Cno Financial Group, Inc. · NYSE:CNO
Cno Financial — Q2 2010 Earnings Presentation
67 slides from Cno Financial's earnings presentation, Aug 4, 2010
Slide 1: 2Q10 Financial and Operating Results
Exhibit 99.1 2Q10 Financial and operating results for the period ended June 30, 2010 AUGUST 4, 2010 Unless otherwise specified, comparisons in this presentation are between 2Q10 and 2Q09.
Slide 2: Forward-Looking Statements
Forward-Looking Statements Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in these materials relative to markets for CNO Financial Group, Inc.’s products and trends in CNO’s operations or financial results, as well as other s
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
oa CNO FINANCIAL GROUP CNO Financial Group
Slide 5: 2Q10: Positive Momentum Continues
2Q10: Positive Momentum Continues CNO § Net operating income** of $44.9 million, up 10% – 16 cents per diluted share, reflecting dilution from issuance of shares of common stock and convertible debentures § Core sales* of $95.3 million, up 5% § Asset values increased: AOCI of $319 million at 6/30/10
Slide 6: 2Q10 Summary of Results
2Q10 Summary of Results CNO ($ millions, except per-share amounts) Pre-Tax After Tax EPS Bankers Life $64.0 Colonial Penn 7.6 Conseco Insurance Group 29.9 Corporate operations and interest expense (31.6) Income before net realized investment losses* 69.9 $44.9 $0.16 Loss on extinguishment of debt (0
Slide 7: Quarterly Earnings CNO Consolidated
Quarterly Earnings CNO Consolidated ($ millions) *Management believes that an analysis of earnings before net realized investment gains (losses), corporate interest, loss on extinguishment or modification of debt and taxes (“EBIT,” a non-GAAP financial measure) provides a clearer comparison of the o
Slide 8: Operating ROE
Operating ROE CNO Operating ROE*, Trailing 4 Quarters Average common shareholders’ equity, excluding AOCI/L and net operating loss $2,574.1 $2,503.9 $2,551.1 $2,679.2 $2,808.3 carryforwards, trailing 4 quarters ($ mils): *Operating return excludes gain (loss) on extinguishment or modification of deb
Slide 9: Operating EPS (Diluted)
Operating EPS (Diluted)* § 65.9 million shares of common stock and $293.0 million of convertible debentures issued over last three quarters Weighted average diluted shares (in millions): 185.2 185.8 217.5 292.1 302.6 *Operating earnings per share exclude loss on extinguishment or modification of deb
Slide 10: Book Value
Book Value CNO (in millions, except per-share amounts) 6/30/09 9/30/09 12/31/09 3/31/10 6/30/10 Shareholders’ Equity (Excluding AOCI/L) $3,461.9 $3,479.7 $3,796.7 $3,823.1 $3,864.0 Accumulated Other Comprehensive Income (Loss) (1,046.9) (146.0) (264.3) (103.0) 318.8 Total Shareholders’ Equity $2,415
Slide 11: Consolidated RBC Ratio
Consolidated RBC Ratio* CNO § Steady at 318% § 2Q10 statutory earnings offset impact of -8 points from modified temporary MEAF relief *Risk-Based Capital (“RBC”) requirements provide a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in
Slide 12: 2Q Summary Bankers
2Q Summary Bankers § Earnings of $64.0 million, up 1% – Higher spreads on Annuities – Positive IBNR development in PFFS – Stable LTC results § Sales (NAP) up 3% CNO Financial Group 12
Slide 13: Bankers Sales and Distribution Results
Sales and Distribution Results Bankers ($ millions) Quarterly NAP* § NAP up 3% – Increases in Life (+11%) and Med Supp (+10%) – Lower sales of LTC (-11%) and Annuities (-5%) Policies issued and not included in NAP (net of chargebacks, in thousands): PFFS policies issued: 1.8 -0.2 -1.0 22.8 -0.4 PDP
Slide 14: Quarterly Earnings Bankers
Quarterly Earnings Bankers ($ millions) Trailing 4 Quarter Operating Return on Equity: 11.6% Management believes that an analysis of income before net realized investment gains (losses), net of related amortization (a non-GAAP financial measure), is important to evaluate the financial performance of
Slide 15: 2Q Summary Colonial Penn
