Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Investor Day (February 2020)
129 slides from Cno Financial's investor day presentation, Feb 26, 2020
Slide 1: CNO Financial Group Investor Day
Exhibit 99.1 CNO FINANCIAL GROUP INVESTOR DAY FEBRUARY 26, 2020 1} CNO FINANCIAL GROUP
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: Agenda
Agenda Presentation Speaker Welcome Jennifer Childe Business & Strategy Gary C. Bhojwani Marketing Rocco Tarasi Consumer Division Scott Goldberg Worksite Division Mike Heard Q&A Break Product Overview Karen DeToro Investments Eric Johnson Finance Paul McDonough Q&A Closing Remarks Gary C. Bhojwani C
Slide 4: Welcome & Opening Comments
Welcome & Opening Comments CNO FINANCIAL GROUP
Slide 5: Goals for the Day
Goals for the Day Gain deeper appreciation Understand our roadmap Recognize us for our businesses for growing both as an attractive and what differentiates them the topline and EPS investment opportunity CNO Financial Group | Investor Day | February 26, 2020 5
Slide 6: Six Key Messages
Six Key Messages Highly valuable distribution assets Top 5 national captive agency force | Top 5 D2C insurance platform | Fast-growing Worksite business Changing consumer behaviors and expectations support our business model and value proposition Manufactured products (LTC, Annuities) simple, safe a
Slide 7: Committed to Corporate Social Responsibility
Committed to Corporate Social Responsibility CNO Financial Group | Investor Day | February 26, 2020 7
Slide 8: Marketing
Marketing CNO FINANCIAL GROUP
Slide 9: Key Takeaways
Key Takeaways .Our market continues to grow; we’re uniquely positioned to meet our customers’ needs .We successfully access the market now, but each of our brands and channels has been isolated .We’re removing barriers between our brands and channels that will unlock significant growth opportunities
Slide 10: As Individuals Move Through Life, Their Needs Increase
As Individuals Move Through Life, Their Needs Increase Sandwiched between paying for Making retirement Covering unplanned health Main Covering healthcare parents’ care, kid’s college and decisions concerning expenses and leaving expenses while working Concern personal retirement savings healthcare a
Slide 11: Covering Healthcare Expenses While Working
Covering Healthcare Expenses While Working Tightrope Walker customer, 45 years old, income <$75K Voluntary Worksite Sales ($B)* $11.5 $10.6 $9.9 $9.2 “A family of four with a $50,000 income and employer coverage spends $7,450 per year (15% of their income) on health.” 2019 2020 2021 2022 -Kaiser Fam
Slide 12: Sandwiched Between Paying for Parents' Care, Kid's College and Saving
Sandwiched Between Paying for Parents’ Care, Kid’s College and Saving Setting the Stage customer, 55 years old, income >$100K How Would You Describe Your Household’s Share of US Households Age 55+ Financial Situation? (%)1 With $0 Retirement Savings2 “47% of pre-retirees anticipate 28 Live comfortab
Slide 13: Making Retirement Decisions Concerning Healthcare and Finances
Making Retirement Decisions Concerning Healthcare and Finances Comfortable in Retirement customer, 65 years old, net worth ≥ $100K Projected Medicare Beneficiaries1 Med Supp Lives Covered (M)3 87M 15 16 17 18 63M 2020 2040 2020 2021 2022 2023 Annuity Sales (B)4 $273 By 2040 nearly a quarter of Ameri
Slide 14: Covering Unplanned Health Expenses and Leaving a Legacy
Covering Unplanned Health Expenses and Leaving a Legacy Anxious in Retirement customer, 70+ years old, net worth < $100K 4 70% of people age 65 will need 79% of middle-income boomers Long Term Care Market Size (B) LTC during their lifetime1 have no long-term care savings2 $555.6 $466.5 70% 79% 2020
Slide 15: Colonial Penn Ran Over 200,000 TV Commercials
Colonial Penn Ran Over 200,000 TV Commercials for Life Insurance (in 2019) CNO Financial Group | Investor Day | February 26, 2020 15
Slide 16: Bankers Life Contacts Those Turning 65
Bankers Life Contacts Those Turning 65 With Direct Mail and Other Advertising CNO Financial Group | Investor Day | February 26, 2020 16
Slide 17: PMA Knocked On More Than Million Farm and Rural Doors
PMA Knocked On More Than 1 Million Farm and Rural Doors in 2019 CNO Financial Group | Investor Day | February 26, 2020 17
Slide 18: Washington National Added a Digital Worksite Enrollment Platform
Washington National Added a Digital Worksite Enrollment Platform CNO Financial Group | Investor Day | February 26, 2020 18
Slide 19: Digital Engagement Has Been Brand-Specific
Digital Engagement Has Been Brand-Specific to Promote Our Offerings CNO Financial Group | Investor Day | February 26, 2020 19
Slide 20: Siloed Marketing Activities Have Still Generated Strong Sales Volume
Siloed Marketing Activities Have Still Generated Strong Sales Volume 10+ Million Contacts Mail Digital Television 2.5+ Million Opportunities In Person Phone Online 400,000+ Sales Paper App / eApp Digital Signature Voice Authorization CNO Financial Group | Investor Day | February 26, 2020 20
