CNO Financial Group, Inc. · NYSE:CNO
CNO Financial — Conseco — Q1 2007 Earnings Presentation
64 slides from CNO Financial's earnings presentation, May 2007
Slide 1: First Quarter 2007 Financial and Operating Results
First Quarter 2007 Financial and Operating Results For the period ended March 31, 2007 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: Q1 2007 Summary CNO
Q1 2007 Summary CNO Progress in executing plan • Strong sales growth at Bankers and Colonial Penn, better sales mix at CIG • On plan with Run-off LTC in improving claims management and in re-rates • Announcement of sale of $3 billion block of Fixed and EIA annuities • Board approval of increase in
Slide 5: New Business Volumes (NAP) CNO Consolidated
New Business Volumes (NAP) CNO Consolidated Q1 2007 (in millions) Q1 2006 $134.2 $122.3 Record quarterly sales for Q2 2006 $21.0 CIG $24.2 Q3 2006 BLC $98.3 Q4 2006 $10.4 Col. Penn $92.6 Strong growth in sales for $87.8 $8.4 $24.6 $26.3 CP, stronger growth in leads $9.1 $24.1 CIG sales mix imp
Slide 6: Collected Premium Growth CNO Consolidated
Collected Premium Growth CNO Consolidated $1,095.7 ($ millions) $994.2 $81.2 Run-Off $88.4 Collected premium on core businesses increased 12% from the same quarter in the $633.7 Bankers* prior year $599.5 Collected premium is up 13% from the four quarters ending on March 31, 2007 versus the comp
Slide 7: Operating ROE CNO
Operating ROE CNO Conseco has set a long-term goal of improving its Operating ROE – after-tax earnings divided by equity (excluding our NOL deferred tax asset from equity and other adjustments below) – to 11% in 2009 Operating ROE*, Trailing 4 Quarters Operating ROE (excl. Q2 2006 charge)**, Trail
Slide 8: Q1 Earnings CNO Consolidated
Q1 Earnings CNO Consolidated ($ millions) Q1 2006 Q1 2007 Bankers Life $57.2 $42.8 Conseco Insurance Group 41.9 51.5 Colonial Penn 5.1 4.6 Other Business in Run-Off 24.0 (30.9) Corporate operations, excluding interest expense (13.6) (14.7) Total EBIT* 114.6 53.3 Corporate interest expense (12.4) (16
Slide 9: Operating EPS (Diluted) CNO
Operating EPS (Diluted) CNO Operating EPS* Operating EPS, Before Q2 2006 Charge** Q2 2006 $0.46 Q1 2006 Q3 2006 Q1 2006 Q3 2006 $0.36 $0.35 $0.35 $0.36 Q1 2007 $0.10 Q1 2007 Q4 2006 $0.10 $0.04 Q4 2006 $0.04 Q2 2006 ($0.21) *Operating earnings per share exclude net **Operating earnings per share, be
Slide 10: Q1 Earnings LTC Closed Block
Q1 Earnings LTC Closed Block ($ millions) Q1 2006 Q1 2007 Insurance policy income $88.9 $79.5 Net investment income 44.7 47.0 Fee revenue and other income 0.1 0.1 Total revenues 133.7 126.6 Insurance policy benefits 84.3 130.0 Amortization related to operations 3.5 5.7 Other operating costs and expe
Slide 11: Segment Performance LTC Closed Block
Segment Performance LTC Closed Block Pre-Tax Operating Income* ($ millions) Q1 2006 Results adversely affected by: $24.0 • $22.0 million claim reserve Q2 2006 $4.4 strengthening in Transport block of business • Claims on larger American Travellers Q3 2006 block developed as expected -$13.0 • Reduc
Slide 12: Interest-Adjusted Benefit Ratio LTC Closed Block
Interest-Adjusted Benefit Ratio* LTC Closed Block Q4 2006 Loss ratio improved vs. prior 143.5% quarter Q1 2007 Excluding $22 million of claim 105.3% Q3 2006 reserve strengthening in Q2 2006 83.1% Transport block, Q1 2007 64.4% Q1 2006 interest-adjusted benefit ratio 45.1% was 77.6% Trailing 4 Qu
Slide 13: Q1 2007 Summary LTC Closed Block
Q1 2007 Summary LTC Closed Block Program for improvement gaining traction • Premium re-rates • Claims management • Technology 13
Slide 14: Premium Re-rates LTC Closed Block
