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INCOME TAXES
 9 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES

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

Three months endedNine months ended
September 30,September 30,
 2023202220232022
Current tax expense$6.3 $14.9 $40.0 $19.9 
Deferred tax expense42.0 37.1 30.5 155.5 
Total income tax expense$48.3 $52.0 $70.5 $175.4 

A reconciliation of the U.S. statutory corporate tax rate to the estimated annual effective rate, reflected in the consolidated statement of operations is as follows: 
Nine months ended
September 30,
 20232022
U.S. statutory corporate rate21.0 %21.0 %
Non-taxable income and nondeductible benefits, net(.4)(.1)
State taxes2.1 1.9 
Effective tax rate22.7 %22.8 %
The components of the Company's income tax assets and liabilities are summarized below (dollars in millions):
September 30,
2023		December 31,
2022
Deferred tax assets:  
Net federal operating loss carryforwards$100.1 $166.0 
Net state operating loss carryforwards2.5 2.5 
Insurance liabilities312.8 298.5 
Indirect costs allocable to self-constructed real estate assets244.5 214.8 
Accumulated other comprehensive loss552.6 552.4 
Other2.9 7.3 
Gross deferred tax assets1,215.4 1,241.5 
Deferred tax liabilities:  
Investments(30.8)(37.2)
Present value of future profits and deferred acquisition costs(158.6)(148.9)
Gross deferred tax liabilities(189.4)(186.1)
Net deferred tax assets1,026.0 1,055.4 
Current income taxes prepaid13.8 8.0 
Income tax assets, net$1,039.8 $1,063.4 

Our income tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax bases of assets and liabilities and net operating loss carryforwards ("NOLs"). Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which temporary differences are expected to be recovered or paid.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in earnings in the period when the changes are enacted.

A reduction of the net carrying amount of deferred tax assets by establishing a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. In assessing the need for a valuation allowance, all available evidence, both positive and negative, are considered to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed. This assessment requires significant judgment and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of carryforward periods, our experience with operating loss and tax credit carryforwards expiring unused, and tax planning strategies.

We evaluate the need to establish a valuation allowance for our deferred income tax assets on an ongoing basis using a deferred tax valuation model. Our model is adjusted to reflect changes in our projections of future taxable income. Our estimates of future taxable income are based on evidence we consider to be objectively verifiable. At September 30, 2023, our projection of future taxable income for purposes of determining the valuation allowance is based on our estimates of such future taxable income through the date our NOLs expire. Such estimates are subject to numerous risks and uncertainties and the extent to which actual impacts differ from the assumptions used in our deferred tax valuation model. Based on our assessment, we have concluded that it is more likely than not that all our deferred tax assets of $1,026.0 million will be realized through future taxable earnings.

Recovery of our deferred tax asset is dependent on achieving the level of future taxable income projected in our deferred tax valuation model and failure to do so could result in the recognition of a valuation allowance in a future period.  The recognition of a valuation allowance would increase income tax expense and reduce shareholders' equity, and such an increase could have a significant impact upon our earnings in the future.

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

Section 382 of the Code imposes limitations on a corporation's ability to use its NOLs when the company undergoes a 50 percent ownership change over a three-year period.  Future transactions and the timing of such transactions could cause an ownership change for Section 382 income tax purposes.  Such transactions may include, but are not limited to, additional repurchases under our securities repurchase program, issuances of common stock and acquisitions or sales of shares of CNO stock by certain holders of our shares, including persons who have held, currently hold or may accumulate in the future five percent or more of our outstanding common stock for their own account.  Many of these transactions are beyond our control.  If an additional ownership change were to occur for purposes of Section 382, we would be required to calculate an annual restriction on the use of our NOLs to offset future taxable income.  The annual restriction would be calculated based upon the value of CNO's equity at the time of such ownership change, multiplied by a federal long-term tax exempt rate (3.17 percent at September 30, 2023), and the annual restriction could limit our ability to use a substantial portion of our NOLs to offset future taxable income.  We regularly monitor ownership change (as calculated for purposes of Section 382) and, as of September 30, 2023, we were below the 50 percent ownership change level that could limit our ability to utilize our NOLs.

We have $476.6 million of federal non-life NOLs as of September 30, 2023, as summarized below (dollars in millions):
Net operating loss
Year of expirationcarryforwards
2026$125.1 
202710.8 
202880.3 
2029213.2 
2030.3 
2031.2 
203244.4 
2033.6 
2034.9 
2035.8 
Total federal non-life NOLs$476.6 

Our non-life NOLs can be used to offset 35 percent of life insurance company taxable income and 100 percent of non-life company taxable income until all non-life NOLs are utilized or expire.
We also had deferred tax assets related to NOLs for state income taxes of $2.5 million at both September 30, 2023 and December 31, 2022.  The related state NOLs are available to offset future state taxable income in certain states and are expected to be fully utilized prior to expiration.
The Internal Revenue Service is conducting an examination of our 2016 through 2018 tax returns. The federal statute of limitations remains open with respect to tax years 2016 through 2022. The Company’s various state income tax returns are generally open for tax years based on individual state statutes of limitation. Generally, for tax years which generate NOLs, capital losses or tax credit carryforwards, the statute remains open until the expiration of the statute of limitations for the tax year in which such carryforwards are utilized. The outcome of tax audits cannot be predicted with certainty. If the Company’s tax audits are not resolved in a manner consistent with management’s expectations, the Company may be required to adjust its provision for income taxes.