve ratings that are below its rating.

On June 18, 2015, S&P affirmed our issuer credit and senior secured debt ratings of "BB+" and revised the outlook for these ratings to positive from stable. In S&P's view, an obligation rated "BB" is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. Pluses and minuses show the relative standing within a category. S&P has a total of 22 possible ratings ranging from "AAA (Extremely Strong)" to "D (Payment Default)". There are ten ratings above CNO's "BB+" rating and eleven ratings that are below its rating.

On May 11, 2015, Moody's upgraded our issuer credit and senior secured debt ratings to "Ba1" from "Ba2" and the outlook for these ratings is stable. On March 27, 2014, Moody's upgraded our issuer credit and senior secured debt ratings to "Ba2" from "Ba3". In Moody's view, obligations rated "Ba" are judged to have speculative elements and are subject to substantial credit risk. A rating is supplemented with numerical modifiers "1", "2" or "3" to show the relative standing within a category. Moody's has a total of 21 possible ratings ranging from "Aaa" to "C". There are ten ratings above CNO's "Ba1" rating and ten ratings that are below its rating.

As part of our investment strategy, we may enter into repurchase agreements to increase our investment return. Pursuant to such agreements, the Company sells securities subject to an obligation to repurchase the same securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. No such borrowings were outstanding at March 31, 2016 .

We believe that the existing cash available to the holding company, the cash flows to be generated from operations and other transactions will be sufficient to allow us to meet our debt service obligations, pay corporate expenses and satisfy other financial obligations.  However, our cash flow is affected by a variety of factors, many of which are outside of our control, including insurance regulatory issues, competition, financial markets and other general business conditions.  We cannot provide assurance that we will possess sufficient income and liquidity to meet all of our debt service requirements and other holding company obligations.

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INVESTMENTS

At March 31, 2016 , the amortized cost, gross unrealized gains and losses and estimated fair value of fixed maturities, available for sale, were as follows (dollars in millions):

	
																
 	Amortized
cost	 	Gross
unrealized
gains	 	Gross
unrealized
losses	 	Estimated
fair
value	
Investment grade (a):	 	 	 	 	 	 	 	
Corporate securities	$	11,120.8		 	$	1,179.3		 	$	(155.0	)	 	$	12,145.1		
United States Treasury securities and obligations of United States government corporations and agencies	160.4		 	36.7		 	—		 	197.1		
States and political subdivisions	1,800.7		 	249.2		 	(.4	)	 	2,049.5		
Debt securities issued by foreign governments	31.0		 	.5		 	—		 	31.5		
Asset-backed securities	1,074.0		 	29.2		 	(10.7	)	 	1,092.5		
Collateralized debt obligations	148.4		 	.1		 	(4.8	)	 	143.7		
Commercial mortgage-backed securities	1,445.6		 	46.0		 	(21.0	)	 	1,470.6		
Mortgage pass-through securities	2.8		 	.3		 	—		 	3.1		
Collateralized mortgage obligations	404.8		 	19.0		 	(1.0	)	 	422.8		
Total investment grade fixed maturities, available for sale	16,188.5		 	1,560.3		 	(192.9	)	 	17,555.9		
Below-investment grade (a):	 		 	 		 	 		 	 		
Corporate securities	825.3		 	8.7		 	(71.3	)	 	762.7		
States and political subdivisions	13.6		 	—		 	(3.3	)	 	10.3		
Debt securities issued by foreign governments	2.5		 	—		 	—		 	2.5		
Asset-backed securities	1,099.2		 	21.6		 	(19.0	)	 	1,101.8		
Commercial mortgage-backed securities	49.1		 	—		 	(2.1	)	 	47.0		
Collateralized mortgage obligations	587.2		 	41.0		 	(3.3	)	 	624.9		
Total below-investment grade fixed maturities, available for sale	2,576.9		 	71.3		 	(99.0	)	 	2,549.2		
Total fixed maturities, available for sale	$	18,765.4		 	$	1,631.6		 	$	(291.9	)	 	$	20,105.1		
_______________
		
(a)	Investment ratings – Investment ratings are assigned the second lowest rating by Nationally Recognized Statistical Rating Organizations ("NRSROs") (Moody's, S&P or 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.	

