Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Conseco — Q2 2008 Earnings Presentation
86 slides from Cno Financial's earnings presentation, August 2008
Slide 1: Second Quarter 2008 Financial and Operating Results
Second Quarter 2008 Financial and Operating Results For the period ended June 30, 2008 Conseco, Inc.
Slide 2: Forward-Looking Statements
Forward-Looking Statements Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in these materials relative to markets for Conseco’s products and trends in Conseco’s operations or financial results, as well as other statements, con
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 diluted share; operating r
Slide 4: Q2 2008 Summary CNO
Q2 2008 Summary CNO Announced plan to execute most significant element of strategic alternatives: separation of CSHI LTC Block All four segments profitable, with each improving over Q1 2008 $85.6 million quarterly sales for CNO • Bankers sales excluding PFFS up 9% over Q2 2007 • Strong Colonia
Slide 5: Q2 2008 Summary CNO
Q2 2008 Summary CNO Investment portfolio earned yields meeting expectations and impairment losses consistent with industry trends and market conditions Results continue to stabilize • No significant out-of-period adjustments • No extraordinary DAC or VOBA (intangibles) charges • Fourth consecuti
Slide 6: Collected Premiums CNO
Collected Premiums CNO ($ millions) Collected Premiums-Trailing 4 Quarters Strong, consistent Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 $4,428.4 growth in Bankers $4,366.8 $4,315.1 $4,314.1 $4,322.3 and Colonial Penn Run-Off Decline in CIG due CIG to focus on more profitable business CP BLC 6
Slide 7: Q2 2008 Summary of Results CNO
Q2 2008 Summary of Results CNO ($ millions, except per share amounts) Pre-Tax After Tax* EPS* Bankers Life $34.6 Colonial Penn 8.3 Conseco Insurance Group 30.0 LTC Run-off Block 12.2 Corporate and interest expense (32.4) Income before net realized investment losses** 52.7 $(336.6) $(1.82) Net realiz
Slide 8: Q2 2008: Impact of CSHI Transaction
Q2 2008: Impact of CSHI Transaction CNO Consolidated ($ millions, except per share amounts) Net operating earnings before valuation Net income Net realized allowance for (loss) as Impact of CSHI investment deferred tax EBIT reported transaction losses assets Bankers Life $ 34.6 $ 34.6 Colonial Penn
Slide 9: Q2 Earnings CNO Consolidated
Q2 Earnings CNO Consolidated Q2 2007 ($ millions) (Restated) Q1 2008 Q2 2008 Bankers Life $70.5 $29.1 $34.6 Colonial Penn 6.7 3.7 8.3 Conseco Insurance Group 43.3 23.3 30.0 Other Business in Run-Off (130.3) (1.3) 12.2 Corporate operations, excluding interest expense (8.0) (6.7) (18.5) EBIT, excludin
Slide 10: Operating ROE CNO
Operating ROE CNO Conseco’s goal is to improve Operating ROE to 11% in 2009 Operating ROE*, Trailing 4 Quarters Operating ROE (Before Litigation Settlement Charges, Coinsurance Transaction and Tax Valuation Allowance)**, Trailing 4 Quarters Q2 2008 Q2 2007 Q2 2007 3.6% 1.7% Q3 2007 Q4 2007 Q1 2008
Slide 11: Q2 Pro Forma ROE Calculation
Q2 Pro Forma ROE Calculation CNO Consolidated Total expected Transaction Before transaction transaction Pro forma as if As reported charges recorded charges recorded charges the transactions in Q2 2008 in Q2 2008 in Q2 2008 to equity had been completed Net income (487.1) 503.7 16.6 16.6 Adjustments
Slide 12: Operating EPS (Diluted) CNO
