CNO Financial Group, Inc.CNO
CNO Financial Group, Inc. Fair Value Disclosure
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and, therefore, represents an exit price, not an entry price. We carry certain assets and liabilities at fair value on a recurring basis, including fixed maturities, equity securities, trading securities, investments held by VIEs, derivatives, separate account assets and embedded derivatives. We carry our COLI, which is invested in a series of mutual funds, at its cash surrender value, which approximates fair value. In addition, we disclose fair value for certain financial instruments that are not carried at fair value, including mortgage loans, policy loans, cash and cash equivalents, insurance liabilities for interest-sensitive products and funding agreements, investment borrowings, notes payable and borrowings related to VIEs.
The degree of judgment utilized in measuring the fair value of financial instruments is largely dependent on the level to which pricing is based on observable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. Financial instruments with readily available active quoted prices would be considered to have fair values based on the highest level of observable inputs, and little judgment would be utilized in measuring fair value. Financial instruments that rarely trade would often have fair value based on a lower level of observable inputs, and more judgment would be utilized in measuring fair value.
Valuation Hierarchy
There is a three-level hierarchy for valuing assets or liabilities at fair value based on whether inputs are observable or unobservable.
•Level 1 – includes assets and liabilities valued using inputs that are unadjusted quoted prices in active markets for identical assets or liabilities. Our Level 1 assets primarily include cash and cash equivalents and exchange-traded securities.
•Level 2 – includes assets and liabilities valued using inputs that are quoted prices for similar assets in an active market, quoted prices for identical or similar assets in a market that is not active, observable inputs, or observable inputs that can be corroborated by market data. Level 2 assets and liabilities include those financial instruments that are valued by independent pricing services using models or other valuation methodologies. These models consider various inputs such as credit rating, maturity, corporate credit spreads, reported trades and other inputs that are observable or derived from observable information in the marketplace or are supported by transactions executed in the marketplace. Financial assets in this category primarily include: certain publicly registered and privately placed corporate fixed maturity securities; certain government or agency securities; certain mortgage and asset-backed securities; certain equity securities; most investments held by our consolidated VIEs; and 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, certain structured securities, mortgage loans, policy 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 indexed annuity products and to a modified coinsurance arrangement), and funding agreements since their values include significant unobservable inputs, including actuarial assumptions.
At each reporting date, we classify assets and liabilities into the three input levels based on the lowest level of input that is significant to the measurement of fair value for each asset and liability reported at fair value. This classification is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and overall market conditions. Our assessment of the significance of a particular input to the fair value measurement and the ultimate classification of each asset and liability requires judgment and is subject to change from period to period based on the observability of the valuation inputs.
The vast majority of our assets carried at fair value 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 using independent pricing services. 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 using independent pricing services. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, new issuances and credit spreads.
Foreign governments are generally priced using the market approach using independent pricing services. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, new issuances, benchmark yields, credit spreads and issuer rating.
Asset-backed securities, agency and non-agency residential mortgage-backed securities, collateralized loan obligations and commercial mortgage-backed securities are generally priced using market and income approaches using independent pricing services. Inputs generally consist of quoted prices in inactive markets, spreads on actively traded securities, expected prepayments, expected default rates, expected recovery rates and issue specific information including, but not limited to, collateral type, seniority and vintage.
Equity securities 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 independent pricing services. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, 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 observable market information. If there are no recently reported trades, the third-party pricing services may use matrix or model processes to develop a security price where future cash flow expectations are discounted at an estimated risk-adjusted market rate. The number of prices obtained for a given security is dependent on the Company's analysis of such prices as further described below.
As the Company is responsible for the determination of fair value, we have control processes designed to ensure that the fair values received from third-party pricing sources are reasonable and the valuation techniques and assumptions used appear reasonable and consistent with prevailing market conditions. Additionally, when inputs are provided by third-party pricing sources, we have controls in place to review those inputs for reasonableness. As part of these controls, we perform monthly quantitative and qualitative analysis on the prices received from third parties to determine whether the prices are reasonable estimates of fair value. The Company's analysis includes: (i) a review of the methodology used by third-party pricing services; (ii) where available, a comparison of multiple pricing services' valuations for the same security; (iii) a review of month to month price fluctuations; (iv) a review to ensure valuations are not unreasonably dated; and (v) back testing to compare actual purchase and sale transactions with valuations received from third parties. As a result of such procedures, the Company may conclude a particular price received from a third party is not reflective of current market conditions. In those instances, we may request additional pricing quotes or apply internally developed valuations. However, the number of such instances is insignificant and the aggregate change in value of such investments is not materially different from the original prices received.
