Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q4 2019 Earnings Presentation
42 slides from Cno Financial's earnings presentation, Feb 11, 2020
Slide 1: Fourth Quarter 2019 Financial and Operating Results
Exhibit 99.3 Fourth Quarter 2019 Financial and operating results for the period ended December 31, 2019 February 11, 2020 Unless otherwise specified, comparisons in this presentation are between 4Q18 and 4Q19. CNO Financial Group | Fourth Quarter 2019 Earnings | February 11, 2020 1
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: 11, 2020
CNO Financial Group | Fourth Quarter 2019 Earnings | February 11, 2020 3
Slide 4: 2019 Year in Review
2019 Year in Review Strong production and operating discipline enhancing shareholder value • Growth initiatives continue to bear fruit; all growth scorecard metrics up for the full year Strong • Solid new product launch activity Operational • Underwriting performance stable; all health benefit ratio
Slide 5: Quarter in Review
Quarter in Review Solid performance fueled by disciplined growth • Life and health sales up 9% Strong • Annuity collected premiums down 9% reflecting pricing discipline; account values up 5% Operational • Insurance policy income up 1% Performance • All health benefit ratios within or better than pro
Slide 6: Growth Scorecard
Growth Scorecard Three of five metrics up Q/Q; all five up for full year 2018 2019 % Change ($ millions) 4Q TY 1Q 2Q 3Q 4Q TY Q/Q TY New Annualized Premium 1 Life Insurance $36.3 $147.5 $39.7 $39.4 $37.3 $34.9 $151.3 -3.9% 2.6% Health Insurance 53.3 183.7 40.1 45.8 46.7 62.7 195.3 17.6% 6.3% Total L
Slide 7: Segment Update
Segment Update Growth in earnings and continued momentum with initiatives Key Initiatives Fourth Quarter Highlights • EBIT excluding significant items1 up 2% despite NII headwinds Reinvigorate growth • Life and Health NAP flat; third party policies up 20% • Fee revenue up 123% • Annuity account valu
Slide 8: Segment Update
Segment Update Record overall sales and sharp improvement in consumer market Key Initiatives Fourth Quarter Highlights Maintain growth • New sales record; overall NAP up 32% • Life NAP up 7%; Life collected premiums up 14% momentum • Consumer division sales up 57% Advance worksite • Worksite NAP up
Slide 9: Segment Update
Segment Update Record full year production; leveraging DTC platform Key Initiatives Fourth Quarter Highlights • Best full year sales on record (up 7%); 4Q NAP down 8% Continue due to lower marketing spend sales growth • First-year collected premiums up 7%; Total collected premiums up 3% Improve sale
Slide 10: 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 • $75 million in share repurchases in 4Q; $252 million YTD • Dividend payout ratio targeted at 20-25% • $
Slide 11: Financial Highlights
Financial Highlights Net operating income per share1 up 4%; tax strategy created $194 million in shareholder value Fourth Quarter 2019 Net Operating Income • Net operating income per diluted share1 of $0.52, up 44% from $0.36 in 4Q18 ($ millions, except where noted) • Excluding significant items, op
Slide 12: Segment Results
Segment Results Stable underwriting margins despite NII headwinds 1 Segment EBIT Excluding Significant Items Segment Highlights ($ millions) 4Q18 1Q19 2Q19 3Q19 4Q19 • Lower investment income impacted all segments Bankers Life $81.1 $86.4 $83.1 $63.1 $78.9 Washington • Bankers Life results reflect i
Slide 13: Health Margins
Health Margins All benefit ratios within or better than guidance Bankers Life Medicare Bankers Life Long-term Care Washington National Supplement Benefit Ratio IABR1,2 Supplemental Health IABR1 $190 $191 $191 $190 $189 $156 $156 $157 $158 $160 76.0% 74.0% 74.9% 72.3% 74.2% $64 $64 $64 $64 $63 56.2%
Slide 14: Investment Results
Investment Results Consistent performance reflecting stable allocation in low rate environment Average Invested Assets and Cash Quarter Highlights $22,588 • New money rate reflects conservative positioning $21,832 $22,058 $22,201 $22,382 • Sequential decline largely reflects lack of $290.4 $286.7 ne
Slide 15: Committed to Long-Term Shareholder Value Creation
Committed to Long-Term Shareholder Value Creation Continued progress on strategic initiatives Leverage diverse Extend depth and distribution Effectively deploy Expand to Enhance customer breadth of product channels and excess capital the right experience offerings unique product combination Growth i
Slide 16: Questions and Answers
Questions and Answers CNO Financial Group | Fourth Quarter 2019 Earnings | February 11, 2020 16
Slide 17: Appendix 1: Quarter in Review
Appendix 1: Quarter in Review Strong Operational Performance • Broker-Dealer/Registered Investment Advisor Slide 18 • Agent Count Slide 19 Building on Strong Track Record of Execution • Bankers Life Retained LTC Insurance Slides 20-21 • Portfolio Composition Slide 22 CNO Financial Group | Fourth Qua
Slide 18: Broker-Dealer/Registered Investment Advisor
