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CNO FINANCIAL GROUP, INC. - 10-Q/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Edgar Online, Inc.
In this section, we review the consolidated financial condition of CNO at
September 30, 2012, and the consolidated results of operations for the three and
nine months ended September 30, 2012 and 2011, and, where appropriate, factors
that may affect future financial performance. Please read this discussion in
conjunction with the accompanying consolidated financial statements and notes.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS


Our statements, trend analyses and other information contained in this report
and elsewhere (such as in filings by CNO with the SEC, press releases,
presentations by CNO or its management or oral statements) relative to markets
for CNO's products and trends in CNO's operations or financial results, as well
as other statements, contain forward-looking statements within the meaning of
the federal securities laws and the Private Securities Litigation Reform Act of
1995. Forward-looking statements typically are identified by the use of terms
such as "anticipate," "believe," "plan," "estimate," "expect," "project,"
"intend," "may," "will," "would," "contemplate," "possible," "attempt," "seek,"
"should," "could," "goal," "target," "on track," "comfortable with,"
"optimistic" and similar words, although some forward-looking statements are
expressed differently. You should consider statements that contain these words
carefully because they describe our expectations, plans, strategies and goals
and our beliefs concerning future business conditions, our results of
operations, financial position, and our business outlook or they state other
"forward-looking" information based on currently available information. The
"Risk Factors" section of our 2011 Annual Report on Form 10-K provides examples
of risks, uncertainties and events that could cause our actual results to differ
materially from the expectations expressed in our forward-looking
statements. Assumptions and other important factors that could cause our actual
results to differ materially from those anticipated in our forward-looking
statements include, among other things:

• changes in or sustained low interest rates causing reductions in

investment income, the margins of our fixed annuity and life insurance

       businesses, and sales of, and demand for, our products;



•      expectations of lower future investment earnings may cause us to

accelerate amortization, write down the balance of insurance acquisition

       costs or establish additional liabilities for insurance products;



•      general economic, market and political conditions, including the

performance and fluctuations of the financial markets which may affect the

       value of our investments as well as our ability to raise capital or
       refinance existing indebtedness and the cost of doing so;



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



•      our ability to make anticipated changes to certain NGEs of our life
       insurance products;


• our ability to obtain adequate and timely rate increases on our health

       products, including our long-term care business;


• the receipt of any required regulatory approvals for dividend and surplus

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       debenture interest payments from our insurance subsidiaries;



•      mortality, morbidity, the increased cost and usage of health care

services, persistency, the adequacy of our previous reserve estimates and

       other factors which may affect the profitability of our insurance
       products;


• changes in our assumptions related to deferred acquisition costs or the

       present value of future profits;


• the recoverability of our deferred tax assets and the effect of potential

       ownership changes and tax rate changes on their value;


• our assumption that the positions we take on our tax return filings,

       including our position that our 7.0% Debentures will not be treated as
       stock for purposes of Section 382 of the Code and will not trigger an
       ownership change, will not be successfully challenged by the IRS;


• changes in accounting principles and the interpretation thereof (including

       changes in principles related to accounting for deferred acquisition
       costs);



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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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•      our ability to continue to satisfy the financial ratio and balance
       requirements and other covenants of our debt agreements;



•      our ability to achieve anticipated expense reductions and levels of

operational efficiencies including improvements in claims adjudication and

       continued automation and rationalization of operating systems;



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


• our ability to identify products and markets in which we can compete

effectively against competitors with greater market share, higher ratings,

       greater financial resources and stronger brand recognition;


• our ability to generate sufficient liquidity to meet our debt service

obligations and other cash needs;

• our ability to maintain effective controls over financial reporting;



•      our ability to continue to recruit and retain productive agents and

distribution partners and customer response to new products, distribution

       channels and marketing initiatives;


• our ability to achieve eventual upgrades of the financial strength ratings

of CNO and our insurance company subsidiaries as well as the impact of our

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       ratings on our business, our ability to access capital, and the cost of
       capital;


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

       with the SEC;


• regulatory changes or actions, including those relating to regulation of

the financial affairs of our insurance companies, such as the payment of

dividends and surplus debenture interest to us, regulation of the sale,

underwriting and pricing of products, and health care regulation affecting

       health insurance products; and


• changes in the Federal income tax laws and regulations which may affect or

eliminate the relative tax advantages of some of our products or affect

the value of our deferred tax assets.

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


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

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

OVERVIEW


We are a holding company for a group of insurance companies operating throughout
the United States that develop, market and administer health insurance, annuity,
individual life insurance and other insurance products. We focus on serving the
senior and middle-income markets, which we believe are attractive, underserved,
high growth markets. We sell our products through three distribution channels:
career agents, independent producers (some of whom sell one or more of our
product lines exclusively) and direct marketing.

The Company manages its business through the following operating segments: Bankers Life, Washington National and Colonial Penn, which are defined on the basis of product distribution; Other CNO Business, comprised primarily of products we no longer sell actively; and corporate operations, comprised of holding company activities and certain noninsurance company businesses. The Company's segments are described below:

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• Bankers Life, which markets and distributes Medicare supplement insurance,

       interest-sensitive life insurance, traditional life insurance, fixed
       annuities and long-term care insurance products to the middle-income
       senior market through a dedicated field force of career agents and sales
       managers supported by a network of community-based



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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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branch offices. The Bankers Life segment includes primarily the business of Bankers Life and Casualty Company. Bankers Life also markets and distributes Medicare Advantage plans primarily through a distribution arrangement with Humana, Inc. and Medicare Part D prescription drug plans ("PDP") through a distribution and reinsurance arrangement with Coventry.

Washington National, which markets and distributes supplemental health

(including specified disease, accident and hospital indemnity insurance

products) and life insurance to middle-income consumers at home and at the

       worksite. These products are marketed through Performance Matters
       Associates, Inc. ("PMA"), a wholly owned subsidiary, and through
       independent marketing organizations and insurance agencies including
       worksite marketing. The products being marketed are underwritten by
       Washington National Insurance Company.


• Colonial Penn, which markets primarily graded benefit and simplified issue

life insurance directly to customers through television advertising,

direct mail, the internet and telemarketing. The Colonial Penn segment

includes primarily the business of Colonial Penn Life Insurance Company.



•      Other CNO Business, which consists of blocks of interest-sensitive life

insurance, traditional life insurance, annuities, long-term care insurance

and other supplemental health products. These blocks of business are not

being actively marketed and were primarily issued or acquired by Conseco

Life and Washington National Insurance Company.

Potential continuation of a low interest rate environment for an extended period of time.


Some of our products, principally traditional whole life, universal life, fixed
rate and fixed index annuity contracts, expose us to the risk that changes in
interest rates will reduce our spread (the difference between the amounts that
we are required to pay under the contracts and the investment income we are able
to earn on the investments supporting our obligations under the contracts). Our
spread is a key component of our net income. In addition, investment income is
an important component of the profitability of our health products, especially
long-term care and supplemental health policies.

If interest rates were to decrease further or remain at low levels for an
extended period of time, we may have to invest new cash flows or reinvest
proceeds from investments that have matured or have been prepaid or sold at
yields that have the effect of reducing our net investment income as well as the
spread between interest earned on investments and interest credited to some of
our products below present or planned levels. To the extent borrowers may prepay
or redeem fixed maturity investments or mortgage loans in our investment
portfolio, this could increase the impact of this risk. We can lower crediting
rates on certain products to offset the decrease in spread. However, our ability
to lower these rates may be limited by: (i) contractually guaranteed minimum
rates; or (ii) competition. In addition, a decrease in crediting rates may not
match the timing or magnitude of changes in investment yields. Currently, the
vast majority of our products, with contractually guaranteed minimum rates, have
crediting rates set at the minimum rate. As a result, further decreases in
investment yields would decrease the spread we earn and such spread could
potentially become a loss.

The following table summarizes the distribution of annuity and universal life
account values by guaranteed interest crediting rates as of September 30, 2012
(dollars in millions):

   Guaranteed       Fixed rate and fixed     Universal
      rate            index annuities          life          Total
> 6.0% to 8.0%     $                 .1     $       -     $       .1
> 5.0% to 6.0%                       .2          36.7           36.9
> 4.0% to 5.0%                     81.3         913.2          994.5
> 3.0% to 4.0%                  1,730.4       1,200.3        2,930.7
> 2.0% to 3.0%                  3,739.4         370.0        4,109.4
> 1.0% to 2.0%                  1,306.4           5.0        1,311.4
1.0% and under                  1,047.5          38.7        1,086.2
                   $            7,905.3     $ 2,563.9     $ 10,469.2
Weighted average                   2.49 %        3.98 %         2.85 %



In addition, during periods of declining or low interest rates, life and annuity
products may be relatively more attractive to consumers, resulting in increased
premium payments on products with flexible premium features, repayment of policy
loans and increased persistency (a higher percentage of insurance policies
remaining in force from year-to-year).

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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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Our expectation of future investment income is an important consideration in
determining the amortization of insurance acquisition costs and analyzing the
recovery of these assets as well as determining the adequacy of our liabilities
for insurance products. Expectations of lower future investment earnings may
cause us to accelerate amortization, write down the balance of insurance
acquisition costs or establish additional liabilities for insurance products,
thereby reducing net income in the future periods.

The blocks of business in our Other CNO Business segment are particularly
sensitive to changes in our expectations of future interest rates. Since many of
these blocks are not expected to generate future profits, the entire impact of
adverse changes to our earlier estimate of future gross profits is recognized in
earnings in the period such changes occur. For example, in the third quarters of
2012 and 2011, we recognized a pre-tax reduction in earnings of approximately
$43 million and $13 million, respectively, in the Other CNO Business segment
primarily due to increases in future loss reserves resulting from decreased
projected future investment yields related to investments backing our
interest-sensitive insurance products. The earnings reduction in the third
quarter of 2012 resulted from our review of interest rate assumptions on all of
our products. As a result of this review, we lowered our current new money rate
assumption to 4.75 percent and lowered the ultimate new money rate we expect to
achieve over time by 50 basis points, to rates ranging from 6.35 percent to 7.00
percent depending on the specific product.

The following summarizes hypothetical scenarios which assume immediate and
permanent reductions to interest rates based on tests performed in December
2011, and recently updated to reflect the current interest rate environment. We
estimate that the pre-tax charge resulting from a hypothetical immediate and
permanent 10 basis point decrease to assumed spreads related to our universal
life and investment-type products would be approximately $55 million. In
addition, we estimate that the pre-tax charge resulting from a hypothetical
immediate and permanent 50 basis point decrease to assumed investment earnings
rates related to products other than universal life and investment-type products
would be approximately $50 million.

The following summarizes a hypothetical stress scenario related to the effect of
continued low new money rates on our portfolio yields based on a test originally
performed in June 2012, and recently updated. The scenario assumed new money
rates of 4.75 percent that remain level for five years, and then grade from this
level to a long-term yield assumption over time. We estimate that this scenario
would result in an after-tax charge of $20 million to $50 million primarily
related to an increase in future loss reserves resulting from decreased
projected future investment yields on investments backing our interest-sensitive
and long-term care insurance products. In addition, we estimate that this
scenario would result in an approximate unfavorable after-tax investment income
effect of $10 million to $15 million during 2013 and $25 million to $30 million
during 2014. Under this hypothetical scenario, insurance liabilities reported
under statutory accounting principles would also increase by up to $50 million,
which would result in a reduction to our consolidated RBC ratio of approximately
10 percentage points.

Although the hypothetical revisions described in the scenarios summarized in the
previous two paragraphs are not currently required or anticipated, we believe
similar changes could occur based on past variances in experience and our
expectations of the ranges of future experience that could reasonably occur. We
have assumed that revisions to assumptions resulting in such adjustments would
occur equally among policy types, ages and durations within each product
classification. Any actual adjustment would be dependent on the specific
policies affected and, therefore, may differ from such estimates. In addition,
the impact of actual adjustments would reflect the net effect of all changes in
assumptions during the period.


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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

The following summarizes our earnings for the three and nine months ending September 30, 2012 and 2011 (dollars in millions, except per share data):

                                                  Three months ended         Nine months ended
                                                    September 30,              September 30,
                                                   2012         2011         2012         2011
Earnings before net realized investment gains,
fair value changes in embedded derivative
liabilities, corporate interest expense, loss
on extinguishment of debt and income taxes
("EBIT" a non-GAAP financial measure) (a):
Bankers Life                                   $    80.6      $  79.4     $   227.2     $ 213.7
Washington National                                 33.9         21.2          92.5        67.3
Colonial Penn                                       (2.6 )       (1.3 )       (11.8 )      (6.5 )
Other CNO Business                                 (53.6 )        2.8         (54.0 )      15.3
EBIT from business segments                         58.3        102.1         253.9       289.8
Corporate Operations, excluding corporate
interest expense                                    (6.7 )      (27.5 )       (17.6 )     (39.3 )
EBIT                                                51.6         74.6         236.3       250.5
Corporate interest expense                         (16.3 )      (18.7 )       (50.4 )     (58.6 )
Income before loss on extinguishment of debt,
net realized investment gains, fair value
changes in embedded derivative liabilities and
taxes                                               35.3         55.9         185.9       191.9
Tax expense on operating income                      9.7         23.1          65.5        71.4
Net operating income                                25.6         32.8         120.4       120.5
Net realized investment gains (net of related
amortization and taxes)                              4.8         17.3          37.6        22.7
Fair value changes in embedded derivative
liabilities (net of related amortization and
taxes)                                              (2.0 )      (12.9 )        (4.4 )     (12.9 )
Loss on extinguishment of debt, net of income
taxes                                             (176.4 )        (.7 )      (176.8 )      (2.0 )
Net income (loss) before valuation allowance
for deferred tax assets                           (148.0 )       36.5         (23.2 )     128.3
Decrease in valuation allowance for deferred
tax assets                                         143.0        143.0         143.0       143.0
Net income (loss)                              $    (5.0 )    $ 179.5     $   119.8     $ 271.3
Per diluted share:
Net operating income                           $     .11      $   .12     $     .45     $   .43
Net realized investment gains, net of related
amortization and taxes                               .02          .06           .13         .07
Fair value changes in embedded derivative
liabilities, net of related amortization and
taxes                                               (.01 )       (.04 )        (.02 )      (.04 )
Loss on extinguishment of debt, net of income
taxes                                               (.76 )          -          (.60 )      (.01 )
Decrease in valuation allowance for deferred
tax assets                                           .62          .47           .49         .47
Net income (loss)                              $    (.02 )    $   .61     $     .45     $   .92


____________

(a) Management believes that an analysis of EBIT provides a clearer comparison

of the operating results of the Company from period to period because it

excludes: (i) corporate interest expense; (ii) loss on extinguishment of

debt; (iii) net realized investment gains; and (iv) fair value changes in

embedded derivative liabilities that are unrelated to the Company's

underlying fundamentals. Net realized investment gains or losses include:

(i) gains or losses on the sales of investments; (ii) other-than-temporary

       impairments recognized through net income; and (iii) changes in fair value
       of certain fixed maturity investments with embedded derivatives. The table

above reconciles the non-GAAP measure to the corresponding GAAP measure.




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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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CRITICAL ACCOUNTING POLICIES


Refer to "Critical Accounting Policies" in our 2011 Annual Report on Form 10-K
for information on our other accounting policies that we consider critical in
preparing our consolidated financial statements.

RESULTS OF OPERATIONS

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

                                                        Three months ended         Nine months ended
                                                          September 30,              September 30,
                                                         2012          2011        2012         2011
Income (loss) before net realized investment gains
(losses), fair value changes in embedded derivative
liabilities, net of related amortization, loss on
extinguishment of debt and income taxes (a non-GAAP
measure) (a):
Bankers Life                                         $      80.6     $ 79.4     $   227.2     $ 213.7
Washington National                                         33.9       21.2          92.5        67.3
Colonial Penn                                               (2.6 )     (1.3 )       (11.8 )      (6.5 )
Other CNO Business                                         (53.6 )      2.8         (54.0 )      15.3
Corporate operations                                       (23.0 )    (46.2 )       (68.0 )     (97.9 )
                                                            35.3       55.9         185.9       191.9
Net realized investment gains (losses), net of
related amortization:
Bankers Life                                                12.7       23.5          38.6        27.8
Washington National                                         (3.0 )      1.6           3.6          .6
Colonial Penn                                                2.6        3.5           7.1         4.8
Other CNO Business                                          (5.7 )      2.1           6.9         2.9
Corporate operations                                          .8       (4.0 )         1.8        (1.2 )
                                                             7.4       26.7          58.0        34.9
Fair value changes in embedded derivative
liabilities, net of related amortization:
Bankers Life                                                (3.0 )    (19.2 )        (6.6 )     (19.2 )
Other CNO Business                                             -        (.6 )         (.1 )       (.6 )
                                                            (3.0 )    (19.8 )        (6.7 )     (19.8 )
Loss on extinguishment of debt:
Corporate operations                                      (198.5 )     (1.1 )      (199.2 )      (3.1 )
Income (loss) before income taxes:
Bankers Life                                                90.3       83.7         259.2       222.3
Washington National                                         30.9       22.8          96.1        67.9
Colonial Penn                                                  -        2.2          (4.7 )      (1.7 )
Other CNO Business                                         (59.3 )      4.3         (47.2 )      17.6
Corporate operations                                      (220.7 )    (51.3 )      (265.4 )    (102.2 )
Income (loss) before income taxes                    $    (158.8 )   $ 61.7 

$ 38.0$ 203.9

____________________

(a) These non-GAAP measures as presented in the above table and in the following

segment financial data and discussions of segment results exclude net

realized investment gains (losses), fair value changes in embedded

derivative liabilities, net of related amortization, loss on extinguishment

of debt and before income taxes. These are considered non-GAAP financial

measures. A non-GAAP measure is a numerical measure of a company's

performance, financial position, or cash flows that excludes or includes

     amounts that are normally excluded or included in the most directly
     comparable measure calculated and presented in accordance with GAAP.



