CARMEL, Ind., July 28, 2014 /PRNewswire/ -- CNO Financial
Group, Inc. (NYSE: CNO) today announced second quarter of 2014
operating earnings (1) of $63.7
million, or 29 cents per
diluted share compared to $63.9
million, or 28 cents per
diluted share, in the second quarter of 2013.
"CNO's middle-income market focus and ability to serve our
customers continue to drive solid growth in revenues and
profitability," said Ed Bonach, CEO
of CNO. "Our investments in agent productivity, branch and
geographic expansion, new product development, operating
efficiencies and the customer experience are delivering results and
driving growth above industry norms. Closing the sale of CLIC
provides us with even sharper focus and lower volatility going
forward."
Second Quarter 2014 Highlights
- Sales, as defined by total new annualized premium ("NAP")
(2): $104.9 million, up 3% from
2Q13
- Collected premium from our continuing operating segments (3):
$831.7 million up 2% from 2Q13
- Net income per diluted share: 35
cents in 2Q14 compared to 34
cents in 2Q13
- Net operating income (1) per diluted share: 29 cents in 2Q14 compared to 28 cents in 2Q13
- Unrestricted cash and investments held by our holding company
were $277 million at June 30, 2014, after $130.8 million of common stock repurchases,
dividends and debt payments in 2Q14
Six-month 2014 Highlights
- Sales, as defined by total NAP (2): $206.8 million, up 3% from the first six months
of 2013
- Collected premium from our continuing operating segments (3):
$1,647.4 million up 2% from the first
six months of 2013
- Net income (loss) per diluted share: (69) cents in the first six months of 2014
(including $1.36 from the loss on the
sale of Conseco Life Insurance Company ("CLIC")) compared to
38 cents in the first six months of
2013
- Net operating income (1) per diluted share: 56 cents in the first six months of 2014 compared
to 47 cents in the first six months
of 2013
- Consolidated risk-based capital ratio was 437% at June 30, 2014, reflecting statutory operating
earnings of $225 million and net
dividends to the holding company of $115.0
million during the first six months of 2014
Quarterly Segment
Operating Results
|
|
|
|
Three months
ended
|
|
June 30,
|
|
2014
|
|
2013
|
|
(Dollars in
millions,
except per share
data)
|
EBIT (5):
|
|
|
|
|
|
Bankers
Life
|
$
|
87.4
|
|
|
$
|
79.1
|
|
Washington
National
|
32.3
|
|
|
35.8
|
|
Colonial
Penn
|
3.8
|
|
|
1.2
|
|
Other CNO
Business:
|
|
|
|
|
|
Loss from the
long-term care business reinsured in 4Q13
|
—
|
|
|
(2.2)
|
|
Overhead
expense of CLIC expected to continue after the sale
|
—
|
|
|
(5.0)
|
|
EBIT from business segments continuing after the CLIC
sale
|
123.5
|
|
|
108.9
|
|
Corporate Operations,
excluding corporate interest expense
|
(15.5)
|
|
|
2.4
|
|
EBIT from
operations continuing after the CLIC sale
|
108.0
|
|
|
111.3
|
|
Corporate interest
expense
|
(11.1)
|
|
|
(13.1)
|
|
Operating
earnings before taxes
|
96.9
|
|
|
98.2
|
|
Tax expense on
operating income
|
33.2
|
|
|
34.3
|
|
Net operating
income (1)
|
63.7
|
|
|
63.9
|
|
Earnings of CLIC
being sold (net of taxes)
|
8.5
|
|
|
4.8
|
|
Gain related to
reinsurance transaction (net of taxes)
|
2.5
|
|
|
—
|
|
Net realized
investment gains (net of related amortization and taxes)
|
7.5
|
|
|
.8
|
|
Fair value changes in
embedded derivative liabilities (net of related
amortization
and taxes)
|
(4.8)
|
|
|
12.1
|
|
Equity in earnings of
certain non-strategic investments and earnings
attributable
to variable interest
entities (net of taxes)
|
(2.9)
|
|
|
(2.7)
|
|
Loss on
extinguishment or modification of debt (net of taxes)
|
(.4)
|
|
|
(6.8)
|
|
Valuation allowance
for deferred tax assets and other tax items
|
4.0
|
|
|
5.0
|
|
Net
income
|
$
|
78.1
|
|
|
$
|
77.1
|
|
|
|
|
|
|
|
Per diluted
share:
|
|
|
|
|
|
Net operating
income
|
$
|
.29
|
|
|
$
|
.28
|
|
Earnings of CLIC
being sold (net of taxes)
|
.04
|
|
|
.02
|
|
Gain related to
reinsurance transaction (net of taxes)
|
.01
|
|
|
—
|
|
Net realized
investment gains (net of related amortization and taxes)
|
.03
|
|
|
.01
|
|
Fair value changes in
embedded derivative liabilities (net of related
amortization and
taxes)
|
(.02)
|
|
|
.05
|
|
Equity in earnings of
certain non-strategic investments and earnings
attributable
to variable interest
entities (net of taxes)
|
(.02)
|
|
|
(.01)
|
|
Loss on
extinguishment or modification of debt (net of taxes)
|
—
|
|
|
(.03)
|
|
Valuation allowance
for deferred tax assets and other tax items
|
.02
|
|
|
.02
|
|
Net
income
|
$
|
.35
|
|
|
$
|
.34
|
|
The following table summarizes the financial impact of a
significant item on our 2Q14 net operating income (dollars in
millions, except per share amounts):
|
Three months
ended
|
|
June 30,
2014*
|
|
Actual
results
|
|
Significant
item
|
|
Excluding
significant
item
|
Net Operating Income
(1):
|
|
|
|
|
|
|
|
|
Bankers
Life
|
$
|
87.4
|
|
|
$
|
—
|
|
|
$
|
87.4
|
|
Washington
National
|
32.3
|
|
|
—
|
|
|
32.3
|
|
Colonial
Penn
|
3.8
|
|
|
—
|
|
|
3.8
|
|
EBIT from business
segments continuing after the CLIC sale
|
123.5
|
|
|
—
|
|
|
123.5
|
|
Corporate Operations,
excluding corporate interest expense
|
(15.5)
|
|
|
11.8
|
|
|
(3.7)
|
|
EBIT from operations
continuing after the CLIC sale (5)
|
108.0
|
|
|
11.8
|
|
|
119.8
|
|
Corporate interest
expense
|
(11.1)
|
|
|
—
|
|
|
(11.1)
|
|
Operating earnings
before taxes
|
96.9
|
|
|
11.8
|
|
|
108.7
|
|
Tax expense on
operating income
|
33.2
|
|
|
4.2
|
|
|
37.4
|
|
Net operating
income
|
$
|
63.7
|
|
|
$
|
7.6
|
|
|
$
|
71.3
|
|
|
|
|
|
|
|
|
|
|
Net operating income
per diluted share
|
$
|
.29
|
|
|
$
|
.03
|
|
|
$
|
.32
|
|
The significant item in 2Q14 represents higher expenses related
to the impact of lower interest rates on the values of liabilities
for agent deferred compensation and former executive retirement
annuities.
