CARMEL, Ind., July 26, 2016 /PRNewswire/ -- CNO Financial
Group, Inc. (NYSE: CNO) today announced net income for the second
quarter of 2016 of $59.9 million, or
33 cents per diluted share, compared
to $46.8 million, or 24 cents per diluted share, in the second quarter
of 2015. CNO also announced second quarter of 2016 operating
earnings (1) of $63.7 million, or
35 cents per diluted share, compared
to $60.8 million, or 31 cents per diluted share, in the second quarter
of 2015.
"We continue to see growth in our business, underscored by
increases in collected premiums, policies in-force and annuity
account values," said Ed Bonach, CEO
of CNO. "Our earnings, cash flow, capital, liquidity and
returns to shareholders remain strong."
Second Quarter 2016 Highlights
- First year collected premiums: $304
million, up 5% from 2Q15
- New annualized premium ("NAP") (2): $101.9 million, down 3% from 2Q15
- Total collected premiums: $863.0
million, up 4% from 2Q15
- Policies in-force of 3.5 million (including third party
policies in-force), up 1 percent from 2Q15
- Net income per diluted share: 33
cents in 2Q16 compared to 24
cents in 2Q15
- Net operating income (1) per diluted share: 35 cents in 2Q16 compared to 31 cents in 2Q15
- Unrestricted cash and investments held by our holding company
were $376 million at June 30, 2016
- Common stock repurchases of $61.0
million and dividends of $14.3
million in 2Q16
Six-month 2016 Highlights
- First year collected premiums: $633
million, up 13% from the first six months of 2015
- NAP (2): $209.7 million, down 1%
from the first six months of 2015
- Total collected premiums: $1,759.3
million, up 7% from the first six months of 2015
- Net income per diluted share: 58
cents in the first six months of 2016 compared to
50 cents in the first six months of
2015
- Net operating income (1) per diluted share: 63 cents in the first six months of 2016 compared
to 61 cents in the first six months
of 2015
- Consolidated risk-based capital ratio was estimated at 448% at
June 30, 2016, reflecting estimated
statutory operating earnings of $174
million and insurance company dividends to the holding
company of $130.6 million during the
first six months of 2016
Quarterly Segment
Operating Results
|
|
|
Three months
ended
|
|
June 30,
|
|
2016
|
|
2015
|
|
(Dollars in
millions,
except per share data)
|
Adjusted EBIT
(3):
|
|
|
|
Bankers
Life
|
$
|
93.3
|
|
|
$
|
86.4
|
|
Washington
National
|
21.5
|
|
|
20.1
|
|
Colonial
Penn:
|
|
|
|
In-force
business (6)
|
14.1
|
|
|
13.3
|
|
New business
(6)
|
(11.1)
|
|
|
(9.1)
|
|
Total Colonial
Penn
|
3.0
|
|
|
4.2
|
|
Adjusted EBIT
from business segments
|
117.8
|
|
|
110.7
|
|
Corporate Operations,
excluding corporate interest expense
|
(7.0)
|
|
|
(5.0)
|
|
Adjusted
EBIT
|
110.8
|
|
|
105.7
|
|
Corporate interest
expense
|
(11.4)
|
|
|
(11.9)
|
|
Operating
earnings before taxes
|
99.4
|
|
|
93.8
|
|
Tax expense on
operating income
|
35.7
|
|
|
33.0
|
|
Net operating
income (1)
|
63.7
|
|
|
60.8
|
|
Net realized
investment gains (losses) (net of related amortization)
|
12.0
|
|
|
(10.4)
|
|
Fair value changes in
embedded derivative liabilities (net of related
amortization)
|
(16.5)
|
|
|
25.7
|
|
Fair value changes
related to agent deferred compensation plan
|
(12.3)
|
|
|
—
|
|
Loss on
extinguishment of debt
|
—
|
|
|
(32.8)
|
|
Other
|
.1
|
|
|
(3.6)
|
|
Non-operating loss
before taxes
|
(16.7)
|
|
|
(21.1)