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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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These non-GAAP financial measures of "income (loss) before net realized
investment gains (losses), fair value changes in embedded derivative
liabilities, net of related amortization, loss on extinguishment of debt and
before income taxes" differ from "income (loss) before income taxes" as
presented in our consolidated statement of operations prepared in accordance
with GAAP due to the exclusion of before tax realized investment gains (losses),
fair value changes in embedded derivative liabilities, net of related
amortization and loss on extinguishment of debt. We measure segment performance
excluding these items because we believe that this performance measure is a
better indicator of the ongoing businesses and trends in our business. Our
primary investment focus is on investment income to support our liabilities for
insurance products as opposed to the generation of realized investment gains
(losses), and a long-term focus is necessary to maintain profitability over the
life of the business. Realized investment gains (losses) and fair value changes
in embedded derivative liabilities depend on market conditions and do not
necessarily relate to decisions regarding the underlying business of our
segments. However, "income (loss) before net realized investment gains (losses),
fair value changes in embedded derivative liabilities, net of related
amortization, loss on extinguishment of debt and before income taxes" does not
replace "income (loss) before income taxes" as a measure of overall
profitability. We may experience realized investment gains (losses), which will
affect future earnings levels since our underlying business is long-term in
nature and we need to earn the assumed interest rates on the investments backing
our liabilities for insurance products to maintain the profitability of our
business. In addition, management uses this non-GAAP financial measure in its
budgeting process, financial analysis of segment performance and in assessing
the allocation of resources. We believe these non-GAAP financial measures
enhance an investor's understanding of our financial performance and allows them
to make more informed judgments about the Company as a whole. These measures
also highlight operating trends that might not otherwise be transparent. The
table above reconciles the non-GAAP measure to the corresponding GAAP measure.

General: CNO is the top tier holding company for a group of insurance companies
operating throughout the United States that develop, market and administer
health insurance, annuity, individual life insurance and other insurance
products. We distribute these products through our Bankers Life segment, which
utilizes a career agency force, through our Colonial Penn segment, which
utilizes direct response marketing, and through our Washington National segment,
which utilizes independent producers.

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

                                                    Three months ended             Nine months ended
                                                       September 30,                 September 30,
                                                    2012           2011           2012           2011
Premium collections:
Annuities                                       $    171.7     $    264.1     $    525.9     $    745.4
Medicare supplement and other supplemental
health                                               327.3          328.0          988.1          994.7
Life                                                  81.3           65.5          226.8          183.9
Total collections                               $    580.3     $    657.6     $  1,740.8     $  1,924.0
Average liabilities for insurance products:
Annuities:
Mortality based                                 $    229.4     $    240.0     $    231.6     $    243.0
Fixed index                                        2,872.1        2,412.9        2,792.6        2,276.3
Deposit based                                      4,515.4        4,750.5        4,579.4        4,792.0
Medicare supplement and other supplemental
health                                             4,710.0        4,564.0        4,665.9        4,527.8
Life:
Interest sensitive                                   450.8          431.8          445.6          425.8
Non-interest sensitive                               532.9          437.7          507.4          417.5
Total average liabilities for insurance
products, net of reinsurance ceded              $ 13,310.6     $ 12,836.9     $ 13,222.5     $ 12,682.4
Revenues:
Insurance policy income                         $    416.1     $    404.6     $  1,241.6     $  1,214.2
Net investment income:
General account invested assets                      205.4          194.3          610.6          582.1
Fixed index products                                  16.2          (36.3 )         31.5          (17.6 )
Fee revenue and other income                           4.0            3.6           10.2            9.2
Total revenues                                       641.7          566.2        1,893.9        1,787.9
Expenses:
Insurance policy benefits                            362.4          333.6        1,063.9        1,022.5
Amounts added to policyholder account balances:
Annuity products and interest-sensitive life
products other than fixed index products              36.9           40.0          112.0          121.3
Fixed index products                                  35.3          (13.0 )         76.3           30.5
Amortization related to operations                    35.6           44.1          143.0          159.5
Interest expense on investment borrowings              1.3            1.2            4.1            3.5
Other operating costs and expenses                    89.6           80.9          267.4          236.9
Total benefits and expenses                          561.1          486.8        1,666.7        1,574.2
Income before net realized investment gains and
fair value changes in embedded derivative
liabilities, net of related amortization, and
income taxes                                          80.6           79.4          227.2          213.7
Net realized investment gains                         14.1           26.5           42.6           31.3
Amortization related to net realized investment
gains                                                 (1.4 )         (3.0 )         (4.0 )         (3.5 )
Net realized investment gains, net of related
amortization                                          12.7           23.5           38.6           27.8
Insurance policy benefits - fair value changes
in embedded derivative liabilities                    (4.6 )        (30.7 )        (10.3 )        (30.7 )
Amortization related to fair value changes in
embedded derivative liabilities                        1.6           11.5            3.7           11.5
Fair value changes in embedded derivative
liabilities, net of related amortization              (3.0 )        (19.2 )         (6.6 )        (19.2 )
Income before income taxes                      $     90.3     $     83.7     $    259.2     $    222.3




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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

                                       Three months ended         Nine months ended
                                         September 30,              September 30,
                                        2012         2011         2012         2011
Health benefit ratios:
All health lines:
Insurance policy benefits           $   302.1      $ 287.5     $   898.6     $ 890.1
Benefit ratio (a)                        90.2 %       86.1 %        88.9 %      87.5 %
Medicare supplement:
Insurance policy benefits           $   125.5      $ 122.5     $   376.2     $ 369.5
Benefit ratio (a)                        67.8 %       68.4 %        68.2 %      68.5 %
PDP:
Insurance policy benefits           $     8.5      $   9.8     $    29.1     $  37.5
Benefit ratio (a)                        74.8 %       76.1 %        73.1 %      85.2 %
PFFS:
Insurance policy benefits           $     (.1 )    $   (.5 )   $     (.3 )   $  (1.3 )
Benefit ratio (a)                         N/A          N/A           N/A         N/A
Long-term care:
Insurance policy benefits           $   168.2      $ 155.7     $   493.6     $ 484.4
Benefit ratio (a)                       121.4 %      109.7 %       117.9 %     112.7 %
Interest-adjusted benefit ratio (b)      74.7 %       65.5 %        71.9 %  

69.3 %

____________________

(a) We calculate benefit ratios by dividing the related product's insurance

     policy benefits by insurance policy income.


(b)  We calculate the interest-adjusted benefit ratio (a non-GAAP measure) for

Bankers Life's long-term care products by dividing such product's insurance

policy benefits less the imputed interest income on the accumulated assets

backing the insurance liabilities by policy income. These are considered

non-GAAP financial measures. A non-GAAP measure is a numerical measure of a

company's performance, financial position, or cash flows that excludes or

includes amounts that are normally excluded or included in the most directly

comparable measure calculated and presented in accordance with GAAP.




These non-GAAP financial measures of "interest-adjusted benefit ratios" differ
from "benefit ratios" due to the deduction of imputed interest income on the
accumulated assets backing the insurance liabilities from the product's
insurance policy benefits used to determine the ratio. Interest income is an
important factor in measuring the performance of health products that are
expected to be inforce for a longer duration of time, are not subject to
unilateral changes in provisions (such as non-cancelable or guaranteed renewable
contracts) and require the performance of various functions and services
(including insurance protection) for an extended period of time. Actual interest
income will vary from imputed interest income. The net cash flows from long-term
care products generally cause an accumulation of amounts in the early years of a
policy (accounted for as reserve increases) that will be paid out as benefits in
later policy years (accounted for as reserve decreases). Accordingly, as the
policies age, the benefit ratio will typically increase, but the increase in
benefits will be partially offset by the imputed interest income earned on the
accumulated assets. The interest-adjusted benefit ratio reflects the effects of
such interest income offset. Since interest income is an important factor in
measuring the performance of this product, management believes a benefit ratio
that includes the effect of interest income is useful in analyzing product
performance. We utilize the interest-adjusted benefit ratio in measuring segment
performance because we believe that this performance measure is a better
indicator of the ongoing businesses and trends in the business. However, the
"interest-adjusted benefit ratio" does not replace the "benefit ratio" as a
measure of current period benefits to current period insurance policy
income. Accordingly, management reviews both "benefit ratios" and
"interest-adjusted benefit ratios" when analyzing the financial results
attributable to these products. The imputed investment income earned on the
accumulated assets backing Bankers Life's long-term care reserves was $64.7
million and $62.8 million in the three months ended September 30, 2012 and 2011,
respectively, and $192.7 million and $186.6 million in the nine months ended
September 30, 2012 and 2011, respectively.

Total premium collections were $580.3 million in the third quarter of 2012, down
12 percent from 2011, and were $1,740.8 million in the first nine months of
2012, down 9.5 percent from 2011. See "Premium Collections" for further analysis
of Bankers Life's premium collections.

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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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Average liabilities for insurance products, net of reinsurance ceded were $13.3
billion in the third quarter of 2012, up 3.7 percent from 2011, and were $13.2
billion in the first nine months of 2012, up 4.3 percent from 2011. The increase
in such liabilities was primarily due to increases in annuity, health and life
reserves resulting from new sales of these products.

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


Net investment income on general account invested assets (which excludes income
on policyholder accounts and other special-purpose portfolios) was $205.4
million in the third quarter of 2012, up 5.7 percent from 2011, and was $610.6
million in the the first nine months of 2012, up 4.9 percent from 2011. The
average balance of general account invested assets was $14.3 billion and $13.7
billion in the third quarters of 2012 and 2011, respectively. The average yield
on these assets was 5.76 percent and 5.67 percent in the third quarters of 2012
and 2011, respectively. The average balance of general account invested assets
was $14.2 billion and $13.5 billion in the first nine months of 2012 and 2011,
respectively. The average yield on these assets was 5.74 percent and 5.76
percent in the first nine months of 2012 and 2011, respectively. The increase in
general account invested assets is primarily due to sales and increased
persistency of our annuity and health products in recent periods. The increase
in net investment income in the 2012 periods primarily reflects the growth in
general account invested assets. Investing in higher yielding investments,
slightly higher prepayment income and reduction to turnover rates to preserve
higher yielding investments has resulted in maintaining (or slightly improving)
overall yields in this segment when compared to the prior year. However, current
market conditions are more challenging and we expect to see the overall yield
decline in future periods.

Net investment income related to fixed index products represents the change in
the estimated fair value of options which are purchased in an effort to offset
or hedge certain potential benefits accruing to the policyholders of our fixed
index products. Our fixed index products are designed so that the investment
income spread earned on the related insurance liabilities is expected to be more
than adequate to cover the cost of the options and other costs related to these
policies. Net investment income (loss) related to fixed index products was $16.2
million and $(36.3) million in the third quarters of 2012 and 2011,
respectively, and was $31.5 million and $(21.6) million in the first nine months
of 2012 and 2011, respectively. Such amounts were mostly offset by the
corresponding charge (credit) to amounts added to policyholder account balances
for fixed index products. Such income and related charges fluctuate based on the
value of options embedded in the segment's fixed index annuity policyholder
account balances subject to this benefit and to the performance of the index to
which the returns on such products are linked. For periods prior to June 30,
2011, net investment income related to fixed index products also included income
on trading securities which were held to offset the change in estimated fair
values of the embedded derivatives related to our fixed index products caused by
interest rate fluctuations. During the second quarter of 2011, we sold this
trading portfolio and invested the proceeds in higher yielding investments. Such
trading account income was nil and $4.0 million in the three and nine months
ended September 30, 2011, respectively.

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


The Medicare supplement business consists of both individual and group
policies. Government regulations generally require us to attain and maintain a
ratio of total benefits incurred to total premiums earned (excluding changes in
policy benefit reserves), after three years from the original issuance of the
policy and over the lifetime of the policy, of not less than 65 percent on
individual products and not less than 75 percent on group products, as
determined in accordance with statutory accounting principles. Since the
insurance product liabilities we establish for Medicare supplement business are
subject to significant estimates, the ultimate claim liability we incur for a
particular period is likely to be different than our initial estimate. Our
insurance policy benefits reflected reserve redundancies from prior years of
$14.8 million and $13.3 million in the first nine months of 2012 and 2011,
respectively. Excluding the effects of prior period claim reserve redundancies,
our benefit ratios would have been 70.9 percent in both the first nine months of
2012 and 2011.

The insurance policy benefits on our PDP business result from our quota-share
reinsurance agreement with Coventry. Insurance margins (insurance policy income
less insurance policy benefits) on the PDP business were $2.9 million and $3.1
million in the third quarters of 2012 and 2011, respectively, and were $10.8
million and $6.5 million in the nine months ended September 30, 2012 and 2011,
respectively. In the first nine months of 2012 and 2011, reserves related to the
previously terminated Private-Fee-For-Service ("PFFS") business were released
due to favorable claim developments resulting in insurance policy benefits of
$(.3) million and $(1.3) million, respectively.


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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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The net cash flows from our long-term care products generally cause an
accumulation of amounts in the early years of a policy (accounted for as reserve
increases) which will be paid out as benefits in later policy years (accounted
for as reserve decreases). Accordingly, as the policies age, the benefit ratio
typically increases, but the increase in reserves is partially offset by
investment income earned on the accumulated assets. The benefit ratio on our
long-term care business in the Bankers Life segment was 121.4 percent and 109.7
percent in the third quarters of 2012 and 2011, respectively, and was 117.9
percent and 112.7 percent in the first nine months of 2012 and 2011,
respectively. The interest-adjusted benefit ratio on this business was 74.7
percent and 65.5 percent in the third quarters of 2012 and 2011, respectively,
and was 71.9 percent and 69.3 percent in the first nine months of 2012 and 2011,
respectively. Since the insurance product liabilities we establish for long-term
care business are subject to significant estimates, the ultimate claim liability
we incur for a particular period is likely to be different than our initial
estimate. Our insurance policy benefits reflected reserve redundancies from
prior years of $13.7 million and $19.6 million in the first nine months of 2012
and 2011, respectively. Excluding the effects of prior year claim reserve
redundancies, our benefit ratios would have been 121.1 percent and 117.3 percent
in the first nine months of 2012 and 2011, respectively.

Over the past several years, we have implemented rate increases in the long-term
care block in the Bankers Life segment. In October 2010, we commenced additional
rate increase filings on certain long-term care blocks. We expect to implement
rate increases of approximately $35 million after approval from all
states. Approximately $34 million of approvals had been received as of September
30, 2012. In the first nine months of both 2012 and 2011, the income before
income taxes in the Bankers Life segment reflected a reduction in insurance
policy benefits partially offset by additional amortization of insurance
acquisition costs due to the impacts of recent rate increases. These impacts
netted to approximately $15 million and $17 million in the first nine months of
2012 and 2011, respectively, and include: (i) the reduction in liabilities for
policyholders choosing to lapse their policies rather than paying higher rates;
(ii) the reduction in liabilities for policyholders choosing to reduce their
coverages to achieve a lower cost; offset by (iii) the increase in the
liabilities related to waiver of premium benefits to reflect higher premiums
after the rate increases; and (iv) increased amortization of insurance
acquisition costs resulting from the increase in lapses. The net impacts
described above are expected to be lower in future periods, since our pending
rate increases will be fully implemented.

Amounts added to policyholder account balances for annuity products and
interest-sensitive life products were $36.9 million in the third quarter of
2012, down 7.8 percent from 2011, and were $112.0 million in the first nine
months of 2012, down 7.7 percent from 2011. The weighted average crediting rate
for these products was 3.0 percent and 3.1 percent in the third quarters of 2012
and 2011, respectively, and 3.0 percent and 3.1 percent in the first nine months
of 2012 and 2011, respectively. The average liabilities of the deposit-based
annuity block were $4.6 billion and $4.8 billion in the first nine months of
2012 and 2011, respectively.

Amounts added to fixed index products based on change in value of the indices will generally fluctuate with the corresponding related investment income accounts described above.


Amortization related to operations includes amortization of deferred acquisition
costs and the present value of future profits. Deferred acquisition costs and
the present value of future profits are collectively referred to as "insurance
acquisition costs." Insurance acquisition costs are generally amortized
either: (i) in relation to the estimated gross profits for universal life and
investment-type products; or (ii) in relation to actual and expected premium
revenue for other products. In addition, for universal life and investment-type
products, we are required to adjust the total amortization recorded to date
through the statement of operations if actual experience or other evidence
suggests that earlier estimates of future gross profits should be revised.
Accordingly, amortization for universal life and investment-type products is
dependent on the profits realized during the period and on our expectation of
future profits. For other products, we amortize insurance acquisition costs in
relation to actual and expected premium revenue, and amortization is only
adjusted if expected premium revenue changes or if we determine the balance of
these costs is not recoverable from future profits. Bankers Life's amortization
expense was $35.6 million and $44.1 million in the third quarters of 2012 and
2011, respectively, and was $143.0 million and $159.5 million in the nine months
ended September 30, 2012 and 2011, respectively. During the first quarter of
2011, we experienced higher policy lapses than we anticipated on our Medicare
supplement products, including lapses where policyholders terminated their
current policy and purchased a lower cost policy offered through this
segment. These lapses reduced our estimates of future expected premium income
and, accordingly, we recognized additional amortization expense of $6
million. Amortization expense related to our annuity block also decreased in the
2012 periods, as compared to 2011, due to higher persistency on this business.