* See page 11 for the table of Net Operating Income
Excluding Significant Items for the three months ended June 30, 2013.
Segment Results
Bankers Life markets and
distributes a variety of insurance products to middle-income
Americans at or near retirement through a dedicated field force of
career agents. NAP in 2Q14 was $63.1
million, down $.1 million from
2Q13. Higher sales of life and annuity products were offset
by lower sales of long-term care and Medicare supplement products.
Collected premiums were up 2% in 2Q14 compared to 2Q13, driven by
increased sales over the last 12 months and favorable
persistency. Annuity account values, on which spread income
is earned, increased 2% to $7.5
billion in 2Q14 compared to 2Q13. Increased agent
productivity offset a 3% decrease in average agent count,
reflecting our emphasis on increasing sales generated per
agent.
Pre-tax operating earnings in 2Q14 compared to 2Q13 were up
$8.3 million, or 10 percent.
Earnings in 2Q14 reflect favorable annuity and long-term care
margins.
Pre-tax operating earnings in 2Q14 included approximately
$2 million of overhead expenses that
were allocated to the Other CNO Business segment in quarters prior
to 2014 and are expected to continue after the completion of the
sale of CLIC.
Pre-tax operating earnings in 2Q13 of $79.1 million included: (i) approximately
$6.5 million of favorable reserve
developments in the Medicare supplement block; partially offset by
(ii) refinements to the methodologies used to calculate health
product reserves (primarily long-term care) of approximately
$4.0 million.
Washington National markets and distributes supplemental
health and life insurance to middle-income consumers through a
wholly-owned subsidiary and independent insurance agencies.
NAP in 2Q14 was $25.3 million, up 9
percent from 2Q13 primarily driven by strong supplemental health
sales in the individual market through Performance Matters
Associates, our wholly-owned marketing organization.
Collected premiums from the segment's supplemental health block
were up 6 percent in 2Q14 compared to 2Q13, driven by strong sales
and persistency.
Pre-tax operating earnings in 2Q14 compared to 2Q13 were down
$3.5 million, or 10 percent,
primarily resulting from elevated loss ratios in the supplemental
health block and an increased allocation of overhead expenses;
partially offset by favorable annuity margins. Given the
elevated loss ratios we are experiencing in our supplemental health
block, we currently expect that this blocks' interest-adjusted
benefit ratio will be in the 54 percent range during 2014.
Pre-tax operating earnings in 2Q14 included approximately
$2 million of overhead expenses that
were allocated to the Other CNO Business segment in quarters prior
to 2014 and are expected to continue after the completion of the
sale of CLIC.
Pre-tax operating earnings in 2Q13 of $35.8 million included approximately $1.5 million of favorable reserve developments in
the Medicare supplement block. The Medicare supplement block
in this segment is in run-off, yet continues to outperform our
expectations with favorable claims experience and persistency
continuing in 2Q14.
Colonial Penn markets primarily graded benefit and
simplified issue life insurance directly to customers through
television advertising, direct mail, the internet and
telemarketing. NAP in 2Q14 was $16.5
million, up 4 percent from 2Q13, reflecting increased sales
of simplified issue life insurance policies, including an increase
in sales through the internet. Collected premiums were up 6
percent in 2Q14 compared to 2Q13, driven by increased sales and
steady persistency.
Pre-tax operating earnings in 2Q14 compared to 2Q13 reflect
continued growth in the in-force block, favorable policy benefits
and a modest increase in the deferral of acquisition costs due to a
slight shift to deferrable direct mail marketing activities.
In-force EBIT was $13.1 million, up 6
percent from 2Q13, reflecting the growth in the block.
Recognizing the accounting standard related to deferred
acquisition costs, the amount of our investment in new business
during a particular period will have a significant impact on this
segment's results. We expect this segment to report
approximately break-even results in 2014.
Corporate Operations includes our investment advisory
subsidiary and corporate expenses.
This segment's earnings included favorable investment returns in
both 2Q14 and 2Q13, reflecting market conditions. Pre-tax
operating earnings in 2Q14 and 2Q13 also reflected an increase
(decrease) in expenses of $11.8
million and $(6) million,
respectively, related to the impact of changes in interest rates on
the values of liabilities for agent deferred compensation and
former executive retirement annuities. We have elected to
recognize the change in the value of these liabilities through
earnings as interest rates change.
Non-Operating Items Related to Operations of CLIC Being
Sold
On July 1, 2014, we
completed the previously announced sale of CLIC to Wilton
Reassurance Company ("Wilton
Re"). The transaction resulted in net proceeds of
approximately $220 million based upon
an estimated balance sheet of CLIC as of June 30, 2014 and after anticipated transaction
costs and intercompany transactions completed in connection with
the closing. In addition, Bankers Life paid $28 million to recapture a block of traditional
life insurance that was previously reinsured to Wilton Re. In 1Q14, we recognized an
estimated loss on the CLIC transaction of $298.0 million, net of income taxes.