Premium Re-rates LTC Closed Block Re-rates Submitted: 100% of Goal Re-rates Approved: 62% of Goal $55.6 $55.6 $41.7 $39.4 $ M illions $25.9 $ Millions $26.3 $19.2 $9.9 $8.3 $0.0 $0.0 $0.0 8/31/06 10/31/06 3/1/07 5/1/07 8/31/06 10/31/06 3/1/07 5/1/07 Re-rates Implemented: 59% of Goal $35.0 $ M illio
Slide 15: Program for Improvement: Claims Management
Program for Improvement LTC Closed Block Claims management • Improved claim processes resulting in more accurate payments consistent with policy language, and better customer experience • Closing of Florida case management operation, effective by end of Q2 2007, to save $1.5 million in expenses pe
Slide 16: Program for Improvement: Technology
Program for Improvement LTC Closed Block Technology • Improved policy/benefit repository and accumulator tool on track for mid-2007 implementation • Implemented tool for streamlining manually-intensive policy administration processes • Approaching completion of strategic LTC system selection proce
Slide 17: Segment Summary LTC Closed Block
Segment Summary LTC Closed Block Financial results affected by experience and related claim reserve strengthening on subset of block However, progress on key initiatives: • Achieved re-rate filing goal in $35 million program • Improved claims management processes gaining traction • Progress on s
Slide 18: Financial Indicators CNO
Financial Indicators* CNO Book value per diluted share • $25.24 at 3/31/07 vs $24.56 a year earlier and $25.64 at YE 2006 Debt to total capital ratio • 17.3% at 3/31/07 vs 15.2% a year earlier and 17.3% at YE 2006 Consolidated RBC ratio • 342% at 3/31/07 vs 348% a year earlier and 357% at YE 2
Slide 19: Aggregate Interest-Adjusted Health Benefit Ratio
Aggregate Interest-Adjusted Health Benefit Ratio* CNO Aggregate Health Benefit Ratio – By Quarter Reduction in Benefit ratio due to Core (BLC, CIG & CP) Business $19.3 million adjustment in Q1 2006 Q3 2006 Q4 2006 Q2 2006 Q1 2007 Specified Disease return of 64.2% 62.5% 63.3% 65.8% 62.2% premium re
Slide 20: Expenses CNO
Expenses CNO ($ millions) Gross Operating Expenses*, Trailing 4 Quarters Operating expenses remain Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 $577.9 $573.2 $578.3 $575.4 $583.7 relatively flat despite increases in collected premium Back-office consolidation on track to produce annual cost savings o
Slide 21: Q1 2007 Summary Bankers
Q1 2007 Summary Bankers Record sales of $102.8 million • Sales driven by new sales of private-fee-for-service through our partnership with Coventry Lower earnings driven by: • Higher amortization of Medicare Supplement insurance intangibles, partially offset by improvements in margin due to high
Slide 22: Q1 Earnings Bankers
Q1 Earnings Bankers ($ millions) Q1 2006 Q1 2007 Insurance policy income $383.0 $412.0 Net investment income 123.5 140.9 Fee revenue and other income 1.4 1.2 Total revenues 507.9 554.1 Insurance policy benefits 312.7 345.9 Amounts added to policyholder account balances 44.3 47.1 Amortization related
Slide 23: Segment Performance Bankers
Segment Performance Bankers ($ millions) Pre-Tax Operating Income* Q3 2006 Q4 2006 2007 decrease driven by: Q2 2006 $63.7 $68.4 $69.1 Q1 2006 • Higher Med Supp amortization due to $57.2 higher lapses in Q1, partially offset by Q1 2007 $42.8 improvements in margin due to higher revenue and improved
Slide 24: Benefit Ratio – Medicare Supplement Bankers
Benefit Ratio* – Medicare Supplement Bankers Q1 2006 Q2 2006 Q1 2007 Continued favorable claim 68.1% 67.9% Q3 2006 65.7% Q4 2006 65.4% 66.6% experience contributed to improving benefit ratio Trailing four quarter benefit ratio has shown steady improvement from Q1 2006 Trailing 4 Quarter Avg.: 70
