CARMEL, Ind., Oct. 25, 2017 /PRNewswire/ -- CNO Financial
Group, Inc. (NYSE: CNO) today announced net income for the third
quarter of 2017 of $100.8 million, or
59 cents per diluted share, compared
to $18.6 million, or 11 cents per diluted share, in the third quarter
of 2016. CNO also announced third quarter of 2017 net
operating income (1) of $76.7
million, or 45 cents per
diluted share, compared to $64.3
million, or 37 cents per
diluted share, in the third quarter of 2016.
"The company's earnings for the third quarter reflect the
continued strength of our enterprise," said Ed Bonach, CEO of CNO. "We had notable
increases in net income and book value per share, while enhancing
our capital position and flexibility."
"We are pleased with some of our metrics this quarter, and
continue to see encouraging early results for agent pilots, product
rollouts, and market segmentation strategies," added Gary Bhojwani, president of CNO and CEO
successor. "We remain committed to the implementation of strategic
initiatives that will, over time, allow us to achieve desired
results in all of our metrics. Indeed, steps are being
taken to accelerate the pace of change."
Third Quarter 2017 Highlights
- First-year collected premiums: $319.2
million, down 5% from 3Q16
- Total collected premiums: $882.4
million, down 2% from 3Q16
- New annualized premium ("NAP") (2) for life and health
products: $77.4 million, down 10%
from 3Q16
- Annuity collected premiums: $236.7
million, down 4% from 3Q16
- Annuity account values: $8.4
billion, up 4% from 3Q16
- Policies inforce of 3.5 million (including third party policies
inforce), down 1% from 3Q16
- Net income per diluted share: 59
cents in 3Q17 compared to 11
cents in 3Q16
- Net operating income (1) per diluted share: 45 cents in 3Q17 compared to 37 cents in 3Q16
- Book value per common share increased to $29.10 at September 30,
2017 from $25.89 at
September 30, 2016
- Book value per diluted share, excluding accumulated other
comprehensive income (loss) (3), increased to $23.19 at September 30,
2017 from $20.80 at
September 30, 2016
- Unrestricted cash and investments held by our holding company
were $380 million at September 30, 2017 compared to $264 million at December
31, 2016
- Common stock repurchases of $28.2
million and dividends of $15.2
million in 3Q17
Nine-month 2017 Highlights
- First-year collected premiums: $1,016.8
million, up 5% from the first nine months of 2016
- Total collected premiums: $2,747.4
million, up 3% from the first nine months of 2016
- NAP (2) for life and health products: $247.2 million, down 8% from the first nine
months of 2016
- Annuity collected premiums: $758.9
million, up 11% from the first nine months of 2016
- Net income per diluted share: $1.43 in the first nine months of 2017 compared
to 69 cents in the first nine months
of 2016
- Net operating income (1) per diluted share: $1.25 in the first nine months of 2017 compared
to 99 cents in the first nine months
of 2016
- Common stock repurchases of $140.1
million and dividends of $44.5
million in the first nine months of 2017
- Consolidated risk-based capital ratio was estimated at 450% at
September 30, 2017, reflecting
estimated statutory operating earnings of $257 million and insurance company dividends to
the holding company of $286.8 million
during the first nine months of 2017
Quarterly Segment
Operating Results
|
|
|
|
Three months
ended
|
|
September
30,
|
|
2017
|
|
2016
|
|
(Dollars in millions,
except per share data)
|
Adjusted EBIT
(4):
|
|
|
|
Bankers
Life
|
$
|
106.9
|
|
$
|
88.1
|
Washington
National
|
27.5
|
|
25.2
|
Colonial
Penn:
|
|
|
|
Inforce business
(5)
|
19.8
|
|
14.2
|
New business
(5)
|
(10.8)
|
|
(13.3)
|
Total Colonial
Penn
|
9.0
|
|
.9
|
Long-term care in
run-off
|
(1.0)
|
|
—
|
Adjusted EBIT from
business segments
|
142.4
|
|
114.2
|
Corporate Operations,
excluding corporate interest expense