2Q Summary Colonial Penn § Earnings of $7.6 million, down 31% – Due to $3 million gain on termination of reinsurance pool in 2Q09 § Sales growth accelerating: NAP up 16% – Building on 7% sales growth in 1Q10 – Lead generation momentum building following increased direct response advertising – Increa
Slide 16: Quarterly Earnings Colonial Penn
Quarterly Earnings Colonial Penn ($ millions) Trailing 4 Quarter Operating Return on Equity: 12.0% Management believes that an analysis of income before net realized investment gains (losses), net of related amortization (a non-GAAP financial measure), is important to evaluate the financial performa
Slide 17: 2Q Summary CIG
2Q Summary CIG § Earnings of $29.9 million, up 41% – Higher investment spreads due to bond prepayment income – Improved annuity persistency § Sales (NAP) of $19.1 million, up 6% – Fourth consecutive quarter of positive sales comparisons § Strong specified disease sales growth in both Independent and
Slide 18: 2Q10 Sales Results CIG
2Q10 Sales Results CIG ($ millions) § Specified Disease sales up 19% – PMA up 18% – Independent up 23% § Independent worksite sales up 32% 2Q09 NAP 2Q10 NAP CNO Financial Group 18
Slide 19: Quarterly Earnings CIG
Quarterly Earnings CIG ($ millions) Management believes that an analysis of income (loss) before net realized investment gains (losses), net of related amortization (a non- GAAP financial measure), is important to evaluate the financial performance of our business, and is a measure commonly used in
Slide 20: Impact of Low Interest Rate Environment
Impact of Low Interest Rate Environment CNO § Factored into 2010 outlook we provided to investors in December 2009 § Positive impact on asset market values § Additional yields in selective asset classes to offset interest rate declines § Assets and liabilities are closely matched CNO Financial Group
Slide 21: Accounting for Costs Associated with Acquiring Insurance Contracts (EITF 09-G)
Accounting for Costs Associated with Acquiring Insurance Contracts (EITF 09-G) CNO § Proposes modifications to types of costs that can be deferred – Must be incremental or directly related to successful sales – Certain costs previously deferred will be expensed immediately § No impact on value of po
Slide 22: Realized Gains/Losses Recognized through Net Income
Realized Gains/Losses Recognized through Net Income CNO ($ millions) 2Q09 3Q09 4Q09 1Q10 2Q10 Gross gains $83.6 $99.5 $110.5 $50.9 $60.9 Gross losses (63.3) (84.1) (96.4) (35.5) (49.7) Losses due to recognition of other-than-tempor- ary impairments recognized in earnings (36.6) (35.7) (31.1) (20.3)
Slide 23: Unrealized Gain/Loss
Unrealized Gain/Loss* CNO ($ millions) 2Q09 3Q09 4Q09 1Q10 2Q10 *Includes debt and equity securities classified as available for sale. Excludes investments from variable interest entities which we consolidate under GAAP. CNO Financial Group 23
Slide 24: 2Q10 Impairments
2Q10 Impairments CNO ($ millions) Amount Recognized through Accumulated Gross Other Comprehensive Amount Recognized Amounts Income (Loss) through Net Income* Corporates $2.8 $0.0 $2.8 Alt-A 0.0 (2.1) 2.1 CMBS 4.3 3.4 0.9 Prime Jumbos 5.7 (1.1) 6.8 Subprime 0.0 (0.5) 0.5 Commercial Mortgage Loans 12.
Slide 25: Asset Allocation at 6/30/10
Asset Allocation at 6/30/10* CNO ($ millions) *Excludes investments from variable interest entities which we consolidate under GAAP (the related liabilities are non-recourse to CNO). CNO Financial Group 25
Slide 26: Investment Quality: Fixed Maturities
Investment Quality: Fixed Maturities* CNO Actively Managed Fixed Maturities by Rating at § 92% investment grade: 6/30/10 (Market Value) <BBB 8% AAA 10% AA 8% BBB 45% A 29% 12/31/0 6/30/09 9/30/09 3/31/10 6/30/10 9 % of Bonds which are Investment Grade: 91% 93% 93% 93% 92% *Excludes investments from
Slide 27: Alt-A at 6/30/10
Alt-A at 6/30/10 CNO ($ millions) Market Book % of Avg. Avg. Avg. 60+ Avg. Accum. % of Rating Value (mil.) Value (mil.) Alt-A* FICO Support Delinq. Loss Portfolio* AAA $4.4 $4.2 2.0% 720 10.9% 6.4% 0.3% 0.02% AA $61.5 $63.0 28.5% 709 16.4% 11.0% 0.8% 0.27% A $45.3 $42.4 21.0% 711 10.6% 11.9% 0.8% 0.