Operating EPS (Diluted) CNO Operating EPS* Operating EPS (Before Litigation Settlement Charges, Coinsurance Transaction and Tax Valuation Allowance)** Q3 2007 Q2 2008 $0.21 Q4 2007 $0.18 Q1 2008 Q1 2008 $0.11 $0.11 $0.11 Q3 2007 Q2 2007 ($0.12) Q4 2007 ($0.29) Q2 2007 ($0.26) ($0.16) Q2 2008 ($1.82)
Slide 13: Financial Indicators CNO
Financial Indicators* CNO Book value per diluted share (excluding accumulated other comprehensive loss) • $21.76 at 6/30/08 vs $24.41 at 12/31/07 • Pro forma $18.22 at 6/30/08** Debt to total capital ratio (excluding accumulated other comprehensive loss) • 23% at 6/30/08 vs 21% at 12/31/07 • Pro
Slide 14: Consolidated RBC Ratio CNO
Consolidated RBC Ratio* CNO Q2 2007 Q3 2007 330% 336% Q4 2007 Decrease due primarily to: 296% Q1 2008 282% Q2 2008 271% • Business growth • Statutory reserve pivoting • Changes in interest rate environment • Impairments *Risk-Based Capital (“RBC”) requirements provide a tool for insurance regulato
Slide 15: Liquidity: Holding Company Sources and Uses of Funds
Liquidity: Holding Company Sources and Uses of Funds CNO ($ millions) Corporate liquidity • Available holding company liquidity in excess of $104 million at 6/30/08, plus $80 million revolver Sources of and uses of funds, excluding insurance subsidiary dividends 2007 YTD 2008 Sources: Interest o
Slide 16: Q2 Summary Bankers
Q2 Summary Bankers Earnings disappointing, although improved over Q1 2008 Q2 2008 earnings negatively affected by: • Increase in interest-adjusted benefit ratio on LTC policies, driven by increased frequency leading to higher claim expenses • Changes to prior period claim estimates for PFFS quot
Slide 17: LTC: Challenges Being Addressed
LTC: Challenges Being Addressed Bankers Holistic, strategic approach to this important product line • In force pricing • Claims management • Underwriting and risk selection • New product design and pricing 17
Slide 18: LTC: Re-Rate Actions
LTC: Re-Rate Actions Bankers New round (Round Three) of re-rate filings underway on largest (legacy) block • Filing for additional 35% rate increase (35% increase filed in 2006) • Rate increases on 155,000 policies • Expect to submit filings for increases totaling approximately $100 million and re
Slide 19: LTC: Claims/Underwriting/Products
LTC: Claims/Underwriting/Products Bankers Strong focus on claims management • Organizational re-alignment and transfer of two key operational people from Closed Block • Protocol changes: 90-day project underway, supported by LTCG • Process changes Underwriting • New products with updated underwr
Slide 20: Industry Developments Bankers
Industry Developments Bankers Equity-index annuity SEC proposal • Bankers is positioned to handle securities sales through our Registered Representatives currently in nearly all our branches • Nearly 50% of annuity sales are fixed annuity products not subject to SEC proposal • Do not expect an imp
Slide 21: Q2 2008 Sales and Distribution Results
Q2 2008 Sales and Distribution Results Bankers Sales (excluding PFFS) are up 9% vs Q2 2007 • Strong sales of annuities (+30%), Medicare Supplement (+16%), and life (+8%), partially offset by lower LTC sales (-16%) Fundamentals of agent productivity and agent force growth remain strong • 4,680 ag
Slide 22: NAP Growth Bankers
NAP Growth Bankers ($ millions) Quarterly NAP-Excluding PFFS Continued strong sales Q2 2007 $54.6 Q3 2007 $57.5 Q4 2007 $60.9 Q1 2008 $55.6 Q2 2008 $59.8 momentum (excluding PFFS) Agent force fundamentals remain intact Non-PFFS NAP-Quarterly: $54.6 $57.5 $60.9 $55.6 $59.8 PFFS NAP-Quarterly: $22
Slide 23: Q2 Earnings Bankers
