Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q1 2013 Earnings Presentation
48 slides from Cno Financial's earnings presentation, Apr 25, 2013
Slide 1: 1Q13 Financial and operating results
1Q13 Financial and operating results for the period ended March 31, 2013 April 25, 2013 Unless otherwise specified, comparisons in this presentation are between 1Q13 and 1Q12.
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 | 1Q2013 Earnings | April 25, 2013
CNO Financial Group | 1Q2013 Earnings | April 25, 2013 4
Slide 5: 1Q13 Summary
1Q13 Summary CNO Businesses continue to perform well with growth in operating earnings per share Continued strength in capital ratios – Successful tender offer for convertible debentures – Strong statutory earnings Investing in our business – Expanding locations, geographies, and product offer
Slide 6: Operating Earnings Per Share Building CNO
Operating Earnings Per Share Building CNO Operating EPS Excluding Significant Items* 1Q13 Earnings per Share Drivers $0.23 1Q12 Powerful per share performance as $0.18 $0 21 $0.21 capital actions take hold Operating Growth in premium in core business $0.15 EPS segments Normalized earnings driv
Slide 7: Continued Investment in the Business
Continued Investment in the Business CNO ($ millions)) Investing in marketing marketing, productivity and growth of the agent force NAP Expanding presence by adding new $96.2 $98.1 locations and geographies Developing and launching new products to meet the needs of our target market Driving
Slide 8: Bankers Life 1Q13 Sales and Distribution Results
1Q13 Sales and Distribution Results Bankers Life ($ millions) Growth in average agent force of 4% Quarterly NAP* Sales up 3% driven by life, up 11% 4Q12 $69.3 1Q12 2Q12 1Q13 Annuity and LTC sales, down 10% and 3Q12 $58.8 $59.5 $60.5 $57.6 23% respectively respectively, reflecting pricing disci
Slide 9: Washington National 1Q13 Sales and Distribution Results
1Q13 Sales and Di Distribution t ib ti R Results lt Washington National ($ millions) Quarterly Core NAP* Core* C * product d t sales l up 5%5%, d driven i by supplemental health sales, up 2Q12 4Q12 3Q12 $22.7 9% 1Q12 $22.0 $21.2 1Q13 $20.6 ‒ Initiatives in worksite and PMA $19.6 geographic expansi
Slide 10: Colonial Penn 1Q13 Sales and Distribution Results
1Q13 Sales and Colonial Penn Di t ib ti R Distribution lt Results ($ millions) Quarterly NAP Sales down 3% 1Q12 ‒ Reflects disciplined ad spend $17.5 1Q13 2Q12 $17.0 3Q12 ‒ In line with expectation $15.6 $15.1 4Q12 ‒ Partially offset by higher sales $13.6 $13 6 productivity Collected premiums up
Slide 11: Outlook
Outlook Efforts continue to expand distribution and product offerings to effectively serve our growing target market Continue investment in branch expansion; expect to add 25 locations in 2013 Expect continued growth as new locations get to full productivity drive improved retention Drive cros
Slide 12: 1Q13 Consolidated Financial Highlights
1Q13 Consolidated Financial Highlights CNO Earnings ‒ Strong results across all core segments ‒ Normalized earnings drivers performed as expected ‒ EPS benefiting from an 18% decrease in weighted average diluted shares Capital & Liquidity ‒ RBC ratio, leverage and holding company liquidity remai
Slide 13: Segment Earnings
Segment Earnings CNO ($ millions)) Segment EBIT Excluding Significant Items* 1Q13 Notable Items $125.6 $129.3 Bankers, Washington National and Colonial Penn collectively up 28% $97.3 $99.8 $33.9 $34.6 $101.9 over 1Q12 $24.7 $33.9 $29.4 Net investment income and annuity margins i remain i strong
Slide 14: Underwriting Margins
Underwriting Margins CNO ($ millions) Bankers Life Medicare Supplement $183 $184 $185 $186 $188 1Q13 Highlights Bankers Medicare supplement benefited from favorable reserve 72.2% 67.8% 71.4% 68.5% developments 64.5% 1Q12 2Q12 3Q12 4Q12 1Q13 Bankers Life Long Term Care Interest-Adjusted* Bankers
Slide 15: Net Investment Income
