Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Investor Presentation (March 2019)
52 slides from Cno Financial's investor presentation, Mar 4, 2019
Slide 1: Investor Introduction March 2019
Exhibit 99.1 Investor Introduction March 2019
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: Investment Highlights
Investment Highlights Well-positioned in underserved senior middle-income market Favorable demographic tailwinds Highly differentiated business model Sustainable growth initiatives in place Strong balance sheet; robust free cash flow generation CNO Financial Group | Investor Introduction 4
Slide 5: Committed to the Middle-Income Market
Committed to the Middle-Income Market What is our Our Purpose To provide financial peace of mind to every purpose customer we serve What we’re Become the leader in meeting Middle-Income building Our Vision America’s needs for financial security and readiness for the life of their retirement Why we w
Slide 6: CNO Financial Group Overview
CNO Financial Group Overview . Focused on serving the protection needs of the 2018 Collected Premium: Product fast-growing but underserved market of middle- Supplemental income Americans at or near retirement Health & Other 17% . Products include life, fixed annuities, Medicare Long-Term Annuities s
Slide 7: What Makes CNO Different
What Makes CNO Different Our Focus on Middle- Our Diverse Income America Distribution Health and Wealth Insurance and Solutions Securities Solutions Strong Cash Flow Generation CNO Financial Group | Investor Introduction 7
Slide 8: CNO Has a Unique Understanding of the Middle Market
CNO Has a Unique Understanding of the Middle Market… CNO is well positioned in the attractive senior middle market, with 63% of middle-income households being underinsured and nearly 60% of baby boomers lacking financial advisors(1) Percentage of Population Age 65+ without a Financial Product CNO So
Slide 9: CNO Has a Diversified Product Mix Focused on Protection Needs
CNO Has a Diversified Product Mix Focused on Protection Needs… Product Offer Key Points . Basic products that meet the insurance 1 Life Insurance needs of the middle-market . Attractive and predictable return Annuities 2 characteristics . Mix of protection and accumulation 3 Medicare products to ser
Slide 10: Supported by a Broad Business Model with an Extensive Distribution Network
Supported by a Broad Business Model with an Extensive Distribution Network Market Focus . Middle-income senior market with . Middle-income working Americans . Middle-income retirees with simple, Medicare supplement, life, fixed with supplemental health and straightforward life insurance annuity, and
Slide 11: CNO Has Ongoing Initiatives to Accelerate Profitable Growth
CNO Has Ongoing Initiatives to Accelerate Profitable Growth… Initiatives Applicable to All Segments Broaden core customer Leverage technology to boost Engage in opportunistic M&A to demographic / move to the Enhance product portfolio efficiency and drive add capabilities as appropriate right product
Slide 12: CNO's Comprehensive and Active Risk Management Strategy
CNO’s Comprehensive and Active Risk Management Strategy . Business plan supports strong overall risk management strategy – Disciplined pricing and review of actuarial assumptions – Consistent application of company-wide stress tests1 – Ongoing monitoring of emerging actuarial experience, asset expos
Slide 13: Divestiture of Legacy LTC Exposure Significantly Reduces Risk Profile
Divestiture of Legacy LTC Exposure Significantly Reduces Risk Profile LTC Reinsurance transaction - A transformative risk reduction transaction for CNO . In September 2018, Bankers Life entered into an agreement with Wilton Re to cede 100% of Bankers Life legacy (prior to 2003) long-term care reserv
Slide 14: Holistic Approach to Managing Bankers Retained LTC Business
Holistic Approach to Managing Bankers Retained LTC Business . Focus on senior middle-market drives reduced tail risk . Significant claims data on older ages drives reliable studies and estimates – No mortality or morbidity improvements assumed – Minimal future rate increases projected – Ultimate new
Slide 15: Experienced Management With a Proven Track Record
Experienced Management With a Proven Track Record Experienced management team with an average tenure of 12 years and average service in the insurance sector of 22 years Years in Insurance Name Title Years with CNO Age Sector Gary C. Bhojwani Chief Executive Officer 2 28 51 Erik Helding Chief Financi
Slide 16: Track Record of Strong Execution
