CNO Financial Group, Inc. · NYSE:CNO
CNO Financial — Q4 2012 Earnings Presentation
49 slides from CNO Financial's earnings presentation, Feb 12, 2013
Slide 1: 4Q12 Financial and operating results
4Q12 Financial and operating results for the period ended December 31, 2012 February 12, 2013 Unless otherwise specified, comparisons in this presentation are between 4Q12 and 4Q11.
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, value excluding accumulated other comprehensive income (loss) per share; operating re
Slide 4: CNO Financial Group | 4Q2012 Earnings | February 12, 2013
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 4
Slide 5: 4Q12 Summary
4Q12 Summary CNO Businesses continued to perform well with core earnings building Strong capital deployment – Additional share repurchases and dividend payment – Increased securities repurchase p p program g by y$$300 million Continued investment in our business – Expanded locations, geographi
Slide 6: 2012: A Year of Driving Toward Long Term Value
2012: A Year of Driving Toward Long Term Value Accomplishments Support Strategic Priorities Grew G sales, l distribution di ib i and d product d 2012 Total Return portfolio 49% g earnings Strong g and recapitalization p – Improved financial strength – ROE expansion 19% 17% Achieved ratings upg
Slide 7: Investment in the Business
Investment in the Business CNO ($ millions)) Core Sales Excluding Bankers Annuities* - 8% Consolidated CAGR Since 2010 Investing in productivity and growth of the agent force $350.0 $313.5 $301 5 $301.5 Expanding E di presence b by adding ddi new llocations ti and geographies Developing and la
Slide 8: Core Operating Earnings Building
Core Operating Earnings Building CNO Operating EPS Excluding Significant Items* 4Q12 Earnings and ROE Drivers $0.30 Growth reflects strength across all $0 25 $0.25 segments 4Q11 $0.18 Recapitalization driving ROE and Operating EPS $0.18 EPS accretion Low interest rates continue to present a he
Slide 9: 2012 Accomplishments
2012 Accomplishments • Growth in average agent • 13% growth for core • 20% sales growth force of 6% products sales, 16% growth for worksite sales • Improved acquisition cost • Added 25 locations to / sales ratio through reach 276 branch offices • Strong agent recruiting improved direct marketing and
Slide 10: Bankers Life 4Q12 Sales and Distribution Results
4Q12 Sales and Distribution Results Bankers Life ($ millions) Growth in average agent force Quarterly NAP* Distribution and market focus allow for 4Q11 4Q12 $69.8 $69.3 shift in product mix 1Q12 2Q12 3Q12 – Sales excluding annuities up 5%, driven $58.8 $59.5 $57.6 $58.4 ** by life sales, up 26%
Slide 11: Washington National Sales and Distribution Results
4Q12 Sales and Di Distribution t ib ti R Results lt Washington National ($ millions) Quarterly Core NAP* Core* product sales up 10% 2Q12 4Q12 4Q11 3Q12 $22.7 – Driven by strong worksite sales 1Q12 $22.0 $20.7 $21.2 $19.6 Investment in life sales continues to gain traction Strong results in rec
Slide 12: Colonial Penn Sales and Distribution Results
4Q12 Sales and Colonial Penn Di t ib ti R Distribution ($ millions) lt Results Quarterly NAP Sales growth continues; NAP up 1Q12 11% $17.5 2Q12 3Q12 $15.6 – Result of increased lead volumes and $15.1 4Q12 4Q11 $13.6 higher sales productivity $12.3 Sales results in line with seasonal patterns – E
Slide 13: 2013 Outlook
2013 Outlook Efforts continue to expand distribution and product offerings to effectively serve our growing target market Continue investment in branch expansion; expect to add 25 locations in 2013 Expect continued growth as new locations get to full productivity drive improved retention Drive
Slide 14: 4Q12 Consolidated Financial Highlights
4Q12 Consolidated Financial Highlights CNO Earnings ‒ Strong results across all segments ‒ Favorable pperformance on key y earnings g drivers ‒ Additional valuation allowance release Capital & Liquidity ‒ RBC ratio, leverage and holding company liquidity remain strong ‒ 2012 YTD cash flow to the
Slide 15: Segment Earnings Trend - Stable & Growing
Segment Earnings Trend - Stable & Growing CNO ($ millions)) Segment EBIT Excluding Significant Items* $129.3 4Q12 Notable Items $125.6 Favorable net investment income $97.3 $99.8 $33.9 $34.6 benefited all segments $95.5 $24.7 $33.9 $ Bankers and Washington National $33.3 posted favorable benefit