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

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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

Other operating costs and expenses in our Bankers Life segment were $89.6
million in the third quarter of 2012, up 11 percent from 2011, and were $267.4
million in the first nine months of 2012, up 13 percent from 2011. Other
operating expenses in first nine months of 2012 increased primarily due to
higher legal and regulatory expenses, including a $10 million settlement with
state securities regulators. Other operating costs and expenses include the
following (dollars in millions):

                                                 Three months ended            Nine months ended
                                                    September 30,                September 30,
                                                  2012          2011           2012            2011
Expenses related to the marketing and
quota-share agreements with Coventry          $      2.5     $    1.7     $      6.3        $    6.3
Commission expense and agent manager benefits       15.7         11.3           44.6            39.8
Other operating expenses                            71.4         67.9          216.5           190.8
Total                                         $     89.6     $   80.9     $    267.4        $  236.9



Net realized investment gains (losses) fluctuate each period. During the first
nine months of 2012, net realized investment gains in this segment included
$51.3 million of net gains from the sales of investments (primarily fixed
maturities) and $8.7 million of writedowns of investments for other than
temporary declines in fair value recognized through net income. During the first
nine months of 2011, net realized investment gains in this segment included
$36.6 million of net gains from the sales of investments (primarily fixed
maturities) and $5.3 million of writedowns of investments for other than
temporary declines in fair value recognized through net income.

Amortization related to net realized investment losses is the increase or
decrease in the amortization of insurance acquisition costs which results from
realized investment gains or losses. When we sell securities which back our
universal life and investment-type products at a gain (loss) and reinvest the
proceeds at a different yield, we increase (reduce) the amortization of
insurance acquisition costs in order to reflect the change in estimated gross
profits due to the gains (losses) realized and the resulting effect on estimated
future yields. Sales of fixed maturity investments resulted in an increase in
the amortization of insurance acquisition costs of $1.4 million and $3.0 million
in the third quarters of 2012 and 2011, respectively, and $4.0 million and $3.5
million in the nine months ended September 30, 2012 and 2011, respectively.

Insurance policy benefits - fair value changes in embedded derivative
liabilities represents fair value changes due to fluctuations in the interest
rates used to discount embedded derivative liabilities related to our fixed
index annuities. Prior to June 30, 2011, we held certain trading securities to
offset the income statement volatility caused by the interest rate fluctuations.
In the second quarter of 2011, we sold this trading portfolio.

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

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Washington National (dollars in millions)

                                             Three months ended           Nine months ended
                                                September 30,               September 30,
                                             2012          2011          2012          2011
Premium collections:
Medicare supplement and other
supplemental health                       $   143.6     $   141.2     $   430.4     $   427.2
Life                                            3.0           4.1          10.8          12.3
Total collections                         $   146.6     $   145.3     $   441.2     $   439.5
Average liabilities for insurance
products:
Medicare supplement and other
supplemental health                       $ 2,414.5     $ 2,436.9     $ 2,421.0     $ 2,436.2
Non-interest sensitive life                   200.3         198.7         199.9         202.0
Total average liabilities for insurance
products, net of reinsurance ceded        $ 2,614.8     $ 2,635.6     $ 2,620.9     $ 2,638.2
Revenues:
Insurance policy income                   $   147.8     $   145.9     $   442.8     $   437.9
Net investment income:
General account invested assets                50.8          47.3         151.8         140.3
Trading account income related to
reinsurer accounts                              (.9 )         2.6            .6           3.6
Change in value of embedded derivatives
related to modified coinsurance
agreements                                      1.0          (2.6 )         (.5 )        (3.6 )
Fee revenue and other income                     .3            .4            .8            .9
Total revenues                                199.0         193.6         595.5         579.1
Expenses:
Insurance policy benefits                     111.1         119.0         340.5         349.5
Amortization related to operations             11.2          10.8          34.7          35.6
Interest expense on investment borrowings        .7            .2           2.2            .2
Other operating costs and expenses             42.1          42.4         125.6         126.5
Total benefits and expenses                   165.1         172.4         503.0         511.8
Income before net realized investment
gains (losses) and income taxes                33.9          21.2          92.5          67.3
Net realized investment gains (losses)         (3.0 )         1.6           3.6            .6
Income before income taxes                $    30.9     $    22.8     $    96.1     $    67.9
Health benefit ratios:
Medicare supplement:
Insurance policy benefits                 $    18.6     $    23.4     $    59.2     $    71.7
Benefit ratio (a)                              63.8 %        69.9 %        65.6 %        69.1 %
Supplemental health:
Insurance policy benefits                 $    84.5     $    88.7     $   263.6     $   259.5
Benefit ratio (a)                              74.2 %        82.4 %        77.8 %        81.3 %
Interest-adjusted benefit ratio (b)            47.5 %        53.9 %        50.9 %        52.4 %




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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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_________________

(a) We calculate benefit ratios by dividing the related product's insurance

     policy benefits by insurance policy income.


(b)  We calculate the interest-adjusted benefit ratio (a non-GAAP measure) for
     Washington National's supplemental health products by dividing such

product's insurance policy benefits less the imputed interest income on the

accumulated assets backing the insurance liabilities by policy income. These

are considered non-GAAP financial measures. A non-GAAP measure is a

numerical measure of a company's performance, financial position, or cash

flows that excludes or includes amounts that are normally excluded or

included in the most directly comparable measure calculated and presented in

     accordance with GAAP.



These non-GAAP financial measures of "interest-adjusted benefit ratios" differ
from "benefit ratios" due to the deduction of imputed interest income on the
accumulated assets backing the insurance liabilities from the product's
insurance policy benefits used to determine the ratio. Interest income is an
important factor in measuring the performance of health products that are
expected to be inforce for a longer duration of time, are not subject to
unilateral changes in provisions (such as non-cancelable or guaranteed renewable
contracts) and require the performance of various functions and services
(including insurance protection) for an extended period of time. Actual interest
income will vary from imputed interest income. The net cash flows from
supplemental health products generally cause an accumulation of amounts in the
early years of a policy (accounted for as reserve increases) that will be paid
out as benefits in later policy years (accounted for as reserve
decreases). Accordingly, as the policies age, the benefit ratio will typically
increase, but the increase in benefits will be partially offset by the imputed
interest income earned on the accumulated assets. The interest-adjusted benefit
ratio reflects the effects of such interest income offset. Since interest income
is an important factor in measuring the performance of these products,
management believes a benefit ratio that includes the effect of interest income
is useful in analyzing product performance. We utilize the interest-adjusted
benefit ratio in measuring segment performance because we believe that this
performance measure is a better indicator of the ongoing businesses and trends
in the business. However, the "interest-adjusted benefit ratio" does not replace
the "benefit ratio" as a measure of current period benefits to current period
insurance policy income. Accordingly, management reviews both "benefit ratios"
and "interest-adjusted benefit ratios" when analyzing the financial results
attributable to these products. The imputed investment income earned on the
accumulated assets backing the supplemental health reserves was $30.3 million
and $30.7 million in the three months ended September 30, 2012 and 2011,
respectively, and $91.3 million and $92.3 million in the nine months ended
September 30, 2012 and 2011, respectively.

Total premium collections were $146.6 million in the third quarter of 2012, up
.9 percent from 2011, and were $441.2 million in the first nine months of 2012,
up .4 percent from 2011. See "Premium Collections" for further analysis.

Average liabilities for insurance products, net of reinsurance ceded were $2.6
billion in the third quarter of 2012, down .8 percent from 2011, and were $2.6
billion in the first nine months of 2012, down .7 percent from 2011.

Insurance policy income is comprised of premiums earned on traditional insurance
policies which provide mortality or morbidity coverage and fees and other
charges assessed on other policies. Such income increased slightly during the
2012 periods, as supplemental health premiums have increased and Medicare
supplement premiums have decreased consistent with sales.

Net investment income on general account invested assets (which excludes income
on policyholder and reinsurer accounts) was $50.8 million in the third quarter
of 2012, up 7.4 percent from 2011, and was $151.8 million in the first nine
months of 2012, up 8.2 percent from 2011. The average balance of general account
invested assets was $3.7 billion and $3.3 billion in the third quarters of 2012
and 2011, respectively. The average yield on these assets was 5.54 percent and
5.80 percent in the third quarters of 2012 and 2011. The average balance of
general account invested assets was $3.7 billion and $3.2 billion in the first
nine months of 2012 and 2011, respectively. The average yield on these assets
was 5.52 percent and 5.89 percent in the first nine months of 2012 and 2011. The
increase in general account invested assets is primarily due to the increase in
invested assets purchased with the proceeds from collateralized borrowings from
the FHLB pursuant to an investment borrowing program that commenced in this
segment in June 2011. The decline in average yield is primarily due to lower
yields related to the variable rate investments purchased with the proceeds from
collateralized borrowings from the FHLB.

Trading account income related to reinsurer accounts primarily represents the
income on trading securities which are held to act as hedges for embedded
derivatives related to certain modified coinsurance agreements. The income on
our trading account securities is designed to substantially offset the change in
value of embedded derivatives related to modified coinsurance agreements
described below.


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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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Change in value of embedded derivatives related to modified coinsurance
agreements is described in the note to our consolidated financial statements
entitled "Accounting for Derivatives." We have transferred the specific block of
investments related to these agreements to our trading securities account, which
we carry at estimated fair value with changes in such value recognized as
trading account income. The change in the value of the embedded derivatives has
largely been offset by the change in value of the trading securities.

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


The benefit ratios on Washington National'sMedicare supplement products have
been impacted by increases in policyholder lapses following our premium rate
increase actions. We establish active life reserves for these policies, which
are in addition to amounts required for incurred claims. When policies lapse,
active life reserves for such lapsed policies are released, resulting in
decreased insurance policy benefits (although such decrease is substantially
offset by additional amortization expense). In addition, the insurance product
liabilities we establish for our Medicare supplement business are subject to
significant estimates and the ultimate claim liability we incur for a particular
period is likely to be different than our initial estimate. Our insurance policy
benefits reflected claim reserve redundancies from prior years of $1.2 million
and nil in the first nine months of 2012 and 2011, respectively. Excluding the
effects of prior year claim reserve redundancies, our benefit ratios for the
Medicare supplement block would have been 66.9 percent and 69.1 percent in the
first nine months of 2012 and 2011, respectively. Government regulations
generally require us to attain and maintain a ratio of total benefits incurred
to total premiums earned (excluding changes in policy benefit reserves), after
three years from the original issuance of the policy and over the lifetime of
the policy, of not less than 65 percent on these products, as determined in
accordance with statutory accounting principles. Insurance margins (insurance
policy income less insurance policy benefits) on these products were $10.7
million and $10.1 million in the third quarters of 2012 and 2011, respectively,
and were $31.1 million and $32.2 million in the nine months ended September 30,
2012 and 2011, respectively.

Washington National's supplemental health products (including specified disease,
accident and hospital indemnity products) generally provide fixed or limited
benefits. For example, payments under cancer insurance policies are generally
made directly to, or at the direction of, the policyholder following diagnosis
of, or treatment for, a covered type of cancer. Approximately three-fourths of
our supplemental health policies inforce (based on policy count) are sold with
return of premium or cash value riders. The return of premium rider generally
provides that after a policy has been inforce for a specified number of years or
upon the policyholder reaching a specified age, we will pay to the policyholder,
or a beneficiary under the policy, the aggregate amount of all premiums paid
under the policy, without interest, less the aggregate amount of all claims
incurred under the policy. The cash value rider is similar to the return of
premium rider, but also provides for payment of a graded portion of the return
of premium benefit if the policy terminates before the return of premium benefit
is earned. Accordingly, the net cash flows from these products generally result
in the accumulation of amounts in the early years of a policy (reflected in our
earnings as reserve increases) which will be paid out as benefits in later
policy years (reflected in our earnings as reserve decreases which offset the
recording of benefit payments). As the policies age, the benefit ratio will
typically increase, but the increase in benefits will be partially offset by
investment income earned on the accumulated assets. The benefit ratio will
fluctuate depending on the claim experience during the year. Insurance margins
(insurance policy income less insurance policy benefits) on these products were
$29.4 million and $19.0 million in the third quarters of 2012 and 2011,
respectively, and were $75.0 million and $59.8 million in the nine months ended
September 30, 2012 and 2011, respectively. The increase in margin in the 2012
periods is primarily related to higher insurance policy income and favorable
claim experience. In addition, we recognized a $3.9 million out-of-period
adjustment in the third quarter of 2011, which decreased the insurance margin on
these products.

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

Interest expense on investment borrowings represents $.7 million and $.2 million
of interest expense on collateralized borrowings in the three months ended
September 30, 2012 and 2011, respectively, and $2.2 million and $.2 million in
the nine months ended September 30, 2012 and 2011, respectively, as further
described in the note to the consolidated financial statements entitled
"Investment Borrowings".


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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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Other operating costs and expenses in the 2012 periods were comparable to the
same periods in 2011. Other operating costs and expenses include commission
expense of $18.7 million and $17.4 million in the third quarters of 2012 and
2011, respectively, and $52.2 million and $50.1 million in the nine months ended
September 30, 2012 and 2011, respectively.

Net realized investment gains (losses) fluctuate each period. During the first
nine months of 2012, net realized investment gains in this segment included
$13.0 million of net gains from the sales of investments (primarily fixed
maturities) and $9.4 million of writedowns of investments for other than
temporary declines in fair value recognized through net income. During the first
nine months of 2011, net realized investment gains included $6.5 million of net
gains from the sales of investments (primarily fixed maturities) and $5.9
million of writedowns of investments for other than temporary declines in fair
value recognized through net income.

Colonial Penn (dollars in millions)

                                                    Three months ended         Nine months ended
                                                      September 30,              September 30,
                                                     2012         2011         2012         2011
Premium collections:
Life                                             $    53.0      $  49.2     $   158.1     $ 147.1
Supplemental health                                    1.2          1.4           3.7         4.4
Total collections                                $    54.2      $  50.6     $   161.8     $ 151.5
Average liabilities for insurance products:
Annuities-mortality based                        $    76.4      $  77.3     $    76.7     $  77.9
Supplemental health                                   15.0         16.1          15.2        16.3
Life:
Interest sensitive                                    18.1         20.2          19.0        20.4
Non-interest sensitive                               605.8        590.2         602.0       588.6
Total average liabilities for insurance
products, net of reinsurance ceded               $   715.3      $ 703.8     $   712.9     $ 703.2
Revenues:
Insurance policy income                          $    54.5      $  50.8     $   162.5     $ 152.0
Net investment income:
General account invested assets                        9.9         10.1          30.1        30.9
Fee revenue and other income                            .2           .2            .6          .6
Total revenues                                        64.6         61.1         193.2       183.5
Expenses:
Insurance policy benefits                             38.2         35.7         119.4       112.0
Amounts added to annuity and interest-sensitive
life product account balances                           .1           .3            .6          .7
Amortization related to operations                     3.5          3.5          11.1        11.0
Other operating costs and expenses                    25.4         22.9          73.9        66.3
Total benefits and expenses                           67.2         62.4         205.0       190.0
Loss before net realized investment gains and
income taxes                                          (2.6 )       (1.3 )       (11.8 )      (6.5 )
Net realized investment gains                          2.6          3.5           7.1         4.8
Income (loss) before income taxes                $       -      $   2.2     

$ (4.7 ) $ (1.7 )




This segment's results are significantly impacted by the adoption of the new
accounting standard related to deferred acquisition costs. We are no longer able
to defer most of Colonial Penn's direct response advertising costs although such
costs generate predictable sales and future inforce profits. The amount of our
investment in new business during a particular period will have a significant
impact on this segment's results. Based on our current advertising plan, we
expect this segment to report a modest level of earnings in the fourth quarter
of 2012.


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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

Total premium collections increased by 7.1 percent, to $54.2 million, in the
third quarter of 2012, as compared to the same period in 2011, and by 6.8
percent, to $161.8 million, in the first nine months of 2012, as compared to the
same period in 2011. See "Premium Collections" for further analysis of Colonial
Penn's premium collections.

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

Net investment income on general account invested assets (which excludes income
on policyholder and reinsurer accounts) was $9.9 million in the third quarter of
2012, down 2.0 percent from 2011, and was $30.1 million in the first nine months
of 2012, down 2.6 percent from 2011. The average balance of general account
invested assets was $673.5 million and $679.5 million in the third quarters of
2012 and 2011, respectively. The average yield on these assets was 5.90 percent
and 5.93 percent in the third quarters of 2012 and 2011, respectively. The
average balance of general account invested assets was $678.8 million and $680.5
million in the first nine months of 2012 and 2011, respectively. The average
yield on these assets was 5.92 percent and 6.06 percent in the first nine months
of 2012 and 2011, respectively.

Insurance policy benefits increased in the 2012 periods due to growth in the segment.


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

Other operating costs and expenses increased in the 2012 periods primarily due to higher marketing expenses.


Net realized investment gains fluctuate each period. During the first nine
months of 2012, net realized investment gains in this segment included $7.7
million of net gains from the sales of investments (primarily fixed maturities)
and $.6 million of writedowns of investments for other than temporary declines
in fair value recognized through net income. During the first nine months of
2011, net realized investment gains in this segment included $5.1 million of net
gains from the sales of investments (primarily fixed maturities) and $.3 million
of writedowns of investments for other than temporary declines in fair value
recognized through net income.

