Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q2 2012 Earnings Presentation
60 slides from Cno Financial's earnings presentation, Jul 26, 2012
Slide 1: 2Q12 Financial and Operating Results
2Q12 Financial and operating results for the period ended June 30, 2012 July 26, 2012 Unless otherwise specified, comparisons in this presentation are between 2Q12 and 2Q11. Exhibit 99.1
Slide 2: Forward-Looking Statements
CNO Financial Group 2 Forward-Looking Statements Certain statements made in this presentation should be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These include statements about future results of operations and capital plans. We caution
Slide 3: Non-GAAP Measures
CNO Financial Group 3 Non-GAAP Measures This presentation contains the following financial measures that differ from the comparable measures under Generally Accepted Accounting Principles (GAAP): operating earnings measures; book value, excluding accumulated other comprehensive income (loss) per sha
Slide 4: Adoption of New Accounting Standard
CNO Financial Group 4 Adoption of New Accounting Standard Effective January 1, 2012, we adopted ASU 2010-26 which modified the definition of the types of acquisition costs that can be deferred by insurance companies. We elected to adopt the new guidance on a retrospective basis. Accordingly, all pri
Slide 5: CNO Financial Group
E 3 CNO FINANCIAL GROUP CNO Financial Group
Slide 6: Summary
CNO Financial Group 6 Summary Our businesses continue to perform well – Operating earnings up 22% – Sales growth of 6% over 2Q11 Continue to generate and proactively deploy significant amounts of excess capital – Strong statutory earnings – Increased share buyback program – Initiated common stock
Slide 7: Operating EPS Excluding Significant Items
CNO Financial Group 7 Operating EPS Excluding Significant Items* (Diluted) CNO Weighted average diluted shares (in millions): 308.0 293.5 Earnings Drivers: Business growth and retention In-force margin improvement Proactive capital deployment * A non-GAAP measure. See the Appendix for a reconc
Slide 8: Operating ROE
CNO Financial Group 8 Operating ROE CNO Operating ROE*, Trailing 4 Quarters Average common shareholders’ equity, excluding AOCI and net operating loss carryforwards, trailing 4 quarters: $2,688.1 $2,761.5 $2,828.0 $2,895.6 $2,968.0 ($ millions) 2Q11 6.3% 3Q11 6.0% 4Q11 6.1% 1Q12 5.8% 2Q12 6.0% Tra
Slide 9: Growth in the CNO Franchise
CNO Financial Group 9 $12,106.9 $12,765.2 $13,178.4 $2,676.8 $2,637.6 $2,624.0 $704.0 $711.7 $698.0 Growth in the CNO Franchise ($ millions) $16,514.1 Average liabilities on core business segments are increasing, while OCB is shrinking CNO $15,481.7 $16,106.8 2010 2011 2Q12 $5,511.5 $5,286.1 $5,058.
