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. Exhibit 99.1
Slide 2: Forward-Looking Statements
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 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 ope
Slide 3: Non-GAAP Measures
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 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 oth
Slide 4: 12, 2014
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 4
Slide 5: 4Q13 Summary
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 5 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 transact
Slide 6: Business Investments Driving Growth
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 6 Business Investments Driving Growth 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
Slide 7: OCB LTC Reinsurance Transaction
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 7 OCB LTC Reinsurance Transaction • 10% of OCB reserves • Specialized block to reinsure Important initial step on OCB • Represents $550mm of statutory LTC reserves transferred Reduces LTC exposure by 12% • Accretive to 2013 pro forma pre-tax
Slide 8: CNO 2013: Driving Shareholder Value
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 8 63% 69% 91% S&P Life & Health Insurance Peer Group CNO 2013: Driving Shareholder Value Grew operating EPS and book value per diluted share* Expanded ROE on an increasing book value Lowered cost of capital while improving financial str
Slide 9: Bankers Life 4Q13 Sales and Distribution Results
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 9 4Q13 Sales and Distribution Results Sales up 7% – Driven by Med supp, annuity and life – Partially offset by LTC Strong Med Advantage sales in the quarter Collected premiums up 6% Added 6 net locations in 4Q Average agent force up
Slide 10: Washington National 4Q13 Sales and Distribution Results
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 10 Washington National 4Q13 Sales and Distribution Results ($ millions) * Collected premiums exclude Medicare supplement premiums ** Total producing agents includes appointed agents with $1000 or more of NAP in the prior 12 months Quarterly N
Slide 11: Colonial Penn 4Q13 Sales and Distribution Results
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 11 Sales up 3% ‒Challenging TV ad environment yielded increased cost and lower conversion Collected premiums up 6% reflecting growth in in-force In-force EBIT growth of 9% 4Q13 Sales and Distribution Results Colonial Penn ($ millions) Q
Slide 12: Bankers Long-Term Care
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 12 Bankers Long-Term Care CNO remains committed to serving the needs of its customers by offering LTC products • Serves an important role in retirement care and security of the middle market • Medicare does not adequately address long-term ca
Slide 13: Business Investments Delivering Results
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 13 Business Investments Delivering Results Sales force automation and new CRM tools Advanced life sales training Revised branding and digital marketing Grow Financial Advisor program Worksite distribution expansion Individual dist
Slide 14: Consolidated Financial Highlights
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 14 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
Slide 15: OCB LTC Reinsurance Transaction
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 15 OCB LTC Reinsurance Transaction CNO Insurance Subsidiaries* Reinsurer 100% Co-Insurance Agreement Reserve Credit Secured by Collateral Trusts * Washington National Insurance Company and Bankers Conseco Life Insurance Company 100% coinsur
Slide 16: Segment Earnings
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 16 $(2.7) $3.0 $(3.6) $(0.4) $3.8 $3.2 $(5.4) $1.2 $(4.2) $(4.1) $16.5 $3.6 $2.6 $6.1 $8.2 $77.7 $71.3 $76.6 $80.6 $79.8 $34.6 $29.4 $30.3 $28.1 $31.5 4Q12 1Q13 2Q13 3Q13 4Q13 Corporate CP OCB BLC WN ($ millions) * A non-GAAP measure. See the
Slide 17: Investment Results
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 17 $2.3 $3.3 $7.4 $10.7 $2.4 $3.3 $2.9 $8.1 $24,695 $24,986 $24,861 $24,933 $25,272 $352.8 $351.9 $348.8 $350.7 $354.4 4Q12 1Q13 2Q13 3Q13 4Q13 Net Investment Income Investment Results CNO ($ millions) Earned Yield*: 5.90% 5.89% 5.88% 5.86% 5
Slide 18: Loss Recognition & Cash Flow Testing
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 18 Loss Recognition & Cash Flow Testing 2013 Statutory Cash Flow Testing 2013 GAAP Loss Recognition Testing Aggregate margins remain strong at 14% of $25 billion in tested liabilities* Testing margin increased modestly in 2013 ↑ - Net gro
Slide 19: Bankers Long-Term Care Testing Results
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 19 Bankers Long-Term Care Testing Results CNO Testing Margin Overview LRT Margin 5% on $4.2 billion Net GAAP Liabilities* Key Variable Sensitivity Test LRT Margin Impact New Money Rates +/- 50 basis point shift in NMR curve +/- $60mm Lapse Ra
Slide 20: Capital Targets & Excess Capital Deployment
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 20 Capital Targets & Excess Capital Deployment CNO 2012 2013 2014 Outlook RBC 367% 410% ~ 400% Liquidity $294mm $309mm ~ $300mm Leverage* 20.7% 16.9% ~16% 2013 Capital Generation ~ $500mm** Dialing in metrics that support investment- grade ra
Slide 21: Leveraging Considerable Tax Assets
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 21 Capital $13 Non-Life $921 Life $319 Loss Carryforwards Valuation Allowance Leveraging Considerable Tax Assets CNO ($ millions) 4Q 2013 Loss Carryforwards $1,253 $284 v 2014 Outlook and Value v Annual cash flows are expected to be reduced
Slide 22: ROE Development
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 22 ROE Development CNO Calculated on a trailing 4 quarter basis and excluding AOCI and NOLs Normalized removes significant earnings items identified each quarter in our earnings release 2013 results reflect net favorable earnings perfor
