Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q3 2019 Earnings Presentation
41 slides from Cno Financial's earnings presentation, Nov 5, 2019
Slide 1: Third Quarter 2019 Financial and operating results
Exhibit 99.3 Third Quarter 2019 Financial and operating results for the period ended September 30, 2019 November 5, 2019 Unless otherwise specified, comparisons in this presentation are between 3Q18 and 3Q19. CNO Financial Group | 2017 Investor Day | June 5, 2017 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: 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, excluding accumulated other comprehensive income (loss) per share; operating return m
Slide 4: 5, 2019
CNO Financial Group | Third Quarter 2019 Earnings | November 5, 2019 4
Slide 5: Quarter in Review
Quarter in Review Solid quarterly performance • All growth scorecard metrics up YoY for 5th consecutive quarter Strong • First-year collected premiums up 16% Operational • Total collected premiums (excl. LTC in run-off) up 8% Performance • Life and health sales up 3% • All health benefit ratios with
Slide 6: Growth Scorecard
Growth Scorecard All 5 metrics up YoY for 5th consecutive quarter ($ millions) 2018 2019 % Change 3Q 4Q TY 1Q 2Q 3Q Q/Q New Annualized Premium 1 Life Insurance $37.4 $36.3 $147.5 $39.7 $39.4 $37.3 -0.3% Health Insurance 44.3 53.3 183.7 40.1 45.8 46.7 5.4% Total Life & Health Insurance $81.7 $89.6 $3
Slide 7: Segment Update: Growth momentum remains strong
Segment Update Growth momentum remains strong Key Initiatives Third Quarter Highlights • First-year collected premiums up 17%; total collected Reinvigorate premiums up 9% • Health NAP up 2%; Life NAP down 3% growth • Med Advantage issued policies up 56%; third party fee income up 26% • Annuity colle
Slide 8: Segment Update: Continued Worksite strength; Individual market stabilizing
Segment Update Continued Worksite strength; Individual market stabilizing Key Initiatives Third Quarter Highlights Maintain growth • Best 3Q sales on record; overall NAP up 9% • Life NAP up 12%; Life collected premiums up 17% momentum • Individual segment sales flat YoY Advance worksite • Worksite N
Slide 9: Segment Update: Broadening direct-to-consumer capabilities
Segment Update Broadening direct-to-consumer capabilities Key Initiatives Third Quarter Highlights Continue • Best 3Q sales on record • First-year collected premiums up 11% sales growth • Total collected premiums up 4% Improve sales productivity; • Continue to invest in web/digital capabilities • Te
Slide 10: Excess Capital Allocation Strategy
Excess Capital Allocation Strategy Disciplined and opportunistic approach Organic investments to sustain and grow the core businesses Return capital to shareholders • $75 million in share repurchases in 3Q; $177 million YTD • Dividend payout ratio targeted at 20-25% Opportunistic transactions • High
Slide 11: Financial Highlights
Financial Highlights Core operations remain solid; 3Q earnings pressured by lower NII Third Quarter 2019 Financial Results • Net operating income per diluted share1 of $0.45, down ($ millions, except where noted) 3Q18 3Q19 13% from $0.52 in 3Q18 as adjusted to remove the $0.53 earnings from the LTC
Slide 12: Segment Results
Segment Results1 Stable underwriting margins offset by lower NII and higher growth spend 2 Segment Adjusted EBIT Excluding Significant Items Segment Highlights ($ millions) 3Q18 4Q18 1Q19 2Q19 3Q19 • Lower investment income impacted all Bankers Life $94.4 $81.1 $86.4 segments $63.1 $78.9 • Bankers L
Slide 13: Health Margins
Health Margins All benefit ratios within guidance Bankers Life Medicare Bankers Life Long-term Care Washington National Supplement Benefit Ratio IABR1,2 Supplemental Health IABR1 $192 $190 $191 $191 $190 $152 $156 $156 $157 $158 75.6% 76.0% 74.0% 74.9% 72.3% $64 $64 $64 $64 $64 56.9% 56.2% 55.4% 53.