Q2 Earnings Bankers ($ millions) Q2 2007 (Restated) Q1 2008 Q2 2008 Insurance policy income $424.0 $497.0 $543.4 Net investment income 155.1 129.3 135.2 Fee revenue and other income 2.7 1.6 2.1 Total revenues 581.8 627.9 680.7 Insurance policy benefits 338.2 438.5 497.2 Amounts added to policyholder
Slide 24: Q2 Summary Colonial Penn
Q2 Summary Colonial Penn Q2 2008 NAP of $14 million, 29% above Q2 2007 Earnings up 24% from Q2 2007 • Higher life margins, net of DAC/VOBA amortization, arising from recapture of mod-co treaty in Q4 2007 • Higher life margins, net of DAC amortization, arising from sales expansion efforts • Parti
Slide 25: Q2 Earnings Colonial Penn
Q2 Earnings Colonial Penn ($ millions) Q2 2007 Q1 2008 Q2 2008 Insurance policy income $29.4 $44.4 $47.5 Net investment income 9.4 9.2 10.1 Fee revenue and other income 0.1 0.3 0.5 Total revenues 38.9 53.9 58.1 Insurance policy benefits 23.9 35.0 35.5 Amounts added to policyholder account balances 0
Slide 26: Q2 Summary CIG
Q2 Summary CIG Q2 2008 NAP of $18 million, 9% less than Q2 2007 • Strong sales gains in specified disease, up 29% from Q2 2007 • Decreases in Medicare supplement and annuities, consistent with CIG’s focus on more profitable business Q2 2008 pre-tax operating earnings up 29% vs Q1 2008: • Improve
Slide 27: Q2 Earnings CIG
Q2 Earnings CIG ($ millions) Q2 2007 (Restated) Q1 2008 Q2 2008 Insurance policy income $236.3 $234.3 $229.7 Net investment income 202.5 129.3 131.3 Fee revenue and other income 0.1 0.7 0.4 Total revenues 438.9 364.3 361.4 Insurance policy benefits 188.9 196.6 195.8 Amounts added to policyholder acc
Slide 28: NAP: Q2 2007 vs Q2 2008 CIG
NAP: Q2 2007 vs Q2 2008 CIG ($ millions) $12.4 Q2 2007 Q2 2008 $9.6 $6.6 $3.4 $2.9 $1.3 $0.8 $1.0 Life Annuities Med Sup Spec Dis 28
Slide 29: Q2 Summary LTC Closed Block
Q2 Summary LTC Closed Block Announced plan to transfer Conseco Senior Health Insurance Company to independent trust • Accounts for 86% of LTC Closed Block liabilities Fourth consecutive stable quarter Earnings above breakeven for quarter and year to date Q2 results reflect • Continued reserv
Slide 30: Segment Performance LTC Closed Block
Segment Performance LTC Closed Block ($ millions) Pre-Tax Operating Income* Q2 2008 Continued reserve stability $12.2 Higher terminations Q1 2008 Q4 2007 Impact from improvement -$1.3 Q3 2007 -$10.0 -$19.5 initiatives Q2 2007 -$130.3 PTOI-Trailing 4 Quarters: $(213.3) $(221.0) $(185.9) $(161.1
Slide 31: Q2 Earnings LTC Closed Block
Q2 Earnings LTC Closed Block ($ millions) Q2 2007 (Restated) Q1 2008 Q2 2008 Insurance policy income $78.1 $75.5 $75.5 Net investment income 47.6 50.5 51.6 Fee revenue and other income 0.1 0.1 0.1 Total revenues 125.8 126.1 127.2 Insurance policy benefits 228.4 102.6 93.6 Amortization related to ope
Slide 32: Next Steps LTC Closed Block
Next Steps LTC Closed Block Form A filed to separate 86% of LTC Closed Block liabilities from CNO – August 11 Publication in the Pennsylvania Bulletin expected August 23 Public comment period expected to last through September; at discretion of Pennsylvania Insurance Department Pennsylvania
Slide 33: Investment Quality CNO
Investment Quality* CNO Actively Managed Fixed Maturities by Rating at Below-investment grade 6/30/08 (Market Value) securities represent 6% of BBB- BB+ and below 6% total portfolio 8% AAA 24% Limited new money allocation to below- BBB investment grade securities 12% Some drift upward in below
Slide 34: Q2 2008 Other-than-Temporary Impairments