Slide 21: Digital, Analytics and Other Advertising Will Increase Contacts
Digital, Analytics and Other Advertising Opportunities Will Increase Our Contacts Optimized marketing spend with consolidated marketing budgets 10+ Million Thought-leadership content marketing across Contacts brands Currently Expand digital presence and engagement with learnings from our individual
Slide 22: Cross-Channel Collaboration and Intelligent Lead Management
Cross-Channel Collaboration and Intelligent Lead Management Will Increase Our Opportunities Intelligent lead routing to next best channel 2.5+ Million Cooperation between telesales and field Opportunities agents to book appointments and follow-up Currently Broaden advertising messages with multiple
Slide 23: Additional Products and Improved Customer Experience
Additional Products and Improved Customer Experience to Drive Sales Continued new product development without brand-specific sales goals 400,000+ More products available through more Sales channels Currently Integrated application process to support omnichannel buying behavior CNO Financial Group |
Slide 24: Looking Ahead
Looking Ahead Past Present and Future Product selection limited within brands Market products across channels Route leads after a two-month lag Intelligently route opportunities New products prioritized between New product decisions to support three brand owners total top-line goals Customers have t
Slide 25: Consumer Division
Consumer Division CNO FINANCIAL GROUP
Slide 26: Key Takeaways
Key Takeaways . Top distributor of health/wealth protection products to middle market . Demonstrated growth in agents, premium, assets, and fees . Multi-channel distribution transitioning to integrated delivery model CNO Financial Group | Investor Day | February 26, 2020 26
Slide 27: Full Suite of Health / Wealth Products
Full Suite of Health / Wealth Products Manufactured Third-Party Fees . Medicare Supplement . Medicare Advantage . Supplemental Health . Prescription Drug Plans . Life Insurance . Securities . Fixed/Indexed Annuities . Managed Accounts CNO Financial Group | Investor Day | February 26, 2020 27
Slide 28: Consumer Channels
Consumer Channels Direct-to- Independent Exclusive Agents Consumer Agents Top 5 insurance Provider of niche, Wholly-owned field Top 5 career direct-to-consumer supplemental marketing agency2 sales1 health products organization Nationally-recognized brand 1 Based on company research of carrier-owned
Slide 29: Direct-to-Consumer
Direct-to-Consumer Go-to-Market Value Proposition Market Segment Scale . TV (~50%) Simple, low face Lower middle market; $80M NAP in 2019 . Direct Mail guaranteed-issue life generally age 55+ insurance for final . Web expenses . Telesales OPPORTUNITY Expand offerings to Expand up market to include s
Slide 30: Independent Agents
Independent Agents Go-to-Market Value Proposition Market Segment Scale . Field marketing Lump-sum payments to Middle market, ACA $20M NAP in 2019 organizations cover expenses related to buyers; ages 40-70 . Telesales centers accidents, cancer, critical illnesses, and/or hospitalization OPPORTUNITY E
Slide 31: Exclusive Agents
Exclusive Agents Go-to-Market Value Proposition Market Segment Scale Face-to-face sales Expert advice and one- Middle/upper middle $190M NAP in 2019 across thousands of stop shopping for easy-to- market; ages 50-80 $1.3B annuity sales in urban, suburban, and understand health and 2019 rural counties
Slide 32: Exclusive Distribution
Exclusive Distribution (as of 12/31/2019) Average 3 2 1 1 Approx. Years of 1 1 1 1 1 Number Service 2 1 2 1 3 3 2 1 2 Field 1 1 1 1 3 475 11.5 4 7 2 2 5 Managers 1 2 2 10 3 3 1 1 6 1 5 2 14 2 3 1 1 1 6 Traveling 3 3 5 9 7 3 5 2 425 4.5 3 Agents 6 1 2 3 1 1 2 2 1 1 1 1 2 4 1 3 4 4 3 Local Agents 4,70
Slide 33: U.S. Qualified Retirement Assets
U.S. Qualified Retirement Assets (dollars in trillions) Assets Within IRAs +500% $16.3 +675% $8.8 0.4 0.6 IRAs Fixed/Indexed Annuities Defined 8.8 Banks and Thrift Deposits 3.8 Contribution plans Listed Securities Mutual Funds $7.1 $3.4 0.3 0.3 3.4 1.1 4.0 7.5 $3.0 $1.3 0.1 3.7 0.3 1.8 1.3 0.5 1.7 0
Slide 34: Solutions Scale as Trust and Assets Increase
Solutions Scale as Trust and Assets Increase How do I ensure predictable Universal Life Annuities income for me and my family? Income, Concerns Securities Solutions Investments & Legacy How do I protect against the costs of aging and death? Assisted Care Short-Term Care & Final Expenses Whole Life M
Slide 35: Financial Solutions Driving Agent Success
Financial Solutions Driving Agent Success Agent Commissions Average Income1 by Product Type 2016 (as of 12/31/2019) Launched broker-dealer (as of 12/31/2019) and registered investment 250% advisor Life and Health Annuities 2019 Securities 30% of veteran agents are 50% Insurance registered; 100% 13%