Slide 25: PFFS Bankers
PFFS Bankers Q1 2007 sales were $46.8 million • Most of sales were to enrollees who previously had no policy with Bankers • Has delivered a chance to cross-sell into new households • Has also helped agent recruiting 25
Slide 26: Interest-Adjusted Benefit Ratio – Long Term Care Bankers
Interest-Adjusted Benefit Ratio* – Long Term Care Bankers Q4 2006 Q1 2007 Q3 2006 76.9% 73.8% Q1 2007 benefit ratio improved Q1 2006 66.9% Q2 2006 66.8% 68.8% from prior quarter, but higher than Q1 2006 due to: • Increased claim activity, higher persistency and lower new business volume Trailing 4
Slide 27: Q1 2007 Summary CIG
Q1 2007 Summary CIG Earnings up 23% vs Q1 2006 • Primarily driven by release of return of premium reserves on certain specified disease policies, partially offset by decline in life insurance margin and increase in reserve for R-factor matter tentatively settled in 2006 Sales down 13% from Q1 20
Slide 28: Q1 Earnings CIG
Q1 Earnings CIG ($ millions) Q1 2006 Q1 2007 Insurance policy income $256.4 $242.0 Net investment income 182.0 175.4 Fee revenue and other income 0.4 0.2 Total revenues 438.8 417.6 Insurance policy benefits 195.9 185.4 Amounts added to policyholder account balances 66.5 67.0 Amortization related to
Slide 29: Segment Performance CIG
Segment Performance CIG ($ millions) Pre-Tax Operating Income* Q1 2007 includes: Q2 2006 $64.7 • Adverse life claim experience Q3 2006 $58.5 • Specified disease margins (excluding the Q1 2007 $51.5 $19.3 million release of return of premium Q1 2006 reserve) continued to improve $41.9 • Lower suppl
Slide 30: Benefit Ratio – Medicare Supplement CIG
Benefit Ratio* – Medicare Supplement CIG Q3 2006 Q4 2006 Q1 2007 Benefit ratios in Q1 and Q2 Q1 2006 60.3% Q2 2006 66.8% 64.1% 66.9% 2006 benefited from release of 56.9% policy benefit reserves related to increase in policyholder lapses Persistency has improved Trailing 4 Quarter Avg.: 60.8% 59.
Slide 31: Interest-Adjusted Benefit Ratio – Specified Disease CIG
Interest-Adjusted Benefit Ratio* – Specified Disease CIG Q1 2007 reflected paid claims as expected Q4 2006 52.5% Q2 2006 Persistency has improved Q1 2006 45.9% 48.2% Q3 2006 $19.3 million release of return 41.2% of premium reserve Q1 2007 20.4% Trailing 4 Quarter Avg.: 45.4% 46.7% 45.9% 47.0%
Slide 32: Q1 Earnings Colonial Penn
Q1 Earnings Colonial Penn ($ millions) Q1 2006 Q1 2007 Insurance policy income $26.4 $29.3 Net investment income 9.7 9.5 Fee revenue and other income 0.1 0.2 Total revenues 36.2 39.0 Insurance policy benefits 22.8 25.6 Amounts added to policyholder account balances 0.3 0.3 Amortization related to op
Slide 33: Segment Performance Colonial Penn
Segment Performance Colonial Penn Pre-Tax Operating Income* ($ millions) Q2 2006 $6.5 Q1 07 sales up 24% vs Q1 06 Q1 2006 Q4 2006 $5.4 Strong growth in lead $5.1 Q3 2006 Q1 2007 $4.6 $4.6 development Solid growth in re-activation campaigns Continued stable earnings PTOI-Trailing 4 Quarters:
Slide 34: Sale of Older CIG Annuity Block: Transaction Summary
Sale of Older CIG Annuity Block: Transaction Summary 100% coinsurance agreement • 134,000 policies, 77% of CIG deferred annuity account value • Policies sold in ’80s and ’90s • Relatively low ROE due to number of admin systems and inefficient expense structure Transaction eliminates four admin s
Slide 35: Sale of Older CIG Annuity Block: Financial Impact
Sale of Older CIG Annuity Block: Financial Impact Ceding commission of approximately $76.5 million plus capital backing block of $175 million available to enhance Conseco’s return on equity: • Repurchase of Conseco common stock • Invest in other high-ROE products and businesses GAAP carrying val