Q2 2008 Other-than-Temporary Impairments CNO Total Q2 2008 gross realized losses included impairments of $231.7 million • $205.7 million related to Conseco Senior Health Insurance Company transaction as a result of our intent not to hold such investments for a period of time sufficient to allow fo
Slide 35: Equity Indexed Products CNO
Equity Indexed Products CNO CNO substantially hedges its current-year exposure to equity volatility (with future periods subject to product repricing) Hedge positions periodically adjusted for terminations • Terminations tend to result in modestly long position • Financial impact based on market
Slide 36: Structured Securities at 6/30/08
Structured Securities at 6/30/08 CNO (Market value in millions) Structured securities represent 24% of total actively Other managed fixed maturity $31.5 Commercial securities Planned amortization class, target 0.6% mortgage-backed amortization class, and accretion- directed bonds securities • Over
Slide 37: Sub-Prime Home Equity ABS CNO
Sub-Prime Home Equity ABS CNO Exposure by Vintage Year (Book Value in millions) 12/31/2007 3/31/2008 6/30/2008 $88.2 $80.7 $65.5 $36.5 $24.6 $15.8 $15.2 $16.0 $11.0 $10.0 $10.0 $10.0 $0.0 $0.0 $0.0 2003 2004 2005 2006 2007 Exposure reduced by 32% since 12/31/07 Market value represents 0.37% of i
Slide 38: Sub-Prime Home Equity ABS at 6/30/08
Sub-Prime Home Equity ABS at 6/30/08 CNO Market Book % of Avg. Avg. Avg. 60+ % of Rating Value (mil.) Value (mil.) Subprime* FICO Support Delinq. Portfolio* AAA $29.1 $35.3 34.4% 641 30.6% 11.8% 0.13% AA $33.3 $39.7 39.4% 647 23.3% 8.1% 0.14% A $22.2 $27.5 26.2% 648 20.8% 8.0% 0.10% Total $84.6 $102
Slide 39: CMBS Exposure Summary at 6/30/08
CMBS Exposure Summary* at 6/30/08 CNO Exposure by Rating Category (in millions) $581 $563 Market Value $842 Book Value $923 $144 $106 $107 $90 $62 $69 $20 $23 AAA AA A BBB BB *Includes exposure held in our trading portfolios. 39
Slide 40: CNO Summary
CNO Summary Separation of CSHI from Conseco • The most significant strategic move we will make • CSHI, owned by a Trust operating for the benefit of policyholders, will be better able to get rate increases than CSHI, owned by CNO Continued strong growth in new business • Bankers Life – continuin
Slide 41: Questions and Answers
S CONSECO. Questions and Answers 41
Slide 42: Appendix
S CONSECO. Appendix 42
Slide 43: Book Value Per Diluted Share
Book Value Per Diluted Share* CNO Decrease primarily driven by Q2 2007 Q3 2007 Q4 2007 Q1 2008 $24.80 $24.68 $24.41 $24.40 net loss in Q2 2008 Q2 2008 $21.76 *Book value excludes accumulated other comprehensive income (loss). Shares outstanding assumes: (1) conversion of convertible securities; an
Slide 44: Ratio of Debt to Total Capital
Ratio of Debt to Total Capital* CNO Increase primarily driven by net loss in Q2 2008 Q2 2008 Q2 2007 Q3 2007 Q4 2007 Q1 2008 22.8% 20.4% 20.6% 20.9% 20.9% *Excludes accumulated other comprehensive income (loss). See Appendix for corresponding GAAP measure. 44
Slide 45: Key Debt Covenants CNO
Key Debt Covenants CNO ($ millions) Q4 2005 Q4 2006 Q4 2007 Q2 2008* In compliance with all Debt/Capital Ratio financial covenants Covenant Maximum 25.0% 30.0% 30.0% 30.0% Actual 16.2% 17.4% 21.0% 22.8% Interest Coverage** Covenant Minimum 2.00X 2.00X 2.00X 2.00X Actual 2.06X 2.06X 3.34X 3.44X Sta
Slide 46: Net Investment Income CNO