|
(14.9)
|
|
(4.4)
|
Adjusted
EBIT
|
127.5
|
|
109.8
|
Corporate interest
expense
|
(11.7)
|
|
(11.5)
|
Operating earnings
before taxes
|
115.8
|
|
98.3
|
Tax expense on
operating income
|
39.1
|
|
34.0
|
Net operating income
(1)
|
76.7
|
|
64.3
|
Net realized
investment gains (net of related amortization)
|
28.5
|
|
11.4
|
Fair value changes in
embedded derivative liabilities (net of related
amortization)
|
2.3
|
|
9.4
|
Fair value changes
and amendment related to agent deferred compensation
plan
|
(13.4)
|
|
6.3
|
Loss on reinsurance
transaction
|
—
|
|
(75.4)
|
Other
|
(3.3)
|
|
(.7)
|
Non-operating income
(loss) before taxes
|
14.1
|
|
(49.0)
|
Income tax expense
(benefit):
|
|
|
|
On non-operating
income (loss)
|
5.0
|
|
(17.1)
|
Valuation allowance
for deferred tax assets and other tax items
|
(15.0)
|
|
13.8
|
Net non-operating
income (loss)
|
24.1
|
|
(45.7)
|
Net income
|
$
|
100.8
|
|
$
|
18.6
|
|
|
|
|
Per diluted
share:
|
|
|
|
|
Net operating
income
|
$
|
.45
|
|
$
|
.37
|
Net realized
investment gains (net of related amortization and taxes)
|
.11
|
|
.04
|
Fair value changes in
embedded derivative liabilities (net of related
amortization and taxes)
|
.01
|
|
.04
|
Fair value changes
and amendment related to agent deferred compensation plan
(net of taxes)
|
(.05)
|
|
.02
|
Loss on reinsurance
transaction (net of taxes)
|
—
|
|
(.28)
|
Valuation allowance
for deferred tax assets and other tax items
|
.09
|
|
(.08)
|
Other
|
(.02)
|
|
—
|
Net income
|
$
|
.59
|
|
$
|
.11
|
The following table summarizes the financial impact of a
significant item on our 3Q17 net operating income (dollars in
millions, except per share
amounts):
|
Three months
ended
|
|
September 30,
2017*
|
|
Actual
results
|
|
Significant
item
|
|
Excluding
significant
item
|
Net Operating Income
(1):
|
|
|
|
|
|
Bankers
Life
|
$
|
106.9
|
|
$
|
—
|
|
$
|
106.9
|
Washington
National
|
27.5
|
|
—
|
|
27.5
|
Colonial
Penn
|
9.0
|
|
(3.0)
|
|
6.0
|
Long-term care in
run-off
|
(1.0)
|
|
—
|
|
(1.0)
|
Adjusted EBIT from
business segments
|
142.4
|
|
(3.0)
|
|
139.4
|
Corporate Operations,
excluding corporate interest expense
|
(14.9)
|
|
—
|
|
(14.9)
|
Adjusted EBIT
(4)
|
127.5
|
|
(3.0)
|
|
124.5
|
Corporate interest
expense
|
(11.7)
|
|
—
|
|
(11.7)
|
Operating earnings
before taxes
|
115.8
|
|
(3.0)
|
|
112.8
|
Tax expense on
operating income
|
39.1
|
|
(1.0)
|
|
38.1
|
Net operating
income
|
$
|
76.7
|
|
$
|
(2.0)
|
|
$
|
74.7
|
|
|
|
|
|
|
Net operating income
per diluted share
|
$
|
.45
|
|
$
|
(.01)
|
|
$
|
.44
|
The significant item in 3Q17 reflects a $3.0 million out-of-period adjustment and
refinement to liabilities for insurance products in the Colonial
Penn segment identified in conjunction with periodic updating of
assumptions.
* See page 10 for the table of Net Operating Income
Excluding a Significant Item for the three months ended
September 30, 2016.
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 3Q17 were
$288.2 million, down 5 percent from
3Q16. NAP for life and health products in 3Q17 was
$36.6 million, down 14 percent
compared to 3Q16. Average producing agents (over the last
twelve months) were down 7 percent from 3Q16. Average
producing agents in their third year of service or later (over the
last twelve months) in 3Q17 were essentially flat compared to
3Q16.
Total collected premiums in 3Q17 were $641.7 million, down 4 percent from 3Q16.
Annuity collected premiums in 3Q17 were $236.5 million, down 4 percent from 3Q16.
Annuity account values, on which spread income is earned, increased
5 percent to $8.0 billion in 3Q17
compared to 3Q16, driven by strong sales and persistency over the
last twelve months. Total policies inforce decreased 1
percent and third party policies inforce increased 4 percent from
3Q16.
Pre-tax operating earnings in 3Q17 compared to 3Q16 were up
$18.8 million, or 21 percent.
