CNO Financial Group, Inc. · NYSE:CNO
CNO Financial — Q4 2014 Earnings Presentation
48 slides from CNO Financial's earnings presentation, Feb 11, 2015
Slide 1: 4Q14 Financial and operating results
4Q14 Financial and operating results for the period ended December 31, 2014 February 11, 2015 Unless otherwise specified, comparisons in this presentation are between 4Q14 and 4Q13.
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 ret
Slide 4: CNO Financial Group | 4Q2014 Earnings | February 11, 2015
CNO Financial Group | 4Q2014 Earnings | February 11, 2015 4
Slide 5: 4Q14 Summary
4Q14 Summary CNO Continued growth in the franchise Completed year end assumption review − Aggregate margins continue to be strong − LTC margins remain thin Continued strength in key capital ratios Repurchased $75 million of common stock; total year securities repurchases of $376.5 million CN
Slide 6: Significant EPS Growth
Significant EPS Growth CNO (amounts in millions, except per share data) Returning Capital to Operating Earnings Per Share Excluding Shareholders Significant Items* 2014 4Q14 Q $427.5 $0.34 4Q13 $51.0 $0.28 2013 $276.9 $24.3 $376.5 $252.6 Operating Earnings $64.2 $69.7 Excl. Significant Items* Securi
Slide 7: Strategic IT Partnership with Cognizant
Strategic IT Partnership with Cognizant Comprehensive, multi-year agreement forming a strategic partnership for technology delivery and services ‒ After the transition period, Cognizant will assume CNO’s: ‒ Application development, maintenance, and testing ‒ Select IT infrastructure operations ‒ A
Slide 8: 2014 Accomplishments
2014 Accomplishments CNO Continued to grow the business Significantly reduced risk profile of the company through reinsurance and the sale of the CLIC legal entity Met and exceeded earnings growth growth, ROE and financial strength targets p Continued to return capital to shareholders − $1.3
Slide 9: 4Q14 Sales and Distribution Results Bankers Life
4Q14 Sales and Distribution Results Bankers Life ($ millions) Quarterly NAP* 4Q sales flat; YTD sales up 1% ‒ Life and annuity sales up 8% 8%, health 4Q13 4Q14 sales down 8% $73.9 $73.6 1Q14 2Q14 3Q14 $63.1 $63.1 Improvement in recruiting, and $61.8 continued productivity gains ‒ New recruits up
Slide 10: 4Q14 Sales and Distribution Results Washington National
4Q14 Sales and Washington g National Di Distribution t ib ti R Results lt ($ millions) Quarterly NAP 4Q sales l flflat; t YTD sales l up 6% ‒ PMA up 6%, contributing 80% of 4Q13 2Q14 3Q14 4Q14 $26.2 $25.3 $25.6 $26.3 total sales 1Q14 $22.0 ‒ WN Independent Partners down 17% Growth in PMA agent f
Slide 11: 4Q14 Sales and Distribution Results Colonial Penn
4Q14 Sales and Colonial Penn Di t ib ti R Distribution lt Results ($ millions) Quarterly NAP 4Q sales up 6%, YTD sales up 4% ‒ Strong web, new simplified issue term & 1Q14 2Q14 3Q14 whole life, and direct mail sales $16.8 $16.5 $16.4 4Q14 4Q13 $14.9 $14.0 Collected Premiums up 5% FY 2014 Total
Slide 12: 2015 Sales Outlook
2015 Sales Outlook Expect consolidated sales growth of 3% - 6% 2015 sales growth: 3-5% Sharpen focus on agent recruiting Continue gains in agent productivity 2015 sales growth: 5-7% Continued growth in PMA agent force, force with greater availability of new products and programs to increase ag
Slide 13: 4Q Consolidated Financial Highlights
4Q Consolidated Financial Highlights CNO Earnings Remain Strong ‒ Normalized EBIT and EPS up 8% and 21% respectively over 4Q 2013 ‒ Health benefit ratios and margins generally consistent with guidance ‒ Annuity and life account value growth and continued strong margins Capital p & Liquidity q y
Slide 14: Segment Earnings
Segment Earnings ($ millions) CNO Segment EBIT Excluding Significant Items* 4Q14 Earnings Drivers $109.9 $119.8 $119.7 $118 7 $118.7 Bankers Life favorable annuity margins margins, $106.1 stable LTC results, and modestly $30.1 $30.2 $32.3 elevated Medicare supplement claims $37.8 $31.1 Washingto