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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 dependent 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 March 31, 2016 is as follows (dollars in millions):

	
												
NAIC designation	 	Amortized cost	 	Estimated fair value	 	Percentage of total estimated fair value	
1	 	$	9,390.1		 	$	10,255.8		 	51.0	%	
2	 	8,533.6		 	9,072.3		 	45.1		
3	 	581.7		 	539.7		 	2.7		
4	 	188.1		 	170.6		 	.9		
5	 	51.1		 	49.2		 	.2		
6	 	20.8		 	17.5		 	.1		
 	 	$	18,765.4		 	$	20,105.1		 	100.0	%	

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Concentration of Fixed Maturity Securities, Available for Sale

The following table summarizes the carrying values and gross unrealized losses of our fixed maturity securities, available for sale, by category as of March 31, 2016 (dollars in millions):

	
														
 	Carrying value	 	Percent of fixed maturities	 	Gross unrealized losses	 	Percent of gross unrealized losses	
Asset-backed securities	$	2,194.3		 	10.9	%	 	$	29.7		 	10.2	%	
States and political subdivisions	2,059.8		 	10.2		 	3.7		 	1.3		
Utilities	1,548.1		 	7.7		 	2.1		 	.7		
Commercial mortgage-backed securities	1,517.6		 	7.5		 	23.1		 	7.9		
Insurance	1,420.7		 	7.1		 	13.4		 	4.6		
Healthcare/pharmaceuticals	1,349.4		 	6.7		 	6.0		 	2.1		
Energy	1,340.3		 	6.7		 	107.8		 	36.9		
Collateralized mortgage obligations	1,047.7		 	5.2		 	4.3		 	1.5		
Banks	982.2		 	4.9		 	10.1		 	3.4		
Food/beverage	867.8		 	4.3		 	1.6		 	.5		
Cable/media	755.8		 	3.8		 	20.6		 	7.0		
Real estate/REITs	586.9		 	2.9		 	.7		 	.2		
Capital goods	502.8		 	2.5		 	8.3		 	2.9		
Transportation	432.4		 	2.2		 	3.2		 	1.1		
Chemicals	411.7		 	2.0		 	9.4		 	3.2		
Telecom	348.1		 	1.7		 	5.0		 	1.7		
Aerospace/defense	282.4		 	1.4		 	1.3		 	.4		
Business services	271.8		 	1.4		 	7.4		 	2.6		
Autos	258.7		 	1.3		 	.8		 	.3		
Brokerage	253.9		 	1.3		 	2.5		 	.9		
Technology	248.3		 	1.2		 	5.6		 	1.9		
Paper	224.0		 	1.1		 	.9		 	.3		
U.S. Treasury and Obligations	197.1		 	1.0		 	—		 	—		
Other	1,003.3		 	5.0		 	24.4		 	8.4		
Total fixed maturities, available for sale	$	20,105.1		 	100.0	%	 	$	291.9		 	100.0	%	

At March 31, 2016 , the carrying value of the Company's fixed maturity securities in the energy sector was $1.3 billion , with gross unrealized gains of $61.5 million and gross unrealized losses of $107.8 million . Although these securities are of high quality (90 percent are rated investment grade) and diversified (68 issuers), we could be exposed to future downgrades and declines in market values if oil prices remain at low levels for an extended period of time.

Below-Investment Grade Securities

At March 31, 2016 , the amortized cost of the Company's below-investment grade fixed maturity securities was $2,576.9 million , or 14 percent of the Company's fixed maturity portfolio. The estimated fair value of the below-investment grade portfolio was $2,549.2 million , or 99 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

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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.

