Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q4 2010 Earnings Presentation
76 slides from Cno Financial's earnings presentation, Feb 23, 2011
Slide 1: 4Q10 Financial and Operating Results
Exhibit 99.1 4Q10 Financial and operating results for the period ended December 31, 2010 February 23, 2011 Unless otherwise specified, comparisons in this presentation are between 4Q10 and 4Q09.
Slide 2: Forward-Looking Statements
Forward-Looking Statements Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in this press release relative to markets for CNO Financial’s products and trends in CNO Financial’s operations or financial results, as well as other
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: CNO Financial Group
oa CNO FINANCIAL GROUP CNO Financial Group
Slide 5: 4Q10: Summary
4Q10: Summary CNO § Net income of $168.2 million, compared to $18.2 million § Net operating income* of $51.7 million, up 62%, or 18 cents per diluted share § Consolidated RBC at 332%, up 12 percentage points from 9/30/10 § Holding company liquidity at $161 million, down $29 million from 9/30/10 prim
Slide 6: 2010 vs. 2009 Summary
2010 vs. 2009 Summary CNO § Net income of $284.6 million, compared to $85.7 million § Net operating income* of $181.9 million, up 11%, or 65 cents per diluted share § Consolidated RBC at 332%, up 23 percentage points for the year § Holding company liquidity at $161 million, up $15 million § Debt to
Slide 7: 4Q10 Summary of Results
4Q10 Summary of Results CNO ($ millions, except per-share amounts) CNO Financial Group 7
Slide 8: Quarterly Earnings
Quarterly Earnings CNO ($ millions) *Management believes that an analysis of earnings before net realized investment gains (losses), corporate interest, loss on extinguishment or modification of debt and taxes (“EBIT,” a non-GAAP financial measure) provides a clearer comparison of the operating resu
Slide 9: Operating ROE
Operating ROE CNO ($ millions) Operating ROE*, Trailing 4 Quarters Average common shareholders’ equity, excluding AOCI/L and net operating loss $2,551.1 $2,679.2 $2,808.3 $2,942.8 $3,048.5 carryforwards, trailing 4 quarters: *Operating return excludes loss on extinguishment or modification of debt,
Slide 10: Operating EPS (Diluted)
Operating EPS (Diluted)* § Increased EPS despite dilution from recapitalization in 4Q09 Weighted average diluted shares (in millions): 217.5 292.1 302.6 306.0 306.7 *Operating earnings per share exclude loss on extinguishment or modification of debt, net realized investment gains (losses) and valuat
Slide 11: Book Value
Book Value CNO ($ millions, except per-share amounts) Book value per diluted share (excluding AOCI/L) as of December 31, 2010 was $14.23 – Includes dilutive impact of $293.0 million of 7.0% debentures *See Appendix for a reconciliation to the corresponding GAAP measure. CNO Financial Group 11
Slide 12: Pre/After Tax GAAP Operating Income
| Pre/After Tax GAAP Operating Income CNO ($ millions) $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 2008 2009 2010 ONet Operating Income Tax Expense on Operating Income CNO Financial Group 12
Slide 13: Statutory Earnings Power
Statutory Earnings Power ($ millions) $450.0 CNO $400.0 $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 $107.0 $406.6 $137.1 $269.5 $279.2 OPre-Tax Operating Income CNO Financial Group 2008 2009 Fees and Interest to Holding Company 2010 13
Slide 14: Financial Strength
Financial ($ millions) Strength Consolidated RBC Ratio* Liquidity § RBC increased to 332% in 4Q10 Debt to Total Capital Ratio** – Positive impact from statutory operating income 21.63% 21.56% 21.31% 21.17% 19.99% (+22 points) – Impact of WNIC merger (+8 points) – Impact of capital losses (-7 points)
Slide 15: 4Q Summary Bankers Life
4Q Summary Bankers Life § Earnings of $71.4 million, down 16% – Results in 4Q10 were favorably impacted by $18 million from improved spreads and growth in the annuity block – Results in 4Q10 were unfavorably impacted by: • $4 million from unfavorable mortality • $3 million from unfavorable Med Supp
Slide 16: Bankers Life Sales and Distribution Results
Sales and Distribution Results Bankers Life ($ millions) Quarterly NAP* § Mixed sales results – Med Supp sales 2nd highest in Bankers’ history – Life and Annuity sales better than industry results • 16% increase in life sales • 15% increase in annuity sales – LTC sales in line with expectations Med