The categorization of the fair value measurements of our investments priced by independent pricing services was based upon the Company's judgment of the inputs or methodologies used by the independent pricing services to value different asset classes. 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 93 percent of our Level 3 fixed maturity securities and trading 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.
The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at December 31, 2025 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 | $ | — | $ | 13,130.7 | $ | 131.8 | $ | 13,262.5 | |||||||||||||||
| Certificates of deposit | — | — | — | — | |||||||||||||||||||
| United States Treasury securities and obligations of United States government corporations and agencies | — | 177.1 | — | 177.1 | |||||||||||||||||||
| States and political subdivisions | — | 2,954.7 | — | 2,954.7 | |||||||||||||||||||
| Foreign governments | — | 120.5 | — | 120.5 | |||||||||||||||||||
| Asset-backed securities | — | 1,710.8 | 36.5 | 1,747.3 | |||||||||||||||||||
| Agency residential mortgage-backed securities | — | 849.5 | — | 849.5 | |||||||||||||||||||
| Non-agency residential mortgage-backed securities | — | 1,585.7 | — | 1,585.7 | |||||||||||||||||||
| Collateralized loan obligations | — | 1,142.5 | — | 1,142.5 | |||||||||||||||||||
| Commercial mortgage-backed securities | — | 2,043.5 | 3.5 | 2,047.0 | |||||||||||||||||||
| Total fixed maturities, available for sale | — | 23,715.0 | 171.8 | 23,886.8 | |||||||||||||||||||
| Equity securities - corporate securities | 176.5 | 117.0 | 73.7 | 367.2 | |||||||||||||||||||
| Trading securities: | |||||||||||||||||||||||
| Asset-backed securities | — | 38.7 | — | 38.7 | |||||||||||||||||||
| Agency residential mortgage-backed securities | — | 97.5 | — | 97.5 | |||||||||||||||||||
| Non-agency residential mortgage-backed securities | — | 44.2 | — | 44.2 | |||||||||||||||||||
| Collateralized loan obligations | — | 9.7 | — | 9.7 | |||||||||||||||||||
| Commercial mortgage-backed securities | — | 104.7 | — | 104.7 | |||||||||||||||||||
| Total trading securities | — | 294.8 | — | 294.8 | |||||||||||||||||||
| Investments held by variable interest entities - corporate securities | — | 293.0 | — | 293.0 | |||||||||||||||||||
| Other invested assets: | |||||||||||||||||||||||
| Derivatives | — | 323.5 | — | 323.5 | |||||||||||||||||||
| Residual tranches | — | — | 4.2 | 4.2 | |||||||||||||||||||
| Total other invested assets | — | 323.5 | 4.2 | 327.7 | |||||||||||||||||||
| Assets held in separate accounts | — | 2.8 | — | 2.8 | |||||||||||||||||||
Total assets carried at fair value by category | $ | 176.5 | $ | 24,746.1 | $ | 249.7 | $ | 25,172.3 | |||||||||||||||
Equity securities measured at net asset value | 22.0 | ||||||||||||||||||||||
Total assets carried at fair value | $ | 25,194.3 | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Market risk benefit liability | $ | — | $ | — | $ | 48.1 | $ | 48.1 | |||||||||||||||
| Embedded derivatives associated with fixed indexed annuity products | — | — | 1,600.6 | 1,600.6 | |||||||||||||||||||
Total liabilities carried at fair value | $ | — | $ | — | $ | 1,648.7 | $ | 1,648.7 | |||||||||||||||
The categorization of fair value measurements, by input level, for our financial instruments carried at fair value on a recurring basis at December 31, 2024 is as follows (dollars in millions):
| Quoted prices in active markets for identical assets or liabilities (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Fixed maturities, available for sale: | |||||||||||||||||||||||
| Corporate securities | $ | — | $ | 11,912.8 | $ | 128.0 | $ | 12,040.8 | |||||||||||||||
| Certificates of deposit | — | 488.3 | — | 488.3 | |||||||||||||||||||
| United States Treasury securities and obligations of United States government corporations and agencies | — | 186.2 | — | 186.2 | |||||||||||||||||||