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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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Other CNO Business (dollars in millions)

                                                    Three months ended           Nine months ended
                                                       September 30,               September 30,
                                                    2012          2011          2012          2011
Premium collections:
Annuities                                        $      .9     $     3.3     $     3.0     $    13.4
Other health                                           6.1           6.7          19.5          21.5
Life                                                  40.3          44.0         126.5         139.3
Total collections                                $    47.3     $    54.0     $   149.0     $   174.2
Average liabilities for insurance products:
Annuities:
Mortality based                                  $   221.5     $   234.3     $   225.4     $   237.3
Fixed index                                          510.5         607.6         532.3         630.6
Deposit based                                        635.6         651.1         635.7         655.6
Separate accounts                                     15.6          16.4          15.6          17.3
Other health                                         479.6         481.3         480.1         481.7
Life:
Interest sensitive                                 2,329.1       2,484.6       2,370.6       2,506.0
Non-interest sensitive                               782.1         780.6         770.6         792.3
Total average liabilities for insurance
products, net of reinsurance ceded               $ 4,974.0     $ 5,255.9     $ 5,030.3     $ 5,320.8
Revenues:
Insurance policy income                          $    71.8     $    72.2     $   224.4     $   216.2
Net investment income:
General account invested assets                       82.3          85.4         250.3         261.2
Fixed index products                                   3.3          (8.4 )         6.0          (4.3 )
Trading account income related to policyholder
accounts                                               1.1          (2.4 )         2.9           (.9 )
Total revenues                                       158.5         146.8         483.6         472.2
Expenses:
Insurance policy benefits                            122.7          86.7         299.5         261.4
Amounts added to policyholder account balances:
Annuity products and interest-sensitive life
products other than fixed index products              29.4          28.9          86.6          90.8
Fixed index products                                   5.0          (4.1 )        14.9           6.0
Amortization related to operations                    10.5          10.4          25.1          28.4
Interest expense on investment borrowings              5.0           5.3          15.1          15.2
Other operating costs and expenses                    39.5          16.8          96.4          55.1
Total benefits and expenses                          212.1         144.0         537.6         456.9
Income (loss) before net realized investment
losses and fair value changes in embedded
derivative liabilities, net of related
amortization, and income taxes                       (53.6 )         2.8         (54.0 )        15.3
Net realized investment gains (losses)                (5.4 )         3.0           8.8           3.1
Amortization related to net realized investment
gains (losses)                                         (.3 )         (.9 )        (1.9 )         (.2 )
Net realized investment gains (losses), net of
related amortization                                  (5.7 )         2.1           6.9           2.9
Insurance policy benefits - fair value changes
in embedded derivative liabilities                       -          (3.2 )         (.4 )        (3.2 )
Amortization related to fair value changes in
embedded derivative liabilities                          -           2.6            .3           2.6
Fair value changes in embedded derivative
liabilities, net of related amortization                 -           (.6 )         (.1 )         (.6 )
Income (loss) before income taxes                $   (59.3 )   $     4.3     $   (47.2 )   $    17.6





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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

                                       Three months ended         Nine months ended
                                         September 30,              September 30,
                                        2012          2011         2012         2011
Health benefit ratios:
Long-term care:
Insurance policy benefits           $    17.5       $ 15.7     $    47.5      $ 47.4
Benefit ratio (a)                       282.4 %      227.5 %       246.1 %     223.1 %
Interest-adjusted benefit ratio (b)     169.9 %      126.1 %       137.3 %  

127.1 %

____________________

(a) We calculate benefit ratios by dividing the related product's insurance

     policy benefits by insurance policy income.


(b)  We calculate the interest-adjusted benefit ratio (a non-GAAP measure) for
     Other CNO Business long-term care products by dividing such product's
     insurance policy benefits less the imputed interest income on the

accumulated assets backing the insurance liabilities by policy income. These

are considered non-GAAP financial measures. A non-GAAP measure is a

numerical measure of a company's performance, financial position, or cash

flows that excludes or includes amounts that are normally excluded or

included in the most directly comparable measure calculated and presented in

     accordance with GAAP.



These non-GAAP financial measures of "interest-adjusted benefit ratios" differ
from "benefit ratios" due to the deduction of imputed interest income on the
accumulated assets backing the insurance liabilities from the product's
insurance policy benefits used to determine the ratio. Interest income is an
important factor in measuring the performance of health products that are
expected to be inforce for a longer duration of time, are not subject to
unilateral changes in provisions (such as non-cancelable or guaranteed renewable
contracts) and require the performance of various functions and services
(including insurance protection) for an extended period of time. Actual interest
income will vary from imputed interest income. The net cash flows from long-term
care products generally cause an accumulation of amounts in the early years of a
policy (accounted for as reserve increases) that will be paid out as benefits in
later policy years (accounted for as reserve decreases). Accordingly, as the
policies age, the benefit ratio will typically increase, but the increase in
benefits will be partially offset by the imputed interest income earned on the
accumulated assets. The interest-adjusted benefit ratio reflects the effects of
such interest income offset. Since interest income is an important factor in
measuring the performance of these products, management believes a benefit ratio
that includes the effect of interest income is useful in analyzing product
performance. We utilize the interest-adjusted benefit ratio in measuring segment
performance because we believe that this performance measure is a better
indicator of the ongoing businesses and trends in the business. However, the
"interest-adjusted benefit ratio" does not replace the "benefit ratio" as a
measure of current period benefits to current period insurance policy income.
Accordingly, management reviews both "benefit ratios" and "interest-adjusted
benefit ratios" when analyzing the financial results attributable to these
products. The imputed investment income earned on the accumulated assets backing
the long-term care reserves was $7.0 million and $7.0 million in the three
months ended September 30, 2012 and 2011, respectively, and $21.0 million and
$20.4 million in the nine months ended September 30, 2012 and 2011,
respectively.

Total premium collections were $47.3 million in the third quarter of 2012, down
12 percent from 2011, and were $149.0 million in the first nine months of 2012,
down 14 percent from 2011. The decrease in collected premiums was primarily due
to policyholder redemptions and lapses. See "Premium Collections" for further
analysis.

Average liabilities for insurance products, net of reinsurance ceded were $5.0
billion in the third quarter of 2012, down 5.4 percent from 2011, and were $5.0
billion in the first nine months of 2012, down 5.5 percent from 2011. The
decrease in such liabilities was primarily due to policyholder redemptions and
lapses.

Insurance policy income is comprised of policyholder charges on our
interest-sensitive products and premiums earned on traditional insurance
policies which provide mortality or morbidity coverage. The increase in
insurance policy income in the first nine months of 2012 is primarily due to
increased policyholder charges from the implementation of changes to certain
NGEs related to certain interest-sensitive life products; partially offset by
lower premium revenue.

Net investment income on general account invested assets (which excludes income
on policyholder and reinsurer accounts) was $82.3 million in the third quarter
of 2012, down 3.6 percent from 2011, and was $250.3 million in the first nine
months of 2012, down 4.2 percent from 2011. The average balance of general
account invested assets was $5.6 billion and $5.9 billion in the third quarters
of 2012 and 2011, respectively. The average yield on these assets was 5.91
percent and 5.82 percent in the third quarters of 2012 and 2011, respectively.
The average balance of general account invested assets was $5.6 billion

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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

and $5.9 billion in the first nine months of 2012 and 2011, respectively. The
average yield on these assets was 5.91 percent in both the first nine months of
2012 and 2011. Investing in higher yielding investments, slightly higher
prepayment income and reduction to turnover rates to preserve higher yielding
investments has resulted in maintaining (or slightly improving) overall yields
in this segment when compared to the prior year. However, current market
conditions are more challenging and we expect to see the overall yield decline
in future periods.

Net investment income related to fixed index products represents the change in
the estimated fair value of options which are purchased in an effort to offset
or hedge certain potential benefits accruing to the policyholders of our fixed
index products. Our fixed index products are designed so that the investment
income spread earned on the related insurance liabilities is expected to be more
than adequate to cover the cost of the options and other costs related to these
policies. Net investment income (loss) related to fixed index products was $3.3
million and $(8.4) million in the third quarters of 2012 and 2011, respectively,
and was $6.0 million and $(4.1) million in the nine months ended September 30,
2012 and 2011, respectively. Such amounts were mostly offset by the
corresponding charge (credit) to amounts added to policyholder account balances
for fixed index products. Such income and related charges fluctuate based on the
value of options embedded in the segment's fixed index annuity policyholder
account balances subject to this benefit and to the performance of the index to
which the returns on such products are linked. For periods prior to June 30,
2011, net investment income related to fixed index products also included income
(loss) on trading securities which were held to offset the change in estimated
fair values of embedded derivatives related to our fixed index products caused
by interest rate fluctuations. During the second quarter of 2011, we sold this
trading portfolio and invested the proceeds in higher yielding investments. Such
trading account income (loss) was nil and $(.2) million in the three and nine
months ended September 30, 2011, respectively.

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

Insurance policy benefits were affected by a number of items as summarized below.

During the third quarters of 2012 and 2011, we were required to recognize approximately $43 million and $13 million, respectively, of additional increases to future loss reserves primarily resulting from decreased projected future investment yields related to interest-sensitive insurance products.


The long-term care policies in this segment generally provide for indemnity and
non-indemnity benefits on a guaranteed renewable or non-cancellable basis. The
benefit ratio on our long-term care policies was 282.4 percent and 227.5 percent
in the third quarters of 2012 and 2011, respectively, and was 246.1 percent and
223.1 percent in the nine months ended September 30, 2012 and 2011,
respectively. Benefit ratios are calculated by dividing the product's insurance
policy benefits by insurance policy income. Since the insurance product
liabilities we establish for long-term care business are subject to significant
estimates, the ultimate claim liability we incur for a particular period is
likely to be different than our initial estimate. Our insurance policy benefits
reflected reserve deficiencies from prior years of $8.6 million and $4.8 million
in the first nine months of 2012 and 2011, respectively. Excluding the effects
of prior year claim reserve deficiencies, our benefit ratios would have been
201.6 percent and 200.6 percent in the first nine months of 2012 and 2011,
respectively. These ratios reflect the level of incurred claims experienced in
recent periods, adverse development on claims incurred in prior periods and
lower policy income. The prior period deficiencies have primarily resulted from
the impact of paid claim experience being different than prior estimates.

The net cash flows from long-term care products generally cause an accumulation
of amounts in the early years of a policy (reflected in our earnings as reserve
increases) which will be paid out as benefits in later policy years (reflected
in our earnings as reserve decreases which offset the recording of benefit
payments). Accordingly, as the policies age, the benefit ratio will typically
increase, but the increase in benefits will be partially offset by investment
income earned on the assets which have accumulated. The interest-adjusted
benefit ratio for long-term care products is calculated by dividing the
insurance product's insurance policy benefits less interest income on the
accumulated assets backing the insurance liabilities by insurance policy
income. The interest-adjusted benefit ratio on this business was 137.3 percent
and 127.1 percent in the first nine months of 2012 and 2011,
respectively. Excluding the effects of prior year claim reserve deficiencies,
our interest-adjusted benefit ratios would have been 92.8 percent and 104.5
percent in the first nine months of 2012 and 2011, respectively.

In each quarterly period, we calculate our best estimate of claim reserves based
on all of the information available to us at that time, which necessarily takes
into account new experience emerging during the period. Our actuaries estimate
these claim reserves using various generally recognized actuarial methodologies
which are based on informed estimates and

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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

judgments that are believed to be appropriate. As additional experience emerges
and other data become available, these estimates and judgments are reviewed and
may be revised. Significant assumptions made in estimating claim reserves for
long-term care policies include expectations about the: (i) future duration of
existing claims; (ii) cost of care and benefit utilization; (iii) interest rate
utilized to discount claim reserves; (iv) claims that have been incurred but not
yet reported; (v) claim status on the reporting date; (vi) claims that have been
closed but are expected to reopen; and (vii) correspondence that has been
received that will ultimately become claims that have payments associated with
them.

Amounts added to policyholder account balances for annuity products and
interest-sensitive life products were $29.4 million in the third quarter of
2012, up 1.7 percent from 2011, and were $86.6 million in the first nine months
of 2012, down 4.6 percent from 2011. The decrease in the first nine months of
2012 was primarily due to a smaller block of interest-sensitive life business in
force due to lapses in recent periods. The weighted average crediting rates for
these products was 3.9 percent in both the first nine months of 2012 and 2011.

Amounts added to fixed index products generally fluctuate with the corresponding related investment income accounts described above.


Amortization related to operations includes amortization of insurance
acquisition costs. Insurance acquisition costs are generally amortized either:
(i) in relation to the estimated gross profits for universal life and
investment-type products; or (ii) in relation to actual and expected premium
revenue for other products. In addition, for universal life and investment-type
products, we are required to adjust the total amortization recorded to date
through the statement of operations if actual experience or other evidence
suggests that earlier estimates of future gross profits should be
revised. Accordingly, amortization for universal life and investment-type
products is dependent on the profits realized during the period and on our
expectation of future profits. For other products, we amortize insurance
acquisition costs in relation to actual and expected premium revenue, and
amortization is only adjusted if expected premium revenue changes. The
assumptions we use to estimate our future gross profits and premiums involve
significant judgment. A revision to our current assumptions could result in
increases or decreases to amortization expense in future periods. Earnings on
our universal life products, which comprise a significant part of this block,
are subject to volatility since our insurance acquisition costs are equal to the
value of future estimated gross profits. Accordingly, the impact of adverse
changes in our earlier estimates of future gross profits is generally reflected
in earnings in the period such differences occur.

Interest expense on investment borrowings includes $5.0 million and $5.2 million
of interest expense on collateralized borrowings in the third quarters of 2012
and 2011, respectively, and $15.1 million in both the nine months ended
September 30, 2012 and 2011, as further described in the note to the
consolidated financial statements entitled "Investment Borrowings".

Other operating costs and expenses were $39.5 million in the third quarter of
2012, up 135 percent from 2011, and were $96.4 million in the first nine months
of 2012, up 75 percent from 2011. In the three and nine months ended September
30, 2012, we recognized charges of $21 million and $41.5 million, respectively,
related to tentative settlements of pending litigation as more fully described
in the note to the consolidated financial statements entitled "Litigation and
Other Legal Proceedings - Cost of Insurance Litigation".

Net realized investment gains (losses) fluctuate each period. During the first
nine months of 2012, net realized investment gains in this segment included
$24.2 million of net gains from the sales of investments (primarily fixed
maturities) and $15.4 million of writedowns of investments for other than
temporary declines in fair value recognized through net income. During the first
nine months of 2011, net realized investment gains included $14.4 million of net
gains from the sales of investments (primarily fixed maturities) and $11.3
million of writedowns of investments for other than temporary declines in fair
value recognized through net income.

Amortization related to net realized investment losses is the increase or
decrease in the amortization of insurance acquisition costs which results from
realized investment gains or losses. When we sell securities which back our
universal life and investment-type products at a gain (loss) and reinvest the
proceeds at a different yield (or when we have the intent to sell the impaired
investments before an anticipated recovery in value occurs), we increase
(reduce) the amortization of insurance acquisition costs in order to reflect the
change in estimated gross profits due to the gains (losses) realized and the
resulting effect on estimated future yields. Sales of fixed maturity investments
resulted in an increase in the amortization of insurance acquisition costs of
$.3 million and $.9 million in the third quarters of 2012 and 2011,
respectively, and $1.9 million and $.2 million in the nine months ended
September 30, 2012 and 2011, respectively.

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

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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

June 30, 2011, we held certain trading securities to offset the income statement
volatility caused by the interest rate fluctuations. In the second quarter of
2011, we sold this trading portfolio.

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

Corporate Operations (dollars in millions)

                                                    Three months ended         Nine months ended
                                                      September 30,              September 30,
                                                     2012         2011         2012         2011
Corporate operations:
Interest expense on corporate debt               $    (16.3 )   $ (18.7 )   $  (50.4 )   $  (58.6 )
Net investment income (loss):
General account invested assets                         1.0         1.1          2.9          2.0
Other special-purpose portfolios:
COLI                                                    3.1       (11.5 )        5.4        (10.6 )
Investments held in a rabbi trust                         -         (.2 )        4.1          1.8
Investments in certain hedge funds                      (.1 )      (3.1 )       (1.9 )       (3.1 )
Other trading account activities                        5.2         1.1         15.7          6.3
Fee revenue and other income                             .3          .3           .9           .9
Net operating results of variable interest
entities                                                4.7         3.8          9.8          6.0
Interest expense on investment borrowings               (.1 )       (.1 )        (.4 )        (.1 )
Other operating costs and expenses                    (20.8 )     (18.9 )      (54.1 )      (42.5 )
Loss before net realized investment gains, loss
on extinguishment of debt and income taxes            (23.0 )     (46.2 )      (68.0 )      (97.9 )
Net realized investment gains (losses)                   .8        (4.0 )        1.8         (1.2 )
Loss on extinguishment of debt                       (198.5 )      (1.1 )     (199.2 )       (3.1 )
Loss before income taxes                         $   (220.7 )   $ (51.3 )   $ (265.4 )   $ (102.2 )



Interest expense on corporate debt has been primarily impacted by:  (i)
prepayments of our Previous Senior Secured Credit Agreement in 2011 and 2012 and
the amendment in May 2011 which reduced the interest rate payable on the
Previous Senior Secured Credit Agreement; and (ii) repayments of the Senior
Health Note. Such transactions are further discussed in the note to the
consolidated financial statements entitled "Notes Payable - Direct Corporate
Obligations". Our average corporate debt outstanding was $840.1 million and
$973.4 million during the first nine months of 2012 and 2011, respectively. The
average interest rate on our debt was 7.3 percent and 7.5 percent during the
first nine months of 2012 and 2011, respectively.