|
|
Income tax
(benefit):
|
|
|
|
On non-operating
loss
|
(5.9)
|
|
|
(7.1)
|
|
Valuation allowance
for deferred tax assets
|
(7.0)
|
|
|
—
|
|
Net non-operating
loss
|
(3.8)
|
|
|
(14.0)
|
|
Net income
|
$
|
59.9
|
|
|
$
|
46.8
|
|
|
|
|
|
Per diluted
share:
|
|
|
|
Net operating
income
|
$
|
.35
|
|
|
$
|
.31
|
|
Net realized
investment gains (losses) (net of related amortization and
taxes)
|
.04
|
|
|
(.03)
|
|
Fair value changes in
embedded derivative liabilities (net of related amortization and
taxes)
|
(.06)
|
|
|
.08
|
|
Fair value changes
related to agent deferred compensation plan (net of
taxes)
|
(.04)
|
|
|
—
|
|
Loss on
extinguishment of debt (net of taxes)
|
—
|
|
|
(.11)
|
|
Valuation allowance
for deferred tax assets
|
.04
|
|
|
—
|
|
Other
|
—
|
|
|
(.01)
|
|
Net
income
|
$
|
.33
|
|
|
$
|
.24
|
|
The following table summarizes the financial impact of a
significant item on our 2Q16 net operating income (dollars in
millions, except per share amounts):
|
Three months
ended
|
|
June 30,
2016*
|
|
Actual
results
|
|
Significant
item
|
|
Excluding
significant
item
|
Net Operating Income
(1):
|
|
|
|
|
|
Bankers
Life
|
$
|
93.3
|
|
|
$
|
(4.5)
|
|
|
$
|
88.8
|
|
Washington
National
|
21.5
|
|
|
—
|
|
|
21.5
|
|
Colonial
Penn
|
3.0
|
|
|
—
|
|
|
3.0
|
|
Adjusted EBIT
from business segments
|
117.8
|
|
|
(4.5)
|
|
|
113.3
|
|
Corporate Operations,
excluding corporate interest expense
|
(7.0)
|
|
|
—
|
|
|
(7.0)
|
|
Adjusted EBIT
(3)
|
110.8
|
|
|
(4.5)
|
|
|
106.3
|
|
Corporate interest
expense
|
(11.4)
|
|
|
—
|
|
|
(11.4)
|
|
Operating earnings
before taxes
|
99.4
|
|
|
(4.5)
|
|
|
94.9
|
|
Tax expense on
operating income
|
35.7
|
|
|
(1.6)
|
|
|
34.1
|
|
Net operating
income
|
$
|
63.7
|
|
|
$
|
(2.9)
|
|
|
$
|
60.8
|
|
|
|
|
|
|
|
Net operating income
per diluted share
|
$
|
.35
|
|
|
$
|
(.01)
|
|
|
$
|
.34
|
|
The significant item in 2Q16 was the release of long-term care
reserves (net of the reduction in insurance intangibles) due to the
impact of policyholder actions following rate increases.
* See page 9 for the table of Net Operating Income
Excluding a Significant Item for the three months ended
June 30, 2015.
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. First year collected premiums in 2Q16 were
$270.4 million, up 6% from
2Q15. NAP in 2Q16 was $58.5
million, down 5 percent from 2Q15. Sales results for
the quarter primarily reflect lower life sales; partially offset by
higher sales of annuity, long-term care and Medicare supplement
products. It should be noted that 76 percent of the long-term
care NAP in 2Q16 related to policies with maximum benefit periods
of one year. Average producing agents were down 7 percent
from 2Q15 reflecting lower recruiting in recent quarters. New
agent recruitment was up 8 percent in 2Q16 compared to 2Q15 and
agent productivity (defined as NAP divided by the average producing
agents) was up 2 percent.
Total collected premiums were up 4 percent in 2Q16 compared to
2Q15, primarily reflecting an increase in premiums from annuity
products. Annuity account values, on which spread income is
earned, increased 2 percent to $7.6
billion in 2Q16 compared to 2Q15, driven by sales and strong
persistency. Total policies in-force increased 1 percent in
2Q16, including a 9 percent increase in third party policies
in-force.
Pre-tax operating earnings in 2Q16 compared to 2Q15 were up
$6.9 million, or 8 percent.