| States and political subdivisions | — | 2,834.3 | — | 2,834.3 | |||||||||||||||||||
| Foreign governments | — | 91.1 | — | 91.1 | |||||||||||||||||||
| Asset-backed securities | — | 1,496.6 | 19.8 | 1,516.4 | |||||||||||||||||||
| Agency residential mortgage-backed securities | — | 819.6 | — | 819.6 | |||||||||||||||||||
| Non-agency residential mortgage-backed securities | — | 1,539.1 | — | 1,539.1 | |||||||||||||||||||
| Collateralized loan obligations | — | 1,012.8 | 4.0 | 1,016.8 | |||||||||||||||||||
| Commercial mortgage-backed securities | — | 2,193.4 | 4.1 | 2,197.5 | |||||||||||||||||||
| Total fixed maturities, available for sale | — | 22,574.2 | 155.9 | 22,730.1 | |||||||||||||||||||
| Equity securities - corporate securities | 64.0 | 134.9 | 73.4 | 272.3 | |||||||||||||||||||
| Trading securities: | |||||||||||||||||||||||
| Asset-backed securities | — | 40.6 | — | 40.6 | |||||||||||||||||||
| Collateralized loan obligations | — | 9.5 | — | 9.5 | |||||||||||||||||||
| Agency residential mortgage-backed securities | — | 97.1 | — | 97.1 | |||||||||||||||||||
| Non-agency residential mortgage-backed securities | — | 53.3 | — | 53.3 | |||||||||||||||||||
| Commercial mortgage-backed securities | — | 103.7 | — | 103.7 | |||||||||||||||||||
| Total trading securities | — | 304.2 | — | 304.2 | |||||||||||||||||||
| Investments held by variable interest entities - corporate securities | — | 433.8 | — | 433.8 | |||||||||||||||||||
| Other invested assets: | |||||||||||||||||||||||
| Derivatives | — | 279.0 | — | 279.0 | |||||||||||||||||||
| Residual tranches | — | 1.5 | 95.4 | 96.9 | |||||||||||||||||||
| Total other invested assets | — | 280.5 | 95.4 | 375.9 | |||||||||||||||||||
| Assets held in separate accounts | — | 3.3 | — | 3.3 | |||||||||||||||||||
| Total assets carried at fair value by category | $ | 64.0 | $ | 23,730.9 | $ | 324.7 | $ | 24,119.6 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Market risk benefit liability | $ | — | $ | — | $ | 60.0 | $ | 60.0 | |||||||||||||||
| Embedded derivatives associated with fixed indexed annuity products | — | — | 1,471.6 | 1,471.6 | |||||||||||||||||||
Total liabilities carried at fair value | $ | — | $ | — | $ | 1,531.6 | $ | 1,531.6 | |||||||||||||||
The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of December 31, 2025 (dollars in millions):
| Fixed Maturities | Equity Securities | Other Invested Assets | Total | ||||||||||||||||||||
| Beginning of period | $ | 155.9 | $ | 73.4 | $ | 95.4 | $ | 324.7 | |||||||||||||||
| Gains (losses) included in net income | (1.0) | 0.3 | 0.1 | (0.6) | |||||||||||||||||||
| Gains (losses) included in accumulated other comprehensive loss | (0.3) | — | — | (0.3) | |||||||||||||||||||
Purchases, sales, issuances and settlements (a) | |||||||||||||||||||||||
| Purchases | 56.7 | — | 1.4 | 58.1 | |||||||||||||||||||
| Sales | (2.6) | — | — | (2.6) | |||||||||||||||||||
Transfers into Level 3 (b) | 13.1 | — | — | 13.1 | |||||||||||||||||||
Transfers out of Level 3 (b) | (50.0) | — | (92.7) | (142.7) | |||||||||||||||||||
| End of period | $ | 171.8 | $ | 73.7 | $ | 4.2 | $ | 249.7 | |||||||||||||||
| Change in unrealized gains or losses for the period included in net income for assets held at the end of the reporting period | $ | (1.0) | $ | 0.3 | $ | 0.1 | $ | (0.6) | |||||||||||||||
| Change in unrealized gains or losses for the period included in other comprehensive loss for assets held at the end of the reporting period | $ | (0.3) | $ | — | $ | — | $ | (0.3) | |||||||||||||||
_________
(a)Purchases, sales, issuances and settlements represent the activity that occurred during the period that results in a change of the asset 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. There were no issuances or settlements during the year ended December 31, 2025.