Slide 16: Favorable Overall Underwriting Margins
Favorable Overall Underwriting Margins CNO ($ millions) Bankers Life Medicare Supplement $179 $183 $184 $185 $186 4Q12 Highlights 70.5% 72.2% 71.4% 67.8% 64.5% Bankers Medicare supplement premium growth and margins performed as expected 4Q11 1Q12 2Q12 3Q12 4Q12 Bankers Life Long Term Care Interest
Slide 17: Net Investment Income
Net Investment Income CNO ($ millions) Sequentially stable new money rate General Account Investment Income reflects higher risk free rates offset by tighter credit curve 2Q12 3Q12 4Q12 Increase in investment income 1Q12 $351 1 $351.1 $349 4 $349.4 $352.8 4Q11 $345.2 primarily due to growth in i
Slide 18: Realized Gains, Losses and Impairments
Realized ($ millions) Gains, Losses and Impairments CNO $41.9 $41.6 $41.2 $33.3 $32.1 $22.8 * $23.1 $18.7 $8.3 $10.4 $9.7 $3.5 $5.6 $7.9 $10.4 $9.0 $3.3 $6.2 $2.5 $2.3 4Q11 1Q12 2Q12 3Q12 4Q12 Gross Realized Gains Gross Realized Losses Impairments * 3Q12 impairments primarily associated with two pri
Slide 19: Loss Recognition & Cash Flow Testing
Loss Recognition & Cash Flow Testing CNO 2012 GAAP Loss Recognition Testing 2012 Statutory Cash Flow Testing Aggregate gg g testing g margins g remain strong g Insurance Company margins consistent with Testing margin Increased in 2012 prior years ↑ - ASU 2010-26 All insurance entities pass A
Slide 20: Capital Position
Capital Position CNO ($ millions) RBC Ratio R ti 2011 2012 2010 358% 367% 332% Insurance Company Capitalization – RBC increased to 367% and reflects: • Statutory operating income of $337mm for the year • $265mm of statutory dividends in 2012 • TAC of $1.78 billion up 2% in 2012 • Required capital
Slide 21: 2012 Capital Generation - Free Cash Flow Building
2012 Capital Generation - Free Cash Flow Building CNO ($ in millions) 2012: Capital Generation & Free Cash Flow 4Q12 Highlights $495 $72 $423 Generated nearly $500mm in ($64) capital in 2012 ($18) Over $420mm in capital sent to $265 the holding company $265mm of statutory dividends, $341 att t
Slide 22: 2013 Outlook
2013 Outlook CNO Core Earnings: - Bankers: expect traditional Q1 seasonality due to increase in DAC amortization in M di Medicare supplement l - Colonial Penn: 2013 EBIT outlook of -$5mm to -$10mm with the majority of loss coming in Q1 due to seasonal marketing spend - Maintain existinggg guidance
Slide 23: 2012 Accomplishments Support 2015 Milestones
CNO: 2012 Accomplishments Support 2015 Milestones 2012 Accomplishments 2015 Milestones Invest $80-$85mm in Grew sales, distribution and strategic business initiatives product portfolio Accelerate run-on and run-off Enhanced talent Enhance customer Strong earnings and experience and opera
Slide 24: Questions and Answers
Questions and Answers CNO Financial Group | 4Q2012 Earnings | February 12, 2013 24
Slide 25: Appendix
Appendix CNO Financial Group | 4Q2012 Earnings | February 12, 2013 25
Slide 26: 4Q11 Significant Items
4Q11 Significant Items CNO The table below summarizes the financial impact of significant items on our 4Q2011 net operating income. Management believes that id tif i th identifying the iimpactt off th these it items enhances h th the understanding d t di off our operating ti results lt (d (dollars l
Slide 27: 1Q12 Significant Items
1Q12 Significant Items CNO The table below summarizes the financial impact of significant items on our 1Q2012 net operating income. Management believes that id tif i th identifying the iimpactt off th these it items enhances h th the understanding d t di off our operating ti results lt (dollars (d l
Slide 28: 2Q12 Significant Items
2Q12 Significant Items CNO The table Th t bl b below l summarizes i th the fi financial i l iimpactt off significant i ifi t it items on our 2Q2012 nett operating ti income. i Management M t believes b li th thatt identifying the impact of these items enhances the understanding of our operating resu
Slide 29: 3Q12 Significant Items
3Q12 Significant Items CNO The table Th t bl b below l summarizes i th the fi financial i l iimpactt off significant i ifi t it items on our 3Q2012 nett operating ti income. i Management M t believes b li th thatt identifying the impact of these items enhances the understanding of our operating resu
