CARMEL, Ind., Oct. 28, 2015 /PRNewswire/ -- CNO Financial
Group, Inc. (NYSE: CNO) today announced third quarter of 2015
operating earnings (1) of $56.8
million, or 30 cents per
diluted share, compared to $76.6
million, or 35 cents per
diluted share, in the third quarter of 2014.
"Sales increases and solid customer retention delivered third
quarter premium growth and expanded market reach," said
Ed Bonach, CEO of CNO.
"Continued strong capital and liquidity levels provide us with
numerous opportunities to focus on additional initiatives aimed at
growing and advancing our businesses, and make steady progress on
CNO's strategy to serve the U.S. middle-income market."
Third Quarter 2015 Highlights
- Sales, as defined by total new annualized premium ("NAP")
(2): $104.6 million, up 1% from
3Q14
- The number of third party policies sold by Bankers Life agents,
which are not included in NAP, increased 10% from 3Q14
- Collected premium from our operating segments: $880.9 million, up 7% from 3Q14
- Net income per diluted share: 18
cents in 3Q15 (including (7)
cents of net realized investment losses and (5) cents of fair value changes in embedded
derivative liabilities) compared to 54
cents in 3Q14 (including 11
cents from an adjustment to the loss on the sale of Conseco
Life Insurance Company ("CLIC") and gain on reinsurance transaction
and 8 cents from the release of the
valuation allowance for deferred taxes and other tax items)
- Net operating income (1) per diluted share: 30 cents in 3Q15 compared to 35 cents in 3Q14
- Unrestricted cash and investments held by our holding company
were $354 million at September 30, 2015
- Common stock repurchases of $124.3
million and dividends of $13.2
million in 3Q15
Nine-month 2015 Highlights
- Sales, as defined by total NAP (2): $315.4 million, up 2% from the first nine months
of 2014
- The number of third party policies sold by Bankers Life agents,
which are not included in NAP, increased 31% from the first nine
months of 2014
- Collected premium from our continuing operating segments
(3): $2,519.8 million, up 2%
from the first nine months of 2014
- Net income (loss) per diluted share: 68 cents in the first nine months of 2015
(including (11) cents from the loss
on extinguishment of debt and (10)
cents of net realized investment losses) compared to
(15) cents in the first nine months
of 2014 (including $(1.26) from the
loss on the sale of CLIC and gain on reinsurance transactions,
11 cents of net realized investment
gains and 10 cents from the release
of the valuation allowance for deferred taxes and other tax
items)
- Net operating income (1) per diluted share: 90 cents in the first nine months of 2015
compared to 96 cents in the first
nine months of 2014
- Consolidated risk-based capital ratio was estimated at 440% at
September 30, 2015, reflecting
estimated statutory operating earnings of $226 million and insurance company dividends to
the holding company of $177.2 million
during the first nine months of 2015
- Common stock repurchases of $311.2
million and dividends of $39.0
million in the first nine months of 2015
Quarterly Segment Operating Results
|
Three months
ended
|
|
September
30,
|
|
2015
|
|
2014
|
|
(Dollars in millions,
except per share data)
|
EBIT (5):
|
|
|
|
Bankers
Life
|
$
|
79.8
|
|
|
$
|
111.8
|
|
Washington
National
|
30.6
|
|
|
27.6
|
|
Colonial
Penn
|
.6
|
|
|
.4
|
|
EBIT from business
segments
|
111.0
|
|
|
139.8
|
|
Corporate Operations,
excluding corporate interest expense
|
(11.9)
|
|
|
(9.1)
|
|
EBIT
|
99.1
|
|
|
130.7
|
|
Corporate interest
expense
|
(11.3)
|
|
|
(10.9)
|
|
Operating earnings
before taxes
|
87.8
|
|
|
119.8
|
|
Tax expense on
operating income
|
31.0
|
|
|
43.2
|
|
Net operating income
(1)
|
56.8
|
|
|
76.6
|
|
Adjustment to loss on
sale of CLIC and gain related to reinsurance transaction (net of
taxes)
|
—
|
|
|
22.9
|
|
Net realized
investment gains (losses) (net of related amortization and
taxes)
|
(12.3)
|
|
|
2.6
|
|
Fair value changes in
embedded derivative liabilities (net of related amortization and
taxes)
|
(10.2)
|
|
|
—
|
|
Valuation allowance
for deferred tax assets and other tax items
|
—
|
|
|
16.8
|
|
Other
|
(.5)
|
|
|
(1.5)
|
|
Net income
|
$
|
33.8
|
|
|
$
|
117.4
|
|
|
|
|
|
Per diluted
share:
|
|
|
|
Net operating
income
|
$
|
.30
|
|
|
$
|
.35
|
|
Adjustment to loss on
sale of CLIC and gain related to reinsurance transaction (net of
