Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q1 2012 Earnings Presentation
66 slides from Cno Financial's earnings presentation, May 1, 2012
Slide 1: 1Q12 Financial and operating results
1Q12 Financial and operating results for the period ended March 31, 2012 May 1, 2012 Unless otherwise specified, comparisons in this presentation are between 1Q12 and 1Q11. Exhibit 99.1
Slide 2: Forward-Looking Statements
CNO Financial Group 2 Forward-Looking Statements Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in these materials relative to markets for CNO Financial’s products and trends in CNO Financial’s operations or financial results
Slide 3: Non-GAAP Measures
CNO Financial Group 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 other comprehensive income (loss) per sha
Slide 4: Adoption of New Accounting Standard
CNO Financial Group 4 Adoption of New Accounting Standard Effective January 1, 2012, we adopted ASU 2010-26 which modified the definition of the types of acquisition costs that can be deferred by insurance companies. We elected to adopt the new guidance on a retrospective basis. Accordingly, all pri
Slide 5: CNO Financial Group
E 3 CNO FINANCIAL GROUP CNO Financial Group
Slide 6: Summary
CNO Financial Group 6 Summary Our businesses continue to perform well – Solid earnings continued – Sales growth of 12% over 1Q2011 Financial strength and credit profile continue to improve – Generating significant amounts of excess capital – Continued share buybacks and related debt prepayments
Slide 7: Operating EPS Excluding Significant Items
CNO Financial Group 7 Operating EPS Excluding Significant Items* (Diluted) CNO Weighted average diluted shares (in millions): 307.5 297.3 Earnings Drivers: Business growth and retention In-force margin improvement Favorable claim experience Proactive capital deployment * A non-GAAP measure.
Slide 8: Operating ROE
CNO Financial Group 8 Operating ROE CNO Operating ROE*, Trailing 4 Quarters Average common shareholders’ equity, excluding AOCI and net operating loss carryforwards, trailing 4 quarters: $2,610.1 $2,688.1 $2,761.5 $2,828.0 $2,895.6 ($ millions) 1Q11 6.0% 2Q11 6.3% 3Q11 6.0% 4Q11 6.1% 1Q12 5.8% Tra
Slide 9: Growth in the CNO Franchise
CNO Financial Group 9 $12,106.9 $12,765.2 $13,145.0 $2,676.8 $2,637.6 $2,630.0 $704.0 $710.7 $698.0 Growth in the CNO Franchise ($ millions) $16,485.7 Average liabilities on core business segments are increasing, while OCB is shrinking CNO $15,481.7 $16,106.8 2010 2011 1Q2012 $5,511.5 $5,286.1 $5,10
Slide 10: Financial Strength
CNO Financial Group 10 Financial Strength CNO * Risk-Based Capital (“RBC”) requirements provide a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks. The RBC ratio is the ratio of the statu
Slide 11: 1Q2012 Recap
CNO Financial Group 11 1Q2012 Recap CNO Continuing to generate significant excess capital Investing in our growth Profitability, financial strength and credit profile further improving
Slide 12: 1Q2012 Core Business Review
CNO Financial Group 12 1Q2012 Core Business Review Continued to improve performance across all core segments Gains in recruiting and retention lead to increased agent force Continued stability in LTC line Manager Trainee Program fully operational; continue to hire and recruit 2012 class of tra
Slide 13: 1Q2012 Sales and Distribution Results (Bankers Life)
CNO Financial Group 13 1Q2012 Sales and Distribution Results Sales results – Up 6.4% • Med supp sales up 6.7% • Life sales up 22.3% – Introduced 2 new products • STC sales up 27% • Annuity sales down 17% – Reflects low interest rate environment Bankers Life Quarterly NAP* *MA/PDP sales are exclude
Slide 14: LTC and STC Sales Mix
CNO Financial Group 14 LTC (LTC and HHC) and STC Sales Mix 19% 29% 33% 36% 41% 48% 81% 71% 67% 64% 59% 52% 2006 2007 2008 2009 2010 2011 STC (Short Term Care) LTC (Long Term Care and Home Health Care) Long Term Care Bankers Life Bankers utilizes exclusive distribution with a focus on middle income