Net Investment Income CNO ($ millions) General Account Investment Income Yield unchanged from Q2 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 $382.2 $392.6 $364.6 $353.7 $356.1 Net investment income from the prepayment of securities: $1.1 $0.6 $5.0 $1.5 $1.7 Yield: 5.80% 5.87% 5.94% 5.82% 5.82% 46
Slide 47: Expenses CNO
Expenses CNO ($ millions) Adjusted Operating Expenses* Back-office consolidation when Q2 2007 $105.6 Q3 2007 $105.3 Q4 2007 $107.5 Q1 2008 $105.9 Q2 2008 $102.1 completed expected to produce run- rate savings of $25 million annually by YE 2008 • Approximately $11 million in savings realized in 200
Slide 48: Segment Performance Bankers
Segment Performance Bankers ($ millions) Pre-Tax Operating Income* Lower earnings driven by: Q2 2007 Q3 2007 $70.5 • Lower margins as a result of $67.5 Q4 2007 $58.3 higher LTC claims frequency Q2 2008 Q1 2008 $34.6 • FAS 133 volatility $29.1 • IBNR true-up in PFFS • Increased claims in Medicare S
Slide 49: Premiums – Medicare Supplement Bankers
Premiums – Medicare Supplement Bankers Medicare Supplement – First-Year Premiums (in millions) Q4 2007 Q2 2007 Q2 2008 vs Q2 2007: Q3 2007 $21.0 Q1 2008 Q2 2008 $20.0 $19.3 $19.4 $19.1 • First-year premiums down slightly • NAP up 15% Med. Supp. First-Year Prems.-Tr. 4 Qtrs: $90.7 $86.8 $82.5 $79.4
Slide 50: Premiums – PDP/PFFS Bankers
Premiums – PDP/PFFS Bankers (in millions) PDP/PFFS – First-Year Premiums Q2 2007 to Q2 2008 growth driven Q2 2008 $116.1 by continued growth in in-force policies and addition of two group Q4 2007 cases Q3 2007 $86.0 $78.5 Q1 2008 Q1 2008 to Q2 2008 growth reflects $70.4 start of new group case $
Slide 51: Premiums – Long-Term Care Bankers
Premiums – Long-Term Care Bankers ($ millions) Long-Term Care – First-Year Premiums Quarterly first-year premium tracks decline in NAP Q2 2007 Q3 2007 Q4 2007 $12.2 Q1 2008 NAP decline attributable to $11.7 $11.5 $11.0 Q2 2008 $10.6 three main factors: • Overall industry sales decline • Agent fo
Slide 52: LTC Premium Re-rates (as of 7/31/08)
LTC Premium Re-rates (as of 7/31/08) Bankers Round 2 Results (2007 Round – issues from 2002-2005) • Submitted: $45.6 million (100% of goal) • Approved: $20.2 million (63% of goal) • Implemented: $20.2 million (63% of goal) • Financial impact: $17.6 million (62% of goal) Round 3 Goals (2008 Round
Slide 53: Premiums – Life Insurance Bankers
Premiums – Life Insurance Bankers Life – First-Year Premiums ($ millions) Q2 2007 Fluctuations in first-year $25.3 Q2 2008 premiums primarily reflect Q3 2007 $21.2 Q4 2007 $21.3 $22.5 Q1 2008 variance in sales of single- SPWL $12.1 $18.5 premium policies $9.1 $9.3 $9.4 $7.0 Non-SPWL NAP up 14% o
Slide 54: Premiums – Annuity Bankers
Premiums – Annuity Bankers Annuity – First-Year Premiums ($ millions) Q3 2007 Q2 2008 Fixed annuities have become $250.5 Q4 2007 Q1 2008 $256.8 $228.0 more attractive due to stock Q2 2007 $199.6 $221.2 market volatility First-Year Prems.-Tr. 4 Qtrs: $935.8 $909.0 $882.7 $899.3 $956.5 Total Premium
Slide 55: Benefit Ratio – Medicare Supplement Bankers
Benefit Ratio* – Medicare Supplement Bankers Q2 2008 ratio negatively Q2 2007 67.4% Q3 2007 69.4% Q4 2007 67.6% Q1 2008 Q2 2008 71.3% 64.6% impacted by: Premium refund adjustments Higher incurred claims Trailing 4 Quarter Avg.: 65.7% 66.6% 67.2% 67.3% 68.2% *We calculate benefit ratios by divi
Slide 56: Medicare Supplement Summary Bankers
Medicare Supplement Summary Bankers Premiums lower by $2.6 million: • $1.4 million premium adjustment • Terminations slightly higher than plan (although slightly improved from Q1 and Q2 2007) Claims higher by $4.4 million: • Increase in $ paid for Exhaust claims (low-frequency, high-amount claim