The transaction met the criteria for held for sale
accounting. As a result, the assets and liabilities of CLIC
being sold are included as single line items in the asset and
liability sections of our consolidated balance sheet as of
June 30, 2014.
The earnings related to the CLIC business being sold are also
reflected as non-operating items. Such earnings, net of
taxes, were $8.5 million in 2Q14 and
$4.8 million in 2Q13. The
higher earnings in 2Q14 were driven by overall favorable claim
experience and investment results, along with certain other items
recognized in the quarter.
Other Non-Operating Items
Net realized investment
gains in 2Q14 were $7.5 million (net
of related amortization and taxes). Net realized investment
gains in 2Q13 were $.8 million (net
of related amortization and taxes) including total
other-than-temporary impairment losses of $.6 million recorded in earnings. There
were no other-than-temporary impairments in 2Q14.
The results for 2Q14 include a $2.5
million gain related to the recapture of business previously
ceded under a modified coinsurance agreement. The gain
primarily consists of the release of an embedded derivative that is
no longer required.
During 2Q14 and 2Q13, we recognized an increase (decrease) in
earnings of $(4.8) million and
$12.1 million, respectively,
resulting from changes in the estimated fair value of embedded
derivative liabilities related to our fixed index annuities, net of
related amortization and income taxes. Such amounts reflect
the changes in market interest rates used to determine the
derivative's estimated fair value.
The results for 2Q14 include a $.4
million loss on the extinguishment or modification of debt
resulting from: (i) expenses related to the amendment of the Senior
Secured Credit Agreement in May 2014;
and (ii) the repurchase of the remaining $3.5 million principal amount of the 7.0%
Debentures for a purchase price of $3.7
million. The results for 2Q13 include a $6.8 million loss on extinguishment of debt, net
of taxes, related to: (i) the amendment of the Senior Secured
Credit Agreement and the write-off of unamortized discount and
issuance costs associated with prepayments on the Senior Secured
Credit Agreement; and (ii) the repurchase of 7.0% Debentures.
In 2Q14 and 2Q13, we reduced the valuation allowance for
deferred tax assets by $4.0 million
and $5.0 million, respectively,
resulting from the realization of capital gains and utilization of
loss carryforwards.
Statutory (based on non-GAAP measures) and GAAP Capital
Information
Our consolidated statutory risk-based capital
ratio was 437% at June 30, 2014,
reflecting 2Q14 consolidated statutory operating earnings of
$133 million and the payment of net
dividends to the holding company of $75.0
million during the quarter and $115.0
million year-to-date.
During the second quarter of 2014, we repurchased $95.6 million of common stock under our
securities repurchase program (including $3
million of repurchases settled in 3Q14). We repurchased 5.6
million common shares at an average cost of $16.97 per share. CNO anticipates
repurchasing securities in the range of $350
million to $400 million during 2014, absent compelling
alternatives. As of June 30,
2014, we had 213.8 million shares outstanding and had
authority to repurchase up to an additional $260.8 million of our common stock.
During 2Q14, we also paid common stock dividends of $12.9 million.
Book value per diluted share, excluding accumulated other
comprehensive income (loss) (6), was $17.85 at June 30,
2014, compared to $18.62 at
December 31, 2013. The decrease
primarily reflects the loss recognized on the transaction to sell
CLIC, partially offset by our 2014 operating earnings.
Our debt-to-total capital ratio, excluding accumulated other
comprehensive income (4) at June 30,
2014, was 17.4 percent, an increase of 50 basis points from
December 31, 2013, reflecting the
decrease to capital from the loss recognized on the transaction to
sell CLIC and debt repayments of $29.8
million. Unrestricted cash and investments held by our
holding company were $277 million at
June 30, 2014, compared to
$309 million at December 31, 2013.
Conference Call
The Company will host a conference
call to discuss results on July 29,
2014 at 11:00 a.m. Eastern
Time. The webcast can be accessed through the
Investors section of the company's website:
http://ir.CNOinc.com. Participants should go to the website
at least 15 minutes before the event to register and download any
necessary audio software. During the call, we will be
referring to a presentation that will be available the morning of
the call at the Investors section of the company's website.
About CNO Financial Group
CNO Financial Group, Inc. (NYSE: CNO) is a holding company.
Our insurance subsidiaries - principally Bankers Life and Casualty
Company, Colonial Penn Life Insurance Company and Washington
National Insurance Company - primarily serve middle-income
pre-retiree and retired Americans by helping them protect against
financial adversity and provide for a more secure retirement.
For more information, visit CNO online at www.CNOinc.com.