Slide 28: Prime Jumbo at 6/30/10
Prime Jumbo at 6/30/10 CNO ($ millions) % of Market Book Prime Avg. Avg. Avg. 60+ Avg. Accum. % of Rating Value (mil.) Value (mil.) Jumbo* FICO Support Delinq. Loss Portfolio* AAA $142.6 $148.0 18.1% 736 6.5% 2.8% 0.08% 0.62% AA $62.5 $62.8 7.9% 746 6.9% 5.2% 0.36% 0.27% A $95.4 $108.4 12.1% 741 11.
Slide 29: CMBS at 6/30/10
CMBS at 6/30/10 CNO (GAAP book value - $ millions) AAA AA A BBB <BBB Pre-2004 $200.7 $26.3 $37.3 $5.9 $0.0 2004 $135.9 $10.1 $10.6 $17.3 $0.0 2005 $239.8 $26.5 $4.1 $15.0 $5.9 2006 $86.3 $29.3 $0.0 $10.6 $7.5 2007 $236.2 $0.0 $0.0 $0.0 $0.0 2009 $71.3 $0.0 $0.0 $0.0 $0.0 Total BV $970.2 $92.2 $52.0
Slide 30: CMBS at 6/30/10
CMBS at 6/30/10 CNO ($ millions) Market Book % of Avg. Avg. 60+ Avg. Cum. % of Rating Value (mil.) Value (mil.) CMBS* Support Del. & FCR Loss Portfolio* AAA $1,008.6 $970.2 85.9% 30.1% 4.1% 0.4% 4.37% AA $85.7 $92.2 7.3% 19.9% 2.7% 0.6% 0.37% A $44.6 $52.0 3.8% 8.5% 1.4% 0.2% 0.19% BBB $30.0 $48.8 2
Slide 31: Commercial Mortgage Loans at 6/30/10
Commercial Mortgage Loans at 6/30/10 CNO § Current LTV of approximately 63% § Trailing debt service coverage ratio (DSCR) stable at approximately 1.46 § Two delinquent loans at 6/30/10, totaling $12.2 million CNO Financial Group 31
Slide 32: Summary
Summary CNO § Core sales and lead generation continue to be strong § Demographics are trending favorably – First Boomers will become Medicare-eligible in 2011; in 10 years, number of those 65 and older will increase by 50% § Focus: – Drive sales growth in all channels – Improve results of underperfo
Slide 33: Questions and Answers
Questions and Answers CNO Financial Group 33
Slide 34: Appendix
Appendix CNO Financial Group 34
Slide 35: Covenant Metrics
Covenant Metrics Prior Amendment Level CNO New 2011 Level* New 2012 Level 2.0x 1.75x 1.5x Statutory Surplus ($ millions) $1,300 $1,200 $1,100 250% 225% 200% *Also applicable in 2010 for Debt to Capital ratio only. **Excludes Accumulated Other Comprehensive Income (Loss), as defined by the senior cre
Slide 36: 2Q10 Liquidity
2Q10 Liquidity CNO ($ millions) Cash Balance 3/31/10 $131.2 Sources Dividends from insurance subsidiary $30.0 Net Proceeds from New Convertible Debentures 49.4 Surplus Debenture Interest 12.1 Management and Investment Fees, Net 25.6 Total Sources $117.1 Uses Interest $22.7 Debt Repayments: Retiremen
Slide 37: Net Investment Income
Net Investment Income CNO ($ millions) General Account Investment Income § 2Q10 portfolio yield increase due primarily to sustained new money rates exceeding portfolio rate Yield: 5.65% 5.62% 5.63% 5.76% 5.83% CNO Financial Group 37
Slide 38: Commercial Mortgage Loans at 6/30/10
Commercial Mortgage Loans at 6/30/10 CNO New England 9.0% Pacific Middle 9.3% West North Atlantic Central East North 7.5% 11.7% Central Mountain 21.5% 9.2% East South South Central Atlantic 5.3% 20.7% West South Central 5.8% CNO Financial Group 38
Slide 39: Commercial Mortgage Loans at 6/30/10
Commercial Mortgage Loans at 6/30/10 CNO ($ millions) CNO Financial Group 39
Slide 40: Expenses
Expenses CNO ($ millions) Adjusted Operating Expenses* § 2010 expenses stable *Adjusted operating expenses exclude primarily acquisition costs, capitalization of software development costs, initial PFFS marketing costs and contractual vacancy charges related to exiting the Merchandise Mart in Chicag
Slide 41: Collected Premiums
Collected Premiums CNO ($ millions) Collected Premiums-Trailing 4 Quarters § Trailing 4 quarters down 15% – Decline at Bankers due to 2Q09 3Q09 $4,494.9 $4,423.1 termination of PFFS 4Q09 1Q10 reinsurance contracts and $4,114.8 2Q10 $3,937.2 $3,819.6 lower annuity sales, as CIG expected CP – Consiste