Slide 30: 4Q12 Significant Items
4Q12 Significant Items CNO The table Th t bl b below l summarizes i th the fi financial i l iimpactt off significant i ifi t it items on our 4Q2012 nett operating ti income. i Management M t believes b li th thatt identifying the impact of these items enhances the understanding of our operating resu
Slide 31: Quarterly Earnings
Quarterlyy Earnings g CNO ($ millions) 4Q11 1Q12 2Q12 3Q12 4Q12 Bankers Life $ 77.2 $ 70.5 $ 76.1 $ 80.6 $ 73.7 Washington National 28.8 24.7 33.9 33.9 34.6 Colonial Penn 1.8 ((9.8)) 0.6 ((2.6)) 3.2 Other CNO Business - (2.3) 1.9 (53.6) 5.2 EBIT* from business segments 107.8 83.1 112.5 58.3 116.7 Co
Slide 32: Low-For-Long Rates – Reserve Sensitivity
“Low-For-Long” Rates – Reserve Sensitivity CNO 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: 4Q12 Holding Company Liquidity
4Q12 Holding g Company p y Liquidity q y CNO ($ millions) YTD 4Q12 2012 Cash and Investments Balance - Beginning $313.6 $202.8 * Sources Dividends from Insurance Subsidiaries 67.0 265.0 Dividends from Non-insurance Subsidiaries - 6.0 Interest/Earnings on Corporate Investments 6.4 28.5 Surplus Debent
Slide 34: Debt Maturity Profile
Debt Maturity Profile(1) CNO ($ millions) $389 1 $389.1 $275.0 $389.1 $153.5 $275.0 (2) $93.0 $79.2 $51.1 $60.5 $79.2 $51 1 $51.1 $60 5 $60.5 $60 5 $60.5 $4.2 2013 2014 2015 2016 2017 2018 2019 2020 Term Loan Convertible Senior Unsecured Debentures Senior Secured Notes (1) Maturity schedule does not
Slide 35: GAAP Balances for Deferred Tax Asset as of 12/31/12
GAAP Balances for Deferred Tax Asset as of 12/31/12: CNO Loss Carryforwards – Gross1 vs. vs Net2 ($ millions) Totals Gross Loss Carryforwards (3) $ 1,642 Gross Valuation Allowance ((3)) ((767)) $1,082 Net Loss Carryforwards (3) $ 875 Net Reduction in GAAP Valuation $620 Allowances Identified in prev
Slide 36: Commercial Mortgage Loans
Commercial Mortgage Loans $1.6bn of Invested Assets* Focus on ‘A’ quality properties which are diversified by Other Multi-Family 4% 6% geography and sector Mixed Use 3% q y investments, construction No’s: mezzanine or real estate equity or condo loans, pro-forma underwriting Industrial Retail 17
Slide 37: Peripheral Europe as of 12/31/12
Peripheral Europe as of 12/31/12 CNO ($ millions) Total Book Fair Italy Ireland Spain Value Value Capital Goods $ 18.6 $ - $ - $ 18.6 $ 21.1 Communication 26.1 - 64.6 90.7 89.9 Consumer Non-Cyclical - 43.5 6.9 50.4 54.6 Financials - 59.8 27.9 87.7 96.4 Industrials - 61.6 - 61.6 66.5 Utilities - 30.1
Slide 38: Holding Company Investments at 12/31/12
Holding Company Investments at 12/31/12 CNO ($ millions)) Investment Performance Investment Allocation Performance Summary 4Q12 YTD Cash & Money Market / Fixed Income Cash & Money Market 0 03% 0.03% 0 12% 0.12% $238.1 Fixed Income 1.60% 10.17% Equities 0.38% -0 38% 15 99% 15.99% Equities / Alternati
Slide 39: 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 40: 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): 4Q11 1Q12 2Q12 3Q12 4Q12 Net income (loss) applicable to
Slide 41: 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 operations earnings per share is as follows (dollars in millions, except per-share amounts, and shares in thousands): 4Q11 1Q12 2Q12 3Q12 4Q12 Operating inco
Slide 42: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Book value, excluding accumulated other comprehensive income (loss), per share This non-GAAP financial measure differs from book value per share because accumulated other comprehensive income (loss) has been excluded from the book value used
Slide 43: 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 44: 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 45: 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 46: 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 year ended December 31, 2012, is as follows (dollars in millions): Bankers Washington
Slide 47: 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 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): (Conti
Slide 49: 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