Slide 57: Benefit Ratio – PDP Bankers
Benefit Ratio* – PDP Bankers PDP ratio continues to trend as Q1 2008 103.3% Q2 2008 expected, factoring in seasonal 95.2% Q2 2007 fluctuations and settlement of 82.4% Q3 2007 75.3% prior contract year Q4 2007 53.0% *We calculate benefit ratios by dividing insurance policy benefits by insurance pol
Slide 58: Benefit Ratio – PFFS Individual Business
Benefit Ratio* – PFFS Individual Business Bankers Q2 2008 reflects IBNR Q2 2008 96.1% adjustment Q2 2007 Q3 2007 Q4 2007 82.6% Q1 2008 84.6% 79.8% 80.8% Overall ratio within pricing *We calculate benefit ratios by dividing insurance policy benefits by insurance policy income. 58
Slide 59: Benefit Ratio – PFFS Group Business
Benefit Ratio* – PFFS Group Business Bankers Lower expense levels allow Q3 2007 Q4 2007 Q1 2008 98.7% Q2 2008 90.9% 91.8% 92.1% group PFFS to operate at a higher benefit ratio than individual business, with similar margin expectations *We calculate benefit ratios by dividing insurance policy benef
Slide 60: Interest-Adjusted Benefit Ratio – Long Term Care
Interest-Adjusted Benefit Ratio* – Long Term Care Bankers Q2 2008 negatively impacted by: Q3 2007 Q1 2008 Q2 2008 Q4 2007 79.0% 81.4% 75.2% • Higher frequency of incurred claims Q2 2007 71.2% 64.6% Began implementation of premium re-rates (Round Two) in Q3 2007 on more recent business not previo
Slide 61: Segment Performance Colonial Penn
Segment Performance Colonial Penn ($ millions) Pre-Tax Operating Income* Q2 2007 to Q2 2008 earnings Q2 2008 $8.3 Q3 2007 • Improved due to Q4 2007 Q2 2007 $6.7 $7.0 recapture • Improved due to organic growth Q1 2008 initiatives $3.7 • Partially offset by higher life claims in 2008 Q4 2007 -$0.2 P
Slide 62: Premiums – Life Insurance Colonial Penn
Premiums – Life Insurance Colonial Penn Life – First-Year Premiums ($ millions) Q2 2008 Q1 2008 $8.9 $8.4 Continued strong sales growth Q2 2007 Q3 2007 Q4 2007 $7.6 $7.4 Trailing four quarters data: $7.0 • NAP grew 28% • First-year premium grew 27% First-Year Prems.-Tr. 4 Qtrs: $25.4 $27.0 $28.7
Slide 63: Segment Performance CIG
Segment Performance CIG ($ millions) Pre-Tax Operating Income* Improving life margins on our Q2 2007 traditional life block, primarily due $43.3 to favorable mortality of $3.5 million Q2 2008 $30.0 Favorable expenses of $2.8 million Q3 2007 Q1 2008 $23.3 $18.2 Q4 2007 $7.7 PTOI-Trailing 4 Quarte
Slide 64: Premiums - Medicare Supplement CIG
Premiums - Medicare Supplement CIG ($ millions) Medicare Supplement – First-Year Premiums NAP down 55% from Q2 2007: • We continue to focus on the Q2 2007 $5.2 profitability of this business rather Q3 2007 $4.2 than increased sales Q4 2007 $3.4 Q1 2008 $2.8 Q2 2008 $2.3 First-Year Prems.-Tr. 4 Qtr
Slide 65: Premiums – Specified Disease CIG
Premiums – Specified Disease CIG ($ millions) Specified Disease – First-Year Premiums Q4 2007 Q1 2008 Q2 2008 $8.9 $8.9 NAP up 29% from Q2 2007: $8.7 Q2 2007 Q3 2007 $7.7 $7.7 • New products • Increased PMA focus on specified disease products • Recruitment of Health IMOs First-Year Prems.-Tr. 4 Qt
Slide 66: Premiums – Annuity CIG
Premiums – Annuity CIG ($ millions) Annuity – First-Year Premiums Collections down 49% from Q2 2007: • Discontinuance of products due Q2 2007 $108.3 to coinsurance transaction Q3 2007 $73.2 Q4 2007 • Focus on profitable products $56.6 Q1 2008 Q2 2008 $39.2 $34.4 First-Year Prems.-Tr. 4 Qtrs: $521.
