Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q2 2020 Earnings Presentation
45 slides from Cno Financial's earnings presentation, Aug 4, 2020
Slide 1: Second Quarter 2020 Financial and Operating Results
Exhibit 99.3 Second Quarter 2020 Financial and operating results for the period ended June 30, 2020 August 4, 2020 Unless otherwise specified, comparisons in this presentation are between 2Q19 and 2Q20.
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: 4, 2020
CNO Financial Group | Second Quarter 2020 Earnings | August 4, 2020 3
Slide 4: Quarter in Review
Quarter in Review Operating results reflect strong retention, product and distribution diversity and expense discipline • Operating income1 up 4%; operating income per share1 up 15% Strong • Insurance policy income up 1%; insurance product margin up 28% Operational • Annuity account values up 4% • F
Slide 5: Growth Scorecard
Growth Scorecard Strong collected premium, fee revenue, & client assets; sales challenged by COVID environment (dollars in millions) 2019 2020 % Change 2Q 3Q 4Q TY 1Q 2Q Y/Y New Annualized Premium 1 Life $39.4 $37.3 $34.9 $151.3 $41.1 $47.4 20.3% Health 39.4 40.3 54.7 168.7 38.1 17.7 -55.1% Long-ter
Slide 6: Consumer Division Update
Consumer Division Update Record direct-to-consumer sales; other sales / agent metrics rebounding Key Initiatives Second Quarter Highlights • D2C sales up 52% to record $30 million Maintain growth • Improving sales efficiency/productivity metrics momentum • Total Life sales up 27% • Health/LTC sales
Slide 7: Worksite Division Update
Worksite Division Update Stable in force block; significant near-term sales headwinds remain Key Initiatives Second Quarter Highlights Continue growth • Total sales down ~$9 million or 69% in small employer • 25% of sales completed virtually market • Employer profiles translating to stable premium c
Slide 8: 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 Return capital to shareholders • Increased dividend 9% in 2Q20; 8th consecutive annual increase • $30 million in share repurchases in 2Q
Slide 9: Financial Highlights
Financial Highlights Net operating EPS up 15% to $0.55; exercised rigorous expense control Second Quarter 2020 Earnings Results • Net operating EPS1 of $0.55, up 15% from $0.48 in 2Q19 (dollars in millions, except where noted) • Operating EPS excluding significant items1 down $0.55 $0.57 10%, due to
Slide 10: Insurance Product Margin
Insurance Product Margin Solid growth in Annuity, Health & LTC margins; Life reflects COVID impact (dollars in millions) Insurance Product Margin1 2Q19 3Q19 4Q19 1Q20 2Q20 Highlights1 Annuity $57.2 $56.2 $60.8 $59.5 $72.3 • Total margin up $10.4 million or 5% Margin / average net insurance liabiliti
Slide 11: Investment Results
Investment Results Steady NII allocated to products; negative VII returns impacted total NII, down 14% (dollars in millions) Investment Income Allocated to Investment Income Not Product Lines Allocated to Product Lines Total Net Investment Income1 $400.0 $400.0 $400.0 $300.0 $300.0 $300.0 $267.7 $21
Slide 12: 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 13: 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 14: 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 15: 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 16: 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 17: Investment Highlights
Investment Highlights Well-positioned in Favorable Highly Sustainable Strong balance underserved senior demographic differentiated growth initiatives sheet; robust middle-income tailwinds business model in place free cash flow market generation CNO Financial Group | Second Quarter 2020 Earnings | Au
Slide 18: Questions and Answers
Questions and Answers CNO Financial Group | Second Quarter 2020 Earnings | August 4, 2020 18
Slide 19: Appendix 1: Quarter in Review
Appendix 1: Quarter in Review Strong Operational Performance • COVID-19 Response Slide 20 • Broker-Dealer/Registered Investment Advisor Slide 21 • Agent Counts Slide 22 Building on Strong Track Record of Execution • Retained LTC Insurance Slide 23 • New Money Summary Slide 24 • Portfolio Overview Sl
Slide 20: 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 21: 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 22: Agent Counts
Agent Counts 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 Average Producing Agents1,3 417 420 453 421 225 -46% 1 Producing a
Slide 23: 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 24: New Money Summary
New Money Summary Emphasis on high quality investments during second quarter 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 Corpo
Slide 25: Portfolio Overview – Sector Breakdown
Portfolio Overview – Sector Breakdown Underweight COVID-impacted sectors (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) 0.12% 1.0 Underweigh
Slide 26: Portfolio Overview: CLO Debt
Portfolio Overview: CLO Debt Significant cushion against stress scenarios 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 51.9% 1.8% Key Portfolio
Slide 27: Portfolio Overview: Commercial Mortgage Loans
Portfolio Overview: Commercial Mortgage Loans Very conservatively underwritten; loss resistant Key Portfolio Facts Portfolio Geography Mountain $1.4 billion of net invested assets 10.0% South Central 32.7% 17.0% 100% 99.5% 51% 1.97x 0.5% First Rated Weighted Weighted Delinquency East Pacific Mortgag
Slide 28: Portfolio Overview: CMBS
Portfolio Overview: CMBS Very conservatively underwritten; loss resistant Key Portfolio Facts Book Market Market/ Credit Delinq. Rating Value Value Book Support Rate Hotel% Retail% $2.0 billion of net invested assets AAA 622 647 104% 38.4% 7.6% 12.4% 21.6% AA 369 374 102% 29.2% 6.9% 10.6% 17.9% A 60
Slide 29: Tax Asset Summary
Tax Asset Summary 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 approximately $400 million @ 10% tax strategy discount rate ($2.80 on per share basis
Slide 30: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits • Non-GAAP Financial Measures Slides 31-45 CNO Financial Group | Second Quarter 2020 Earnings | August 4, 2020 30
Slide 31: 2Q20 Significant Items
2Q20 Significant Items The table below summarizes the financial impact of significant items on our 2Q20 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. (dollars in millions, except per-share amounts) Three mont
Slide 32: 2Q20 Significant Items (Continued)
2Q20 Significant Items (Continued from the previous page) (1) Given our expectation that interest rates will remain low for the long-term, we performed an actuarial unlocking exercise in the second quarter of 2020 to reflect our assumption that average new money rates will remain flat at 4 percent f
Slide 33: 4Q19 Significant Items
4Q19 Significant Items The table below summarizes the financial impact of significant items on our 4Q19 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. (dollars in millions, except per-share amounts) Three mont
Slide 34: Quarterly Earnings
Quarterly Earnings (dollars in millions) 2Q19 3Q19 4Q19 1Q20 2Q20 Insurance product margin Annuity$ 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 35: 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 36: 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 37: 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 38: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Book value per diluted share Book value per diluted share reflects the potential dilution that could occur if outstanding stock options were exercised, restricted stock and performance units were vested and convertible securities were conver
Slide 39: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Operating return measures Management believes that an analysis of net income applicable to common stock before net realized investment gains or losses from sales, impairments and change in allowance for credit losses, net change in market va
Slide 40: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures The calculations of: (i) operating return on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) operating return, excluding significant item, on equity, e
Slide 41: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures The following summarizes: (i) operating earnings; (ii) significant items; (iii) operating earnings, excluding significant items; and (iv) net income (loss): (dollars in millions) Net operating Net operating income, income, excluding excludin
Slide 42: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures The calculations of: (i) operating return on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) operating return, excluding significant item, on equity, e
Slide 43: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders’ equity, is as follows: (dollars in millions) 1Q17 2
Slide 44: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders’ equity, is as follows: (dollars in millions) Traili
Slide 45: 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