- Tables Follow -
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
(Dollars in
millions)
(unaudited)
|
|
|
|
|
|
June 30,
2014
|
|
December
31,
2013
|
ASSETS
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
Fixed
maturities, available for sale, at fair value (amortized
cost: June 30, 2014 -
$18,383.8;
December 31, 2013 - $21,860.6)
|
$
|
20,533.6
|
|
|
$
|
23,178.3
|
|
Equity
securities at fair value (cost: June 30, 2014 - $272.6; December
31, 2013 -
$237.9)
|
287.5
|
|
|
249.3
|
|
Mortgage
loans
|
1,595.9
|
|
|
1,729.5
|
|
Policy
loans
|
99.7
|
|
|
277.0
|
|
Trading
securities
|
227.4
|
|
|
247.6
|
|
Investments
held by variable interest entities
|
1,241.1
|
|
|
1,046.7
|
|
Other invested
assets
|
426.1
|
|
|
423.3
|
|
Total investments
|
24,411.3
|
|
|
27,151.7
|
|
Cash and cash
equivalents - unrestricted
|
378.8
|
|
|
699.0
|
|
Cash and cash
equivalents held by variable interest entities
|
101.8
|
|
|
104.3
|
|
Accrued investment
income
|
238.2
|
|
|
286.9
|
|
Present value of
future profits
|
512.3
|
|
|
679.3
|
|
Deferred acquisition
costs
|
698.9
|
|
|
968.1
|
|
Reinsurance
receivables
|
2,892.9
|
|
|
3,392.1
|
|
Income tax assets,
net
|
730.5
|
|
|
1,147.2
|
|
Assets held in
separate accounts
|
9.4
|
|
|
10.3
|
|
Other
assets
|
421.3
|
|
|
341.7
|
|
Assets of subsidiary
being sold
|
4,518.9
|
|
|
—
|
|
Total assets
|
$
|
34,914.3
|
|
|
$
|
34,780.6
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Liabilities
for insurance products:
|
|
|
|
|
|
Policyholder account balances
|
$
|
10,649.7
|
|
|
$
|
12,776.4
|
|
Future policy benefits
|
10,372.2
|
|
|
11,222.5
|
|
Liability for policy and contract claims
|
463.3
|
|
|
566.0
|
|
Unearned and advanced premiums
|
270.7
|
|
|
300.6
|
|
Liabilities related to separate accounts
|
9.4
|
|
|
10.3
|
|
Other
liabilities
|
560.7
|
|
|
590.6
|
|
Payable to
reinsurer
|
—
|
|
|
590.3
|
|
Investment
borrowings
|
1,507.6
|
|
|
1,900.0
|
|
Borrowings
related to variable interest entities
|
1,110.8
|
|
|
1,012.3
|
|
Notes payable
– direct corporate obligations
|
827.3
|
|
|
856.4
|
|
Liabilities of
subsidiary being sold
|
4,298.3
|
|
|
—
|
|
Total liabilities
|
30,070.0
|
|
|
29,825.4
|
|
Commitments and
Contingencies
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
Common stock
($0.01 par value, 8,000,000,000 shares authorized, shares issued
and
outstanding: June
30, 2014 – 213,755,190; December 31, 2013 – 220,323,823)
|
2.1
|
|
|
2.2
|
|
Additional
paid-in capital
|
3,963.9
|
|
|
4,092.8
|
|
Accumulated
other comprehensive income
|
926.1
|
|
|
731.8
|
|
Retained
earnings (accumulated deficit)
|
(47.8)
|
|
|
128.4
|
|
Total shareholders' equity
|
4,844.3
|
|
|
4,955.2
|
|
Total liabilities and shareholders' equity
|
$
|
34,914.3
|
|
|
$
|
34,780.6
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF OPERATIONS
(Dollars in millions,
except per share data)
(unaudited)
|
|
|
|
|
|
Three months
ended
|
|
Six months
ended
|
|
June 30,
|
|
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
policy income
|
$
|
679.0
|
|
|
$
|
691.3
|
|
|
$
|
1,364.9
|
|
|
$
|
1,382.5
|
|
Net investment
income:
|
|
|
|
|
|
|
|
|
|
|
|
General account assets
|
347.4
|
|
|
348.8
|
|
|
695.5
|
|
|
700.7
|
|
Policyholder and reinsurer accounts and other special-
purpose
portfolios
|
47.2
|
|
|
31.8
|
|
|
68.1
|
|
|
109.5
|
|
Realized
investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains, excluding impairment
losses
|
12.4
|
|
|
3.8
|
|
|
47.7
|
|
|
19.1
|
|
Other-than-temporary impairment losses:
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary impairment losses
|
—
|
|
|
(.6)
|
|
|
(11.9)
|
|
|
(.6)
|
|
Portion of
other-than-temporary impairment losses
recognized
in accumulated other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net impairment losses recognized
|
—
|
|
|
(.6)
|
|
|
(11.9)
|
|
|
(.6)
|
|
Total realized
gains (losses)
|
12.4
|
|
|
3.2
|
|
|
35.8
|
|
|
18.5
|
|
Fee revenue
and other income
|
7.0
|
|
|
6.4
|
|
|
13.4
|
|
|
12.9
|
|
Total
revenues
|
1,093.0
|
|
|
1,081.5
|
|
|
2,177.7
|
|
|
2,224.1
|
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
policy benefits
|
691.1
|
|
|
673.2
|
|
|
1,381.4
|
|
|
1,427.3
|
|
Loss on sale
of subsidiary
|
—
|
|
|
—
|
|
|
278.6
|
|
|
—
|
|
Gain related
to reinsurance transaction
|
(3.8)
|
|
|
—
|
|
|
(3.8)
|
|
|
—
|
|
Interest
expense
|
24.3
|
|
|
26.9
|
|
|
48.9
|
|
|
54.2
|
|
Amortization
|
64.9
|
|
|
79.2
|
|
|
131.6
|
|
|
158.5
|
|
Loss on
extinguishment or modification of debt
|
.6
|
|
|
7.7
|
|
|
.6
|
|
|
65.4
|
|
Other
operating costs and expenses
|
201.5
|
|
|
179.8
|
|
|
395.6
|
|
|
369.4
|
|
Total benefits and
expenses
|
978.6
|
|
|
966.8
|
|
|
2,232.9
|
|
|
2,074.8
|
|
Income (loss)
before income taxes
|
114.4
|
|
|
114.7
|
|
|
(55.2)
|
|
|
149.3
|
|
Income tax expense
(benefit):
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense on period income
|
40.3
|
|
|
42.6
|
|
|
79.3
|
|
|
75.8
|
|
Valuation allowance for deferred tax assets and other
tax
items
|
(4.0)