Slide 17: Distribution Value Proposition Bankers Life
Distribution Value Proposition Bankers Life Average Agent Counts Diversified Product Suite (Share of Sales*) NAP in millions $245.4 5,198 $218.5 $222.4 4,682 25% 26% 24% 4,038 26% 14% 24% 30% 13% 21% 36% 30% 31% § Needs based market focus able to reach middle market boomers and seniors with straight
Slide 18: Bankers Life LTC Update
LTC Update Bankers Life § LTC is an important product that enables Bankers Life to meet the needs of its customers § Stable financial results § Bankers experience and strategy enable us to differentiate through: – Stringent underwriting – Low exposure to higher risk product benefits (i.e. “0” day el
Slide 19: Quarterly Earnings Bankers Life
Quarterly Earnings Bankers ($ millions) Life Trailing 4 Quarter Operating Return on Allocated Capital: 11.8% Management believes that an analysis of income before net realized investment gains (losses), net of related amortization (a non-GAAP financial measure), is important to evaluate the financia
Slide 20: 4Q Summary Washington National
4Q Summary Washington National § Earnings of $28.7 million, up 25% – Reflects an increase in earnings from our supplemental health products due to growth in this block of business and lower claims § Sales (NAP) of $19 million, up 3% – Supplemental health NAP of $17.5 million, up 15% § Strong supplem
Slide 21: 4Q10 Sales Results Washington National
4Q10 ($ millions) Sales Results Washington National § Supplemental health sales up 15% – PMA up 18% – WNIC Independent up 8% § Worksite sales* up 3% – WNIC Independent up 20% – PMA down 3% 4Q09 NAP 4Q10 NAP * Worksite sales include supplemental health and life CNO Financial Group 21
Slide 22: Quarterly Earnings Washington National
Quarterly ($ millions) Earnings Washington National Trailing 4 Quarter Operating Return on Allocated Capital: 9.9% Management believes that an analysis of income (loss) before net realized investment gains (losses), net of related amortization (a non- GAAP financial measure), is important to evaluat
Slide 23: Summary Colonial Penn
Summary Colonial Penn § Earnings of $5.8 million, compared to $5.9 million – Unfavorable mortality in life products – Substantially offset by increased earnings in core life products due to growth and higher investment yields § Sales growth continues: – NAP up 13% – 2010 sales up 11% – 2010 lead gen
Slide 24: Quarterly Earnings Colonial Penn
Quarterly ($ millions) Earnings Colonial Penn Trailing 4 Quarter Operating Return on Allocated Capital: 7.6% Management believes that an analysis of income before net realized investment gains (losses), net of related amortization (a non-GAAP financial measure), is important to evaluate the financia
Slide 25: 4Q Summary Other CNO Business
4Q Summary Other CNO Business § Earnings of $6.0 million, compared to loss of $29.7 million – Results in 4Q10 reflect favorable mortality in this segment’s life block which increased earnings by $6 million – Results in 4Q09 were unfavorably impacted by: • Amortization of insurance intangibles of $15
Slide 26: Sharpened Focus Other CNO Business
Sharpened Focus Other CNO Business § Continued focus on: – Non-Guaranteed Element Management – Expense Management – Risk Mitigation § Near-term results expected to continue to be volatile – Portions of the business are in loss recognition – Present value impact of some assumption changes – NGE chang
Slide 27: Quarterly Earnings (Losses) Other CNO Business
Quarterly ($ millions) Earnings (Losses) Other CNO Business Management believes that an analysis of income (loss) before net realized investment gains (losses), net of related amortization (a non- GAAP financial measure), is important to evaluate the financial performance of our business, and is a m
Slide 28: 2010 Refinancing
2010 Refinancing § $650 million of new financing – $275 million 9.0% senior secured notes due January 2018 – $375 million senior secured credit facility amortizing through September 2016 § Proceeds used to extinguish the previous senior secured credit facility of $652 million § Extended debt maturit
Slide 29: Debt Maturity Profile