Net Investment Income CNO ($ millions) Sequentially strong new money rate General Account Investment Income due to targeted 1Q credit compression investment strategy 4Q12 1Q13 Increase in investment income 2Q12 3Q 3Q12 1Q12 $352 8 $352.8 $351 9 $351.9 $351.1 $349.4 reflects growth in invested as
Slide 16: Realized Gains, Losses and Impairments
Realized ($ millions) Gains, Losses and Impairments CNO $41.6 $41.2 $33.3 $32.1 $22.8 $23.1 * $18.6 $10.4 $9.7 $3.5 $7.9 $5.6 $9 0 $9.0 $3.3 $3 3 $3.3 $6.2 $2.5 $2.3 $3.3 1Q12 2Q12 3Q12 4Q12 1Q13 Gross Realized Gains Gross Realized Losses Impairments * 3Q12 impairments primarily associated with two
Slide 17: Capital Position
Capital Position CNO ($ millions) RBC R Ratio ti 2011 2012 1Q2013 358% 367% 366% Insurance Company Capitalization – RBC of 366% and reflects: • Statutory S operating i iincome off $112.5mm $112 5 • $81mm of statutory dividends Leverage* GAAP Leverage 2012 20.7% 1Q2013 2011 – Repurchase of conver
Slide 18: 1Q13 Capital Generation and Deployment
1Q13 Capital Generation and Deployment CNO ($ in millions) 1Q Capital Generation 1Q Sources and Uses $122 Retained in Fees and Subs Interest $32 $9 Other $16 Interest Holdco Exp Fees and $8 Corporate & Other te est Interest Liquidity $7 $9 $53 Debt Tender Repayment Offer $14 Net $126 Statutory Net D
Slide 19: Returning Capital to our Shareholders
Returning Capital to our Shareholders CNO Total Securities Repurchases by Quarter Highlights ($ in millions) Since initiating the share buyback program, repurchased equivalent of 80 million shares, leading to a 26%* reduction in weighted average diluted shares outstanding Share Repurchases Cumul
Slide 20: Outlook
Outlook CNO Core Earnings: - No change to previous guidance on core annualized benefit ratios, net investment income and spreads - Colonial Penn: Continue to expect EBIT loss of between $5mm and $10mm in 2013 - OCB: Continue to expect EBIT in the range of $5mm to $20mm in 2013 Capital Conditions
Slide 21: On Track With 2013 Priorities
On Track With 2013 Priorities CNO Grow sales, premium income, distribution and product portfolio Drive efficiencies in operations and leveraging expertise across the enterprise Expand ROE through increased earnings and effective use of capital while reducing volatility Continue to pursue rat
Slide 22: Questions and Answers
Questions and Answers CNO Financial Group | 1Q2013 Earnings | April 25, 2013 22
Slide 23: Appendix
Appendix CNO Financial Group | 1Q2013 Earnings | April 25, 2013 23
Slide 24: 2013 Initiatives Support 2015 Milestones
CNO: 2013 Initiatives Support 2015 Milestones 2013 Initiatives 2015 Milestones Grow G sales, l premium, i Invest I t $80-$85mm $80 $85 iin strategic t t i distribution and product portfolio business initiatives Drive toward efficiencies in Accelerate run-on and run-off operations ti andd lle
Slide 25: 1Q12 Significant Items
1Q12 Significant Items CNO The table below summarizes the financial impact of significant items on our 1Q2012 net operating income. Management believes that id tif i th identifying the iimpactt off th these it items enhances h th the understanding d t di off our operating ti results lt (dollars (d l
Slide 26: 2Q12 Significant Items
2Q12 Significant Items CNO The table Th t bl b below l summarizes i th the fi financial i l iimpactt off significant i ifi t it items on our 2Q2012 nett operating ti income. i Management M t believes b li th thatt identifying the impact of these items enhances the understanding of our operating resu
Slide 27: 3Q12 Significant Items
3Q12 Significant Items CNO The table Th t bl b below l summarizes i th the fi financial i l iimpactt off significant i ifi t it items on our 3Q2012 nett operating ti income. i Management M t believes b li th thatt identifying the impact of these items enhances the understanding of our operating resu
Slide 28: 4Q12 Significant Items
4Q12 Significant Items CNO The table Th t bl b below l summarizes i th the fi financial i l iimpactt off significant i ifi t it items on our 4Q2012 nett operating ti income. i Management M t believes b li th thatt identifying the impact of these items enhances the understanding of our operating resu
