CNO Financial Group, Inc. · NYSE:CNO
CNO Financial — Q1 2015 Earnings Presentation
41 slides from CNO Financial's earnings presentation, Apr 30, 2015
Slide 1: 1Q15 Financial and operating results
1Q15 Financial and operating results for the period ended March 31, 2015 April 30, 2015 Unless otherwise specified, comparisons in this presentation are between 1Q15 and 1Q14.
Slide 2: Forward-Looking Statements
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 caution investors that these f
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,value excluding accumulated other comprehensive income (loss) per share; operating ret
Slide 4: CNO Financial Group | 1Q2015 Earnings | April 30, 2015
CNO Financial Group | 1Q2015 Earnings | April 30, 2015 4
Slide 5: 1Q15 Summary
1Q15 Summary CNO (amounts in millions, except per share data) Operating Earnings Per Share Excluding Notable Items Significant Items* 1Q15 Bankers Life recruiting gains have 1Q14 $0.31 stabilized agent count; positioned $0.28 for future growth Growth G th in i WWashington hi t National N ti l sa
Slide 6: LTC Strategic Focus
LTC Strategic Focus Short Range (1-3 yrs) Longer Range (4-7 yrs) • Continued transparency on performance and risk • Reduce our relative economic exposure to LTC by ~50% through • Pursue rate actions if adverse natural run-off and run-on as well as experience develops opportunistic reinsurance action
Slide 7: 1Q15 Sales and Distribution Results Bankers Life
1Q15 Sales and Distribution Results Bankers Life ($ millions) Quarterly NAP* 1Q sales down 2% ‒ Increases I in i lif life and d shorter h t duration d ti 4Q14 LTC, offset by lower annuity and $73.6 Med supp 1Q14 2Q14 3Q14 1Q15 $63.1 $63.1 $61.8 $61.6 Med Advantage fee income up 28% on a trailing
Slide 8: 1Q15 Sales and Distribution Results Washington National
1Q15 Sales and Washington g National Di Distribution t ib ti R Results lt ($ millions) Quarterly NAP 1Q sales up 3% 3Q14 4Q14 ‒ PMA up 10%, contributing over 80% 2Q14 $26.3 $25.3 $25.6 of total sales 1Q14 1Q15 $22.0 $22.6 ‒ WN Independent p Partners down 21%; impacted by restructuring of one large
Slide 9: 1Q15 Sales and Distribution Results Colonial Penn
1Q15 Sales and Colonial Penn Di t ib ti R Distribution lt Results ($ millions) Quarterly NAP 1Q sales up 26% ‒ Strong growth across all lead sources 1Q15 $21.1 including Direct Mail and Web ‒ Improvements in marketing costs and 1Q14 2Q14 3Q14 sales productivity $16 8 $16.8 $16 5 $16.5 $16 4 $16.4
Slide 10: Business Investments and Sales Outlook
Business Investments and Sales Outlook CNO Maintaining consolidated sales growth of 3% - 6% Maintaining 2015 sales growth: 3-5% Continued recovery in agent recruiting Agent productivity gains Initiative investments starting g to g gain traction Maintaining 2015 sales growth: 5-7% Continued s
Slide 11: 1Q Consolidated Financial Highlights
1Q Consolidated Financial Highlights CNO Earnings Remain Strong ‒ Normalized operating EPS up 11% ‒ Health benefit ratios mixed with elevated LTC and supplemental health IABR’s* ‒ Annuity, life and investment results continue to drive favorable results Capital C it l & Li Liquidity idit ‒ RBC es
Slide 12: Segment Earnings
Segment Earnings ($ millions) CNO Segment EBIT Excluding Significant Items* 1Q15 Earnings Drivers $119.7 $ $119.8 $118 7 $118.7 Bankers Life – strength in annuity $106.1 $106.5 spreads, favorable overall health results $30.1 $30.2 $32.3 offset by lower LTC margins $31.1 $31.5 Washington National
Slide 13: Investment Results
Investment Results CNO ($ ( millions)) Average Invested Assets and Cash Realized Gains, Losses and Impairments $ , $24,850 $24,853 Gross Realized Gains $3,512 $3,492 $21,687 $21,852 $21,854 $45.6 Gross Realized Losses Realized Gains and Losses $348.1 $347.4 on OCB LTC sales $300.1 $305.4 $303.6 Impa
Slide 14: Capital Targets & Excess Capital Deployment
Capital Targets & Excess Capital Deployment CNO 2015 Y.E. Key Capital Ratios 2014 1Q15 Outlook RBC 431% 428% ~ 425% v RBC remains strong on stable statutory Liquidity $345mm $311mm ~ $315mm earnings after $88 million dividends and distributions to the holding company Leverage* 17.1% 16.9% ~ 16% L
Slide 15: Bankers LTC – Critical Points of Differentiation
Bankers LTC – Critical Points of Differentiation Target Market • Middle-market and older issue/attained age g drives reduced tail risk • Significant claims data on older ages supports reliable studies and estimates New Business • Over 70% of new business is “short duration” (benefit period ≤ 1 year)
Slide 16: ROE Development
ROE Development CNO Notable Items Normalized Operating ROE* ROE trend reflects stable earnings and efforts 9.0% to decrease “beta” and improve ratings 7.9% Steady build in ROE recognizing headwinds ‒ Challenging new money investment rates ‒ LTC margins reflect a building future loss reserve and
Slide 17: Wrap-up
Wrap-up CNO Regaining momentum on agent recruiting and sales growth Investing in initiatives to increase sales and operating effectiveness Holistic management of our LTC business Solid operating performance and favorable markets supports ratings momentum and recapitalization Developing fut