Pre-tax operating earnings in 2Q16 reflected a $4.5 million release of long-term care reserves
(net of the reduction in insurance intangibles of $.5 million) due to the impact of policyholder
actions following rate increases (as further described below).
The long-term care interest-adjusted benefit ratio was 77.9
percent in 2Q16, lower than the 2Q15 ratio of 84.6 percent.
The 2Q16 ratio was favorably impacted by $5
million of one-time reserve releases related to policyholder
decisions to surrender or reduce coverage following rate
increases. The 2Q16 long-term care interest-adjusted benefit
ratio excluding the favorable reserve releases related to rate
increases was 82.1 percent. We continue to expect the
long-term care interest-adjusted benefit ratio to be in the range
of 81 percent to 86 percent during the remainder of 2016, excluding
the reserve-related impacts of rate increase actions. We also
expect that the impacts of rate increases will continue to
favorably impact the interest-adjusted benefit ratio in 2016.
Pre-tax operating earnings in 2Q16 reflected a Medicare
supplement benefit ratio of 73.0 percent, higher than the 2Q15
ratio of 68.7 percent. We continue to expect the Medicare
supplement benefit ratio to be in the range of 70 percent to 73
percent during the remainder of 2016.
Washington National markets and distributes supplemental
health and life insurance to middle-income consumers through a
wholly-owned subsidiary and independent insurance agencies.
First year collected premiums in 2Q16 were $19.8 million, down 5% from 2Q15. NAP in
2Q16 was $24.2 million, down 6
percent from 2Q15, reflecting lower sales of supplemental health
products in the individual market. NAP from sales of products
in the worksite market in 2Q16 was $8.6
million, up 8 percent from 2Q15. The average number of
producing agents was up 5 percent compared to 2Q15.
Total collected premiums from the segment's supplemental health
block were up 4 percent in 2Q16 compared to 2Q15.
Pre-tax operating earnings in 2Q16 compared to 2Q15 were up
$1.4 million, or 7 percent.
Pre-tax operating earnings in 2Q16 reflected $5 million of persistency impacts and higher
claims including: (i) $2
million for reserve increases resulting from higher
persistency on certain older business in the block; (ii)
$1 million for increased amortization
resulting from lower persistency on certain newer business in the
block; and (iii) $2 million for
elevated claims on certain products providing lump sum benefits
upon the occurrence of a covered illness. Pre-tax operating
earnings in 2Q15 reflected $9 million
of unfavorable reserve developments in the supplemental health
block related to claims incurred in prior periods based on the
completion of an in-depth review of recent claim trends in the
block, including the impact of newer cancer treatments on
claims.
The supplemental health interest-adjusted benefit ratio was 61.6
percent and 65.7 percent in 2Q16 and 2Q15, respectively.
After adjusting for the persistency impacts and higher claims
summarized in the previous paragraph, this block's
interest-adjusted benefit ratio was 58 percent in 2Q16. These
impacts primarily relate to current quarter experience and,
therefore, are not considered significant items in the table
provided above. After adjusting for unfavorable reserve
developments related to claims incurred in prior periods, this
block's interest-adjusted benefit ratio was 59 percent in
2Q15. We continue to expect the supplemental health
interest-adjusted benefit ratio to be in the range of 56 percent to
59 percent during the remainder of 2016.
Colonial Penn markets primarily graded benefit and
simplified issue life insurance directly to customers through
television advertising, direct mail, the internet and
telemarketing. First year collected premiums in 2Q16 were
$13.8 million, up 8 percent from
2Q15. NAP in 2Q16 was $19.2
million, up 4 percent from 2Q15, benefiting from strong lead
volume and sales productivity initiatives.
Total collected premiums were up 7 percent in 2Q16 compared to
2Q15, driven by increased sales and steady persistency.
Pre-tax operating earnings in 2Q16 were $3.0 million compared to $4.2 million in 2Q15, primarily reflecting
investments in new business and higher marketing costs (including
the impacts of the presidential campaign on television advertising
costs). In-force Adjusted EBIT was $14.1 million, up 6 percent from 2Q15, primarily
reflecting 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 continue to expect this segment to
report earnings in 2016 in the range of breakeven to $6 million. The range of earnings we expect
to report in 2016 reflects uncertainty related to how the U.S.
presidential election will impact the cost of television
advertising.
