CNO Financial Group, Inc. · NYSE:CNO
CNO Financial — Q2 2013 Earnings Presentation
48 slides from CNO Financial's earnings presentation, Jul 29, 2013
Slide 1: 2Q13 Financial and operating results
2Q13 Financial and operating results for the period ended June 30, 2013 July 29, 2013 Unless otherwise specified, comparisons in this presentation are between 2Q13 and 2Q12.
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 | 2Q2013 Earnings | July 29, 2013
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 4
Slide 5: 2Q13 Summary
2Q13 Summary CNO Businesses continue to perform well; growth in – Sales and premiums – Operating earnings Investing in our business – Expanding locations, geographies, and product offerings – Growing agent force and improving productivity Returning value to shareholders and reducing cost of ca
Slide 6: Operating Earnings Per Share
Operating Earnings Per Share Building CNO Operating EPS Excluding Significant Items* Earnings per Share Drivers 2Q13 $0.27 Meaningful per share growth 2Q12 positively impacted by earnings and $0.19 capital actions Premium growth in core business segments Normalized earnings drivers performed a
Slide 7: Continued Investment in the Business
Continued Investment in the Business CNO ($ millions) Investing in productivity and growth of the agent force NAP Expanding presence by adding new locations and geographies $97.4 $102.3 Developing and launching new products to meet the needs of our target market Driving operational efficienc
Slide 8: Bankers Life 2Q13 Sales and Distribution Results
2Q13 Sales and Distribution Results Bankers Life ($ millions) Quarterly NAP* Growth in average agent force of 4%; added 9 locations YTD 4Q12 $69.3 2Q13 2Q12 1Q13 Sales up 6%, $59.5 3Q12 $60.5 $63.2 $57.6 – Life sales up 16% – Annuity sales stabilizing, up 7% – Health sales down 1% • Declines in
Slide 9: Washington National 2Q13 Sales and Distribution Results
2Q13 Sales and Distribution Results Washington National ($ millions) Quarterly Core NAP* Core* product sales up 5% ‒ Independent Partners up 21% 2Q13 ‒ PMA sales up 1% 2Q12 3Q12 4Q12 $22.7 $23.2 $22.0 1Q13 $21.2 $20.6 Continued focus on recruiting ‒ PMA producing agents** up 5% Supplemental he
Slide 10: Colonial Penn 2Q13 Sales and Distribution Results
2Q13 Sales and Colonial Penn Distribution Results ($ millions) Quarterly NAP Sales up 1% for the quarter 1Q13 ‒ Reflects moderate ad spend 2Q12 3Q12 $17.0 2Q13 $15.6 $15.8 $15.1 4Q12 Collected premiums up 7% $13.6 reflecting growth in inforce Sales results in line with seasonal patterns Traili
Slide 11: Outlook
Outlook Building enterprise value through continued investment and execution, expected to deliver 8-10% sales growth over time Expect continued growth as new locations get to full productivity and drive agent force growth Drive cross-sales through annual customer reviews Continue to grow life
Slide 12: 2Q13 Consolidated Financial Highlights
2Q13 Consolidated Financial Highlights CNO Earnings ‒ Strong results across all core segments ‒ Solid investment results despite volatile market conditions ‒ Normalized earnings drivers performed as expected ‒ EPS benefiting from 21% decrease in weighted average diluted shares Senior Secured Cre
Slide 13: Segment Earnings
Segment Earnings CNO ($ millions) Segment EBIT Excluding Significant Items* 2Q13 Notable Items $125.6 $129.3 Strong performance across all core $34.6 $107.1 segments continues to be driven by $99.8 $33.9 $101.9 growth in collected premium $29.4 $30.3 $33.9 Net investment income and annuity margi
Slide 14: Health Margins
Health ($ millions) Margins CNO Bankers Life Medicare Supplement $184 $185 $186 $188 $189 2Q13 Highlights 72.2% 67.8% 71.4% 68.5% Bankers Medicare supplement 67.2% benefited from favorable reserve developments; normalized ratio in the 71% range 2Q12 3Q12 4Q12 1Q13 2Q13 Bankers Life Long Term Care
Slide 15: Summary of Investment Results
