Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q2 2018 Earnings Presentation
45 slides from Cno Financial's earnings presentation, Aug 2, 2018
Slide 1: 2Q18 Financial and operating results
Exhibit 99.1 2Q18 Financial and operating results for the period ended June 30, 2018 August 2, 2018 Unless otherwise specified, comparisons in this presentation are between 2Q17 and 2Q18. 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: 2, 2018
CNO Financial Group | Second Quarter 2018 Earnings | August 2, 2018 4
Slide 5: Long-term Care Reinsurance Transaction
Long-term Care Reinsurance Transaction CNO Financial Group | Second Quarter 2018 Earnings | August 2, 2018 5
Slide 6: Executive Summary
Executive Summary A transformative risk reduction transaction for CNO . Bankers Life has entered into an agreement with Wilton Re to cede ~$2.7 billion of long- term care reserves through 100% indemnity coinsurance – Represents 100% of Bankers Life legacy (prior to 2003) comprehensive and nursing ho
Slide 7: Key Transaction Details
Key Transaction Details . $2.7 billion of statutory reserves to be ceded – Business ceded is the most volatile from an earnings and capital perspective . $825 million ceding commission funding: – ~$375 million of statutory reserves no longer required and immediate tax benefits – ~$175 million of rel
Slide 8: Summary of Key Terms and Conditions
Summary of Key Terms and Conditions . Bankers Life & Casualty Company (IL Domicile) to cede to Wilton Reassurance Company (MN domicile) . Domestic comfort trust established to hold assets backing 100% of the statutory liabilities plus an additional $500 million of over-collateralization – Collateral
Slide 9: Material Risk Reduction Under Stress Test Scenarios
Material Risk Reduction Under Stress Test Scenarios Bankers Life Long-term Care - Projected Inforce Cashflows Pre-Transaction Post-Transaction $50 $50 $0 $0 ($50) ($50) ($) Millions ($) Millions ($100) ($100) ($150) ($150) 2018 2023 2028 2033 2038 2043 2048 2018 2023 2028 2033 2038 2043 2048 Best Es
Slide 10: Material Risk Reduction Under Stress Test Scenarios: Balance sheet risk
Material Risk Reduction Under Stress Test Scenarios Bankers Life Long-term Care Balance sheet risk significantly reduced under stress scenarios Pre-Transaction Post-Transaction $325mm margin reduction $150mm margin reduction Level Interest Rates $10mm charge No charge $1bn margin reduction $450mm ma
Slide 11: Estimated Impacts to Key Financial Metrics
Estimated Impacts to Key Financial Metrics As of June 30, 2018 Estimated Post Closing Bankers Life RBC 413% 400% Consolidated RBC 444% 435% HoldCo Cash $376mm $150mm Operating ROE 9.6%* +150bps (annualized) Debt to Capital 19.6%* 23% Diluted Book Value Per Share $22.62* $19.00 - Minimal impact to GA
Slide 12: Long-term Care at CNO Going Forward
Long-term Care at CNO Going Forward Inforce New Business Comfortable with retained business risk profile . Continue to focus new business on products with short benefit periods Percent of Policies by Benefit Period – Average benefit period for new sales is 60.0% 51.6% ~10 months 50.0% 42.9% Pre‐tran
Slide 13: Closing Comments
Closing Comments A transformative risk reduction transaction for CNO Reduces potential volatility on earnings and reserves • Represents 100% of Bankers Life legacy comprehensive and nursing home business Differentiated block of long-term care enabled CNO to execute at reasonable economic terms Wilto
Slide 14: Second Quarter 2018 Earnings Results
Second Quarter 2018 Earnings Results CNO Financial Group | Second Quarter 2018 Earnings | August 2, 2018 14
Slide 15: Quarter in Review
Quarter in Review . Continued strong earnings and capital results – Operating EPS up 9%, benefiting from tax reform – Book value per diluted share (excluding AOCI)1 of $22.62, up 3% sequentially . Diversified business model driving growth – 5 of 7 Growth Scorecard metrics up – Progress in agent forc
Slide 16: Segment Update
Segment Update Results Key Initiatives – Total collected premiums up 2%, driven by – Reshape the agent force through annuities up 9% recruiting and retention – Annuity account values increased 5% – Improve success rate of new agents – Life and health NAP down 2% and 5%, respectively – Enhanced use o
Slide 17: 2Q18 Earnings Highlights
2Q18 Earnings Highlights ($ millions, except per share data) Financial Highlights Financial Results . Net income per diluted share of $0.61 2Q17 2Q18 $0.49 $0.45 . Net operating income per diluted share1 $0.49 of $0.49 $0.42 Net Operating Income . Operating ROE1 of 9.6% Per Share¹ Net Operating Inco
Slide 18: Segment Results
Segment Results ($ millions) Segment Adjusted EBIT Excluding Significant Items1 2Q17 3Q17 4Q17 1Q18 2Q18 Segment Highlights . Bankers Life results reflect higher $106.9 $103.2 $98.9 $96.1 Medicare supplement incurred claims Bankers Life $87.2 and 2Q17 outperformance . Washington National results ref
