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. Exhibit 99.1
Slide 2: Forward-Looking Statements
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 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 | 4Q2012 Earnings | February 12, 2013 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, 2013
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 4
Slide 5: 4Q12 Summary
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 5 Businesses continued to perform well with core earnings building Strong capital deployment – Additional share repurchases and dividend payment – Increased securities repurchase program by $300 million Continued investment in our busin
Slide 6: 2012: A Year of Driving Toward Long Term Value
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 6 2012: A Year of Driving Toward Long Term Value Grew sales, distribution and product portfolio Strong earnings and recapitalization – Improved financial strength – ROE expansion Achieved ratings upgrades Returned value to shareholder
Slide 7: Investment in the Business
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 7 Investment in the Business 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 Increasin
Slide 8: Core Operating Earnings Building
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 8 4Q11 $0.18 4Q12 $0.30 Core Operating Earnings Building * A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. Earnings and ROE Drivers Growth reflects strength across all segments Recapitalization
Slide 9: 2012 Accomplishments
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 9 • 20% sales growth • Improved acquisition cost / sales ratio through improved direct marketing efficiencies • New term life product • New CRM system – yielding sales productivity improvements 2012 Accomplishments Continued to improve perfor
Slide 10: Bankers Life 4Q12 Sales and Distribution Results
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 10 4Q12 Sales and Distribution Results Growth in average agent force Distribution and market focus allow for shift in product mix – Sales excluding annuities up 5%, driven by life sales, up 26% – Annuity sales down 24% New critical illn
Slide 11: Washington National 4Q12 Sales and Distribution Results
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 11 Washington National 4Q12 Sales and Distribution Results ($ millions) *NAP for core products includes Life and Supplemental Health sales. Quarterly Core NAP* Core* product sales up 10% – Driven by strong worksite sales Investment in life
Slide 12: Colonial Penn 4Q12 Sales and Distribution Results
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 12 Sales growth continues; NAP up 11% – Result of increased lead volumes and higher sales productivity Sales results in line with seasonal patterns – Expect increased advertising expense in 1Q13 4Q12 Sales and Distribution Results Colonia
Slide 13: 2013 Outlook
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 13 2013 Outlook Efforts continue to expand distribution and product offerings to effectively serve our growing target market ActiveCare launched in 1Q2013 Expect increased focus and positive momentum in voluntary worksite market to contin
Slide 14: 4Q12 Consolidated Financial Highlights
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 14 4Q12 Consolidated Financial Highlights CNO Earnings ‒ Strong results across all segments ‒ Favorable performance on key earnings drivers ‒Additional valuation allowance release Capital & Liquidity ‒ RBC ratio, leverage and holding compa
Slide 15: Segment Earnings Trend - Stable & Growing
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 15 $(5.8) $5.2 $(9.1) $3.3 $(2.7) $1.8 $(9.8) $0.6 $(2.6) $3.2 $17.7 $1.9 $10.4 $16.5 $66.2 $59.5 $72.5 $80.6 $77.7 $33.3 $24.7 $33.9 $33.9 $34.6 4Q11 1Q12 2Q12 3Q12 4Q12 Corporate CP OCB BLC WN ($ millions) * A non-GAAP measure. See the Appe
Slide 16: Favorable Overall Underwriting Margins
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 16 $141 $141 $140 $139 $137 67.3% 65.5% 75.4% 74.7% 69.0% 4Q11 1Q12 2Q12 3Q12 4Q12 ($ millions) Bankers Life Medicare Supplement Washington National Supplemental Health Interest-Adjusted* * A non-GAAP measure. Refer to the Appendix for the co
Slide 17: Net Investment Income
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 17 Net Investment Income CNO 4Q11 $344.2 1Q12 $345.2 2Q12 $351.1 3Q12 $349.4 4Q12 $352.8 Earned Yield: 5.70% 5.64% 5.76% 5.71% 5.71% ($ millions) Earned Yield (excluding floating rate FHLB): 5.85% 5.82% 5.95% 5.90% 5.90% New Money Rate: 5.29%
Slide 18: Realized Gains, Losses and Impairments
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 18 $10.4 $2.5 $6.2 $9.0 $2.3 $8.3 $7.9 $3.5 $23.1 $3.3 Realized Gains, Losses and Impairments ($ millions) CNO 4Q11 3Q12 4Q12 1Q12 2Q12 Gross Realized Gains Gross Realized Losses Impairments $41.9 $18.7 $33.3 $41.6 $41.2 $10.4 $9.7 $32.1 * 3Q
Slide 19: Loss Recognition & Cash Flow Testing
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 19 Loss Recognition & Cash Flow Testing 2012 Statutory Cash Flow Testing 2012 GAAP Loss Recognition Testing Aggregate testing margins remain strong Testing margin Increased in 2012 ↑ - ASU 2010-26 ↑ - Net Growth from New Business (+6%) ↓
Slide 20: Capital Position
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 20 Capital Position CNO Leverage* RBC Ratio Liquidity ($ millions) 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 $
Slide 21: 2012 Capital Generation - Free Cash Flow Building
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 21 2012 Capital Generation - Free Cash Flow Building ($ in millions) Fees and interest to Holdco Net statutory dividends to Holdco Retained capital for growth and RBC build $495 ($64) ($18) Capital Upstreamed Interest Holdco Free Generated to
Slide 22: 2013 Outlook
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 22 2013 Outlook Core Earnings: - Bankers: expect traditional Q1 seasonality due to increase in DAC amortization in Medicare supplement - Colonial Penn: 2013 EBIT outlook of -$5mm to -$10mm with the majority of loss coming in Q1 due to seaso
Slide 23: 2012 Accomplishments Support 2015 Milestones
