CNO Financial Group Inc

Previous wording

Our insurance product line segments (annuity, health and life) include marketing, underwriting and administration of the policies our insurance subsidiaries sell. The business written in each of the three product categories through all of our insurance subsidiaries is aggregated allowing management and investors to assess the performance of each product category. When analyzing profitability of these segments, we use insurance product margin as the measure of profitability, which is: (i) insurance policy income; and (ii) net investment income allocated to the insurance product lines; less (i) insurance policy benefits and interest credited to policyholders; and (ii) amortization of deferred acquisition costs and present value of future profits, non-deferred commissions and advertising expense. Net investment income is allocated to the product lines using the book yield of investments backing the block of business, which is applied to the average insurance liabilities, net of insurance intangibles, for the block in each period. Net insurance liabilities for the purpose of allocating investment income to product lines are equal to: (i) policyholder account balances for annuity products; (ii) total reserves before the fair value adjustments reflected in accumulated other comprehensive income (loss), if applicable, for all other products; less (iii) amounts related to reinsurance business; (iv) deferred acquisition costs; (v) the present value of future profits; and (vi) the value of unexpired options credited to insurance liabilities.

Current wording

Our insurance product line segments (annuity, health and life) include marketing, underwriting and administration of the policies our insurance subsidiaries sell. The business written in each of the three product categories through all of our insurance subsidiaries is aggregated allowing management and investors to assess the performance of each product category. When analyzing profitability of these segments, we use insurance product margin as the measure of profitability, which is: (i) insurance policy income; and (ii) net investment income allocated to the insurance product lines; less (i) insurance policy benefits and interest credited to policyholders; and (ii) amortization of deferred acquisition costs and present value of future profits, non-deferred commissions and advertising expense. Net investment income is allocated to the product lines using the book yield of investments backing the block of business, which is applied to the average insurance liabilities, net of insurance intangibles, for the block in each period. Net insurance liabilities for the purpose of allocating investment income to product lines are equal to: (i) policyholder account values for interest sensitive products; (ii) total reserves before the fair value adjustments reflected in accumulated other comprehensive income (loss), if applicable, for all other products; less (iii) amounts related to reinsured business; (iv) deferred acquisition costs; (v) the present value of future profits; and (vi) the value of unexpired options credited to insurance liabilities.

Previous wording

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

Current wording

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

Previous wording

The Worksite Division focuses on the sale of voluntary benefit life and health insurance products in the workplace for businesses, associations, and other membership groups, interacting with customers at their place of employment and virtually. With a separate Worksite Division, we are bringing a sharper focus to this high-growth business while further capitalizing on the strength of our wholly-owned subsidiary, Optavise, a national provider of year-round technology-driven employee benefits management services.

Current wording

The Worksite Division focuses on the sale of voluntary benefit life and health insurance products in the workplace for businesses, associations, and other membership groups, interacting with customers at their place of employment and virtually. The Worksite Division also offers employer benefits services that seek to increase benefits engagement and reduce costs for employers and their employees. These services include: benefit administration technology, year-round advocacy, enrollment, benefits compliance and communications services.

Previous wording

The investment segment involves the management of our capital resources, including investments and the management of corporate debt and liquidity. Our measure of profitability of this segment is the total net investment income not allocated to the insurance products. Investment income not allocated to product lines represents net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable and investment borrowings; (iv) expenses related to the funding agreement-backed note ("FABN") program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income; plus (vi) the impact of annual option forfeitures related to fixed indexed annuity surrenders. Investment income not allocated to product lines includes investment income on investments in excess of amounts allocated to product lines, investments held by our holding companies, the spread we earn from our FHLB investment borrowing and FABN programs and variable components of investment income (including call and prepayment income, adjustments to returns on structured securities due to cash flow changes, income (loss) from Company-owned life insurance ("COLI") and alternative investment income not allocated to product lines), net of interest expense on corporate debt and financing arrangements. The spread earned from our FHLB investment borrowing and FABN programs includes the investment income on the matched assets less: (i) interest on investment borrowings related to the FHLB investment borrowing program; (ii) interest credited on funding agreements; and (iii) amortization of deferred acquisition costs related to the FABN program.

Current wording

The investment segment involves the management of our capital resources, including investments and the management of corporate debt and liquidity. Our measure of profitability of this segment is the total net investment income not allocated to the insurance products. Investment income not allocated to product lines represents net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable, investment borrowings and financing arrangements; (iv) expenses related to the funding agreement-backed note ("FABN") program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income; plus (vi) the impact of annual option forfeitures related to fixed indexed annuity surrenders. Investment income not allocated to product lines includes investment income on investments in excess of amounts allocated to product lines, investments held by our holding companies, the spread we earn from our FHLB investment borrowing and FABN programs and variable components of investment income (including call and prepayment income, adjustments to returns on structured securities due to cash flow changes, income (loss) from Company-owned life insurance ("COLI") and alternative investment income not allocated to product lines), net of interest expense on corporate debt and financing arrangements. The spread earned from our FHLB investment borrowing and FABN programs includes the investment income on the matched assets less: (i) interest on investment borrowings related to the FHLB investment borrowing program; (ii) interest credited on funding agreements; and (iii) amortization of deferred acquisition costs related to the FABN program.