taxes)
|
—
|
|
|
.11
|
|
Net realized
investment gains (losses) (net of related amortization and
taxes)
|
(.07)
|
|
|
.01
|
|
Fair value changes in
embedded derivative liabilities (net of related amortization and
taxes)
|
(.05)
|
|
|
—
|
|
Valuation allowance
for deferred tax assets and other tax items
|
—
|
|
|
.08
|
|
Other
|
—
|
|
|
(.01)
|
|
Net income
|
$
|
.18
|
|
|
$
|
.54
|
|
The following table summarizes the financial impact of a
significant item on our 3Q15 net operating income (dollars in
millions, except per share
amounts):
|
Three months
ended
|
|
September 30,
2015*
|
|
Actual
results
|
|
Significant
item
|
|
Excluding significant
item
|
Net Operating Income
(1):
|
|
|
|
|
|
Bankers
Life
|
$
|
79.8
|
|
|
$
|
—
|
|
|
$
|
79.8
|
|
Washington
National
|
30.6
|
|
|
—
|
|
|
30.6
|
|
Colonial
Penn
|
.6
|
|
|
—
|
|
|
.6
|
|
EBIT from business
segments
|
111.0
|
|
|
—
|
|
|
111.0
|
|
Corporate Operations,
excluding corporate interest expense
|
(11.9)
|
|
|
7.5
|
|
|
(4.4)
|
|
EBIT (5)
|
99.1
|
|
|
7.5
|
|
|
106.6
|
|
Corporate interest
expense
|
(11.3)
|
|
|
—
|
|
|
(11.3)
|
|
Operating earnings
before taxes
|
87.8
|
|
|
7.5
|
|
|
95.3
|
|
Tax expense on
operating income
|
31.0
|
|
|
—
|
|
|
31.0
|
|
Net operating income
|
$
|
56.8
|
|
|
$
|
7.5
|
|
|
$
|
64.3
|
|
|
|
|
|
|
|
Net operating income
per diluted share
|
$
|
.30
|
|
|
$
|
.03
|
|
|
$
|
.33
|
|
The significant item in 3Q15 is the impact of current market
conditions on the value of investments backing our Company-owned
life insurance ("COLI") utilized as a vehicle to fund Bankers
Life's agent deferred compensation plan. It should be noted
that changes in the value of COLI investments are not subject to
income tax.
* See page 10 for the table of Net Operating Income
Excluding Significant Items for the three months ended September 30, 2014.
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 3Q15 was $59.9
million, down $1.9 million
from 3Q14. Sales results primarily reflect reductions in life
sales, partially offset by increased sales of annuities. The
number of third party policies sold, which are not included in NAP,
increased 10 percent. We experienced weaker recruiting
results in the first nine months of 2015 compared to the same
period in 2014, with new contracts down 3 percent, resulting in a 2
percent decrease in average producing agents. We currently
anticipate this segment's NAP to be near the low end of our
previous guidance of flat to 3 percent less in 2015 compared to
2014 and sales of third party products will remain strong.
Collected premiums were up 6 percent in 3Q15 compared to 3Q14,
primarily driven by an increase in premiums from fixed index
annuity products. Annuity account values, on which spread
income is earned, increased 2 percent to $7.5 billion in 3Q15 compared to 3Q14, driven by
strong persistency.
Pre-tax operating earnings in 3Q15 compared to 3Q14 were down
$32.0 million, or 29 percent.
Pre-tax operating earnings in 3Q15 reflected a long-term care
interest-adjusted benefit ratio of 83.8 percent, higher than the
3Q14 ratio of 70.5 percent due to favorable reserve developments in
3Q14 and the impact of refinements initiated in 1Q15 to the build
of the future loss reserve. This block's interest-adjusted
benefit ratio has been stable, in the 84 percent range during the
first three quarters of 2015, and we expect it to remain in this
range during 4Q15. Pre-tax operating earnings in 3Q15 also
reflected a Medicare supplement benefit ratio of 71.5 percent,
higher than the 3Q14 ratio of 66.2 percent due to $2.5 million of favorable reserve developments in
3Q14 compared to $3.4 million of
unfavorable reserve developments in 3Q15. The Medicare
supplement benefit ratio for the first nine months of 2015 was 69.2
percent. We continue to expect the benefit ratio on this
Medicare supplement business to be in the 70 percent range during
4Q15. Pre-tax operating earnings on the annuity blocks were
lower in 3Q15 than 3Q14, reflecting: (i) lower spread income due to
lower portfolio yields, including the impacts of lower prepayment
income in 3Q15; partially offset by (ii) additional spread income
due to the 2 percent growth in annuity account values. Other
operating costs and expenses increased by $4
million in 3Q15 compared to 3Q14, reflecting investments
being made to support future sales growth.