(b)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 independent pricing service information for certain assets that the Company is able to validate. Transfers out of Level 3 other invested assets include $92.7 million of residual tranches that are valued based on our ownership share of the equity of the investee, as reported to us by the General Partner. These are not held at fair value and have been transferred out of Level 3.
The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of December 31, 2024 (dollars in millions):
| Fixed Maturities | Equity Securities | Other Invested Assets | Total | ||||||||||||||||||||
| Beginning of period | $ | 197.9 | $ | 72.7 | $ | 31.5 | $ | 302.1 | |||||||||||||||
| Gains (losses) included in net income | (4.2) | 0.7 | 19.1 | 15.6 | |||||||||||||||||||
| Gains (losses) included in accumulated other comprehensive loss | (2.6) | — | — | (2.6) | |||||||||||||||||||
Purchases, sales, issuances and settlements (a) | |||||||||||||||||||||||
| Purchases | 64.4 | — | 44.5 | 108.9 | |||||||||||||||||||
| Sales | (47.2) | — | (7.2) | (54.4) | |||||||||||||||||||
Transfers into Level 3 (b) | 4.8 | — | 7.5 | 12.3 | |||||||||||||||||||
Transfers out of Level 3 (b) | (57.2) | — | — | (57.2) | |||||||||||||||||||
| End of period | $ | 155.9 | $ | 73.4 | $ | 95.4 | $ | 324.7 | |||||||||||||||
| Change in unrealized gains or losses for the period included in net income for assets held at the end of the reporting period | $ | (1.7) | $ | 0.8 | $ | 19.1 | $ | 18.2 | |||||||||||||||
| Change in unrealized gains or losses for the period included in other comprehensive loss for assets held at the end of the reporting period | $ | (8.3) | $ | — | $ | — | $ | (8.3) | |||||||||||||||
____________
(a)Purchases, sales, issuances and settlements represent the activity that occurred during the period that results in a change of the asset 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. There were no issuances or settlements during the year ended December 31, 2024.
(b)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 independent pricing service information for certain assets that the Company is able to validate.
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 or investment gains (losses) within the consolidated statement of operations; or accumulated other comprehensive income (loss) within shareholders' equity based on the appropriate accounting treatment for the instrument. The amount presented for gains (losses) included in our net income for assets still held as of the reporting date primarily represents: (i) the change in the allowance for credit losses for fixed maturities, available for sale; and (ii) changes in fair value of equity securities and trading securities that are held as of the reporting date. The amount presented for gains (losses) included in accumulated other comprehensive income (loss) for assets still held as of the reporting date primarily represents changes in the fair value of fixed maturities, available for sale, that are held as of the reporting date.
At December 31, 2025, 66.5 percent of our Level 3 fixed maturities, available for sale, were investment grade and 76.7 percent of our Level 3 fixed maturities, available for sale, consisted of corporate securities.
The following table summarizes changes in the value of our embedded derivatives associated with fixed indexed annuity products (classified in policyholder account balances as presented in the note to the consolidated financial statements entitled "Derivatives") which are measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value (dollars in millions):
| 2025 | 2024 | ||||||||||
| Balance at beginning of the period | $ | 1,471.6 | $ | 1,376.7 | |||||||
| Premiums less benefits | (36.4) | (62.6) | |||||||||
| Change in fair value, net | 165.4 | 157.5 | |||||||||
| Balance at end of the period | $ | 1,600.6 | $ | 1,471.6 | |||||||
The change in fair value, net for each period in our embedded derivatives is included in the insurance policy benefits line item in the consolidated statement of operations.