Corporate Operations includes our investment advisory
subsidiary and corporate expenses.
Pre-tax losses in 2Q16 were $7.0
million compared to $5.0
million of losses in 2Q15 primarily reflecting higher
expenses; partially offset by favorable investment returns.
Non-Operating Items
Net realized investment gains in
2Q16 were $12.0 million (net of
related amortization) including total other-than-temporary
impairment losses of $13.6 million
recorded in earnings and a $7.3
million loss on the dissolution of a variable interest
entity. Net realized investment losses in 2Q15 were
$10.4 million (net of related
amortization) including total other-than-temporary impairment
losses of $7.9 million recorded in
earnings.
During 2Q16 and 2Q15, we recognized increases (decreases) in
earnings of $(16.5) million and
$25.7 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 amount includes
the impacts of changes in market interest rates used to determine
the derivative's estimated fair value.
During 2Q16, we recognized a decrease in earnings of
$12.3 million for the mark-to-market
change in the agent deferred compensation plan liability which was
impacted by changes in interest rates used to value the
liability. We recognize the mark-to-market change in the
estimated value of this liability through earnings as assumptions
change.
The valuation allowance for deferred tax assets was reduced by
$7.0 million in 2Q16 due to the
utilization of capital loss carryforwards.
The results for 2Q15 include a $32.8
million loss on the extinguishment of debt related to the
completion of our debt refinancing transactions.
Statutory (based on non-GAAP measures) and GAAP Capital
Information
Our consolidated statutory risk-based capital
ratio was estimated at 448% at June 30,
2016, reflecting estimated 2Q16 consolidated statutory
operating earnings of $94 million and
the payment of insurance company dividends to the holding company
of $41.9 million during 2Q16 and
$130.6 million during the first six
months of 2016.
During the second quarter of 2016, we repurchased $61.0 million of common stock under our
securities repurchase program (including $9.0 million of repurchases settled in
3Q16). We repurchased 3.3 million common shares at an average
cost of $18.70 per share.
During the first six months of 2016, we repurchased 8.6 million
common shares at a total cost of $151.0
million. CNO anticipates repurchasing common stock in
the range of $275 million to $375
million in 2016, absent compelling alternatives. As of
June 30, 2016, we had 176.2 million
shares outstanding and had authority to repurchase up to an
additional $304.7 million of our
common stock. During 2Q16, dividends paid on common stock
totaled $14.3 million.
Book value per common share was $25.28 and $22.49
at June 30, 2016 and December 31, 2015, respectively. Book value per
diluted share, excluding accumulated other comprehensive income
(loss) (4), increased to $20.67 at
June 30, 2016, compared to
$20.05 at December 31, 2015.
The debt-to-capital ratio was 17.0 percent and 18.0 percent at
June 30, 2016 and December 31, 2015, respectively. Our
debt-to-total capital ratio, excluding accumulated other
comprehensive income (5) at June 30,
2016, was 19.9 percent compared to 19.6 percent at
December 31, 2015. Unrestricted
cash and investments held by our holding company were $376 million at June 30,
2016, compared to $382 million
at December 31, 2015, reflecting
dividends from subsidiaries, common stock repurchases and dividend
payments.