Slide 42: Segment Performance Bankers
Segment Performance Bankers ($ millions) Pre-Tax Operating Income* § Earnings of $64.0 million, up 1% – Higher spreads on Annuities – Stable LTC results – Positive IBNR development in PFFS PTOI-Trailing 4 Quarters: $215.8 $233.4 $278.0 $286.5 $287.2 Revenues-Quarterly: $662.8 $695.1 $654.5 $584.4 $5
Slide 43: Premiums - Medicare Supplement Bankers
Premiums - Medicare Supplement Bankers ($ millions) Medicare Supplement - First-Year Premiums § First-year premiums up 39% Med. Supp. First-Year Prems.-Tr. 4 Qtrs: $83.6 $86.5 $91.7 $99.2 $107.5 Med. Supp. Total Premiums-Quarterly: $155.2 $168.9 $173.8 $176.6 $168.8 Med. Supp. NAP-Quarterly: $19.2 $
Slide 44: Premiums - Long-Term Care Bankers
Premiums - Long-Term Care Bankers ($ millions) Long-Term Care - First-Year Premiums* § Net first-year premiums* up 17%, 4Q09 1Q10 reflecting reduction in new 2Q09 3Q09 (Direct) (Direct) (Direct) 2Q10 (Direct) (Direct) $9.8 $9.8 business reinsurance $9.1 $9.5 $9.0 First-Year Prems.-Tr. 4 Qtrs: $30.0
Slide 45: Premiums - Life Insurance Bankers
Premiums - Life Insurance Bankers ($ millions) Life - First-Year Premiums 2Q10 § Fluctuations in first-year 3Q09 4Q09 $24.8 $23.4 $23.0 premiums primarily reflect 2Q09 1Q10 $20.2 variance in sales of single- $19.4 $12.4 premium policies $10.5 $10.8 SPWL $7.8 $9.6 Non- $11.6 $12.9 $12.2 $12.4 SPWL $1
Slide 46: Premiums - Annuity Bankers
Premiums - Annuity Bankers ($ millions) Annuity - First-Year Premiums § First-year premiums up 2% First-Year Prems.-Tr. 4 Qtrs: $1,308.7 $1,270.3 $1,057.1 $979.1 $984.4 Total Premiums-Quarterly: $275.4 $284.7 $198.2 $224.4 $281.1 CNO Financial Group 46
Slide 47: Annuity Surrenders Bankers
Annuity Surrenders Bankers IA Surrenders § Surrenders: both indexed and non- (annualized quarterly rate) indexed annuity surrenders lower than prior year § Total account value: – IAs - $1.8 billion – Non-IAs - $4.8 billion § Average account value: – IAs - $1.7 Non-IA Surrenders (annualized quarterly
Slide 48: Benefit Ratio - PDP Bankers
Benefit Ratio* - PDP Bankers § Down 7.3 points, impacted by improved pricing and plan design changes *We calculate benefit ratios by dividing insurance policy benefits by insurance policy income. CNO Financial Group 48
Slide 49: Benefit Ratio - Medicare Supplement Bankers
Benefit Ratio* - Medicare Supplement Bankers § 2Q10 impacted by higher incurred claims vs. 2Q09 *We calculate benefit ratios by dividing insurance policy benefits by insurance policy income. CNO Financial Group 49
Slide 50: Interest-Adjusted Benefit Ratio - LTC Bankers
Interest-Adjusted Benefit Ratio* - LTC Bankers § Stable results overall § 2Q09 favorably impacted by reserve releases related to rate increases Trailing 4 Quarter Avg.: 67.6% 68.2% 67.9% 69.6% 71.0% Qtrly. non-int. adjusted: 103.2% 108.3% 104.3% 114.4% 113.0% *We calculate interest-adjusted benefit
Slide 51: Segment Performance Colonial Penn
Segment Performance Colonial Penn ($ millions) Pre-Tax Operating Income* § Earnings down 31% – Due to $3 million gain on termination of reinsurance pool in 2009 PTOI-Trailing 4 Quarters: $29.3 $30.2 $29.4 $29.6 $26.2 Revenues-Quarterly: $62.7 $58.1 $57.8 $58.1 $59.1 Revenues -Tr. 4 Quarters: $234.0
Slide 52: Premiums - Life Insurance Colonial Penn
Premiums - Life Insurance Colonial Penn ($ millions) Life - First-Year Premiums § Sales (NAP) up 16% – Lead generation momentum building following 2009 capital limitations – Increased lead activity will drive return to pre-2009 sales levels – Building on 7% sales growth in 1Q10 First-Year Prems.-Tr.