Slide 36: CNO Summary
CNO Summary Steady growth in core businesses Improvements in earnings run-rate by yearend: • $40 million due to better LTC claims management • $35 million in re-rates • $25 million in operational efficiencies Increase in share buyback program Performance shares align interests of shareholder
Slide 37: Questions and Answers
S CONSECO. Questions and Answers 37
Slide 38: Appendix
S CONSECO. Appendix 38
Slide 39: Premiums – Medicare Supplement/PDP/PFFS Bankers
Premiums – Medicare Supplement/PDP/PFFS Bankers Medicare Supplement – First-Year Premiums (in millions) Q2 2006 $56.6 Strong sales driven by Q3 2006 Q4 2006 Q1 2007 $45.3 $44.0 $43.1 PFFS $32.1 $11.5 PFFS Q1 2006 $30.8 $20.8 $17.8 $6.0 $11.6 PDP $24.8 $24.5 $23.2 $25.3 $22.2 Med Supp Med. Supp. Fi
Slide 40: Premiums – Long-Term Care Bankers
Premiums – Long-Term Care Bankers Long-Term Care – First-Year Premiums ($ millions) Steady decline in first-year Q1 2006 $14.2 Q2 2006 premiums over the past five $13.1 Q3 2006 $12.0 Q4 2006 $11.9 Q1 2007 $11.6 quarters New sales are meeting our return objectives First-Year Prems.-Tr. 4 Qtrs: $6
Slide 41: Premiums – Life Insurance Bankers
Premiums – Life Insurance Bankers Life – First-Year Premiums ($ millions) Q3 2006 Q2 2006 $24.4 Growth driven by: Q1 2006 $23.3 Q4 2006 $21.9 Q1 2007 $21.4 $20.7 • Continued focus on new agent training • Expanded advanced life insurance training for veteran agents • Q1 2007 NAP up 17% vs. Q1 2006
Slide 42: Premiums – Annuity Bankers
Premiums – Annuity Bankers Annuity – First-Year Premiums ($ millions) Q3 2006 $277.3 Trailing four quarters first- Q4 2006 Q1 2006 Q2 2006 $247.5 $232.5 $237.3 Q1 2007 year premiums up slightly $211.4 from comparable prior-year period First-Year Prems.-Tr. 4 Qtrs: $960.5 $960.1 $1,010.7 $994.6 $97
Slide 43: Premiums – Medicare Supplement CIG
Premiums - Medicare Supplement CIG Medicare Supplement – First-Year Premiums ($ millions) Q1 2006 Q2 2006 Q4 2006 $8.3 $7.9 $7.9 Decline in sales expected to Q3 2006 Q1 2007 $6.6 turn around with new $6.5 national distribution agreement First-Year Prems.-Tr. 4 Qtrs: $21.0 $25.6 $28.0 $30.6 $28.9 T
Slide 44: Premiums – Specified Disease CIG
Premiums – Specified Disease CIG Specified Disease – First-Year Premiums ($ millions) Q1 2006 Q1 2007 Q2 2006 Q4 2006 $7.2 Q3 2006 $7.3 Sales continue to gain $7.0 $6.8 $7.1 momentum from refocus of PMA and introduction of new Cancer Secure product 26% increase in NAP vs Q1 2006 First-Year Prems
Slide 45: Premiums – Life Insurance CIG
Premiums – Life Insurance CIG ($ millions) Life – First-Year Premiums In process of rebuilding life portfolio with new indexed Q1 2006 Q2 2006 Q3 2006 Q4 2006 UL products being $1.7 $1.7 $1.7 $1.6 Q1 2007 $1.2 introduced in late 2007 Worksite beginning to contribute to life sales First-Year Prem
Slide 46: Premiums – Annuity CIG
Premiums – Annuity CIG ($ millions) Annuity – First-Year Premiums Q3 2006 268% increase in first-year $178.8 premiums vs Q1 2006 Q4 2006 Q1 2007 Significant contribution from $118.1 $116.3 Q2 2006 our national partners and $87.0 TSA business Q1 2006 $31.6 First-Year Prems.-Tr. 4 Qtrs: $153.3 $21
Slide 47: Premiums – Life Insurance Colonial Penn
Premiums – Life Insurance Colonial Penn Life – First-Year Premiums ($ millions) Q1 2007 Q4 2006 $6.7 Q2 2006 Q3 2006 $5.9 Growth driven by: Q1 2006 $5.8 $5.7 $5.5 • Expanded lead generation • Refocused attention to national cable segment • Refreshed commercials • Natural growth in direct mail prog