|
|
|
(5.0)
|
|
|
15.4
|
|
|
(15.5)
|
|
Net income
(loss)
|
$
|
78.1
|
|
|
$
|
77.1
|
|
|
$
|
(149.9)
|
|
|
$
|
89.0
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
216,538,000
|
|
|
220,498,000
|
|
|
218,422,000
|
|
|
221,290,000
|
|
Net income
(loss)
|
$
|
.36
|
|
|
$
|
.35
|
|
|
$
|
(.69)
|
|
|
$
|
.40
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
222,108,000
|
|
|
230,893,000
|
|
|
218,422,000
|
|
|
237,180,000
|
|
Net income
(loss)
|
$
|
.35
|
|
|
$
|
.34
|
|
|
$
|
(.69)
|
|
|
$
|
.38
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
EBIT FROM BUSINESS
SEGMENTS
SUMMARIZED BY
IN-FORCE AND NEW BUSINESS (7)
(Dollars in
millions)
|
|
|
|
|
|
Three months
ended
|
|
Six months
ended
|
|
June 30,
|
|
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
EBIT (5) from
In-force and New Business
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Life
segment:
|
|
|
|
|
|
|
|
|
|
|
|
In-Force
Business
|
$
|
124.3
|
|
|
$
|
109.6
|
|
|
$
|
246.7
|
|
|
$
|
205.7
|
|
New
Business
|
(36.9)
|
|
|
(30.5)
|
|
|
(75.1)
|
|
|
(64.5)
|
|
Total
|
$
|
87.4
|
|
|
$
|
79.1
|
|
|
$
|
171.6
|
|
|
$
|
141.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington
National segment:
|
|
|
|
|
|
|
|
|
|
|
|
In-Force
Business
|
$
|
34.8
|
|
|
$
|
37.9
|
|
|
$
|
68.7
|
|
|
$
|
75.2
|
|
New
Business
|
(2.5)
|
|
|
(2.1)
|
|
|
(5.3)
|
|
|
(5.4)
|
|
Total
|
$
|
32.3
|
|
|
$
|
35.8
|
|
|
$
|
63.4
|
|
|
$
|
69.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colonial Penn
segment:
|
|
|
|
|
|
|
|
|
|
|
|
In-Force
Business
|
$
|
13.1
|
|
|
$
|
12.4
|
|
|
$
|
23.4
|
|
|
$
|
21.2
|
|
New
Business
|
(9.3)
|
|
|
(11.2)
|
|
|
(25.8)
|
|
|
(25.4)
|
|
Total
|
$
|
3.8
|
|
|
$
|
1.2
|
|
|
$
|
(2.4)
|
|
|
$
|
(4.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other CNO
Business:
|
|
|
|
|
|
|
|
|
|
|
|
In-Force
Business
|
$
|
—
|
|
|
$
|
(7.2)
|
|
|
$
|
—
|
|
|
$
|
(14.5)
|
|
New
Business
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
—
|
|
|
$
|
(7.2)
|
|
|
$
|
—
|
|
|
$
|
(14.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Business
segments:
|
|
|
|
|
|
|
|
|
|
|
|
In-Force
Business
|
$
|
172.2
|
|
|
$
|
152.7
|
|
|
$
|
338.8
|
|
|
$
|
287.6
|
|
New
Business
|
(48.7)
|
|
|
(43.8)
|
|
|
(106.2)
|
|
|
(95.3)
|
|
Total EBIT
from business segments
continuing
after the CLIC sale
|
$
|
123.5
|
|
|
$
|
108.9
|
|
|
$
|
232.6
|
|
|
$
|
192.3
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
SEGMENT OPERATING
RESULTS
(Dollars in millions,
except per share data)
|
|
|
|
Six months
ended
|
|
June 30,
|
|
2014
|
|
2013
|
|
(Dollars in
millions,
except per share
data)
|
EBIT (5):
|
|
|
|
|
|
Bankers
Life
|
$
|
171.6
|
|
|
$
|
141.2
|
|
Washington
National
|
63.4
|
|
|
69.8
|
|
Colonial
Penn
|
(2.4)
|
|
|
(4.2)
|
|
Other CNO
Business:
|
|
|
|
|
|
Loss from the long-term care business reinsured in 4Q13
|
—
|
|
|
(4.9)
|
|
Overhead expense of CLIC expected to continue after the
sale
|
—
|
|
|
(9.6)
|
|
EBIT from business
segments continuing after the CLIC sale
|
232.6
|
|
|
192.3
|
|
Corporate
Operations, excluding corporate interest expense
|
(21.5)
|
|
|
5.4
|
|
EBIT from operations continuing after the CLIC sale
|
211.1
|
|
|
197.7
|
|
Corporate interest
expense
|
(22.2)
|
|
|
(28.2)
|
|
Operating
earnings before taxes
|
188.9
|
|
|
169.5
|
|
Tax expense on
operating income
|
65.3
|
|
|
60.0
|
|
Net operating
income (1)
|
123.6
|
|
|
109.5
|
|
Earnings of CLIC
being sold (net of taxes)
|
15.2
|
|
|
10.3
|
|
Loss on operations of
CLIC being sold (including impact of taxes)
|
(298.0)
|
|
|
—
|
|
Gain related to
reinsurance transaction (net of taxes)
|
2.5
|
|
|
—
|
|
Net realized
investment gains (net of related amortization and taxes)
|
21.1
|
|
|
8.8
|
|
Fair value changes in
embedded derivative liabilities (net of related
amortization
and taxes)
|
(12.0)
|
|
|
13.4
|
|
Equity in earnings of
certain non-strategic investments and earnings
attributable
to variable interest
entities (net of taxes)
|
(5.9)
|
|
|
(4.5)
|
|
Loss on
extinguishment or modification of debt (net of taxes)
|
(.4)
|
|
|
(64.0)
|
|
Valuation allowance
for deferred tax assets and other tax items
|
4.0
|
|
|
15.5
|
|
Net income (loss)
|
$
|
(149.9)
|
|
|
$
|
89.0
|
|
|
|
|
|
|
|
Per diluted
share:
|
|
|
|
|
|
Net operating
income
|
$
|
.56
|
|
|
$
|
.47
|
|
Earnings of
CLIC being sold (net of taxes)
|
.07
|
|
|
.04
|
|
Loss on
operations of CLIC being sold (including impact of
taxes)
|
(1.36)
|
|
|
—
|
|
Gain related
to reinsurance transaction (net of taxes)
|
.01
|
|
|
—
|
|
Net realized
investment gains (net of related amortization and taxes)
|
.10
|
|
|
.04
|
|
Fair value
changes in embedded derivative liabilities (net of
related
amortization
and taxes)
|
(.06)
|
|
|
.06
|
|
Equity in
earnings of certain non-strategic investments and earnings
attributable
to variable
interest entities (net of taxes)
|
(.03)
|
|
|
(.02)
|
|
Loss on
extinguishment or modification of debt (net of taxes)
|
—
|
|
|
(.27)
|
|
Valuation