Slide 53: Segment Performance CIG
Segment Performance CIG ($ millions) Pre-Tax Operating Income (Loss)* § Earnings up 41% – Higher investment spreads due to bond prepayment income – Improved annuity persistency PTOI-Trailing 4 Quarters: $118.1 $105.5 $67.3 $61.8 $70.5 Revenues-Quarterly: $382.5 $381.2 $357.7 $358.5 $344.4 Revenues-T
Slide 54: Medicare Supplement - First-Year Premiums
($ millions) Medicare Supplement - First-Year Premiums § First-year collections down 42% – Focus on core products (i.e., Specified Disease) First-Year Prems.-Tr. 4 Qtrs: $7.9 $8.0 $7.2 $6.9 $6.1 Total Premiums-Quarterly: $44.4 $46.9 $43.7 $40.7 $38.7 NAP-Quarterly: $1.3 $1.3 $1.5 $1.1 $0.7 NAP-Trail
Slide 55: Premiums - Specified Disease CIG
Premiums - Specified Disease CIG ($ millions) Specified Disease - First-Year Premiums § NAP up 19% – Increased focus on Specified Disease products – Momentum increasing in Worksite market First-Year Prems.-Tr. 4 Qtrs: $41.5 $43.6 $45.4 $47.7 $49.7 Total Premiums-Quarterly: $95.1 $96.2 $99.0 $99.6 $1
Slide 56: Premiums - Annuity CIG
Premiums - Annuity CIG ($ millions) Annuity - First-Year Premiums § First-year collections down 88% – Increased focus on core products First-Year Prems.-Tr. 4 Qtrs: $84.7 $83.0 $71.8 $57.7 $39.6 Total Premiums-Quarterly: $22.3 $25.2 $11.4 $5.1 $4.2 CNO Financial Group 56
Slide 57: Interest-Adjusted Benefit Ratio - Specified Disease
Interest-Adjusted Benefit Ratio* - Specified Disease § Up 2.3 points vs. 2Q09 § Non-interest adjusted ratio flat vs. 2Q09 Trailing 4 Quarter Avg.: 42.6% 41.2% 46.0% 47.8% 48.4% Qtrly. non-int. adjusted: 83.3% 76.6% 82.0% 82.3% 83.2% *We calculate interest-adjusted benefit ratios by dividing insuranc
Slide 58: 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 59: 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): CNO Financial Group 59
Slide 60: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Book value, excluding accumulated other comprehensive income (loss), per share This non-GAAP financial measure differs from book value per share because accumulated other comprehensive income (loss) has been excluded from the book value used
Slide 61: 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 or modification of debt, net realized gains or losses, and increases to our valuation allowance for deferred tax assets (“net operating in
Slide 62: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of return on common equity to operating return on common equity (excluding accumulated other comprehensive income (loss) and net operating loss carryforwards) is as follows (dollars in millions, except per share amounts): CN
Slide 63: 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 income (loss) and consolidated net income (loss) for the six months ended June 30, 2010, is as follows (dollars in millions): (Continued on nex
Slide 64: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of common shareholders’ equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders’ equity at June 30, 2010, is as follows (doll
Slide 65: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of average common shareholders’ equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to average common shareholders’ equity at June 30, 2010, is
Slide 66: 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) This non-GAAP financial measure differs from the debt to capital ratio because accumulated other comprehensive income (loss) has been excluded from the value of c
Slide 67: Slide 67