Pre-tax operating earnings in 3Q14 of $111.8 million included: (i) $11.0 million of favorable reserve developments
in the long-term care block, including $2.8
million of one-time catch-up reserve releases related to the
use of a new process to identify changes in the status of our
insureds in a more timely manner; and (ii) $2.5 million of favorable reserve developments in
the Medicare supplement block. After adjusting for
significant items, our 3Q14 long-term care interest-adjusted
benefit ratio would have been 79.4 percent and our 3Q14 Medicare
supplement benefit ratio would have been 67.6 percent.
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 3Q15 was $25.8 million, up 1
percent from 3Q14, reflecting a 10 percent increase in supplemental
health sales in the worksite market, offset by a 3 percent decrease
in individual sales. At Performance Matters Associates
("PMA"), our wholly-owned marketing organization, the average
number of producing agents was up 7 percent compared to 3Q14,
driven by strong recruiting. We currently anticipate this
segment's sales growth to be near the low end of our previous
guidance of 3 to 5 percent in 2015 compared to 2014.
Collected premiums from the segment's supplemental health block
were up 9 percent in 3Q15 compared to 3Q14, driven by strong sales
and persistency.
Pre-tax operating earnings in 3Q15 compared to 3Q14 were up
$3.0 million, or 11 percent,
primarily resulting from the unfavorable impacts in 3Q14 described
in the following paragraph and favorable mortality experience in
the segment's life and annuity blocks. The increase in our
earnings from the growth of our supplemental health block was
somewhat offset by the recent higher claim trends identified in
2Q15. The interest-adjusted benefit ratio on this
supplemental health business was 57.4 percent in 3Q15 compared to
56.0 percent in 3Q14.
Pre-tax operating earnings in 3Q14 of $27.6 million were reduced by $2.5 million of one-time catch-up premium refunds
in the supplemental health insurance block related to the use of a
new process to identify changes in the status of our insureds in a
more timely manner. After adjusting for this significant
item, our 3Q14 supplemental health interest-adjusted benefit ratio
would have been 54.9 percent.
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 3Q15 was $18.9
million, up 15 percent from 3Q14, driven by increased lead
volume investment, enhanced diversification of sales and multiple
sales productivity initiatives. We currently anticipate this
segment's sales growth to be near the high end of our previous
guidance of the 12 to 15 percent range in 2015.
Collected premiums were up 8 percent in 3Q15 compared to 3Q14,
driven by increased sales and steady persistency.
Pre-tax operating earnings in 3Q15 were $.6 million compared to $.4 million in 3Q14, primarily reflecting
improved marketing effectiveness. In-force EBIT was
$14.9 million, flat with 3Q14,
reflecting growth in the block in 3Q15, offset by favorable
mortality experience in 3Q14.
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
$3 million to $6 million of earnings
in 2015.
Corporate Operations includes our investment advisory
subsidiary and corporate expenses.
Pre-tax losses in 3Q15 were $11.9
million compared to $9.1
million of losses in 3Q14 primarily reflecting the impact of
current market conditions on the value of investments backing our
COLI which is utilized as a vehicle to fund Bankers Life's agent
deferred compensation plan.
Non-Operating Items
Net realized investment losses in
3Q15 were $12.3 million (net of
related amortization and taxes) including total
other-than-temporary impairment losses of $15.4 million, of which $12.4 million was recorded in earnings and
$3.0 million in accumulated other
comprehensive income (loss). Net realized investment gains in
3Q14 were $2.6 million (net of
related amortization and taxes) including total
other-than-temporary impairment losses of $2.8 million recorded in earnings.
During 3Q15, we recognized a decrease in earnings of
$10.2 million 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 amount includes the impacts of changes
in market interest rates used to determine the derivative's
estimated fair value.
On July 1, 2014, we completed the
previously announced sale of CLIC to Wilton Reassurance Company
("Wilton Re"). In 3Q14, we
recognized a reduction to the loss on the sale of CLIC of
$6 million. Concurrent with the
sale of CLIC, Bankers Life recaptured the life insurance business
that had been reinsured to Wilton
Re. The results for 3Q14 include a $16.9 million gain related to such recapture.
In 3Q14, we reduced the valuation allowance for deferred tax
assets by $16.8 million, primarily
resulting from the impact of our higher levels of income on
projected future taxable income used to determine recoverable net
operating loss carryforwards.
