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INCOME TAXES | 3 Months Ended
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Mar. 31, 2025
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 ended |  |
| March 31, |  |
| 2025 |  | 2024 |  |  |  |
Current tax expense | $ | 0.8 |  |  | $ | 17.3 |  |  |  |  |
Deferred tax expense | 3.2 |  |  | 16.6 |  |  |  |  |
Total income tax expense | $ | 4.0 |  |  | $ | 33.9 |  |  |  |  |
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:
| Three months ended
| March 31,
| 2025 |  | 2024
U.S. statutory corporate rate | 21.0 | % |  | 21.0 | %
Non-taxable income and nondeductible benefits, net | (0.9) |  |  | — |
State taxes | 2.4 |  |  | 2.2 |
Effective tax rate | 22.5 | % |  | 23.2 | %
The components of the Company's income tax assets and liabilities are summarized below (dollars in millions):
| March 31, 2025 |  | December 31, 2024
Deferred tax assets: |  |  |
Net federal operating loss carryforwards | $ | 254.4 |  |  | $ | 72.2 |
Net state operating loss carryforwards | 40.9 |  |  | 4.4 |
Insurance liabilities | 327.5 |  |  | 330.3 |
Indirect costs allocable to self-constructed real estate assets | 0.9 |  |  | 205.1 |
Accumulated other comprehensive income (loss) | 347.7 |  |  | 385.1 |
Other | 10.5 |  |  | 19.4 |
Gross deferred tax assets | 981.9 |  |  | 1,016.5 |
Deferred tax liabilities: |  |  |
Investments | (41.5) |  |  | (40.8) |
Present value of future profits and deferred acquisition costs | (189.5) |  |  | (184.3) |
Gross deferred tax liabilities | (231.0) |  |  | (225.1) |
Net deferred tax assets | 750.9 |  |  | 791.4 |
Current income taxes prepaid (accrued) | 24.2 |  |  | 27.5 |
Income tax assets, net | $ | 775.1 |  |  | $ | 818.9 |
Effective January 1, 2024, the Company elected to change its tax method of accounting for indirect costs allocable to self-constructed real estate assets. The change in accounting method results in a tax deduction of certain indirect costs previously capitalized under the Company's prior method of accounting. In the second quarter of 2024, the Internal Revenue Service (the "IRS") revised the list of tax method accounting changes that require approval from the IRS to include tax method accounting changes related to indirect costs allocable to self-constructed real estate assets. Previously, only a taxpayer-initiated election was necessary and formal IRS approval was not required. The Company requested approval for its tax method change in June 2024. At December 31, 2024, the Company had not yet received approval from the IRS and was therefore required to account for the existing tax assets under the prior tax method of accounting. In March 2025, the Company executed a consent agreement with the IRS that provides formal approval for the tax method change. As a result, the Company recharacterized the remaining $800 million of capitalized indirect costs under the prior accounting method to a net operating loss carryforward with no expiration date at March 31, 2025. Our income tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax bases of assets and liabilities and 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. 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 $750.9 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. Section 382 of the Internal Revenue Code (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 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 (3.67 percent at March 31, 2025), and the annual restriction could limit our ability to use a substantial portion of our NOLs to offset future taxable income or may defer the utilization of such NOLs. We regularly monitor ownership change (as calculated for purposes of Section 382) and, as of March 31, 2025, we were below the 50 percent ownership change level that could limit our ability to utilize our NOLs. We have $1.2 billion of federal life and non-life NOLs as of March 31, 2025, as summarized below (dollars in millions):
Year of expiration | Life |  | Non-Life |  | Total
NOLs expiring in 2028 through 2035 | $ | — |  |  | $ | 293.4 |  |  | $ | 293.4 |
NOLs with no expiration date | 63.1 |  |  | 855.0 |  |  | 918.1 |
Total | $ | 63.1 |  |  | $ | 1,148.4 |  |  | $ | 1,211.5 |
Our non-life NOLs with expiration dates 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. Our non-life NOLs with no expiration date can be used to offset 35 percent of life insurance company taxable income and 80 percent of non-life company taxable income. We also had deferred tax assets related to NOLs for state income taxes of $40.9 million and $4.4 million at March 31, 2025 and December 31, 2024, respectively, primarily resulting from the tax method change discussed previously. 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 Company had a capital loss carryforward of $6.6 million and $5.6 million at March 31, 2025 and December 31, 2024, respectively. Capital loss carryforwards can be carried forward for up to five years to offset future capital gains. We expect this carryforward to be fully utilized prior to its 2029 expiration date. The IRS 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 2024. 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.

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