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 23 Grew sales, distribution and product portfolio Enhanced talent Strong earnings and recapitalization drove ROE expansion Achieved ratings upgrades Initiated common stock dividend Invest $80-$85mm in strategic business initiative
Slide 24: Questions and Answers
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 24 Questions and Answers
Slide 25: Appendix
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 25 Appendix
Slide 26: 4Q2011 Significant Items Impact on Net Operating Income
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 26 The table below summarizes the financial impact of significant items on our 4Q2011 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in million
Slide 27: 1Q2012 Significant Items Impact on Net Operating Income
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 27 The table below summarizes the financial impact of significant items on our 1Q2012 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in million
Slide 28: 2Q2012 Significant Items Impact on Net Operating Income
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 28 The table below summarizes the financial impact of significant items on our 2Q2012 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in million
Slide 29: 3Q2012 Significant Items Impact on Net Operating Income
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 29 The table below summarizes the financial impact of significant items on our 3Q2012 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in million
Slide 30: 4Q2012 Significant Items Impact on Net Operating Income
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 30 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 31: Quarterly Earnings
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 31 Quarterly Earnings CNO *Management believes that an analysis of earnings before net realized investment gains (losses), corporate interest, loss on extinguishment of debt, fair value changes due to fluctuations in the interest rates used t
Slide 32: Low-For-Long Rates - Reserve Sensitivity
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 32 • 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 - $28mm (after-tax) • Stress
Slide 33: 4Q12 Holding Company Liquidity
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 33 4Q12 Holding Company Liquidity CNO ($ millions) 4Q12 YTD 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
Slide 34: Debt Maturity Profile
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 34 $51.1 $60.5 $79.2 $60.5 $389.1 $93.0 $275.0 $51.1 $60.5 $79.2 $153.5 $4.2 2013 2014 2015 2016 2017 2018 2019 2020 Term Loan Convertible Senior Unsecured Debentures Senior Secured Notes Debt Maturity Profile(1) (1) Maturity schedule does no
Slide 35: Valuation Allowance for Loss Carryforwards
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 35 1,642$ (767) 875$ Valuation Allowance $462 Valuation Allowance $296 Net $248 Net $620 Capital Non-Life Life Valuation Allowance for Loss Carryforwards Net Loss Carryforwards in Deferred Tax Asset Gross $248 Gross $296 Gross $1,082 GAAP Bal
Slide 36: Commercial Mortgage Loans
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 36 LTV >1.25 1.00x-1.25x <1.00 Total <65% $594 $30 $ - $624 65% - 75% 275 22 - 297 75% - 80% 88 8 - 96 >80% - 163 39 202 Total $957 $223 $39 $1,219 Multi-Family 6% Mixed Use 3% Industrial 17% Office 33% Retail 37% Other 4% Commercial Mortgage
Slide 37: Peripheral Europe Exposure
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 37 Peripheral Europe as of 12/31/12 ($ millions) 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 Utiliti
Slide 38: Holding Company Investments
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 38 Holding Company Investments at 12/31/12 CNO ($ millions) Cash & Money Market / Fixed Income $238.1 Equities / Alternatives $55.5 Portfolio strategy is to prioritize liquidity for corporate capital needs, and secondly to maximize returns to
Slide 39: Additional Information on Non-GAAP Measures
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 39 The following provides additional information regarding certain non-GAAP measures used in this presentation. A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that excludes or includes
Slide 40: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 40 Information Related to Certain Non-GAAP Financial Measures A reconciliation of net income (loss) applicable to common stock to net operating income (and related per-share amounts) is as follows (dollars in millions, except per-share amount
Slide 41: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 41 4Q11 1Q12 2Q12 3Q12 4Q12 Operating income 51.0$ 40.6$ 54.2$ 25.6$ 60.0$ Add: interest expense on 7.0% Convertible Senior Debentures due 2016, net of income taxes 3.7 3.7 3.7 - 1.2 Total adjusted operating income 54.7$ 44.3$ 57.9$ 25.6$ 61.
Slide 42: Book value per share excluding AOCI
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 42 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 us
Slide 43: Interest-adjusted benefit ratio
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 43 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 44: Operating return measures
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 44 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
Slide 45: Operating return on allocated capital
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 45 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 46: Pretax operating earnings reconciliation
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 46 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, 2
Slide 47: Average allocated capital reconciliation
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 47 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 48: Consolidated capital reconciliation
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 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: Debt to capital ratio, excluding AOCI
CNO Financial Group | 4Q2012 Earnings | February 12, 2013 49 Information Related to Certain Non-GAAP Financial Measures 4Q11 1Q12 2Q12 3Q12 4Q12 Corporate notes payable 857.9$ 799.3$ 778.2$ 1,035.1$ 1,004.2$ Total shareholders' equity 4,613.8 4,683.0 4,893.1 5,066.2 5,049.3 Total capital 5,471.7$ 5,