Pre-tax operating earnings in 3Q17 reflected favorable net
investment income and favorable incurred claims in our long-term
care and Medicare supplement blocks of business. Our 3Q17
earnings reflected $11.5 million of
higher income from call premiums and prepayments compared to
3Q16. Pre-tax operating earnings in 3Q16 reflected a
$5.2 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.
The long-term care interest-adjusted benefit ratio was 72.9
percent in 3Q17, lower than the 3Q16 ratio of 77.7 percent.
The 3Q17 ratio reflects no increase to the future loss reserve,
given the outcome of the year-end 2016 actuarial review, compared
to an $8.4 million increase in
3Q16. The 3Q16 ratio was also impacted by $5.7 million of one-time reserve releases related
to policyholder decisions to surrender or reduce coverage following
rate increases. Such reserve releases in 3Q17 were not
significant. The long-term care interest-adjusted benefit
ratio excluding the favorable reserve releases was 82.6 percent in
3Q16. We currently expect the long-term care
interest-adjusted benefit ratio to be in the range of 75 percent to
80 percent during 4Q17, excluding the impacts of rate increase
actions. We expect that the rate increases will have a minor
impact on the interest-adjusted benefit ratio in 4Q17.
Pre-tax operating earnings in 3Q17 reflected a Medicare
supplement benefit ratio of 72.0 percent, lower than the 3Q16 ratio
of 72.5 percent. We currently expect the Medicare supplement
benefit ratio to be in the range of 70 percent to 73 percent during
4Q17.
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 3Q17 were $18.9 million, essentially flat with 3Q16.
NAP from life and health products in 3Q17 was $24.8 million, up slightly from 3Q16. The
average number of producing agents (over the last twelve months) in
3Q17 was up 1 percent compared to 3Q16.
Total collected premiums from the segment's supplemental health
block were up 3 percent in 3Q17 compared to 3Q16.
Pre-tax operating earnings in 3Q17 compared to 3Q16 were up
$2.3 million, or 9 percent.
Pre-tax operating earnings in 3Q17 primarily reflect higher margins
on the supplemental health block compared to 3Q16. The
supplemental health interest-adjusted benefit ratio was 59.0
percent and 59.8 percent in 3Q17 and 3Q16, respectively. We
continue to expect the supplemental health interest-adjusted
benefit ratio to be in the range of 58 percent to 61 percent during
4Q17.
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 were
$12.1 million and NAP was
$16.0 million in 3Q17 down 12 percent
and 13 percent, respectively, from 3Q16.
Total collected premiums were up 3 percent in 3Q17 compared to
3Q16.
The pre-tax operating earnings in 3Q17 were $9.0 million compared to $.9 million in 3Q16 principally due to reduced
marketing expenses and $3.0 million
related to a favorable out-of-period adjustment and refinement to
liabilities for insurance products identified in conjunction with
periodic updating of assumptions. Inforce Adjusted EBIT was
$19.8 million, up 39 percent from
3Q16, primarily reflecting growth in the block and the
aforementioned $3.0 million favorable
impact related to liabilities for insurance products.
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 currently expect this segment to report
earnings in 2017 in the range of $15 million
to $20 million (excluding the favorable impact of
$3.0 million related to an
out-of-period adjustment and refinement to liabilities for
insurance products).
Long-term care in run-off only includes the long-term
care business that was recaptured in September 2016. This
segment recognized pre-tax losses of $1.0
million in 3Q17. The interest-adjusted benefit ratio
for this long-term care block was 99.4 percent in 3Q17 compared to
104.6 percent in 2Q17. We expect this segment to report
normalized earnings before net realized investment gains (losses)
of approximately breakeven over the long-term. However, this
segment's quarterly results can be volatile given its loss
recognition status.
Corporate Operations includes our investment advisory
subsidiary and corporate expenses.
Pre-tax losses in 3Q17 were $14.9
million compared to $4.4
million of losses in 3Q16 primarily reflecting higher
expenses.
Non-Operating Items
Net realized investment gains in
3Q17 were $28.5 million (net of
related amortization) including other-than-temporary impairment
losses of $4.7 million which were
recorded in earnings. Net realized investment gains in 3Q16
were $11.4 million (net of related
amortization) including other-than-temporary impairment losses of
$1.2 million recorded in
earnings.