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


Net investment income on other special-purpose portfolios includes the income
(loss) from: (i) investments related to deferred compensation plans held in a
rabbi trust (which is offset by amounts included in other operating costs and
expenses as the investment results are allocated to participants' account
balances); (ii) trading account activities which commenced in the first quarter
of 2011; (iii) income (loss) from COLI equal to the difference between the
return on these investments and our overall portfolio yield; and (iv)
investments in certain hedge funds which commenced in the third quarter of
2011. COLI is utilized as an investment vehicle to fund Bankers' agent deferred
compensation plan. For segment reporting, the Bankers Life segment is allocated
a return on these investments equivalent to the yield on the Company's overall
portfolio, with any difference in the actual COLI return allocated to Corporate
Operations.

Net operating results of variable interest entities represents the operating
results of VIEs. The VIEs are consolidated in accordance with GAAP. These
entities were established to issue securities and use the proceeds to invest in
loans and other permitted assets. Refer to the note to the consolidated
financial statements entitled "Investments in Variable Interest Entities" for
more information on the VIEs.

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


Other operating costs and expenses include general corporate expenses, net of
amounts charged to subsidiaries for services provided by the corporate
operations. These amounts fluctuate as a result of expenses such as consulting
and legal costs which often vary from period to period. In the third quarters of
2012 and 2011, we recognized charges of $9.7 million and $8.9 million,
respectively, related to changes in the underlying actuarial assumptions used to
value our agent deferred compensation plan and certain retirement benefits. In
the first quarter of 2012, we recognized a $6.8 million charge related to the
relocation of Bankers Life's primary office.

Net realized investment gains (losses) often fluctuate each period. During the
first nine months of 2012, net realized investment gains included $2.2 million
of net gains from the sales of investments (of which, $.3 million were net gains
recognized by VIEs) and $.4 million of writedowns of investments (all of which
were recognized by VIEs) due to other than temporary declines in fair value
recognized through net income. During the first nine months of 2011, net
realized investment gains included $2.3 million of net gains from the sales of
investments (of which, $3.3 million were net gains recognized by VIEs) and $3.5
million of writedowns of investments (all of which were recognized by VIEs) due
to other than temporary declines in fair value recognized through net income.

Loss on extinguishment of debt in the first nine months of 2012 of $199.2
million represents: (i) $136.3 million (all of which was recognized in the third
quarter of 2012) due to our repurchase of $200.0 million principal amount of
7.0% Debentures pursuant to the Debenture Repurchase Agreement and the write-off
of unamortized discount and issuance costs associated with the 7.0% Debentures;
(ii) $57.8 million (all of which was recognized in the third quarter of 2012)
related to the tender offer and consent solicitation for the 9.0% Notes, the
write-off of unamortized issuance costs related to the 9.0% Notes and other
transactions; and (iii) $5.1 million ($4.4 million of which was recognized in
the third quarter of 2012) representing the write-off of unamortized discount
and issuance costs associated with repayments of our Previous Senior Secured
Credit Agreement. Such transactions are further discussed in the note to the
consolidated financial statements entitled "Notes Payable - Direct Corporate
Obligations." The loss on extinguishment of debt in the 2011 periods represents
the write-off of unamortized discount and issuance costs associated with the
prepayment of $105.7 million outstanding principal balance under the Previous
Senior Secured Credit Agreement.



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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

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


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

The following summarizes our earnings, separated between in-force and new business on a consolidated basis and for each of our operating segments for the three and nine months ended September 30, 2012 and 2011:

Business segments - total (dollars in millions)

                                       Three months ended          Nine months ended
                                         September 30,               September 30,
                                        2012         2011         2012          2011
EBIT from In-Force Business
Revenues:
Insurance policy income             $   594.4      $ 585.3     $ 1,793.1     $ 1,763.6
Net investment income and other         360.7        286.5       1,063.2         972.3
Total revenues                          955.1        871.8       2,856.3       2,735.9
Benefits and expenses:
Insurance policy benefits               671.3        569.4       1,918.3       1,820.5
Amortization                             54.1         55.5         191.8         202.7
Other expenses                          125.3         98.5         363.0         296.3
Total benefits and expenses             850.7        723.4       2,473.1       2,319.5
EBIT from In-Force Business         $   104.4      $ 148.4     $   383.2     $   416.4

EBIT from New Business
Revenues:
Insurance policy income             $    95.8      $  88.2     $   278.2     $   256.7
Net investment income and other          12.9          7.7          31.7          30.1
Total revenues                          108.7         95.9         309.9         286.8
Benefits and expenses:
Insurance policy benefits                69.8         57.7         195.4         174.2
Amortization                              6.7         13.3          22.1          31.8
Other expenses                           78.3         71.2         221.7         207.4
Total benefits and expenses             154.8        142.2         439.2         413.4
EBIT from New Business              $   (46.1 )    $ (46.3 )   $  (129.3 )   $  (126.6 )

EBIT from In-Force and New Business
Revenues:
Insurance policy income             $   690.2      $ 673.5     $ 2,071.3     $ 2,020.3
Net investment income and other         373.6        294.2       1,094.9       1,002.4
Total revenues                        1,063.8        967.7       3,166.2       3,022.7
Benefits and expenses:
Insurance policy benefits               741.1        627.1       2,113.7       1,994.7
Amortization                             60.8         68.8         213.9         234.5
Other expenses                          203.6        169.7         584.7         503.7
Total benefits and expenses           1,005.5        865.6       2,912.3       2,732.9

EBIT from In-Force and New Business $ 58.3$ 102.1$ 253.9

$   289.8



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Bankers Life (dollars in millions)

                                       Three months ended          Nine months ended
                                         September 30,               September 30,
                                        2012         2011         2012          2011
EBIT from In-Force Business
Revenues:
Insurance policy income             $   345.7      $ 339.0     $ 1,039.1     $ 1,024.1
Net investment income and other         212.7        153.9         620.6         543.6
Total revenues                          558.4        492.9       1,659.7       1,567.7
Benefits and expenses:
Insurance policy benefits               377.0        313.7       1,093.1       1,031.9
Amortization                             29.9         31.6         123.6         130.2
Other expenses                           41.4         36.0         133.2         108.7
Total benefits and expenses             448.3        381.3       1,349.9       1,270.8
EBIT from In-Force Business         $   110.1      $ 111.6     $   309.8     $   296.9

EBIT from New Business
Revenues:
Insurance policy income             $    70.4      $  65.6     $   202.5     $   190.1
Net investment income and other          12.9          7.7          31.7          30.1
Total revenues                           83.3         73.3         234.2         220.2
Benefits and expenses:
Insurance policy benefits                57.6         46.9         159.1         142.4
Amortization                              5.7         12.5          19.4          29.3
Other expenses                           49.5         46.1         138.3         131.7
Total benefits and expenses             112.8        105.5         316.8         303.4
EBIT from New Business              $   (29.5 )    $ (32.2 )   $   (82.6 )   $   (83.2 )

EBIT from In-Force and New Business
Revenues:
Insurance policy income             $   416.1      $ 404.6     $ 1,241.6     $ 1,214.2
Net investment income and other         225.6        161.6         652.3         573.7
Total revenues                          641.7        566.2       1,893.9       1,787.9
Benefits and expenses:
Insurance policy benefits               434.6        360.6       1,252.2       1,174.3
Amortization                             35.6         44.1         143.0         159.5
Other expenses                           90.9         82.1         271.5         240.4
Total benefits and expenses             561.1        486.8       1,666.7       1,574.2

EBIT from In-Force and New Business $ 80.6$ 79.4$ 227.2

$   213.7




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Washington National (dollars in millions)

                                       Three months ended         Nine months ended
                                         September 30,              September 30,
                                        2012         2011         2012         2011
EBIT from In-Force Business
Revenues:
Insurance policy income             $   133.4      $ 132.1     $   399.2     $ 397.5
Net investment income and other          51.2         47.7         152.7       141.2
Total revenues                          184.6        179.8         551.9       538.7
Benefits and expenses:
Insurance policy benefits               105.2        113.3         322.6       332.8
Amortization                             10.5         10.2          32.5        33.5
Other expenses                           32.6         33.9          98.9        97.9
Total benefits and expenses             148.3        157.4         454.0       464.2
EBIT from In-Force Business         $    36.3      $  22.4     $    97.9     $  74.5

EBIT from New Business
Revenues:
Insurance policy income             $    14.4      $  13.8     $    43.6     $  40.4
Net investment income and other             -            -             -           -
Total revenues                           14.4         13.8          43.6        40.4
Benefits and expenses:
Insurance policy benefits                 5.9          5.7          17.9        16.7
Amortization                               .7           .6           2.2         2.1
Other expenses                           10.2          8.7          28.9        28.8
Total benefits and expenses              16.8         15.0          49.0        47.6
EBIT from New Business              $    (2.4 )    $  (1.2 )   $    (5.4 )   $  (7.2 )

EBIT from In-Force and New Business
Revenues:
Insurance policy income             $   147.8      $ 145.9     $   442.8     $ 437.9
Net investment income and other          51.2         47.7         152.7       141.2
Total revenues                          199.0        193.6         595.5       579.1
Benefits and expenses:
Insurance policy benefits               111.1        119.0         340.5       349.5
Amortization                             11.2         10.8          34.7        35.6
Other expenses                           42.8         42.6         127.8       126.7
Total benefits and expenses             165.1        172.4         503.0       511.8

EBIT from In-Force and New Business $ 33.9$ 21.2$ 92.5

$  67.3




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Colonial Penn (dollars in millions)

                                       Three months ended         Nine months ended
                                         September 30,              September 30,
                                        2012         2011         2012         2011
EBIT from In-Force Business
Revenues:
Insurance policy income             $    43.5      $  42.0     $   130.4     $ 125.8
Net investment income and other          10.1         10.3          30.7        31.5
Total revenues                           53.6         52.3         161.1       157.3
Benefits and expenses:
Insurance policy benefits                32.0         30.9         101.6        97.6
Amortization                              3.2          3.3          10.6        10.6
Other expenses                            6.8          6.5          19.4        19.4
Total benefits and expenses              42.0         40.7         131.6       127.6
EBIT from In-Force Business         $    11.6      $  11.6     $    29.5     $  29.7

EBIT from New Business
Revenues:
Insurance policy income             $    11.0      $   8.8     $    32.1     $  26.2
Net investment income and other             -            -             -           -
Total revenues                           11.0          8.8          32.1        26.2
Benefits and expenses:
Insurance policy benefits                 6.3          5.1          18.4        15.1
Amortization                               .3           .2            .5          .4
Other expenses                           18.6         16.4          54.5        46.9
Total benefits and expenses              25.2         21.7          73.4        62.4
EBIT from New Business              $   (14.2 )    $ (12.9 )   $   (41.3 )   $ (36.2 )

EBIT from In-Force and New Business
Revenues:
Insurance policy income             $    54.5      $  50.8     $   162.5     $ 152.0
Net investment income and other          10.1         10.3          30.7        31.5
Total revenues                           64.6         61.1         193.2       183.5
Benefits and expenses:
Insurance policy benefits                38.3         36.0         120.0       112.7
Amortization                              3.5          3.5          11.1        11.0
Other expenses                           25.4         22.9          73.9        66.3
Total benefits and expenses              67.2         62.4         205.0       190.0

EBIT from In-Force and New Business $ (2.6 ) $ (1.3 ) $ (11.8 )

 $  (6.5 )



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Other CNO Business (dollars in millions)

                                   Three months ended         Nine months ended
                                     September 30,              September 30,
                                    2012          2011         2012         2011
EBIT from In-Force Business (a)
Revenues:
Insurance policy income         $     71.8       $ 72.2    $    224.4     $ 216.2
Net investment income and other       86.7         74.6         259.2       256.0
Total revenues                       158.5        146.8         483.6       472.2
Benefits and expenses:
Insurance policy benefits            157.1        111.5         401.0       358.2
Amortization                          10.5         10.4          25.1        28.4
Other expenses                        44.5         22.1         111.5        70.3
Total benefits and expenses          212.1        144.0         537.6       456.9
EBIT from In-Force Business     $    (53.6 )     $  2.8    $    (54.0 )   $  15.3



_________________________

(a) All activity in the Other CNO Business segment relates to in-force business.




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

The EBIT from in-force business in the Bankers Life segment grew in the first
nine months of 2012 primarily due to the growth in this segment's in-force block
reflecting prior period sales and improved persistency. Other expenses include a
$10 million settlement with state regulators in the first quarter of 2012. EBIT
from in-force business in the three months ended September 30, 2012 was
comparable to the prior year. The increased earnings from the growth in this
segment's in-force block was offset by higher incurred claims on life and
long-term care policies.

The EBIT from in-force business in the Washington National segment grew in the
2012 periods primarily due to higher investment income on higher average balance
of general account assets from the FHLB investment borrowing program that
commenced in June 2011.

The EBIT from new business in the Colonial Penn segment in the 2012 periods
reflects additional marketing costs. The vast majority of the costs to generate
new business in this segment are not deferrable and EBIT will fluctuate based on
management's decisions on how much marketing costs to incur in each period.

We are not investing in new business in the Other CNO Business segment.

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PREMIUM COLLECTIONS

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

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

Agents, insurance brokers and marketing companies who market our products and
prospective purchasers of our products use the financial strength ratings of our
insurance subsidiaries as an important factor in determining whether to market
or purchase. Ratings have the most impact on our annuity, interest-sensitive
life insurance and long-term care products. The current financial strength
ratings of our primary insurance subsidiaries (except Conseco Life) from A.M.
Best, S&P, Moody's and Fitch Ratings ("Fitch") are "B++", "BB+", "Baa3" and
"BBB", respectively. The current financial strength ratings of Conseco Life from
A.M. Best, S&P, Moody's and Fitch are "B-", "B+", "Ba1" and
"BB+", respectively. For a description of these ratings and additional
information on our ratings, see "Financial Strength Ratings of our Insurance
Subsidiaries."

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

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Total premium collections by segment were as follows:

Bankers Life (dollars in millions)

                                                      Three months ended            Nine months ended
                                                        September 30,                 September 30,
                                                       2012           2011         2012          2011
Premiums collected by product:
Annuities:
Fixed index (first-year)                         $    114.5         $ 208.0     $   369.6     $   520.1
Other fixed rate (first-year)                          56.0            55.1         151.7         222.3
Other fixed rate (renewal)                              1.2             1.0           4.6           3.0
Subtotal - other fixed rate annuities                  57.2            56.1         156.3         225.3
Total annuities                                       171.7           264.1         525.9         745.4
Health:
Medicare supplement (first-year)                       24.7            24.5          73.6          74.3
Medicare supplement (renewal)                         153.0           146.8         453.9         444.8
Subtotal - Medicare supplement                        177.7           171.3         527.5         519.1
Long-term care (first-year)                             6.0             5.9          17.4          18.0
Long-term care (renewal)                              130.1           131.9         394.2         407.6
Subtotal - long-term care                             136.1           137.8         411.6         425.6
PDP and PFFS (first year)                                .1              .6            .5           1.2
PDP and PFFS (renewal)                                 10.2            15.6          39.8          40.6
Subtotal - PDP and PFFS                                10.3            16.2          40.3          41.8
Other health (first-year)                                .9              .4           1.9           1.1
Other health (renewal)                                  2.3             2.3           6.8           7.1
Subtotal - other health                                 3.2             2.7           8.7           8.2
Total health                                          327.3           328.0         988.1         994.7
Life insurance:
First-year                                             38.9            30.9         107.4          85.0
Renewal                                                42.4            34.6         119.4          98.9
Total life insurance                                   81.3            65.5         226.8         183.9
Collections on insurance products:
Total first-year premium collections on
insurance products                                    241.1           325.4         722.1         922.0
Total renewal premium collections on insurance
products                                              339.2           332.2       1,018.7       1,002.0
Total collections on insurance products          $    580.3         $ 657.6 

$ 1,740.8$ 1,924.0




Annuities in this segment include fixed index and other fixed rate annuities
sold to the senior market. Annuity collections in this segment decreased 35
percent, to $171.7 million, in the third quarter of 2012, and 29 percent, to
$525.9 million, in the first nine months of 2012, as compared to the same
periods in 2011. Premium collections from our fixed index products have
fluctuated due to volatility in the financial markets in recent periods. In
addition, premium collections from Bankers Life's fixed annuity products have
decreased in recent periods as low new money interest rates negatively impacted
our sales and the overall sales in the fixed annuity market.

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


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Collected premiums on Medicare supplement policies in the Bankers Life segment
increased 3.7 percent, to $177.7 million, in the third quarter of 2012, and 1.6
percent, to $527.5 million, in the first nine months of 2012, as compared to the
same periods in the prior year.

Premiums collected on Bankers Life's long-term care policies decreased 1.2 percent, to $136.1 million, in the third quarter of 2012, and 3.3 percent, to $411.6 million, in the first nine months of 2012, as compared to the same periods in 2011. The decrease was primarily attributable to higher lapses following premium rate increases in recent periods.


Premiums collected on PDP and PFFS business relate to our quota-share
reinsurance agreements with Coventry. Premiums collected on PFFS business were
nil and $3.6 million in the three and nine months ended September 30, 2011,
respectively. The PFFS premiums recognized in 2011 relate to adjustments to
prior year contracts based on audits conducted by the Centers for Medicare and
Medicaid Services, an agency of the United States government which, among other
things, administers the Medicare program. Such audits can result in positive or
negative adjustments to premium revenue in the period the results of the audits
are reported to us.

