CNO Financial Group, Inc. · NYSE:CNO
CNO Financial — Q4 2013 Earnings Presentation
50 slides from CNO Financial's earnings presentation, Feb 12, 2014
Slide 1: 4Q13 Financial and operating results
4Q13 Financial and operating results for the period ended December 31, 2013 February 12, 2014 Unless otherwise specified, comparisons in this presentation are between 4Q13 and 4Q12.
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 | 4Q2013 Earnings | February 12, 2014
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 4
Slide 5: 4Q13 Summary
4Q13 Summary CNO Businesses continue to perform well: Growth in sales, premiums and earnings Returning value to shareholders while continuing on path to investment grade Placed on review for upgrade by Moody’s OCB long-term care reinsurance transaction CNO Financial Group | 4Q2013 Earnings |
Slide 6: Business Investments Driving Growth
Business Investments Driving Growth CNO ($ millions) NAP Collected Premiums* Bankers Annuities Avg. Liabilities $416.3 $7,238.7 $7,323.0 $2,526.9 $6,969.9 $393.4 $2,445.8 $2,368.5 $375.1 $4,137.2 $4,407.2 $4,619.4 $2,831.5 $3,185.8 $2,350.5 2011 2012 2013 2011 2012 2013 2011 2012 2013 Fixed Index An
Slide 7: OCB LTC Reinsurance Transaction
OCB LTC Reinsurance Transaction Important initial step on OCB • 10% of OCB reserves • Specialized block to reinsure Reduces LTC exposure by 12% • Represents $550mm of statutory LTC reserves transferred Favorable pro forma financial impact • Accretive to 2013 pro forma pre-tax earnings (~$5mm) • ~25b
Slide 8: 2013: Driving Shareholder Value
2013: Driving Shareholder Value CNO 2013 Total Return 91% Grew operating EPS and book value per diluted share* 69% 63% Expanded ROE on an increasing book value Lowered cost of capital while improving financial strength and ratings Profitably grew the business S&P Life & Health Peer CNO Insur
Slide 9: 4Q13 Sales and Distribution Results Bankers Life
4Q13 Sales and Distribution Results Bankers Life ($ millions) Quarterly NAP* Sales up 7% 4Q13 – Driven by Med supp, annuity and life 4Q12 $73.9 – Partially offset by LTC $69.3 2Q13 3Q13 1Q13 $63.2 $62.5 $60.5 Strong Med Advantage sales in the quarter Collected premiums up 6% Added 6 net loca
Slide 10: 4Q13 Sales and Distribution Results Washington National
4Q13 Sales and Distribution Results Washington National ($ millions) Quarterly NAP Sales up 15% 4Q13 ‒ PMA up 13% 2Q13 3Q13 $26.2 4Q12 ‒ Independent Partners up 24% $22.8 $23.3 $23.9 1Q13 $20.6 Strong voluntary worksite sales ‒ Up 29% driven by increased group enrollments Collected premiums* u
Slide 11: 4Q13 Sales and Distribution Results Colonial Penn
4Q13 Sales and Colonial Penn Distribution Results ($ millions) Quarterly NAP Sales up 3% ‒ Challenging TV ad environment 1Q13 yielded increased cost and lower $17.0 2Q13 3Q13 $15.8 conversion 4Q12 $15.4 4Q13 $13.6 $14.0 Collected premiums up 6% reflecting growth in in-force In-force EBIT growt
Slide 12: Bankers Long-Term Care
Bankers Long-Term Care The Need • Serves an important role in retirement care and security of the middle market • Medicare does not adequately address long-term care needs • Private LTC reduces the future burden on state Medicaid programs The Challenges • Balancing acceptable returns and affordabili
Slide 13: Business Investments Delivering Results
Business Investments Delivering Results Investments led to 2013 …expect momentum to continue accomplishments and consolidated sales into 2014 growth of 6%... Sales up 6% for the year Sales force automation and new CRM tools Strong year for life insurance and Medicare Advantage sales Advanced
Slide 14: Consolidated Financial Highlights
Consolidated Financial Highlights CNO 4Q Earnings ‒ In aggregate, core earnings drivers performed as expected ‒ Strength in annuity margins, corporate investment results, and OCB ‒ Loss Recognition Testing completed with stable aggregate margins 4Q Capital & Liquidity ‒ RBC above 400% and holdin
Slide 15: OCB LTC Reinsurance Transaction
OCB LTC Reinsurance Transaction CNO Deal Structure Financial Impact 100% coinsurance on $550mm of run-off GAAP LTC statutory reserves Book value loss of $65mm, accretive to Reinsured to Beechwood Re, a reinsurer operating earnings by approximately formed in 2012 and focused on life and $5mm an
Slide 16: Segment Earnings
Segment Earnings CNO ($ millions) Segment EBIT Excluding Significant Items* 4Q13 Notable Items $129.3 Bankers annuity and Medicare $119.2 $110.2 supplement margins remain strong $34.6 $107.1 $101.9 $28.1 $31.5 LTC benefit ratios have stabilized $30.3 $29.4 Washington National benefiting from g
Slide 17: Investment Results
Investment Results CNO ($ millions) Average Invested Assets and Cash Realized Gains, Losses and Impairments $25,272 $24,986 $24,861 $24,933 $24,695 $25.5 $22.8 $18.6 $352.8 $351.9 $348.8 $350.7 $354.4 Net $13.5 $13.6 Investment Income $11.2 $2.9 $10.5 $8.0 $5.6 $8.1 $3.3 $10.7 $3.3 $7.4 4Q12 1Q13 2Q
Slide 18: Loss Recognition & Cash Flow Testing
Loss Recognition & Cash Flow Testing CNO 2013 GAAP Loss Recognition Testing 2013 Statutory Cash Flow Testing Aggregate margins remain strong at 14% of Aggregate insurance company margins improved $25 billion in tested liabilities* at 12% of statutory reserves Testing margin increased modestly
Slide 19: Bankers Long-Term Care Testing Results
Bankers Long-Term Care Testing Results CNO Testing Margin Overview Majority of new business consists of short-term or less comprehensive care product - generally less annual reserve margin contribution relative to comprehensive LTC, but with lower risk profile. Margins reflect limited rate incre