During 3Q17 and 3Q16, we recognized increases in earnings of
$2.3 million and $9.4 million, respectively, resulting from
changes in the estimated fair value of embedded derivative
liabilities related to our fixed index annuities, net of related
amortization. Such amounts include the impacts of changes in
market interest rates used to determine the derivative's estimated
fair value.
In 3Q17, we recognized a decrease in earnings of $13.4 million for the mark-to-market change in
the agent deferred compensation plan liability which was impacted
by changes in the underlying actuarial assumptions used to value
the liability. We recognize the mark-to-market change in the
estimated value of this liability through earnings as assumptions
change. In 3Q16, we amended our agent deferred compensation
plan. Among other things, the plan was amended to: (i) freeze
participation in the plan; (ii) freeze benefits accrued under the
plan; and (iii) add a limited cashout feature. During 3Q16,
we made lump sum settlement distributions to plan participants with
account balances that were below a certain threshold following the
freeze. Accordingly, we recognized a pre-tax gain of
$6.3 million related to the
settlement distributions in 3Q16.
During 3Q16, we terminated our reinsurance agreements with
Beechwood Re Ltd and recaptured $552
million of long-term care reserves. As a result of the
recapture, we were required to value the assets and liabilities as
of the date of recapture based on valuation methodologies that are
consistent with the methodologies used by CNO to value its other
investments and insurance liabilities. Accordingly, we
recognized a pre-tax loss of $75.4
million on the recapture of the long-term care business in
3Q16.
In 3Q17, we reduced the valuation allowance for deferred tax
assets by $15.0 million primarily due
to higher actual income compared to the amount used in our deferred
tax valuation model. In 3Q16, the valuation allowance for
deferred tax assets and other tax items was increased by
$13.8 million primarily resulting
from the additional valuation allowance required as a result of the
recapture of the long-term care business, the impacts of our annual
assessment of the valuation allowance including changes in our
projections of future taxable income and the impacts of IRS exam
adjustments on our tax expense.
Statutory (based on non-GAAP measures) and GAAP Capital
Information
Our consolidated statutory risk-based capital
ratio was estimated at 450% at September 30, 2017, reflecting
estimated 3Q17 statutory operating earnings of $91 million and the payment of insurance company
dividends to the holding company of $109.8
million during 3Q17 and $286.8
million during the first nine months of 2017.
During the third quarter of 2017, we repurchased $28.2 million of common stock under our
securities repurchase program. We repurchased 1.3 million
common shares at an average cost of $22.19 per share. During the first nine
months of 2017, we repurchased 6.7 million common shares at a total
cost of $140.1 million. CNO
anticipates repurchasing common stock in the range of $175 million to $225 million in 2017, absent
compelling alternatives. As of September 30, 2017, we
had 167.8 million shares outstanding and had authority to
repurchase up to an additional $412.6
million of our common stock. During 3Q17, dividends
paid on common stock totaled $15.2
million.
Unrestricted cash and investments held by our holding company
were $380 million at
September 30, 2017, compared to $264
million at December 31, 2016,
reflecting dividends from subsidiaries, partially offset by common
stock repurchases and dividend payments.
Book value per common share was $29.10 and $25.82
at September 30, 2017 and December 31,
2016, respectively. Book value per diluted share,
excluding accumulated other comprehensive income (loss) (3),
increased to $23.19 at
September 30, 2017, compared to $22.02 at December
31, 2016.
The debt-to-capital ratio was 15.8 percent and 16.9 percent at
September 30, 2017 and December 31,
2016, respectively. Our debt-to-total capital ratio,
excluding accumulated other comprehensive income (6) was 18.8
percent at September 30, 2017 compared to 19.1 percent at
December 31, 2016.