Statutory (based on non-GAAP measures) and GAAP Capital
Information
Our consolidated statutory risk-based capital
ratio was estimated at 440% at September 30,
2015, reflecting estimated 3Q15 consolidated statutory
operating earnings of $56 million and
the payment of insurance company dividends to the holding company
of $64.4 million during 3Q15 and
$177.2 million during the first nine
months of 2015.
During the third quarter of 2015, we repurchased $124.3 million of common stock under our
securities repurchase program (including $5.0 million of repurchases settled in
4Q15). We repurchased 6.9 million common shares at an average
cost of $18.03 per share.
During the first nine months of 2015, we repurchased 17.8 million
common shares at a total cost of $311.2
million. CNO anticipates repurchasing common stock in
the range of $350 million to $425
million in 2015, absent compelling alternatives. As of
September 30, 2015, we had 186.7
million shares outstanding and had authority to repurchase up to an
additional $109.7 million of our
common stock. During 3Q15, dividends paid on common stock
totaled $13.2 million.
Book value per diluted share, excluding accumulated other
comprehensive income (loss) (6), was $19.38 at September 30,
2015, compared to $18.75 at
December 31, 2014.
Our debt-to-total capital ratio, excluding accumulated other
comprehensive income (4) at September 30,
2015, was 20.2 percent, an increase of 310 basis points from
December 31, 2014 reflecting the
previously announced completion of our debt refinancing
transactions. Unrestricted cash and investments held by our
holding company were $354 million at
September 30, 2015, compared to
$345 million at December 31, 2014, reflecting a portion of the
proceeds from our debt refinancing transactions, partially offset
by common stock repurchases and dividend and debt payments.
Conference Call
The Company will host a conference
call to discuss results on October 29,
2015 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.
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEET
|
(Dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
September 30,
2015
|
|
December 31,
2014
|
ASSETS
|
|
|
|
Investments:
|
|
|
|
Fixed maturities,
available for sale, at fair value (amortized cost: September
30, 2015 - $18,772.7; December 31, 2014 - $18,408.1)
|
$
|
20,144.5
|
|
|
$
|
20,634.9
|
|
Equity securities at
fair value (cost: September 30, 2015 - $429.7; December 31, 2014 -
$400.5)
|
437.3
|
|
|
419.0
|
|
Mortgage
loans
|
1,712.6
|
|
|
1,691.9
|
|
Policy
loans
|
109.5
|
|
|
106.9
|
|
Trading
securities
|
257.5
|
|
|
244.9
|
|
Investments held by
variable interest entities
|
1,488.1
|
|
|
1,367.1
|
|
Other invested
assets
|
395.6
|
|
|
443.6
|
|
Total
investments
|
24,545.1
|
|
|
24,908.3
|
|
Cash and cash
equivalents - unrestricted
|
613.8
|
|
|
611.6
|
|
Cash and cash
equivalents held by variable interest entities
|
106.9
|
|
|
68.3
|
|
Accrued investment
income
|
260.7
|
|
|
242.9
|
|
Present value of
future profits
|
454.4
|
|
|
489.4
|
|
Deferred acquisition
costs
|
909.1
|
|
|
770.6
|
|
Reinsurance
receivables
|
2,903.3
|
|
|
2,991.1
|
|
Income tax assets,
net
|
862.3
|
|
|
758.7
|
|
Assets held in
separate accounts
|
5.0
|
|
|
5.6
|
|
Other
assets
|
350.6
|
|
|
337.7
|
|
Total
assets
|
$
|
31,011.2
|
|
|
$
|
31,184.2
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Liabilities for
insurance products:
|
|
|
|
Policyholder account
balances
|
$
|
10,728.0
|
|
|
$
|
10,707.2
|
|
Future policy
benefits
|
10,691.6
|
|
|
10,835.4
|
|
Liability for policy
and contract claims
|
484.1
|
|
|
468.7
|
|
Unearned and advanced
premiums
|
281.4