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, 2025 (dollars in millions):
Fair value at December 31, 2025 | Valuation techniques | Unobservable inputs | Range (weighted average) (a) | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Corporate securities (c) | $ | 0.5 | Recovery method | % Recovery expected | 50.00% | ||||||||||||||||||
Asset-backed securities (b) | 7.6 | Discounted cash flow analysis | Discount margins | 1.61% | |||||||||||||||||||
Asset-backed securities (c) | 3.5 | Recovery method | % Recovery expected | 61.24% | |||||||||||||||||||
Equity securities (d) | 64.5 | Market comparables | EBITDA multiples | 10.9X | |||||||||||||||||||
Total assets | $ | 76.1 | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Market risk benefit liability (e) | $ | 48.1 | Discounted cash flow analysis | Surrender rates | 0.46% - 17.68% (3.44%) | ||||||||||||||||||
| Partial withdrawal rates | 0.00% - 3.00% (0.96%) | ||||||||||||||||||||||
| Mortality | 0.03% - 39.75% (3.63%) | ||||||||||||||||||||||
| GLWB utilization | 5.92% - 47.62% (25.07%) | ||||||||||||||||||||||
| Non-performance risk spread | 0.09% - 0.31% (N/A) | ||||||||||||||||||||||
Embedded derivatives related to fixed indexed annuity products (f) | 1,600.6 | Discounted projected embedded derivatives | Surrender rates | 0.46% - 23.36% (6.11%) | |||||||||||||||||||
| Partial withdrawal rates | 0.00% - 4.50% (2.78%) | ||||||||||||||||||||||
| Mortality | 0.03% - 39.75% (4.05%) | ||||||||||||||||||||||
| GLWB utilization | 5.92% -47.62% (25.07%) | ||||||||||||||||||||||
| Option budget | 0.90% - 3.38% (2.64%) | ||||||||||||||||||||||
| Non-performance risk spread | 0.09% - 0.31% (N/A) | ||||||||||||||||||||||
Total liabilities | $ | 1,648.7 | |||||||||||||||||||||
__________________
(a) The weighted average is based on the relative fair value of the related assets or liabilities.
(b) Asset-backed securities - The significant unobservable input used in the fair value measurement of these asset-backed securities is discount margin added to the applicable risk-free rate. Significant increases (decreases) in discount margin in isolation would have resulted in a significantly lower (higher) fair value measurement.
(c) Corporate and asset-backed securities - The significant unobservable input used in the fair value measurement of these securities is percentage of recovery expected. Significant increases (decreases) in percentage of recovery expected in isolation would have resulted in a significantly higher (lower) fair value measurement.
(d) Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is multiples of earnings before interest, taxes, depreciation, and amortization ("EBITDA"). Generally, increases (decreases) in the EBITDA multiples would result in higher (lower) fair value measurements.
(e) Market risk benefits – Many of our fixed indexed annuity products include a GLWB that is considered a MRB. The calculation of the value of MRBs is based on significant unobservable inputs including nonmarket assumptions related to surrender rates, partial withdrawal rates, mortality and GLWB utilization. These assumptions are based on actuarial estimates and past experience. Increases in assumed surrender rates would generally decrease the value of a MRB liability. Increases in partial withdrawal rates would generally decrease the value of a MRB liability. A decrease in the mortality assumption would generally increase the MRB liability. Increases in utilization rates would generally increase the value of a MRB liability. Increases in non-performance risk spread decrease the MRB liability.
(f) Embedded derivatives related to fixed indexed annuity products are classified as policyholder account liabilities on the consolidated balance sheet. The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed indexed annuity products are surrender rates, partial withdrawal rates, mortality, GLWB utilization, option budget, and non-performance risk. Assumed surrender rates, partial withdrawal rates, and mortality 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. Increases (decreases) in utilization rates would generally increase (decrease) the value of the embedded derivative. Increases (decreases) in option budget in isolation would have resulted in a higher (lower) fair value measurement. Increases in non-performance risk spread result in a lower fair value measurement.