Summary of Investment Results CNO ($ millions) Average Invested Assets $24,986 $24,861 $24,695 Sequentially strong new money rate $24,385 $24,487 as we layered on assets at higher yields (rates and widening credit $351.1 $349.4 $352.8 $351.9 $348.8 spreads) throughout 2Q Stable investment income
Slide 16: Realized Gains, Losses and Impairments
Realized ($ millions) Gains, Losses and Impairments CNO Realized gains and losses remain low, reflecting emphasis on limiting portfolio turnover $41.6 $41.2 $32.1 $22.8 $23.1 * $18.6 $9.7 $11.2 $8.0 $3.5 $5.6 $0.6 $9.0 $3.3 $3.3 $6.2 $7.4 $2.3 $3.3 2Q12 3Q12 4Q12 1Q13 2Q13 Gross Realized Gains Gross
Slide 17: Capital Position
Capital Position CNO ($ millions) RBC Ratio 2Q2013 2012 2011 376% 367% 358% Insurance Company Capitalization – RBC of 376% reflects: • YTD statutory operating income of $214.6mm • YTD statutory dividends of $138.5mm Leverage* GAAP Leverage 2011 2012 20.7% 2Q2013 18.3% 18.9% – 1Q tender and 2Q re
Slide 18: 2Q13 Capital Generation and Deployment
2Q13 Capital Generation and Deployment CNO ($ in millions) LTM 2Q13 Capital Generation 2Q YTD Sources and Uses $513 Retained in Subs $68 Fees and Interest Holdco Exp & Interest $25 Other $49 $10 Net Other Statutory $24 Dividends Debt Repayment / $301 Securities Net Statutory Financing Decrease in Re
Slide 19: ROE Progression
ROE Progression CNO Notable Items Reported Operating ROE* 2Q13 Calculated on a trailing 4 quarter 6.8% 2Q12 basis and excluding AOCI and 6.0% NOL 2Q13 ROE includes the impact from 3Q12 charges related to litigation and interest rates 2Q annualized and normalized results illustrate run-rate ROE
Slide 20: Expected Impact of 3Q Tax Settlement
Expected Impact of 3Q Tax Settlement CNO Resolved CODI Allocation Issue*: Valuable life NOLs increase - $315mm of additional life income will not be taxed Life of NOLs, which offset 100% of taxable income, extended by a little over 1 year Reduction in gross non-life NOL partially offset by rel
Slide 21: 2013 Outlook
2013 Outlook CNO Core Earnings: - Expect no material change in normalized health benefit ratios - Expect current favorable net investment income and spreads to continue - Colonial Penn: in line with annual guidance of $5 to $10 million EBIT loss, expect modest loss in 3Q followed by breakeven in 4
Slide 22: On Track With 2013 Priorities
On Track With 2013 Priorities CNO 2013 Priorities Progress Grow sales, premium, YTD growth in sales, collected distribution and product portfolio premiums, and distribution. Actively marketing new products. Drive toward efficiencies in operations and leveraging Organizational changes creatin
Slide 23: Questions and Answers
Questions and Answers CNO Financial Group | 2Q2013 Earnings | July 29, 2013 23
Slide 24: Appendix
Appendix CNO Financial Group | 2Q2013 Earnings | July 29, 2013 24
Slide 25: 2Q12 Significant Items
2Q12 Significant Items CNO The table below summarizes the financial impact of significant items on our 2Q2012 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, 20
Slide 26: 3Q12 Significant Items
3Q12 Significant Items CNO The table below summarizes the financial impact of significant items on our 3Q2012 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 27: 4Q12 Significant Items
4Q12 Significant Items CNO The table below summarizes the financial impact of significant items on our 4Q2012 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 December 31
Slide 28: 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 29: 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 30: Quarterly Earnings
Quarterly Earnings CNO ($ millions) 2Q12 3Q12 4Q12 1Q13 2Q13 Bankers Life $ 76.1 $ 80.6 $ 73.7 $ 62.1 $ 79.1 Washington National 33.9 33.9 34.6 29.4 31.8 Colonial Penn 0.6 (2.6) 3.2 (5.4) 1.2 Other CNO Business 1.9 (53.6) 5.2 3.6 2.6 EBIT* from business segments 112.5 58.3 116.7 89.7 114.7 Corporate
Slide 31: Loss Recognition & Cash Flow Testing