Previous wording

Our fee income segment includes the earnings generated from sales of third-party insurance products, services provided by Optavise and the operations of our broker/dealer and registered investment advisor.

Current wording

Our fee income segment includes the earnings generated from sales of third-party insurance products (primarily Medicare Advantage), services provided by Optavise and the operations of our broker-dealer and registered investment advisor.

Previous wording

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

Current wording

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

Previous wording

The following summarizes our earnings for the three years ended December 31, 2023 (dollars in millions, except per share data):

Current wording

The following summarizes our earnings for each of the three years ended December 31, 2024 (dollars in millions, except per share data):

Previous wording

(a)Management believes that an analysis of net income applicable to common stock before: (i) net realized investment gains or losses from sales, impairments and change in allowance for credit losses, net of taxes; (ii) net change in market value of investments recognized in earnings, net of taxes; (iii) changes in fair value of embedded derivative liabilities and market risk benefits ("MRBs") related to our fixed indexed annuities, net of taxes; (iv) fair value changes related to the agent deferred compensation plan, net of taxes; (v) loss related to reinsurance transactions, net of taxes; (vi) loss on extinguishment of debt, net of taxes; (vii) changes in the valuation allowance for deferred tax assets and other tax items; and (viii)other non-operating items consisting primarily of earnings attributable to VIEs, net of taxes ("net operating income", a non-GAAP financial measure)is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry. The income tax expense or benefit allocated to the items included in net non-operating income (loss) represents the current and deferred income tax expense or benefit allocated to the items included in non-operating earnings. Management uses this measure to evaluate performance because the items excluded from net operating income can be affected by events that are unrelated to the Company's underlying fundamentals. The table above reconciles the non-GAAP measure to the corresponding GAAP measure.

Current wording

(a) Management believes that an analysis of net income applicable to common stock before: (i) net realized investment gains or losses from sales, impairments and the change in allowance for credit losses, net of taxes; (ii) net change in market value of investments recognized in earnings, net of taxes; (iii) changes in fair value of embedded derivative liabilities and market risk benefits ("MRBs") related to our fixed indexed annuities, net of taxes; (iv) fair value changes related to the agent deferred compensation plan, net of taxes; (v) gains or losses related to material reinsurance transactions, net of taxes; (vi) loss on extinguishment of debt, net of taxes; (vii) changes in the valuation allowance for deferred tax assets and other tax items; and (viii) other non-operating items including earnings attributable to variable interest entities, net of taxes ("net operating income," a non-GAAP financial measure) is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry. The income tax expense or benefit allocated to the items included in net non-operating income (loss) represents the current and deferred income tax expense or benefit allocated to the items included in non-operating earnings. Management believes this information helps provide a better understanding of the business and a more meaningful analysis of results of our insurance product lines. The table above reconciles the non-GAAP measure to the corresponding GAAP measure.

Previous wording

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 apparent. However, net operating income is not a measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities, as measures of liquidity, or as an alternative to net income as measures of our operating performance or any other measures of performance derived in accordance with GAAP. In addition, net operating income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Net operating income has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under GAAP. Our definition and calculation of net operating income are not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation. Also, as we adopted the new accounting standard related to targeted improvements to the accounting for long-duration insurance contracts effective January 1, 2023, we updated our method of determining non-operating earnings for our fixed indexed annuities to better identify the volatile non-economic impacts of that line of business. This resulted in fixed indexed annuity margins that more closely reflect the economics of the business.

Current wording

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 apparent. However, net operating income is not a measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities, as measures of liquidity, or as an alternative to net income as measures of our operating performance or any other measures of performance derived in accordance with GAAP. In addition, net operating income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Net operating income has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under GAAP. Our definition and calculation of net operating income are not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation.

Previous wording

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

Current wording

When an available for sale fixed maturity security's fair value is below the amortized cost, the security is considered impaired. If a portion of the decline is due to credit-related factors, we separate the credit loss component of the impairment from the amount related to all other factors. The credit loss component is recorded as an allowance and reported in net investment gains (losses) (limited to the difference between estimated fair value and amortized cost). The impairment related to all other factors (non-credit factors) is reported in accumulated other comprehensive income (loss) along with unrealized gains (losses) related to fixed maturity investments, available for sale, net of tax and related adjustments. The allowance is adjusted for any additional credit losses and subsequent recoveries. When recognizing an allowance associated with a credit loss, the cost basis is not adjusted. When we determine a security is uncollectible, the remaining amortized cost will be written off.