Conference Call
The Company will host a conference
call to discuss results on October 26,
2017 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,
2017
|
|
December 31,
2016
|
ASSETS
|
|
|
|
Investments:
|
|
|
|
Fixed maturities,
available for sale, at fair value (amortized cost:
September
30, 2017 - $20,092.5; December 31, 2016 - $19,803.1)
|
$
|
22,129.9
|
|
$
|
21,096.2
|
Equity securities at
fair value (cost: September 30, 2017 - $688.7; December
31, 2016 - $580.7)
|
713.3
|
|
584.2
|
Mortgage
loans
|
1,667.8
|
|
1,768.0
|
Policy
loans
|
114.6
|
|
112.0
|
Trading
securities
|
294.4
|
|
363.4
|
Investments held by
variable interest entities
|
1,382.5
|
|
1,724.3
|
Other invested
assets
|
752.1
|
|
589.5
|
Total
investments
|
27,054.6
|
|
26,237.6
|
Cash and cash
equivalents - unrestricted
|
765.9
|
|
478.9
|
Cash and cash
equivalents held by variable interest entities
|
105.9
|
|
189.3
|
Accrued investment
income
|
268.0
|
|
239.6
|
Present value of
future profits
|
368.5
|
|
401.8
|
Deferred acquisition
costs
|
1,023.8
|
|
1,044.7
|
Reinsurance
receivables
|
2,195.5
|
|
2,260.4
|
Income tax assets,
net
|
567.4
|
|
789.7
|
Assets held in
separate accounts
|
4.8
|
|
4.7
|
Other
assets
|
350.2
|
|
328.5
|
Total
assets
|
$
|
32,704.6
|
|
$
|
31,975.2
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Liabilities for
insurance products:
|
|
|
|
Policyholder account
balances
|
$
|
11,113.5
|
|
$
|
10,912.7
|
Future policy
benefits
|
11,374.1
|
|
10,953.3
|
Liability for policy
and contract claims
|
519.5
|
|
500.6
|
Unearned and advanced
premiums
|
262.4
|
|
282.5
|
Liabilities related to
separate accounts
|
4.8
|
|
4.7
|
Other
liabilities
|
789.1
|
|
611.4
|
Investment
borrowings
|
1,646.9
|
|
1,647.4
|
Borrowings related to
variable interest entities
|
1,198.2
|
|
1,662.8
|
Notes payable –
direct corporate obligations
|
914.4
|
|
912.9
|
Total
liabilities
|
27,822.9
|
|
27,488.3
|
Commitments and
Contingencies
|
|
|
|
Shareholders'
equity:
|
|
|
|
Common stock ($0.01
par value, 8,000,000,000 shares authorized, shares issued
and outstanding: September 30, 2017 – 167,762,323; December
31, 2016 –
173,753,614)
|
1.7
|
|
1.7
|
Additional paid-in
capital
|
3,094.5
|
|
3,212.1
|
Accumulated other
comprehensive income
|
933.6
|
|
622.4
|
Retained
earnings
|
851.9
|
|
650.7
|
Total shareholders'
equity
|
4,881.7
|
|
4,486.9
|
Total liabilities and
shareholders' equity
|
$
|
32,704.6
|
|
$
|
31,975.2
|
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,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues:
|
|
|
|
|
|
|
|
Insurance policy
income
|
$
|
659.3
|
|
$
|
649.0
|
|
$
|
1,987.2
|
|
$
|
1,947.0
|
Net investment
income:
|
|
|
|
|
|
|
|
General account
assets
|
325.9
|
|
301.7
|
|
960.3
|
|
888.5
|
Policyholder and other
special-purpose portfolios
|
52.7
|
|
43.1
|
|
171.8
|
|
82.7
|
Realized investment
gains (losses):
|
|
|
|
|
|
|
|
Net realized
investment gains, excluding impairment losses
|
34.5
|
|
12.8
|
|
74.8
|
|
55.4
|
Other-than-temporary
impairments:
|
|
|
|
|
|
|
|
Total
other-than-temporary impairment losses
|
(4.7)
|
|
(1.2)
|
|
(17.3)
|
|
(24.8)
|
Change in
other-than-temporary impairment losses
recognized in accumulated other comprehensive income
|
—
|
|
—
|
|
(.9)
|
|
—
|
Net impairment losses
recognized
|
(4.7)
|
|
(1.2)
|
|
(18.2)
|
|
(24.8)
|
Loss on dissolution of
variable interest entities
|
(.6)
|
|
—
|
|
(4.3)
|
|
(7.3)
|
Total realized
gains
|
29.2
|
|
11.6
|
|
52.3
|
|
23.3
|
Fee revenue and other
