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. Exhibit 99.1
Slide 2: Forward-Looking Statements
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 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 operati
Slide 3: Non-GAAP Measures
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 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 c
Slide 4: 29, 2013
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 4
Slide 5: 2Q13 Summary
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 5 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
Slide 6: Operating Earnings Per Share Building
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 6 2Q12 $0.19 2Q13 $0.27 Operating Earnings Per Share Building * A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. Earnings per Share Drivers Meaningful per share growth positively impacted by earnings
Slide 7: Continued Investment in the Business
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 7 Continued 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 Dri
Slide 8: 2Q13 Sales and Distribution Results: Bankers Life
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 8 2Q12 $59.5 3Q12 $57.6 4Q12 $69.3 1Q13 $60.5 2Q13 $63.2 2Q13 Sales and Distribution Results Growth in average agent force of 4%; added 9 locations YTD Sales up 6%, – Life sales up 16% – Annuity sales stabilizing, up 7% – Health sales down 1%
Slide 9: 2Q13 Sales and Distribution Results: Washington National
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 9 2Q12 $22.0 3Q12 $21.2 4Q12 $22.7 1Q13 $20.6 2Q13 $23.2 Washington National 2Q13 Sales and Distribution Results ($ millions) * NAP for core products includes Life and Supplemental Health sales. ** Total producing agents includes appointed agents
Slide 10: 2Q13 Sales and Distribution Results: Colonial Penn
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 10 2Q12 $15.6 3Q12 $15.1 4Q12 $13.6 1Q13 $17.0 2Q13 $15.8 Sales up 1% for the quarter ‒Reflects moderate ad spend Collected premiums up 7% reflecting growth in inforce Sales results in line with seasonal patterns 2Q13 Sales and Distribution
Slide 11: Outlook
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 11 Outlook Expect continued sales growth at PMA with enhanced recruiting support and field leader development Expanding product availability of existing products plus new Active Care launch Expect increased focus and positive momentum in vo
Slide 12: 2Q13 Consolidated Financial Highlights
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 12 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% decreas
Slide 13: Segment Earnings
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 13 $(9.1) $3.3 $(2.7) $3.0 $(3.6) $0.6 $(2.6) $3.2 $(5.4) $1.2 $1.9 $10.4 $16.5 $3.6 $2.6 $72.5 $80.6 $77.7 $71.3 $76.6 $33.9 $33.9 $34.6 $29.4 $30.3 2Q12 3Q12 4Q12 1Q13 2Q13 Corporate CP OCB BLC WN ($ millions) * A non-GAAP measure. See the Appe
Slide 14: Health Margins
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 14 ($ millions) * A non-GAAP measure. Refer to the Appendix for the corresponding GAAP measure Health Margins 2Q13 Highlights Bankers Medicare supplement benefited from favorable reserve developments; normalized ratio in the 71% range Bankers
Slide 15: Summary of Investment Results
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 15 Summary of Investment Results CNO Earned Yield: 5.76% 5.71% 5.71% 5.69% 5.66% ($ millions) Earned Yield (excluding floating rate FHLB): 5.95% 5.90% 5.90% 5.89% 5.88% New Money Rate: 5.25% 4.71% 4.79% 5.09% 5.13% Pre-Pay / Calls / Make-Whole In
Slide 16: Realized Gains, Losses and Impairments
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 16 $6.2 $9.0 $2.3 $3.3 $7.4 $3.5 $23.1 $3.3 $0.6 Realized Gains, Losses and Impairments ($ millions) CNO 2Q13 4Q12 1Q13 2Q12 3Q12 Gross Realized Gains Gross Realized Losses Impairments $11.2 $41.6 $41.2 $8.0 $9.7 $32.1 * 3Q12 impairments primaril
Slide 17: Capital Position
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 17 2011 $202.8 2012 $293.6 2Q2013 $229.7 2011 18.3% 2012 20.7% 2Q2013 18.9% 2011 358% 2012 367% 2Q2013 376% Capital Position CNO Leverage* RBC Ratio Liquidity ($ millions) Insurance Company Capitalization – RBC of 376% reflects: • YTD statutory
Slide 18: 2Q13 Capital Generation and Deployment
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 18 Interest $25 Holdco Exp & Other $10 Debt Repayment / Financing Costs $46 Common Stock Dividends $11 Securities Repurchases $184 2Q13 Capital Generation and Deployment ($ in millions) 2Q YTD Sources and Uses Highlights Generated over $500mm o
Slide 19: ROE Progression
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 19 ROE Progression CNO Calculated on a trailing 4 quarter basis and excluding AOCI and 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: Tax Loss Carryforwards and Valuation Allowance
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 20 Valuation Allowance $462 Net $616 Life Non-Life Expected Impact of 3Q Tax Settlement ($ millions) * Issue regarding the allocation of cancellation of indebtedness income between life and non-life NOLs. See the 10-Q for additional information.