Debt Maturity Profile ($ millions) Prior Maturity Profile Current Maturity Profile 2011 - 2018 2011 - 2018 $ $ (1) Sr. Health Note Sr. Credit Facility Convertible Sr. Health Note Term Loan Convertible 9% Debentures Notes (1) Conversion price is $5.49. CNO can force conversion after 6/30/13 if CNO st
Slide 30: Net Investment Income
Net Investment Income ($ millions) CNO General Account Investment Income § Increase in investment income due principally to growth in average assets § 4Q10 decline in realized yield due primarily to expansion of FHLB loans – Floating rate – Matched § Full year portfolio yield increase due primarily
Slide 31: Realized Gains/Losses Recognized through Net Income
Realized Gains/Losses Recognized through Net Income CNO ($ millions) CNO Financial Group 31
Slide 32: Unrealized Gain/Loss
Unrealized Gain/Loss* CNO ($ millions) $ 4Q09 1Q10 2Q10 3Q10 4Q10 *Includes debt and equity securities classified as available for sale. Excludes investments from variable interest entities which we consolidate under GAAP. CNO Financial Group 32
Slide 33: 4Q10 Impairments
4Q10 Impairments CNO ($ millions) CNO Financial Group 33
Slide 34: Asset Allocation at 12/31/10
Asset Allocation at 12/31/10* CNO ($ millions) *Excludes investments from variable interest entities which we consolidate under GAAP (the related liabilities are non-recourse to CNO). CNO Financial Group 34
Slide 35: Fixed Maturities by Rating: 91% Investment Grade
Fixed Maturities, available for sale, by Rating § 91% investment grade at 12/31/10 (Market Value) <BBB 9% AAA 14% AA 10% BBB 44% A 23% 12/31/09 3/31/10 6/30/10 9/30/10 12/31/10 % of Bonds which are Investment Grade: 93% 93% 92% 92% 91% *Excludes investments from variable interest entities which we c
Slide 36: Alt-A at 12/31/10
Alt-A at 12/31/10 CNO ($ millions) § 1.2% of total invested assets § 100% NAIC 1 classification § Substantial proportion of investments purchased at discounts reflective of current market expectations for cash flows from collateral § Collateral performing better than overall Alt-A collateral univers
Slide 37: Prime Jumbo at 12/31/10
Prime Jumbo at 12/31/10 CNO ($ millions) § 3.8% of total invested assets § 98% NAIC 1 classification § Substantial proportion of investments purchased at discounts reflective of current market expectations for cash flows from collateral § All securities evaluated using market-consistent estimates of
Slide 38: CMBS at 12/31/10
CMBS at 12/31/10 CNO ($ millions) 2010 1.0% 2009 5.0% Pre-2004 19.3% 2007 22.3% 2004 12.0% 2006 2005 16.0% 24.4% CNO Financial Group 38
Slide 39: CMBS at 12/31/10
CMBS at 12/31/10 CNO ($ millions) § 5.7% of invested assets § 99.5% NAIC 1 classification § Negligible effect from Blackrock/NAIC rating process § Collateral performing materially better than overall CMBS collateral universe in terms of delinquency and cumulative loss § All securities evaluated usin
Slide 40: Commercial Mortgage Loans at 12/31/10
Commercial Mortgage Loans at 12/31/10 CNO By Property Type 2009 0.4% 2010 4.7% Other Indus. 0.2% 17.9% 2004 and Prior 2008 27.5% 18.7% Office 37.2% 2007 2005 Retail 20.4% 9.4% 39.8% 2006 18.9% Multi- Family 4.9% § Current LTV of approximately 60.1% § Trailing debt service coverage ratio (DSCR) stabl
Slide 41: Summary
Summary CNO §Solid earnings continued in Q4 §Refinanced debt in Q4, provides more flexibility going forward §Improvements being recognized – Credit rating upgrades – Reduction in tax valuation allowance §Continued emphasis on profitable growth – 2011 first year of baby boomers turning 65 – Adding 15
Slide 42: Questions and Answers
Questions and Answers CNO Financial Group 42
Slide 43: Appendix
Appendix CNO Financial Group 43
Slide 44: Covenant Metrics
Covenant Metrics CNO Levels reflect covenants per new agreement Interest Coverage Ratio § The ratio of available cash flow to interest expense must equal or exceed 2.0 § Covenant requirement begins 3/31/2011 Statutory Surplus ($ millions) $1,200 225% *Excludes Accumulated Other Comprehensive Income
Slide 45: 4Q10 Liquidity
4Q10 Liquidity CNO ($ millions) CNO Financial Group 45
Slide 46: Operating Return on Allocated Capital Computation
Operating Return on Allocated Capital Computation* ($ millions) Adjusted operating earnings for the purpose of calculating operating return on allocated capital is determined as follows: Allocated capital is calculated as follows: Operating Return on Allocated Capital: 11.8% 9.9% 7.6% -2.9% -6.1% 6.