|
|
|
291.8
|
|
Liabilities related to
separate accounts
|
5.0
|
|
|
5.6
|
|
Other
liabilities
|
739.1
|
|
|
587.6
|
|
Investment
borrowings
|
1,543.7
|
|
|
1,519.2
|
|
Borrowings related to
variable interest entities
|
1,442.3
|
|
|
1,286.1
|
|
Notes payable –
direct corporate obligations
|
925.0
|
|
|
794.4
|
|
Total
liabilities
|
26,840.2
|
|
|
26,496.0
|
|
Commitments and
Contingencies
|
|
|
|
Shareholders'
equity:
|
|
|
|
Common stock ($0.01
par value, 8,000,000,000 shares authorized, shares issued and
outstanding: September 30, 2015 – 186,741,760; December
31, 2014 – 203,324,458)
|
1.9
|
|
|
2.0
|
|
Additional paid-in
capital
|
3,435.8
|
|
|
3,732.4
|
|
Accumulated other
comprehensive income
|
510.4
|
|
|
825.3
|
|
Retained
earnings
|
222.9
|
|
|
128.5
|
|
Total shareholders'
equity
|
4,171.0
|
|
|
4,688.2
|
|
Total liabilities and
shareholders' equity
|
$
|
31,011.2
|
|
|
$
|
31,184.2
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENT OF OPERATIONS
|
(Dollars in millions,
except per share data)
|
(unaudited)
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
September
30,
|
|
September
30,
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Revenues:
|
|
|
|
|
|
|
|
Insurance policy
income
|
$
|
640.6
|
|
|
$
|
632.1
|
|
|
$
|
1,917.2
|
|
|
$
|
1,997.0
|
|
Net investment
income:
|
|
|
|
|
|
|
|
General account
assets
|
298.2
|
|
|
300.1
|
|
|
900.4
|
|
|
995.6
|
|
Policyholder and
reinsurer accounts and other special-purpose portfolios
|
(27.6)
|
|
|
14.8
|
|
|
.8
|
|
|
82.9
|
|
Realized investment
gains (losses):
|
|
|
|
|
|
|
|
Net realized investment
gains (losses), excluding impairment losses
|
(7.2)
|
|
|
6.8
|
|
|
(10.5)
|
|
|
54.5
|
|
Other-than-temporary
impairments:
|
|
|
|
|
|
|
|
Total
other-than-temporary impairment losses
|
(15.4)
|
|
|
(2.8)
|
|
|
(24.6)
|
|
|
(14.7)
|
|
Portion
of other-than-temporary impairment losses
recognized in
accumulated
other comprehensive income
|
3.0
|
|
|
—
|
|
|
3.0
|
|
|
—
|
|
Net impairment losses
recognized
|
(12.4)
|
|
|
(2.8)
|
|
|
(21.6)
|
|
|
(14.7)
|
|
Gain on dissolution of
a variable interest entity
|
—
|
|
|
—
|
|
|
11.3
|
|
|
—
|
|
Total realized gains
(losses)
|
(19.6)
|
|
|
4.0
|
|
|
(20.8)
|
|
|
39.8
|
|
Fee revenue and other
income
|
12.9
|
|
|
16.0
|
|
|
44.7
|
|
|
29.4
|
|
Total
revenues
|
904.5
|
|
|
967.0
|
|
|
2,842.3
|
|
|
3,144.7
|
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
Insurance policy
benefits
|
582.1
|
|
|
565.5
|
|
|
1,756.4
|
|
|
1,946.9
|
|
Loss on sale of
subsidiary, gain on reinsurance transactions and transition
expenses
|
—
|
|
|
(32.1)
|
|
|
9.0
|
|
|
242.7
|
|
Interest
expense
|
23.9
|
|
|
21.9
|
|
|
70.7
|
|
|
70.8
|
|
Amortization
|
55.8
|
|
|
65.8
|
|
|
195.6
|
|
|
197.4
|
|
Loss on
extinguishment or modification of debt
|
—
|
|
|
—
|
|
|
32.8
|
|
|
.6
|
|
Other operating costs
and expenses
|
190.3
|
|
|
191.5
|
|
|
570.4
|
|
|
587.1
|
|
Total benefits and
expenses
|
852.1
|
|
|
812.6
|
|
|
2,634.9
|
|
|
3,045.5
|
|
Income before income
taxes
|
52.4
|
|
|
154.4
|
|
|
207.4
|
|
|
99.2
|
|
Income tax expense
(benefit):
|
|
|
|
|
|
|
|
Tax expense on period
income
|
18.6
|
|
|
53.8
|
|
|
74.0
|
|
|
133.1
|
|
Valuation allowance
for deferred tax assets and other tax items
|
—
|
|
|
(16.8)
|
|
|
—
|
|
|
(1.4)
|
|
Net income
(loss)
|
$
|
33.8
|
|
|
$
|
117.4
|
|
|
$
|
133.4
|
|
|
$
|
(32.5)
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
190,260,000
|
|
|
210,525,000
|
|
|
195,536,000
|
|
|
215,790,000
|
|
Net income
(loss)
|
$
|
.18
|
|
|
$
|
.56
|
|
|
$
|
.68
|
|
|
$
|
(.15)
|
|
Diluted:
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
192,365,000
|
|
|
215,458,000