Slide 14: Investment Results
Investment Results Lower interest rates and up-in-quality trade create ongoing headwinds Average Invested Assets and Cash Quarter Highlights LTC Reinsurance • Book yield decline reflects lower market yields Ceded Assets1 and 1Q up in quality repositioning $22,382 $21,751 $21,832 $22,058 $22,201 • Se
Slide 15: Committed to Long-Term Shareholder Value Creation
Committed to Long-Term Shareholder Value Creation Continued progress on strategic initiatives Effectively deploy excess capital Extend depth and breadth of product offerings Leverage diverse distribution channels and unique product combination Expand to the right Enhance customer experience Growth i
Slide 16: Questions and Answers
Questions and Answers CNO Financial Group | Third Quarter 2019 Earnings | November 5, 2019 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 | Third Quar
Slide 18: Broker-Dealer/Registered Investment Advisor
Broker-Dealer/Registered Investment Advisor Account value up 16% YoY; approaching $1.4 billion 2018 2019 ($ millions) 3Q 4Q 1Q 2Q 3Q Net New Client Assets in Brokerage $26.3 -$1.1 -$3.0 $5.1 $13.4 Brokerage and Advisory1 Advisory 44.2 13.2 35.7 33.2 29.9 Total $70.5 $12.1 $32.7 $38.3 $43.3 Client As
Slide 19: Agent Counts
Agent Counts Bankers Life producing agent count up for 5th consecutive quarter 2018 2019 % Change Bankers Life 3Q 4Q 1Q 2Q 3Q Q/Q Total Quarterly Average Producing Agents1,3 4,168 4,177 4,125 4,294 4,270 2.4% Quarterly Average Financial Advisors2,3 534 560 583 595 596 11.6% 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 9/30/2019) 2% GAAP Reserves $1.89B <= 1 Yr 4% Statutory Reserves $1.94B Between 1 and 4 Policies In-Force 185,306 Yrs 38% Avera
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 (~$25mm annually) focused on short duration products • 98% of new sales for policies with 2 years or less in benefits • Average benefit period of 10 months • New business 25% reinsured
Slide 22: Portfolio Composition
Portfolio Composition Conservative construction; 1Q19 up in quality repositioning $25 billion of Invested Assets Fixed Maturity Securities by Ratings Mortgage HY Corporates, (Fair Value as of 9/30/2019) Loans, 6.7% 3.0% CMO, 3.4% CMBS, 7.7% Municipals, 8.6% NAIC 2, 39.4% ABS, 10.8% Govts/Agency, NAI
Slide 23: Appendix 2: Financial Exhibits
Appendix 2: Financial Exhibits • Holding Company Liquidity Slide 24 • Tax Asset Summary Slide 25 • Non-GAAP Financial Measures Slides 26-41 CNO Financial Group | Third Quarter 2019 Earnings | November 5, 2019 23
Slide 24: 2019 Holding Company Liquidity
2019 Holding Company Liquidity ($ millions) 3Q19 Cash and Investments Balance - Beginning$ 264.1 Sources Dividends from Insurance Subsidiaries 39.4 Management Fees 29.9 Surplus Debenture Interest 22.7 Earnings on Corporate Investments 2.8 Net Intercompany Settlements and Other 9.4 Total Sources 104.
Slide 25: Tax Asset Summary
Tax Asset Summary Loss Carryforwards Details ($ millions) $607 • Total estimated economic value of NOLs of $307 million @ 10% discount rate (~$2.00 Life on per share basis) $137 • Life NOLs are expected to offset 80% of life taxable income until fully utilized. Non-life NOLs are expected to offset 1
Slide 26: 4Q18 Significant Items
4Q18 Significant Items The table below summarizes the financial impact of significant items on our 4Q18 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended December 31, 2018
Slide 27: Quarterly Earnings
Quarterly Earnings ($ millions) 3Q18 4Q18 1Q19 2Q19 3Q19 Bankers Life$ 94.4 $ 78.0 $ 63.1 $ 86.4 $ 78.9 Washington National 30.3 31.9 30.5 25.9 26.8 Colonial Penn 6.1 4.8 (1.4) 5.8 3.7 Long-term care in run-off 2.1 0.3 2.5 3.2 3.6 Adjusted EBIT from business segments 132.9 115.0 94.7 121.3 113.0 Cor
Slide 28: 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 29: 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 30: 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): 3Q18 4Q18 1Q19 2Q19 3Q19 Net income (loss) applicable to c
Slide 31: 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): 3Q18 (a) 4Q18 1Q19 2Q19 3Q19 Operating i
Slide 32: 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 33: 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 34: 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 35: 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 36: 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 37: 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 3Q18 4Q18 1Q19 2Q19 3Q19 Pretax operating earnings (a non-GAAP financial measure)$ 432
Slide 38: 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 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): Traili
Slide 40: 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 41: 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 3Q19 net income compared to 3Q18 net income (dollars in millions, except per share data): 3Q19 3