Slide 10: Free Cash Flow Building
CNO Financial Group 10 Free Cash Flow Building Voluntary debt prepayments and RBC build now complete Continued strong statutory performance results in guidance increases to insurance company dividends and share buybacks Confidence in free cash flow evidenced by initiation of common stock divid
Slide 11: 2Q12 Recap
CNO Financial Group 11 2Q12 Recap CNO Continuing to generate and deploy significant excess capital Investing in our growth Profitability, financial strength and credit profile further improving Increased share repurchase program and initiated dividend program
Slide 12: 2Q12 Core Business Review
CNO Financial Group 12 2Q12 Core Business Review Continued to improve performance across all core segments Gains in agent retention and productivity led to an increase in life, Med supp, and LTC sales Continued stability in LTC line Manager Trainee Program fully operational; continue to hire a
Slide 13: Bankers Life Sales and Distribution Results
CNO Financial Group 13 2Q12 Sales and Distribution Results Bankers Life Quarterly NAP* *MA/PDP sales are excluded from NAP in all periods. ($ millions) – Introduced new critical illness product in 1Q; now available in 35 states 2Q11 $60.1 3Q11 $60.8 4Q11 $69.8 1Q12 $58.8 2Q12 $59.5 Agent force gre
Slide 14: LTC and STC Sales Mix
CNO Financial Group 14 LTC (LTC and HHC) and STC Sales Mix 19% 29% 33% 36% 41% 48% 52% 81% 71% 67% 64% 59% 52% 48% 2006 2007 2008 2009 2010 2011 2012 YTD STC (Short Term Care) LTC (Long Term Care and Home Health Care) Long Term Care Bankers Life Bankers utilizes exclusive distribution with a focus
Slide 15: Washington National Sales and Distribution Results
CNO Financial Group 15 Washington National 2Q12 Sales and Distribution Results ($ millions) Investment in life sales continues to gain traction New producing IMOs up 24% Average PMA sales per agent has grown 14%, a key measure of agent productivity 2Q11 $18.7 3Q11 $19.5 4Q11 $20.7 1Q12 $19.6 2Q
Slide 16: Colonial Penn Sales and Distribution Results
CNO Financial Group 16 Sales growth continues, NAP up 22% Increased investments in marketing and advertising driving sales growth Results reflect increase in lead levels and productivity 2Q12 Sales and Distribution Results Colonial Penn 2Q11 $12.8 3Q11 $12.7 4Q11 $12.3 1Q12 $17.5 2Q12 $15.6 Qua
Slide 17: 2012 Outlook
CNO Financial Group 17 2012 Outlook Strong start with Sales Up In All 3 Core Segments and Positioned Well To Serve Our Target Market Continued investment in branch expansion and management development Introduction of new critical illness product Expect strong sales of life insurance to continu
Slide 18: Net Investment Income
CNO Financial Group 18 Net Investment Income CNO Relatively stable new money rate trends and favorable recent earned yield progression with limited impact from low interest rate environment Year over year increase in investment income primarily due to growth in assets 2Q12 $351.14Q11 $344.23Q11
Slide 19: Realized Gains/Losses Recognized through Net Income
CNO Financial Group 19 Realized Gains/Losses Recognized through Net Income CNO 2Q11 3Q11 4Q11 1Q12 2Q12 Gross Gains $29.7 $74.5 $41.9 $33.3 $41.6 Gross Losses (16.7) (41.0) (10.4) (2.5) (6.2) Losses due to recognition of other-than-temporary impairments recognized in earnings (10.1) (2.9) (8.3) (7.9
Slide 20: Impairments
CNO Financial Group 20 Holdings Investors Guaranty Assurance Berkshire Hathaway Comcast Cable Communications Prudential Securities Kraft Time Warner Cable Home Depot, Inc. Ahold Lease USA, Inc. Heinz (H.J.) Company Cox Enterprises $0 $2 $4 $6 $8 $10 $12 $14 2Q11 3Q11 4Q11 1Q12 2Q12 IGA Corporates Co
Slide 21: Unrealized Gain/Loss
CNO Financial Group 21 Unrealized Gain/Loss* CNO ($ millions) *Includes debt and equity securities classified as available for sale. Excludes investments from variable interest entities which we consolidate under GAAP. $0 $500 $1,000 $1,500 $2,000 $2,500 2Q11 3Q11 4Q11 1Q12 2Q12 Unrealized Gain 0% 1
Slide 22: Asset Allocation and Quality at 6/30/12
CNO Financial Group 22 Asset Allocation and Quality at 6/30/12* Govts/Agency 1.0% Cash & Other 5.1% ABS 6.1% Municipals 7.3% CMBS 6.0% HY Corporates 4.9% Mortgage Loans 6.3% CMOs 9.1% IG Corporates 54.2% *Excludes investments from variable interest entities which we consolidate under GAAP (the relat
Slide 23: Holding Company Investments at 6/30/12
CNO Financial Group 23 Holding Company Investments at 6/30/12 CNO ($ millions) Current Investment Allocation Cash & Money Market / Fixed Income $151.7 Equities / Alternatives $46.0 Portfolio strategy is to maximize returns to better utilize non-life tax benefits while preserving liquidity for contin
Slide 24: 2Q12 Investment Summary and Outlook
CNO Financial Group 24 2Q12 Investment Summary and Outlook CNO Market Observations U.S. yields at record lows as investors move to a “risk- off” posture, bearish on Europe and global growth. This trend is amplified by decent U.S. corporate fundamentals, hence continued strong demand for credit.
