CNO Financial Group, Inc. · NYSE:CNO
CNO Financial — Q1 2014 Earnings Presentation
43 slides from CNO Financial's earnings presentation, Apr 28, 2014
Slide 1: 1Q14 Financial and operating results for the period ended March 31, 2014
1Q14 Financial and operating results for the period ended March 31, 2014 April 28, 2014 Unless otherwise specified, comparisons in this presentation are between 1Q14 and 1Q13.
Slide 2: Forward-Looking Statements
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 investors that these f
Slide 3: Non-GAAP Measures
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 share; operating return m
Slide 4: CNO Financial Group | 1Q2014 Earnings | April 28, 2014
CNO Financial Group | 1Q2014 Earnings | April 28, 2014 4
Slide 5: 1Q14 Summary
1Q14 Summary CNO Continued sustainable, profitable growth Maintained strong financial position Returned capital to shareholders CLIC transaction on track for mid-year close Moody’s upgraded debt ratings, maintained positive outlook CNO Financial Group | 1Q2014 Earnings | April 28, 2014 5
Slide 6: Investments Driving Growth
Investments Driving Growth CNO Plan to Invest $45 - $55 million in Key Initiatives in 2014 to Continue Driving Above Industry Growth Rates Investment Breakdown Growth in Business ($ millions) 1Q14 1Q13 LTM NAP $420 $395 Agent Growth Customer and Experience / LTM Collected Premium* $2,403 $2,351 Expa
Slide 7: 1Q14 Sales and Distribution Results Bankers Life
1Q14 Sales and Distribution Results Bankers Life ($ millions) Quarterly NAP* 4Q13 Sales up 4% $73.9 – Driven by life and annuity 1Q13 2Q13 3Q13 1Q14 $63.2 $62.5 $63.1 – Partially offset by LTC $60.5 Strong agent productivity, up 7% – Improved agent retention Collected premiums up 2% Trailing 4
Slide 8: 1Q14 Sales and Distribution Results Washington National
1Q14 Sales and Distribution Results Washington National ($ millions) Quarterly NAP Sales up 7% 4Q13 ‒ PMA up 8% 2Q13 3Q13 $26.2 $23.9 1Q14 ‒ Worksite up 5% 1Q13 $23.3 $22.0 $20.6 Growth in PMA agent force ‒ Strong recruiting ‒ Producing agents* up 10% Supplemental health collected premiums up
Slide 9: 1Q14 Sales and Distribution Results Colonial Penn
1Q14 Sales and Colonial Penn Distribution Results ($ millions) Quarterly NAP Sales down 1% ‒ Challenges in 4Q13 impacted 1Q13 1Q14 January $17.0 2Q13 3Q13 $16.8 $15.8 $15.4 4Q13 $14.0 Significant improvement in February and March ‒ Combined, sales up 9% Strong in-force growth ‒ Collected premi
Slide 10: Business Investments Delivering Results
Business Investments Delivering Results Investments expected to yield sales growth of 6% - 8% in 2014 Sales force automation and new CRM tools Advanced life sales training Revised branding and digital marketing Grow Financial Advisor program Worksite distribution expansion New product in
Slide 11: 1Q14 Consolidated Financial Highlights
1Q14 Consolidated Financial Highlights CNO Earnings ‒ In aggregate, core earnings drivers continued to perform within expected ranges ‒ Strength in Medicare supplement, life mortality and annuity margins ‒ Normalized LTC and supplemental health benefit ratios slightly elevated ‒ OCB segment revisi
Slide 12: Revised Q1 Financial Reporting
Revised Q1 Financial Reporting CNO CLIC Transaction Update Historical Periods Post CLIC Sale & 2014 Pre-CLIC Sale (Pre 2014) Go-Forward Washington National results OCB residual overhead After closing, Bankers Life adjusted to include the primarily allocated to results will reflect the retained OCB b
Slide 13: Segment Earnings
Segment Earnings CNO ($ millions) Segment EBIT Excluding Significant Items* 1Q14 Notable Items $109.9 $95.6 $101.3 $103.3 $106.1 1Q14 results reflect allocation of $37.8 $31.1 residual OCB overhead of ~$5mm $33.0 $34.0 $34.3 primarily to Bankers Life and Washington National Favorable Med supp, l
Slide 14: Investment Results
Investment Results CNO Unadjusted for CLIC Operations Being Sold ($ millions) Average Invested Assets and Cash Realized Gains, Losses and Impairments $24,986 $24,861 $24,933 $25,272 $24,850 $3,700 Gross Realized Gains $45.6 Gross Realized Losses Net $351.9 $348.8 $350.7 $354.4 $350.3 Investment Real