Previous wording

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

Current wording

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

Previous wording

As a result of the adoption of ASU 2018-12, the amortization methodology related to these account balances is no longer subject to the same degree of variability and does not require a high degree of judgment. However, these accounts remain sensitive to unexpected lapses, due to higher mortality and lapse experience than expected. Such changes are recognized in the current period as a reduction of the capitalized balances. The effect of changes in assumptions related to future mortality and lapses are recognized prospectively over the remaining contract term. The carrying values of deferred acquisition costs and the present value of future profits are no longer subject to recovery testing after the adoption of ASU 2018-12.

Current wording

Present value of future profits and deferred acquisition costs are sensitive to unexpected terminations, due to higher mortality, surrender and lapse experience than expected. Such changes are recognized in the current period as a reduction of the capitalized balances. The effect of changes in assumptions related to future mortality and lapses are recognized prospectively over the remaining contract term. The carrying values of deferred acquisition costs are not subject to recovery testing.

Previous wording

We evaluate the need to establish a valuation allowance for our deferred income tax assets on an ongoing basis using a deferred tax valuation model. Our model is adjusted to reflect changes in our projections of future taxable income including changes resulting from the Tax Cuts and Job Act, investment strategies, the impact of the sale or reinsurance of business, the recapture of business previously ceded and tax planning strategies. Our estimates of future taxable income are based on evidence we consider to be objectively verifiable. At December 31, 2023, our projection of future taxable income for purposes of determining the valuation allowance is based on our estimates of such future taxable income through the date our NOLs expire. Such estimates are subject to numerous risks and uncertainties and the extent to which actual impacts differ from the assumptions used in our deferred tax valuation model. Based on our assessment, we have concluded that it is more likely than not that all our deferred tax assets of $937.1 million will be realized through future taxable earnings.

Current wording

We evaluate the need to establish a valuation allowance for our deferred income tax assets on an ongoing basis using a deferred tax valuation model. Our model is adjusted to reflect changes in our projections of future taxable income including changes resulting from the Tax Cuts and Job Act, investment strategies, the impact of the sale or reinsurance of business, the recapture of business previously ceded and tax planning strategies. Our estimates of future taxable income are based on evidence we consider to be objectively verifiable. At December 31, 2024, our projection of future taxable income for purposes of determining the valuation allowance is based on our estimates of such future taxable income through the date our NOLs expire. Such estimates are subject to numerous risks and uncertainties and the extent to which actual impacts differ from the assumptions used in our deferred tax valuation model. Based on our assessment, we have concluded that it is more likely than not that all our net deferred tax assets of $791.4 million will be realized through future taxable earnings.

Previous wording

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 the recognition of a 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.

Current wording

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 the recognition of a valuation allowance in a future period. The recognition of a valuation allowance would increase income tax expense and reduce shareholders' equity, and such an increase could have a significant impact upon our earnings in the future.

Previous wording

We had $367.2 million of federal NOLs as of December 31, 2023, as summarized below (dollars in millions):

Current wording

We had $343.9 million of federal NOLs as of December 31, 2024, as summarized below (dollars in millions):

Previous wording

Our non-life NOLs can be used to offset 35 percent of life insurance company taxable income and 100 percent of non-life company taxable income until all non-life NOLs are utilized or expire. In addition, we expect to recognize significant non-life NOLs in 2024 as a result of changes related to the tax accounting method for allocating indirect costs (pursuant to the Code) to self-constructed real estate assets. Such NOLs will not be subject to expiration.

Current wording

Our non-life NOLs can be used to offset 35 percent of life insurance company taxable income and 100 percent of non-life company taxable income until all non-life NOLs are utilized or expire. In addition, we expect to recognize approximately $800 million of non-life NOLs on our 2024 tax return as a result of changes related to the tax accounting method for allocating indirect costs (pursuant to the Code) to self-constructed real estate assets upon approval from the IRS. Such NOLs will not be subject to expiration.

Previous wording

At December 31, 2023, the total balance of our liabilities for insurance products was $27.9 billion. These liabilities are generally payable over an extended period of time and the profitability of the related products is dependent on the pricing of the products and other factors. Liabilities for insurance products are calculated using management's best judgments, based on our past experience and standard actuarial tables, of mortality, morbidity, lapse rates, investment experience and expense levels. Differences between our expectations when we sold these products and our actual experience could positively or negatively impact future earnings.