Slide 25: 2Q12 Consolidated Summary
CNO Financial Group 25 2Q12 Consolidated Summary CNO *Management believes that an analysis of net income applicable to common stock before: (1) loss on extinguishment of debt, net of income taxes; (2) net realized investment gains or losses, net of related amortization and income taxes; (3) increase
Slide 26: Segment EBIT Excluding Significant Items
CNO Financial Group 26 $68.4 $72.5 $21.8 $33.9 $(11.3) $(9.1) $0.6$0.5 $1.9 $5.1 2Q11 2Q12 CP BLC WN OCB Corporate Segment EBIT Excluding Significant Items* CNO ($ millions) * A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. $99.8 $84.5 CNO’s Earnings Engi
Slide 27: ASU 2010-26 Impact by Segment
CNO Financial Group 27 ASU 2010-26 Impact by Segment Quarter Ended June 30, 2012 ($ in millions) CNO Before DAC Change Total In-force New Business Bankers Life 85.3$ 76.1$ 102.6$ (26.5)$ Washington National 34.7 33.9 34.2 (0.3) Colonial Penn 7.4 0.6 11.2 (10.6) Other CNO Business 1.7 1.9 1.9 - EBIT
Slide 28: Capital Generation - $500 Million Run-Rate
CNO Financial Group 28 $128.2 $137.7 $63.1 $166.0 $209.0 $103.0 $95.5 $154.1 $79.7 $128.2 $137.7 $63.1 $166.0 $209.0 $103.0 $166.1 $346.7 $294.2 Statutory Earnings Power Inflows to Holding Co Statutory Earnings Power Inflows to Holding Co Statutory Earnings Power Inflows to Holding Co Fees and Inter
Slide 29: Holding Company Sources and Uses
CNO Financial Group 29 $294.2 $346.7 $166.1 $44.0 $145.5$139.1 Holding Company Sources and Uses ($ in millions) Recurring Sources Dividends Recurring Uses* Scheduled Debt Payments** $128.2 $114.1 $137.7 $90.5 $166.0 $209.0 * Includes corporate expenses and interest payments ** Excludes impact of cap
Slide 30: Free Cash Flow Run-Rate Building
CNO Financial Group 30 Free Cash Flow Run-Rate Building ($ in millions) $129.2 $139.8 $128.2 $137.7 $129.6 CNO RBC ratio in excess of management target; of $155 million in 2011 retained capital, over $100 million used to build RBC Holding company leverage below management target; $145 million of
Slide 31: Actively Managing Interest Rate Risk
CNO Financial Group 31 Actively Managing Interest Rate Risk CNO ALM Strategies – Tight duration management (less than half a year tolerances across all product portfolios) – Diversification benefits with non-interest sensitive products – Stable liability profile (smaller policies and exclusive dis
Slide 32: Interest Rate Stress-Test Results
CNO Financial Group 32 Interest Rate Stress-Test Results Earnings impact – Net investment income impact of 2.5 - 3.5% reduction to growth over the 3 year planning horizon – Low-For-Long scenario suggest a after-tax income charge related to actuarial analysis over a three year period of – $50-80 mi
Slide 33: Capital Management - Well Positioned
CNO Financial Group 33 CNO * Risk-Based Capital (“RBC”) requirements provide a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks. The RBC ratio is the ratio of the statutory consolidated a
Slide 34: CNO: Well Positioned in Growing & Underserved Markets
CNO Financial Group 34 CNO: Well Positioned in Growing & Underserved Markets The middle-income, pre-retiree and retirement markets are growing as the Baby Boomers age These markets need straightforward products that help address payment of healthcare expenditures, adequacy of retirement, and lea
Slide 35: Questions and Answers
CNO Financial Group 35 Questions and Answers
Slide 36: Appendix
CNO Financial Group 36 Appendix
Slide 37: CNO Value Proposition
CNO Financial Group 37 CNO Value Proposition Competitive Advantage Exclusive, growing distribution Target market focus, with growth as Baby Boomers turn 65 Sustainable with barriers to entry Products Diversified product suite focused on protection needs Actively managed inforce block Foc
