Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q1 2020 Earnings Presentation
41 slides from Cno Financial's earnings presentation, May 8, 2020
Slide 1: First Quarter 2020
First Quarter 2020 Financial and operating results for the period ended March 31, 2020 May 5, 2020 Unless otherwise specified, comparisons in this presentation are between 1Q19 and 1Q20.
Slide 2: Important Legal Information
Important Legal Information 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 ca
Slide 3: CNO Financial Group | First Quarter 2020 Earnings | May 5, 2020
CNO Financial Group | First Quarter 2020 Earnings | May 5, 2020 3
Slide 4: COVID-19 Response: Committed to Key Stakeholders
COVID-19 Response: Committed to Key Stakeholders Embracing our obligations; rising to the challenge Supporting our Helping our Associates & Agents Customers Giving Back to Others • Committed to no COVID-19 • Call centers, claims • Committed to maintaining related layoffs in 2020 processing, other se
Slide 5: Quarter in Review
Quarter in Review Operating progress despite challenging environment • Operating income1 up 28%; record operating income per share +41% • Life and health sales up 7% Strong • Annuity collected premiums down 7%; account values up 8% Operational • Insurance policy income up 2%; insurance product margi
Slide 6: Growth Scorecard
Growth Scorecard Four of five metrics up Q/Q (dollars in millions) 2019 2020 % Change 1Q 2Q 3Q 4Q TY 1Q Q/Q 1 New Annualized Premium Life Insurance $39.7 $39.4 $37.3 $34.9 $151.3 $41.1 3.5% Drive Growth Health Insurance 40.1 45.8 46.7 62.7 195.3 44.0 9.7% Total Life & Health Insurance $79.8 $85.2 $8
Slide 7: Consumer Division Update
Consumer Division Update Continued progress with initiatives; early success transitioning to a new environment Key Initiatives First Quarter Highlights • Life and Health NAP up 8% Maintain growth • Health up 11%, Life up 5% momentum • Annuity account value up 8% to $9.8 billion • Total client assets
Slide 8: Worksite Division Update
Worksite Division Update 2020 off to strong start through mid-March; significant near-term challenges Key Initiatives First Quarter Highlights Continue worksite • Worksite NAP up 12% through mid-March; down 1% total growth in small • Worksite producing agent count up 13% employer market • Independen
Slide 9: Excess Capital Allocation Strategy
Excess Capital Allocation Strategy Disciplined and opportunistic approach to maximize shareholder value Organic investments to sustain and grow the core businesses Return capital to shareholders • $83 million in share repurchases in 1Q • Dividend payout ratio targeted at 20-25% • Repurchases paused
Slide 10: Financial Highlights
Financial Highlights Net operating EPS up 41% to record $0.58 First Quarter 2020 Earnings Results (dollars in millions, except where noted) • Net operating EPS1 of $0.58, up 41% from $0.41 in 1Q19 $0.58 • Non-operating loss of $105 million $0.41 • Mark-to-market impact from certain investments Net o
Slide 11: Insurance Product Margin
Insurance Product Margin Margin continues to be strong; growth in core blocks offsets lower book yields (dollars in millions) Insurance Product Margin1 1Q19 2Q19 3Q19 4Q19 1Q20 Highlights Annuity $56.2 $57.2 $56.2 $60.8 $59.5 • Total margin up 1% Margin / average net 2.45% 2.46% 2.39% 2.54% 2.47% in
Slide 12: Investment Results
Investment Results Steady NII allocated to product lines; variable investment returns boost overall results (dollars in millions) Investment Income Allocated Investment Income Not to Product Lines Allocated to Product Lines Total Net Investment Income1 $400.0 $400.0 $400.0 $300.0 $300.0 $300.0 $279.
Slide 13: Portfolio Composition
Portfolio Composition High quality; well-positioned for current environment $25 billion of Invested Assets Highlights (Fair Value as of 3/31/2020) Mortgage Loans, 6.7% HY Corporates, • 66% of portfolio in corporate and government bonds 2.7% Non-Agency RMBS, 8.0% • $20 billion of assets with high deg
Slide 14: Update on Tax Assets
Update on Tax Assets CARES Act NOL utilization provisions provide benefits (dollars in millions) CARES Act Impacts Life Non-life • Repeal of the 80% limitation for utilization of NOLs created after 2017 NOL deferred tax assets at December 31, 2019 $ 110.0 $ 422.0 • Accelerates the utilization of $10
Slide 15: Cash Flow Profile
Cash Flow Profile Strong free cash flow generation and conversion (dollars in millions) For the Quarter 1Q19 1Q20 1 Net Operating Income $ 65.8 $ 84.3 Holding Company Cash Flows: Dividends from Subsidiaries $ 49.0 $ 87.8 Management Fees 29.2 29.8 Surplus Debenture Interest 12.6 12.1 Earnings on Corp
Slide 16: Capital and Liquidity Overview
Capital and Liquidity Overview Conservative approach to capital structure (dollars in millions) Consolidated Risk Based Capital (“RBC”) Ratio1 408% 406% 393% Targeted consolidated RBC ratio of 375-400% Excess due to certain 1x favorable benefits to statutory capital RBC variability can be expe
Slide 17: 2020 Outlook – Maintain RBC, Liquidity, Leverage Targets
2020 Outlook – Maintain RBC, Liquidity, Leverage Targets Maintaining dividend; capacity to resume modest share repurchases • Base case scenario • Assumes social distancing through June • Economy picks up thereafter • 80,000 U.S. COVID-19 deaths • Alt case scenario • Assumes second wave of COVID-19 i