Slide 36: Successful Agents Are Our Best Recruiters
Successful Agents Are Our Best Recruiters New Contracted Agents 12-Month Retention Producing Agents 1 (as of 12/31/2019) and Premium per Producer 7,300 4,709 30% 4,508 4,385 $330k Internet PRPs $315k $298k 2,000 10% 2016 2017 2018 2019 Internet PRPs 2017 2018 2019 1 Q4 Average CNO Financial Group |
Slide 37: Growing Assets and Fees
Growing Assets and Fees (dollars in millions) Total Consumer Division New New Annuity Third-Party Annuity Client Assets Annualized Collections Fees Account Value in Brokerage Premium $9,100 $293 $292 $73 $1,515 $8,600 $283 $1,306 $8,200 $1,165 $1,105 $1,031 $50 $1,003 $42 2017 2018 2019 2017 2018 20
Slide 38: Multi-Channel to OmniChannel
Multi-Channel to OmniChannel Traditional Consumer Modern Consumer Product Product Product Digital / Self-Serve Marketing Marketing Marketing Channel Channel Channel Consumer Consumer Consumer Consumer Live Support Local Agent CNO Financial Group | Investor Day | February 26, 2020 38
Slide 39: An Integrated Experience
An Integrated Experience Consumers . 2 million leads per year . 500,000 new applications per year Digital Telesales . 2.5 million policyholders (as of 12/31/2019) Local Agents CNO Financial Group | Investor Day | February 26, 2020 39
Slide 40: Solutions and Model Provide Differentiated Advantage
Solutions and Model Provide Differentiated Advantage CNO AMP GL LNC PRI EHTH Med Supp x x x Med Adv x x x Prescription Drug Plans x x Supp Health x x x x Assisted Care x Life x x x x x x Annuities x x x x BD/RIA x x x Direct-to-Consumer Channel x x x Captive Agency x x x x CNO Financial Group | Inve
Slide 41: Consumer Division of the Future
Consumer Division of the Future . Colonial Penn . Washington National . Bankers Life . Online . Tele-support . Local Agent Trusted Brands . Digital . Direct Mail . Outbound Tele Service Lead Generation . Field Agents . Digital . Voice Auth Consumer . E-Apps . Telesales . Local Agents Distribution An
Slide 42: Looking Ahead
Looking Ahead . Leverage products, brands and fulfillment capabilities across channels . Capture consumers through direct engagement that leads to an integrated experience . Drive relationship toward holistic, retirement planning; grow premium, assets and fees CNO Financial Group | Investor Day | Fe
Slide 43: Worksite Division
Worksite Division CNO FINANCIAL GROUP
Slide 44: Key Takeaways
Key Takeaways .Macro drivers providing tailwind .Strong value proposition .Proven formula with large runway for growth CNO Financial Group | Investor Day | February 26, 2020 44
Slide 45: Employers & Employees Have Growing Need for Supplemental Products
Employers & Employees Have Growing Need for Supplemental Products CNO Financial Group | Investor Day | February 26, 2020 45
Slide 46: Small Case Market Is Large and Continues To Offer Huge Potential
Small Case Market Is Large and Continues To Offer Huge Potential Small Groups Creating Jobs Good Potential in Underpenetrated States CNO Geographic Penetration Source: ADP National Employment Report, July 2019 . Small businesses accounted for… • 74% of job creation in the last decade • 77% of employ
Slide 47: Additional Market Opportunity in Larger Small Businesses
Additional Market Opportunity in Larger Small Businesses Worksite Addressable Market Current CNO Group Size Mix Voluntary Market $0.9B $3.1B $2.2B WBD acquisition provides both tech capability and broker access Previous Market Move to Upsize Future Opportunity <20 20-50 50-100 100-250 250-500 500-1,
Slide 48: Small Business Focus With a Unique Mix of Assets
Small Business Focus With a Unique Mix of Assets Product Diverse Portfolio Distribution Enrollment Differentiating Solutions Technology CNO Financial Group | Investor Day | February 26, 2020 48
Slide 49: Broad Voluntary Product Portfolio for Small Business
Broad Voluntary Product Portfolio for Small Business (as of 12/31/2019) Life 2019 Sales 23% Accident/ Disability 32% . Strong voluntary product portfolio . Broad national coverage . Service over 25,000 groups Heart 4% . Value-added service offerings . Favorable economics Hospital Indemnity 9% Critic
Slide 50: Good Balance of Owned and Independent Distribution
Good Balance of Owned and Independent Distribution (as of 12/31/2019) 2019 Sales Independent Partners . Two sales distribution channels with OWNED INDEPENDENT SERVICES strong geographic footprint Small independent Owned benefit . Wholly owned national agency Type Exclusive agency IMOs admin platform
Slide 51: Use of Diverse Distribution Allows for Integrated Growth
Use of Diverse Distribution Allows for Integrated Growth Opportunity and solution . PMA Worksite Marketing Division has large . Design program to use PMA reach to agent force with growing geographic reach supplement independent producers . Independent producers/marketing organizations . Integrate tw