income
|
12.2
|
|
10.5
|
|
35.5
|
|
38.7
|
Total
revenues
|
1,079.3
|
|
1,015.9
|
|
3,207.1
|
|
2,980.2
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
Insurance policy
benefits
|
638.1
|
|
609.8
|
|
1,941.6
|
|
1,861.2
|
Loss on reinsurance
transaction
|
—
|
|
75.4
|
|
—
|
|
75.4
|
Interest
expense
|
30.1
|
|
29.4
|
|
92.3
|
|
86.0
|
Amortization
|
58.2
|
|
64.7
|
|
181.3
|
|
181.6
|
Loss on extinguishment
of borrowings related to a variable
interest entity
|
5.5
|
|
—
|
|
5.5
|
|
—
|
Other operating costs
and expenses
|
217.5
|
|
187.3
|
|
631.3
|
|
603.5
|
Total benefits and
expenses
|
949.4
|
|
966.6
|
|
2,852.0
|
|
2,807.7
|
Income before
income taxes
|
129.9
|
|
49.3
|
|
355.1
|
|
172.5
|
Income tax expense
(benefit):
|
|
|
|
|
|
|
|
Tax expense on period
income
|
44.1
|
|
16.9
|
|
123.6
|
|
61.7
|
Valuation allowance
for deferred tax assets and other tax
items
|
(15.0)
|
|
13.8
|
|
(15.0)
|
|
(13.2)
|
Net income
|
$
|
100.8
|
|
$
|
18.6
|
|
$
|
246.5
|
|
$
|
124.0
|
Earnings per common
share:
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
168,684,000
|
|
174,247,000
|
|
170,890,000
|
|
177,640,000
|
Net income
|
$
|
.60
|
|
$
|
.11
|
|
$
|
1.44
|
|
$
|
.70
|
Diluted:
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
170,982,000
|
|
175,723,000
|
|
172,800,000
|
|
179,373,000
|
Net income
|
$
|
.59
|
|
$
|
.11
|
|
$
|
1.43
|
|
$
|
.69
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
SEGMENT OPERATING
RESULTS
|
(Dollars in millions,
except per share data)
|
|
|
|
Nine months
ended
|
|
September
30,
|
|
2017
|
|
2016
|
Adjusted EBIT
(4):
|
|
|
|
Bankers
Life
|
$
|
309.2
|
|
$
|
259.0
|
Washington
National
|
74.6
|
|
73.0
|
Colonial
Penn:
|
|
|
|
Inforce business
(5)
|
51.3
|
|
41.0
|
New business
(5)
|
(34.6)
|
|
(43.9)
|
Total Colonial
Penn
|
16.7
|
|
(2.9)
|
Long-term care in
run-off
|
1.1
|
|
—
|
Adjusted EBIT from
business segments
|
401.6
|
|
329.1
|
Corporate Operations,
excluding corporate interest expense
|
(37.0)
|
|
(19.5)
|
Adjusted
EBIT
|
364.6
|
|
309.6
|
Corporate interest
expense
|
(34.8)
|
|
(34.3)
|
Operating earnings
before taxes
|
329.8
|
|
275.3
|
Tax expense on
operating income
|
114.7
|
|
97.7
|
Net operating income
(1)
|
215.1
|
|
177.6
|
Net realized
investment gains (net of related amortization)
|
51.3
|
|
22.4
|
Fair value changes in
embedded derivative liabilities (net of related
amortization)
|
(8.0)
|
|
(36.6)
|
Fair value changes
and amendment related to agent deferred compensation
plan
|
(13.4)
|
|
(12.0)
|
Loss on reinsurance
transaction
|
—
|
|
(75.4)
|
Other
|
(4.6)
|
|
(1.2)
|
Non-operating income
(loss) before taxes
|
25.3
|
|
(102.8)
|
Income tax expense
(benefit):
|
|
|
|
On non-operating
income (loss)
|
8.9
|
|
(36.0)
|
Valuation allowance
for deferred tax assets and other tax items
|
(15.0)
|
|
(13.2)
|
Net non-operating
income (loss)
|
31.4
|
|
(53.6)
|
Net income
|
$
|
246.5
|
|
$
|
124.0
|
|
|
|
|
Per diluted
share:
|
|
|
|
Net operating
income
|
$
|
1.25
|
|
$
|
.99
|
Net realized
investment gains (net of related amortization and taxes)
|
.19
|
|
.08
|
Fair value changes in
embedded derivative liabilities (net of related
amortization and taxes)
|
(.03)
|
|
(.13)
|
Fair value changes and
amendment related to agent deferred compensation plan
(net of taxes)
|
(.05)
|
|
(.05)
|
Loss on reinsurance
transaction (net of taxes)
|
—
|
|
(.27)
|
Valuation allowance
for deferred tax assets and other tax items
|
.09
|
|
.07
|
Other
|
(.02)
|
|
—
|
Net income
|
$
|
1.43
|
|
$
|