Slide 15: Health Margins
Health Margins ($ millions) CNO Bankers Life Medicare Supplement $190 $195 $193 $194 $193 4Q14 Highlights & Outlook 70.0% 65.7% 67.7% 67 7% 69.5% 66.2% Medicare supplement benefit ratio of 70% reflects modestly elevated claims 2015 Outlook: benefit ratios in the 70% range with continued growth i
Slide 16: Investment Results
Investment Results CNO ($ ( millions)) Average Invested Assets and Cash Realized Gains, Losses and Impairments $25,272 $24,850 $24,853 Gross Realized Gains $3,512 $3,492 $21,687 $21,852 $45.6 Gross Realized Losses $354.4 $348.1 $347.4 Realized Gains and Losses $300.1 $305.4 on OCB LTC sales CLIC ass
Slide 17: 2014 GAAP Loss Recognition Testing
2014 GAAP Loss Recognition Testing Aggregate GAAP margins remain strong at ~15% of $23 billion in tested liabilities* LRT testing margin increased modestly in 2014 Net growth in In In-force force ((+5%) 5%) Improved experience and expenses (+3%) Decreased long-term new money investment rat
Slide 18: LTC - Actuarial Analysis & Sensitivity Testing
LTC - Actuarial Analysis & Sensitivity Testing Margin of ~$100mm or 2% of NGL* Net morbidity and premium rate actions ~ $(230)mm Conservative benefit Testing Results Persistency ~ $125mm structure reduces duration Long-term g interest rates ~$(50)mm ( ) and overall tail risk Comprehensive
Slide 19: New Money Investment Rate Assumptions
New Money Investment Rate Assumptions New Money Rates (NMR) Investment Rate Risk Concentrated In LTC Assumptions • Assumption Change: NMR reflect year year- 7.50% LTC LRT Stress Scenarios end market conditions and 2015 investment strategy with ultimate rates reduced 50 basis points 7.00% Overall O
Slide 20: Capital Targets & Excess Capital Deployment
Capital Targets & Excess Capital Deployment CNO 2015 Y.E. 2013 2014 Outlook Key Capital Ratios RBC 410% 434% ~ 425% v RBC remains strong; 4Q reflects reduced Liquidity $309mm $345mm ~ $315mm* statutory dividends to build Bankers Life Leverage** 16.9% 17.1% ~ 16% capital ratios Leverage held stead
Slide 21: ROE Progression & Considerations
ROE Progression & Considerations Organic ROE Build Considerations ROE C Capacityit – ROE Drivers 10.0% (2) Recapitalization -Stable growth in core earnings 9.5% -Cumulative sales projections revised 8.9% (1) 7 6% (1) 7.6% -Interest rates and LTC headwinds 7.0% (1) - Repurchase a “plug” for deployabl
Slide 22: CNO Focus
CNO Focus Invest in our business and grow our franchise Enhance the customer experience Increase I operating ti effectiveness ff ti Increase p profitability y and return on equity q y Effectively manage risk and deploy capital CNO Financial Group | 4Q2014 Earnings | February 11, 2015 22
Slide 23: Questions and Answers
Questions and Answers CNO Financial Group | 4Q2014 Earnings | February 11, 2015 23
Slide 24: Appendix
Appendix CNO Financial Group | 4Q2014 Earnings | February 11, 2015 24
Slide 25: Energy Sector Overview
Energy Sector Overview December 31, 2014 Overall energy exposure of $1.8bn is appropriately sized relative to capital, highly 7% 17% diversified, and liquid 6% A or Better $145mm of unrealized gains BBB BB Investment grade energy exposure (87% of overall exposure) p ) is high g qquality y and
Slide 26: Producing Exclusive Agent Counts
Producing Exclusive Agent Counts Bankers Life (1) Washington National (2) 1st Yr 2nd Yr 3rd Yr + Total Qtr Avg (3) 1st Yr 2nd Yr 3rd Yr + Total Qtr Avg (3) 12/31/2014 2,258 664 1,868 4,790 4,842 365 128 337 830 831 9/30/2014 2,233 667 1,822 4,722 4,783 382 134 336 852 835 6/30/2014 2,427 699 1,782 4
Slide 27: 4Q14 Holding Company Liquidity
4Q14 Holding g Company p y Liquidity q y CNO ($ millions) 4Q14 YTD Cash and Investments Balance - Beginning $432.2 $309.0 Sources Net Dividends from Insurance Subsidiaries - 174.0 * Dividends from Non-insurance Subsidiaries - 9.5 Interest/Earnings on Corporate Investments (3.0) 20.4 Surplus Debentur