Slide 52: Differentiating Technology That's Easily Integrated
Differentiating Technology That’s Easily Integrated Web Benefits Design (WBD) . Best-in-class benefits software and services 250 Brokers 93% Client retention . Allows corporate clients to manage their employee- benefits programs and insurance 500 Clients 31% Revenue growth . Simple, straightforward
Slide 53: Strong Track Record of Execution Has Driven Double-Digit Growth
Strong Track Record of Execution Has Driven Double-Digit Growth Key Initiatives Producing Agent Growth 1 Agent growth 500 400 300 Geographic expansion 200 100 0 2017 2018 2019 New product launches Strong Sales Results $60 Enrollment solutions introduction $50 $40 Millions Web Benefits Design acquisi
Slide 54: Looking Ahead
Looking Ahead . Continue smaller group momentum through agent growth and geographic expansion . Expand into larger small businesses with more sophisticated approach . Support growth with additional product development and technology CNO Financial Group | Investor Day | February 26, 2020 54
Slide 55: Q&A
Q&A CNO FINANCIAL GROUP
Slide 56: Break
CNO FINANCIAL GROUP INVESTOR DAY FEBRUARY 26, 2020 BREAK 1} CNO FINANCIAL GROUP
Slide 57: Product Highlights
Product Highlights CNO FINANCIAL GROUP
Slide 58: Key Takeaways
Key Takeaways .Broad and balanced product portfolio .Targeted product designs that meet middle-income consumers’ needs and generate attractive returns .Disciplined and prudent product management CNO Financial Group | Investor Day | February 26, 2020 58
Slide 59: Diversified Sources of Premium and Margins
Diversified Sources of Premium and Margins Annuities Life Supp Health Med Supp LTC 2019 Collected Premium 2019 Insurance Margin LTC LTC Annuity Annuity 7% 7% 34% 28% Life Life 21% 25% Supp Health Med Supp Supp Health Med Supp 17% 21% 24% 16% CNO Financial Group | Investor Day | February 26, 2020 59
Slide 60: 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 61: Life and Other Health Business
Life and Other Health Business Standard protection-oriented life and health products1 with stable returns Life Life Insurance $1,000 $800 . Traditional Life: simple products with fixed Collected $600 $795 $811 contract provisions Prem ($M) $400 Insurance . Interest Sensitive Life: industry-standard
Slide 62: Our Annuities Are Simple by Design
Our Annuities Are Simple by Design Fixed Indexed 96% Fixed Interest 4% . Participation in S&P 500 Index . Backed by general account assets . Participation rate declared each year . Credited rate declared each year . Greater potential for growth than fixed . Less volatility than indexed . Return for
Slide 63: Indexed Annuities Offer a "Middle Way" for Consumers
Indexed Annuities Offer a “Middle Way” for Consumers Offers partial exposure to equities without the direct volatility of the S&P 500 10-Year Crediting Example -- Illustrative -- $210,000 $190,000 $170,000 $150,000 $130,000 $110,000 $90,000 $70,000 $50,000 7/1/08 7/1/09 7/1/10 7/1/11 7/1/12 7/1/13 7
Slide 64: Simple but Competitive Products
Simple but Competitive Products . Simple, clear products . One simple indexing option on most contracts . No fees – this means policyholder account value cannot decrease Feature Bankers Life GLIA Representative Product from Top Competitor 1 indexed option 9 indexed options Accumulation options 1 fix
Slide 65: How We Make Money on Annuities
How We Make Money on Annuities . Premium invested in fixed asset portfolio . Earned interest – earned spread = credited interest – For fixed interest annuities, credited interest passed directly to customer – For fixed indexed annuities, credit used to purchase an option that mirrors the annuity ind
Slide 66: We Have Significantly De-risked Our LTC Product Offerings
We Have Significantly De-risked Our LTC Product Offerings We eliminated or reduced product features that created higher risk Inforce Policies Max1 Benefit Period . Benefit period – 92% of 2019 sales have a benefit period of > 4 Years Lifetime 1 year or less 4% 2% . Reimbursement benefit – We only pa
Slide 67: Our LTC Offerings Align With Consumers' Top Concerns
Our LTC Offerings Align With Consumers’ Top Concerns Top LTC Concerns1 CNO’s LTC Solutions . LTC is a top retirement concern2 . Address the most critical care needs for seniors . Avg length of stay for those . At a lower price point that is more affordable for discharged is 9 months; 50% of seniors’
Slide 68: We Can Meet Consumer Needs and Generate Profit
We Can Meet Consumer Needs and Generate Profit LTC Collected Premium and Insurance Margin1 $300 Deep-rooted need among target market $250 $270 $269 Limited peer offerings in this space $200 Lower-risk LTC products with short- $150 duration benefit periods $100 $50 Ability to file for rate in
Slide 69: Annuities: We Actively Manage Credited Rates