allowance for deferred tax assets and other tax items
|
.02
|
|
|
.06
|
|
Net income (loss)
|
$
|
(.69)
|
|
|
$
|
.38
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
NET OPERATING
INCOME EXCLUDING SIGNIFICANT ITEMS*
(Dollars in millions,
except per share data)
|
|
|
|
Three months
ended
|
|
June 30,
2013*
|
|
Actual
results
|
|
Significant
items
|
|
Excluding
significant
items
|
Net Operating Income
(1):
|
|
|
|
|
|
|
|
|
Bankers
Life
|
$
|
79.1
|
|
|
$
|
(2.5)
|
|
|
$
|
76.6
|
|
Washington
National
|
35.8
|
|
|
(1.5)
|
|
|
34.3
|
|
Colonial
Penn
|
1.2
|
|
|
—
|
|
|
1.2
|
|
Other CNO
Business:
|
|
|
|
|
|
|
|
|
Losses from the
long-term care business reinsured
effective December 31,
2013
|
(2.2)
|
|
|
—
|
|
|
(2.2)
|
|
Overhead expense of
CLIC expected to continue after the completion of the sale
|
(5.0)
|
|
|
—
|
|
|
(5.0)
|
|
EBIT from business
segments continuing after the CLIC sale
|
108.9
|
|
|
(4.0)
|
|
|
104.9
|
|
Corporate Operations,
excluding corporate interest expense
|
2.4
|
|
|
(6.0)
|
|
|
(3.6)
|
|
EBIT from operations
continuing after the CLIC sale (5)
|
111.3
|
|
|
(10.0)
|
|
|
101.3
|
|
Corporate interest
expense
|
(13.1)
|
|
|
—
|
|
|
(13.1)
|
|
Operating earnings
before taxes
|
98.2
|
|
|
(10.0)
|
|
|
88.2
|
|
Tax expense on
operating income
|
34.3
|
|
|
(3.5)
|
|
|
30.8
|
|
Net operating
income
|
$
|
63.9
|
|
|
$
|
(6.5)
|
|
|
$
|
57.4
|
|
|
|
|
|
|
|
|
|
|
Net operating income
per diluted share
|
$
|
.28
|
|
|
$
|
(.03)
|
|
|
$
|
.25
|
|
* This table summarizes the financial impacts of
significant items (as described in the segment results section of
this press release) on our 2Q13 net operating income.
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
COLLECTED
PREMIUMS
FROM CONTINUING
OPERATING SEGMENTS
(Dollars in
millions)
|
|
|
|
Three months
ended
|
|
June 30,
|
|
2014
|
|
2013
|
Bankers Life
segment:
|
|
|
|
|
|
Medicare
supplement
|
$
|
177.8
|
|
|
$
|
176.1
|
|
Long-term
care
|
126.2
|
|
|
133.2
|
|
PDP and other
health
|
2.1
|
|
|
13.1
|
|
Supplemental
health
|
4.0
|
|
|
2.2
|
|
Life
|
101.5
|
|
|
91.1
|
|
Annuity
|
200.8
|
|
|
183.7
|
|
Total
|
612.4
|
|
|
599.4
|
|
Washington
National segment:
|
|
|
|
|
|
Supplemental health
and other health
|
129.7
|
|
|
122.7
|
|
Medicare
supplement
|
21.7
|
|
|
25.0
|
|
Life
|
6.4
|
|
|
6.3
|
|
Annuity
|
.6
|
|
|
1.4
|
|
Total
|
158.4
|
|
|
155.4
|
|
Colonial Penn
segment:
|
|
|
|
|
|
Life
|
60.0
|
|
|
56.4
|
|
Supplemental
health
|
.9
|
|
|
1.0
|
|
Total
|
60.9
|
|
|
57.4
|
|
Total collected premiums from continuing operating
segments
|
$
|
831.7
|
|
|
$
|
812.2
|
|
|
|
|
NEW ANNUALIZED
PREMIUMS (2)
(Dollars in
millions)
|
|
|
|
Three months
ended
|
|
June 30,
|
|
2014
|
|
2013
|
Bankers Life
segment:
|
|
|
|
|
|
Medicare
supplement
|
$
|
17.6
|
|
|
$
|
19.0
|
|
Long-term
care
|
4.7
|
|
|
6.5
|
|
Supplemental
health
|
1.8
|
|
|
2.7
|
|
Life
|
27.1
|
|
|
24.2
|
|
Annuity
|
11.9
|
|
|
10.8
|
|
Total
|
63.1
|
|
|
63.2
|
|
Washington
National segment:
|
|
|
|
|
|
Supplemental
health
|
23.9
|
|
|
21.3
|
|
Life
|
1.3
|
|
|
1.9
|
|
Annuity
|
.1
|
|
|
.1
|
|
Total
|
25.3
|
|
|
23.3
|
|
Colonial Penn
segment:
|
|
|
|
|
|
Life
|
16.5
|
|
|
15.8
|
|
Total
|
16.5
|
|
|
15.8
|
|
Total new annualized premiums
|
$
|
104.9
|
|
|
$
|
102.3
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
BENEFIT RATIOS ON
MAJOR HEALTH LINES OF BUSINESS
|
|
|
|
Three months
ended
|
|
June 30,
|
|
2014
|
|
2013
|
Bankers Life
segment:
|
|
|
|
|
|
Medicare
Supplement:
|
|
|
|
|
|
Earned
premium
|
$193
million
|
|
$189
million
|
Benefit ratio
(8)
|
69.5
|
%
|
|
67.2
|
%
|
Long-Term
Care:
|
|
|
|
|
|
Earned
premium
|
$127
million
|
|
$134
million
|
Benefit ratio
(8)
|
131.2
|
%
|
|
129.5
|
%
|
Interest-adjusted
benefit ratio (a non-GAAP measure) (9)
|
79.2
|
%
|
|
81.4
|
%
|
Washington
National segment:
|
|
|
|
|
|
Medicare
Supplement:
|
|
|
|
|
|
Earned
premium
|
$22
million
|
|
$26
million
|
Benefit ratio
(8)
|
61.7
|
%
|
|
65.5
|
%
|
Supplemental health
(10):
|
|
|
|
|
|
Earned
premium
|
$127
million
|
|
$120
million
|
Benefit ratio
(8)
|
80.3
|
%
|
|
79.6
|
%
|
Interest-adjusted
benefit ratio (a non-GAAP measure) (9)
|
54.8
|
%
|
|
53.5
|
%
|
NOTES
(1) Management believes that an analysis of Net
income applicable to common stock before: (i) the loss on the
operations of CLIC being sold; (ii) the earnings of CLIC being
sold; (iii) loss on reinsurance transaction; (iv) net realized
investment gains or losses, net of related amortization and taxes;
(v) fair value changes due to fluctuations in the interest rates
used to discount embedded derivative liabilities related to our
fixed index annuities, net of related amortization and taxes; (vi)
equity in earnings of certain non-strategic investments and
earnings attributable to variable interest entities, net of
taxes; (vii) loss on extinguishment or modification of debt,
net of taxes; and (viii) changes in the valuation allowance for
deferred tax assets ("Net operating income," a non-GAAP financial