Conference Call
The Company will host a conference
call to discuss results on July 27,
2016 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)
|
|
|
June 30,
2016
|
|
December 31,
2015
|
ASSETS
|
|
|
|
Investments:
|
|
|
|
Fixed maturities,
available for sale, at fair value (amortized cost: June 30,
2016 - $19,002.2; December 31, 2015 - $18,947.0)
|
$
|
20,989.8
|
|
|
$
|
19,882.9
|
|
Equity securities at
fair value (cost: June 30, 2016 - $510.1; December 31, 2015 -
$447.4)
|
541.2
|
|
|
463.0
|
|
Mortgage
loans
|
1,732.9
|
|
|
1,721.0
|
|
Policy
loans
|
110.3
|
|
|
109.4
|
|
Trading
securities
|
289.3
|
|
|
262.1
|
|
Investments held by
variable interest entities
|
1,807.8
|
|
|
1,633.6
|
|
Other invested
assets
|
525.7
|
|
|
415.1
|
|
Total
investments
|
25,997.0
|
|
|
24,487.1
|
|
Cash and cash
equivalents - unrestricted
|
437.2
|
|
|
432.3
|
|
Cash and cash
equivalents held by variable interest entities
|
160.0
|
|
|
364.4
|
|
Accrued investment
income
|
228.7
|
|
|
237.0
|
|
Present value of
future profits
|
417.5
|
|
|
449.0
|
|
Deferred acquisition
costs
|
911.3
|
|
|
1,083.3
|
|
Reinsurance
receivables
|
2,820.4
|
|
|
2,859.3
|
|
Income tax assets,
net
|
677.7
|
|
|
898.8
|
|
Assets held in
separate accounts
|
4.6
|
|
|
4.7
|
|
Other
assets
|
368.1
|
|
|
309.2
|
|
Total
assets
|
$
|
32,022.5
|
|
|
$
|
31,125.1
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Liabilities for
insurance products:
|
|
|
|
Policyholder
account balances
|
$
|
10,754.8
|
|
|
$
|
10,762.3
|
|
Future policy
benefits
|
11,127.0
|
|
|
10,602.1
|
|
Liability for
policy and contract claims
|
489.2
|
|
|
487.8
|
|
Unearned and
advanced premiums
|
284.1
|
|
|
286.3
|
|
Liabilities
related to separate accounts
|
4.6
|
|
|
4.7
|
|
Other
liabilities
|
731.0
|
|
|
707.8
|
|
Investment
borrowings
|
1,547.8
|
|
|
1,548.1
|
|
Borrowings related to
variable interest entities
|
1,715.8
|
|
|
1,676.4
|
|
Notes payable –
direct corporate obligations
|
912.0
|
|
|
911.1
|
|
Total
liabilities
|
27,566.3
|
|
|
26,986.6
|
|
Commitments and
Contingencies
|
|
|
|
Shareholders'
equity:
|
|
|
|
Common stock ($0.01
par value, 8,000,000,000 shares authorized, shares issued and
outstanding: June 30, 2016 – 176,240,559; December 31,
2015 – 184,028,511)
|
1.7
|
|
|
1.8
|
|
Additional paid-in
capital
|
3,251.1
|
|
|
3,386.8
|
|
Accumulated other
comprehensive income
|
777.8
|
|
|
402.8
|
|
Retained
earnings
|
425.6
|
|
|
347.1
|
|
Total
shareholders' equity
|
4,456.2
|
|
|
4,138.5
|
|
Total
liabilities and shareholders' equity
|
$
|
32,022.5
|
|
|
$
|
31,125.1
|
|
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,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
|
Insurance policy
income
|
$
|
653.6
|
|
|
$
|
640.1
|
|
|
$
|
1,298.0
|
|