Net Realized Investment Gains (Losses)

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

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Fixed maturity securities, available for sale:	 	 	 	
Gross realized gains on sale	$	98.5		 	$	14.7		
Gross realized losses on sale	(81.0	)	 	(15.4	)	
Impairments:	 	 	 	
Total other-than-temporary impairment losses	(6.3	)	 	(1.3	)	
Other-than-temporary impairment losses recognized in accumulated other comprehensive income	—		 	—		
Net impairment losses recognized	(6.3	)	 	(1.3	)	
Net realized investment gains from fixed maturities	11.2		 	(2.0	)	
Equity securities	.1		 	2.5		
Commercial mortgage loans	—		 	(2.3	)	
Impairments of other investments	(3.7	)	 	—		
Gain on dissolution of a variable interest entity	—		 	11.3		
Other (a)	(8.5	)	 	(.6	)	
Net realized investment gains (losses)	$	(.9	)	 	$	8.9		
_________________
		
(a)	Changes in the estimated fair value of trading securities that we have elected the fair value option (and are still held as of the end of the respective periods) were $(3.4) million for the three months ended March 31, 2016 . Such amount was insignificant in the 2015 period.	

During the first three months of 2016 , we recognized net realized investment losses of $.9 million , which were comprised of: (i) $10.9 million of net gains from the sales of investments; (ii) the decrease in fair value of certain fixed maturity investments with embedded derivatives of $3.6 million ; (iii) the increase in fair value of embedded derivatives related to a modified coinsurance agreement of $1.8 million ; and (iv) $10.0 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

During the first three months of 2015 , we recognized net realized investment gains of $8.9 million , which were comprised of: (i) $2.5 million of net losses from the sales of investments; (ii) an $11.3 million gain on the dissolution of a VIE; (iii) the increase in fair value of embedded derivatives related to a modified coinsurance agreement of $1.4 million ; and (iv) $1.3 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

At March 31, 2016 , there was one investment in default or considered nonperforming with both an amortized cost and carrying value of $3.8 million.

During the first three months of 2016 , the $81.0 million of gross realized losses on sales of $388.0 million of fixed maturity securities, available for sale included: (i) $74.5 million related to various corporate securities (including $62.7 million related to sales of investments in the energy sector); (ii) $5.3 million related to commercial mortgage-backed securities; and (iii) $1.2 million related to various other investments. Securities are generally sold at a loss following unforeseen issue-specific events or conditions or shifts in perceived risks.  These reasons include but are not limited to:  (i) changes in the investment

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environment; (ii) expectation that the market value could deteriorate further; (iii) desire to reduce our exposure to an asset class, an issuer or an industry; (iv) prospective or actual changes in credit quality; or (v) changes in expected portfolio cash flows.

During the first three months of 2015 , the $15.4 million of realized losses on sales of $132.4 million of fixed maturity securities, available for sale, related to various corporate securities.

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.

During the first three months of 2016 , we recognized $10.0 million of impairment losses recorded in earnings which included: (i) $6.3 million of writedowns on fixed maturities of a single issuer in the energy sector; and (ii) $3.7 million of writedowns on a direct loan due to borrower specific events. Factors considered in determining the writedowns of investments in the first three months of 2016 included the subordination status of each investment, the impact of recent downgrades and issuer specific events, including the impact of the current low oil prices on issuers in the energy sector.

The following summarizes the investments sold at a loss during the first three months of 2016 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	18	 	$	117.9		 	$	78.7		
Greater than or equal to 6 months and less than 12 months prior to sale	7	 	74.2		 	43.9		
 	25	 	$	192.1		 	$	122.6		

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.

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The following table sets forth the amortized cost and estimated fair value of those fixed maturities, available for sale, with unrealized losses at March 31, 2016 , 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	$	21.4		 	$	21.4		
Due after one year through five years	265.6		 	257.6		
Due after five years through ten years	403.4		 	381.4		
Due after ten years	1,992.7		 	1,792.7		
Subtotal	2,683.1		 	2,453.1		
Structured securities	2,336.5		 	2,274.6		
Total	$	5,019.6		 	$	4,727.7		

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 March 31, 2016 (dollars in millions):

	
														
