Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q3 2020 Earnings Presentation
44 slides from Cno Financial's earnings presentation, Nov 3, 2020
Slide 1: Third Quarter 2020
Third Quarter 2020 Financial and operating results for the period ended September 30, 2020 November 2, 2020 Unless otherwise specified, comparisons in this presentation are between 3Q19 and 3Q20.
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 | Third Quarter 2020 Earnings | November 2, 2020
CNO Financial Group | Third Quarter 2020 Earnings | November 2, 2020 3
Slide 4: Quarter in Review
Quarter in Review Operating results reflect favorable health margins, strong NII and expense discipline • Operating income1 up 63%; operating income per share1 up 76% Strong • Insurance product margin up 22% • Continued sequential improvement in key production/distribution Operational metrics Perfor
Slide 5: Growth Scorecard
Growth Scorecard Strong collected premium, fee revenue and client assets; sales recovery on track (dollars in millions) 2019 2020 % Change 3Q 4Q TY 1Q 2Q 3Q Y/Y 1 New Annualized Premium Life $37.3 $34.9 $151.3 $41.1 $47.4 $44.3 18.8% Drive Growth Health 46.7 62.7 195.3 44.0 22.0 39.4 -15.6% Total Li
Slide 6: Consumer Division Update
Consumer Division Update Strong direct-to-consumer/Life sales; Health, Annuity and agent metrics rebounding Key Initiatives Third Quarter Highlights • Life sales up 25%; D2C sales up 23%; Exclusive agent Life Maintain growth sales up 29% momentum • Sequential improvement in Health and Annuity sales
Slide 7: Worksite Division Update
Worksite Division Update Stable in force block; sequential improvement in sales; expanding digital enablement Key Initiatives Third Quarter Highlights • 48% sequential improvement in sales Restore growth • Stable premium collection Evolve digital • ~30% of sales completed virtually capabilities • La
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 • $50 million in share repurchases in 3Q20; $163 million YTD • Growing capacity to repurchase shares as c
Slide 9: Financial Highlights
Financial Highlights GAAP EPS up 237%; Operating EPS up record 76%; Health margins, NII and expense control key drivers Third Quarter 2020 Earnings Results (dollars in millions, except where noted) • Operating EPS1 of $0.79, up 76% from $0.45 in 3Q19 $0.91 • $0.23 net COVID impact $0.79 • EPS of $0.
Slide 10: Insurance Product Margin
Insurance Product Margin Underlying margin remains strong; favorable net COVID financial impact (dollars in millions) Insurance Product Margin1 Highlights1 3Q19 4Q19 1Q20 2Q20 3Q20 • Total margin up $45 million or 22% • $42 million favorable COVID impact Annuity $56.2 $60.8 $59.5 $72.3 $45.3 Margin
Slide 11: Investment Results
Investment Results Alternative outperformance drove increase in total NII (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 $265.4 $255.5 $221.2 $221.7 $200.0 $200
Slide 12: Portfolio Composition
Portfolio Composition High quality; well-positioned for uncertain environment $26 billion of Invested Assets Highlights (Fair Value as of 9/30/2020) Mortgage Loans, 5.7% HY Corporates, • 64% of portfolio in corporate and government bonds 2.9% Non-Agency RMBS, 8.5% • 41% BBBs; consistent with June 30
Slide 13: Cash Flow Profile
Cash Flow Profile Strong free cash flow generation and conversion (dollars in millions) For the Quarter Trailing Twelve Months 3Q19 3Q20 3Q19 3Q20 1 Net Operating Income $ 69.2 $ 112.6 $ 271.2 $ 354.9 Holding Company Cash Flows: Dividends from Subsidiaries $ 39.4 $ 50.5 $ 292.7 $ 231.9 Management Fe
Slide 14: Capital and Liquidity Overview
Capital and Liquidity Overview Conservative approach to capital structure; strong liquidity (dollars in millions) Consolidated Risk Based Capital (“RBC”) Ratio1 393% 408% 406% 405% 428% Targeted consolidated RBC ratio of 375-400% Excess due to intentional conservative positioning RBC variabili
Slide 15: Outlook
Outlook Modest net favorable 4Q financial impact from COVID Scenario modeling – 2020 COVID impacts Prior (August) projections Current (October) base case scenario • Mortality • Mortality • 150k – 400k U.S. COVID deaths • Assume approximately 120k U.S. deaths • $20M – $52M net mortality impact in 4Q
Slide 16: Delivering On Our Commitments
Delivering On Our Commitments Balancing focus on COVID response with acceleration of strategic priorities Turnaround / Pivot to Optimize Long- COVID-19 De-risking Growth term Value Pre 2017 2017-2019 2020 2021 and Beyond • Reinsured life block (2009) • Completed Senior Leadership • Balancing capital