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, 2024 (dollars in millions):
Fair value at December 31, 2024 | Valuation techniques | Unobservable inputs | Range (weighted average) (a) | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Corporate securities (c) | $ | — | Recovery method | % Recovery expected | 0.00% | ||||||||||||||||||
Asset-backed securities (b) | 8.1 | Discounted cash flow analysis | Discount margins | 1.49% | |||||||||||||||||||
Asset-backed securities (c) | 4.1 | Recovery method | % Recovery expected | 71.30% | |||||||||||||||||||
Equity securities (d) | 64.2 | Market comparables | EBITDA multiples | 14.0X | |||||||||||||||||||
Total assets | $ | 76.4 | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Market risk benefit liability (e) | 60.0 | Discounted cash flow analysis | Surrender rates | 0.45% - 14.00% (2.09%) | |||||||||||||||||||
| Partial withdrawal rates | 0.00% - 3.00% (0.63%) | ||||||||||||||||||||||
| Mortality | 0.03% - 38.41% (4.64%) | ||||||||||||||||||||||
| GLWB utilization | 5.92% - 47.62% (24.95%) | ||||||||||||||||||||||
| Non-performance risk spread | 0.09% - 0.35% (N/A) | ||||||||||||||||||||||
Embedded derivatives related to fixed indexed annuity products (f) | 1,471.6 | Discounted projected embedded derivatives | Surrender rates | 0.45% - 25.60% (5.81%) | |||||||||||||||||||
| Partial withdrawal rates | 0.00% - 4.50% (2.61%) | ||||||||||||||||||||||
| Mortality | 0.03%- 38.41% (4.12%) | ||||||||||||||||||||||
| GLWB utilization | 5.92%- 47.62% (24.95%) | ||||||||||||||||||||||
| Option budget | 0.90%- 3.37% (2.57%) | ||||||||||||||||||||||
| Non-performance risk spread | 0.09%- 0.35% (N/A) | ||||||||||||||||||||||
Total liabilities | $ | 1,531.6 | |||||||||||||||||||||
__________________
(a) The weighted average is based on the relative fair value of the related assets or liabilities.
(b) Asset-backed securities - The significant unobservable input used in the fair value measurement of these asset-backed securities is discount margin added to the applicable risk-free rate. Significant increases (decreases) in discount margin in isolation would have resulted in a significantly lower (higher) fair value measurement.
(c) Corporate and asset-backed securities - The significant unobservable input used in the fair value measurement of these securities is percentage of recovery expected. Significant increases (decreases) in percentage of recovery expected in isolation would have resulted in a significantly higher (lower) fair value measurement.
(d) Equity securities - The significant unobservable input used in the fair value measurement of these equity securities is multiples of EBITDA. Generally, increases (decreases) in the EBITDA multiples would result in higher (lower) fair value measurements.
(e) Market risk benefits – Many of our fixed indexed annuity products include a GLWB that is considered a MRB. The calculation of the value of MRBs is based on significant unobservable inputs including nonmarket assumptions related to surrender rates, partial withdrawal rates, mortality and GLWB utilization. These assumptions are based on actuarial estimates and past experience. Increases in assumed surrender rates would generally decrease the value of a MRB liability. Increases in partial withdrawal rates would generally decrease the value of a MRB liability. A
decrease in the mortality assumption would generally increase the MRB liability. Increases in utilization rates would generally increase the value of a MRB liability. Increases in non-performance risk spread decrease the MRB liability.
(f) Embedded derivatives related to fixed indexed annuity products are classified as policyholder account liabilities on the consolidated balance sheet. The significant unobservable inputs used in the fair value measurement of our embedded derivatives associated with fixed indexed annuity products are surrender rates, partial withdrawal rates, mortality, GLWB utilization, option budget, and non-performance risk. Assumed surrender rates, partial withdrawal rates, and mortality 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. Increases (decreases) in utilization rates would generally increase (decrease) the value of the embedded derivative. Increases (decreases) in option budget in isolation would have resulted in a higher (lower) fair value measurement. Increases in non-performance risk spread result in a lower fair value measurement.
