Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q3 2013 Earnings Presentation
49 slides from Cno Financial's earnings presentation, Oct 29, 2013
Slide 1: 3Q13 Financial and operating results
3Q13 Financial and operating results for the period ended September 30, 2013 October 29, 2013 Unless otherwise specified, comparisons in this presentation are between 3Q13 and 3Q12.
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: CNO Financial Group | 3Q2013 Earnings | October 29, 2013
CNO Financial Group | 3Q2013 Earnings | October 29, 2013 4
Slide 5: 3Q13 Summary
3Q13 Summary CNO Businesses continue to perform well; growth in – Sales and premiums – Operating earnings per share Accelerating investment in our business – Expanding locations, geographies, and product offerings – Growing agent force and improving productivity – Improving operations platform a
Slide 6: Operating Earnings Per Share
Operating Earnings Per Share Building CNO Operating EPS Excluding Significant Items* 3Q13 $0.29 Earnings per Share Drivers 3Q12 $0.26 Per share growth positively impacted by capital actions Premium growth continues in core business segments In aggregate, normalized earnings Weighted Avg. Dilut
Slide 7: Investments in the Business Driving Growth
Investments in the Business Driving Growth CNO ($ millions) NAP $101.8 $94.1 Sales up 8% and Collected Premiums in Core Segments* up 4% Investing in productivity and growth of the agent force Expanding presence by adding new locations 3Q12 3Q13 and geographies Collected Premiums* Developing an
Slide 8: 3Q13 Sales and Distribution Results Bankers Life
3Q13 Sales and Distribution Results Bankers Life ($ millions) Sales up 9% Quarterly NAP* – Life sales up 24% – Annuity sales improved, up 11% 4Q12 – Health sales down 3% $69.3 2Q13 3Q13 • Driven primarily by declines in LTC partially 3Q12 1Q13 $63.2 $62.5 offset by critical illness sales $60.5 $57
Slide 9: 3Q13 Sales and Distribution Results Washington National
3Q13 Sales and Distribution Results Washington National ($ millions) Quarterly NAP Sales up 12% 4Q12 2Q13 3Q13 $23.9 ‒ PMA up 10% 3Q12 $22.8 1Q13 $23.3 $21.4 ‒ Independent Partners up 18% $20.6 Collected premiums* up 7% Growth in agent force ‒ PMA producing agents** up 6% Trailing 4-Quarters N
Slide 10: 3Q13 Sales and Distribution Results Colonial Penn
3Q13 Sales and Colonial Penn Distribution Results ($ millions) Quarterly NAP Sales up 2% ‒ Increased marketing drove 6% 1Q13 growth in August and September $17.0 2Q13 3Q13 3Q12 combined $15.1 $15.8 $15.4 4Q12 ‒ Positive momentum continuing $13.6 into 4Q13 ‒ Sales results in line with seasonal patt
Slide 11: Outlook
Outlook Building enterprise value through continued investment and execution, expected to deliver 8-10% sales growth New sales locations will continue to contribute to sales growth as start-up offices ramp up to full productivity Continued strength in life insurance sales backed by new products,
Slide 12: 3Q13 Consolidated Financial Highlights
3Q13 Consolidated Financial Highlights CNO Earnings ‒ Solid results across all segments ‒ In aggregate, core earnings drivers performed as expected ‒ FAS 97 (interest sensitive products) assumptions reviewed with no significant adjustments ‒ EPS benefiting from 20% decrease in weighted average dil
Slide 13: Segment Earnings
Segment Earnings CNO ($ millions) Segment EBIT Excluding Significant Items* 3Q13 Notable Items $129.3 $125.6 $110.2 Solid performance across all segments $34.6 $101.9 $107.1 $33.9 $28.1 Annuity & life margins remain strong $29.4 $30.3 Health margins mixed with strength in Medicare supplement o
Slide 14: Health Margins
Health ($ millions) Margins CNO Bankers Life Medicare Supplement 3Q13 Highlights $185 $186 $188 $189 $191 71.4% Bankers Medicare supplement benefited 68.5% 67.8% 67.2% 67.0% from a favorable reserve adjustment, positive claims trends and persistency Normalized 70% 3Q12 4Q12 1Q13 2Q13 3Q13 Bankers
Slide 15: Summary of Investment Results
Summary of Investment Results CNO ($ millions) Average Invested Assets Realized Gains, Losses and Impairments $24,986 $24,933 $24,695 $24,861 $41.2 $24,487 $349.4 $352.8 $351.9 $348.8 $32.1 $350.7 Net $22.8 $23.1 ** $18.6 Investment Income $13.5 $13.6 $11.2 $2.9 $8.0 $5.6 $0.6 3Q12 4Q12 1Q13 2Q13 3Q
Slide 16: Capital Position
Capital Position CNO ($ millions) RBC Ratio 3Q2013 2012 392% 2011 Insurance Company Capitalization 358% 367% – RBC of 392% reflects: • YTD statutory operating income of $296mm • YTD statutory dividends of $203mm • Reduction in required capital supporting CRE Leverage* GAAP Leverage 2012 2011 20.