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 | Third Quarter 2020 Earnings | Nov
Slide 18: Questions and Answers
Questions and Answers CNO Financial Group | Third Quarter 2020 Earnings | November 2, 2020 18
Slide 19: Appendix 1: Quarter in Review
Appendix 1: Quarter in Review Strong Operational Performance • Broker-Dealer/Registered Investment Advisor Slide 20 • Agent Counts Slide 21 Building on Strong Track Record of Execution • Retained LTC Insurance Slide 22 • New Money Summary Slide 23 • Portfolio Overview Slides 24-27 • Tax Asset Summar
Slide 20: Broker-Dealer/Registered Investment Advisor
Broker-Dealer/Registered Investment Advisor Account values up YoY; $1.6 billion in client assets (dollars in millions) 2019 2020 3Q 4Q 1Q 2Q 3Q Net New Client Assets in Brokerage $13.4 $17.4 $15.3 -$26.7 -$31.5 Brokerage and Advisory1 Advisory 29.9 45.4 65.7 38.6 23.5 Total $43.3 $62.8 $81.0 $11.9 -
Slide 21: Agent Counts
Agent Counts 2019 2020 % Change Consumer 3Q 4Q 1Q 2Q 3Q Q/Q Total Quarterly Average Producing Agents1,3 4,579 4,709 4,531 4,066 4,448 -2.9% Quarterly Average Financial Representatives2,3 596 596 591 602 637 6.9% Worksite Total Quarterly Average Producing Agents1,3 420 453 421 225 242 -42.4% 1 Produc
Slide 22: 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 23: New Money Summary
New Money Summary Emphasis on high quality investments during third quarter Third Quarter Investments HY Corporates, 5% Direct Investments, 4% Average Average Allocation $ Allocation% Yield Rating Duration IG Corporates 258 44.4% 4.05% BBB+ 13.0 Structured Securities, 14% Municipals 189 32.5% 3.50%
Slide 24: Portfolio Overview – Sector Breakdown
Portfolio Overview – Sector Breakdown Generally underweight COVID-19 impacted sectors (dollars in millions) Book Market Unrealized Average Sector Value Value Gain Loss Portfolio% NAIC Over|Underweight Airlines 32.9 34.3 1.4 0.13% 1.5 Underweight Aircraft Lease Securitizations 33.3 30.7 (2.6) 0.12% 1
Slide 25: 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 49.0% AAA 13.1% - - AA 51.3% - - A 32.0% 100% A 35.6% - - AAA AAA-A AA+ BBB - N/A 5.0% 13.1% 2.4% A- BB - N/A 3.0% 2.2% Key Portfolio Metrics
Slide 26: Portfolio Overview: CMBS
Portfolio Overview: CMBS We have excess credit support to offset collateral delinquencies or losses Key Portfolio Facts Book Market Market/ Credit Delinq. Rating Value Value Book Support Rate Hotel% Retail% $2.0 billion of net invested assets AAA 582 615 106% 37.4% 7.9% 12.4% 22.4% AA 298 315 106% 2
Slide 27: Portfolio Overview: Commercial Mortgage Loans
Portfolio Overview: Commercial Mortgage Loans Very conservatively underwritten; loss resistant, no COVID related delinquencies or forbearances Key Portfolio Facts Portfolio Geography $1.5 billion of net invested assets Pa ci fic 17.3% Ea s t 24.4% Mounta in 8.5% 100% 99.5% 49% 2.00x Centra l 13.4% F
Slide 28: Tax Asset Summary
Tax Asset Summary Value of NOLs and deferred tax assets Details (DTAs) related to tax strategy (dollars in millions) $465 • Total estimated economic value of NOLs DTAs related to and DTAs related to tax strategy of tax strategy approximately $380 million @ 10% $92 discount rate ($2.71 on per share b
Slide 29: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits • Non-GAAP Financial Measures Slides 30-44 CNO Financial Group | Third Quarter 2020 Earnings | November 2, 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
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) 3Q19 4Q19 1Q20 2Q20 3Q20 Insurance product margin Annuity $ 56.2 $ 60.5 $ 59.5 $ 123.8 $ 45.3 Health 89.3 93.0 86.9 95.5 152.2 Life 54.6 46.7 44.3 36.1 47.3 Total insurance product margin 200.1 200.2 190.7 255.4 244.8 Allocated expenses (131.3) (140.6) (136.6
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) 3Q19 4Q19 1Q20 2Q20 3Q20 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) 3Q19 4Q19 1Q20 (a) 2Q20 3Q20 Operating i
Slide 37: 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 38: 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 39: 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 40: 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 41: 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 42: 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 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) Traili
Slide 44: 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