Slide 28: Debt Maturity Profile
Debt Maturity Profile CNO ($ millions) $378.1 $275 $79.2 $60.5 $4.3 2015 2016 2017 2018 2019 2020 Term Loan Senior Secured Notes CNO Financial Group | 4Q2014 Earnings | February 11, 2015 28
Slide 29: Holding Company Investments at 12/31/14
Holding Company Investments at 12/31/14 CNO ($ millions)) Investment Performance Investment Allocation 4Q14 Cash & Money Market 0.04% Equities $125.3 Cash & Money Market / Fixed Income Fixed Income 1.59% $198.3 Equities 4.47% Alternatives -4.52% Alternatives $21.0 Portfolio strategy prioritizes cons
Slide 30: Leveraging Considerable Tax Assets
Leveraging Considerable Tax Assets CNO ($ millions) 4Q 2014 Loss Carryforwards 2015 Outlook and Value v Expect modest future valuation allowance $1,048 releases as taxable income stabilizes Life Annual cash flows are expected to be $179 reduced by $50 million in 2016 as life NOL’s NOL s are full
Slide 31: 4Q13 Significant Items
4Q13 Significant Items CNO Th ttable The bl bbelow l summarizes i th the fi financial i l iimpactt off the th significant i ifi t items it on our 4Q2013 nett operating ti income. i M Managementt believes b li that identifying the impact of these items enhances the understanding of our operating resu
Slide 32: 1Q14 Significant Items
1Q14 Significant Items CNO The ttable Th bl bbelow l summarizes i th the fi financial i l iimpactt off the th significant i ifi t item it on our 1Q2014 nett operating ti income. i Management M t believes b li that identifying the impact of this item enhances the understanding of our operating result
Slide 33: 2Q14 Significant Items
2Q14 Significant Items CNO The table below summarizes the financial f impact off the significant f items on our 2Q2014 2Q201 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months en
Slide 34: 3Q14 Significant Items
3Q14 Significant Items CNO The table Th t bl b below l summarizes i th the fi financial i l iimpactt off significant i ifi t it items on our 3Q2014 nett operating ti income. i Management M t believes b li th thatt identifying the impact of these items enhances the understanding of our operating resu
Slide 35: 4Q14 Significant Items
4Q14 Significant Items CNO The table below summarizes the financial f impact off the significant f items on our 4Q2014 Q201 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months end
Slide 36: Quarterly Earnings
Quarterlyy Earnings g CNO ($ millions) 4Q13 1Q14 2Q14 3Q14 4Q14 Bankers Life $ 83.0 $ 84.2 $ 87.4 $ 111.8 $ 103.5 Washington National 37.8 31.1 32.3 27.6 20.2 Colonial Penn (4 1) (4.1) (6 2) (6.2) 38 3.8 04 0.4 28 2.8 Other CNO Business (7.4) - - - - EBIT from business segments continuing after the
Slide 37: 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 38: 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): 4Q13 1Q14 2Q14 3Q14 4Q14 Net income applicable to common stock $
Slide 39: 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): 4Q13 1Q14 (a) 2Q14 3Q14 4Q14 Operating i
Slide 40: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Book B k value l per dil diluted 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 conve
Slide 41: 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 42: 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 net loss on sale of CLIC and gain (loss) on reinsurance transactions, the earnings of CLIC prior to being sold, net realized g
Slide 43: 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 44: 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 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 net income is as follows (dollars in millions): Twelve months ended 4Q13 1Q14 2Q14 3Q14 4Q14 Pretax operating earnings (a non-GAAP financial measure) $ 378.3 $ 3
Slide 46: 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 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): Traili
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