Slide 48: 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. While management believes these measures are useful to enhance understanding and comparability of our financial results, these non-G
Slide 49: Book Value Per Diluted Share CNO
Book Value Per Diluted Share* CNO Decrease from Q4 2006 Q1 2006 Q2 2006 $25.84 Q3 2006 $25.81 Q4 2006 $25.64 Q1 2007 $25.24 $24.56 primarily due to additional shares included for mandatorily convertible preferred stock *Book value excludes accumulated other comprehensive income (loss). Shares outs
Slide 50: Debt to Total Capital Ratio CNO
Debt to Total Capital Ratio* CNO Level of debt remains flat Q1 2006 Q4 2006 17.3% Q1 2007 17.3% Q2 2006 Q3 2006 with Q4 2006 15.2% 14.5% 14.4% *Excludes accumulated other comprehensive income (loss). See Appendix for corresponding GAAP measure. 50
Slide 51: Consolidated RBC Ratio CNO
Consolidated RBC Ratio* CNO Q4 2006 Q1 2006 Q1 2007 Q2 2006 357% Decrease primarily due to 348% 331% Q3 2006 324% 342% increase in required capital on CIG annuity block *Risk-Based Capital (“RBC”) requirements provide a tool for insurance regulators to determine the levels of statutory capital and
Slide 52: Net Investment Income CNO
Net Investment Income CNO ($ millions) General Account Investment Income, Excluding Corporate Segment Increase from Q4 2006 due to Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 $364.3 $376.8 $359.5 increase in prepayment $350.3 $356.5 income and higher portfolio yield Net investment income from the prep
Slide 53: High-Quality Assets CNO
High-Quality Assets CNO Actively Managed Fixed Maturities by Rating at 3/31/07 (Market Value) Portfolio quality remains high and has not significantly BB+ and below changed since year-end 2006 BBB- 7% 6% AAA 32% BBB 13% BBB+ 10% AA 7% A 25% 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07 % of Bonds which
Slide 54: 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 Q2 2006 charge related to tentative litigation settlement (and related per share amounts) is as follows (dollars in millions, except per share a
Slide 55: 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 56: 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): Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Total sh
Slide 57: 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 58: 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 Q2 2006 charge related to the tentative litigation settlement) on common equity (excluding accumulated other comprehensive income (loss) and net operating loss carryforwar
Slide 59: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures (continued from previous page) Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Average common shareholders' equity 3,733.8 3,622.2 3,836.9 4,045.1 4,050.8 Average common shareholder's equity, excluding accumulated other comprehensive income (loss) (a non-GAAP
Slide 60: 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 three months ended March 31, 2007, is as follows (dollars in millions): Other Business
Slide 61: 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 less income tax assets and assuming conversion of the convertible preferred stock (a non-GAAP financial measure) to common sharehold
Slide 62: 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 less income tax assets and assuming conversion of the convertible preferred stock (a non-GAAP financial measure) to average
Slide 63: 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 64: 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 income (loss), is as follows (dollars in millions): Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Corporate notes payable $ 805.3 $ 805.5 $ 805.6 $ 1