Slide 19: Health Margins
Health Margins ($ millions) Bankers Life Medicare Bankers Life Long-term Care Washington National Supplement Benefit Ratio IABR1 Supplemental Health IABR1 $194 $195 $193 $193 $192 $146 $147 $149 $151 $152 $114 $113 $111 $110 $108 72.0% 73.3% 73.1% 70.4% 70.7% 76.5% 74.4% 60.4% 73.1% 72.6% 59.0% 72.9
Slide 20: Wrap-up
Wrap-up . Accelerate growth through execution and alignment – Investing in associates key to success . No change to go-forward capital deployment strategy . CNO is a unique investment opportunity CNO Financial Group | Second Quarter 2018 Earnings | August 2, 2018 20
Slide 21: Questions and Answers
Questions and Answers CNO Financial Group | Second Quarter 2018 Earnings | August 2, 2018 21
Slide 22: Appendix
Appendix CNO Financial Group | Second Quarter 2018 Earnings | August 2, 2018 22
Slide 23: Growth Scorecard
Growth Scorecard ($ millions) 1Q 2Q 3Q 4Q 1Q 2Q Q/Q YTD 2017 2018 % Change First Year Collected Premiums Bankers Life $311.1 $319.9 $288.2 $326.4 $299.5 $338.3 5.8% 1.1% Washington National 20.5 19.7 18.9 19.3 19.7 19.4 ‐1.5% ‐2.7% Colonial Penn 13.7 12.7 12.1 11.6 11.9 11.3 ‐11.0% ‐12.1% Total CNO
Slide 24: Investment Results
Investment Results ($ millions) Average Invested Assets and Cash Quarter Highlights $23,982 $24,286 $24,580 $24,642 $24,823 . New money rate reflects slight increase in quality bias and reduction in high yield allocation $322.4 $325.9 $325.1 $329.1 $328.2 Net Investment . Strategic diversification i
Slide 25: Average Producing Agents
Average Producing Agents1 Bankers Life Washington National 1st Yr 2nd Yr 3rd Yr + Total 1st Yr 2nd Yr 3rd Yr + Total 6/30/2018 1,805 436 1,835 4,076 274 87 321 682 3/31/2018 1,808 453 1,847 4,108 285 85 316 686 12/31/2017 1,845 463 1,863 4,171 288 85 314 687 9/30/2017 1,887 483 1,873 4,243 287 89 31
Slide 26: 2Q18 Holding Company Liquidity
2Q18 Holding Company Liquidity ($ millions) 2Q18 FY18 Cash and Investments Balance - Beginning $377.9 $396.6 Sources Dividends from Insurance Subsidiaries 51.5 71.5 Dividends from Non-insurance Subsidiaries 11.0 11.0 Management Fees 28.3 55.0 Surplus Debenture Interest 12.1 24.1 Earnings on Corporat
Slide 27: Tax Asset Summary
1 Tax Asset Summary ($ millions) Loss Carryforwards Details . Total estimated economic value of NOLs of $256 million @ 10% discount rate (~$1.54 on per share basis) Non‐ Life(1) $469 . NOLs are expected to offset 100% of the taxable income of our non-life companies and Non-Life(2) 35% of the taxable
Slide 28: Policies Inforce
Policies Inforce The following summarizes total policies inforce as of the end of the period indicated. 2Q17 3Q17 4Q17 1Q18 2Q18 Policies inforce: Bankers Life 1,515,445 1,510,160 1,500,573 1,485,235 1,482,002 Washington National 964,519 963,141 964,138 969,525 972,175 Colonial Penn 849,353 845,135
Slide 29: 2Q17 Significant Items
2Q17 Significant Items The table below summarizes the financial impact of significant items on our 2Q17 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended June 30, 2017 Exc
Slide 30: 3Q17 Significant Items
3Q17 Significant Items The table below summarizes the financial impact of significant items on our 3Q17 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended September 30, 201
Slide 31: 4Q17 Significant Items
4Q17 Significant Items The table below summarizes the financial impact of significant items on our 4Q17 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended December 31, 2017
Slide 32: 1Q18 Significant Items
1Q18 Significant Items The table below summarizes the financial impact of significant items on our 1Q18 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended March 31, 2018 Ex
Slide 33: Quarterly Earnings
Quarterly Earnings ($ millions) 2Q17 3Q17 4Q17 1Q18 2Q18 Bankers Life $ 112.6 $ 106.9 $ 109.7 $ 89.5 $ 96.1 Washington National 23.6 27.5 23.7 34.3 25.4 Colonial Penn 8.0 9.0 5.9 (1.5) 5.4 Long-term care in run-off 1.7 (1.0) 0.6 - 3.1 Adjusted EBIT from business segments 145.9 142.4 139.9 122.3 130.
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): 2Q17 3Q17 4Q17 1Q18 2Q18 Net income(loss) applicable to co
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): 2Q17 3Q17 4Q17 (a) 1Q18 2Q18 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 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 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, fair value changes due to fluctuations in the interest rates used to discount embedded de
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 items, on equity,
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 Net exclu
Slide 42: 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 2Q17 3Q17 4Q17 1Q18 2Q18 Pretax operating earnings (a non-GAAP financial measure)$ 447.3 $ 46
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): 1Q16 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