Current wording

At December 31, 2024, the total balance of our liabilities for insurance products was $29.7 billion. These liabilities are generally payable over an extended period of time and the profitability of the related products is dependent on the pricing of the products and other factors. Liabilities for insurance products are calculated using management's best judgments, based on our past experience and standard actuarial tables, of mortality, morbidity, lapse rates, investment experience and expense levels. Differences between our expectations when we sold these products and our actual experience could positively or negatively impact future earnings.

Previous wording

The liability for future policy benefits is determined based on numerous assumptions. The most significant assumptions for our life and annuity business are mortality and lapse/withdrawal rates which are based on our experience and, in cases of limited experience, industry experience. Mortality and lapse/withdrawal rates also take into consideration future expectations in policyholder behavior that may vary from past experience. For our health business, mortality rates, lapse rates, morbidity assumptions and future rate increases are based on our experience and, in cases of limited experience, industry experience. Such assumptions also consider future expectations in policyholder behavior that may vary from past experience. In addition, the liability for future policy benefits is measured using estimated discount rates. The assumptions and estimates that we use often depend on judgment regarding the likelihood of future events and are inherently uncertain.

Current wording

The liability for future policy benefits is determined based on numerous assumptions. The most significant assumptions for our life and annuity business are mortality and lapse/withdrawal rates which are based on our experience and, in cases of limited experience, industry experience. Mortality and lapse/withdrawal rates also take into consideration future expectations in policyholder behavior that may vary from past experience. For our health business, mortality rates, lapse rates, morbidity assumptions and future rate increases are based on our experience and, in cases of limited experience, industry experience. Such assumptions also consider future expectations in policyholder behavior that may vary from past experience. In addition, the liability for future policy benefits is measured using estimated discount rates. The assumptions and estimates that we use often depend on judgment regarding the likelihood of future events and are inherently uncertain. The liability for unpaid policy claims on health contracts is classified as future policy benefits on the consolidated balance sheet. The liability for unpaid policy claims on life insurance contracts is classified as the liability for life insurance policy claims on the consolidated balance sheet.

Previous wording

(1) Based on the total amount of death benefits, surrenders values and partial withdrawals divided by the average account value.

Current wording

(1) Based on the total amount of death benefits, surrender values and partial withdrawals divided by the average account value.

Previous wording

The cost of MRBs may rise in volatile or declining equity markets or in a low interest rate environment. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility, variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could affect net income and changes in our nonperformance risk could materially affect other comprehensive income.

Current wording

The cost of MRBs may rise in volatile or declining equity markets or in a low interest rate environment. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility, variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could affect net income and changes in our nonperformance risk could materially affect other comprehensive income (loss).

Previous wording

Insurance product margin is management's measure of the profitability of its annuity, health and life product lines' performance and consists of insurance policy income plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs. Income from insurance products is the sum of the insurance margins of the annuity, health and life product lines, less expenses allocated to the insurance lines. It excludes the income from our fee income business, investment income not allocated to product lines, net expenses not allocated to product lines (primarily holding company expenses) and income taxes. Management believes this information helps provide a better understanding of the business and a more meaningful analysis of the results of our insurance product lines.

Current wording

Insurance product margin is management's measure of the profitability of its annuity, health and life product lines' performance and consists of insurance policy income plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs. Income from insurance products is the sum of the insurance margins of the annuity, health and life product lines, less expenses allocated to the insurance lines. It excludes the income from our fee income business, investment income not allocated to product lines, net expenses not allocated to product lines (primarily holding company expenses) and income taxes. Management believes this information helps provide an additional understanding of the business and a more meaningful analysis of the results of our insurance product lines.

Previous wording

Net investment income is allocated to the product lines using the book yield of investments backing the block of business, which is applied to the average insurance liabilities for the block in each period. Net insurance liabilities for the purpose of allocating investment income to product lines are equal to: (i) policyholder account balances for annuity products; (ii) total reserves before the fair value adjustments reflected in accumulated other comprehensive income (loss), if applicable, for all other products; less (iii) amounts related to reinsurance business; (iv) deferred acquisition costs; (v) the present value of future profits; and (vi) the value of unexpired options credited to insurance liabilities. Investment income not allocated to product lines represents net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable, investment borrowings and financing arrangements; (iv) expenses related to the FABN program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income; plus (vi) the impact of annual option forfeitures related to fixed indexed annuity surrenders. Investment income not allocated to product lines includes investment income on investments in excess of amounts allocated to product lines, investments held by our holding companies, the spread we earn from our FHLB investment borrowing and FABN programs and variable components of investment income (including call and prepayment income, adjustments to returns on structured securities due to cash flow changes, income (loss) from COLI and alternative investment income not allocated to product lines), net of interest expense on corporate debt and financing arrangements. The spread earned from our FHLB investment borrowing and FABN programs includes the investment income on the matched assets less: (i) interest on investment borrowings related to the FHLB investment borrowing program; (ii) interest credited on funding agreements; and (iii) amortization of deferred acquisition costs related to the FABN program.