Slide 15: Washington National 1Q2012 Sales and Distribution Results
CNO Financial Group 15 Washington National 1Q2012 Sales and Distribution Results ($ millions) Investment in life sales continues to gain traction PMA new producing agents up 11%; and added 26 IMO’s in WNIC Independent 1Q11 $16.5 2Q11 $18.7 3Q11 $19.5 4Q11 $20.7 1Q12 $19.6 Quarterly Core NAP* Cor
Slide 16: Colonial Penn 1Q2012 Sales and Distribution Results
CNO Financial Group 16 Sales growth continues, NAP up 28% 1Q results reflect continued robust lead generation activity Increased investments in marketing and advertising driving sales growth 1Q2012 Sales and Distribution Results Colonial Penn 1Q11 $13.6 2Q11 $12.8 3Q11 $12.7 4Q11 $12.3 1Q12 $1
Slide 17: 2012 Outlook
CNO Financial Group 17 2012 Outlook Strong start with Sales Up In All 3 Core Segments and Positioned Well To Serve Our Target Market Continued investment in branch expansion and management development Introduction of new critical illness product Expect strong sales of life insurance to continu
Slide 18: 1Q2012 Consolidated Summary
CNO Financial Group 18 1Q2012 Consolidated Summary CNO *Management believes that an analysis of net income applicable to common stock before: (1) loss on extinguishment of debt, net of income taxes; (2) net realized investment gains or losses, net of related amortization and income taxes; (3) increa
Slide 19: CNO's Earnings Engine
CNO Financial Group 19 $50.2 $59.5 $24.3 $24.7 $12.7 $(5.7) $(9.8) $(6.5) $(6.8) $7.4 1Q2011 1Q2012 BLC WN OCB CP Corporate Segment EBIT Excluding Significant Items* CNO ($ millions) * A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP measure. $80.3 $69.7 CNO’s Earn
Slide 20: ASU 2010-26 Impact by Segment
CNO Financial Group 20 ASU 2010-26 Impact by Segment Quarter Ended March 31, 2012 ($ in millions) CNO Before DAC Change Total In-force New Business Bankers Life 74.3$ 70.5$ 97.1$ (26.6)$ Washington National 25.5 24.7 27.4 (2.7) Colonial Penn 4.4 (9.8) 6.7 (16.5) Other CNO Business (2.4) (2.3) (2.3)
Slide 21: Impact of ASU 2010-26 on Colonial Penn
CNO Financial Group 21 Impact of ASU 2010-26 on Colonial Penn ($ in millions) Colonial Penn 1Q11 2Q11 3Q11 4Q11 1Q12 NAP $13.6 $12.8 $12.7 $12.3 $17.5 EBIT from in-force business $8.0 $10.1 $11.6 $9.8 $6.7 EBIT from new business (13.7) (9.6) (12.9) (8.0) (16.5) EBIT ($5.7) $0.5 ($1.3) $1.8 ($9.8) Ot
Slide 22: Statutory Earnings Power and Cash Generation
CNO Financial Group 22 $15.4 $43.2 $41.6 $37.5 $19.4 $78.0 $27.4 $43.6 $45.0 $41.4 $0.7 $38.1 $73.9 $41.6 $15.4 $43.2 $41.6 $37.5 $19.4 $78.0 $27.4 $43.6 $45.0$60.0 $60.0 $64.4 $75.4 $121.2 $69.0 $81.1 Statutory Earnings Pow er Inflow s to Holding Co Statutory Earnings Pow er Inflow s to Holding Co
Slide 23: Stable Excess Capital Position
CNO Financial Group 23 1Q11 341% 1Q12 360% 1Q11 $169.0 1Q12 $171.9 Stable Excess Capital Position Consolidated RBC Ratio Liquidity ($ millions) Approximately $50 million in excess of management target $72.0 million in excess of management target 350%* Management Target = $100 Approximately $122 mill
Slide 24: Net Investment Income
CNO Financial Group 24 Net Investment Income CNO Relatively stable new money rate and earned yield progression despite low interest rate environment Year over year increase in investment income primarily due to growth in assets 4Q11 $344.21Q11 $336.1 2Q11 $342.2 3Q11 $338.2 1Q12 $345.2 General A
Slide 25: Realized Gains/Losses Recognized through Net Income
CNO Financial Group 25 Realized Gains/Losses Recognized through Net Income CNO 1Q11 2Q11 3Q11 4Q11 1Q12 Gross Gains $43.5 $29.7 $74.5 $41.9 $33.3 Gross Losses (25.1) (16.7) (41.0) (10.4) (2.5) Losses due to recognition of other-than-temporary impairments recognized in earnings (13.3) (10.1) (2.9) (8