Slide 18: Questions and Answers
Questions and Answers CNO Financial Group | 1Q2015 Earnings | April 30, 2015 18
Slide 19: Appendix
Appendix CNO Financial Group | 1Q2015 Earnings | April 30, 2015 19
Slide 20: Producing Agent Counts
Producing Agent Counts Bankers Life (1) Washington National (2) 1st Yr 2nd Yr 3rd Yr + Total Qtr Avg (3) 1st Yr 2nd Yr 3rd Yr + Total Qtr Avg (3) 3/31/2015 2,468 657 1,894 5,019 4,850 344 127 340 811 830 12/31/2014 2,258 664 1,868 4,790 4,842 365 128 337 830 831 9/30/2014 2,233 667 1,822 4,722 4,783
Slide 21: 1Q15 Holding Company Liquidity
1Q15 Holding g Company p y Liquidity q y CNO ($ millions) 1Q15 Cash and Investments Balance - Beginning $344.6 Sources Net Dividends from Insurance Subsidiaries 75.5 Interest/Earnings on Corporate Investments 2.6 Surplus Debenture Interest 12 0 12.0 Service and Investment Fees, Net (0.9) * Total Sou
Slide 22: Debt Maturity Profile
Debt Maturity Profile CNO ($ millions) $378.1 $275 $59.4 $60.5 $4.3 2015 2016 2017 2018 2019 2020 Term Loan Senior Secured Notes CNO Financial Group | 1Q2015 Earnings | April 30, 2015 22
Slide 23: Leveraging Considerable Tax Assets
Leveraging Considerable Tax Assets CNO ($ millions) 1Q 2015 Loss Carryforwards 2015 Outlook and Value v Expect modest future valuation allowance $1,024 releases as taxable income stabilizes Life Annual cash flows are expected to be $157 reduced by $50 million in 2016 as life NOL’s NOL s are full
Slide 24: 1Q14 Significant Items
1Q14 Significant Items CNO The ttable Th bl bbelow l summarizes i th the fi financial i l iimpactt off the th significant i ifi t item it on our 1Q2014 nett operating ti income. i Management M t believes b li that identifying the impact of this item enhances the understanding of our operating result
Slide 25: 2Q14 Significant Items
2Q14 Significant Items CNO The table below summarizes the financial f impact off the significant f items on our 2Q2014 2Q201 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months en
Slide 26: 3Q14 Significant Items
3Q14 Significant Items CNO The table Th t bl b below l summarizes i th the fi financial i l iimpactt off significant i ifi t it items on our 3Q2014 nett operating ti income. i Management M t believes b li th thatt identifying the impact of these items enhances the understanding of our operating resu
Slide 27: 4Q14 Significant Items
4Q14 Significant Items CNO The table below summarizes the financial f impact off the significant f items on our 4Q2014 Q201 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months end
Slide 28: 1Q15 Significant Items
1Q15 Significant Items CNO The table below summarizes the financial f impact off the significant f item on our 1Q2015 1Q201 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months end
Slide 29: Quarterly Earnings
Quarterlyy Earnings g CNO ($ millions) 1Q14 2Q14 3Q14 4Q14 1Q15 Bankers Life $ 84.2 $ 87.4 $ 111.8 $ 103.5 $ 82.2 Washington National 31.1 32.3 27.6 20.2 28.5 Colonial Penn (6.2) 3.8 0.4 2.8 (5.9) EBIT from business segments continuing after the CLIC sale 109.1 123.5 139.8 126.5 104.8 Corporate oper
Slide 30: 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 31: 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): 1Q14 2Q14 3Q14 4Q14 1Q15 Net income applicable to common stock $
Slide 32: 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): 1Q14 (a) 2Q14 3Q14 4Q14 1Q15 Operating i
Slide 33: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Book B k value l per dil diluted t d share h Book value per diluted share reflects the potential dilution that could occur if outstanding stock options and warrants were exercised, restricted stock and performance units were vested and conve
Slide 34: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Interest-adjusted benefit ratios The interest-adjusted benefit ratio (a non-GAAP measure) is calculated by dividing the product's insurance policy benefits less imputed interest income on the accumulated assets backing the insurance liabilit
Slide 35: 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 the net loss on sale of CLIC and gain (loss) on reinsurance transactions, the earnings of CLIC prior to being sold, net realized g
Slide 36: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Th calculations The l l ti of: f (i) operating ti return t on equity, it excluding l di accumulated l t d other th comprehensive h i iincome (l(loss)) and d nett operating loss carryforwards (a non-GAAP financial measure); (ii) operating ret
Slide 37: 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 (dollars in millions): Operating Operating earnings, earnings, excluding Net excluding signi
Slide 38: 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 net income is as follows (dollars in millions): Twelve months ended 1Q14 2Q14 3Q14 4Q14 1Q15 Pretax operating earnings (a non-GAAP financial measure) $ 383.2 $ 3
Slide 39: 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): 1Q13 2
Slide 40: 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 41: 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