.69
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
NET OPERATING
INCOME EXCLUDING A SIGNIFICANT ITEM*
|
(Dollars in millions,
except per share data)
|
|
|
|
Three months
ended
|
|
September 30,
2016*
|
|
Actual
results
|
|
Significant
item
|
|
Excluding
significant
item
|
Net Operating Income
(1):
|
|
|
|
|
|
Bankers
Life
|
$
|
88.1
|
|
$
|
(5.2)
|
|
$
|
82.9
|
Washington
National
|
25.2
|
|
—
|
|
25.2
|
Colonial
Penn
|
.9
|
|
—
|
|
.9
|
Adjusted EBIT from
business segments
|
114.2
|
|
(5.2)
|
|
109.0
|
Corporate Operations,
excluding corporate interest expense
|
(4.4)
|
|
—
|
|
(4.4)
|
Adjusted EBIT
(4)
|
109.8
|
|
(5.2)
|
|
104.6
|
Corporate interest
expense
|
(11.5)
|
|
—
|
|
(11.5)
|
Operating earnings
before taxes
|
98.3
|
|
(5.2)
|
|
93.1
|
Tax expense on
operating income
|
34.0
|
|
(1.8)
|
|
32.2
|
Net operating
income
|
$
|
64.3
|
|
$
|
(3.4)
|
|
$
|
60.9
|
|
|
|
|
|
|
Net operating income
per diluted share
|
$
|
.37
|
|
$
|
(.02)
|
|
$
|
.35
|
* This table summarizes the financial impact of a significant
item (as described in the segment results section of this press
release) on our 3Q16 net operating income.
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
FIRST-YEAR
COLLECTED PREMIUMS
|
(Dollars in
millions)
|
|
|
|
Three months
ended
|
|
September
30,
|
|
2017
|
|
2016
|
Bankers
Life:
|
|
|
|
Medicare
supplement
|
$
|
16.8
|
|
$
|
18.8
|
Long-term
care
|
3.8
|
|
4.4
|
Supplemental
health
|
1.1
|
|
1.4
|
Other
health
|
.2
|
|
—
|
Life
|
30.8
|
|
36.7
|
Annuity
|
235.5
|
|
243.5
|
Total
|
288.2
|
|
304.8
|
Washington
National:
|
|
|
|
Supplemental health
and other health
|
17.9
|
|
17.8
|
Life
|
1.0
|
|
1.2
|
Annuity
|
—
|
|
—
|
Total
|
18.9
|
|
19.0
|
Colonial
Penn:
|
|
|
|
Life
|
12.1
|
|
13.8
|
Total
|
12.1
|
|
13.8
|
Total first-year
collected premiums from segments
|
$
|
319.2
|
|
$
|
337.6
|
TOTAL COLLECTED
PREMIUMS
|
(Dollars in
millions)
|
|
|
|
Three months
ended
|
|
September
30,
|
|
2017
|
|
2016
|
Bankers
Life:
|
|
|
|
Medicare
supplement
|
$
|
177.2
|
|
$
|
182.2
|
Long-term
care
|
107.3
|
|
116.3
|
Supplemental
health
|
5.5
|
|
5.4
|
Other
health
|
1.5
|
|
1.5
|
Life
|
113.7
|
|
115.4
|
Annuity
|
236.5
|
|
245.1
|
Total
|
641.7
|
|
665.9
|
Washington
National:
|
|
|
|
Supplemental health
and other health
|
145.2
|
|
141.5
|
Medicare
supplement
|
11.7
|
|
14.6
|
Life
|
7.1
|
|
7.1
|
Annuity
|
.2
|
|
.2
|
Total
|
164.2
|
|
163.4
|
Colonial
Penn:
|
|
|
|
Life
|
72.2
|
|
70.1
|
Medicare supplement
and other health
|
.4
|
|
.6
|
Total
|
72.6
|
|
70.7
|
Long-term care in
run-off:
|
|
|
|
Long-term
care
|
3.9
|
|
N/A
|
Total
|
3.9
|
|
N/A
|
Total collected
premiums from segments
|
$
|
882.4
|
|
$
|
900.0
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
NEW ANNUALIZED
PREMIUMS FOR LIFE AND HEALTH PRODUCTS (2)
|
(Dollars in
millions)
|
|
|
|
Three months
ended
|
|
September
30,
|
|
2017
|
|
2016
|
Bankers
Life:
|
|
|
|
Medicare
supplement
|
$
|
14.4
|
|
$
|
15.9
|
Long-term
care
|
4.6
|
|
5.2
|
Supplemental health
and other health
|
1.3
|
|
1.7
|
Life
|
16.3
|
|
19.8
|
Total
|
36.6
|
|
42.6
|
Washington
National:
|
|
|
|
Supplemental
health
|
22.8
|
|
22.9
|
Life
|
2.0
|
|
1.7
|
Total
|
24.8
|
|
24.6
|
Colonial
Penn:
|
|
|
|
Life
|
16.0
|
|
18.4
|
Total
|
16.0
|
|
18.4
|
Total new annualized
premiums
|
$
|
77.4
|
|
$
|
85.6
|
ANNUITY ACCOUNT
VALUES
|
(Dollars in
millions)
|
|
|
|
September
30,
|
|
2017
|
|
2016
|
Bankers
Life
|
$
|
8,047.2
|
|
$
|
7,675.9
|
Washington
National
|
385.7
|
|
427.1
|
Total