Annuities: We Actively Manage Credited Rates . We solve for our credited rates monthly – applies to the next year for contracts renewing in that month . Credited rate = earned rate – target spread . While some credited rates are at guarantees, particularly on the Fixed Interest block, we have room t
Slide 70: Liabilities Fully Hedged with Minimal Hedge Variance
Liabilities Fully Hedged with Minimal Hedge Variance Purchased options cover 100% of the crediting strategy promised to policyholders Hedge Effectiveness Results $200,000 Data as of 12/31/19 $180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 Market ValueMarketofas Month-End $40,000 $20,000
Slide 71: Managing LTC: We Significantly De-risked Our Portfolio
Managing LTC: We Significantly De-risked Our Portfolio . We ceded our oldest and riskiest business to Wilton Re in 2018 . The reserve margin on the retained block (including closed block) has grown as a percentage of NGL since the transaction Net GAAP Liability (NGL) Reserve Margin $6,000 $400 $5,00
Slide 72: Managing LTC: Prudent Reserves and Active Management
Managing LTC: Prudent Reserves and Active Management . We use prudent reserve assumptions informed by historical experience ‒ No morbidity improvement ‒ Minimal future rate increases; limited to follow through rate actions with greatest likelihood ‒ Ultimate new money rate lowered to target 4.00% 10
Slide 73: Looking Ahead
Looking Ahead .Continue to maintain balanced product portfolios in the Consumer and Worksite Divisions .Develop and launch additional targeted product designs .Continue to maintain our disciplined and prudent management CNO Financial Group | Investor Day | February 26, 2020 73 73
Slide 74: Investments
Investments CNO FINANCIAL GROUP
Slide 75: Key Takeaways
Key Takeaways .Disciplined process with steady and predictable results .Solid portfolio quality, diversification and liquidity .Managing through “low for longer” without stretching on risk – well-positioned for credit cycle CNO Financial Group | Investor Day | February 26, 2020 75
Slide 76: Disciplined Investment Process
Disciplined Investment Process Tenured team covering full spectrum of insurance investing functions Capital Portfolio Management Asset-Liability Management Top down Management Duration Product Capital Liquidity Macro Step 3 Step 2 Step 1 Intersection of market Manage Risk Controls to ensure portfoli
Slide 77: Stable New Money Rates and Portfolio Yields
Stable New Money Rates and Portfolio Yields (dollars in millions) Low interest rate environment slowly rolls book yield 24,971 24,642 24,823 21,832 22,588 22,058 22,201 22,382 Invested Assets Book Yield¹ Book Yield 6 bps average c quarterly decline New Money Rate² US 10 Yr. UST Average NMR 18 bps av
Slide 78: Core Income Is Driven by AUM and Book Yield
Core Income Is Driven by AUM and Book Yield (dollars in millions) Slope of Book Yield is Moderate Core Income Trends Predictable Book Yield¹ New Money Rate² 10 Yr. UST Average 266 267 264 263 263 5.39% 5.44% 5.39% 5.24% 5.15% 5.08% 5.03% 4.97% 255 254 5.36% 4.80% 4.77% 4.73% 4.58% 4.66% 4.38% 4.08%
Slide 79: Variable Income Can Be Volatile QoQ; Stable Over Time
Variable Income Can Be Volatile QoQ; Stable Income Over Time (dollars in millions) Alternatives Prepayments and Calls 10.9 Calls/Prepay Income Average ($5.2) 6.6 5.4 4.4 4.6 3.8 3.0 2.5 1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 2Q 2019 3Q 2019 4Q 2019 Annualized Invested 17.4% 10.0% 14.0% 9.6% 5.6% 12
Slide 80: Net Investment Income Is Durable, Including Variable Components
Net Investment Income Is Durable, Including Variable Components (dollars in millions) Actual Actual Actual Actual 270.6 286.7 275.9 272.0 6.6 3.0 2.5 4.6 17.1 5.5 17.7 12.9 Call/Prepay Income Alternative Income Core Income 262.6 263.0 255.2 254.5 1Q 2019 2Q 2019 3Q 2019 4Q 2019 Total Variable Income
Slide 81: Portfolio Composition
Portfolio Composition Conservative up-in-quality allocation $25 Billion of Invested Assets Fixed Maturity Securities by Ratings (As of 12/31/2019)HY Corporates, Emerging Markets, (As of 12/31/2019) 2.4% 2.1% RMBS, 8.7% ABS, 5.9% CMBS, 8.0% NAIC 1 57.7% Mortgage Loans, 6.6% NAIC 2 IG Corporates, 47.3
Slide 82: Well-Balanced, High Quality Structured Products Allocation
Well-Balanced, High Quality Structured Products Allocation 12/31/2019 Strong analytic platform for structured assets Structured Products Credit Quality $5.9 billion (24% of Invested Assets) (97% Investment Grade) 87% ABS ABS CLOs 23% CMBS RMBS CMBS 34% CLOs 7% RMBS 10% 36% 3% NAIC 1 NAIC 2 NAIC 3-6
Slide 83: Strong Commercial Mortgage Loan Portfolio
Strong Commercial Mortgage Loan Portfolio 12/31/2019 Breakdown by Geography Conservative and consistent underwriting standards Pacific 16.3% . Key Credit Metrics South Mountain 32.0% – Total CRE Loan allocation - $1.5 billion 9.4% – Total Number of Loans – 180 Central 12.5% – Average loan size - $8.