Broker-Dealer/Registered Investment Advisor Account value up 37% YoY; over $1.5 billion in client assets 2018 2019 ($ millions) 4Q 1Q 2Q 3Q 4Q Net New Client Assets in Brokerage -$1.1 -$3.0 $5.1 $13.4 $17.4 Brokerage and Advisory1 Advisory 13.2 35.7 33.2 29.9 45.4 Total $12.1 $32.7 $38.3 $43.3 $62.8
Slide 19: Agent Counts
Agent Counts Bankers Life producing agent count up for sixth consecutive quarter 20182019 % Change Bankers Life 4Q 1Q 2Q 3Q 4Q Q/Q Total Quarterly Average Producing Agents1,3 4,177 4,125 4,294 4,270 4,417 5.7% Quarterly Average Financial Advisors2,3 560 583 595 596 596 6.4% Washington National Total
Slide 20: Bankers Life Retained Long-Term Care Insurance
Bankers Life Retained Long-Term Care Insurance Retained book characterized by limited benefits, shorter duration periods % of Policies by Benefit Period Key LTC Data (As of 12/31/2019) 2% GAAP Reserves $1.92B <= 1 Yr 4% Statutory Reserves $1.97B Between 1 and 4 Policies In-Force 187,679 Yrs 37% Aver
Slide 21: Bankers Life Retained Long-Term Care Insurance
Bankers Life 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% rein
Slide 22: Portfolio Composition
Portfolio Composition Conservative allocation; 1Q19 up-in-quality repositioning $25 billion of Invested Assets Fixed Maturity Securities by Ratings Mortgage HY Corporates, (Fair Value as of 12/31/2019) Loans, 6.6% 2.5% CMO, 4.2% CMBS, 8.0% Municipals, 8.9% NAIC 2, 38.6% ABS, 10.3% NAIC 1, 57.7% Govt
Slide 23: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits • Holding Company Liquidity Slide 24 • Tax Asset Summary Slide 25 • Non-GAAP Financial Measures Slides 26-42 CNO Financial Group | Fourth Quarter 2019 Earnings | February 11, 2020 23
Slide 24: 2019 Holding Company Liquidity
2019 Holding Company Liquidity ($ millions) 4Q19 FY19 Cash and Investments Balance - Beginning$ 260.4 $ 220.4 Sources Dividends from Insurance Subsidiaries 16.0 186.3 Dividends from Non-insurance Subsidiaries - 8.0 Management Fees 28.1 115.5 Surplus Debenture Interest 12.3 59.9 Earnings on Corporate
Slide 25: Tax Asset Summary
Tax Asset Summary Loss Carryforwards Details ($ millions) $532 • Total estimated economic value of NOLs of $406 million @ 10% discount rate (~$2.71 Life on per share basis) $110 • Life NOLs are expected to offset 80% of life taxable income until fully utilized. Non-life NOLs are expected to offset 1
Slide 26: 4Q18 Significant Items
4Q18 Significant Items The table below summarizes the financial impact of significant items on our 4Q18 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended December 31, 2018
Slide 27: 4Q19 Significant Items
4Q19 Significant Items The table below summarizes the financial impact of significant items on our 4Q19 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended December 31, 2019
Slide 28: Quarterly Earnings
Quarterly Earnings ($ millions) 4Q18 1Q19 2Q19 3Q19 4Q19 Bankers Life$ 78.0 $ 63.1 $ 86.4 $ 78.9 $ 72.3 Washington National 31.9 30.5 25.9 26.8 28.0 Colonial Penn 4.8 (1.4) 5.8 3.7 6.2 Long-term care in run-off 0.3 2.5 3.2 3.6 2.7 Adjusted EBIT from business segments 115.0 94.7 121.3 113.0 109.2 Cor
Slide 29: Colonial Penn Segment Adjusted EBIT Summarized by In-Force and New Business
Colonial Penn Segment Adjusted EBIT Summarized by In-Force and New Business An analysis of Adjusted EBIT for Colonial Penn, separated between in-force and new business, provides increased clarity for this segment as the vast majority of the costs to generate new business in this segment are not defe
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 (loss) applicable to common stock to net operating income (and related per-share amounts) is as follows (dollars in millions, except per-share amounts): 4Q18 1Q19 2Q19 3Q19 4Q19 Net income (loss) applicable to
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): 4Q18 1Q19 2Q19 3Q19 4Q19 Operating incom
Slide 33: 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 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 net realized investment gains or losses from sales and impairments, net change in market value of investments recognized in earnin
Slide 36: 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 items, on equity,
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(loss) (dollars in millions): Net Operating Net Operating Income, income, excluding Net exclu
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 (loss) is as follows (dollars in millions): Twelve Months Ended 4Q18 1Q19 2Q19 3Q19 4Q19 Pretax operating earnings (a non-GAAP financial measure)$ 381
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): 1Q17 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
Slide 42: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures The following summarizes our estimate of the impact of lower general account asset investment income and changes in amounts impacting spreads on 4Q19 net income compared to 4Q18 net income (dollars in millions, except per share data): 4Q19 4