The fair value of our financial instruments not carried at fair value on a recurring basis are as follows (dollars in millions):
| December 31, 2025 | |||||||||||||||||||||||||||||
| 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 | $ | — | $ | — | $ | 3,196.9 | $ | 3,196.9 | $ | 3,256.8 | |||||||||||||||||||
| Policy loans | — | — | 140.9 | 140.9 | 140.9 | ||||||||||||||||||||||||
| Other invested assets: | |||||||||||||||||||||||||||||
| Company-owned life insurance (a) | — | 420.9 | — | 420.9 | 420.9 | ||||||||||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||||||||||||||
| Unrestricted | 956.1 | — | — | 956.1 | 956.1 | ||||||||||||||||||||||||
| Held by variable interest entities | 27.4 | — | — | 27.4 | 27.4 | ||||||||||||||||||||||||
Total | $ | 983.5 | $ | 420.9 | $ | 3,337.8 | $ | 4,742.2 | $ | 4,802.1 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Policyholder account balances | $ | — | $ | — | $ | 17,312.0 | $ | 17,312.0 | $ | 17,312.0 | |||||||||||||||||||
| Investment borrowings | — | 2,443.2 | — | 2,443.2 | 2,441.7 | ||||||||||||||||||||||||
| Borrowings related to variable interest entities | — | 277.1 | — | 277.1 | 274.4 | ||||||||||||||||||||||||
| Notes payable – direct corporate obligations | — | 1,365.7 | — | 1,365.7 | 1,335.6 | ||||||||||||||||||||||||
Total | $ | — | $ | 4,086.0 | $ | 17,312.0 | $ | 21,398.0 | $ | 21,363.7 | |||||||||||||||||||
_________
(a)Includes $222.3 million of COLI purchased as an investment vehicle to fund our agent deferred compensation plan as further described in the footnote to the consolidated financial statements entitled "Agent Deferred Compensation Plan" and a $198.6 million investment in a COLI policy for key employees that is recorded in our general account assets.
The fair value of our financial instruments not carried at fair value on a recurring basis are as follows (dollars in millions):
| December 31, 2024 | |||||||||||||||||||||||||||||
| 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 | $ | — | $ | — | $ | 2,376.0 | $ | 2,376.0 | $ | 2,506.3 | |||||||||||||||||||
| Policy loans | — | — | 135.3 | 135.3 | 135.3 | ||||||||||||||||||||||||
| Other invested assets: | |||||||||||||||||||||||||||||
Company-owned life insurance (a) | — | 402.1 | — | 402.1 | 402.1 | ||||||||||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||||||||||||||
| Unrestricted | 1,656.7 | — | — | 1,656.7 | 1,656.7 | ||||||||||||||||||||||||
| Held by variable interest entities | 341.0 | — | — | 341.0 | 341.0 | ||||||||||||||||||||||||
Total | $ | 1,997.7 | $ | 402.1 | $ | 2,511.3 | $ | 4,911.1 | $ | 5,041.4 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Policyholder account balances | $ | — | $ | — | $ | 16,122.6 | $ | 16,122.6 | $ | 16,122.6 | |||||||||||||||||||
| Investment borrowings | — | 2,189.8 | — | 2,189.8 | 2,188.8 | ||||||||||||||||||||||||
| Borrowings related to variable interest entities | — | 499.0 | — | 499.0 | 497.6 | ||||||||||||||||||||||||
| Notes payable – direct corporate obligations | — | 1,837.9 | — | 1,837.9 | 1,833.5 | ||||||||||||||||||||||||
Total | $ | — | $ | 4,526.7 | $ | 16,122.6 | $ | 20,649.3 | $ | 20,642.5 | |||||||||||||||||||
_________
(a)Includes $212.6 million of COLI purchased as an investment vehicle to fund our agent deferred compensation plan as further described in the footnote to the consolidated financial statements entitled "Agent Deferred Compensation Plan" and a $189.5 million investment in a COLI policy for key employees that is recorded in our general account assets.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 25, 2020 | |
| 2018 | Feb 26, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 21, 2017 | |
| 2015 | Feb 19, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.