 	Number
of issuers	 	Cost
basis	 	Unrealized
loss	 	Estimated
fair value	
Less than 6 months	7	 	$	43.6		 	$	(15.8	)	 	$	27.8		
Greater than or equal to 6 months and less than 12 months	7	 	56.0		 	(21.1	)	 	34.9		
Greater than 12 months	2	 	30.6		 	(9.7	)	 	20.9		
 		 	$	130.2		 	$	(46.6	)	 	$	83.6		

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The following table summarizes the gross unrealized losses of our fixed maturity securities, available for sale, by category and ratings category as of March 31, 2016 (dollars in millions):

	
																				
 	Investment grade	 	Below-investment grade	 	 	
 	AAA/AA/A	 	BBB	 	BB	 	B+ and
below	 	Total gross
unrealized
losses	
Energy	$	.2		 	$	75.6		 	$	23.2		 	$	8.8		 	$	107.8		
Asset-backed securities	5.2		 	5.5		 	2.0		 	17.0		 	29.7		
Commercial mortgage-backed securities	16.6		 	4.4		 	2.1		 	—		 	23.1		
Cable/media	—		 	17.5		 	2.7		 	.4		 	20.6		
Metals and mining	—		 	5.2		 	3.0		 	5.6		 	13.8		
Insurance	1.9		 	11.5		 	—		 	—		 	13.4		
Banks	4.2		 	5.9		 	—		 	—		 	10.1		
Chemicals	—		 	8.7		 	.7		 	—		 	9.4		
Capital goods	—		 	3.3		 	3.9		 	1.1		 	8.3		
Business services	—		 	.6		 	6.8		 	—		 	7.4		
Healthcare/pharmaceuticals	.4		 	3.9		 	.2		 	1.5		 	6.0		
Technology	—		 	5.5		 	—		 	.1		 	5.6		
Telecom	—		 	1.4		 	.2		 	3.4		 	5.0		
Collateralized debt obligations	3.7		 	1.1		 	—		 	—		 	4.8		
Collateralized mortgage obligations	.7		 	.3		 	.5		 	2.8		 	4.3		
States and political subdivisions	.3		 	.1		 	—		 	3.3		 	3.7		
Retail	—		 	—		 	—		 	3.3		 	3.3		
Transportation	—		 	2.2		 	—		 	1.0		 	3.2		
Brokerage	—		 	1.5		 	.2		 	.8		 	2.5		
Utilities	—		 	1.8		 	—		 	.3		 	2.1		
Food/beverage	—		 	1.6		 	—		 	—		 	1.6		
Building materials	—		 	.1		 	1.1		 	.3		 	1.5		
Aerospace/defense	—		 	—		 	.1		 	1.2		 	1.3		
Paper	—		 	.5		 	—		 	.4		 	.9		
Autos	—		 	.8		 	—		 	—		 	.8		
Real estate/REITs	—		 	.7		 	—		 	—		 	.7		
Gaming	—		 	—		 	.2		 	—		 	.2		
Other	—		 	—		 	.8		 	—		 	.8		
Total fixed maturities, available for sale	$	33.2		 	$	159.7		 	$	47.7		 	$	51.3		 	$	291.9		

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

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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 March 31, 2016 (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	 	$	.6		 	$	—		 	$	—		 	$	—		 	$	.6		 	$	—		
States and political subdivisions	 	14.4		 	(.2	)	 	23.1		 	(3.5	)	 	37.5		 	(3.7	)	
Debt securities issued by foreign governments	 	4.2		 	—		 	—		 	—		 	4.2		 	—		
Corporate securities	 	1,862.3		 	(142.7	)	 	548.5		 	(83.6	)	 	2,410.8		 	(226.3	)	
Asset-backed securities	 	1,118.9		 	(24.8	)	 	162.4		 	(4.9	)	 	1,281.3		 	(29.7	)	
Collateralized debt obligations	 	113.4		 	(4.0	)	 	27.6		 	(.8	)	 	141.0		 	(4.8	)	
Commercial mortgage-backed securities	 	493.5		 	(19.8	)	 	48.5		 	(3.3	)	 	542.0		 	(23.1	)	
Collateralized mortgage obligations	 	281.9		 	(3.3	)	 	28.4		 	(1.0	)	 	310.3		 	(4.3	)	
Total fixed maturities, available for sale	 	$	3,889.2		 	$	(194.8	)	 	$	838.5		 	$	(97.1	)	 	$	4,727.7		 	$	(291.9	)	
Equity securities	 	$	51.4		 	$	(1.1	)	 	$	14.0		 	$	(.5	)	 	$	65.4		 	$	(1.6	)	