Slide 38: 2Q12 Significant Item
CNO Financial Group 38 2Q12 Significant Item CNO ($ millions) The table below summarizes the financial impact of a significant item on our 2Q12 net operating income. Management believes that identifying the impact of this item enhances the understanding of our operating results during 2Q12. * A non-
Slide 39: 2Q11 Significant Item
CNO Financial Group 39 2Q11 Significant Item CNO ($ millions) The table below summarizes the financial impact of a significant item on our 2Q11 net operating income. Management believes that identifying the impact of this item enhances the understanding of our operating results during 2Q2011. Net Op
Slide 40: Quarterly Earnings
CNO Financial Group 40 Quarterly Earnings CNO *Management believes that an analysis of earnings before net realized investment gains (losses), corporate interest, loss on extinguishment of debt, fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabili
Slide 41: Quarterly Earnings
CNO Financial Group 41 Quarterly Earnings 2Q11 3Q11 4Q11 1Q12 2Q12 Insurance policy income $409.6 $404.6 $398.2 $406.5 $419.0 Net investment income: General account assets 196.5 194.3 198.2 200.3 204.9 Other portfolios 0.4 (36.3) 3.6 34.6 (19.3) Fee revenue and other income 3.3 3.6 4.6 2.9 3.3 Total
Slide 42: Quarterly Earnings Washington National
CNO Financial Group 42 Quarterly Earnings Washington National 2Q11 3Q11 4Q11 1Q12 2Q12 Insurance policy income $146.6 $145.9 $147.2 $147.4 $147.6 Net investment income: General account assets 46.7 47.3 49.1 50.0 51.0 Other portfolios - - 0.1 - - Fee revenue and other income 0.2 0.4 0.1 0.2 0.3 Total
Slide 43: Quarterly Earnings Colonial Penn
CNO Financial Group 43 Quarterly Earnings Colonial Penn 2Q11 3Q11 4Q11 1Q12 2Q12 Insurance policy income $50.9 $50.8 $51.0 $53.4 $54.6 Net investment income 10.5 10.1 10.2 10.0 10.2 Fee revenue and other income 0.2 0.2 0.3 0.2 0.2 Total revenues 61.6 61.1 61.5 63.6 65.0 Insurance policy benefits 37.
Slide 44: Quarterly Earnings Other CNO Business
CNO Financial Group 44 Quarterly Earnings Other CNO Business 2Q11 3Q11 4Q11 1Q12 2Q12 Insurance policy income $72.5 $72.2 $73.8 $79.0 $73.6 Net investment income: General account assets 87.6 85.4 85.7 84.0 84.0 Other portfolios (0.9) (10.8) 2.4 8.7 (4.2) Total revenues 159.2 146.8 161.9 171.7 153.4
Slide 45: Premiums Collected
CNO Financial Group 45 Premiums Collected CNO Trailing 4 quarters down 3% – Bankers down 4% due to decline in annuity sales – Colonial Penn up 6% due to increased sales – Steady results for Washington National – OCB declining primarily due to continued run-off of inforce blocks, as expected CP Was
Slide 46: 2Q12 Holding Company Liquidity
CNO Financial Group 46 2Q12 Holding Company Liquidity CNO ($ millions) 2Q12 YTD 2012 Cash and Investments Balance - Beginning $171.9 $202.8 Sources Dividends from Insurance Subsidiaries 58.0 103.0 Dividends from Non-insurance Subsidiaries 4.0 4.0 Surplus Debenture Interest 12.1 24.2 Service and Inve
Slide 47: Commercial Mortgage Loans at 6/30/12
CNO Financial Group 47 Commercial Mortgage Loans at 6/30/12 6.2% of invested assets based on market value Current LTV of approximately 63.8% Average trailing DSCR stable at approximately 1.49 By Property Type By Vintage 0.01% delinquency rate No 2012 loan maturities remain as of the end of
Slide 48: Commercial Mortgage Loans Portfolio at 06/30/12
CNO Financial Group 48 Commercial Mortgage Loans Portfolio at 06/30/12 CNO ($ millions) $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026+ Run-off of Principal of Current CML Portfolio Principal Maturities by Year
Slide 49: Structured Securities Comparison