Track Record of Strong Execution Q4 2009 Q1 2012 Refinanced convertible Began buying back stock Q3 2018 debentures puttable in Sept 2010; under repurchase plan Completed LTC issued new equity, paid down and (and making commensurate reinsurance renegotiated Sr. Credit Facility prepayments on the Seni
Slide 17: High Quality Investment Portfolio
High Quality Investment Portfolio Investment Portfolio – Breakdown at December 31, 2018 (1) (2) Fixed Maturity Investments by Type Fixed Maturity Investments by NAIC Rating 4–5 1% 3 Other 4% 17% CMO 3% CMBS 1 8% 2 50% Corporates 45% Munis 61% 11% CNO manages a stable portfolio: 87% of fixed maturit
Slide 18: Robust and Stable Financial Position
Robust and Stable Financial Position… Risk Based Capital (“RBC”) Ratio1 459% 446% 393% Robust capitalization with $1.7bn statutory capital Target consolidated RBC of ~400-425% 24 points decrease in RBC from Q3 to Q4 2018 from market volatility, significant recovery 2019 YTD 2016 2017 2018 Debt
Slide 19: Excess Capital Allocation Strategy
Excess Capital Allocation Strategy Disciplined and opportunistic 100% deployment to highest and best use Organic investments to sustain and grow the core businesses Opportunistic Deployment - Highly selective M&A to expand product offerings or enhance distribution - Share repurchases Dividend payout
Slide 20: 2018 Year in Review
2018 Year in Review • Growth initiatives gaining traction • Accelerated new product launches Strong • Bankers Life initiatives drove producing agent growth of 4% Operational • BD/RIA client assets over $1.1 billion Performance • Bankers Life annuity collected premiums up 13% • Record production from
Slide 21: Growth Scorecard
Growth Scorecard ($ millions) All Growth Scorecard metrics positive compared to same quarter 2017 2017 2018 % Change 4Q TY 1Q 2Q 3Q 4Q TY Q/Q Y/Y New Annualized Premium 1 Life Insurance $33.6 $145.4 $36.9 $36.9 $37.4 $36.3 $147.5 8.0% 1.4% Health Insurance 51.8 187.2 41.2 44.9 44.3 53.3 183.7 2.9% -
Slide 22: Segment Update: Bankers Life
Segment Update Key Initiatives Fourth Quarter Results • Total collected premiums up 12% • Annuity first year collected premiums up 30% Reinvigorate growth • Health NAP up 1%; Life NAP down 10% • Med Advantage issued polices up 34% • More than $1.1 billion of total client assets at BD/RIA Expand to t
Slide 23: Segment Update: Washington National
Segment Update Key Initiatives Fourth Quarter Results • Life/Health NAP up 11% Maintain growth momentum • Total collected premiums up 5% • Quarterly producing agents up 6% • $1.5 million in sales from geographic Expand geographically expansion; full-year sales of $4.7 million • Life sales up 78%; no
Slide 24: Segment Update: Colonial Penn
Segment Update Key Initiatives Fourth Quarter Results • NAP up 17% Continue sales growth • Total collected premiums up 4% Expand web/digital • Web/digital NAP up 28%; 16% of 2018 sales • Strong results from investments in lead sales capabilities generation expansion • Technology enhancements driving
Slide 25: Financial Highlights: Fourth Quarter 2018 Financial Results
Financial Highlights ($ millions, except where noted) Fourth Quarter 2018 Financial Results 4Q17 4Q18 • Net income per diluted share of $0.17 $0.51 • Net operating income per diluted share1 of $0.36 − Excluding significant items, net operating $0.47 $0.45 income per diluted share1 was $0.45 $0.36 •
Slide 26: Segment Results
1 Segment Results ($ millions) Segment Adjusted EBIT Excluding Significant Items2 4Q17 1Q18 2Q18 3Q18 4Q18 Segment Highlights . Bankers Life results reflect lower $90.7 $94.4 Bankers Life $88.6 $76.7 $81.1 Medicare supplement margins . Washington National results reflect Washington higher Supplement
Slide 27: Investment Results
Investment Results ($ millions) Average Invested Assets and Cash1 Quarter Highlights $24,580 $24,642 $24,823 $24,971 . Results benefiting from alternatives $21,832 and prepayment income $325.1 $329.1 $328.2 $332.0 . Continued positive credit performance $290.4 with low levels of impairments Net Inve
Slide 28: 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 29: CNO Financial Group
ol CNO FINANCIAL GROUP
Slide 30: Retained Long-term Care Insurance (Bankers Life)
Retained Long-term Care Insurance (Bankers Life) (As of 12/31/2018) % of Policies by Benefit Period Key LTC Data GAAP Reserves $1.82B Greater than 1yr Statutory Reserves $1.86B 2% and <= 4 Yrs Policies In-Force 185,450 Greater Than 4 Average Attained Age 67 years 39% Yrs but Not Life Avg. Daily Bene
