Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q3 2012 Earnings Presentation
50 slides from Cno Financial's earnings presentation, Oct 30, 2012
Slide 1: 3Q12 Financial and Operating Results
3Q12 Financial and operating results for the period ended September 30, 2012 October 30, 2012 Unless otherwise specified, comparisons in this presentation are between 3Q12 and 3Q11. 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: CNO Financial Group
‘2 CNO FINANCIAL GROUP CNO Financial Group
Slide 5: Summary
CNO Financial Group 5 Summary 3Q results reflect significant management actions – Successfully completed recapitalization; lowering cost of capital while maintaining strong capital ratios – Significant progress on OCB litigation – Review of actuarial assumptions Businesses continue to perform well
Slide 6: Core Operating Earnings Building
CNO Financial Group 6 Core Operating Earnings Building * A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. ** Operating earnings per share, excluding significant items is calculated based on the weighted average diluted shares outstanding, including the dil
Slide 7: Recapitalization Summary
CNO Financial Group 7 Recapitalization Summary CNO New debt structure reflects strong performance and improved credit ratings Lower weighted average cost of capital Improved financial flexibility and debt maturity profile Significantly reduced convertible overhang Raised $950 million to pay off
Slide 8: Sustained Capital Strength
CNO Financial Group 8 Sustained Capital Strength CNO Strong capital position post-recapitalization Uninterrupted free cash flow generation Capital deployment strategy and guidance remain intact Capital ratios remain strong after deploying $455mm, reducing the diluted share count by 15% YTD RBC Li
Slide 9: Investment in the Business
CNO Financial Group 9 Investment in the Business CNO Investing in productivity and growth of the agent force Expanding presence by adding new locations and geographies Developing and launching new products to meet the needs of our target market Sales excluding Bankers Life annuities up 13% YT
Slide 10: 3Q12 Sales and Distribution Results: Bankers Life
CNO Financial Group 10 3Q12 Sales and Distribution Results Bankers Life * MA/PDP sales are excluded from NAP in all periods. ** NAP excluding annuity sales ($ millions) – Introduced new critical illness product in 1Q; available for sale in 38 states at end of 3Q 3Q11 $60.8 4Q11 $69.8 1Q12 $58.8 2Q12
Slide 11: Washington National 3Q12 Sales and Distribution Results
CNO Financial Group 11 Washington National 3Q12 Sales and Distribution Results ($ millions) Investment in life sales continues to gain traction New producing WN partners up 6% PMA producing agents up 6% 3Q11 $19.5 4Q11 $20.7 1Q12 $19.6 2Q12 $22.0 3Q12 $21.2 Core* product sales up 9% – Primaril
Slide 12: 3Q12 Sales and Distribution Results: Colonial Penn
CNO Financial Group 12 Sales growth continues; NAP up 19% Year over year sales growth per increased lead volumes and higher sales productivity Increased investments in advertising – Driving higher lead volumes – Sales results in line with seasonal patterns 3Q12 Sales and Distribution Results C
Slide 13: Outlook
CNO Financial Group 13 Outlook Efforts continue to strengthen distribution and product offerings to effectively serve our growing target market Continued investment in branch expansion and management development Introduction of new critical illness product Expect strong sales of life insurance
Slide 14: Net Investment Income
CNO Financial Group 14 Net Investment Income CNO New money rate reflects consistent risk profile, sequentially tighter credit curve and lower risk free rates during much of 3Q Year over year increase in investment income primarily due to growth in assets and relative stability in earned yield 3Q
Slide 15: Realized Gains, Losses and Impairments
CNO Financial Group 15 $41.0 $10.4 $6.2 $9.0 $2.9 $8.3 $7.9 $2.5 $3.5 $23.1 Realized Gains, Losses and Impairments ($ millions) CNO 3Q11 2Q12 3Q12 4Q11 1Q12 Gross Realized Gains Gross Realized Losses Impairments $74.5 $43.9 $41.9 $18.7 $33.3 $41.6 $41.2 $10.4 $9.7 $32.1 * 3Q12 impairments primarily
Slide 16: Unrealized Gain/Loss
CNO Financial Group 16 Unrealized Gain/Loss* CNO ($ 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 $3,000 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 201
Slide 17: Asset Allocation and Quality at 9/30/12