measure) is important to evaluate the financial performance of the
company, and is a key measure commonly used in the life insurance
industry. Management uses this measure to evaluate
performance because the items excluded from net operating income
can be affected by events that are unrelated to the company's
underlying fundamentals. Net realized investment gains or
losses include: (i) gains or losses on the sales of investments;
(ii) other-than-temporary impairments recognized through net
income; and (iii) changes in fair value of certain fixed maturity
investments with embedded derivatives. A reconciliation of
Net operating income to Net income applicable to common stock is
provided in the tables on pages 2 and 10. Additional
information concerning this non-GAAP measure is included in our
periodic filings with the Securities and Exchange Commission that
are available in the "Investors - SEC Filings" section of CNO's
website, www.CNOinc.com.
(2) Measured by new annualized premium, which
includes 6% of annuity and 10% of single premium whole life
deposits and 100% of all other premiums. Medicare Advantage
sales are not comparable to other sales and are therefore excluded
in all periods.
(3) Collected premiums from our core operating
segments include premiums collected in our Bankers Life, Washington
National and Colonial Penn segments. Collected premiums from
all sources (including CLIC operations held for sale and the
reinsured long-term care business included in the former Other CNO
Business segment) were $866.7 million
in 2Q14, up 1% from 2Q13.
(4) The calculation of this non-GAAP measure differs
from the corresponding GAAP measure because accumulated other
comprehensive income (loss) has been excluded from the value of
capital used to determine this measure. Management believes
this non-GAAP measure is useful because it removes the volatility
that arises from changes in the unrealized appreciation
(depreciation) of our investments. The corresponding GAAP
measures for debt-to-total capital were 14.6% and 14.7% at
June 30, 2014 and December 31, 2013, respectively.
(5) Management believes that an analysis of earnings
before the loss on the operations of CLIC being sold, the earnings
of CLIC being sold, loss on reinsurance transaction, net realized
investment gains (losses), fair value changes due to fluctuations
in the interest rates used to discount embedded derivative
liabilities related to our fixed index annuities, equity in
earnings of certain non-strategic investments and earnings
attributable to variable interest entities, corporate interest
expense, loss on extinguishment or modification of debt and taxes
("EBIT," a non-GAAP financial measure) provides a clearer
comparison of the operating results of the company
quarter-over-quarter because these items are unrelated to the
company's underlying fundamentals. A reconciliation of EBIT
to Net Income applicable to common stock is provided in the tables
on pages 2 and 10.
(6) 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 securities were converted. The
dilution from options, warrants, restricted shares and performance
units is calculated using the treasury stock method. Under
this method, we assume the proceeds from the exercise of the
options and warrants (or the unrecognized compensation expense with
respect to restricted stock and performance units) will be used to
purchase shares of our common stock at the closing market price on
the last day of the period. The dilution from convertible
securities is calculated assuming the securities were converted on
the last day of the period. In addition, the calculation of
this non-GAAP measure differs from the corresponding GAAP measure
because accumulated other comprehensive income (loss) has been
excluded from the value of capital used to determine this
measure. Management believes this non-GAAP measure is useful
because it removes the volatility that arises from changes in the
unrealized appreciation (depreciation) of our investments.
The corresponding GAAP measures for book value per common share
were $22.66 and $22.49 at June 30,
2014 and December 31, 2013,
respectively.
(7) Management believes that an analysis of EBIT,
separated between in-force and new business provides increased
clarity around the value drivers of our business, particularly
since the new business results are significantly impacted by the
rate of sales, mix of business and the distribution channel through
which new sales are made. EBIT from new business includes
pre-tax revenues and expenses associated with new sales of our
insurance products during the first year after the sale is
completed. EBIT from in-force business includes all pre-tax
revenues and expenses associated with sales of insurance products
that were completed more than one year before the end of the
reporting period. The allocation of certain revenues and
expenses between new and in-force business is based on estimates,
which we believe are reasonable.