Current wording

Net investment income is allocated to the product lines using the book yield of investments backing the block of business, which is applied to the average insurance liabilities for the block in each period. Net insurance liabilities for the purpose of allocating investment income to product lines are equal to: (i) policyholder account values for interest sensitive products; (ii) total reserves before the fair value adjustments reflected in accumulated other comprehensive income (loss), if applicable, for all other products; less (iii) amounts related to reinsured business; (iv) deferred acquisition costs; (v) the present value of future profits; and (vi) the value of unexpired options credited to insurance liabilities. Investment income not allocated to product lines represents net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable, investment borrowings and financing arrangements; (iv) expenses related to the FABN program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income; plus (vi) the impact of annual option forfeitures related to fixed indexed annuity surrenders. Investment income not allocated to product lines includes investment income on investments in excess of amounts allocated to product lines, investments held by our holding companies, the spread we earn from our FHLB investment borrowing and FABN programs and variable components of investment income (including call and prepayment income, adjustments to returns on structured securities due to cash flow changes, income (loss) from COLI and alternative investment income not allocated to product lines), net of interest expense on corporate debt and financing arrangements.

Previous wording

Comprehensive Annual Actuarial Review: We update the assumptions and experience underlying the expected gross margins for policies accounted for as investment contracts annually in the fourth quarter of each year. In addition, we also review and update our assumptions on a more frequent basis to the extent current conditions or circumstances warrant changes that could be significant to our operating results. The impacts of these unlocking exercises have had a significant impact on our earnings.

Current wording

Comprehensive Annual Actuarial Review: We perform an annual review of our experience and assumptions including, but not limited to, assumptions related to mortality rates, surrender rates, earned rates, credited rates and expenses. Previously, the review was completed in the fourth quarter of each year, however, we began performing this review in the third quarter starting with 2024 to better align with our annual planning process, and third quarter is also more consistent with industry practice. In addition, we also review and update our assumptions on a more frequent basis to the extent current conditions or circumstances warrant changes that could be significant to our operating results. The impacts of the review have had a significant impact on our earnings.

Previous wording

In the fourth quarter of 2023, we performed our comprehensive annual actuarial review, including, but not limited to, assumptions related to mortality rates, surrender rates, earned rates, credited rates and expenses. This review resulted in a net favorable impact to insurance product margins of $33.9 million. The impact to insurance product margins by product are summarized in the table below. The most significant impacts related to supplemental health and Medicare supplement products which were favorably (unfavorably) impacted by $41.9 million and $(10.6) million, respectively. The primary supplemental health changes related to lower morbidity and higher surrender assumptions. The primary Medicare supplement changes related to higher near-term morbidity and higher persistency assumptions.

Current wording

We performed our 2023 comprehensive annual actuarial review, resulting in a net favorable impact to insurance product margins included in pre-tax operating income of $33.9 million. The impact to insurance product margins by product are summarized in the table below. The most significant impacts related to supplemental health and Medicare supplement products which were favorably (unfavorably) impacted by $41.9 million and $(10.6) million, respectively. The primary supplemental health changes related to lower morbidity and higher surrender assumptions. The primary Medicare supplement changes related to higher near-term morbidity and higher persistency assumptions. In addition, the comprehensive annual actuarial review unfavorably impacted pre-tax non-operating income by $12.4 million related to changes in the fair value of embedded derivative liabilities and market risk benefits on our fixed indexed annuities.

Previous wording

In the fourth quarter of 2022, we performed our comprehensive annual actuarial review including, but not limited to, assumptions related to mortality rates, surrender rates, earned rates, credited rates and expenses. This review resulted in a net favorable impact to insurance product margins of $.7 million and is summarized by product in the table below. The most significant impacts related to long-term care and traditional life products which were favorably (unfavorably) impacted by $16.4 million and $(13.0) million, respectively. The primary long-term care assumption changes related to lower near-term morbidity. The primary traditional life assumption change was an increase in expected mortality.

Current wording

We performed our 2022 comprehensive annual actuarial review, resulting in a net favorable impact to insurance product margins included in pre-tax operating income of $0.7 million and is summarized by product in the table below. The most significant impacts related to long-term care and traditional life products which were favorably (unfavorably) impacted by $16.4 million and $(13.0) million, respectively. The primary long-term care assumption changes related to lower near-term morbidity. The primary traditional life assumption change was an increase in expected mortality.