Slide 15: Capital Targets & Excess Capital Deployment
Capital Targets & Excess Capital Deployment CNO Investment-grade ratings dialed-in while maintaining our tactical approach to deployment… 2013 1Q14 2014 Outlook Key Capital Ratios RBC 410% 427% ~ 400% v Liquidity $309mm $306mm ~ $430mm RBC strength on retained statutory earnings Leverage* 16.9% 17
Slide 16: ROE Development
ROE Development CNO Notable Items Normalized Operating ROE* Trailing 4 quarter basis dampens the impact of recent OCB transactions 8.6% 8.5% 8.3% 8.2% 8.3% When excluding OCB transactions, average equity is up nearly $170mm year-over-year The sale of CLIC, life recapture and conservative reinv
Slide 17: CNO Moving Forward
CNO Moving Forward Focused on Sustainable, Profitable Growth – Investments in distribution productivity and growth yielding top-tier industry growth rates Improving Operational Efficiencies and Effectiveness – Investments in back-office to streamline operations and effectively support growth F
Slide 18: Questions and Answers
Questions and Answers CNO Financial Group | 1Q2014 Earnings | April 28, 2014 18
Slide 19: Appendix
Appendix CNO Financial Group | 1Q2014 Earnings | April 28, 2014 19
Slide 20: 1Q14 Holding Company Liquidity
1Q14 Holding Company Liquidity CNO ($ millions) 1Q14 Cash and Investments Balance - Beginning $309.0 Sources Net Dividends from Insurance Subsidiaries 40.0 Dividends from Non-insurance Subsidiaries 5.0 Interest/Earnings on Corporate Investments 4.7 Surplus Debenture Interest 12.0 Service and Investm
Slide 21: Debt Maturity Profile
Debt Maturity Profile CNO ($ millions) $378.1 $275.0 $378.1 $275.0 $79.3 $64.0 $46.9 3.5 $79.3 $46.9 $60.5 $4.2 2014 2015 2016 2017 2018 2019 2020 Term Loan Senior Unsecured Debentures Senior Secured Notes CNO Financial Group | 1Q2014 Earnings | April 28, 2014 21
Slide 22: Holding Company Investments at 3/31/14
Holding Company Investments at 3/31/14 CNO ($ millions) Investment Performance Investment Allocation Equities 1Q14 $103.0 Cash & Money Market 0.08% Fixed Income 1.75% Cash & Money Market / Fixed Income Equities 1.72% $150.5 Alternatives $52.7 Alternatives 0.24% Portfolio strategy prioritizes consist
Slide 23: Returning Capital to our Shareholders
Returning Capital to our Shareholders CNO Highlights Total Securities Repurchases by Quarter Since initiating the share buyback ($ in millions) program, repurchased equivalent of 92 $522.3 million shares, leading to a 30%* reduction in weighted average diluted shares outstanding $342.0 Cumulativ
Slide 24: OCB Solutions For $4bn in Run-Off Reserves
OCB Solutions For $4bn in Run-Off Reserves 12/31/13 OCB Net Statutory Reserves ($ millions) OCB – Ceded & Being Sold $550mm of statutory LTC reserves reinsured to Traditional Retained By CNO Beechwood Re - reported in 4Q 2013 results Life $424 Sale of CLIC to Wilton Re encompassing $3.4bn of Ann
Slide 25: Sale of CLIC Subsidiary – Transaction Detail
Sale of CLIC Subsidiary – Transaction Detail Sale & Transition Services Agreement Sale & Transition Intercompany transactions to move A&H CNO Financial Wilton Re business out of CLIC to WNIC, increasing CLIC capital by $36mm Wilton Re purchases CLIC legal entity and pays Washington National Cons
Slide 26: Leveraging Considerable Tax Assets
Leveraging Considerable Tax Assets CNO ($ millions) 1Q 2014 Loss Carryforwards 2014 Outlook and Value v Expect modest future valuation allowance releases as taxable income stabilizes $1,206 Annual cash flows are expected to be Life reduced by $50 million in 2016 as life $300 NOL’s are fully util
Slide 27: 1Q13 Significant Items
1Q13 Significant Items CNO The table below summarizes the financial impact of the significant item on our 1Q2013 net operating income. Management believes that identifying the impact of this item enhances the understanding of our operating results (dollars in millions). Three months ended March 31,
Slide 28: 2Q13 Significant Items