Slide 29: 1Q13 Significant Items
1Q13 Significant Items CNO The ttable Th bl bbelow l summarizes i th the fi financial i l iimpactt off the th significant i ifi t it item on our 1Q2013 nett operating ti income. i Management M t believes b li that identifying the impact of this item enhances the understanding of our operating result
Slide 30: Quarterly Earnings
Quarterlyy Earnings g CNO ($ millions) 1Q12 2Q12 3Q12 4Q12 1Q13 Bankers Life $ 70.5 $ 76.1 $ 80.6 $ 73.7 $ 62.1 Washington National 24.7 33.9 33.9 34.6 29.4 Colonial Penn ((9.8)) 0.6 ((2.6)) 3.2 ((5.4)) Other CNO Business (2.3) 1.9 (53.6) 5.2 3.6 EBIT* from business segments 83.1 112.5 58.3 116.7 89
Slide 31: Loss Recognition & Cash Flow Testing
Loss Recognition & Cash Flow Testing CNO 2012 GAAP Loss Recognition Testing 2012 Statutory Cash Flow Testing Aggregate gg g testing g margins g remain strong g Insurance Company margins consistent with Testing margin Increased in 2012 prior years ↑ - ASU 2010-26 All insurance entities pass A
Slide 32: Low-For-Long Rates – Reserve Sensitivity
“Low-For-Long” Rates – Reserve Sensitivity CNO Expanded New Money Rate (NMR) Stress Test • Moderate Stress: 4.75% NMR held flat for 5 years then recovering • Severe Stress: 50 basis point drop in NMR to 4.25% held flat indefinitely • 3Q assumption change: OCB interest sensitive life reserve charge -
Slide 33: 1Q13 Holding Company Liquidity
1Q13 Holding g Company p y Liquidity q y CNO ($ millions) 1Q13 Cash and Investments Balance - Beginning $293.6 Sources Dividends from Insurance Subsidiaries 81.0 Dividends from Non-insurance Subsidiaries 3.8 Interest/Earnings on Corporate Investments 5.5 Surplus Debenture Interest 12.0 Service and I
Slide 34: Debt Maturity Profile
Debt Maturity Profile(1) CNO ($ millions) $389.1 $275.0 $389.1 $275.0 $94.2 $79.3 $60.5 $33.7 (2) $37.6 $79 3 $79.3 $ $60.5 $ $60.5 $37.6 $4.2 2013 2014 2015 2016 2017 2018 2019 2020 Term Loan Convertible Senior Unsecured Debentures Senior Secured Notes (1) Maturity schedule does not include amortiz
Slide 35: Commercial Mortgage Loans
Commercial Mortgage Loans $1.6bn of Invested Assets* Other Multi-Family Focus on ‘A’ quality properties which are diversified by 3% 7% geography and sector Mixed Use 3% No’s: mezzanine or real estate equity investments, construction or condo loans, pro-forma underwriting Retail 37% Industrial 18
Slide 36: Peripheral Europe as of 3/31/13
Peripheral Europe as of 3/31/13 CNO ($ millions) Total Book Fair Italy Ireland Spain Value Value Basic Industrials $ - $ 62 $ - $ 62 $ 68 Food / Beverage - 44 - 44 48 Financials - 54 28 82 92 Utilities Utiliti - 30 - 30 33 Communications 26 - 66 92 90 Capital Goods 19 - - 19 21 Healthcare / Pharmacy
Slide 37: Holding Company Investments at 3/31/13
Holding Company Investments at 3/31/13 CNO ($ millions)) Investment Performance Investment Allocation 1Q13 Cash & Money Market / Cash & Money y Market 0.05% Fixed Income $166.2 Fixed Income 0.47% Equities 10.29% Equities / Alternatives Alternatives 1.98% $77.9 Portfolio strategy is to prioritize liq
Slide 38: 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 39: 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): 1Q12 2Q12 3Q12 4Q12 1Q13 Net income (loss) applicable to
Slide 40: 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): 1Q12 2Q12 3Q12 4Q12 1Q13 Operating incom
Slide 41: 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 42: 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 43: 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 44: 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 45: 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 (loss) and consolidated net income (loss) for the twelve months ended March 31, 2013, is as follows (dollars in millions): Bankers Washi
Slide 46: 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 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): (Conti
Slide 48: 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