Slide 17: 3Q13 Capital Generation and Deployment
3Q13 Capital Generation and Deployment CNO ($ in millions) LTM 3Q13 Capital Generation 3Q YTD Sources and Uses $536 Retained in Subs Interest Holdco Exp & $120 $31 Other $12 Fees and Net Interest Debt Net Statutory $103 Repayment / Statutory Securities Dividends Financing Dividends $203 Repurchases
Slide 18: Loss Carryforwards and 3Q13 Tax Items
Loss Carryforwards and 3Q13 Tax Items CNO Loss Carryforwards 3Q13 Tax Items ($ in millions) $1,523 Life Valuation allowance adjustments $271 • Resolution of CODI allocation issue* $ 72 • Assumption for future earnings** 115 • Impact of 2013 earnings 13 Other Items 7 Non-Life $974 Total favorable tax
Slide 19: ROE Progression
ROE Progression CNO Notable Items Normalized Operating ROE* Calculated on a trailing 4 quarter basis and excluding AOCI and 2Q13 3Q13 4Q12 1Q13 NOLs 8.3% 8.6% 8.5% 3Q12 8.1% 7.3% Normalized removes significant earnings items identified each quarter 3Q2012 operating ROE includes litigation and
Slide 20: 2013 Outlook
2013 Outlook CNO Core Earnings: - Expect no material change in normalized health benefit ratios - Expect continued strong annuity income and spreads - Colonial Penn: no change to annual guidance of $(5)mm to $(10)mm EBIT loss - OCB: no change to annual guidance of $5mm to $20mm EBIT - Increased pa
Slide 21: Driving Toward 2015 Milestones
Driving Toward 2015 Milestones CNO 2015 Milestones Invest $80-$85mm in strategic business initiatives Accelerate run-on and run-off Enhance customer experience and operational efficiency ROE run-rate of 9% Drive to investment grade Target dividend payout ratio of 20% CNO to host an outlo
Slide 22: Questions and Answers
Questions and Answers CNO Financial Group | 3Q2013 Earnings | October 29, 2013 22
Slide 23: Appendix
Appendix CNO Financial Group | 3Q2013 Earnings | October 29, 2013 23
Slide 24: 3Q12 Significant Items
3Q12 Significant Items CNO The table below summarizes the financial impact of significant items on our 3Q2012 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 3
Slide 25: 4Q12 Significant Items
4Q12 Significant Items CNO The table below summarizes the financial impact of significant items on our 4Q2012 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
Slide 26: 1Q13 Significant Items
1Q13 Significant Items CNO The table below summarizes the financial impact of the significant item on our 1Q2013 net operating income. Management believes that identifying the impact of this item enhances the understanding of our operating results (dollars in millions). Three months ended March 31,
Slide 27: 2Q13 Significant Items
2Q13 Significant Items CNO The table below summarizes the financial impact of the significant items on our 2Q2013 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
Slide 28: 3Q13 Significant Items
3Q13 Significant Items CNO The table below summarizes the financial impact of significant items on our 3Q2013 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 3
Slide 29: Quarterly Earnings
Quarterly Earnings CNO ($ millions) 3Q12 4Q12 1Q13 2Q13 3Q13 Bankers Life $ 80.6 $ 73.7 $ 62.1 $ 79.1 $ 86.3 Washington National 33.9 34.6 29.4 31.8 28.1 Colonial Penn (2.6) 3.2 (5.4) 1.2 (4.2) Other CNO Business (53.6) 5.2 3.6 2.6 6.1 EBIT* from business segments 58.3 116.7 89.7 114.7 116.3 Corpora
Slide 30: Loss Recognition & Cash Flow Testing