|
|
|
197,571,000
|
|
|
215,790,000
|
|
Net income
(loss)
|
$
|
.18
|
|
|
$
|
.54
|
|
|
$
|
.68
|
|
|
$
|
(.15)
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
EBIT FROM BUSINESS
SEGMENTS
|
SUMMARIZED BY
IN-FORCE AND NEW BUSINESS (7)
|
(Dollars in
millions)
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
September
30,
|
|
September
30,
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
EBIT (5) from
In-force and New Business
|
|
|
|
|
|
|
|
Bankers
Life:
|
|
|
|
|
|
|
|
In-Force
Business
|
$
|
113.5
|
|
|
$
|
145.8
|
|
|
$
|
357.3
|
|
|
$
|
392.5
|
|
New
Business
|
(33.7)
|
|
|
(34.0)
|
|
|
(108.9)
|
|
|
(109.1)
|
|
Total
|
$
|
79.8
|
|
|
$
|
111.8
|
|
|
$
|
248.4
|
|
|
$
|
283.4
|
|
|
|
|
|
|
|
|
|
Washington
National:
|
|
|
|
|
|
|
|
In-Force
Business
|
$
|
32.7
|
|
|
$
|
30.1
|
|
|
$
|
86.2
|
|
|
$
|
98.8
|
|
New
Business
|
(2.1)
|
|
|
(2.5)
|
|
|
(7.0)
|
|
|
(7.8)
|
|
Total
|
$
|
30.6
|
|
|
$
|
27.6
|
|
|
$
|
79.2
|
|
|
$
|
91.0
|
|
|
|
|
|
|
|
|
|
Colonial
Penn:
|
|
|
|
|
|
|
|
In-Force
Business
|
$
|
14.9
|
|
|
$
|
14.9
|
|
|
$
|
38.8
|
|
|
$
|
38.3
|
|
New
Business
|
(14.3)
|
|
|
(14.5)
|
|
|
(39.9)
|
|
|
(40.3)
|
|
Total
|
$
|
.6
|
|
|
$
|
.4
|
|
|
$
|
(1.1)
|
|
|
$
|
(2.0)
|
|
|
|
|
|
|
|
|
|
Total Business
segments:
|
|
|
|
|
|
|
|
In-Force
Business
|
$
|
161.1
|
|
|
$
|
190.8
|
|
|
$
|
482.3
|
|
|
$
|
529.6
|
|
New
Business
|
(50.1)
|
|
|
(51.0)
|
|
|
(155.8)
|
|
|
(157.2)
|
|
Total EBIT from
business segments
|
$
|
111.0
|
|
|
$
|
139.8
|
|
|
$
|
326.5
|
|
|
$
|
372.4
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
SEGMENT OPERATING
RESULTS
|
(Dollars
in millions, except per share data)
|
|
|
|
Nine months
ended
|
|
September
30,
|
|
2015
|
|
2014
|
EBIT (5):
|
|
|
|
Bankers
Life
|
$
|
248.4
|
|
|
$
|
283.4
|
|
Washington
National
|
79.2
|
|
|
91.0
|
|
Colonial
Penn
|
(1.1)
|
|
|
(2.0)
|
|
EBIT from business
segments
|
326.5
|
|
|
372.4
|
|
Corporate Operations,
excluding corporate interest expense
|
(18.2)
|
|
|
(18.8)
|
|
EBIT
|
308.3
|
|
|
353.6
|
|
Corporate interest
expense
|
(33.7)
|
|
|
(33.1)
|
|
Operating earnings
before taxes
|
274.6
|
|
|
320.5
|
|
Tax expense on
operating income
|
96.9
|
|
|
112.7
|
|
Net operating income
(1)
|
177.7
|
|
|
207.8
|
|
Earnings of CLIC
prior to being sold (net of taxes)
|
—
|
|
|
15.2
|
|
Net loss on sale of
CLIC and gain on reinsurance transactions (including impact of
taxes)
|
—
|
|
|
(272.6)
|
|
Net realized
investment gains (losses) (net of related amortization and
taxes)
|
(20.5)
|
|
|
23.7
|
|
Fair value changes in
embedded derivative liabilities (net of related amortization and
taxes)
|
(1.7)
|
|
|
(12.0)
|
|
Fair value changes
related to agent deferred compensation plan (net of
taxes)
|
—
|
|
|
(7.6)
|
|
Loss on
extinguishment or modification of debt (net of taxes)
|
(21.3)
|
|
|
(.4)
|
|
Valuation allowance
for deferred tax assets and other tax items
|
—
|
|
|
20.8
|
|
Other
|
(.8)
|
|
|
(7.4)
|
|
Net income
(loss)
|
$
|
133.4
|
|
|
$
|
(32.5)
|
|
|
|
|
|
Per diluted
share:
|
|
|
|
Net operating
income
|
$
|
.90
|
|
|
$
|
.96
|
|
Earnings of CLIC
prior to being sold (net of taxes)
|
—
|
|
|
.07
|
|
Net loss on sale of
CLIC and gain on reinsurance transactions (including impact of
taxes)
|
—
|
|
|
(1.26)
|
|
Net realized
investment gains (losses) (net of related amortization and
taxes)
|
(.10)
|
|
|
.11
|
|
Fair value changes in
embedded derivative liabilities (net of related amortization and
taxes)
|
(.01)
|
|
|
(.06)
|
|
Fair value changes
related to agent deferred compensation plan (net of
taxes)
|
—
|
|
|
(.03)
|
|
Loss on
extinguishment or modification of debt (net of taxes)
|
(.11)
|
|
|
—
|
|