Previous wording

The following tables summarize the impacts of our comprehensive annual actuarial reviews in 2023, 2022 and 2021 (dollars in millions):

Current wording

The following tables summarize the impacts of our comprehensive annual actuarial reviews on our operating income for the years ended December 31, 2024, 2023 and 2022 (dollars in millions):

Previous wording

Summary of Operating Results: Net operating income was $356.1 million in 2023, compared to $360.4 million in 2022 and $400.4 million in 2021.

Current wording

Summary of Operating Results: Net operating income was $429.3 million in 2024, compared to $356.1 million in 2023 and $360.4 million in 2022.

Previous wording

Insurance product margin was $959.0 million, $936.5 million and $953.4 million in 2023, 2022 and 2021, respectively. Insurance product margin, excluding the impacts summarized in the table above, were $925.1 million, $935.8 million and $950.4 million in 2023, 2022 and 2021, respectively. Fluctuations by product line are discussed in greater detail in the narratives that follow.

Current wording

Insurance product margin was $1,040.0 million, $959.0 million and $936.5 million in 2024, 2023 and 2022, respectively. Insurance product margin, excluding the impacts summarized in the table above, were $1,012.7 million, $925.1 million and $935.8 million in 2024, 2023 and 2022, respectively. Fluctuations by product line are discussed in greater detail in the narratives that follow.Total allocated and unallocated expenses are summarized in the table below. Expenses not allocated to product lines include certain significant items listed in the table below. Total allocated and unallocated expenses as adjusted for the significant items are summarized below (dollars in millions):

Previous wording

Our expense ratio in 2023 was 19.4 percent. Our projected expense ratio for 2024 is expected to be in the range of 18.8 percent to 19.2 percent. The expense ratio is defined as total allocated and unallocated expenses (excluding any significant items) divided by the sum of insurance policy income and net investment income allocated to products.

Current wording

Our expense ratio was 19.2 percent, 19.4 percent, and 19.3 percent for the years ended December 31, 2024, 2023 and 2022, respectively. The expense ratio is defined as total allocated and unallocated expenses (excluding any significant items) divided by the sum of insurance policy income and net investment income allocated to products.

Previous wording

Net fee income increased in 2023 and 2022 is primarily due to growth in the sales of third party products by our Consumer Division in recent periods and changes to our revenue recognition assumptions reflecting favorable policy persistency; partially offset by lower earnings related to services provided by Optavise.

Current wording

Net fee income decreased modestly in 2024 compared to 2023 due to: (i) changes in our revenue recognition assumptions related to sales of third-party Medicare Advantage products by our Consumer Division reflecting less favorable policy persistency and higher agent persistency resulting in higher renewal commissions; largely offset by (ii) higher sales of third-party Medicare Advantage products in 2024; and (iii) slightly lower losses related to services provided by Optavise and operations of our broker-dealer and registered investment advisor. Net fee income increased in 2023 primarily due to growth in the sales of third-party Medicare Advantage products by our Consumer Division and changes to our revenue recognition assumptions reflecting favorable policy persistency; partially offset by lower earnings related to services provided by Optavise.

Previous wording

The effective tax rate for 2023, 2022 and 2021 was 22.5 percent, 22.8 percent and 22.2 percent, respectively.

Current wording

The effective tax rate for 2024, 2023 and 2022 was 22.0 percent, 22.5 percent and 22.8 percent, respectively.

Previous wording

Margin from fixed indexed annuitieswas $192.2 million in 2023 compared to $183.4 million in 2022 and $195.0 million in 2021. The margin excluding the favorable (unfavorable) impacts of the actuarial review changes previously discussed was $182.8 million, $186.6 million and $195.7 million in 2023, 2022 and 2021, respectively. The margins in 2023 are lower than 2022 and 2021 as growth in the block is primarily being offset by spread compression driven by increased surrenders of higher spread products. Average net insurance liabilities (policyholder account balances less: (i) amounts related to reinsured business; (ii) deferred acquisition costs; (iii) present value of future profits; and (iv) the value of unexpired options credited to insurance liabilities) were $9,337.3 million, $8,788.6 million and $7,915.7 million in 2023, 2022 and 2021, respectively, driven by deposits and reinvested returns in excess of withdrawals. The increase in net insurance liabilities results in higher net investment income allocated. The earned yield was 4.39 percent in 2023, up from 4.25 percent in 2022, reflecting higher portfolio yields, and down slightly from 4.42 percent in 2021.