Slide 67: Benefit Ratio – Medicare Supplement CIG
Benefit Ratio* – Medicare Supplement CIG Q2 2007 Q3 2007 Q2 2008 Q4 2007 Q1 2008 Recognized higher incurred 68.9% 68.6% 66.0% 65.8% 71.9% claims in Q2 2008 Trailing 4 Quarter Avg.: 66.6% 67.1% 67.6% 67.4% 68.0% *We calculate benefit ratios by dividing insurance policy benefits by insurance policy
Slide 68: Interest-Adjusted Benefit Ratio – Specified Disease CIG
Interest-Adjusted Benefit Ratio* – Specified Disease CIG Primarily driven by slight increase in incurred claims Q3 2007 Q4 2007 Q1 2008 Q2 2008 49.1% 48.1% 46.5% 46.6% Q2 2007 40.4% Trailing 4 Quarter Avg.: 41.8% 43.2% 44.7% 46.0% 47.6% Qtrly. non-int. adjusted: 73.2% 81.9% 80.6% 81.9% 80.8% *We c
Slide 69: Balance Sheet Detail LTC Closed Block
Balance Sheet Detail LTC Closed Block ($ millions) Insurance Liabilities and Intangible Assets, Net of Reinsurance Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Reserve for Future Benefits $2,409.0 $2,402.3 $2,392.7 $2,394.4 $2,373.6 Claim Reserve 952.6 954.3 962.1 957.2 960.8 Insurance Acquisition Costs
Slide 70: Benefit Detail LTC Closed Block
Benefit Detail LTC Closed Block ($ millions) Total Benefits Q2 2007 Fourth consecutive stable $228.4 quarter; continued reserve adequacy Q2 2007 total benefits and Q3 2007 $122.3 Q4 2007 Q1 2008 $113.3 incurred claims reflect $110 $102.6 Q2 2008 $93.6 million claim reserve strengthening Incurred
Slide 71: Interest-Adjusted Benefit Ratio LTC Closed Block
Interest-Adjusted Benefit Ratio* LTC Closed Block Q2 2007 Fourth consecutive stable 232.6% quarter; continued reserve adequacy Q2 2007 benefit ratio reflects Q3 2007 $110 million claim reserve 96.2% Q4 2007 82.2% Q1 2008 strengthening 69.8% Q2 2008 56.5% Trailing 4 Quarter Avg.: 134.1% 138.8% 12
Slide 72: Verified Incurred Development LTC Closed Block
Verified Incurred Development* LTC Closed Block Developed ($ millions) Deficiencies in Periods Prior to 2004 2004 2005 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Reported Claims $0.0 $370.8 $396.0 $433.3 $119.7 $212.0 $100.7 $104.7 $89.1 $102.3 Prior Period Development 0 (44.2) (58.9) (72.
Slide 73: Operating Data LTC Closed Block
Operating Data LTC Closed Block Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Claims Paid (mils.) $101.2 $96.1 $81.6 $102.0 $96.8 $97.7 $104.9 $93.6 $99.2 Open Claimant Counts 12,536 12,228 12,048 11,870 12,424 12,121 12,338 11,783 12,237 In Force Policy Counts 194,080 190,
Slide 74: Premium Re-rates (as of 8/7/08) LTC Closed Block
Premium Re-rates (as of 8/7/08) LTC Closed Block Round 1 results - exceeded each goal: • Submitted: $64.0 million (115% of goal) • Approved: $47.0 million (113% of goal) • Implemented: $46.7 million (112% of goal) • Financial impact: $39.2 million (112% of goal) Round 2 results – on track to ach
Slide 75: 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 76: 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 the net operating income, excluding: (i) Q2 2006 charge related to the litigation settlement and refinements to such estimates recognized in subsequent periods; (ii) a Q3 2007 char
Slide 77: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Book value, excluding accumulated other comprehensive income, per diluted share This non-GAAP financial measure differs from book value per diluted share because accumulated other comprehensive income has been excluded from the book value us
Slide 78: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation from book value per diluted share to book value per diluted share, excluding accumulated other comprehensive income (loss) is as follows (dollars in millions, except per share amounts): Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Total sh
Slide 79: 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 net realized gains or losses (“net operating income”, a non-GAAP financial measure) is important to evaluate the performance of the Company and is a key measure
Slide 80: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of return on common equity to operating return (less: (i) Q2 2006 charge related to the litigation settlement and refinements to such estimates recognized in subsequent periods; (ii) a Q3 2007 charge related to a coinsurance
Slide 81: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures (continued from previous page) Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Average common shareholders' equity 4,194.2 4,320.8 4,260.7 4,087.8 3,660.9 Average common shareholders' equity, excluding accumulated other comprehensive income (loss) and net ope
Slide 82: 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 income (loss) and consolidated net income (loss) for the six months ended June 30, 2008, is as follows (dollars in millions): Other Business CI
Slide 83: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of common shareholders’ equity, 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):
Slide 84: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of average common shareholders’ equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to average common shareholders’ equity at June 30, 2008, is
Slide 85: 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) This non-GAAP financial measure differs from the debt to capital ratio because accumulated other comprehensive income has been excluded from the value of capital
Slide 86: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of the debt to capital ratio to debt to capital, excluding accumulated other comprehensive loss is as follows (dollars in millions): Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Corporate notes payable $ 1,197.8 $ 1,195.7 $ 1,193.7 $ 1,191