Valuation allowance
for deferred tax assets and other tax items
|
—
|
|
|
.10
|
|
Other
|
—
|
|
|
(.04)
|
|
Net income
(loss)
|
$
|
.68
|
|
|
$
|
(.15)
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
NET OPERATING
INCOME EXCLUDING SIGNIFICANT ITEMS*
|
(Dollars in millions,
except per share data)
|
|
|
|
Three months
ended
|
|
September 30,
2014*
|
|
Actual
results
|
|
Significant
items
|
|
Excluding significant
items
|
Net Operating Income
(1):
|
|
|
|
|
|
Bankers
Life
|
$
|
111.8
|
|
|
$
|
(13.5)
|
|
|
$
|
98.3
|
|
Washington
National
|
27.6
|
|
|
2.5
|
|
|
30.1
|
|
Colonial
Penn
|
.4
|
|
|
—
|
|
|
.4
|
|
EBIT from business
segments continuing after the CLIC sale
|
139.8
|
|
|
(11.0)
|
|
|
128.8
|
|
Corporate Operations,
excluding corporate interest expense
|
(9.1)
|
|
|
—
|
|
|
(9.1)
|
|
EBIT from operations
continuing after the CLIC sale (5)
|
130.7
|
|
|
(11.0)
|
|
|
119.7
|
|
Corporate interest
expense
|
(10.9)
|
|
|
—
|
|
|
(10.9)
|
|
Operating earnings
before taxes
|
119.8
|
|
|
(11.0)
|
|
|
108.8
|
|
Tax expense on
operating income
|
43.2
|
|
|
(3.9)
|
|
|
39.3
|
|
Net operating
income
|
$
|
76.6
|
|
|
$
|
(7.1)
|
|
|
$
|
69.5
|
|
|
|
|
|
|
|
Net operating income
per diluted share
|
$
|
.35
|
|
|
$
|
(.03)
|
|
|
$
|
.32
|
|
* This table summarizes the financial impacts of
significant items (as described in the segment results section of
this press release) on our 3Q14 net operating income.
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
COLLECTED
PREMIUMS
|
FROM OPERATING
SEGMENTS
|
(Dollars in
millions)
|
|
|
|
Three months
ended
|
|
September
30,
|
|
2015
|
|
2014
|
Bankers
Life:
|
|
|
|
Medicare
supplement
|
$
|
190.2
|
|
|
$
|
184.5
|
|
Long-term
care
|
122.0
|
|
|
124.0
|
|
Other
health
|
1.8
|
|
|
2.0
|
|
Supplemental
health
|
5.1
|
|
|
4.1
|
|
Life
|
113.1
|
|
|
113.9
|
|
Annuity
|
216.5
|
|
|
181.5
|
|
Total
|
648.7
|
|
|
610.0
|
|
Washington
National:
|
|
|
|
Supplemental health
and other health
|
139.0
|
|
|
127.7
|
|
Medicare
supplement
|
19.4
|
|
|
20.3
|
|
Life
|
6.7
|
|
|
6.3
|
|
Annuity
|
.4
|
|
|
.9
|
|
Total
|
165.5
|
|
|
155.2
|
|
Colonial
Penn:
|
|
|
|
Life
|
66.0
|
|
|
61.1
|
|
Supplemental
health
|
.7
|
|
|
.8
|
|
Total
|
66.7
|
|
|
61.9
|
|
Total
collected premiums from segments
|
$
|
880.9
|
|
|
$
|
827.1
|
|
NEW ANNUALIZED
PREMIUMS (2)
|
(Dollars in
millions)
|
|
|
|
Three months
ended
|
|
September
30,
|
|
2015
|
|
2014
|
Bankers
Life:
|
|
|
|
Medicare
supplement
|
$
|
16.8
|
|
|
$
|
17.0
|
|
Long-term
care
|
6.0
|
|
|
5.6
|
|
Supplemental
health
|
1.4
|
|
|
1.7
|
|
Life
|
22.8
|
|
|
26.7
|
|
Annuity
|
12.9
|
|
|
10.8
|
|
Total
|
59.9
|
|
|
61.8
|
|
Washington
National:
|
|
|
|
Supplemental
health
|
23.8
|
|
|
24.0
|
|
Life
|
2.0
|
|
|
1.6
|
|
Total
|
25.8
|
|
|
25.6
|
|
Colonial
Penn:
|
|
|
|
Life
|
18.9
|
|
|
16.4
|
|
Total
|
18.9
|
|
|
16.4
|
|
Total
new annualized premiums
|
$
|
104.6
|
|
|
$
|
103.8
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
BENEFIT RATIOS ON
MAJOR HEALTH LINES OF BUSINESS
|
|
|
|
Three months
ended
|
|
September
30,
|
|
2015
|
|
2014
|
Bankers
Life:
|
|
|
|
Medicare
Supplement:
|
|
|
|
Earned
premium
|
$193
million
|
|
$194
million
|
Benefit ratio
(8)
|
71.5%
|
|
66.2%
|
Long-Term
Care:
|
|
|
|
Earned
premium
|
$119
million
|
|
$125
million
|
Benefit ratio
(8)
|
141.1%
|
|
123.6%
|
Interest-adjusted
benefit ratio (a non-GAAP measure) (9)
|
83.8%
|
|
70.5%
|
Washington
National:
|
|
|
|
Medicare
Supplement:
|
|
|
|
Earned
premium
|
$18
million
|
|
$21
million
|
Benefit ratio
(8)
|
68.7%
|
|
65.8%
|
Supplemental
health:
|
|
|
|
Earned
premium
|
$137
million
|
|
$126
million
|
Benefit ratio
(8)
|
81.7%
|
|
81.9%
|