Slide 26: Impairments and Holdings
CNO Financial Group 26 Holdings Investors Guaranty Assurance Berkshire Hathaway Comcast Cable Communications Prudential Securities Kraft Time Warner Cable Home Depot, Inc. Ahold Lease USA, Inc. Heinz (H.J.) Company Cox Enterprises $0 $2 $4 $6 $8 $10 $12 $14 1Q11 2Q11 3Q11 4Q11 1Q12 IGA Corporates Co
Slide 27: Unrealized Gain/Loss
CNO Financial Group 27 Unrealized Gain/Loss* CNO ($ millions) *Includes debt and equity securities classified as available for sale. Excludes investments from variable interest entities which we consolidate under GAAP. $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 1Q 2011 2Q 2011
Slide 28: Asset Allocation and Quality at 3/31/12
CNO Financial Group 28 Asset Allocation and Quality at 3/31/12* Govts/Agency 1.3% Cash & Other 5.0% ABS 5.7% Municipals 7.3% CMBS 5.8% HY Corporates 4.9% Mortgage Loans 6.3% CMOs 9.1% IG Corporates 54.6% *Excludes investments from variable interest entities which we consolidate under GAAP (the relat
Slide 29: Holding Company Investments at 3/31/12
CNO Financial Group 29 Holding Company Investments at 3/31/12 CNO ($ millions) Alternatives & Equities (Balance) Fixed Income (net) $75 Cash & Money Market $25 Cash and Money Market $39.3 Fixed Income (net) 84.5 Equities 20.1 Alternatives 28.0 TOTAL $171.9 Long Term Model Allocation Current Investme
Slide 30: 1Q2012 Investment Summary and Outlook
CNO Financial Group 30 1Q2012 Investment Summary and Outlook CNO Market Observations During 1Q, corporate spreads tightened on rate back- up, continued strong demand for spread product, apparent reduction of tail risk driven by stabilization of U.S. economy and various European initiatives Most
Slide 31: CNO: Well Positioned in Growing & Underserved Markets
CNO Financial Group 31 CNO: Well Positioned in Growing & Underserved Markets The middle-income, pre-retiree, and retirement markets are growing as the Baby Boomers age These markets need simple, straightforward products that help address payment of healthcare expenditures, adequacy of retirement
Slide 32: Questions and Answers
CNO Financial Group 32 Questions and Answers
Slide 33: Appendix
CNO Financial Group 33 Appendix
Slide 34: CNO Value Proposition
CNO Financial Group 34 CNO Value Proposition Competitive Advantage Exclusive, growing distribution Target market focus, with growth as Baby Boomers turn 65 Sustainable with barriers to entry Products Diversified product suite focused on protection needs Actively managed inforce block Foc
Slide 35: 1Q2012 Significant Items
CNO Financial Group 35 1Q2012 Significant Items CNO ($ millions) The table below summarizes the financial impact of several significant items on our 1Q12 net operating income. Such items are summarized on the following slide. Management believes that identifying the impact of these items enhances th
Slide 36: 1Q2012 Significant Items (detail)
CNO Financial Group 36 1Q2012 Significant Items CNO ($ millions) The following summarizes items that management believes are significant in understanding our 1Q2012 results: (1) Pre-tax earnings in the Bankers Life segment included the following items: Favorable reserve developments in the Medicare
Slide 37: 1Q2011 Significant Items
CNO Financial Group 37 1Q2011 Significant Items CNO ($ millions) The table below summarizes the financial impact of several significant items on our 1Q11 net operating income. Such items are summarized on the following slide. Management believes that identifying the impact of these items enhances th
Slide 38: 1Q2011 Significant Items (detail)
CNO Financial Group 38 1Q2011 Significant Items CNO ($ millions) The following summarizes items that management believes are significant in understanding our 1Q2011 results: (1) Pre-tax earnings in the Bankers Life segment included the following items: Favorable reserve developments in the Medicare