2Q13 Significant Items CNO The table below summarizes the financial impact of the significant items on our 2Q2013 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended June 30
Slide 29: 3Q13 Significant Items
3Q13 Significant Items CNO The table below summarizes the financial impact of significant items on our 3Q2013 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended September 3
Slide 30: 4Q13 Significant Items
4Q13 Significant Items CNO The table below summarizes the financial impact of the significant item on our 4Q2013 net operating income. Management believes that identifying the impact of this items enhances the understanding of our operating results (dollars in millions). Three months ended December
Slide 31: 1Q14 Significant Items
1Q14 Significant Items CNO The table below summarizes the financial impact of the significant item on our 1Q2014 net operating income. Management believes that identifying the impact of this item enhances the understanding of our operating results (dollars in millions). Three months ended March 31,
Slide 32: Quarterly Earnings
Quarterly Earnings CNO ($ millions) 1Q13 2Q13 3Q13 4Q13 1Q14 Bankers Life $ 62.1 $ 79.1 $ 86.3 $ 83.0 $ 84.2 Washington National 34.0 35.8 33.0 37.8 31.1 Colonial Penn (5.4) 1.2 (4.2) (4.1) (6.2) Other CNO Business (7.3) (7.2) (5.7) (7.4) - EBIT from business segments continuing after the CLIC sale
Slide 33: Information Related to Certain Non-GAAP Financial Measures
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 excludes or includes am
Slide 34: Information Related to Certain Non-GAAP Financial Measures
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): 1Q13 2Q13 3Q13 4Q13 1Q14 Net income applicable to common stock $
Slide 35: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of operating income and shares used to calculate basic and diluted operating earnings per share is as follows (dollars in millions, except per-share amounts, and shares in thousands): 1Q13 2Q13 3Q13 4Q13 1Q14 (a) Operating i
Slide 36: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Book value per diluted share Book value per diluted share reflects the potential dilution that could occur if outstanding stock options and warrants were exercised, restricted stock and performance units were vested and convertible securitie
Slide 37: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Operating return measures Management believes that an analysis of net income applicable to common stock before the loss on the operations of CLIC being sold, the earnings of CLIC being sold, loss on reinsurance transaction, net realized gain
Slide 38: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures The calculations of: (i) operating return on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) operating return, excluding significant items, on equity,
Slide 39: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures The following summarizes: (i) operating earnings; (ii) significant items; (iii) operating earnings, excluding significant items; and (iv) net income (dollars in millions): Operating Operating earnings, earnings, excluding Net excluding signi
Slide 40: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of pretax operating earnings (a non-GAAP financial measure) to net income is as follows (dollars in millions): Twelve months ended 1Q13 2Q13 3Q13 4Q13 1Q14 Pretax operating earnings (a non-GAAP financial measure) $ 297.9 $ 3
Slide 41: Information Related to Certain Non-GAAP Financial Measures
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 (dollars in millions): 1Q12 2
Slide 42: Information Related to Certain Non-GAAP Financial Measures
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 (dollars in millions): Traili
Slide 43: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Debt to capital ratio, excluding accumulated other comprehensive income (loss) The debt to capital ratio, excluding accumulated other comprehensive income (loss), differs from the debt to capital ratio because accumulated other comprehensive