Based on management's current assessment of investments with unrealized losses at March 31, 2016 , the Company believes the issuers of the securities will continue to meet their obligations (or with respect to equity-type securities, the investment value will recover to its cost basis).  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 March 31, 2016 fixed maturity investments included structured securities with an estimated fair value of $4.9 billion (or 24 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.

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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 March 31, 2016 (dollars in millions):

	
												
 	Par
value	 	Amortized
cost	 	Estimated
fair value	
Below 4 percent	$	1,485.2		 	$	1,038.6		 	$	1,034.8		
4 percent – 5 percent	1,486.1		 	1,357.6		 	1,364.2		
5 percent – 6 percent	1,946.4		 	1,797.2		 	1,858.8		
6 percent – 7 percent	471.8		 	429.9		 	452.8		
7 percent – 8 percent	82.9		 	83.4		 	93.3		
8 percent and above	104.9		 	104.4		 	102.5		
Total structured securities	$	5,577.3		 	$	4,811.1		 	$	4,906.4		

The amortized cost and estimated fair value of structured securities at March 31, 2016 , 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	$	775.1		 	$	818.3		 	4.1	%	
Planned amortization classes, target amortization classes and accretion-directed bonds	172.1		 	185.3		 	.9		
Commercial mortgage-backed securities	1,494.7		 	1,517.6		 	7.6		
Asset-backed securities	2,173.2		 	2,194.3		 	10.9		
Collateralized debt obligations	148.4		 	143.7		 	.7		
Other	47.6		 	47.2		 	.2		
Total structured securities	$	4,811.1		 	$	4,906.4		 	24.4	%	

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.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________

Commercial Mortgage Loans

The following table provides the carrying value and estimated fair value of our outstanding mortgage loans and the underlying collateral as of March 31, 2016 (dollars in millions):

	
												
 	 	 	Estimated fair
value	
Loan-to-value ratio (a)	Carrying value	 	Mortgage loans	 	Collateral	
Less than 60%	$	883.2		 	$	940.9		 	$	2,104.6		
60% to 70%	355.3		 	373.0		 	541.2		
Greater than 70% to 80%	358.1		 	379.8		 	484.0		
Greater than 80% to 90%	62.1		 	66.5		 	72.7		
Greater than 90%	42.1		 	43.2		 	42.3		
Total	$	1,700.8		 	$	1,803.4		 	$	3,244.8		
________________
		
(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.	

INVESTMENTS IN VARIABLE INTEREST ENTITIES

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):

	
								
 	Three months ended	
 	March 31,	
 	2016	 	2015	
Revenues:	 	 	 	
Net investment income – policyholder and other special-purpose portfolios	$	17.9		 	$	13.4		
Fee revenue and other income	1.7		 	.6		
Total revenues	19.6		 	14.0		
Expenses:	 	 	 	
Interest expense	12.5		 	8.5		
Other operating expenses	.4		 	.8		
Total expenses	12.9		 	9.3		
Income before net realized investment losses and income taxes	6.7		 	4.7		
Net realized investment losses	(6.4	)	 	(.9	)	
Income before income taxes	$	.3		 	$	3.8		

During the first three months of 2016 , we recognized net realized investment losses on the VIE investments of $6.4 million .  During the first three months of 2015 , we recognized net realized investment losses on the VIE investments of $.9 million .