Interest-adjusted
benefit ratio (a non-GAAP measure) (9)
|
57.4%
|
|
56.0%
|
NOTES
(1) Management believes that an analysis
of Net income applicable to common stock before: (i) the net loss
on the sale of CLIC and gain (loss) on reinsurance transactions;
(ii) the earnings of CLIC prior to being sold; (iii) net realized
investment gains or losses, net of related amortization and taxes;
(iv) 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; (v)
fair value changes related to the agent deferred compensation plan,
net of taxes, (vi) loss on extinguishment or modification of debt,
net of taxes; (vii) changes in the valuation allowance for deferred
tax assets; and (viii) other non-operating items consisting
primarily of equity in earnings of certain non-strategic
investments and earnings attributable to variable interest
entities, net of taxes ("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 9.
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 $71.2
million in the first nine months of 2014 related to CLIC's
operations prior to its sale) were $2,519.8
million in the first nine months of 2015, down 1 percent
from 2014.
(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 18.2%
and 14.5% at September 30, 2015 and
December 31, 2014, respectively.
(5) Management believes that an analysis
of earnings before the net loss on the sale of CLIC and gain (loss)
on reinsurance transactions, the earnings of CLIC prior to being
sold, 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, fair
value changes related to the agent deferred compensation plan, loss
on extinguishment or modification of debt, other non-operating
items, corporate interest expense 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 9.
(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
$22.34 and $23.06 at September 30,
2015 and December 31, 2014,
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
(which is equal to the tabular interest on the related insurance
liabilities). 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.
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;
(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; (xx) customer response to new products,
distribution channels and marketing initiatives; (xxi) 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; (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) 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; (xxiv) availability
and effectiveness of reinsurance arrangements, as well as any
defaults or failure of reinsurers to perform; (xxv) the performance
of third party service providers and potential difficulties arising
from outsourcing arrangements; (xxvi) the growth rate of sales,
collected premiums, annuity deposits and assets; (xxvii)
interruption in telecommunication, information technology or other
operational systems or failure to maintain the security,
confidentiality or privacy of sensitive data on such systems;
(xxviii) events of terrorism, cyber attacks, natural disasters or
other catastrophic events, including losses from a disease
pandemic; (xxix) ineffectiveness of risk management policies and
procedures in identifying, monitoring and managing risks; and (xxx)
the risk factors or uncertainties listed from time to time in our
filings with the Securities and Exchange Commission. 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
written or oral forward-looking statements attributable to us are
expressly qualified in their entirety by the foregoing cautionary
statement. 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.
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SOURCE CNO Financial Group, Inc.