Slide 47: Commercial Mortgage Loans at 12/31/10
Commercial Mortgage Loans at 12/31/10 CNO New England 9.0% Pacific Middle 10.1% West North Atlantic Central East North 8.5% 14.0% Central Mountain 15.6% 10.2% East South South Central Atlantic 3.1% 23.0% West South Central 6.5% CNO Financial Group 47
Slide 48: Commercial Mortgage Loans at 12/31/10
Commercial Mortgage Loans at 12/31/10 CNO ($ millions) By Maturity CNO Financial Group 48
Slide 49: Collected Premiums
Collected Premiums CNO ($ millions) Collected Premiums -Trailing 4 Quarters § Trailing 4 quarters down 13% – Decline at Bankers Life due 4Q09 primarily to termination of $4,114.8 1Q10 2Q10 PFFS reinsurance contracts $3,937.2 $3,819.6 3Q10 4Q10 OCB $3,651.1 $3,590.1 – Stable results at Colonial CP Pe
Slide 50: Segment Performance Bankers Life
Segment ($ millions) Performance Bankers Life Pre-Tax Operating Income* § Earnings of $71.4 million, down 16% – Results in 4Q10 were favorably impacted by $18 million increase from improved spreads and growth in the annuity block – Results in 4Q10 were unfavorably impacted by: • $4 million from unfa
Slide 51: Premiums - Med Supp Bankers Life
Premiums ($ millions) - Med Supp Bankers Life Med Supp - First-Year Premiums § First-year premiums up 8% Med Supp First-Year Prems.-Tr. 4 Qtrs: $91.7 $99.2 $107.5 $114.1 $116.4 Med Supp Total Premiums-Quarterly: $173.8 $176.6 $168.8 $170.1 $182.3 Med Supp NAP-Quarterly: $56.8 $19.4 $21.0 $16.0 $31.8
Slide 52: Premiums - Long-Term Care Bankers Life
Premiums - Long-Term Care Bankers Life ($ millions) Long-Term Care - First-Year Premiums* § Net first-year premiums* up 5%, 1Q10 2Q10 reflecting reduction in new 4Q09 (Direct) (Direct) (Direct) 3Q10 (Direct) 4Q10 (Direct) $9.1 $9.2 business reinsurance $9.3 $8.5 $8.2 First-Year Prems.-Tr. 4 Qtrs: $1
Slide 53: Premiums - Life Insurance Bankers Life
Premiums ($ millions) - Life Insurance Bankers Life Life - First-Year Premiums 4Q10 3Q10 § First year premiums up 17% 4Q09 2Q10 $24.8 $25.8 $26.9 $23.0 1Q10 $20.2 $12.4 SPWL $10.8 $11.9 $12.3 $9.6 Non- $14.6 $12.2 SPWL $10.6 $12.4 $13.9 First-Year Prems.-Tr. 4 Qtrs: $82.6 $86.0 $91.4 $93.8 $97.7 Tot
Slide 54: Premiums - Annuity Bankers Life
Premiums ($ millions) - Annuity Bankers Life Annuity - First-Year Premiums § First-year premiums up 18% First-Year Prems.-Tr. 4 Qtrs: $1,057.1 $979.1 $984.4 $965.1 $1,001.2 Total Premiums-Quarterly: $198.2 $224.4 $281.1 $265.8 $234.4 CNO Financial Group 54
Slide 55: Annuity Surrenders Bankers Life
Annuity Surrenders Bankers Life IA Surrenders § Total account value: (annualized quarterly rate) – IAs - $1.9 billion – Non-IAs - $4.5 billion § Average account value: – IAs - $1.9 billion – Non-IAs - $4.7 billion Non-IA Surrenders (annualized quarterly rate) – IAs - 96% – Non-IAs - 85% CNO Financia
Slide 56: Benefit Ratio - PDP Bankers Life
Benefit Ratio* - PDP Bankers Life § Down 7.7 points, impacted by improved pricing and plan design changes *We calculate benefit ratios by dividing insurance policy benefits by insurance policy income. CNO Financial Group 56
Slide 57: Benefit Ratio - Med Supp Bankers Life
Benefit Ratio* - Med Supp Bankers Life § 4Q10 impacted by favorable claims experience *We calculate benefit ratios by dividing insurance policy benefits by insurance policy income. CNO Financial Group 57
Slide 58: Interest-Adjusted Benefit Ratio - LTC Bankers Life
Interest-Adjusted Benefit Bankers Life Ratio* - LTC § 4Q09 reflects a reserve release due to positive development of reserves and the impact of policyholder actions following rate increases in 2009 Trailing 4 Quarter Avg.: 67.9% 69.6% 71.0% 71.7% 73.0% Qtrly. non-int. adjusted: 104.3% 114.4% 113.0%