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___________________

Supplemental Information on Investments Held by VIEs

The following table summarizes the carrying values of the investments held by the VIEs by category as of March 31, 2016 (dollars in millions):

														
 	Carrying value	 	Percent
of fixed
maturities	 	Gross
unrealized
losses	 	Percent of
gross
unrealized
losses	
Healthcare/pharmaceuticals	$	193.7		 	11.5	%	 	$	2.4		 	6.5	%	
Cable/media	172.6		 	10.2		 	1.2		 	3.2		
Technology	169.9		 	10.0		 	2.2		 	5.9		
Food/beverage	143.0		 	8.4		 	1.3		 	3.4		
Capital goods	117.0		 	6.9		 	3.9		 	10.3		
Consumer products	97.6		 	5.8		 	4.5		 	12.0		
Autos	86.1		 	5.1		 	.2		 	.7		
Brokerage	81.0		 	4.8		 	1.6		 	4.3		
Retail	79.4		 	4.7		 	.7		 	2.0		
Paper	68.4		 	4.0		 	1.0		 	2.6		
Aerospace/defense	63.8		 	3.8		 	.8		 	2.3		
Building materials	54.8		 	3.2		 	.8		 	2.0		
Chemicals	50.4		 	3.0		 	1.2		 	3.3		
Utilities	43.3		 	2.6		 	.4		 	1.0		
Entertainment/hotels	41.0		 	2.4		 	1.4		 	3.8		
Business services	38.9		 	2.3		 	.3		 	.9		
Transportation	31.4		 	1.9		 	.3		 	.7		
Insurance	30.1		 	1.8		 	2.2		 	5.8		
Metals and mining	29.6		 	1.7		 	1.5		 	3.9		
Real estate/REITs	21.6		 	1.3		 	.1		 	.2		
Energy	19.2		 	1.1		 	7.1		 	19.1		
Gaming	18.6		 	1.1		 	.3		 	.7		
Other	39.6		 	2.4		 	2.0		 	5.4		
Total	$	1,691.0		 	100.0	%	 	$	37.4		 	100.0	%	

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___________________

The following table sets forth the amortized cost and estimated fair value of those investments held by the VIEs with unrealized losses at March 31, 2016 , 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 in one year or less	$	4.8		 	$	4.8		
Due after one year through five years	724.4		 	703.0		
Due after five years through ten years	555.4		 	539.4		
Total	$	1,284.6		 	$	1,247.2		

The following summarizes investments held by the VIEs sold at a loss during the first three months of 2016 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	3	 	$	10.9		 	$	6.8		
Greater than or equal to 6 months and less than 12 months prior to sale	1	 	3.0		 	1.6		
 	4	 	$	13.9		 	$	8.4		

The following summarizes investments held by the VIEs 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 March 31, 2016 (dollars in millions):

	
														
 	Number
of issuers	 	Cost
basis	 	Unrealized
loss	 	Estimated
fair value	
Less than 6 months	5	 	$	30.3		 	$	(8.1	)	 	$	22.2		
Greater than or equal to 6 months and less than 12 months	3	 	13.2		 	(4.3	)	 	8.9		
 	 	 	$	43.5		 	$	(12.4	)	 	$	31.1		

OTHER MATTERS

Other Factors Affecting Our Business

On April 6, 2016, the U.S. Department of Labor issued a final regulation that expands the range of activities considered to be fiduciary investment advice under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. Implementation will be phased in, with the regulation in full effect by January 1, 2018. We are currently analyzing the potential effect of the regulation on our business.

New Accounting Standards

See "Recently Issued Accounting Standards" in the notes to consolidated financial statements for a discussion of recently issued accounting standards.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our market risks, and the ways we manage them, are summarized in "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Annual Report on Form 10-K for the year ended December 31, 2015.  There have been no material changes in the first three months of 2016 to such risks or our management of such risks.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures .  CNO's management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of CNO's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended).  Based on its evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2016 , CNO's disclosure controls and procedures were effective to ensure that information required to be disclosed by CNO in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.  Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes to Internal Control Over Financial Reporting.   There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the three months ended March 31, 2016 , that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

Information required for Part II, Item 1 is incorporated by reference to the discussion under the heading "Litigation and Other Legal Proceedings" in the footnotes to our consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

ITEM 1A.  RISK FACTORS.