Current wording

Margin from fixed indexed annuitieswas $215.8 million in 2024 compared to $192.2 million in 2023 and $183.4 million in 2022. The margin adjusted to exclude the favorable (unfavorable) impacts of the annual actuarial review previously discussed was $179.6 million, $182.8 million and $186.6 million in 2024, 2023 and 2022, respectively. The decreasing adjusted margins are primarily due to additional amortization resulting from higher surrenders and assumption changes partially offset by increased surrender charge income. Growth in the block is primarily being offset by spread compression driven by increased surrenders of higher spread products. Net insurance liabilities (equal to (i) policyholder account values for interest sensitive products; (ii) total reserves before the fair value adjustments reflected in accumulated other comprehensive income (loss), if applicable, for all other products; less (iii) amounts related to reinsured business; (iv) deferred acquisition costs; (v) the present value of future profits; and (vi) the value of unexpired options credited to insurance liabilities) were $9,848.9 million, $9,337.3 million and $8,788.6 million in 2024, 2023 and 2022, respectively, driven by deposits and reinvested returns in excess of withdrawals. The increase in net insurance liabilities results in higher net investment income allocated. The earned yield was 4.66 percent in 2024, up from 4.39 percent in 2023 and 4.25 percent in 2022, reflecting higher portfolio yields.

Previous wording

Net investment income and interest credited exclude the change in market values of the underlying options supporting the fixed indexed annuity products and corresponding offsetting amount credited to policyholder account balances. Such amounts were $118.3 million, $(181.3) million and $195.5 million in 2023, 2022 and 2021, respectively.

Current wording

Net investment income and interest credited exclude the change in market values of the underlying options supporting the fixed indexed annuity products and corresponding offsetting amount credited to policyholder account balances. Such amounts were $231.8 million, $118.3 million and $(181.3) million in 2024, 2023 and 2022, respectively.

Previous wording

Margin from fixed interest annuitieswas $33.9 million in 2023 compared to $32.4 million in 2022 and $37.4 million in 2021, driven primarily by higher spreads, partially offset by a reduction in the size of the block. Average net insurance liabilities were $1,612.0 million, $1,700.5 million and $1,879.3 million in 2023, 2022 and 2021, respectively, driven by withdrawals in excess of deposits and reinvested returns. The decrease in net insurance liabilities results in lower net investment income allocated, however, the earned yield increased to 5.19 percent in 2023, reflecting higher portfolio yields compared to 4.88 percent in 2022 and 4.98 percent in 2021.

Current wording

Margin from fixed interest annuitieswas $31.6 million in 2024 compared to $33.9 million in 2023 and $32.4 million in 2022. The margin decreased in 2024 primarily due to additional amortization from higher policy surrenders. The reduction in the size of the block is largely offset by increased yields. Average net insurance liabilities were $1,578.3 million, $1,612.0 million and $1,700.5 million in 2024, 2023 and 2022, respectively, driven by withdrawals in excess of deposits and reinvested returns. The earned yield increased to 5.33 percent in 2024, reflecting higher portfolio yields compared to 5.19 percent in 2023 and 4.88 percent in 2022.

Previous wording

Margin from other annuities was $8.9 million in 2023 compared to $11.1 million in 2022 and $10.8 million in 2021. The margin excluding the favorable impacts of the actuarial review changes previously discussed was $5.4 million in 2023. The margin on this relatively small block of business is sensitive to annuitant mortality related to contracts with life contingencies. An increase in mortality in this block will result in a decrease in insurance liabilities and insurance policy benefits. Such mortality was lower in 2023 compared to 2022 and 2021.

Current wording

Margin from other annuities was $26.8 million in 2024 compared to $8.9 million in 2023 and $11.1 million in 2022. The margin adjusted to exclude the favorable impacts of the annual actuarial review previously discussed was $5.4 million in 2023. The margin on this relatively small block of business is sensitive to annuitant mortality related to contracts with life contingencies. An increase in mortality in this block will result in a decrease in insurance liabilities and insurance policy benefits. We experienced elevated annuitant mortality on a small number of closed block payout annuity policies in 2024. Mortality was lower in 2023 compared to 2022.

Previous wording

Margin from supplemental health business was $294.4 million in 2023 compared to $230.9 million in 2022 and $216.9 million in 2021. The margin excluding the favorable impacts of the actuarial review changes previously discussed was $252.5 million, $229.0 million and $215.4 million in 2023, 2022 and 2021, respectively. The increase in the supplemental health margin in 2023, compared to 2022 and 2021, reflects growth in the block and favorable claim experience. Claim experience will fluctuate from period to period.

Current wording

Margin from supplemental health business was $269.8 million in 2024 compared to $294.4 million in 2023 and $230.9 million in 2022. The margin adjusted to exclude the favorable impacts of the annual actuarial review previously discussed was $269.5 million, $252.5 million and $229.0 million in 2024, 2023 and 2022, respectively. The adjusted margin as a percentage of insurance policy income was 37 percent in 2024 compared to 36 percent in 2023 and 33 percent in 2022. The increase in the supplemental health adjusted margin in 2024, compared to 2023 and 2022, reflects growth in the block and favorable morbidity.