Slide 20: Capital Targets & Excess Capital Deployment
Capital Targets & Excess Capital Deployment CNO 2012 2013 2014 Outlook Dialing in metrics that support investment- grade ratings while taking a tactical RBC 367% 410% ~ 400% approach to deployment ...... Liquidity $294mm $309mm ~ $300mm Share Repurchases Leverage* 20.7% 16.9% ~16% v $253 million of
Slide 21: Leveraging Considerable Tax Assets
Leveraging Considerable Tax Assets CNO ($ millions) 4Q 2013 Loss Carryforwards Asset Preservation Strategy v Executed capital gains tax strategy $1,253 Contributed to a net release in valuation Life allowance of $65 million and economic $319 value of $50 million 2014 Outlook and Value Non-Life v
Slide 22: ROE Development
ROE Development CNO Notable Items Normalized Operating ROE* Calculated on a trailing 4 quarter 8.1% 8.3% 8.6% 8.5% 8.2% basis and excluding AOCI and NOLs Normalized removes significant earnings items identified each quarter in our earnings release 2013 results reflect net favorable earnings pe
Slide 23: Building Long Term Value
Building Long Term Value CNO OCB LTC reinsurance transaction first step in acceleration of OCB run-off Positioned for, and investing to drive sales growth above industry averages Balanced capital deployment producing investment grade financial ratios while returning capital to shareholders I
Slide 24: Questions and Answers
Questions and Answers CNO Financial Group | 4Q2013 Earnings | February 12, 2014 24
Slide 25: Appendix
Appendix CNO Financial Group | 4Q2013 Earnings | February 12, 2014 25
Slide 26: 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 27: 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 28: 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 29: 3Q13 Significant Items
3Q13 Significant Items CNO The table below summarizes the financial impact of significant items on our 3Q2013 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 30: 4Q13 Significant Items
4Q13 Significant Items CNO The table below summarizes the financial impact of significant items on our 4Q2013 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 31: Quarterly Earnings
Quarterly Earnings CNO ($ millions) 4Q12 1Q13 2Q13 3Q13 4Q13 Bankers Life $ 73.7 $ 62.1 $ 79.1 $ 86.3 $ 83.0 Washington National 34.6 29.4 31.8 28.1 31.5 Colonial Penn 3.2 (5.4) 1.2 (4.2) (4.1) Other CNO Business 5.2 3.6 2.6 6.1 13.2 EBIT* from business segments 116.7 89.7 114.7 116.3 123.6 Corporat
Slide 32: 4Q13 Holding Company Liquidity
4Q13 Holding Company Liquidity CNO ($ millions) 4Q13 YTD Cash and Investments Balance - Beginning $292.0 $293.6 Sources Dividends from Insurance Subsidiaries 34.3 236.8 Dividends from Non-insurance Subsidiaries - 6.1 Interest/Earnings on Corporate Investments 4.6 18.5 Surplus Debenture Interest 12.3
Slide 33: Returning Capital to our Shareholders
Returning Capital to our Shareholders CNO Highlights Since initiating the share buyback Total Securities Repurchases by Quarter program, repurchased equivalent of 90 ($ in millions) million shares, leading to a 29%* reduction in weighted average diluted shares outstanding Cumulative investment o
Slide 34: Debt Maturity Profile
Debt Maturity Profile CNO ($ millions) $378.1 $275.0 $378.1 $275.0 $79.3 $59.4 $64.0 3.5 $79.3 $59.4 $60.5 $4.2 2014 2015 2016 2017 2018 2019 2020 Term Loan Senior Unsecured Debentures Senior Secured Notes CNO Financial Group | 4Q2013 Earnings | February 12, 2014 34
Slide 35: Holding Company Investments at 12/31/13
Holding Company Investments at 12/31/13 CNO ($ millions) Investment Performance Investment Allocation 4Q13 YTD Cash & Money Market / Cash & Money Market 0.06% 0.20% Fixed Income $187.2 Fixed Income 0.63% 0.17% Equities 10.20% 31.46% Alternatives Alternatives 7.96% 14.06% $42.2 Equities $79.6 Portfol
Slide 36: 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 37: 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 net operating income (and related per-share amounts) is as follows (dollars in millions, except per-share amounts): 4Q12 1Q13 2Q13 3Q13 4Q13 Net income applicable to common stock $
Slide 38: 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): 4Q12 1Q13 2Q13 3Q13 4Q13 Operating incom
Slide 39: 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 40: 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 41: 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 loss on reinsurance transaction, net realized gains or losses, fair value changes due to fluctuations in the interest rates used t
Slide 42: 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 year ended Decemb
Slide 43: 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 and consolidated net income for the year ended December 31, 2013, is as follows (dollars in millions): Bankers Washington Colonial Other
Slide 44: 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 45: 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 items, on equity,
Slide 46: 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 (dollars in millions): Operating Operating earnings, earnings, excluding Net excluding signi
Slide 47: 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 net income is as follows (dollars in millions): Twelve months ended 4Q12 1Q13 2Q13 3Q13 4Q13 Segment pretax operating earnings (a non-GAAP financial measure) $ 2
Slide 48: 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): 4Q11 1
Slide 49: 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 50: 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