|
$
|
8,432.9
|
|
$
|
8,103.0
|
CNO FINANCIAL
GROUP, INC. AND SUBSIDIARIES
|
BENEFIT RATIOS ON
MAJOR HEALTH LINES OF BUSINESS
|
|
|
|
Three months
ended
|
|
September
30,
|
|
2017
|
|
2016
|
Bankers
Life:
|
|
|
|
Medicare
supplement:
|
|
|
|
Earned
premium
|
$195
million
|
|
$194
million
|
Benefit ratio
(7)
|
72.0%
|
|
72.5%
|
Long-term
care:
|
|
|
|
Earned
premium
|
$113
million
|
|
$117
million
|
Benefit ratio
(7)
|
134.2%
|
|
137.7%
|
Interest-adjusted
benefit ratio (a non-GAAP measure) (8)
|
72.9%
|
|
77.7%
|
Washington
National:
|
|
|
|
Medicare
supplement:
|
|
|
|
Earned
premium
|
$13
million
|
|
$15
million
|
Benefit ratio
(7)
|
68.1%
|
|
69.5%
|
Supplemental
health:
|
|
|
|
Earned
premium
|
$147
million
|
|
$141
million
|
Benefit ratio
(7)
|
83.2%
|
|
84.0%
|
Interest-adjusted
benefit ratio (a non-GAAP measure) (8)
|
59.0%
|
|
59.8%
|
Long-term care in
run-off:
|
|
|
|
Long-term
care:
|
|
|
|
Earned
premium
|
$4 million
|
|
N/A
|
Benefit ratio
(7)
|
274.3%
|
|
N/A
|
Interest-adjusted
benefit ratio (a non-GAAP measure) (8)
|
99.4%
|
|
N/A
|
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 and amendment
related to the agent deferred compensation plan, net of taxes, (iv)
changes in the valuation allowance for deferred tax assets and
other tax items; and (v) other non-operating items consisting
primarily of 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 for life and health products, which includes 10%
of single premium whole life deposits and 100% of all other
premiums (excluding annuities). Medicare Advantage sales are
not comparable to other sales and are therefore excluded in all
periods.
|
(3)
|
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.
|
(4)
|
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 and amendment related
to the agent deferred compensation plan, 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 9.
|
(5)
|
Management believes
that an analysis of Adjusted EBIT for Colonial Penn, separated
between inforce 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 inforce 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 inforce business is based on
estimates, which we believe are reasonable.
|
(6)
|
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.
|
(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 and uncertainties, 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 the impact of any defaults or failure of reinsurers to
perform; (xxv) the amount we may need to pay to a reinsurer and the
earnings charge we may incur in connection with a long-term care
reinsurance transaction; (xxvi) the performance of third party
service providers and potential difficulties arising from
outsourcing arrangements; (xxvii) the growth rate of sales,
collected premiums, annuity deposits and assets; (xxviii)
interruption in telecommunication, information technology or other
operational systems or failure to maintain the security,
confidentiality or privacy of sensitive data on such systems;
(xxix) events of terrorism, cyber attacks, natural disasters or
other catastrophic events, including losses from a disease
pandemic; (xxx) ineffectiveness of risk management policies and
procedures in identifying, monitoring and managing risks; and
(xxxi) 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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content:http://www.prnewswire.com/news-releases/cno-financial-group-reports-third-quarter-2017-results-300543437.html
SOURCE CNO Financial Group, Inc.