|
$
|
1,276.6
|
|
Net investment
income:
|
|
|
|
|
|
|
|
General
account assets
|
295.8
|
|
|
302.1
|
|
|
586.8
|
|
|
602.2
|
|
Policyholder
and other special-purpose portfolios
|
27.9
|
|
|
11.8
|
|
|
39.6
|
|
|
28.4
|
|
Realized investment
gains (losses):
|
|
|
|
|
|
|
|
Net realized
investment gains (losses),
excluding impairment losses
|
33.5
|
|
|
(2.2)
|
|
|
42.6
|
|
|
(3.3)
|
|
Impairment
losses recognized (a)
|
(13.6)
|
|
|
(7.9)
|
|
|
(23.6)
|
|
|
(9.2)
|
|
Gain (loss) on
dissolution of variable interest entities
|
(7.3)
|
|
|
—
|
|
|
(7.3)
|
|
|
11.3
|
|
Total realized gains
(losses)
|
12.6
|
|
|
(10.1)
|
|
|
11.7
|
|
|
(1.2)
|
|
Fee revenue and other
income
|
14.0
|
|
|
15.6
|
|
|
28.2
|
|
|
31.8
|
|
Total
revenues
|
1,003.9
|
|
|
959.5
|
|
|
1,964.3
|
|
|
1,937.8
|
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
Insurance policy
benefits
|
632.4
|
|
|
568.3
|
|
|
1,251.4
|
|
|
1,174.3
|
|
Transition
expenses
|
—
|
|
|
4.5
|
|
|
—
|
|
|
9.0
|
|
Interest
expense
|
28.9
|
|
|
25.3
|
|
|
56.6
|
|
|
46.8
|
|
Amortization
|
54.8
|
|
|
73.7
|
|
|
116.9
|
|
|
139.8
|
|
Loss on
extinguishment of debt
|
—
|
|
|
32.8
|
|
|
—
|
|
|
32.8
|
|
Other operating costs
and expenses
|
205.1
|
|
|
182.2
|
|
|
416.2
|
|
|
380.1
|
|
Total benefits and
expenses
|
921.2
|
|
|
886.8
|
|
|
1,841.1
|
|
|
1,782.8
|
|
Income before income
taxes
|
82.7
|
|
|
72.7
|
|
|
123.2
|
|
|
155.0
|
|
Income tax
expense:
|
|
|
|
|
|
|
|
Tax expense on period
income
|
29.8
|
|
|
25.9
|
|
|
44.8
|
|
|
55.4
|
|
Valuation allowance
for deferred tax assets
|
(7.0)
|
|
|
—
|
|
|
(27.0)
|
|
|
—
|
|
Net income
|
$
|
59.9
|
|
|
$
|
46.8
|
|
|
$
|
105.4
|
|
|
$
|
99.6
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
178,323,000
|
|
|
195,857,000
|
|
|
179,337,000
|
|
|
198,174,000
|
|
Net income
|
$
|
.34
|
|
|
$
|
.24
|
|
|
$
|
.59
|
|
|
$
|
.50
|
|
Diluted:
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
180,267,000
|
|
|
198,073,000
|
|
|
181,198,000
|
|
|
200,174,000
|
|
Net income
|
$
|
.33
|
|
|
$
|
.24
|
|
|
$
|
.58
|
|
|
$
|
.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) No portion
of the other-than-temporary impairments recognized in the periods
was included in accumulated other comprehensive income.
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
SEGMENT OPERATING
RESULTS
(Dollars in millions,
except per share data)
|
|
|
Six months
ended
|
|
June 30,
|
|
2016
|
|
2015
|
|
|
Adjusted EBIT
(3):
|
|
|
|
Bankers
Life
|
$
|
170.9
|
|
|
$
|
168.6
|
|
Washington
National
|
47.8
|
|
|
48.6
|
|
Colonial
Penn:
|
|
|
|
In-force
business (6)
|
26.8
|
|
|
23.9
|
|
New business
(6)
|
(30.6)
|
|
|
(25.6)
|
|
Total Colonial
Penn
|
(3.8)
|
|
|
(1.7)
|
|
Adjusted EBIT
from business segments
|
214.9
|
|
|
215.5
|
|
