Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Investor Presentation (September 2020)
37 slides from Cno Financial's investor presentation, Sep 17, 2020
Slide 1: Investor Overview September 2020
Exhibit 99.1 Investor Overview September 2020
Slide 2: Important Legal Information
Important Legal Information 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 ca
Slide 3: CNO Financial Group Overview
CNO Financial Group Overview Focused on serving the protection needs of the fast-growing but underserved middle-income American market at or near retirement . Manufactured products include life, fixed annuities, Medicare supplement, supplemental health and limited benefit duration long-term care (LT
Slide 4: What Makes CNO Different
What Makes CNO Different Exclusive Focus on Middle- Our Diverse Distribution & Income America Integrated Approach Insurance and Securities Health and Wealth Solutions Solutions Strong Cash Flow Generation CNO Financial Group | Investor Overview | September 2020 4
Slide 5: 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 advisors1 Percentage of Population Age 65+ CNO Solutions without a Financial Product CNO Solutions . Extensive experience and understanding of the middle marke
Slide 6: Highly Diversified Product Mix
Highly Diversified Product Mix Broad & balanced portfolio 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
Slide 7: Risk Management via Diversification and Natural Hedges
Risk Management via Diversification and Natural Hedges Relative degree of risk present (before mitigation) within each product Fixed Fixed Interest Trad Med Supp Indexed Interest Sensitive LTC Life Supp Health Annuity Annuity Life Mortality Morbidity Persistency Interest rate Equity Low High CNO Fin
Slide 8: Unique Multi-Channel Operating Model
Unique Multi-Channel Operating Model Recent realignment removes barriers between brand and channels . Consumer Division – Strong career agent franchise • Top distributor of health/wealth protection products through ~4,100 producing agents • More than 265 locations nationwide • “Kitchen-table” sales
Slide 9: Strategic Initiatives Successfully Reinvigorating Growth
Strategic Initiatives Successfully Reinvigorating Growth; Momentum Sidelined Temporarily by COVID (dollars in millions) Life NAP Health NAP Annuity Collected Premiums $200.0 $200.0 $1,500.0 $150.0 $150.0 $1,000.0 $100.0 $100.0 $500.0 $50.0 $50.0 $- $- $- 2017 2018 2019 YTD YTD 2017 2018 2019 YTD YTD
Slide 10: Capital and Liquidity Overview
Capital and Liquidity Overview Conservative approach to capital structure (dollars in millions) Consolidated Risk Based Capital (“RBC”) Ratio1 393% 408% 406% 405% Targeted consolidated RBC ratio of 375-400% Excess due to intentional conservative positioning RBC variability can be expected in p
Slide 11: Cash Flow Profile
Cash Flow Profile Strong free cash flow generation and conversion (dollars in millions) For the Quarter Trailing Twelve Months 2Q19 2Q20 2Q19 2Q20 Net Operating Income1 $ 76.4 $ 79.4 $ 289.5 $ 311.5 Holding Company Cash Flows: Dividends from Subsidiaries$ 89.9 $ 77.6 $ 281.3 $ 220.8 Management Fees
Slide 12: Excess Capital Allocation Strategy
Excess Capital Allocation Strategy Disciplined and opportunistic approach to maximize shareholder value Organic investments to sustain and grow the core businesses Capital Return as % of Market Capitalization $400.0 13.0% 15.0% $300.0 6.8% 10.0% Return capital to shareholders $200.0 4.0% 5.5% 5.0% •
Slide 13: Portfolio Composition
Portfolio Composition High quality; well-positioned for current environment $26 billion of Invested Assets Highlights (Fair Value as of 6/30/2020) Mortgage • 65% of portfolio in corporate and government bonds Loans, 5.8% HY Corporates, 2.9% Non-Agency RMBS, 8.7% • 41% BBBs; consistent with March 31
Slide 14: 2020 Outlook
2020 Outlook Less severe mortality impact; continued capacity to maintain modest buybacks Scenario modeling – 2020 COVID impacts Prior (May) projections Current (August) projections • Mortality • Mortality • 80k – 120k U.S. COVID deaths • 150k – 400k U.S. COVID deaths • $20M – $30M net mortality imp
Slide 15: Delivering On Our Commitments
Delivering On Our Commitments Shifting to a tactical approach while navigating COVID environment Pivot to Optimize Long- Turnaround / COVID-19 De-risking Growth term Value Pre 2017 2017-2019 2020 2021 and Beyond • Reinsured life block (2009) • Completed Senior Leadership • Balancing cash conservatio
Slide 16: Appendix
Appendix 1 Strong Operational Performance • COVID-19 Response Slide 17 • Experienced Management Team Slide 18 • Agent Counts Slide 19 • Broker-Dealer/Registered Investment Advisor Slide 20 Building on Strong Track Record of Execution • Investment Portfolio Overview Slides 21-24 • New Money Summary S
Slide 17: COVID-19 Response: Committed to Key Stakeholders
COVID-19 Response: Committed to Key Stakeholders Embracing our obligations; rising to the challenge Supporting our Helping our Associates & Agents Customers Giving Back to Others • Committed to no COVID-19 • Call centers, claims • Committed to maintaining related layoffs in 2020 processing, other se
Slide 18: Experienced Management Team With a Proven Track Record