Slide 59: New Agent Contracts Bankers Life
New Agent Contracts Bankers Life § 15 new locations planned in 2011 CNO Financial Group 59
Slide 60: Bankers Life LTC Rate Increase
LTC Rate Increase Bankers Life Additional rate increase filings commenced on our LTC portfolio in October § We are filing for an additional increase on almost all plans sold between 2002 and 2005. § For plans generally sold between 1992-2003, we are filing for an additional increase ONLY on policies
Slide 61: Segment Performance Washington National
Segment ($ millions) Performance Washington National Pre-Tax Operating Income* § Earnings of $28.7 million, up 25% – Reflects an increase in earnings from our supplemental health products due to growth in this block of business and lower claims PTOI-Trailing 4 Quarters: $110.9 $104.9 $100.8 $98.9 $1
Slide 62: Premiums - Supplemental Health Washington National
Premiums - Supplemental Health Washington National ($ millions) Supplemental Health - First-Year Premiums § NAP up 15% – Increased focus on supplemental health products – Momentum increasing in Worksite market First-Year Prems.-Tr. 4 Qtrs: $45.4 $47.7 $49.7 $50.9 $52.0 Total Premiums-Quarterly: $99.
Slide 63: Interest-Adjusted Benefit Ratio - Supplemental Health Insurance
Interest-Adjusted Benefit Ratio* - Supplemental Health Insurance § Down 4.1 points vs. 4Q09 due to favorable claim experience § Non-interest adjusted ratio 75.0% vs. 4Q09 82.0% Trailing 4 Quarter Avg.: 46.0% 47.8% 48.4% 50.3% 49.2% Qtrly. non-int. adjusted: 82.0% 82.3% 83.2% 81.3% 75.0% *We calculat
Slide 64: Segment Performance Colonial Penn
Segment ($ millions) Performance Colonial Penn Pre-Tax Operating Income* § Earnings of $5.8 million, down 1.7% – Unfavorable mortality in life products – Substantially offset by increased earnings in core life products due to growth and higher investment yields PTOI-Trailing 4 Quarters: $29.4 $29.6
Slide 65: Premiums - Life Insurance Colonial Penn
Premiums ($ millions) - Life Insurance Colonial Penn Life - First-Year Premiums § Sales (NAP) up 13% § YTD sales up 11% § YTD lead generation up 35% First-Year Prems.-Tr. 4 Qtrs: $33.0 $31.7 $31.4 $31.6 $32.3 Total Premiums-Quarterly: $48.9 $47.3 $46.7 $46.9 $46.8 NAP-Quarterly: $8.4 $13.1 $12.2 $11
Slide 66: Segment Performance Other CNO Business
Segment ($ millions) Performance Other CNO Business Pre-Tax Operating Income (Loss)* – Results in 4Q09 were unfavorably impacted by: • Regulatory and legal settlements of $14 million PTOI-Trailing 4 Quarters: $(43.6) $(43.1) $(30.3) $(47.2) $(11.5) Revenues-Quarterly: $166.4 $167.4 $153.6 $172.2 $16
Slide 67: 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 68: 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 net operating income (and related per-share amounts) is as follows (dollars in millions, except per-share amounts): CNO Financial Group 68
Slide 69: 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 70: 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 or modification of debt, net realized gains or losses, and increases or decreases to our valuation allowance for deferred tax assets (“net
Slide 71: 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 twelve months end
Slide 72: 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, 2010, is as follows (dollars in millions): (Continued on next
Slide 73: 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 74: 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): (Cont
Slide 75: 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) loss has been excluded from the value of c
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