CNO Financial Group, Inc. · NYSE:CNO
CNO Financial — Q2 2014 Earnings Presentation
43 slides from CNO Financial's earnings presentation, Jul 29, 2014
Slide 1: 2Q14 Financial and operating results
2Q14 Financial and operating results for the period ended June 30, 2014 July 29, 2014 Unless otherwise specified, comparisons in this presentation are between 2Q14 and 2Q13.
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 re
Slide 4: CNO Financial Group | 2Q2014 Earnings | July 29, 2014
CNO Financial Group | 2Q2014 Earnings | July 29, 2014 4
Slide 5: 2Q14 Summary
2Q14 Summary CNO Growth in the business and operating EPS Continued strength in key capital ratios Ongoing return of capital to shareholders and increased securities repurchase guidance Closed sale of Conseco Life Insurance Company (CLIC) on July 1st Received additional upgrade from S&P to
Slide 6: Investments Driving Growth
Investments Driving Growth CNO Investments in Key Initiatives in 2014 Continue to Drive Above Industry Growth Rates Investment Breakdown Growth in Business ($ millions) 2Q13 2Q14 LTM NAP $400 $423 Agent Growth Customer and Experience / LTM Collected Premium* $2,370 $2,410 Expansion Brand Awareness B
Slide 7: Significant EPS Growth
Significant EPS Growth CNO Operating Earnings Per Share Excluding Notable Items Significant Items* Investments in business driving 2Q14 growth $0.32 2Q13 Returned over $1bn in securities $0.25 repurchase p since inception p of program through July Excess capital, ratings upgrades and de-leveri
Slide 8: Bankers Life 2Q14 Sales and Distribution Results
2Q14 Sales and Distribution Results Bankers Life ($ millions) Quarterly NAP* Sales flat, but leading indicators tracking with expectations 4Q13 – Strong life and annuity sales offset by $73.9 2Q13 3Q13 1Q14 2Q14 lower health sales $63.2 $63.1 $63.1 $62.5 Shortfall in recruiting offset by gains i
Slide 9: Washington National 2Q14 Sales and Distribution Results
2Q14 Sales and Washington g National Di Distribution t ib ti R Results lt ($ millions) Quarterly NAP Sales up 9% 4Q13 2Q14 ‒ Individual sales up 11% 2Q13 3Q13 $26.2 $25.3 ‒ Worksite sales up 3% $23.3 $23.9 1Q14 $22.0 Growth in PMA agent force ‒ Producing agents* up 17% Supplemental health coll
Slide 10: Colonial Penn 2Q14 Sales and Distribution Results
2Q14 Sales and Colonial Penn Di t ib ti R Distribution lt Results ($ millions) Quarterly NAP Sales up 4% ‒ Strong web, term, and whole life product sales 1Q14 2Q14 2Q13 3Q13 $16.8 ‒ Improvement in marketing costs $16.5 $15.8 $15.4 4Q13 effectiveness $14.0 Continue to build momentum ‒ February th
Slide 11: Business Investments Delivering Results
Business Investments Delivering Results Investments expected to yield sales growth of 6% - 8% in 2014 Sales force automation and new CRM tools Advanced life sales training Revised branding and digital marketing Grow Financial Advisor program Worksite distribution expansion New product in
Slide 12: 2Q14 Consolidated Financial Highlights
2Q14 Consolidated Financial Highlights CNO Strong Overall Earnings ‒ Med supp and LTC benefit ratios performed within expected ranges ‒ Continued growth in annuity account value and strong margins ‒ Supplemental health benefit ratios elevated ‒ Corporate and overall results benefited from favorabl
Slide 13: Segment Earnings
Segment Earnings CNO ($ millions) Segment EBIT Excluding Significant Items* 2Q14 Notable Items $109.9 $119.8 $101.3 $103.3 $103 3 $106 1 $106.1 2014 segment results reflect allocation $32.3 of residual OCB overhead $37.8 $31.1 $34.3 $33.0 Bankers results reflect favorable annuity and health marg
Slide 14: Health Margins
Health ($ millions) Margins CNO Bankers Life Medicare Supplement $189 $191 $190 $195 $193 2Q14 Highlights 67.2% 67.0% 67.7% 69.5% Bankers Medicare supplement benefit ratio in 65 7% 65.7% line with expectations and favorable trends Growth in premium driven by improved persistency and new business
Slide 15: Investment Results
Investment Results CNO Unadjusted for CLIC Assets Being Sold ($ millions) Average Invested Assets and Cash Realized Gains, Losses and Impairments ,86 $ $24,861 $ $24,933 , $25,272 $24,850 $24,853 Gross Realized Gains $3,512 $3,492 $45.6 Gross Realized Losses $348.8 $350.7 $354.4 $348.1 $347.4 Realiz
Slide 16: Capital Targets & Excess Capital Deployment
Capital Targets & Excess Capital Deployment CNO IInvestment-grade t t d ratings ti di l d i while dialed-in hil maintaining i t i i our ttactical ti l approach h tto d l t deployment… 2013 2Q14 2014 Outlook Key Capital Ratios RBC 410% 437% ~ 415% v RBC remains strong g on g growth in Liquidity $30
Slide 17: ROE Development
ROE Development CNO Notable Items Normalized Operating ROE* Trailing T ili 4 quarter t b basis i ddampens th the impact of recent OCB transactions 8.3% When excluding OCB transactions, 7.7% average equity is up nearly $270mm year-over-year The sale of CLIC, life recapture and conservative rein
Slide 18: Why CNO?