Slide 21: 2013 Outlook
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 21 2013 Outlook 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
Slide 22: On Track With 2013 Priorities
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 22 On Track With 2013 Priorities CNO Building shareholder value with strong business fundamentals, solid earnings, powerful cash flow generation and deployment 2013 Priorities Progress Grow sales, premium, distribution and product portfolio D
Slide 23: Questions and Answers
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 23 Questions and Answers
Slide 24: Appendix
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 24 Appendix
Slide 25: Significant Items: 2Q2012 Net Operating Income
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 25 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).
Slide 26: Significant Items: 3Q2012 Net Operating Income
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 26 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).
Slide 27: Significant Items: 4Q2012 Net Operating Income
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 27 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).
Slide 28: Significant Item: 1Q2013 Net Operating Income
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 28 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).
Slide 29: Significant Items: 2Q2013 Net Operating Income
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 29 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 million
Slide 30: Quarterly Earnings
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 30 Quarterly Earnings CNO *Management believes that an analysis of earnings before net realized investment gains (losses), fair value changes in embedded derivative liabilities, equity in earnings of certain non-strategic investments and earnings
Slide 31: Loss Recognition & Cash Flow Testing
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 31 Loss Recognition & Cash Flow Testing 2012 Statutory Cash Flow Testing 2012 GAAP Loss Recognition Testing Aggregate testing margins remain strong Testing margin Increased in 2012 ↑ - ASU 2010-26 ↑ - Net Growth from New Business (+6%) ↓ - Lo
Slide 32: Low-For-Long Rates Reserve Sensitivity
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 32 • 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 - $28mm (after-tax) • Stress test
Slide 33: 2Q13 Holding Company Liquidity
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 33 2Q13 Holding Company Liquidity CNO ($ 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 Cor
Slide 34: Returning Capital to our Shareholders
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 34 Returning Capital to our Shareholders CNO Since initiating the share buyback program, repurchased equivalent of 85 million shares, leading to a 28%* reduction in weighted average diluted shares outstanding Cumulative investment of $776mm i
Slide 35: Debt Maturity Profile
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 35 $25.0 $59.4 $79.3 $60.5 $378.1 $29.2 $275.0 $25.0 $59.4 $79.3 $89.7 $4.2 2013 2014 2015 2016 2017 2018 2019 2020 Term Loan Convertible Senior Unsecured Debentures Senior Secured Notes Debt Maturity Profile(1) (1) Maturity schedule does not inc
Slide 36: Commercial Mortgage Loans
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 36 Focus on ‘A’ quality properties which are diversified by geography and sector No’s: mezzanine or real estate equity investments, construction or condo loans, pro-forma underwriting Limited near-term maturities ($116mm in 2013) 61.27% L
Slide 37: Holding Company Investments at 6/30/13
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 37 Holding Company Investments at 6/30/13 CNO ($ millions) Cash & Money Market / Fixed Income $148.3 Equities / Alternatives $81.4 Portfolio strategy is to prioritize liquidity for corporate capital needs, and secondly to maximize returns to bett
Slide 38: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 38 The following provides additional information regarding certain non-GAAP measures used in this presentation. A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that excludes or includes amou
Slide 39: Net Income to Net Operating Income Reconciliation
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 39 Information Related to Certain Non-GAAP Financial Measures A reconciliation of net income (loss) applicable to common stock to net operating income (and related per-share amounts) is as follows (dollars in millions, except per-share amounts):
Slide 40: Operating Earnings Per Diluted Share Reconciliation
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 40 2Q12 3Q12 4Q12 1Q13 2Q13 Operating income 54.2$ 25.6$ 60.0$ 49.7$ 67.7$ Add: interest expense on 7.0% Convertible Senior Debentures due 2016, net of income taxes 3.7 - 1.2 1.2 0.4 Total adjusted operating income 57.9$ 25.6$ 61.2$ 50.9$ 68.1$ W
Slide 41: Book Value per Diluted Share
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 41 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 securities
Slide 42: Interest-Adjusted Benefit Ratio
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 42 Information Related to Certain Non-GAAP Financial Measures 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 backin
Slide 43: Operating Return Measures
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 43 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
Slide 44: Operating Return on Allocated Capital and Return on Equity
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 44 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 measu
Slide 45: Pretax Operating Earnings to Segment Operating Return
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 45 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,
Slide 46: Average Allocated Capital Reconciliation
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 46 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 lo
Slide 47: Consolidated Capital Reconciliation
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 47 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 sharehol
Slide 48: Debt to Capital Ratio Excluding AOCI
CNO Financial Group | 2Q2013 Earnings | July 29, 2013 48 Information Related to Certain Non-GAAP Financial Measures 2Q12 3Q12 4Q12 1Q13 2Q13 Corporate notes payable 778.2$ 1,035.1$ 1,004.2$ 934.2$ 905.7$ Total shareholders' equity 4,893.1 5,066.2 5,049.3 5,028.6 4,581.4 Total capital 5,671.3$ 6,101.