Slide 39: Quarterly Earnings
CNO Financial Group 39 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 to discount embedded derivative liabili
Slide 40: Quarterly Earnings (Bankers Life)
CNO Financial Group 40 Quarterly Earnings 1Q11 2Q11 3Q11 4Q11 1Q12 Insurance policy income $400.0 $409.6 $404.6 $398.2 $406.5 Net investment income: General account assets 191.3 196.5 194.3 198.2 200.3 Other portfolios 18.3 0.4 (36.3) 3.6 34.6 Fee revenue and other income 2.3 3.3 3.6 4.6 2.9 Total r
Slide 41: Quarterly Earnings Washington National
CNO Financial Group 41 Quarterly Earnings Washington National 1Q11 2Q11 3Q11 4Q11 1Q12 Insurance policy income $145.4 $146.6 $145.9 $147.2 $147.4 Net investment income: General account assets 46.3 46.7 47.3 49.1 50.0 Other portfolios - - - 0.1 - Fee revenue and other income 0.3 0.2 0.4 0.1 0.2 Total
Slide 42: Quarterly Earnings Colonial Penn
CNO Financial Group 42 Quarterly Earnings Colonial Penn 1Q11 2Q11 3Q11 4Q11 1Q12 Insurance policy income $50.3 $50.9 $50.8 $51.0 $53.4 Net investment income 10.3 10.5 10.1 10.2 10.0 Fee revenue and other income 0.2 0.2 0.2 0.3 0.2 Total revenues 60.8 61.6 61.1 61.5 63.6 Insurance policy benefits 38.
Slide 43: Quarterly Earnings Other CNO Business
CNO Financial Group 43 Quarterly Earnings Other CNO Business 1Q11 2Q11 3Q11 4Q11 1Q12 Insurance policy income $71.5 $72.5 $72.2 $73.8 $79.0 Net investment income: General account assets 88.2 87.6 85.4 85.7 84.0 Other portfolios 6.5 (0.9) (10.8) 2.4 8.7 Total revenues 166.2 159.2 146.8 161.9 171.7 In
Slide 44: Premiums Collected
CNO Financial Group 44 Premiums Collected CNO Trailing 4 quarters down 1.3% – Stable results at Bankers Life, Washington National, and Colonial Penn – OCB declining primarily due to continued run-off of inforce blocks, as expected CP Washington National Collected Premiums -Trailing 4 Quarters BLC
Slide 45: Premiums Collected – Med Supp
CNO Financial Group 45 Premiums Collected – Med Supp First-year premiums down 5%; reflects consumer preferences for lower priced products Policies issued up 9% Med Supp – First-Year Premiums 1Q11 $25.1 2Q11 $24.7 3Q11 $24.5 4Q11 $27.0 1Q12 $23.8 Bankers Life ($ millions) Policies issued and not
Slide 46: Premiums Collected – LTC
CNO Financial Group 46 Premiums Collected – LTC Net first-year premiums down 10%, due to product mix shift to STC (Net) $6.1 (Net) $6.0 (Net) $5.9 (Net) $5.5 (Net) $5.5Long-Term Care – First-Year Premiums* *Includes $1.5 million in 1Q11, $1.4 million in 2Q11, $1.4 million in 3Q11, $1.6 million in 4
Slide 47: Premiums Collected – Life
CNO Financial Group 47 Premiums Collected – Life First-year premiums up 33% due to higher SPWL sales Life – First-Year Premiums SPWL Non- SPWL 1Q11 $24.7 $11.0 $15.1 Bankers Life ($ millions) 2Q11 $29.4 $13.7 $14.3 First-Year Prems – Tr. 4 Qtrs: $102.2 $106.8 $111.9 $115.8 $123.9 Total Premiums -
Slide 48: Premiums Collected – Annuity
CNO Financial Group 48 Premiums Collected – Annuity First-year premiums down 17% reflecting management actions to achieve target returns in low interest rate environment 1Q11 $221.3 2Q11 $258.0 3Q11 $263.1 4Q11 $238.9 1Q12 $182.7 Annuity – First-Year Premiums Bankers Life ($ millions) First-Year P
Slide 49: Premiums Collected – Supplemental Health
CNO Financial Group 49 Premiums Collected – Supplemental Health Washington National First-year premiums up 7% due to continued higher sales 1Q11 $13.2 2Q11 $13.7 3Q11 $13.2 4Q11 $14.0 1Q12 $14.1 Supplemental Health – First-Year Premiums ($ millions) First-Year Prems – Tr. 4 Qtrs: $52.7 $53.3 $53.5
Slide 50: Premiums Collected – Life Colonial Penn
CNO Financial Group 50 Premiums Collected – Life Colonial Penn First-year premiums up 20% due to continued robust lead generation activity and sales 1Q11 $8.7 2Q11 $8.6 3Q11 $8.9 4Q11 $9.2 1Q12 $10.4 Life – First-Year Premiums ($ millions) First-Year Prems – Tr. 4 Qtrs: $33.1 $33.6 $34.4 $35.4 $37