(8) The benefit ratio is calculated by dividing the
related product's insurance policy benefits by insurance policy
income.
(9) 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 liabilities by insurance policy income.
Interest income is an important factor in measuring the performance
of longer duration health products. The net cash flows
generally cause an accumulation of amounts in the early years of a
policy (accounted for as reserve increases), which will be paid out
as benefits in later policy years (accounted for as reserve
decreases). Accordingly, as the policies age, the benefit
ratio will typically increase, but the increase in the change in
reserve will be partially offset by the imputed interest income
earned on the accumulated assets. The interest-adjusted
benefit ratio reflects the effects of such interest income
offset. Since interest income is an important factor in
measuring the performance of these products, management believes a
benefit ratio, which includes the effect of interest income, is
useful in analyzing product performance. Additional
information concerning this non-GAAP measure is included in our
periodic filings with the Securities and Exchange Commission that
are available in the "Investors - SEC Filings" section of CNO
Financial's website, www.CNOinc.com.
(10) We have consolidated a small block of health
related business with this supplemental health block for simplicity
of reporting. All prior periods have been revised to conform
to the current presentation.
Cautionary Statement Regarding Forward-Looking
Statements. Our statements, trend analyses
and other information contained in this press release relative to
markets for CNO Financial's products and trends in CNO Financial's
operations or financial results, as well as other statements,
contain forward-looking statements within the meaning of the
federal securities laws and the Private Securities Litigation
Reform Act of 1995. Forward-looking statements typically are
identified by the use of terms such as "anticipate," "believe,"
"plan," "estimate," "expect," "project," "intend," "may," "will,"
"would," "contemplate," "possible," "attempt," "seek," "should,"
"could," "goal," "target," "on track," "comfortable with,"
"optimistic," "guidance," "outlook" and similar words, although
some forward-looking statements are expressed differently. You
should consider statements that contain these words carefully
because they describe our expectations, plans, strategies and goals
and our beliefs concerning future business conditions, our results
of operations, financial position, and our business outlook or they
state other ''forward-looking'' information based on currently
available information. Assumptions and other important factors that
could cause our actual results to differ materially from those
anticipated in our forward-looking statements include, among other
things: (i) changes in or sustained low interest rates causing
reductions in investment income, the margins of our fixed annuity
and life insurance businesses, and sales of, and demand for, our
products; (ii) expectations of lower future investment earnings may
cause us to accelerate amortization, write down the balance of
insurance acquisition costs or establish additional liabilities for
insurance products; (iii) general economic, market and political
conditions, including the performance and fluctuations of the
financial markets which may affect the value of our investments as
well as our ability to raise capital or refinance existing
indebtedness and the cost of doing so; (iv) the ultimate outcome of
lawsuits filed against us and other legal and regulatory
proceedings to which we are subject; (v) our ability to make
anticipated changes to certain non-guaranteed elements of our life
insurance products; (vi) our ability to obtain adequate and timely
rate increases on our health products, including our long-term care
business; (vii) the receipt of any required regulatory approvals
for dividend and surplus debenture interest payments from our
insurance subsidiaries; (viii) mortality, morbidity, the increased
cost and usage of health care services, persistency, the adequacy
of our previous reserve estimates and other factors which may
affect the profitability of our insurance products; (ix) changes in
our assumptions related to deferred acquisition costs or the
present value of future profits; (x) the recoverability of our
deferred tax assets and the effect of potential ownership changes
and tax rate changes on their value; (xi) our assumption that the
positions we take on our tax return filings will not be
successfully challenged by the Internal Revenue Service; (xii)
changes in accounting principles and the interpretation thereof
(including changes in principles related to accounting for deferred
acquisition costs); (xiii) our ability to continue to satisfy the
financial ratio and balance requirements and other covenants of our
debt agreements; (xiv) our ability to achieve anticipated expense
reductions and levels of operational efficiencies including
improvements in claims adjudication and continued automation and
rationalization of operating systems, (xv) performance and
valuation of our investments, including the impact of realized
losses (including other-than-temporary impairment charges); (xvi)
our ability to identify products and markets in which we can
compete effectively against competitors with greater market share,
higher ratings, greater financial resources and stronger brand
recognition; (xvii) our ability to generate sufficient liquidity to
meet our debt service obligations and other cash needs; (xviii) our
ability to maintain effective controls over financial reporting;
(xix) our ability to continue to recruit and retain productive
agents and distribution partners and customer response to new
products, distribution channels and marketing initiatives; (xx) our
ability to achieve additional upgrades of the financial
strength ratings of CNO Financial and our insurance company
subsidiaries as well as the impact of our ratings on our business,
our ability to access capital and the cost of capital; (xxi) the
risk factors or uncertainties listed from time to time in our
filings with the Securities and Exchange Commission; (xxii)
regulatory changes or actions, including those relating to
regulation of the financial affairs of our insurance companies,
such as the payment of dividends and surplus debenture interest to
us, regulation of the sale, underwriting and pricing of products,
and health care regulation affecting health insurance products;
(xxiii) determination of the final sales price and net proceeds for
the sale of Conseco Life Insurance Company; and (xxiv) changes in
the Federal income tax laws and regulations which may affect or
eliminate the relative tax advantages of some of our products or
affect the value of our deferred tax assets. Other factors
and assumptions not identified above are also relevant to the
forward-looking statements, and if they prove incorrect, could also
cause actual results to differ materially from those projected. All
forward-looking statements are expressly qualified in their
entirety by the foregoing cautionary statements. Our
forward-looking statements speak only as of the date made. We
assume no obligation to update or to publicly announce the results
of any revisions to any of the forward-looking statements to
reflect actual results, future events or developments, changes in
assumptions or changes in other factors affecting the
forward-looking statements.
SOURCE CNO Financial Group, Inc.