Previous wording

Margin from Medicare supplement business was $116.9 million in 2023 compared to $151.0 million in 2022 and $162.5 million in 2021. The Medicare supplement margin excluding the impacts of the actuarial review changes previously discussed were $127.5 million, $151.0 million and $156.5 million in 2023, 2022 and 2021, respectively. The decrease in margin on the Medicare supplement business in 2023, as compared to 2022 and 2021, is primarily due to a reduction in the size of the block and unfavorable claims experience (although claim experience returned to expected levels in the second half of 2023 as compared to the first six months of 2023). Claim experience will fluctuate from period to period. Insurance policy income was $619.9 million in 2023 compared to $657.8 million in 2022 and $714.1 million in 2021, reflecting lower sales in recent periods partially offset by premium rate increases. Over the last several years, we have experienced a shift in the sale of Medicare supplement policies to the sale of Medicare Advantage policies. We receive fee income when Medicare Advantage policies of other providers are sold, which is recorded in our Fee income segment. We continue to invest in both our Medicare supplement products and Medicare Advantage distribution to meet our customers' needs and preferences. For example, we launched a new competitive Medicare supplement product in 2022.

Current wording

Margin from Medicare supplement business was $113.9 million in 2024 compared to $116.9 million in 2023 and $151.0 million in 2022. The Medicare supplement margin adjusted to exclude the impacts of the annual actuarial review previously discussed was $123.3 million, $127.5 million and $151.0 million in 2024, 2023 and 2022, respectively. The adjusted margin as a percentage of insurance policy income was 20 percent, 21 percent and 23 percent in 2024, 2023 and 2022, respectively. The slight decrease in the adjusted margin in 2024, as compared to 2023, is primarily due to higher morbidity. The decrease in the adjusted margin in 2023 compared to 2022, was primarily due to a reduction in the size of the block and higher morbidity. Claim experience will fluctuate from period to period. Insurance policy income was $620.5 million in 2024 compared to $619.9 million in 2023 and $657.8 million in 2022. Over the last several years, we have experienced a shift in the sale of Medicare supplement policies to the sale of Medicare Advantage policies. We receive fee income when Medicare Advantage policies of other providers are sold, which is recorded in our Fee income segment. We continue to invest in both our Medicare supplement products and Medicare Advantage distribution to meet our customers' needs and preferences. We launched a new competitive Medicare supplement product in 2022 resulting in sales growth over the past two years.

Previous wording

Margin from interest-sensitive life business was $98.7 million in 2023 compared to $79.5 million in 2022 and $66.3 million in 2021. The interest-sensitive life margins excluding the impacts of the actuarial review changes previously discussed were $94.8 million, $80.9 million and $67.2 million in 2023, 2022 and 2021, respectively. The increase in margin in 2023 and 2022 reflects more favorable mortality and growth in the block due to sales in recent periods.

Current wording

Margin from interest-sensitive life business was $97.9 million in 2024 compared to $98.7 million in 2023 and $79.5 million in 2022. The interest-sensitive life margins adjusted to exclude the impacts of the annual actuarial review previously discussed were $94.1 million, $94.8 million and $80.9 million in 2024, 2023 and 2022, respectively. The increase in the adjusted margin in 2024 and 2023 compared to 2022 reflects more favorable mortality and growth in the block due to sales in recent periods.

Previous wording

The interest margin was $2.8 million in 2023 compared to $3.3 million in 2022 and $5.1 million in 2021. Net investment income in 2023 was comparable to 2022 and 2021. The increase in average net insurance liabilities results in higher net investment income allocated, which is offset by lower earned yields. The earned yield was 4.96 percent in 2023, down from 5.07 percent in 2022 and 5.14 percent in 2021. The decrease in earned yields is due to the sale or maturity of higher yielding investments. Interest credited to policyholders may be changed annually but is subject to minimum guaranteed rates and, as a result, any reduction in our earned rate may not be fully reflected in the rate credited to policyholders.

Current wording

The interest margin was $2.3 million in 2024 compared to $2.8 million in 2023 and $3.3 million in 2022. The decline in the interest margin over the three year period is due to spread compression, partially offset by growth in the block. Interest credited to policyholders may be changed annually but is subject to minimum guaranteed rates and, as a result, any reduction in our earned rate may not be fully reflected in the rate credited to policyholders.

Previous wording

Net investment income and interest credited excludes the change in market values of the underlying options supporting the fixed indexed life products and corresponding offsetting amount credited to policyholder account balances. Such amounts were $13.2 million, $(24.0) million and $24.3 million in 2023, 2022 and 2021, respectively.

Current wording

Net investment income and interest credited excludes the change in market values of the underlying options supporting the fixed indexed life products and corresponding offsetting amount credited to policyholder account balances. Such amounts were $21.9 million, $13.2 million and $(24.0) million in 2024, 2023 and 2022, respectively.