Experienced Management Team With a Proven Track Record 10-year average tenure; 23-year average service in the insurance sector Years in Insurance Name Title Years with CNO Age Sector Gary C. Bhojwani Chief Executive Officer 4 30 52 Paul H. McDonough Chief Financial Officer 1 18 55 Eric R. Johnson Ch
Slide 19: Agent Counts
Agent Counts Producing agent count impacted by COVID; total agent count stable 2019 2020 % Change Consumer 2Q 3Q 4Q 1Q 2Q Q/Q Total Quarterly Average Producing Agents1,3 4,602 4,579 4,709 4,531 4,066 -12% Quarterly Average Financial Representatives2,3 595 596 596 591 602 1% Worksite Total Quarterly
Slide 20: Broker-Dealer/Registered Investment Advisor
Broker-Dealer/Registered Investment Advisor Account values up YoY; $1.5 billion in client assets (dollars in millions) 2019 2020 2Q 3Q 4Q 1Q 2Q Net New Client Assets in Brokerage $5.1 $13.4 $17.4 $15.3 -$26.7 Brokerage and Advisory1 Advisory 33.2 29.9 45.4 65.7 38.6 Total $38.3 $43.3 $62.8 $81.0 $11
Slide 21: Investment Portfolio Overview – Sector Breakdown
Investment Portfolio Overview – Sector Breakdown Underweight COVID-impacted sectors 6/30/2020 (dollars in millions) Book Market Unrealized Average Sector Value Value Gain Loss Portfolio% NAIC Over|Underweight Airlines 17.2 17.7 0.5 0.07% 1.5 Underweight Aircraft Lease Securitizations 33.9 30.2 (3.7)
Slide 22: Investment Portfolio Overview: CLO Debt
Investment Portfolio Overview: CLO Debt Significant cushion against stress scenarios 6/30/2020 Ratings Composition A+ % of Rating Downgrade Watch 1.5% AA Portfolio Portfolio Index 49.6% AAA 11.3% - - AA 52.0% - 0.2% A 33.2% 100% A 36.7% - 4.2% AAA AAA-A BBB - N/A 35.8% AA+ 11.3% 2.4% A- BB - N/A 51.
Slide 23: Investment Portfolio Overview: Commercial Mortgage Loans
Investment Portfolio Overview: Commercial Mortgage Loans Very conservatively underwritten; loss resistant 6/30/2020 Key Portfolio Facts Portfolio Geography $1.4 billion of net invested assets Mountain 10.0% South Central 32.7% 17.0% 100% 99.5% 51% 1.97x 0.5% First Rated Weighted Weighted Delinquency
Slide 24: Investment Portfolio Overview: CMBS
Investment Portfolio Overview: CMBS Very conservatively underwritten; loss resistant 6/30/2020 Key Portfolio Facts Book Market Market/ Credit Delinq. $2.0 billion of net invested assets Rating Value Value Book Support Rate Hotel% Retail% AAA 622 647 104% 38.4% 7.6% 12.4% 21.6% AA 369 374 102% 29.2%
Slide 25: 2Q20 New Money Summary
2Q20 New Money Summary Emphasis on high quality investments Second Quarter Investments HY Corporates, 5.7% Direct Investments, 0.6% Average Average Allocation $ Allocation % Yield Rating Duration Structured Securities 372 40.8% 4.34% A 4.7 Municipals 241 26.5% 3.84% AA 15.4 IG Corporates, 26.4% Stru
Slide 26: Tax Asset Summary
Tax Asset Summary Estimated economic value of NOLs & DTAs related to tax strategy of $2.80 per share Value of NOLs and deferred tax assets Details (DTAs) related to tax strategy (dollars in millions) • Total estimated economic value of NOLs $495 and DTAs related to tax strategy of DTAs related to ap
Slide 27: 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 28: Retained Long-Term Care Insurance
Retained Long-Term Care Insurance Highly differentiated in-force block; prudently managed . New sales (~$25 million annually) focused on short duration products – 98% of new sales for policies with 2 years or less in benefits – Average benefit period of 11 months – New business 25% reinsured since 2
Slide 29: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits • Non-GAAP Financial Measures Slides 30-37 CNO Financial Group | Investor Overview | September 2020 29
Slide 30: 2Q20 Significant Items
2Q20 Significant Items The table below summarizes the financial impact of significant items on our 2Q20 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. (dollars in millions, except per-share amounts) Three mont
Slide 31: 2Q20 Significant Items (Continued)
2Q20 Significant Items (Continued from the previous page) (1) Given our expectation that interest rates will remain low for the long-term, we performed an actuarial unlocking exercise in the second quarter of 2020 to reflect our assumption that average new money rates will remain flat at 4 percent f
Slide 32: 4Q19 Significant Items
4Q19 Significant Items The table below summarizes the financial impact of significant items on our 4Q19 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. (dollars in millions, except per-share amounts) Three mont
Slide 33: Quarterly Earnings
Quarterly Earnings (dollars in millions) 2Q19 3Q19 4Q19 1Q20 2Q20 Insurance product margin Annuity$ 57.2 $ 56.2 $ 60.5 $ 59.5 $ 123.8 Health 78.3 77.0 79.0 73.6 82.3 Life 51.7 54.6 46.7 44.3 36.1 Long-term care 11.9 12.3 14.0 13.3 13.2 Total insurance product margin 199.1 200.1 200.2 190.7 255.4 All
Slide 34: 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 35: 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) 2Q19 3Q19 4Q19 1Q20 2Q20 Net income (loss) applicable to
Slide 36: 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) 2Q19 3Q19 4Q19 1Q20 (a) 2Q20 Operating i
Slide 37: 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
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