Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Investor Presentation (November 2019)
53 slides from Cno Financial's investor presentation, Nov 19, 2019
Slide 1: Investor Overview November 2019
Exhibit 99.1 Investor Overview November 2019
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: Investment Highlights
Investment Highlights Well-positioned in Favorable Highly Sustainable Strong balance underserved senior demographic differentiated growth initiatives sheet; robust middle-income tailwinds business model in place free cash flow market generation CNO Financial Group | Investor Overview 4
Slide 5: Committed to the Middle-Income Market
Committed to the Middle-Income Market What is our Our Purpose To provide financial peace of mind to every purpose customer we serve What we’re Become the leader in meeting Middle-Income building Our Vision America’s needs for financial security and readiness for the life of their retirement Why we w
Slide 6: CNO Financial Group Overview
CNO Financial Group Overview . Focused on serving the protection needs of the Total: $2.9B in Total Collected Premiums YTD 3Q19 fast-growing but underserved market of middle- income Americans at or near retirement YTD 3Q19 Collected YTD 3Q19 Collected Premium: Product Premium: Business Brand . Produ
Slide 7: What Makes CNO Different
What Makes CNO Different Our Focus on Middle-Income Our Diverse Distribution America Insurance and Securities Health and Wealth Solutions Solutions Strong Cash Flow Generation CNO Financial Group | Investor Overview 7
Slide 8: Well-Positioned in the Attractive Senior Middle Market
Well-Positioned in the Attractive Senior Middle Market 63% of middle-income households are underinsured; ~60% of baby boomers lack financial advisors(1) Percentage of Population Age 65+ CNO Solutions without a Financial Product CNO Solutions . Extensive experience and understanding of the middle mar
Slide 9: Highly Diversified Product Mix
Highly Diversified Product Mix Focused on protection needs Product Offering Key Points . Basic products that meet the insurance 1 Life Insurance needs of the middle-market . Attractive and predictable return 2 Annuities characteristics . Mix of protection and accumulation 3 Medicare products to serv
Slide 10: Unique Multi-Channel Operating Model
Unique Multi-Channel Operating Model Three well-established brands; extensive distribution network Market Focus . Middle-income senior market with . Middle-income working Americans . Middle-income retirees with simple, Medicare supplement, life, fixed with supplemental health and straightforward lif
Slide 11: Executing on Proven Growth Strategy
Executing on Proven Growth Strategy Ongoing initiatives to accelerate profitable growth in all segments Broaden core customer Leverage technology to Engage in opportunistic Enhance product demographic/ boost efficiency and M&A to add capabilities portfolio move to the right drive productivity as app
Slide 12: Comprehensive and Active Risk Management Strategy
Comprehensive and Active Risk Management Strategy Strong and effective ERM decision framework . Business plan supports strong overall risk management strategy – Disciplined pricing and review of actuarial assumptions – Consistent application of company-wide stress tests1 – Ongoing monitoring of emer
Slide 13: 2018 Transformative LTC Reinsurance Transaction
2018 Transformative LTC Reinsurance Transaction Divestiture of legacy LTC exposure significantly improves risk profile . In September 2018, Bankers Life entered into an Reserve Composition* agreement with Wilton Re to cede 100% of Bankers Life legacy (prior to 2003) comprehensive and nursing home lo
Slide 14: Holistic Approach to Managing Bankers Retained LTC Business
Holistic Approach to Managing Bankers Retained LTC Business Focus on senior middle-market drives reduced tail risk . Significant claims data on older ages drives reliable studies and estimates – No mortality or morbidity improvements assumed – Minimal future rate increases projected – Ultimate new m
Slide 15: Experienced Management Team With a Proven Track Record
Experienced Management Team With a Proven Track Record 9-year average tenure; 21-year average service in the insurance sector Years in Insurance Name Title Years with CNO Age Sector Gary C. Bhojwani Chief Executive Officer 3 29 51 Paul H. McDonough Chief Financial Officer <1* 17 54 Eric R. Johnson C
Slide 16: Strong Track Record of Execution
Strong Track Record of Execution Steady improvement in financial strength; successful pivot to growth Q1 2012 Q1 2015 Q3 2018 Began buying back stock Enter strategic Completed LTC under repurchase plan technology reinsurance (and making commensurate partnership transaction with prepayments on the Se
Slide 17: Portfolio Composition