Slide 23: Building Long Term Value
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 23 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 fi
Slide 24: Questions and Answers
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 24 Questions and Answers
Slide 25: Appendix
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 25 Appendix
Slide 26: Significant Items: 4Q2012 Net Operating Income
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 26 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 million
Slide 27: Significant Items: 1Q2013 Net Operating Income
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 27 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 millio
Slide 28: Significant Items: 2Q2013 Net Operating Income
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 28 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 mil
Slide 29: Significant Items: 3Q2013 Net Operating Income
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 29 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 million
Slide 30: Significant Items: 4Q2013 Net Operating Income
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 30 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 million
Slide 31: Quarterly Earnings
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 31 Quarterly Earnings CNO *Management believes that an analysis of earnings before loss on reinsurance transaction, net realized investment gains (losses), fair value changes in embedded derivative liabilities, equity in earnings of certain n
Slide 32: 4Q13 Holding Company Liquidity
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 32 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 C
Slide 33: Returning Capital to our Shareholders
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 33 $16.2 $39.5 $14.1 $18.9 $39.3 $41.4 $80.7 $50.0 $37.3 $31.1 $342.0 $124.8 $9.4 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Share Repurchases Convertible Repurchases Returning Capital to our Shareholders CNO Since initiati
Slide 34: Debt Maturity Profile
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 34 $59.4 $79.3 $60.5 3.5 $275.0 $59.4 $79.3 $64.0 $4.2 $378.1 2014 2015 2016 2017 2018 2019 2020 Term Loan Senior Unsecured Debentures Senior Secured Notes Debt Maturity Profile ($ millions) $378.1 $275.0 CNO
Slide 35: Holding Company Investments at 12/31/13
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 35 Holding Company Investments at 12/31/13 CNO ($ millions) Cash & Money Market / Fixed Income $187.2 Equities $79.6 Portfolio strategy prioritizes liquidity for corporate capital needs, while balanced allocation generates consistent returns
Slide 36: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 36 The following provides additional information regarding certain non-GAAP measures used in this presentation. A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that excludes or includes
Slide 37: Net Income to Net Operating Income Reconciliation
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 37 Information Related to Certain Non-GAAP Financial Measures A reconciliation of net income applicable to common stock to net operating income (and related per-share amounts) is as follows (dollars in millions, except per-share amounts): 4Q1
Slide 38: Operating Earnings Per Diluted Share Reconciliation
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 38 4Q12 1Q13 2Q13 3Q13 4Q13 Operating income 60.0$ 49.7$ 67.7$ 77.2$ 75.4$ Add: interest expense on 7.0% Convertible Senior Debentures due 2016, net of income taxes 1.2 1.2 0.4 - - Total adjusted operating income 61.2$ 50.9$ 68.1$ 77.2$ 75.4$
Slide 39: Book Value per Diluted Share
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 39 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 securit
Slide 40: Interest-Adjusted Benefit Ratio
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 40 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 ba
Slide 41: Operating Return Measures
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 41 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 v
Slide 42: Operating Return on Allocated Capital
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 42 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 m
Slide 43: Pretax Operating Earnings to Segment Operating Return
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 43 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 fol
Slide 44: Average Allocated Capital Reconciliation
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 44 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 operatin
Slide 45: Operating Return on Equity Calculations
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 45 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); (i
Slide 46: Operating Earnings and Significant Items Summary
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 46 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): Operatin
Slide 47: Pretax Operating Earnings to Net Income
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 47 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): 4Q12 1Q13 2Q13 3Q13 4Q13 Segment pretax operating ea
Slide 48: Consolidated Capital Reconciliation
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 48 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 shar
Slide 49: Consolidated Capital Reconciliation
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 49 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 shar
Slide 50: Debt to Capital Ratio Reconciliation
CNO Financial Group | 4Q2013 Earnings | February 12, 2014 50 Information Related to Certain Non-GAAP Financial Measures 4Q12 1Q13 2Q13 3Q13 4Q13 Corporate notes payable 1,004.2$ 934.2$ 905.7$ 868.6$ 856.4$ Total shareholders' equity 5,049.3 5,028.6 4,581.4 4,786.6 4,955.2 Total capital 6,053.5$ 5,96