Loss Recognition & Cash Flow Testing CNO 2012 GAAP Loss Recognition Testing 2012 Statutory Cash Flow Testing Aggregate testing margins remain strong Insurance Company margins consistent with Testing margin Increased in 2012 prior years ↑ - ASU 2010-26 All insurance entities pass Asset Adequa
Slide 31: 3Q13 Holding Company Liquidity
3Q13 Holding Company Liquidity CNO ($ millions) 3Q13 YTD Cash and Investments Balance - Beginning $229.7 $293.6 Sources Dividends from Insurance Subsidiaries 64.0 202.5 Dividends from Non-insurance Subsidiaries - 6.1 Interest/Earnings on Corporate Investments 3.8 13.9 Surplus Debenture Interest 26.9
Slide 32: Returning Capital to our Shareholders
Returning Capital to our Shareholders CNO Highlights Since initiating the share buyback Total Securities Repurchases by Quarter program, repurchased equivalent of 88 million shares, leading to a 29%* ($ in millions) reduction in weighted average diluted shares outstanding Cumulative investment o
Slide 33: Debt Maturity Profile
Debt Maturity Profile CNO ($ millions) $378.1 $275.0 $378.1 $275.0 $79.3 $59.4 $64.0 $3.5 $79.3 $12.5 $59.4 $60.5 $4.2 $12.5 2013 2014 2015 2016 2017 2018 2019 2020 Term Loan Senior Unsecured Debentures Senior Secured Notes CNO Financial Group | 3Q2013 Earnings | October 29, 2013 33
Slide 34: Holding Company Investments at 9/30/13
Holding Company Investments at 9/30/13 CNO ($ millions) Investment Performance Investment Allocation 3Q13 YTD Cash & Money Market / Cash & Money Market 0.04% 0.13% Fixed Income $184.7 Fixed Income 1.41% -0.46% Equities 4.35% 19.29% Alternatives Alternatives 3.58% 5.65% $38.2 Equities $69.1 Portfolio
Slide 35: 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 36: 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): 3Q12 4Q12 1Q13 2Q13 3Q13 Net income (loss) applicable to
Slide 37: 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): 3Q12 4Q12 1Q13 2Q13 3Q13 Operating incom
Slide 38: 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 and warrants were exercised, restricted stock and performance units were vested and convertible securitie
Slide 39: 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 40: 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 return before loss on extinguishment of debt, net realized gains or losses, fair value changes due to fluctuations in the interest rates used to discount embedded derivative l
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 allocated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); and (ii) return on equity, for the twelve months end
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 segment operating return and consolidated net income for the twelve months ended September 30, 2013, is as follows (dollars in millions): Bankers Washington Colo
Slide 43: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of average allocated capital (for the purpose of determining return on allocated capital), excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to averag
Slide 44: 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 45: 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, excluding Net excluding signi
Slide 46: 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 3Q12 4Q12 1Q13 2Q13 3Q13 Segment pretax operating earnings (a non-GAAP financial measure) $ 2
Slide 47: 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): 3Q11 4
Slide 48: 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 49: 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