Why CNO? Significant opportunity in the middle market Well W ll positioned iti d tto capitalize it li on th the opportunity t it with ith our unique business model Investing I ti ini th the b business i model d l tto continue ti tto d drive i above b industry sales growth and improved efficien
Slide 19: Questions and Answers
Questions and Answers CNO Financial Group | 2Q2014 Earnings | July 29, 2014 19
Slide 20: Appendix
Appendix CNO Financial Group | 2Q2014 Earnings | July 29, 2014 20
Slide 21: 2Q14 Holding Company Liquidity
2Q14 Holding g Company p y Liquidity q y CNO ($ millions) 2Q14 YTD Cash and Investments Balance - Beginning $306.1 $309.0 Sources Net Dividends from Insurance Subsidiaries 75.0 115.0 Dividends from Non-insurance Subsidiaries 4.5 9.5 Interest/Earnings on Corporate Investments 12.4 17.1 Surplus Debent
Slide 22: Debt Maturity Profile
Debt Maturity Profile CNO ($ millions) $378.1 $275.0 $378.1 $275 0 $275.0 $79.3 $60.5 $33 4 $33.4 $79.3 $60.5 $33.4 $4.2 2014 2015 2016 2017 2018 2019 2020 Term Loan Senior Secured Notes CNO Financial Group | 2Q2014 Earnings | July 29, 2014 22
Slide 23: Holding Company Investments at 6/30/14
Holding Company Investments at 6/30/14 CNO ($ millions)) Investment Performance Investment Allocation 2Q14 Cash & Money Market / Equities Cash & Money Market 0.03% Fixed Income $52.8 $182.7 Fixed Income 2.16% Equities 4.76% Alternatives $41.4 Alternatives 1.18% Portfolio strategy prioritizes consist
Slide 24: Returning Capital to our Shareholders
Returning Capital to our Shareholders CNO Highlights Total Securities Repurchase Since initiating the share buyback ($ in millions) program, repurchased equivalent of 98 $522.3 million shares, leading to a 32%* reduction in weighted average diluted shares outstanding $342.0 Cumulative investment
Slide 25: Leveraging Considerable Tax Assets
Leveraging Considerable Tax Assets CNO ($ millions) 2Q 2014 Loss Carryforwards 2014 Outlook and Value v Expect modest future valuation allowance releases as taxable income stabilizes $1,141 Annual cash flows are expected to be Life reduced by $50 million in 2016 as life $245 NOL’s NOL s are full
Slide 26: 2Q13 Significant Items
2Q13 Significant Items CNO Th ttable The bl bbelow l summarizes i th the fi financial i l iimpactt off the th significant i ifi t it items on our 2Q2013 nett operating ti income. i M Managementt believes b li that identifying the impact of these items enhances the understanding of our operating resu
Slide 27: 3Q13 Significant Items
3Q13 Significant Items CNO The table Th t bl b below l summarizes i th the fi financial i l iimpactt off significant i ifi t it items on our 3Q2013 nett operating ti income. i Management M t believes b li th thatt identifying the impact of these items enhances the understanding of our operating resu
Slide 28: 4Q13 Significant Items
4Q13 Significant Items CNO The ttable Th bl bbelow l summarizes i th the fi financial i l iimpactt off the th significant i ifi t item it on our 4Q2013 nett operating ti income. i Management M t believes b li that identifying the impact of this items enhances the understanding of our operating resul
Slide 29: 1Q14 Significant Items
1Q14 Significant Items CNO The ttable Th bl bbelow l summarizes i th the fi financial i l iimpactt off the th significant i ifi t item it on our 1Q2014 nett operating ti income. i Management M t believes b li that identifying the impact of this item enhances the understanding of our operating result
Slide 30: 2Q14 Significant Items
2Q14 Significant Items CNO The table below summarizes the financial f impact off the significant f items on our 2Q2014 2Q201 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months en
Slide 31: Quarterly Earnings
Quarterlyy Earnings g CNO ($ millions) 2Q13 3Q13 4Q13 1Q14 2Q14 Bankers Life $ 79.1 $ 86.3 $ 83.0 $ 84.2 $ 87.4 Washington National 35.8 33.0 37.8 31.1 32.3 Colonial Penn 1.2 (4.2) (4.1) (6.2) 3.8 Oth CNO Business Other B i (7 2) (7.2) (5 7) (5.7) (7 4) (7.4) - - EBIT from business segments continui
Slide 32: 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 33: 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): 2Q13 3Q13 4Q13 1Q14 2Q14 Net income applicable to common stock $
Slide 34: 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): 2Q13 3Q13 4Q13 1Q14 (a) 2Q14 Operating i
Slide 35: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Book B k value l per dildiluted 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 conver
Slide 36: 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 37: 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 loss on the operations of CLIC being sold, the earnings of CLIC being sold, gains or losses related to reinsurance transaction
Slide 38: 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 39: 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, earnings, excluding Net exclud
Slide 40: 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 2Q13 3Q13 4Q13 1Q14 2Q14 Pretax operating earnings (a non-GAAP financial measure) $ 345.0 $ 3
Slide 41: 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): 1Q12 2
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): Traili
Slide 43: 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