Loss Recognition & Cash Flow Testing CNO 2012 GAAP Loss Recognition Testing 2012 Statutory Cash Flow Testing Aggregate testing margins remain strong Insurance Company margins consistent with Testing margin Increased in 2012 prior years ↑ - ASU 2010-26 All insurance entities pass Asset Adequa
Slide 32: “Low-For-Long” Rates – Reserve Sensitivity
“Low-For-Long” Rates – Reserve Sensitivity 2012 Expanded New Money Rate (NMR) Stress Test • Moderate Stress: 4.75% NMR held flat for 5 years then recovering • Severe Stress: 50 basis point drop in NMR to 4.25% held flat indefinitely • 3Q assumption change: OCB interest sensitive life reserve charge
Slide 33: 2Q13 Holding Company Liquidity
2Q13 Holding Company Liquidity CNO ($ millions) 2Q13 YTD Cash and Investments Balance - Beginning $244.1 $293.6 Sources Dividends from Insurance Subsidiaries 57.5 138.5 Dividends from Non-insurance Subsidiaries 2.3 6.1 Interest/Earnings on Corporate Investments 4.6 10.1 Surplus Debenture Interest 12
Slide 34: Returning Capital to our Shareholders
Returning Capital to our Shareholders CNO Highlights Total Securities Repurchases by Quarter Since initiating the share buyback program, repurchased equivalent of 85 ($ in millions) million shares, leading to a 28%* reduction in weighted average diluted shares outstanding Cumulative investment o
Slide 35: Debt Maturity Profile
Debt Maturity Profile(1) CNO ($ millions) $378.1 $275.0 $378.1 $275.0 $89.7 $79.3 $59.4 $29.2 (2) $25.0 $79.3 $59.4 $60.5 $25.0 $4.2 2013 2014 2015 2016 2017 2018 2019 2020 Term Loan Convertible Senior Unsecured Debentures Senior Secured Notes (1) Maturity schedule does not include amortization from
Slide 36: Commercial Mortgage Loans
Commercial Mortgage Loans $1.7bn of Invested Assets* Other Focus on ‘A’ quality properties which are diversified by 3% geography and sector Multi- Mixed Use Family 3% No’s: mezzanine or real estate equity investments, construction 15% or condo loans, pro-forma underwriting Retail 34% Industrial
Slide 37: Holding Company Investments at 6/30/13
Holding Company Investments at 6/30/13 CNO ($ millions) Investment Performance Investment Allocation 2Q13 YTD Cash & Money Market / Cash & Money Market 0.04% 0.09% Fixed Income $148.3 Fixed Income -2.30% -1.84% Equities 2.54% 13.08% Equities / Alternatives Alternatives 0.04% 1.96% $81.4 Portfolio st
Slide 38: 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 39: Information Related to Certain Non-GAAP Financial Measures
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): 2Q12 3Q12 4Q12 1Q13 2Q13 Net income (loss) applicable to
Slide 40: 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): 2Q12 3Q12 4Q12 1Q13 2Q13 Operating incom
Slide 41: 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 42: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Interest-adjusted benefit ratios The interest-adjusted benefit ratio (a non-GAAP measure) is calculated by dividing the product's insurance policy benefits less imputed interest income on the accumulated assets backing the insurance liabilit
Slide 43: 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 return before loss on extinguishment of debt, net realized gains or losses, fair value changes due to fluctuations in the interest rates used to discount embedded derivative l
Slide 44: Information Related to Certain Non-GAAP Financial Measures
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, for the twelve months end
Slide 45: 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 segment operating return (loss) and consolidated net income (loss) for the twelve months ended June 30, 2013, is as follows (dollars in millions): Bankers Washin
Slide 46: Information Related to Certain Non-GAAP Financial Measures
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 financial measure) to averag
Slide 47: 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): (Conti
Slide 48: 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