CNO Financial Group 17 Asset Allocation and Quality at 9/30/12* Govts/Agency 0.8% Cash & Other 6.1% ABS 5.8% Municipals 7.3% CMBS 5.8% HY Corporates 4.6% Mortgage Loans 6.4% CMOs 8.8% IG Corporates 54.4% *Excludes investments from variable interest entities which we consolidate under GAAP (the relat
Slide 18: Holding Company Investments at 9/30/12
CNO Financial Group 18 Holding Company Investments at 9/30/12 CNO ($ millions) Cash & Money Market / Fixed Income $266.5 Equities / Alternatives $47.1 Portfolio strategy is to preserve liquidity for corporate capital needs, and secondly to maximize returns to better utilize non-life tax benefits Inv
Slide 19: 3Q12 Investment Summary and Outlook
CNO Financial Group 19 3Q12 Investment Summary and Outlook CNO Market Observations Credit market yields compressed due to the Federal Reserve’s intent to pin short rates for an extended period, slow U.S. economic growth, and bearish global views. Risky credit has outperformed as Fed policy has d
Slide 20: 3Q12 Consolidated Financial Highlights
CNO Financial Group 20 3Q12 Consolidated Financial Highlights CNO Results Reflect Significant Management Actions - Lower-for-longer rates prudently reflected in core assumptions - OCB litigation reserves set the stage for less volatility - Stable core earnings supports tax valuation allowance reduc
Slide 21: Segment EBIT - Excluding Significant Items
CNO Financial Group 21 $65.4 $80.6 $27.2 $33.9 $(18.5) $(2.6)$(1.3) $10.4 $15.8 $3.3 3Q11 3Q12 CP BLC WN OCB Corporate CNO ($ millions) * A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. $125.6 $88.6 42% Segment EBIT - Excluding Significant Items* CNO’s Ea
Slide 22: Impact Analysis: Low-For-Long Rates
CNO Financial Group 22 Impact Analysis: Low-For-Long Rates Updated Stress test: • Range-bound impact of holding current new money rates flat for 5 years then recovering • Net income impact assumes assets held constant isolating portfolio yield decline from 2012 levels • Low rates represent an earnin
Slide 23: Valuation Allowance
CNO Financial Group 23 Valuation Allowance $474 Valuation Allowance $305 Net $275 Net $618 Capital Non- Life Life Valuation Allow ance for Loss Carryforw ards Net Loss Carryforw ards in Deferred Tax Asset Gross $275 Gross $305 Gross $1,092 GAAP Balances for Deferred Tax Asset as of 9/30/12: Loss Car
Slide 24: Capital Position - Post Recapitalization
CNO Financial Group 24 Capital Position - Post Recapitalization CNO 2Q12 369% 3Q12 361% 2Q12 16.6% 3Q12 21.3% 3Q12 $313.6 2Q12 $197.7 Leverage RBC Ratio Liquidity Insurance Company Capitalization – RBC held steady in 3Q and reflects: • Statutory operating income of $60mm • OCB litigation reserves
Slide 25: Capital Generation - $500 Million Run-Rate
CNO Financial Group 25 $128.2 $137.7 $115.0 $166.0 $209.0 $198.0 $95.5 $154.1 $45.4 $128.2 $137.7 $115.0 $166.0 $209.0 $198.0 $313.0 $346.7 $294.2 Statutory Earnings Power Inflows to Holding Co Statutory Earnings Power Inflows to Holding Co Statutory Earnings Power Inflows to Holding Co Fees and Int
Slide 26: Free Cash Flow Sources Building While Recurring Uses Moderating
CNO Financial Group 26 Free Cash Flow Sources Building While Recurring Uses Moderating ($ in millions) CNO Fees and Interest to Holdco Net statutory dividends to Holdco Retained capital for growth and RBC build $358 ($52) ($15) Capital Upstreamed Interest Holdco Free Generated to Holdco Paid Expense
Slide 27: CNO: Well Positioned in Growing & Underserved Markets
CNO Financial Group 27 CNO: Well Positioned in Growing & Underserved Markets The middle-income, pre-retiree and retirement markets are growing as the Baby Boomers age These markets need straightforward products that help address healthcare expenditures, retirement, and leaving a legacy for loved
Slide 28: 2012 CNO Investor Day in NYC
CNO Financial Group 28 2012 CNO Investor Day in NYC CNO will be hosting an Investor Day on Thursday, December 13, 2012 in NYC Invitations will be sent and additional details posted to our website in the coming weeks The event will be available via webcast
Slide 29: Questions and Answers
CNO Financial Group 29 Questions and Answers
Slide 30: Appendix
CNO Financial Group 30 Appendix
Slide 31: 3Q12 Significant Items
CNO Financial Group 31 3Q12 Significant Items CNO ($ millions) The table below summarizes the financial impact of significant items on our 3Q12 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results during 3Q12. Net Op