Slide 18: Delivering On Our Commitments
Delivering On Our Commitments Maximize Turnaround / De-risking Pivot to Growth Profitability Pre 2017 2017-2019 2020 and Beyond Reinsured life block (2009) Completed Senior Leadership Customer-centric business Recapitalized company (2012) additions realignment Initiated dividend (2012) R
Slide 19: Investment Highlights
Investment Highlights Well-positioned in Favorable Highly Sustainable Strong balance underserved senior demographic differentiated growth initiatives sheet; robust middle-income tailwinds business model in place free cash flow market generation CNO Financial Group | First Quarter 2020 Earnings | May
Slide 20: Questions and Answers
Questions and Answers CNO Financial Group | First Quarter 2020 Earnings | May 5, 2020 20
Slide 21: Appendix 1: Quarter in Review
Appendix 1: Quarter in Review Strong Operational Performance • Broker-Dealer/Registered Investment Advisor Slide 22 • Agent Counts Slide 23 Building on Strong Track Record of Execution • Retained LTC Insurance Slide 24 • Portfolio Overview Slides 25-27 CNO Financial Group | First Quarter 2020 Earnin
Slide 22: Broker-Dealer/Registered Investment Advisor
Broker-Dealer/Registered Investment Advisor Account values up YoY; $1.4 billion in client assets (dollars in millions) 2019 2020 1Q 2Q 3Q 4Q 1Q Net New Client Assets in Brokerage -$3.0 $5.1 $13.4 $17.4 $15.3 1 Brokerage and Advisory Advisory 35.7 33.2 29.9 45.4 65.7 Total $32.7 $38.3 $43.3 $62.8 $81
Slide 23: Agent Counts
Agent Counts All producing agent counts up YoY 2019 2020 % Change Consumer 1Q 2Q 3Q 4Q 1Q Q/Q Total Quarterly Average Producing Agents1,3 4,436 4,602 4,579 4,709 4,531 2.1% Quarterly Average Financial Representatives2,3 583 595 596 596 591 1.4% Worksite Total Quarterly Average Producing Agents1,3 37
Slide 24: Retained Long-Term Care Insurance
Retained Long-Term Care Insurance Highly differentiated in-force block; prudently managed New sales (~$25 million annually) focused on short duration products – 98% of new sales for policies with 2 years or less in benefits – Average benefit period of 11 months – New business 25% reinsured since 2
Slide 25: Portfolio Overview – Sector Breakdown
Portfolio Overview – Sector Breakdown Underweight COVID-19 impacted sectors (dollars in millions) Sector Exposure Market Value Portfolio% Over|Underweight Airlines 0.4 $0.4 0.002% Underweight Aircraft Lease Securitizations 68.7 $52.2 0.23% Underweight Energy 766.0 $675.3 2.92% Underweight Gaming - -
Slide 26: Portfolio Overview: Commercial Mortgage Loans
Portfolio Overview: Commercial Mortgage Loans Very conservatively underwritten; loss resistant Key Portfolio Facts Portfolio Geography East $1.5 billion of net invested assets 26.3% Central 12.5% Mountain 9.4% 100% 97.1% 51% 1.96x South 32.0% First Rated Weighted Weighted Pacific Mortgage CM1-2 Avg
Slide 27: Portfolio Overview: CLO Debt
Portfolio Overview: CLO Debt Significant cushion against stress scenarios 12/31/2016 3/31/2020 A+, 2.1% AA, AA, 50.8% A+, 1.4% 29.5% A, 18.8% A-, 0.0% BBB+, 0.3% AA+, A, 0.9% BBB, 8.9% 31.9% AAA, 24.3% BBB-, 12.6% 75% AAA, 100% AAA-A AA+, 12.3% AAA-A 2.4% B-, 1.6% A-, 1.3% BB-, 1.0% Key Portfolio Me
Slide 28: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits • Non-GAAP Financial Measures Slides 29-41 CNO Financial Group | First Quarter 2020 Earnings | May 5, 2020 28
Slide 29: 4Q19 Significant Items
4Q19 Significant Items The table below summarizes the financial impact of significant items on our 4Q19 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. (dollars in millions, except per-share amounts) Three mont
Slide 30: Quarterly Earnings
Quarterly Earnings (dollars in millions) 1Q19 2Q19 3Q19 4Q19 1Q20 Insurance product margin Annuity $ 56.2 $ 57.2 $ 56.2 $ 60.5 $ 59.5 Health 78.9 78.3 77.0 79.0 73.6 Life 43.1 51.7 54.6 46.7 44.3 Long-term care 11.5 11.9 12.3 14.0 13.3 Total insurance product margin 189.7 199.1 200.1 200.2 190.7 All
Slide 31: 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 32: 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) 1Q19 2Q19 3Q19 4Q19 1Q20 Net income (loss) applicable to
Slide 33: 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) 1Q19 2Q19 3Q19 4Q19 1Q20 (a) Operating i
Slide 34: 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 were exercised, restricted stock and performance units were vested and convertible securities were conver
Slide 35: 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 net realized investment gains or losses from sales, impairments and change in allowance for credit losses, net change in market va
Slide 36: 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 item, on equity, e
Slide 37: 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 (loss): (dollars in millions) Net operating Net operating income, income, excluding excludin
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 item, on equity, e
Slide 39: 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) 1Q17 2
Slide 40: 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 41: 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