Slide 84: CLO Investments
CLO Investments (dollars in millions) Allocated and sized to generate income without high volatility . Highly diversified collateral comprised of broadly syndicated Rating AAA AA A Equity leverage loans Exposure $53 $207 $142 $113 . In self-managed CLO’s, higher quality collateral relative to # Inve
Slide 85: Alternatives
Alternatives (dollars in millions) Lower volatility strategies that “pay rent” Total Annual Returns 12/31/2019 Allocation 2017 2018 2019 Private Equity Private Credit 18.2% Total Return 9.6% 13.3% 10.2% 39.5% Net Investment Income 32 61 53 Total Alternatives 450 507 578 % of Invested Assets 1.9% 2.1
Slide 86: Stable Key Portfolio Risk Metrics
Stable Key Portfolio Risk Metrics Actively managing quality Rating 2012 2013 2014 2015 2016 2017 2018 2019 NAIC 1 47.07% 47.14% 49.23% 51.50% 49.60% 48.14% 50.48% 57.71% NAIC 2 47.86% 46.82% 45.12% 44.64% 45.16% 47.60% 44.83% 38.57% NAIC 3 3.67% 4.60% 3.88% 2.75% 3.34% 3.03% 3.48% 2.91% NAIC 4 1.28%
Slide 87: ALM Is a Core Discipline Mitigating Low Interest Rates
ALM Is a Core Discipline Mitigating Low Interest Rates Asset-Liability Durations (Year) Asset Duration Liability Duration 10.42 10.35 8.69 7.88 7.03 8.20 10.42 11.20 Bankers Life Washington National Colonial Penn Consolidated Invested assets form natural hedges vs. liabilities CNO Financial Group |
Slide 88: Strong Credit Performance With Consistently Low Impairments
Strong Credit Performance With Consistently Low Impairments Impairment charges¹ as % General Account are generally lower than peers (Basis Points) Peers: 7.3 10.8 Average: Peers: 5.7bps Peers: 7.0 CNO: 3.9bps 6.8 Peers: Peers: 6.3 9.4 Peers: 3.5 3.4 3.2 Peers: Note: Selected peers (“Peers”) include
Slide 89: Key 2020 Macro Themes: Quality Assets/Stable Income
Key 2020 Macro Themes: Quality Assets/Stable Income Credit spread compression, such as A-BBB and BB-B Manage Risk Lower Signs of deteriorating underwriting in multiple markets Historically high asset valuations Stronger growth trends Consumer Over Corporate Less strain from geopolitical vo
Slide 90: Financial Overview
Financial Overview CNO FINANCIAL GROUP
Slide 91: Key Takeaways
Key Takeaways .Turning attention to generating operating efficiencies and managing expenses .Strong free cash flow and disciplined capital management to drive EPS growth .Disciplined stewardship of the balance sheet optimizing assets and enhancing shareholder value CNO Financial Group | Investor Day
Slide 92: New Reporting Framework Brings Increased Transparency
New Reporting Framework Brings Increased Transparency (dollars in millions, except per-share amounts) 2019 Insurance product margin Annuity margin$ 249.7 • Balanced mix Health margin 350.6 • Diversification benefit Life margin 223.2 • Includes embedded investment income allocation Long-term care mar
Slide 93: Strategic Initiatives Successfully Reinvigorating Growth
Strategic Initiatives Successfully Reinvigorating Growth; Momentum Continuing (dollars in millions) Life NAP Health NAP Consumer Division NAP $200.0 $200.0 $350.0 $300.0 $150.0 $150.0 $250.0 $200.0 $100.0 $100.0 $150.0 $50.0 $50.0 $100.0 $50.0 $- $- $- 2017 2018 2019 2017 2018 2019 2018 2019 Life He
Slide 94: Expansion in Insurance Product Margin
Expansion in Insurance Product Margin (dollars in millions) 2019 Insurance Product Margin1 Insurance Product Margin1 $1,000.0 LTC 7% $800.0 Health $600.0 Annuity 39% 28% $400.0 $200.0 Life 26% 65% of Product $- Margin from Life / 2018 2019 Health protection Health Life Annuity Long-term care product
Slide 95: Solid Contribution From Fee Income
Solid Contribution From Fee Income (dollars in millions) Fee Income $25.0 $20.0 . Medicare Advantage $15.0 . Broker Dealer / Registered Inv. Advisor $10.0 . Web Benefits Design $5.0 $- 2018 2019 $6.5 million of the increase in 2019 reflects changes in the assumptions used to estimate revenues and ex
Slide 96: Offsetting Increased Regulatory Burdens With Aggressive Expense Management
Offsetting Increased Regulatory Burdens With Aggressive Expense Management (dollars in millions) Adding Expense Reducing Expense . New reporting requirements – LDTI . Aggressively managing expenses . New compliance requirements – CA . IT partnership and reorganization Consumer Privacy Act . Organiza
Slide 97: Non-Allocated Expenses Trending Down
Non-Allocated Expenses Trending Down (dollars in millions) Expenses Not Allocated1 $45.0 -7.5% -11.9% $40.0 . Public company expenses $35.0 $30.0 . Board-related costs $25.0 . Portion of executive compensation $20.0 . Strategic consulting $15.0 . Certain legal expenses $10.0 $5.0 $- 1H18 1H19 2H18 2
Slide 98: Lower Earned Rates Drove Lower 2019 Net Investment Income