Life products in this segment include traditional and interest-sensitive life
products. Life premiums collected in this segment increased 24 percent, to $81.3
million, in the third quarter of 2012, and 23 percent, to $226.8 million, in the
first nine months of 2012, as compared to the same periods in 2011, reflecting
higher sales in this segment (including increased sales of single premium whole
life products).

Washington National (dollars in millions)

                                                      Three months ended             Nine months ended
                                                        September 30,                  September 30,
                                                       2012           2011           2012           2011
Premiums collected by product:
Health:
Medicare supplement (first-year)                 $       .2         $    .4     $       .8        $   1.5
Medicare supplement (renewal)                          28.2            31.5           84.8           98.8
Subtotal - Medicare supplement                         28.4            31.9           85.6          100.3
Supplemental health (first-year)                       14.7            13.2           43.9           40.1
Supplemental health (renewal)                          99.8            95.2          298.9          284.1
Subtotal - supplemental health                        114.5           108.4          342.8          324.2
Other health (all renewal)                               .7              .9            2.0            2.7
Total health                                          143.6           141.2          430.4          427.2
Life insurance:
First-year                                               .3              .4             .8            1.1
Renewal                                                 2.7             3.7           10.0           11.2
Total life insurance                                    3.0             4.1           10.8           12.3
Collections on insurance products:
Total first-year premium collections on
insurance products                                     15.2            14.0           45.5           42.7
Total renewal premium collections on insurance
products                                              131.4           131.3          395.7          396.8
Total collections on insurance products          $    146.6         $ 145.3 

$ 441.2$ 439.5




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

Collected premiums on Medicare supplement policies in the Washington National
segment decreased 11 percent, to $28.4 million, in the third quarter of 2012,
and 15 percent, to $85.6 million, in the first nine months of 2012, as compared
to the same periods in 2011. We have experienced lower sales of these products
as we have increased our focus on supplemental health products in recent
periods.


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Premiums collected on supplemental health products (including specified disease,
accident and hospital indemnity insurance products) increased 5.6 percent, to
$114.5 million, in the third quarter of 2012, and 5.7 percent, to $342.8
million, in the first nine months of 2012, as compared to the same periods in
2011. Such increases are due to higher new sales in recent periods.

Life products in the Washington National segment are primarily traditional life products. Life premiums collected in this segment have declined in recent periods.

Colonial Penn (dollars in millions)

                                                    Three months ended           Nine months ended
                                                      September 30,                September 30,
                                                     2012         2011           2012           2011
Premiums collected by product:
Life insurance:
First-year                                       $     10.9     $   8.9     $     32.0        $  26.2
Renewal                                                42.1        40.3          126.1          120.9
Total life insurance                                   53.0        49.2          158.1          147.1
Health (all renewal):
Medicare supplement                                     1.1         1.3            3.4            4.0
Other health                                             .1          .1             .3             .4
Total health                                            1.2         1.4            3.7            4.4
Collections on insurance products:
Total first-year premium collections on
insurance products                                     10.9         8.9           32.0           26.2
Total renewal premium collections on insurance
products                                               43.3        41.7     

129.8 125.3 Total collections on insurance products $ 54.2$ 50.6$ 161.8$ 151.5




Life products in this segment are primarily graded benefit and simplified issue
life insurance products. Life premiums collected in this segment increased 7.7
percent, to $53.0 million, in the third quarter of 2012, and 7.5 percent, to
$158.1 million, in the first nine months of 2012, as compared to the same
periods in 2011. Graded benefit life products sold through our direct response
marketing channel accounted for $52.4 million and $48.5 million of our total
collected premiums in the third quarters of 2012 and 2011, respectively, and
$156.0 million and $144.7 million in the first nine months of 2012 and 2011,
respectively.

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


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Other CNO Business (dollars in millions)

                                                    Three months ended           Nine months ended
                                                      September 30,                September 30,
                                                     2012         2011           2012           2011
Premiums collected by product:
Annuities:
Fixed index (first-year)                         $       .1     $   2.2     $       .3        $   7.6
Fixed index (renewal)                                    .4          .8            1.9            3.1
Subtotal - fixed index annuities                         .5         3.0            2.2           10.7
Other fixed rate (first-year)                             -          .1              -            2.1
Other fixed rate (renewal)                               .4          .2             .8             .6
Subtotal - other fixed rate annuities                    .4          .3             .8            2.7
Total annuities                                          .9         3.3            3.0           13.4
Health:
Long-term care (all renewal)                            6.0         6.5           19.0           20.9
Other health (all renewal)                               .1          .2             .5             .6
Total health                                            6.1         6.7           19.5           21.5
Life insurance:
First-year                                               .9          .3            2.3            1.6
Renewal                                                39.4        43.7          124.2          137.7
Total life insurance                                   40.3        44.0          126.5          139.3
Collections on insurance products:
Total first-year premium collections on
insurance products                                      1.0         2.6            2.6           11.3
Total renewal premium collections on insurance
products                                               46.3        51.4     

146.4 162.9 Total collections on insurance products $ 47.3$ 54.0$ 149.0$ 174.2

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


Health products in the Other CNO Business segment include long-term care and
other health insurance products. Our profits on health policies depend on the
length of time the business remains inforce, investment yields, claim experience
and expense management.

The long-term care premiums in this segment relate to blocks of business that we
no longer market or underwrite. As a result, we expect this segment's long-term
care premiums to continue to decline, reflecting additional policy lapses in the
future.

Life products in the Other CNO Business segment include primarily universal life
products. Life premiums collected in this segment decreased 8.4 percent, to
$40.3 million, in the third quarter of 2012, and 9.2 percent, to $126.5 million,
in the first nine months of 2012, as compared to the same periods in 2011. We
are not actively marketing life products in this segment and expect premiums to
continue to decline.

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LIQUIDITY AND CAPITAL RESOURCES

Our capital structure as of September 30, 2012, and December 31, 2011, was as follows (dollars in millions):

                                        September 30,      December 31,
                                             2012              2011
                                          (Restated)
Total capital:
Corporate notes payable                $      1,035.1     $       857.9
Shareholders' equity:
Common stock                                      2.3               2.4
Additional paid-in capital                    4,251.2           4,361.9
Accumulated other comprehensive income        1,234.4             781.6
Accumulated deficit                            (421.7 )          (532.1 )
Total shareholders' equity                    5,066.2           4,613.8
Total capital                          $      6,101.3     $     5,471.7



The following table summarizes certain financial ratios as of and for the nine
months ended September 30, 2012, and as of and for the year ended December 31,
2011:

                                                            September 30,     December 31,
                                                                2012              2011
Book value per common share (Restated)                     $       22.07    

$ 19.12 Book value per common share, excluding accumulated other comprehensive income (a)

                                           16.70    

15.88

Ratio of earnings to fixed charges                                 1.13X    

1.75X

Debt to total capital ratios:
Corporate debt to total capital (Restated)                          17.0 %  

15.7 % Corporate debt to total capital, excluding accumulated other comprehensive income (a)

                                      21.3 %  

18.3 %

____________________

(a) This non-GAAP measure differs from the corresponding GAAP measure presented

immediately above, because accumulated other comprehensive income has been

excluded from the value of capital used to determine this

measure. Management believes this non-GAAP measure is useful because it

removes the volatility that arises from changes in accumulated other

comprehensive income. Such volatility is often caused by changes in the

estimated fair value of our investment portfolio resulting from changes in

general market interest rates rather than the business decisions made by

management. However, this measure does not replace the corresponding GAAP

     measure.



Liquidity for Insurance Operations


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

Three of the Company's insurance subsidiaries (Conseco Life, Washington National
Insurance Company and Bankers Life) are members of the FHLB. As members of the
FHLB, Conseco Life, Washington National Insurance Company and Bankers Life have
the ability to borrow on a collateralized basis from the FHLB. Conseco Life,
Washington National Insurance Company and Bankers Life are required to hold
certain minimum amounts of FHLB common stock as a condition of membership in the
FHLB, and additional amounts based on the amount of the borrowings. At
September 30, 2012, the carrying value of the FHLB common stock was $82.5
million. As of September 30, 2012, collateralized borrowings from the

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FHLB totaled $1.7 billion and the proceeds were used to purchase fixed maturity
securities. The borrowings are classified as investment borrowings in the
accompanying consolidated balance sheet. The borrowings are collateralized by
investments with an estimated fair value of $2.0 billion at September 30, 2012,
which are maintained in a custodial account for the benefit of the FHLB. The
following summarizes the terms of the borrowings (dollars in millions):

  Amount        Maturity         Interest rate at
 borrowed         date          September 30, 2012
$   100.0    November 2013    Variable rate - 0.515%
     67.0    February 2014     Fixed rate - 1.830%
     50.0     August 2014     Variable rate - 0.565%
    100.0     August 2014     Variable rate - 0.476%
     50.0    September 2015   Variable rate - 0.747%
    150.0     October 2015    Variable rate - 0.571%
    146.0    November 2015     Fixed rate - 5.300%
    100.0    December 2015     Fixed rate - 4.710%
    100.0      June 2016      Variable rate - 0.657%
     75.0      June 2016      Variable rate - 0.621%
    100.0     October 2016    Variable rate - 0.641%
     50.0    November 2016    Variable rate - 0.684%
     50.0    November 2016    Variable rate - 0.687%
    100.0      June 2017      Variable rate - 0.751%
    100.0      July 2017       Fixed rate - 3.900%
     50.0     August 2017     Variable rate - 0.635%
     75.0     August 2017     Variable rate - 0.577%
    100.0     October 2017    Variable rate - 0.885%
     37.0    November 2017     Fixed rate - 3.750%
     50.0      July 2018      Variable rate - 0.917%
$ 1,650.0




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

Financial Strength Ratings of our Insurance Subsidiaries


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

On September 4, 2012, A.M. Best upgraded the financial strength ratings of our
primary insurance subsidiaries, except Conseco Life, to "B++" from "B+". A.M.
Best also affirmed the financial strength rating of "B-" of Conseco Life. The
outlook for all ratings is stable. A "stable" designation means that there is a
low likelihood of a rating change due to stable financial market trends. The
"B++" rating is assigned to companies that have a good ability, in A.M. Best's
opinion, to meet their ongoing obligations to policyholders. A "B-" rating is
assigned to companies that have a fair ability, in A.M. Best's opinion, to meet
their current obligations to policyholders, but are financially vulnerable to
adverse changes in underwriting and economic conditions. A.M. Best ratings for
the industry currently range from "A++ (Superior)" to "F (In Liquidation)" and
some companies are not rated. An "A++" rating indicates a superior ability to
meet ongoing obligations to policyholders. A.M. Best has sixteen possible
ratings. There are four ratings above the "B++" rating of our primary insurance
subsidiaries, other than Conseco Life, and eleven ratings that are below that
rating. There are seven ratings above the "B-" rating of Conseco Life and eight
ratings that are below that rating.

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On August 3, 2012, S&P affirmed the financial strength ratings of "BB+" of our
primary insurance subsidiaries, except Conseco Life, and revised the outlook for
such ratings to positive from stable. S&P also downgraded the financial strength
rating of Conseco Life to "B+" from "BB+" and the outlook for such rating is
stable. On August 4, 2011, S&P upgraded the financial strength ratings of our
primary insurance subsidiaries to "BB+" from "BB". A "positive" outlook means
that a rating may be raised. A "stable" outlook means that a rating is not
likely to change. S&P financial strength ratings range from "AAA" to "R" and
some companies are not rated. An insurer rated "BB" or lower is regarded as
having vulnerable characteristics that may outweigh its strengths. A "BB" rating
indicates the least degree of vulnerability within the range; a "CC" rating
indicates the highest degree of vulnerability. Pluses and minuses show the
relative standing within a category. In S&P's view, an insurer rated "BB" has
marginal financial security characteristics and although positive attributes
exist, adverse business conditions could lead to an insufficient ability to meet
financial commitments. In S&P's view, an insurer rated "B" has weak financial
security characteristics and adverse business conditions will likely impair its
ability to meet financial commitments. S&P has twenty-one possible
ratings. There are ten ratings above the "BB+" rating of our primary insurance
subsidiaries, other than Conseco Life, and ten ratings that are below that
rating. There are thirteen ratings above the "B+" rating of Conseco Life and
seven ratings that are below that rating.

On August 29, 2012, Moody's upgraded the financial strength ratings of our
primary insurance subsidiaries, except Conseco Life, to "Baa3" from "Ba1".
Moody's also affirmed the financial strength rating of "Ba1" of Conseco Life.
The outlook for all ratings is stable. A "stable" designation means that a
rating is not likely to change. Moody's financial strength ratings range from
"Aaa" to "C". These ratings may be supplemented with numbers "1", "2", or "3" to
show relative standing within a category. In Moody's view, an insurer rated
"Baa" offers adequate financial security, however, certain protective elements
may be lacking or may be characteristically unreliable over any great length of
time. In Moody's view, an insurer rated "Ba" offers questionable financial
security and, often, the ability of these companies to meet policyholders'
obligations may be very moderate and thereby not well safeguarded in the future.
Moody's has twenty-one possible ratings. There are nine ratings above the "Baa3"
rating of our primary insurance subsidiaries, other than Conseco Life, and
eleven ratings that are below the rating. There are ten ratings above the "Ba1"
rating of Conseco Life and ten ratings that are below that rating.

On September 5, 2012, Fitch affirmed the financial strength ratings of "BBB" of
our primary insurance subsidiaries as well as the "BB+" rating of Conseco Life
and the outlook for all of these ratings is stable. On February 3, 2012, Fitch
upgraded the financial strength ratings of our primary insurance subsidiaries,
except Conseco Life, to "BBB" (from "BBB-" or "BB+" depending on the company).
Fitch also affirmed the financial strength rating of "BB+" of Conseco Life. A
"BBB" rating, in Fitch's opinion, indicates that there is currently a low
expectation of ceased or interrupted payments. The capacity to meet policyholder
and contract obligations on a timely basis is considered adequate, but adverse
changes in circumstances and economic conditions are more likely to impact this
capacity. A "BB" rating, in Fitch's opinion, indicates that there is an elevated
vulnerability to ceased or interrupted payments, particularly as the result of
adverse economic or market changes over time. However, business or financial
alternatives may be available to allow for policyholder and contract obligations
to be met in a timely manner. Fitch ratings for the industry range from "AAA
Exceptionally Strong" to "C Distressed" and some companies are not rated. Pluses
and minuses show the relative standing within a category. Fitch has nineteen
possible ratings. There are eight ratings above the "BBB" rating of our primary
insurance subsidiaries, other than Conseco Life, and ten ratings that are below
that rating. There are ten ratings above the "BB+" rating of Conseco Life and
eight ratings that are below that rating.

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

Liquidity of the Holding Companies

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

At September 30, 2012, CNO, CDOC, Inc. ("CDOC") (our wholly owned subsidiary and a guarantor under the New Senior Secured Credit Agreement) and our other non-insurance subsidiaries held: (i) unrestricted cash and cash equivalents of

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$209.4 million; (ii) fixed income investments of $57.2 million; and (iii) equity
securities and other invested assets totaling $47.0 million. CNO and CDOC are
holding companies with no business operations of their own; they depend on their
operating subsidiaries for cash to make principal and interest payments on debt,
and to pay administrative expenses and income taxes. CNO and CDOC receive cash
from insurance subsidiaries, consisting of dividends and distributions, interest
payments on surplus debentures and tax-sharing payments, as well as cash from
non-insurance subsidiaries consisting of dividends, distributions, loans and
advances. The principal non-insurance subsidiaries that provide cash to CNO and
CDOC are 40|86 Advisors, Inc. ("40|86 Advisors"), which receives fees from the
insurance subsidiaries for investment services, and CNO Services, LLC which
receives fees from the insurance subsidiaries for providing administrative
services. The agreements between our insurance subsidiaries and CNO Services,
LLC and 40|86 Advisors, respectively, were previously approved by the domestic
insurance regulator for each insurance company, and any payments thereunder do
not require further regulatory approval.

The following summarizes the current legal ownership structure of CNO's primary
subsidiaries:
[[Image Removed]]
The ability of our insurance subsidiaries to pay dividends is subject to state
insurance department regulations and is based on the financial statements of our
insurance subsidiaries prepared in accordance with statutory accounting
practices prescribed or permitted by regulatory authorities, which differ from
GAAP. These regulations generally permit dividends to be paid from statutory
earned surplus of the insurance company for any 12-month period in amounts equal
to the greater of (or in a few states, the lesser of): (i) statutory net gain
from operations or net income for the prior year; or (ii) 10 percent of
statutory capital and surplus as of the end of the preceding year (excluded from
this calculation would be the $80.4 million of additional surplus recognized
related to certain deferred tax assets). This type of dividend is referred to as
an "ordinary dividend". Any dividend in excess of these levels or from an
insurance company that has negative earned surplus requires the approval of the
director or commissioner of the applicable state insurance department and is
referred to as an "extraordinary dividend". Each of the direct insurance
subsidiaries of CDOC has significant negative earned surplus and any dividend
payments from the subsidiaries of CDOC will therefore require the approval of
the director or commissioner of the applicable state insurance department. In
the first nine months of 2012, our insurance subsidiaries paid extraordinary
dividends to CDOC totaling $198.0 million. Based on our continued expectation to
generate strong statutory earnings and excess capital, we anticipate total year
dividend payments to the holding company of $250 million to $275 million during
2012. We expect to receive regulatory approval for future dividends from our
subsidiaries, but there can be no assurance that such payments will be approved
or that the financial condition of our insurance subsidiaries will not change,
making future approvals less likely.