Corporate Operations,
excluding corporate interest expense
|
(15.1)
|
|
|
(6.3)
|
|
Adjusted
EBIT
|
199.8
|
|
|
209.2
|
|
Corporate interest
expense
|
(22.8)
|
|
|
(22.4)
|
|
Operating earnings
before taxes
|
177.0
|
|
|
186.8
|
|
Tax expense on
operating income
|
63.7
|
|
|
65.9
|
|
Net operating income
(1)
|
113.3
|
|
|
120.9
|
|
Net realized
investment gains (losses) (net of related amortization)
|
11.0
|
|
|
(1.3)
|
|
Fair value changes in
embedded derivative liabilities (net of related
amortization)
|
(46.0)
|
|
|
13.0
|
|
Fair value changes
related to agent deferred compensation plan
|
(18.3)
|
|
|
—
|
|
Loss on
extinguishment of debt
|
—
|
|
|
(32.8)
|
|
Other
|
(.5)
|
|
|
(10.7)
|
|
Non-operating loss
before taxes
|
(53.8)
|
|
|
(31.8)
|
|
Income tax
benefit:
|
|
|
|
On non-operating
loss
|
(18.9)
|
|
|
(10.5)
|
|
Valuation allowance
for deferred tax assets
|
(27.0)
|
|
|
—
|
|
Net non-operating
loss
|
(7.9)
|
|
|
(21.3)
|
|
Net income
|
$
|
105.4
|
|
|
$
|
99.6
|
|
|
|
|
|
Per diluted
share:
|
|
|
|
Net operating
income
|
$
|
.63
|
|
|
$
|
.61
|
|
Net realized
investment gains (losses) (net of related amortization and
taxes)
|
.04
|
|
|
—
|
|
Fair value changes in
embedded derivative liabilities (net of related amortization and
taxes)
|
(.17)
|
|
|
.04
|
|
Fair value changes
related to agent deferred compensation plan (net of
taxes)
|
(.07)
|
|
|
—
|
|
Loss on
extinguishment of debt (net of taxes)
|
—
|
|
|
(.11)
|
|
Valuation allowance
for deferred tax assets
|
.15
|
|
|
—
|
|
Other
|
—
|
|
|
(.04)
|
|
Net
income
|
$
|
.58
|
|
|
$
|
.50
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
NET OPERATING
INCOME EXCLUDING A SIGNIFICANT ITEM*
(Dollars in millions,
except per share data)
|
|
|
Three months
ended
|
|
June 30,
2015*
|
|
Actual
results
|
|
Significant
item
|
|
Excluding
significant
item
|
Net Operating Income
(1):
|
|
|
|
|
|
Bankers
Life
|
$
|
86.4
|
|
|
$
|
—
|
|
|
$
|
86.4
|
|
Washington
National
|
20.1
|
|
|
9.0
|
|
|
29.1
|
|
Colonial
Penn
|
4.2
|
|
|
—
|
|
|
4.2
|
|
Adjusted EBIT from
business segments
|
110.7
|
|
|
9.0
|
|
|
119.7
|
|
Corporate Operations,
excluding corporate interest expense
|
(5.0)
|
|
|
—
|
|
|
(5.0)
|
|
Adjusted EBIT
(3)
|
105.7
|
|
|
9.0
|
|
|
114.7
|
|
Corporate interest
expense
|
(11.9)
|
|
|
—
|
|
|
(11.9)
|
|
Operating earnings
before taxes
|
93.8
|
|
|
9.0
|
|
|
102.8
|
|
Tax expense on
operating income
|
33.0
|
|
|
3.2
|
|
|
36.2
|
|
Net operating
income
|
$
|
60.8
|
|
|
$
|
5.8
|
|
|
$
|
66.6
|
|
|
|
|
|
|
|
Net operating income
per diluted share
|
$
|
.31
|
|
|
$
|
.03
|
|
|
$
|
.34
|
|
|
* This table
summarizes the financial impact of a significant item (as described
in the segment results section of this press release) on our 2Q15
net operating income.