CNO and its businesses are subject to a number of risks including general business and financial risk factors.  Any or all of such factors could have a material adverse effect on the business, financial condition or results of operations of CNO.  Refer to "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015, for further discussion of such risk factors.  There have been no material changes from such previously disclosed risk factors.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Issuer Purchases of Equity Securities

	
															
Period	 	Total number of shares (or units)	 	Average price paid per share (or unit)	 	Total number of shares (or units) purchased as part of publicly announced plans or programs	 	Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (a)	
 	 	 	 	 	 	 	 	(dollars in millions)	
January 1 through January 31	 	3,208,573		 	$	16.93		 	3,208,573		 	$	401.3		
February 1 through February 29	 	2,294,089		 	16.85		 	2,122,307		 	365.7		
March 1 through March 31	 	9,661		 	18.06		 	—		 	365.7		
Total	 	5,512,323		 	16.90		 	5,330,880		 	365.7		
_________________
		
(a)	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 and November 2015, the Company's Board of Directors approved, in aggregate, an additional $1,600.0 million to repurchase the Company's outstanding securities.	

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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
___________________

ITEM 6. EXHIBITS.

	
		
12.1	Computation of Ratio of Earnings to Fixed Charges.	
 	 	
31.1	Certification Pursuant to the Securities Exchange Act Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
31.2	Certification Pursuant to the Securities Exchange Act Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	
101.INS	XBRL Instance Document.	
 	 	
101.SCH	XBRL Taxonomy Extension Schema Document.	
 	 	
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.	
 	 	
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.	
 	 	
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.	
 	 	
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.	

99

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CNO FINANCIAL GROUP, INC.

Dated:   May 4, 2016

			
 	By:	/s/ John R. Kline	
 	 	John R. Kline	
 	 	Senior Vice President and Chief Accounting Officer	
 	 	(authorized officer and principal accounting officer)	

100

Exhibit 12.1

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Dollars in millions)

	
								
 	Three months	 	 	
 	ended	 	Year ended	
 	March 31,	 	December 31,	
 	2016	 	2015	
Pretax income from operations:	 	 	 	
Net income	$	45.5		 	$	270.7		
Add income tax expense (benefit)	(5.0	)	 	97.0		
Pretax income from operations	40.5		 	367.7		
Add fixed charges:	 	 	 	
Interest expense on corporate debt	11.4		 	45.0		
Interest expense on investment borrowings and borrowings related to variable interest entities	16.3		 	49.9		
Interest added to policyholder account balances	28.8		 	122.7		
Portion of rental (a)	4.5		 	14.1		
Fixed charges	61.0		 	231.7		
Adjusted earnings	$	101.5		 	$	599.4		
Ratio of earnings to fixed charges	1.66X		 	2.59X		

____________________
		
(a)	Interest portion of rental is estimated to be 33 percent.	

Exhibit 31.1
CERTIFICATION

I, Edward J. Bonach, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of CNO Financial Group, Inc.;	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the registrant's internal control over financial reporting; and	

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):	

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and	

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.	

Date:   May 4, 2016

/s/ Edward J. Bonach
Edward J. Bonach
Chief Executive Officer

Exhibit 31.2
CERTIFICATION

I, Erik M. Helding, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of CNO Financial Group, Inc.;	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the registrant's internal control over financial reporting; and	

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):	

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and	

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.	

Date: May 4, 2016

/s/ Erik M. Helding
Erik M. Helding
Executive Vice President
and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CNO Financial Group, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward J. Bonach, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my actual knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

/s/ Edward J. Bonach
Edward J. Bonach
Chief Executive Officer

May 4, 2016

A signed original of this written statement required by Section 906 has been provided to CNO Financial Group, Inc. and will be retained by CNO Financial Group, Inc. and furnished to the Securities and Exchange Commission upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CNO Financial Group, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Erik M. Helding, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my actual knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

/s/ Erik M. Helding
Erik M. Helding
Executive Vice President
and Chief Financial Officer

May 4, 2016

A signed original of this written statement required by Section 906 has been provided to CNO Financial Group, Inc. and will be retained by CNO Financial Group, Inc. and furnished to the Securities and Exchange Commission upon request.