We generally maintain capital and surplus levels in our insurance subsidiaries
in an amount that is sufficient to maintain a minimum consolidated RBC ratio of
350 percent and will typically cause our insurance subsidiaries to pay ordinary
dividends or request regulatory approval for extraordinary dividends when the
consolidated RBC ratio exceeds such level and we have concluded the capital
level in each of our insurance subsidiaries is adequate to support their
business and projected growth. The consolidated RBC ratio of our insurance
subsidiaries decreased 8 percentage points, to 361 percent, during the third
quarter of 2012, reflecting consolidated statutory operating earnings of $60.3
million and the payment of dividends to the non-insurance holding companies of
$95 million. Consolidated statutory operating earnings in the third quarter of
2012 were reduced by a $40 million charge recognized by Conseco Life relating to
the tentative settlement of certain cases related to the

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Valulife/Valuterm litigation described in the note to the accompanying consolidated financial statements entitled "Litigation and Other Legal Proceedings." Conseco Life also recognized a $29.5 million charge to statutory earnings in the quarter ended March 31, 2012 related to these cases.


CDOC holds surplus debentures from Conseco Life Insurance Company of Texas
("Conseco Life of Texas") with an aggregate principal amount of $749.6
million. Interest payments do not require additional approval provided the RBC
ratio of Conseco Life of Texas exceeds 100 percent (but do require prior written
notice to the Texas state insurance department). The RBC ratio of Conseco Life
of Texas was 301 percent at September 30, 2012. CDOC also holds a surplus
debenture from Colonial Penn Life Insurance Company with an outstanding
principal balance of $160.0 million. Interest payments require prior approval by
the Pennsylvania state insurance department. Dividends and other payments from
our non-insurance subsidiaries, including 40|86 Advisors and CNO Services, LLC,
to CNO or CDOC do not require approval by any regulatory authority or other
third party. However, insurance regulators may prohibit payments by our
insurance subsidiaries to parent companies if they determine that such payments
could be adverse to our policyholders or contractholders.

The insurance subsidiaries of CDOC receive funds to pay dividends primarily
from: (i) the earnings of their direct businesses; (ii) tax sharing payments
received from subsidiaries (if applicable); and (iii) with respect to Conseco
Life of Texas, dividends received from subsidiaries. At September 30, 2012, the
subsidiaries of Conseco Life of Texas had earned surplus (deficit) as summarized
below (dollars in millions):

                                          Earned surplus
          Subsidiary of CDOC                (deficit)       Additional information
Subsidiaries of Conseco Life of Texas:
Bankers Life                             $       280.2               (a)
Colonial Penn Life Insurance Company            (246.5 )             (b)


___________

(a) Bankers Life paid ordinary dividends of $65.0 million to Conseco Life of

Texas in the first nine months of 2012.


(b)    The deficit is primarily due to transactions which occurred several years

ago, including a tax planning transaction and the fee paid to recapture a

block of business previously ceded to an unaffiliated insurer.




A significant deterioration in the financial condition, earnings or cash flow of
the material subsidiaries of CNO or CDOC for any reason could hinder such
subsidiaries' ability to pay cash dividends or other disbursements to CNO and/or
CDOC, which, in turn, could limit CNO's ability to meet debt service
requirements and satisfy other financial obligations. In addition, we may choose
to retain capital in our insurance subsidiaries or to contribute additional
capital to our insurance subsidiaries to strengthen their surplus, and these
decisions could limit the amount available at our top tier insurance
subsidiaries to pay dividends to the holding companies. In the past, we have
made capital contributions to our insurance subsidiaries to meet debt covenants
and minimum capital levels required by certain regulators and it is possible we
will be required to do so in the future. We paid a capital contribution to our
insurance subsidiaries of $26.0 million in the first nine months of 2012, which
had been accrued at December 31, 2011.


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In the third quarter of 2012, as further discussed in the note to the
consolidated financial statements entitled "Notes Payable - Direct Corporate
Obligations", we completed a comprehensive recapitalization plan. The following
table sets forth the sources and uses of cash from the recapitalization
transactions (dollars in millions):

Sources:

   New Senior Secured Credit Agreement                              $       669.5
   Issuance of 6.375% Notes                                                 275.0
     Total sources                                                  $       944.5

Uses:
   Cash on hand for general corporate purposes                      $       

19.9

Repurchase of $200 million principal amount of 7.0% Debentures

   pursuant to Debenture Repurchase Agreement                               

355.1

   Repayment of Previous Senior Secured Credit Agreement                    

223.8

Repayment of $273.8 million principal amount of 9.0% Notes,

   including redemption premium, pursuant to tender offer                   322.7
   Debt issuance costs                                                       16.9
   Accrued interest                                                           6.1
     Total uses                                                     $       944.5



The scheduled principal payments on our direct corporate obligations are as follows at September 30, 2012 (dollars in millions):


Year ending September 30,  Principal
2013                      $     55.4
2014                            54.3
2015                            79.3
2016                            79.3
2017                            97.2
Thereafter                     678.7
                          $  1,044.2



In May 2011, the Company announced a common share repurchase program of up to
$100.0 million of the Company's outstanding common stock. In February 2012 and
June 2012, the Company's board of directors approved, in aggregate, an
additional $200.0 million to repurchase the Company's outstanding common stock.
The Company had remaining repurchase authority of $130.7 million as of
September 30, 2012. We currently anticipate repurchasing common shares near the
high end of the $150 million to $170 million range during 2012 ($99.5 million of
which were repurchased in the first nine months of 2012, representing 12.9
million shares).

In May 2012, we initiated a common stock dividend program. In both the second
and third quarters of 2012, dividends declared and paid on common stock were
$0.02 per common share totaling $9.4 million.

Also, in the first nine months of 2012, as required under the terms of the
Previous Senior Secured Credit Agreement, we made mandatory prepayments of $31.4
million due to repurchases of our common stock and payment of a common stock
dividend.

In March 2012, we paid in full the remaining $50.0 million principal balance on
the Senior Health Note, which had been scheduled to mature in November 2013. The
repayment in full of the Senior Health Note removed the previous restriction on
our ability to pay cash dividends on our common stock.


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The New Senior Secured Credit Agreement requires the Company to maintain (each
as calculated in accordance with the New Senior Secured Credit Agreement): (i) a
debt to total capitalization ratio of not more than 27.5 percent (such ratio was
21.5 percent at September 30, 2012); (ii) an interest coverage ratio of not less
than 2.50 to 1.00 for each rolling four quarters (or, if less, the number of
full fiscal quarters commencing after the effective date of the New Senior
Secured Credit Agreement) (such ratio was not applicable for the period ended
September 30, 2012); (iii) an aggregate ratio of total adjusted capital to
company action level risk-based capital for the Company's insurance subsidiaries
of not less than 250 percent (such ratio was 361 percent at September 30, 2012);
and (iv) a combined statutory capital and surplus for the Company's insurance
subsidiaries of at least $1,300.0 million (combined statutory capital and
surplus at September 30, 2012, was $1,766.8 million).

Mandatory prepayments of the New Senior Secured Credit Agreement will be
required, subject to certain exceptions, in an amount equal to: (i) 100% of the
net cash proceeds from certain asset sales or casualty events; (ii) 100% of the
net cash proceeds received by the Company or any of its restricted subsidiaries
from certain debt issuances; and (iii) 100% of the amount of certain restricted
payments made (including any common stock dividends and share repurchases) as
defined in the New Senior Secured Credit Agreement provided that if, as of the
end of the fiscal quarter immediately preceding such restricted payment, the
debt to total capitalization ratio is: (x) equal to or less than 22.5%, but
greater than 17.5%, the prepayment requirement shall be reduced to 33.33%; or
(y) equal to or less than 17.5%, the prepayment requirement shall not apply.

Notwithstanding the foregoing, no mandatory prepayments pursuant to item (i) in
the preceding paragraph shall be required if: (x) the debt to total
capitalization ratio is equal or less than 20% and (y) either (A) the financial
strength rating of certain of the Company's insurance subsidiaries is equal or
better than A- (stable) from A.M. Best or (B) the New Senior Secured Credit
Agreement is rated equal or better than BBB- (stable) from S&P and Baa3 (stable)
by Moody's.

The 6.375% Indenture contains covenants that, among other things, limit (subject
to certain exceptions) the Company's ability and the ability of the Company's
Restricted Subsidiaries (as defined in the 6.375% Indenture) to:

• incur or guarantee additional indebtedness or issue preferred stock;

• pay dividends or make other distributions to shareholders;

• purchase or redeem capital stock or subordinated indebtedness;




• make investments;



• create liens;



•            incur restrictions on the Company's ability and the ability of its
             Restricted Subsidiaries to pay dividends or make other payments to
             the Company;


• sell assets, including capital stock of the Company's subsidiaries;




•            consolidate or merge with or into other companies or 

transfer all or

             substantially all of the Company's assets; and



• engage in transactions with affiliates.




Under the 6.375% Indenture, the Company can make Restricted Payments (as such
term is defined in the 6.375% Indenture) up to a calculated limit, provided that
the Company's pro forma risk-based capital ratio exceeds 225% after giving
effect to the Restricted Payment and certain other conditions are met.
Restricted Payments include, among other items, repurchases of common stock and
cash dividends on common stock (to the extent such dividends exceed $30 million
in the aggregate in any calendar year). The limit of Restricted Payments
permitted under the 6.375% Indenture is the sum of (x) 50% of the Company's "Net
Excess Cash Flow" (as defined in the 6.375% Indenture) for the period (taken as
one accounting period) from July 1, 2012 to the end of the Company's most
recently ended fiscal quarter for which financial statements are available at
the time of such Restricted Payment, (y) $175 million and (z) certain other
amounts specified in the 6.375% Indenture. Based on the provisions set forth in
the 6.375% Indenture and the Company's Net Excess Cash Flow for the period from
July 1, 2012 through September 30, 2012, the Company could have made additional
Restricted Payments under this 6.375% Indenture covenant of approximately $244
million as of September 30, 2012. This limitation on Restricted Payments does
not apply if the Debt to Total Capitalization Ratio (as defined in the 6.375%
Indenture) as of the last day of the Company's most recently ended fiscal
quarter for which financial statements are available that immediately precedes
the date of any Restricted Payment,

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calculated immediately after giving effect to such Restricted Payment and any related transactions on a pro forma basis, is equal to or less than 17.5%.


As part of our investment strategy for the holding company, we may enter into
repurchase agreements to increase our investment return. We account for these
transactions as collateralized borrowings, where the amount borrowed is equal to
the sales price of the underlying securities. Repurchase agreements involve a
sale of securities and an agreement to repurchase the same securities at a later
date at an agreed-upon price. We had no such borrowings outstanding at
September 30, 2012. The primary risks associated with short-term collateralized
borrowings are: (i) a substantial decline in the market value of the margined
security; and (ii) that a counterparty will be unable to perform under the terms
of the contract or be unwilling to extend such related financing in future
periods especially if the liquidity or value of the margined security has
declined. Exposure is limited to any depreciation in value of the related
securities.

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


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INVESTMENTS

At September 30, 2012, the amortized cost, gross unrealized gains and losses and estimated fair value of fixed maturities, available for sale, and equity securities were as follows (dollars in millions):

                                                        Gross            Gross        Estimated
                                      Amortized       unrealized      unrealized         fair
                                         cost           gains           losses          value
Investment grade (a):
Corporate securities                 $ 13,446.3     $    2,205.7     $     (16.1 )   $ 15,635.9
United States Treasury securities
and obligations of United States
government corporations and agencies      164.2              6.9               -          171.1
States and political subdivisions       1,770.3            267.9            (4.6 )      2,033.6
Debt securities issued by foreign
governments                                  .8                -               -             .8
Asset-backed securities                 1,068.0             73.9            (3.6 )      1,138.3
Collateralized debt obligations           322.2              5.0             (.6 )        326.6
Commercial mortgage-backed
securities                              1,400.7            142.7             (.8 )      1,542.6
Mortgage pass-through securities           18.8              1.4               -           20.2
Collateralized mortgage obligations     1,223.9            109.1             (.9 )      1,332.1
Total investment grade fixed
maturities, available for sale         19,415.2          2,812.6           (26.6 )     22,201.2
Below-investment grade (a):
Corporate securities                    1,140.3             60.0           (12.7 )      1,187.6
States and political subdivisions          15.3                -             (.8 )         14.5
Asset-backed securities                   323.3             18.1            (3.0 )        338.4
Collateralized debt obligations             5.4               .2             (.2 )          5.4
Collateralized mortgage obligations       926.2             69.0               -          995.2
Total below-investment grade fixed
maturities, available for sale          2,410.5            147.3           (16.7 )      2,541.1
Total fixed maturities, available
for sale                             $ 21,825.7     $    2,959.9     $     (43.3 )   $ 24,742.3
Equity securities                    $    174.0     $        6.1     $       (.1 )   $    180.0


_______________

(a) Investment ratings - Investment ratings are assigned the second lowest

rating by Nationally Recognized Statistical Rating Organizations

("NRSROs") (Moody's, S&P or Fitch), or if not rated by such firms, the

rating assigned by the National Association of Insurance Commissioners

(the "NAIC"). NAIC designations of "1" or "2" include fixed maturities

generally rated investment grade (rated "Baa3" or higher by Moody's or

rated "BBB-" or higher by S&P and Fitch). NAIC designations of "3" through

       "6" are referred to as below-investment grade (which generally are rated
       "Ba1" or lower by Moody's or rated "BB+" or lower by S&P and
       Fitch). References to investment grade or below-investment grade
       throughout our consolidated financial statements are determined as
       described above.



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The NAIC evaluates the fixed maturity investments of insurers for regulatory and
capital assessment purposes and assigns securities to one of six credit quality
categories called NAIC designations, which are used by insurers when preparing
their annual statements based on statutory accounting principles. The NAIC
designations are generally similar to the credit quality designations of the
NRSROs for marketable fixed maturity securities, except for certain structured
securities as described below. The following summarizes the NAIC designations
and NRSRO equivalent ratings:

NAIC Designation   NRSRO Equivalent Rating

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



The NAIC adopted revised rating methodologies for non-agency residential
mortgage-backed securities that became effective December 31, 2009 and for
commercial mortgage-backed traded securities and other asset-backed securities
that became effective December 31, 2010. The NAIC's objective with the revised
ratings was to increase the accuracy in assessing potential losses, and to use
the improved assessment to determine a more appropriate capital requirement for
such structured securities. Accordingly, certain structured securities rated
below investment grade by the NRSROs could be assigned as NAIC 1 or NAIC 2
securities dependent on the cost basis of the holder relative to estimated
recoverable amounts as determined by the NAIC.

A summary of our fixed maturity securities, available for sale, by NAIC
designations (or for fixed maturity securities held by non-regulated entities,
based on NRSRO ratings) as of September 30, 2012 is as follows (dollars in
millions):

                                          Percentage
                             Estimated     of total
   NAIC        Amortized       fair        estimated
designation      cost          value      fair value

     1        $ 10,454.4    $ 11,893.9         48.1 %
     2          10,140.2      11,564.4         46.7
     3             890.8         937.0          3.8
     4             304.0         315.2          1.3
     5              35.9          31.4           .1
     6                .4            .4            -
              $ 21,825.7    $ 24,742.3        100.0 %




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Concentration of Fixed Maturity Securities, Available for Sale

The following table summarizes the carrying values and gross unrealized losses of our fixed maturity securities, available for sale, by category as of September 30, 2012 (dollars in millions):

                                                                                               Percent of
                                                                                   Gross          gross
                                                              Percent of        unrealized     unrealized
                                       Carrying value      fixed maturities       losses         losses
Energy/pipelines                     $        2,538.7               10.3 %     $        .3            .8 %
Collateralized mortgage obligations           2,327.3                9.4                .9           2.1
Utilities                                     2,100.6                8.5                .7           1.6
States and political subdivisions             2,048.1                8.3               5.4          12.6
Commercial mortgage-backed
securities                                    1,542.6                6.2                .8           1.7
Insurance                                     1,538.1                6.2               2.5           5.9
Asset-backed securities                       1,476.7                6.0               6.6          15.2
Food/beverage                                 1,254.8                5.1               3.5           8.1
Healthcare/pharmaceuticals                    1,208.3                4.9                .3            .8
Cable/media                                     987.9                4.0               3.5           8.0
Real estate/REITs                               912.9                3.7                 -            .1
Banks                                           805.6                3.2               2.4           5.6
Capital goods                                   690.1                2.8                .1            .3
Transportation                                  564.2                2.3                 -             -
Telecom                                         532.9                2.1               9.1          20.9
Aerospace/defense                               440.7                1.8                 -             -
Chemicals                                       424.7                1.7                 -             -
Building materials                              382.3                1.5               4.8          11.1
Metals and mining                               362.3                1.5               1.2           2.7
Paper                                           337.6                1.4                 -             -
Consumer products                               337.5                1.4                .1            .1
Collateralized debt obligations                 332.0                1.3                .8           1.8
Brokerage                                       294.1                1.2                .1            .2
Other                                         1,302.3                5.2                .2            .4
Total fixed maturities, available
for sale                             $       24,742.3              100.0 %     $      43.3         100.0 %


Below-Investment Grade Securities

At September 30, 2012, the amortized cost of the Company's below-investment grade fixed maturity securities was $2,410.5 million, or 11 percent of the Company's fixed maturity portfolio. The estimated fair value of the below-investment grade portfolio was $2,541.1 million, or 105 percent of the amortized cost.