Slide 31: Broker-Dealer and Registered Investment Advisor Disclosures
Broker-Dealer and Registered Investment Advisor Disclosures ($ millions) 2017 2018 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Net New Client Assets in Brokerage $4.2 $10.9 $4.7 $15.2 $12.2 $3.1 $26.3 -$1.1 Brokerage and Advisory 1 Advisory 17.9 26.7 32.3 39.1 50.5 49.1 44.2 13.2 Total $22.1 $37.6 $37.0 $54.3 $62.7 $52
Slide 32: Agent Counts
Agent Counts Producing agent count returns to growth; 1 out of every 8 Bankers Life agents is a financial advisor 2017 2018 % Change Bankers Life 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Q/Q Total Quarterly Average Producing Agents 4,252 4,291 4,109 4,029 3,999 4,167 4,168 4,177 3.7% Total LTM Average Producing Agen
Slide 33: 2018 Holding Company Liquidity
2018 Holding Company Liquidity ($ millions) 4Q18 FY18 Cash and Investments Balance - Beginning $165.9 $396.6 Sources Dividends from Insurance Subsidiaries 114.4 213.9 Dividends from Non-insurance Subsidiaries - 11.0 Management Fees 26.2 108.9 Surplus Debenture Interest 12.3 58.2 Earnings on Corporat
Slide 34: BBB Portfolio
BBB Portfolio (Fair Value as of 12/31/2018) CNO has benefited from Positive BBB selection relative to Index 2 % Default/Impairments Portfolio Market1 % Downgrades 8.04% 1.02% 7.29% 0.93% 7.26% 5.55% 5.28% 4.75% 4.13% 0.49% 3.63% 3.41% 0.36% 2.73% 2.66% 2.34% 2.62% 2.15% 2.09% 1.68% 1.72% 1.09% 0.94%
Slide 35: Tax Asset Summary
Tax Asset Summary ($ millions) Loss Carryforwards Details $685 . Total estimated economic value of NOLs of $354 million @ 10% Life $194 discount rate (~$2.16 on per share basis) . Life NOLs are expected to offset Non-Life $491 80% of life taxable income until fully utilized. Non-life NOLs are expect
Slide 36: 4Q17 Significant Items
4Q17 Significant Items The table below summarizes the financial impact of significant items on our 4Q17 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended December 31, 2017
Slide 37: 1Q18 Significant Items
1Q18 Significant Items The table below summarizes the financial impact of significant items on our 1Q18 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended March 31, 2018 Ex
Slide 38: 4Q18 Significant Items
4Q18 Significant Items The table below summarizes the financial impact of significant items on our 4Q18 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months ended December 31, 2018
Slide 39: Quarterly Earnings
Quarterly Earnings ($ millions) 4Q17 1Q18 2Q18 3Q18 4Q18 Bankers Life$ 99.4 $ 77.5 $ 90.7 $ 94.4 $ 78.0 Washington National 23.7 34.3 25.4 30.3 31.9 Colonial Penn 5.9 (1.5) 5.4 6.1 4.8 Long-term care in run-off 10.9 12.0 8.5 2.1 0.3 Adjusted EBIT from business segments 139.9 122.3 130.0 132.9 115.0
Slide 40: 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 41: 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): 4Q17 1Q18 2Q18 3Q18 4Q18 Net income(loss) applicable to co
Slide 42: 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): 4Q17 (a) 1Q18 2Q18 3Q18 (b) 4Q18 Operati
Slide 43: 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 44: 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 45: 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 46: 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 47: 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 4Q17 1Q18 2Q18 3Q18 4Q18 Pretax operating earnings (a non-GAAP financial measure)$ 454
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): 1Q16 2
Slide 49: 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 50: Debt to Capital Ratio (Ex. AOCI)
Debt to Capital Ratio (Ex. AOCI) ($ millions) 4Q16 4Q17 4Q18 Corporate notes payable $912.9 $914.6 $916.8 Total shareholders’ equity 4,486.9 4,847.5 3,370.9 Total capital $5,399.8 $5,762.1 $4,287.7 Corporate debt to capital 16.9% 15.9% 21.4% Corporate notes payable $912.9 $914.6 $916.8 Total shareho
Slide 51: Interest Coverage
Interest Coverage ($ millions) 2016 2017 2018 Net income (loss)$ 358.2 $ 175.6 $ (315.0) Add income tax expense (benefit) (5.0) 304.9 50.2 Income (loss) before income tax expense (benefit) 353.2 480.5 (264.8) Interest expense on corporate debt 45.8 46.5 48.0 Interest expense on investment borrowings
Slide 52: Earnings Measures
Earnings Measures ($ millions) 2016 2017 2018 Bankers Life $ 375.6 $ 367.5 $ 340.6 Washington National 102.9 98.3 121.9 Colonial Penn 1.7 22.6 14.8 Long-term care in run-off 18.4 53.1 22.9 Adjusted EBIT from business segments 498.6 541.5 500.2 Corporate operations, excluding interest expense (42.5)
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