Portfolio Composition Conservative construction; 1Q19 up-in-quality repositioning $25 billion of Invested Assets Fixed Maturity Securities by Ratings (Fair Value as of 9/30/2019) Mortgage Loans, HY Corporates, 6.7% 3.0% CMO, 3.4% CMBS, 7.7% Municipals, 8.6% NAIC 2, 39.4% ABS, 10.8% Govts/Agency, 1.2
Slide 18: Strong and Stable Capital Profile
Strong and Stable Capital Profile Well-positioned to navigate the current environment Risk Based Capital (“RBC”) Ratio1 459% 446% Robust capitalization with $1.7bn statutory capital 393% 405% Target consolidated RBC ratio of ~400-425% 24 points decrease in RBC ratio from Q3 to Q4 2018 from mar
Slide 19: Robust Cash Flow Generation
Robust Cash Flow Generation Cash flow conversion rate among highest in industry 2016 2017 2018 YTD 3Q19 1 Consistently Net Operating Income $ 262.5 $ 300.9 $ 303.1 $ 211.4 profitable operating subs provide strong 2 Holding Company Cash Flows, Excluding Capital Transactions dividend capacity Dividend
Slide 20: Balanced Excess Capital Allocation Strategy
Balanced Excess Capital Allocation Strategy Disciplined and opportunistic approach Organic investments to sustain and grow the core businesses Return capital to shareholders . $75 million in share repurchases in 3Q; $177 million YTD . Dividend payout ratio targeted at 20-25% Opportunistic transactio
Slide 21: 3Q19 Quarter in Review
3Q19 Quarter in Review Solid quarterly performance . All growth scorecard metrics up YoY for 5th consecutive quarter Strong . First-year collected premiums up 16% Operational . Total collected premiums (excl. LTC in run-off) up 8% Performance . Life and health sales up 3% . All health benefit ratios
Slide 22: Growth Scorecard
Growth Scorecard All 5 metrics up YoY for 5th consecutive quarter 2018 2019 % Change ($ millions) 3Q 4Q TY 1Q 2Q 3Q Q/Q New Annualized Premium 1 Life Insurance $37.4 $36.3 $147.5 $39.7 $39.4 $37.3 -0.3% Health Insurance 44.3 53.3 183.7 40.1 45.8 46.7 5.4% Total Life & Health Insurance $81.7 $89.6 $3
Slide 23: Segment Update: Bankers Life
Segment Update Growth momentum remains strong Key Initiatives Third Quarter Highlights . First-year collected premiums up 17%; total collected premiums up 9% Reinvigorate . Health NAP up 2%; Life NAP down 3% growth . Med Advantage issued policies up 56%; third party fee income up 26% . Annuity colle
Slide 24: Segment Update: Washington National
Segment Update Continued Worksite strength; Individual market stabilizing Key Initiatives Third Quarter Highlights . Best 3Q sales on record; overall NAP up 9% Maintain growth . Life NAP up 12%; Life collected premiums up 17% momentum . Individual segment sales flat YoY . Worksite NAP up 19% Advance
Slide 25: Segment Update: Colonial Penn
Segment Update Broadening direct-to-consumer capabilities Key Initiatives Third Quarter Highlights . Best 3Q sales on record Continue . First-year collected premiums up 11% sales growth . Total collected premiums up 4% Improve sales . Continue to invest in web/digital capabilities productivity; . Te
Slide 26: Financial Highlights
Financial Highlights Core operations remain solid; 3Q earnings pressured by lower NII Third Quarter 2019 Financial Results . Net operating income per diluted share1 of $0.45, down ($ millions, except where noted) 13% from $0.52 in 3Q18 as adjusted to remove the 3Q18 3Q19 earnings from the LTC busine
Slide 27: Segment Results
Segment Results1 Stable underwriting margins offset by lower NII and higher growth spend Segment Adjusted EBIT Excluding Significant Items2 Segment Highlights ($ millions) 3Q18 4Q18 1Q19 2Q19 3Q19 . Lower investment income impacted all segments Bankers Life $94.4 $81.1 $86.4 $63.1 $78.9 . Bankers Li
Slide 28: Investment Results
Investment Results Lower interest rates and up-in-quality trade create ongoing headwinds Average Invested Assets and Cash Quarter Highlights LTC Reinsurance . Book yield decline reflects lower market yields and Ceded Assets1 1Q up-in-quality repositioning $22,382 $21,751 $21,832 $22,058 $22,201 . Se
Slide 29: Committed to Long-term Shareholder Value Creation
Committed to Long-term Shareholder Value Creation Continued progress on strategic initiatives Leverage diverse Effectively Extend depth distribution Enhance Expand to deploy excess and breadth of channels and customer the right capital product offerings unique product experience combination Growth i
Slide 30: Appendix 1: Quarter in Review
Appendix 1: Quarter in Review Building on Strong Track Record of Execution . Web Benefits Design Transaction Slide 31 . Bankers Life Retained LTC Insurance Slide 32 Strong Operational Performance . Broker-Dealer/Registered Investment Advisor Slide 33 . Agent Counts Slide 34 CNO Financial Group | Inv
Slide 31: Web Benefits Design Transaction