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


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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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Net Realized Investment Gains (Losses)

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

                                                    Three months ended          Nine months ended
                                                       September 30,              September 30,
                                                     2012          2011         2012         2011
Fixed maturity securities, available for sale:
Realized gains on sale                           $    35.1       $  74.3     $   103.4     $ 141.2
Realized losses on sale                               (7.5 )       (18.1 )       (15.3 )     (57.1 )
Impairments:
Total other-than-temporary impairment losses             -             -           (.9 )     (11.5 )
Other-than-temporary impairment losses
recognized in accumulated other comprehensive
income (loss)                                            -             -             -           -
Net impairment losses recognized                         -             -           (.9 )     (11.5 )
Net realized investment gains from fixed
maturities                                            27.6          56.2          87.2        72.6
Equity securities                                        -           (.4 )          .1         (.2 )
Commercial mortgage loans                             (1.4 )       (21.5 )        (1.5 )     (22.2 )
Impairments of mortgage loans and other
investments                                          (23.1 )        (2.9 )       (33.6 )     (14.8 )
Other                                                  6.0           (.8 )        11.7         3.2
Net realized investment gains                    $     9.1       $  30.6    

$ 63.9$ 38.6




During the first nine months of 2012, we recognized net realized investment
gains of $63.9 million, which were comprised of $89.0 million of net gains from
the sales of investments (primarily fixed maturities) with proceeds of $1.9
billion, the increase in fair value of certain fixed maturity investments with
embedded derivatives of $9.4 million, and $34.5 million of writedowns of
investments for other than temporary declines in fair value recognized through
net income.

During the first nine months of 2011, we recognized net realized investment gains of $38.6 million, which were comprised of $64.9 million of net gains from the sales of investments (primarily fixed maturities) and $26.3 million of writedowns of investments for other than temporary declines in fair value recognized through net income.

At September 30, 2012, fixed maturity securities in default or considered nonperforming had an aggregate amortized cost of $.4 million and a carrying value of $.5 million.


During the first nine months of 2012, the $34.5 million of other-than-temporary
impairments we recorded in earnings included: (i) $3.2 million of losses related
to certain commercial mortgage loans; (ii) $29.9 million of losses on equity
securities primarily related to investments obtained through the commutation of
an investment made by our Predecessor (as further described below); and (iii)
$1.4 million of additional losses following unforeseen issue-specific events or
conditions.

During the first nine months of 2012, the $15.3 million of realized losses on
sales of $393.8 million of fixed maturity securities, available for sale,
included: (i) $5.1 million of losses related to the sales of mortgage-backed
securities and asset-backed securities; and (ii) $10.2 million of additional
losses primarily related to various corporate securities. Securities are
generally sold at a loss following unforeseen issue-specific events or
conditions or shifts in perceived risks. These reasons include but are not
limited to: (i) changes in the investment environment; (ii) expectation that the
fair value could deteriorate further; (iii) desire to reduce our exposure to an
asset class, an issuer or an industry; (iv) prospective or actual changes in
credit quality; or (v) related to structured securities, changes in expected
cash flows.

As disclosed in the notes to the consolidated financial statements included in
our 2011 Annual Report on Form 10-K, we completed the commutation of an
investment made by our Predecessor in a guaranteed investment contract issued by
a Bermuda insurance company in exchange for interests in certain underlying
assets held by the insurance company. During the first nine months of 2011, we
completed the commutation of this investment, in a series of transactions,
pursuant to which we received government agency securities as well as equity
interests in certain corporate investments with an aggregate fair value of
$197.5 million in exchange for our holdings with a book value of $201.5 million
(resulting in a net realized loss of $4.0

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                              ___________________

million, of which, a realized gain of $4.9 million was recognized in the third
quarter of 2011). During the first nine months of 2011, we recognized impairment
charges of $11.5 million (none of which was recognized in the third quarter of
2011) on the underlying invested assets.

During the first nine months of 2011, the $26.3 million of other-than-temporary
impairments we recorded in earnings included: (i) $11.5 million on an investment
in a guaranteed investment contract as discussed above; (ii) $10.5 million of
losses related to certain commercial mortgage loans; (iii) $3.5 million related
to investments held by a VIE as a result of our intent to sell such investments;
and (iv) $.8 million of additional losses following unforeseen issue-specific
events or conditions.

During the first nine months of 2011, the $57.1 million of realized losses on
sales of $.9 billion of fixed maturity securities, available for sale, included:
(i) $20.6 million of losses related to the sales of mortgage-backed securities
and asset-backed securities; (ii) $13.4 million related to sales of securities
issued by states and political subdivisions; (iii) $8.9 million related to the
commutation of the guaranteed investment contract as discussed above; and (iv)
$14.2 million of additional losses primarily related to various corporate
securities.

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

There were no investments sold at a loss during the first nine months of 2012
that had been continuously in an unrealized loss position exceeding 20 percent
of the amortized cost basis for more than 12 months prior to the sale of the
investment.

We regularly evaluate all of our investments with unrealized losses for possible
impairment. Our assessment of whether unrealized losses are "other than
temporary" requires significant judgment. Factors considered include: (i) the
extent to which fair value is less than the cost basis; (ii) the length of time
that the fair value has been less than cost; (iii) whether the unrealized loss
is event driven, credit-driven or a result of changes in market interest rates
or risk premium; (iv) the near-term prospects for specific events, developments
or circumstances likely to affect the value of the investment; (v) the
investment's rating and whether the investment is investment-grade and/or has
been downgraded since its purchase; (vi) whether the issuer is current on all
payments in accordance with the contractual terms of the investment and is
expected to meet all of its obligations under the terms of the investment; (vii)
whether we intend to sell the investment or it is more likely than not that
circumstances will require us to sell the investment before recovery occurs;
(viii) the underlying current and prospective asset and enterprise values of the
issuer and the extent to which the recoverability of the carrying value of our
investment may be affected by changes in such values; (ix) projections of, and
unfavorable changes in, cash flows on structured securities including
mortgage-backed and asset-backed securities; (x) our best estimate of the value
of any collateral; and (xi) other objective and subjective factors.

Future events may occur, or additional information may become available, which
may necessitate future realized losses in our portfolio. Significant losses
could have a material adverse effect on our consolidated financial statements in
future periods.

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The following table sets forth the amortized cost and estimated fair value of
those fixed maturities, available for sale, with unrealized losses at
September 30, 2012, by contractual maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties. Structured securities frequently include
provisions for periodic principal payments and permit periodic unscheduled
payments.
                                                        Estimated
                                         Amortized        fair
                                           cost           value
                                          (Dollars in millions)
Due in one year or less                $       10.0    $     10.0
Due after one year through five years          55.0          54.1
Due after five years through ten years        177.8         172.9
Due after ten years                           478.9         450.5
Subtotal                                      721.7         687.5
Structured securities                         375.7         366.6
Total                                  $    1,097.4    $  1,054.1



There were no investments in our portfolio rated below-investment grade which
have been continuously in an unrealized loss position exceeding 20 percent of
the cost basis at September 30, 2012.


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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

The following table summarizes the gross unrealized losses of our fixed maturity securities, available for sale, by category and ratings category as of September 30, 2012 (dollars in millions):

                                     Investment grade                Below investment grade
                                                                                                     Total gross
                                                                                      B+ and         unrealized
                                  AAA/AA/A            BBB              BB              below           losses
Telecom                      $         -          $      8.5     $          .1     $        .4     $         9.0
Asset-backed securities              1.0                 2.6               2.3              .7               6.6
States and political
subdivisions                         1.5                 3.1                .8               -               5.4
Building materials                     -                   -               3.6             1.2               4.8
Food/beverage                          -                 3.5                 -               -               3.5
Cable/media                            -                   -               1.1             2.4               3.5
Insurance                              -                 1.9                .6               -               2.5
Banks                                  -                  .7               1.7               -               2.4
Metals and mining                      -                  .4                .8               -               1.2
Collateralized mortgage
obligations                           .8                  .1                 -               -                .9
Collateralized debt
obligations                           .6                   -                 -              .2                .8
Commercial mortgage-backed
securities                            .6                  .2                 -               -                .8
Utilities                              -                  .7                 -               -                .7
Energy/pipelines                       -                   -                .2              .1                .3
Healthcare/pharmaceuticals             -                  .1                .2               -                .3
Capital goods                          -                   -                .1              .1                .2
Brokerage                              -                  .1                 -               -                .1
Consumer products                      -                   -                .1               -                .1
Real estate/REITs                      -                  .1                 -               -                .1
Other                                  -                  .1                 -               -                .1
Total fixed maturities,
available for sale           $       4.5          $     22.1     $        11.6     $       5.1     $        43.3



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


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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
                              ___________________

The following table summarizes the gross unrealized losses and fair values of
our investments with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length of
time that such securities had been in a continuous unrealized loss position, at
September 30, 2012 (dollars in millions):

                              Less than 12 months                 12 months or greater                     Total
Description of                Fair          Unrealized            Fair           Unrealized        Fair        Unrealized
securities                    value           losses             value             losses          value         losses
States and political
subdivisions            $     40.2         $      (2.0 )          68.7          $      (3.4 )   $   108.9     $      (5.4 )
Corporate securities         300.5                (9.2 )         278.1                (19.6 )       578.6           (28.8 )

Asset-backed

securities                    42.1                 (.3 )         137.8                 (6.3 )       179.9            (6.6 )
Collateralized debt
obligations                   12.7                 (.1 )          47.2                  (.7 )        59.9             (.8 )
Commercial
mortgage-backed
securities                    16.0                 (.1 )          14.3                  (.7 )        30.3             (.8 )
Mortgage pass-through
securities                       -                   -             2.0                    -           2.0               -

Collateralized

mortgage obligations          58.5                 (.5 )          36.0                  (.4 )        94.5             (.9 )
Total fixed
maturities, available
for sale                $    470.0         $     (12.2 )   $     584.1          $     (31.1 )   $ 1,054.1     $     (43.3 )
Equity securities       $      2.1         $       (.1 )   $         -          $         -     $     2.1     $       (.1 )



Based on management's current assessment of investments with unrealized losses
at September 30, 2012, the Company believes the issuers of the securities will
continue to meet their obligations (or with respect to equity-type securities,
the investment value will recover to its cost basis). While we do not have the
intent to sell securities with unrealized losses and it is not more likely than
not that we will be required to sell securities with unrealized losses prior to
their anticipated recovery, our intent on an individual security may change,
based upon market or other unforeseen developments. In such instances, if a loss
is recognized from a sale subsequent to a balance sheet date due to these
unexpected developments, the loss is recognized in the period in which we had
the intent to sell the security before its anticipated recovery.

Structured Securities


At September 30, 2012 fixed maturity investments included structured securities
with an estimated fair value of $5.7 billion (or 23 percent of all fixed
maturity securities). The yield characteristics of structured securities differ
in some respects from those of traditional corporate fixed-income securities or
government securities. For example, interest and principal payments on
structured securities may occur more frequently, often monthly. In many
instances, we are subject to the risk that the amount and timing of principal
and interest payments may vary from expectations. For example, in many cases,
partial prepayments may occur at the option of the issuer and prepayment rates
are influenced by a number of factors that cannot be predicted with certainty,
including: the relative sensitivity of the underlying assets backing the
security to changes in interest rates; a variety of economic, geographic and
other factors; the timing and pace of liquidations of defaulted collateral; and
various security-specific structural considerations (for example, the repayment
priority of a given security in a securitization structure). In addition, the
total amount of payments for non-agency structured securities may be affected by
changes to cumulative default rates or loss severities of the related
collateral.


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The following table sets forth the par value, amortized cost and estimated fair
value of structured securities, summarized by interest rates on the underlying
collateral, at September 30, 2012 (dollars in millions):

                               Par        Amortized      Estimated
                              value         cost        fair value
Below 4 percent             $   632.9    $    582.2    $      598.0
4 percent - 5 percent           771.2         752.1           827.9
5 percent - 6 percent         2,880.6       2,732.6         2,965.7
6 percent - 7 percent           977.9         915.8           987.9
7 percent - 8 percent           168.2         173.8           185.1
8 percent and above             131.2         132.0           134.2

Total structured securities $ 5,562.0$ 5,288.5$ 5,698.8




The amortized cost and estimated fair value of structured securities at
September 30, 2012, summarized by type of security, were as follows (dollars in
millions):
                                                                       Estimated fair value
                                                                                         Percent
                                                  Amortized                              of fixed
Type                                                cost               Amount           maturities
Pass-throughs, sequential and equivalent
securities                                      $   1,443.4     $     1,553.9                6.3 %
Planned amortization classes, target
amortization classes and accretion-directed
securities                                            697.0             763.0                3.1
Commercial mortgage-backed securities               1,400.7           1,542.6                6.2
Asset-backed securities                             1,391.3           1,476.7                6.0
Collateralized debt obligations                       327.6             332.0                1.3
Other                                                  28.5              30.6                 .1
Total structured securities                     $   5,288.5     $     5,698.8               23.0 %



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

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


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                   CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
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Commercial Mortgage Loans


The following table provides the carrying value and estimated fair value of our
outstanding mortgage loans and the underlying collateral as of September 30,
2012, summarized by loan-to-value ratios (dollars in millions):

                                                  Estimated fair value
Loan-to-value ratio (a)  Carrying value      Mortgage loans      Collateral
Less than 60%           $          778.1    $          866.5    $    2,214.6
60% to 70%                         298.5               319.8           462.8
Greater than 70% to 80%            284.3               300.5           383.4
Greater than 80% to 90%            125.6               130.1           148.0
Greater than 90%                   110.7               101.4           117.3
Total                   $        1,597.2    $        1,718.3    $    3,326.1



________________

(a) Loan-to-value ratios are calculated as the ratio of: (i) the carrying value

     of the commercial mortgage loans; to (ii) the estimated fair value of the
     underlying collateral.


INVESTMENT IN VARIABLE INTEREST ENTITIES


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

                                                    Three months ended         Nine months ended
                                                      September 30,              September 30,
                                                     2012         2011          2012         2011
Revenues:
Net investment income - policyholder and
reinsurer accounts and other special-purpose
portfolios                                       $     10.2     $   5.9     $    23.6      $  14.0
Fee revenue and other income                             .4          .4           1.1           .9
Total revenues                                         10.6         6.3          24.7         14.9
Expenses:
Interest expense                                        5.8         2.4          14.5          8.4
Other operating expenses                                 .1          .1            .4           .5
Total expenses                                          5.9         2.5          14.9          8.9
Income before net realized investment gains
(losses) and income taxes                               4.7         3.8           9.8          6.0
Net realized investment gains (losses)                   .1         (.6 )         (.1 )        (.2 )
Income before income taxes                       $      4.8     $   3.2     $     9.7      $   5.8



During the first nine months of 2012, net realized investment losses
included: (i) $.3 million of net gains from the sales of investments; and (ii)
$.4 million of writedowns of investments held by VIEs as a result of our intent
not to hold such investments for a period of time that would be sufficient to
allow for any anticipated recovery in value. During the first nine months of
2011, net realized investment gains included: (i) $3.3 million of net gains from
the sales of investments; and (ii) $3.5 million of writedowns of investments
held by VIEs as a result of our intent to sell such investments.

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Supplemental Information on Investments Held by VIEs

The following table summarizes the carrying values of the investments held by the VIEs by category as of September 30, 2012 (dollars in millions):

                                                                             Percent of
                                                 Percent         Gross          gross
                                                of fixed      unrealized     unrealized
                            Carrying value     maturities       losses         losses
Healthcare/pharmaceuticals $          106.0         12.8 %   $         .9         27.0 %
Cable/media                            95.9         11.6               .3          9.6
Technology                             75.4          9.1               .2          6.7
Autos                                  65.4          7.9               .1          1.5
Food/beverage                          57.2          6.9               .1          2.3
Brokerage                              49.5          5.9               .6         18.7
Gaming                                 40.4          4.9               .1          2.0
Consumer products                      28.5          3.4               .4         12.4
Insurance                              26.4          3.2                -           .2
Telecom                                26.1          3.2               .1          1.7
Entertainment/hotels                   25.9          3.1               .2          6.5
Aerospace/defense                      21.8          2.6                -            -
Utilities                              20.8          2.5               .1          1.6
Chemicals                              19.3          2.3                -           .8
Retail                                 18.9          2.3                -           .4
Building materials                     18.7          2.3                -           .3
Metals and mining                      16.0          1.9                -            -
Energy/pipelines                       15.5          1.9                -           .9
Real estate/REITs                      12.6          1.5                -           .4
Transportation                         12.5          1.5                -          1.4
Capital goods                           9.5          1.1                -           .3
Paper                                   5.0           .6               .1          2.0
Other                                  62.1          7.5               .1          3.3
Total                      $          829.4        100.0 %   $        3.3        100.0 %



The following table sets forth the amortized cost and estimated fair value of
those investments held by the VIEs with unrealized losses at September 30, 2012,
by contractual maturity. Actual maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.

                                                       Estimated
                                        Amortized         fair
                                           cost          value
                                          (Dollars in millions)
Due in one year or less                $       1.2    $       1.2

Due after one year through five years 199.7 196.8 Due after five years through ten years 105.9 105.5 Total

                                  $     306.8    $     303.5



There were no investments held by the VIEs rated below-investment grade which
had been continuously in an unrealized loss position exceeding 20 percent of the
cost basis as of September 30, 2012.

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NEW ACCOUNTING STANDARDS

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

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