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
TOTAL COLLECTED
PREMIUMS
(Dollars in
millions)
|
|
|
Three months
ended
|
|
June 30,
|
|
2016
|
|
2015
|
Bankers
Life:
|
|
|
|
Medicare
supplement
|
$
|
179.0
|
|
|
$
|
176.3
|
|
Long-term
care
|
118.0
|
|
|
119.6
|
|
Other
health
|
1.6
|
|
|
1.8
|
|
Supplemental
health
|
5.3
|
|
|
4.8
|
|
Life
|
117.9
|
|
|
114.3
|
|
Annuity
|
206.4
|
|
|
187.1
|
|
Total
|
628.2
|
|
|
603.9
|
|
Washington
National:
|
|
|
|
Supplemental health
and other health
|
142.2
|
|
|
136.7
|
|
Medicare
supplement
|
15.1
|
|
|
17.1
|
|
Life
|
7.4
|
|
|
7.0
|
|
Annuity
|
.5
|
|
|
1.1
|
|
Total
|
165.2
|
|
|
161.9
|
|
Colonial
Penn:
|
|
|
|
Life
|
69.0
|
|
|
64.3
|
|
Medicare supplement
and other health
|
.6
|
|
|
.8
|
|
Total
|
69.6
|
|
|
65.1
|
|
Total collected
premiums from segments
|
$
|
863.0
|
|
|
$
|
830.9
|
|
NEW ANNUALIZED
PREMIUMS (2)
(Dollars in
millions)
|
|
|
Three months
ended
|
|
June 30,
|
|
2016
|
|
2015
|
Bankers
Life:
|
|
|
|
Medicare
supplement
|
$
|
16.7
|
|
|
$
|
16.3
|
|
Long-term
care
|
6.0
|
|
|
5.6
|
|
Supplemental
health
|
1.7
|
|
|
1.9
|
|
Life
|
21.8
|
|
|
26.4
|
|
Annuity
|
12.3
|
|
|
11.1
|
|
Total
|
58.5
|
|
|
61.3
|
|
Washington
National:
|
|
|
|
Supplemental
health
|
22.4
|
|
|
23.9
|
|
Life
|
1.8
|
|
|
1.8
|
|
Total
|
24.2
|
|
|
25.7
|
|
Colonial
Penn:
|
|
|
|
Life
|
19.2
|
|
|
18.5
|
|
Total
|
19.2
|
|
|
18.5
|
|
Total new
annualized premiums
|
$
|
101.9
|
|
|
$
|
105.5
|
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
BENEFIT RATIOS ON
MAJOR HEALTH LINES OF BUSINESS
|
|
|
Three months
ended
|
|
June 30,
|
|
2016
|
|
2015
|
Bankers
Life:
|
|
|
|
Medicare
Supplement:
|
|
|
|
Earned
premium
|
$194
million
|
|
$193
million
|
Benefit ratio
(7)
|
73.0
|
%
|
|
68.7
|
%
|
Long-Term
Care:
|
|
|
|
Earned
premium
|
$118
million
|
|
$121
million
|
Benefit ratio
(7)
|
134.7
|
%
|
|
140.7
|
%
|
Interest-adjusted
benefit ratio (a non-GAAP measure) (8)
|
77.9
|
%
|
|
84.6
|
%
|
Washington
National:
|
|
|
|
Medicare
Supplement:
|
|
|
|
Earned
premium
|
$16
million
|
|
$18
million
|
Benefit ratio
(7)
|
74.0
|
%
|
|
64.6
|
%
|
Supplemental
health:
|
|
|
|
Earned
premium
|
$141
million
|
|
$134
million
|
Benefit ratio
(7)
|
85.7
|
%
|
|
90.3
|
%
|
Interest-adjusted
benefit ratio (a non-GAAP measure) (8)
|
61.6
|
%
|
|
65.7
|
%
|
NOTES
|
|
(1)
|
Management believes
that an analysis of Net income applicable to common stock before:
(i) net realized investment gains or losses, net of related
amortization and taxes; (ii) 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; (iii) fair value changes related to the
agent deferred compensation plan, net of taxes, (iv) loss on
extinguishment of debt, net of taxes; (v) changes in the valuation
allowance for deferred tax assets; and (vi) 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 8.
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)
|
Management believes
that an analysis of earnings before 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 of debt, other
non-operating items, corporate interest expense and taxes
("Adjusted 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
Adjusted EBIT to Net Income applicable to common stock is provided
in the tables on pages 2 and 8.
|
(4)
|
Book value per
diluted share reflects the potential dilution that could occur if
outstanding stock options were exercised, restricted stock and
performance units were vested and convertible securities were
converted. The dilution from options, 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 (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.
|
(5)
|
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.
|
(6)
|
Management believes
that an analysis of Adjusted EBIT for Colonial Penn, separated
between in-force and new business, provides increased clarity for
this segment as the vast majority of the costs to generate new
business in this segment are not deferrable and Adjusted EBIT will
fluctuate based on management's decisions on how much marketing
costs to incur in each period. Adjusted 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. Adjusted 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.
|
(7)
|
The benefit ratio is
calculated by dividing the related product's insurance policy
benefits by insurance policy income.
|
(8)
|
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.