Web Benefits Design (“WBD”)Transaction Strategic acquisition to accelerate worksite growth Strategic acquisition to accelerate worksite growth 2Q19 Transaction Summary Strategic Rationale . Adds leading online benefits administration with . Accelerates Worksite technology capabilities best-in-class
Slide 32: Bankers Life Retained Long-Term Care Insurance
Bankers Life Retained Long-Term Care Insurance Retained book characterized by limited benefits, shorter duration periods % of Policies by Benefit Period Key LTC Data (As of 9/30/2019) 4% 2% GAAP Reserves $1.89B <= 1 Yr Statutory Reserves $1.94B Between 1 and 4 Policies In-Force 185,306 Yrs Average A
Slide 33: Broker-Dealer/Registered Investment Advisor
Broker-Dealer/Registered Investment Advisor Account value up 16% YoY; approaching $1.4 billion ($ millions) 2018 2019 3Q 4Q 1Q 2Q 3Q Net New Client Assets in Brokerage $26.3 -$1.1 -$3.0 $5.1 $13.4 Brokerage and Advisory1 Advisory 44.2 13.2 35.7 33.2 29.9 Total $70.5 $12.1 $32.7 $38.3 $43.3 Client As
Slide 34: Agent Counts
Agent Counts Bankers Life producing agent count up for 5th consecutive quarter 2018 2019 % Change Bankers Life 3Q 4Q 1Q 2Q 3Q Q/Q Total Quarterly Average Producing Agents1,3 4,168 4,177 4,125 4,294 4,270 2.4% Quarterly Average Financial Advisors2,3 534 560 583 595 596 11.6% Washington National Total
Slide 35: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits • Tax Asset Summary Slide 36 • Non-GAAP Financial Measures Slides 37-53 CNO Financial Group | Investor Overview 35
Slide 36: Tax Asset Summary
Tax Asset Summary Loss Carryforwards Details ($ millions) $607 . Total estimated economic value of NOLs of Life $307 million @ 10% discount rate (~$2.00 on $137 per share basis) . Life NOLs are expected to offset 80% of life taxable income until fully utilized. Non-life NOLs are expected to offset 1
Slide 37: 4Q18 Significant Items
4Q18 Significant Items The table below summarizes the financial impact of significant items on our 4Q18 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended December 31, 2018
Slide 38: Quarterly Earnings
Quarterly Earnings ($ millions) 3Q18 4Q18 1Q19 2Q19 3Q19 Bankers Life$ 94.4 $ 78.0 $ 63.1 $ 86.4 $ 78.9 Washington National 30.3 31.9 30.5 25.9 26.8 Colonial Penn 6.1 4.8 (1.4) 5.8 3.7 Long-term care in run-off 2.1 0.3 2.5 3.2 3.6 Adjusted EBIT from business segments 132.9 115.0 94.7 121.3 113.0 Cor
Slide 39: Colonial Penn Segment Adjusted EBIT by In-Force and New Business
Colonial Penn Segment Adjusted EBIT Summarized by In-Force and New Business An analysis of Adjusted EBIT for Colonial Penn, separated between in-force and new business, provides increased clarity for this segment as the vast majority of the costs to generate new business in this segment are not defe
Slide 40: 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 41: 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): 3Q18 4Q18 1Q19 2Q19 3Q19 Net income (loss) applicable to c
Slide 42: 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): 3Q18 (a) 4Q18 1Q19 2Q19 3Q19 Operating i
Slide 43: 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 were exercised, restricted stock and performance units were vested and convertible securities were conver
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 net income applicable to common stock before net realized investment gains or losses from sales and impairments, net change in market value of investments recognized in earnin
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(loss) (dollars in millions): Net Operating Net Operating Income, income, excluding Net exclu
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 (loss) is as follows (dollars in millions): Twelve Months Ended 3Q18 4Q18 1Q19 2Q19 3Q19 Pretax operating earnings (a non-GAAP financial measure)$ 432
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): 1Q17 2
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
Slide 51: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures The following summarizes our estimate of the impact of lower general account asset investment income and changes in amounts impacting spreads on 3Q19 net income compared to 3Q18 net income (dollars in millions, except per share data): 3Q19 3
Slide 52: Interest Coverage
Interest Coverage ($ millions) 2016 2017 2018 YTD 3Q19 Net income (loss)$ 358.2 $ 175.6 $ (315.0) $ 131.4 Add income tax expense (benefit) (5.0) 304.9 50.2 35.4 Income (loss) before income tax expense (benefit) 353.2 480.5 (264.8) 166.8 Interest expense on corporate debt 45.8 46.5 48.0 38.6 Interest
Slide 53: Earnings Measures
Earnings Measures ($ millions) 2016 2017 2018 YTD 3Q19 Bankers Life$ 375.6 $ 367.5 $ 340.6 $ 228.4 Washington National 102.9 98.3 121.9 83.2 Colonial Penn 1.7 22.6 14.8 8.1 Long-term care in run-off 18.4 53.1 22.9 9.3 Adjusted EBIT from business segments 498.6 541.5 500.2 329.0 Corporate operations,
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