Slide 32: 3Q11 Significant Items
CNO Financial Group 32 3Q11 Significant Items CNO ($ millions) The table below summarizes the financial impact of significant items on our 3Q11 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results during 3Q11. Net Op
Slide 33: Quarterly Earnings
CNO Financial Group 33 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 34: 3Q12 Holding Company Liquidity
CNO Financial Group 34 3Q12 Holding Company Liquidity CNO ($ millions) 3Q12 YTD 2012 Cash and Investments Balance - Beginning $197.7 $202.8 Sources Dividends from Insurance Subsidiaries 95.0 198.0 Dividends from Non-insurance Subsidiaries 2.0 6.0 Interest/Earnings on Corporate Investments 8.3 22.1 S
Slide 35: Debt Maturity Profile
CNO Financial Group 35 $14 $275 $275 $403 $61 $4 $79$61$54 $93 $403 $14 $54 $74 $154 $61 2012 2013 2014 2015 2016 2017 2018 2019 2020 Term Loan Convertible Senior Unsecured Debentures Senior Secured Notes Debt Maturity Profile (1) Conversion price is $5.49. CNO can force conversion after 6/30/13 if
Slide 36: GAAP Valuation Allowance Model
CNO Financial Group 36 GAAP Valuation Allowance Model ($ millions) CNO (1) Modeled future taxable earnings are based on the 3-year average normalized taxable income, which is assumed to grow by 5 percent per year in the next five years and then remain flat for the remaining years. Life NOLs Non-life
Slide 37: LTC and STC Sales Mix
CNO Financial Group 37 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 utilizes exclusive distribution with a focus on middle in
Slide 38: Commercial Mortgage Loans at 9/30/12
CNO Financial Group 38 Commercial Mortgage Loans at 9/30/12 6.3% of invested assets based on market value Current LTV of approximately 63.4% Average trailing DSCR stable at approximately 1.49 By Property Type By Vintage 0.01% delinquency rate No remaining 2012 loan maturities CNO 2004 and
Slide 39: Commercial Mortgage Loans Portfolio at 09/30/12
CNO Financial Group 39 Commercial Mortgage Loans Portfolio at 09/30/12 CNO ($ millions) $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026+ Run-off of Principal of Current CML Portfolio Principal Maturities by Year
Slide 40: European Debt by Select Countries
CNO Financial Group 40 European Debt by Select Countries Sovereigns Corporates Banks Total Market Market / BV Total Issuers Italy -$ 26.1$ -$ 26.1$ 24.1$ 92% 1 Spain - 64.6 27.9 92.5 86.2 93% 2 Total -$ 90.7$ 27.9$ 118.6$ 110.3$ 93% 3 ($ millions) We have limited direct exposure to the European cred
Slide 41: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 41 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 42: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 42 Information Related to Certain Non-GAAP Financial Measures A reconciliation of net income (loss) applicable to common stock to net operating income (and related per-share amounts) is as follows (dollars in millions, except per-share amounts): 3Q11 4Q11 1Q12 2Q12 3Q12 Net incom
Slide 43: 3Q11 4Q11 1Q12 2Q12 3Q12 Operating income 32.8$ 51.0$ 0.6$ 54.2$ 25.6$ Add: interest
CNO Financial Group 43 3Q11 4Q11 1Q12 2Q12 3Q12 Operating income 32.8$ 51.0$ 40.6$ 54.2$ 25.6$ Add: interest expense on 7.0% Convertible Senior Debentures due 2016, net of income taxes 3.7 3.7 3.7 3.7 - Total adjusted operating income 36.5$ 54.7$ 44.3$ 57.9$ 25.6$ Weighted average shares outstanding
Slide 44: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 44 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 45: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 45 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 46: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 46 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 47: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 47 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 September 30, 2012, is as follows (dollars in mil
Slide 48: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 48 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 49: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 49 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 50: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 50 Information Related to Certain Non-GAAP Financial Measures 3Q11 4Q11 1Q12 2Q12 3Q12 Corporate notes payable 871.2$ 857.9$ 799.3$ 778.2$ 1,035.1$ Total shareholders' equity 4,536.2 4,613.8 4,683.0 4,893.1 5,252.9 Total capital 5,407.4$ 5,471.7$ 5,482.3$ 5,671.3$ 6,288.0$ Corpor