CNO Financial Group 49 Structured Securities Comparison CNO and U.S. Insurers NAIC Designations for Modeled Securities (CMBS, RMBS) 1 2 3 4 5 6 U.S. Insurers 80.6% 4.3% 5.5% 6.3% 2.8% 0.5% CNO 97.7% 1.5% 0.7% 0.0% 0.0% 0.0% CNO’s securities are more highly rated CNO’s structured securities are at lo
Slide 50: European Debt by Select Countries
CNO Financial Group 50 European Debt by Select Countries Sovereigns Corporates Banks Total Market Market / BV Total Issuers Italy -$ 26.1$ -$ 26.1$ 20.8$ 80% 1 Spain - 64.6 27.9 92.5 78.6 85% 2 Total -$ 90.7$ 27.9$ 118.6$ 99.4$ 84% 3 ($ millions) We have limited direct exposure to the European credi
Slide 51: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 51 Information Related to Certain Non-GAAP Financial Measures The following provides additional information regarding certain non-GAAP measures used in this presentation. A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that
Slide 52: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 52 Information Related to Certain Non-GAAP Financial Measures A reconciliation of net income applicable to common stock to net operating income (and related per-share amounts) is as follows (dollars in millions, except per-share amounts): 2Q11 3Q11 4Q11 1Q12 2Q12 Net income appli
Slide 53: Operating Income and Share Reconciliation
CNO Financial Group 53 2Q11 3Q11 4Q11 1Q12 2Q12 Operating income 44.5$ 32.8$ 51.0$ 40.6$ 54.2$ Add: interest expense on 7.0% Convertible Senior Debentures due 2016, net of income taxes 3.7 3.7 3.7 3.7 3.7 Total adjusted operating income 48.2$ 36.5$ 54.7$ 44.3$ 57.9$ Weighted average shares outstandi
Slide 54: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 54 Information Related to Certain Non-GAAP Financial Measures Book value, excluding accumulated other comprehensive income (loss), per share This non-GAAP financial measure differs from book value per share because accumulated other comprehensive income (loss) has been excluded f
Slide 55: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 55 Information Related to Certain Non-GAAP Financial Measures Operating return measures Management believes that an analysis of return before loss on extinguishment of debt, net realized gains or losses, fair value changes due to fluctuations in the interest rates used to discoun
Slide 56: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 56 Information Related to Certain Non-GAAP Financial Measures The calculations of: (i) operating return on allocated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); and (ii) return on equity, fo
Slide 57: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 57 Information Related to Certain Non-GAAP Financial Measures A reconciliation of pretax operating earnings (a non-GAAP financial measure) to segment operating return (loss) and consolidated net income (loss) for the twelve months June 30, 2012, is as follows (dollars in millions
Slide 58: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 58 Information Related to Certain Non-GAAP Financial Measures A reconciliation of average allocated capital (for the purpose of determining return on allocated capital), excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP finan
Slide 59: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 59 Information Related to Certain Non-GAAP Financial Measures A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non- GAAP financial measure) to common shareholders’ equity, is as follows (doll
Slide 60: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 60 Information Related to Certain Non-GAAP Financial Measures A reconciliation of the debt to capital ratio to debt to capital, excluding AOCI is as follows (dollars in millions) 2Q11 3Q11 4Q11 1Q12 2Q12 Corporate notes payable 934.5$ 871.2$ 857.9$ 799.3$ 778.2$ Total shareholder