Lower Earned Rates Drove Lower 2019 Net Investment Income (dollars in millions) Investment Income Allocated Investment Income Not to Product Lines Allocated to Product Lines1 Net Investment Income1 $1,200.0 $1,200.0 $1,200.0 $1,000.0 $1,000.0 $1,000.0 $800.0 $800.0 $800.0 $600.0 $600.0 $600.0 $400.0
Slide 99: 2019 Sales Growth, Margin Growth & Higher Fee Income Mitigate Impacts
2019 Sales Growth, Margin Growth & Higher Fee Income Mitigate Expense and NII Impacts (dollars in millions) *Adjusted to exclude significant items and the earnings from the ceded LTC block. CNO Financial Group | Investor Day | February 26, 2020 99
Slide 100: Freeing Up $125 Million of Capital From Reducing Target RBC
Freeing Up $125 Million of Capital From Reducing Target RBC Reduced target consolidated RBC to 375-400% from 400-425% Maintain minimum holding company liquidity of $150 million Maintain leverage of 22-25% Remain committed to investment grade credit rating CNO Financial Group | Investor Day | Februar
Slide 101: Strong Free Cash Flow Generation and Conversion
Strong Free Cash Flow Generation and Conversion (dollars in millions) Holding Company Cash Flow, Excluding Capital Transactions and Acquisitions1 2018 2019 Net Operating Income2 $ 303.1 $ 290.0 Holding Company Sources of Cash $ 427.6 $ 404.2 Excess Cash Flow to Holding Company $ 273.6 $ 287.4 Free C
Slide 102: Disciplined & Opportunistic Approach To Capital Allocation
Disciplined & Opportunistic Approach To Capital Allocation Strategy (dollars in millions) Capital Return / As % of Market Organic investments to sustain Capitalization 13.0% and grow the core businesses $350.0 14.0% $300.0 12.0% 6.8% $250.0 10.0% 4.0% $200.0 8.0% Return capital to shareholders $150.
Slide 103: Maximizing Value of Tax Assets
Maximizing Value of Tax Assets (dollars in millions) NOL Deferred Tax Assets . 2019 tax strategy enables full use of expiring NOLs ($900 million) $532 . Drove a $1.29 increase in book value per share excluding AOCI at year-end 2019 Life $110 . $0.5 billion of remaining Life1 NOLs translating to $110
Slide 104: Balance Sheet Strength Evident in Modest Impact from Annual Review
Balance Sheet Strength Evident in Modest Impact from Annual Review . $10 million unfavorable interest sensitive unlocking in 2019 driven by lower earned rates . Margins have increased each year for past seven years . LRT margins healthy across our products – 2019 margins increased due to profitable
Slide 105: 2020 Outlook
2020 Outlook . Earnings per share up 9-11%, benefiting from share repurchases . Capacity for $75 million of share repurchases per quarter, absent compelling alternatives . Net free cash flow of $330-380 million . Earnings flat to slightly up, reflecting: – Continued growth in sales, insurance produc
Slide 106: Closing
Closing CNO FINANCIAL GROUP
Slide 107: Delivering On Our Commitments
Delivering On Our Commitments Maximize Turnaround / De-risking Pivot to Growth Profitability Pre 2017 2017-2019 2020 and Beyond Reinsured life block (2009) Completed Senior Leadership Customer-centric business Recapitalized company (2012) additions realignment Initiated dividend (2012) R
Slide 108: Valuation Considerations
Valuation Considerations Illustrative Peer Set CNO’s Positioning Traditional Protection-Oriented Insurance Peers ~90% Earnings via controlled distribution 2020 P/E: 14.5 x 2020 P/E: 15.5 x Purchase Price: ~65% $1.6bn Underwriting margin from Life / Health protection products 2020 P/E: 12.2 x 2020 P/
Slide 109: Q&A
Q&A CNO FINANCIAL GROUP
Slide 110: CNO Financial Group Investor Day
CNO FINANCIAL GROUP INVESTOR DAY FEBRUARY 26, 2020 1} CNO FINANCIAL GROUP
Slide 111: Appendix
Appendix CNO FINANCIAL GROUP
Slide 112: Gary C. Bhojwani, Chief Executive Officer
Gary C. Bhojwani Chief Executive Officer Gary C. Bhojwani became chief executive officer of CNO was president of Commercial Business, Fireman's Fund Financial Group on January 1, 2018. He was elected a Insurance Company from 2004 to 2007. Bhojwani was director of CNO Financial in May 2017 and serves
Slide 113: Rocco Tarasi, Chief Marketing Officer
Rocco Tarasi Chief Marketing Officer Rocco Tarasi was named chief marketing officer for CNO with both publicly-traded and private firms and was a Financial Group in March 2019. In this role he leads successful technology entrepreneur. CNO's enterprise marketing and communications. Tarasi earned a ba
Slide 114: Scott Goldberg, President, Consumer Division
Scott Goldberg President, Consumer Division Scott Goldberg was named president, consumer division Prior to joining CNO, Goldberg worked in strategy, of CNO Financial Group in January 2020, and is consulting and business development roles for CNA responsible for sales and operations of the company’s