Slide 51: 1Q12 Holding Company Liquidity
CNO Financial Group 51 1Q12 Holding Company Liquidity CNO ($ millions) 1Q 2012 Cash and Investments Balance - Beginning $202.8 Sources Dividends from Insurance Subsidiaries 45.0 Dividends from Non-Life Affiliates - Surplus Debenture Interest 12.1 Service and Investment Fees, Net 7.3 Interest/Earning
Slide 52: Valuation Allowance
CNO Financial Group 52 Valuation Allowance $558.2 Valuation Allowance $331.1 Net $545.1 Net $305.4 $0.0 $200.0 $400.0 $600.0 $800.0 $1,000.0 Life Non- Life Capital Valuation Allow ance for Loss Carryforw ards Net Loss Carryforw ards in Deferred Tax Asset Gross $545.1 Gross $331.1 Gross $863.6 GAAP B
Slide 53: Commercial Mortgage Loans at 3/31/12
CNO Financial Group 53 Commercial Mortgage Loans at 3/31/12 By Vintage CNO By Property Type 6.3% of invested assets based on market value Current LTV of approximately 64.8% Average trailing DSCR stable at approximately 1.49 0.01% delinquency rate Limited 2012 loan maturities ($18mm) 2008 1
Slide 54: Commercial Mortgage Loans Portfolio at 03/31/12
CNO Financial Group 54 Commercial Mortgage Loans Portfolio at 03/31/12 CNO ($ millions) $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026+ Run-off of Principal of Current CML Portfolio Principal Maturities by Year
Slide 55: European Debt by Select Countries
CNO Financial Group 55 European Debt by Select Countries CNO Sovereigns Corporates Banks Total Market Market / BV Total Issuers Italy -$ 26.1$ -$ 26.1$ 23.9$ 91% 1 Spain - 64.6 34.3 98.9 91.8 93% 3 Total -$ 90.7$ 34.3$ 125.0$ 115.7$ 93% 4 ($ millions)
Slide 56: CMBS at 3/31/12
CNO Financial Group 56 CMBS at 3/31/12 CNO 5.7% of invested assets 98.8% NAIC 1 classification Collateral performing materially better than overall CMBS collateral universe in terms of delinquency and cumulative loss All securities evaluated using market-consistent estimates of collateral pe
Slide 57: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 57 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
Slide 58: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 58 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): 1Q11 2Q11 3Q11 4Q11 1Q12 Net income appli
Slide 59: 1Q11 2Q11 3Q11 4Q11 1Q12 Operating income 43.2$ 44.5$ 2.8$ 51.0$ 40.6$ Add: interest
CNO Financial Group 59 1Q11 2Q11 3Q11 4Q11 1Q12 Operating income 43.2$ 44.5$ 32.8$ 51.0$ 40.6$ Add: interest expense on 7.0% Convertible Senior Debentures due 2016, net of income taxes 3.7 3.7 3.7 3.7 3.7 Total adjusted operating income 46.9$ 48.2$ 36.5$ 54.7$ 44.3$ Weighted average shares outstandi
Slide 60: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 60 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 f
Slide 61: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 61 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 in the interest rates used to discoun
Slide 62: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 62 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, fo
Slide 63: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 63 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 twelve months March 31, 2012, is as follows (dollars in million
Slide 64: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 64 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 finan
Slide 65: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 65 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 (doll
Slide 66: Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group 66 Information Related to Certain Non-GAAP Financial Measures A reconciliation of the debt to capital ratio to debt to capital, excluding AOCI is as follows (dollars in millions) 1Q11 2Q11 3Q11 4Q11 1Q12 Corporate notes payable 949.8$ 934.5$ 871.2$ 857.9$ 799.3$ Total shareholder