Slide 115: Mike Heard, President, Worksite Division
Mike Heard President, Worksite Division Mike Heard was named president, worksite division of positions, including as senior vice president, business CNO Financial Group in January 2020, and is strategy and product support, and has held a variety of responsible for sales and operations of the company
Slide 116: Karen DeToro, Chief Actuary
Karen DeToro Chief Actuary Karen DeToro was named chief actuary of CNO held risk management consulting and actuarial roles at Financial Group in September 2019. Deloitte, Allstate Financial and Ernst & Young. Prior to joining CNO, DeToro held executive leadership DeToro earned her bachelor’s degree
Slide 117: Eric Johnson, Chief Investment Officer
Eric Johnson Chief Investment Officer and President, 40|86 Advisors, Inc. Eric Johnson was appointed chief investment officer of From 1983 to 1987, Johnson worked with Manufacturers CNO Financial Group and president of 40|86 Advisors, Hanover Trust Company as an assistant vice president. Inc. in Sep
Slide 118: Paul McDonough, Chief Financial Officer
Paul McDonough Chief Financial Officer Paul McDonough was named chief financial officer for assistant treasurer from 1999 to 2001. He worked in CNO Financial Group in March 2019. strategic planning and finance at Sears and Chevron, and proudly served as an officer in the U.S. Navy and McDonough has
Slide 119: Free Cash Flow Components
Free Cash Flow Components ($ Millions) Holding Company Cash Flow, Excluding Capital Transactions and Acquisitions(1) Consistently profitable operating subsidiaries provide strong dividend capacity Cash flows from fees and interest that are substantially more than interest expense and Holding Company
Slide 120: Holding Company Cash Flow
Holding Company Cash Flow ($ Millions) 2018 2019 Holding Company Cash Flows, Excluding Capital Transactions (1) Dividends from Insurance Subsidiaries$ 224.9 $ 194.3 Management and Investment Fees 108.9 115.5 Surplus Debenture Interest 58.2 59.9 Earnings on Corporate Investments 14.6 13.6 Other 21.0
Slide 121: FASB Long-Duration Targeted Improvements
FASB Long-Duration Targeted Improvements . Effective January 1, 2022 . Improves the timeliness of recognizing changes in assumptions . Recognized through earnings on a retrospective basis . Requires discount rate assumptions to be updated every period; impact reported through other comprehensive inc
Slide 122: 1Q18 Significant Items
1Q18 Significant Items ($ Millions except per-share amounts) The table below summarizes the financial impact of significant items on our 1Q18 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. Three months ended M
Slide 123: 4Q18 Significant Items
4Q18 Significant Items ($ Millions except per-share amounts) 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. Three months ended D
Slide 124: 4Q19 Significant Items
4Q19 Significant Items ($ Millions except per-share amounts) The table below summarizes the financial impact of significant items on our 4Q19 and full year 2019 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. T
Slide 125: 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 126: Non-GAAP Measures: Net Operating Income Reconciliation
Information Related to Certain Non-GAAP Financial Measures ($ Millions) A reconciliation of net operating income to net income applicable to common stock is as follows: 2018 2019 Insurance product margin: Annuity margin$ 232.4 $ 249.7 Health margin 354.6 350.6 Life margin 232.3 223.2 Long-term care
Slide 127: Non-GAAP Measures: Net Income to Net Operating Income
Information Related to Certain Non-GAAP Financial Measures ($ Millions except per-share amounts) A reconciliation of net income applicable to common stock to net operating income (and related per-share amounts) is as follows: 2018 2019 Net income (loss) applicable to common stock $(315.0) $ 409.4 No
Slide 128: Non-GAAP Measures: Operating Earnings Per Share
Information Related to Certain Non-GAAP Financial Measures ($ Millions except per-share amounts and shares in thousands) A reconciliation of operating income and shares used to calculated basic and diluted operating earnings per share is as follows: 2018 (a) 2019 Operating income$ 303.1 $ 290.0 Weig
Slide 129: Worksite Division Footnotes
Worksite Division Footnotes, Slide 45 1https://data.bls.gov/timeseries/LNS12300000: Labor Force Statistics from the Current Population Survey, January 30, 2020. 2Willis Towers Watson, Employees are more likely to stay with their employers when offered a group benefit marketplace, https://www.willist