CNO Financial Group, Inc. · NYSE:CNO
CNO Financial — Q2 2015 Earnings Presentation
41 slides from CNO Financial's earnings presentation, Jul 30, 2015
Slide 1: 2Q15 Financial and Operating Results
2Q15 Financial and operating results for the period ended June 30, 2015 July 30, 2015 Unless otherwise specified, comparisons in this presentation are between 2Q15 and 2Q14.
Slide 2: Forward-Looking Statements
Forward-Looking Statements Certain statements made in this presentation should be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These include statements about future results of operations and capital plans. We caution investors that these f
Slide 3: Non-GAAP Measures
Non-GAAP Measures This presentation contains the following financial measures that differ from the comparable measures under Generally Accepted Accounting Principles (GAAP): operating earnings measures; book value,value excluding accumulated other comprehensive income (loss) per share; operating ret
Slide 4: CNO Financial Group | 2Q2015 Earnings | July 30, 2015
CNO Financial Group | 2Q2015 Earnings | July 30, 2015 4
Slide 5: 2Q15 Summary
2Q15 Summary CNO (amounts in millions, except per share data) Operating Earnings Per Share Notable Items Excluding Significant Items* Mixed Sales results; weakness at Bankers 2Q14** 2Q15 $0.34 Life offset by strength at Colonial Penn $0.32 Operating EPS (excluding significant items) it ) up 6%
Slide 6: 2Q15 Sales and Distribution Results Bankers Life
2Q15 Sales and Distribution Results Bankers Life ($ millions) 2Q NAP down 3% Quarterly NAP* ‒ Decrease primarily due to annuity and Med supp; increase in shorter duration LTC 4Q14 $73.6 ‒ Issued policies up 1% 2Q14 3Q14 1Q15 2Q15 $63.1 $61.8 $61.6 $61.3 Third party fee income up 19% on a trailin
Slide 7: 2Q15 Sales and Distribution Results Washington National
2Q15 Sales and Washington g National Di Distribution t ib ti R Results lt ($ millions) Quarterly NAP 2Q Q sales up p 2% % ‒ PMA up 3% 2Q14 3Q14 4Q14 2Q15 $25.6 $26.3 $25.7 $25.3 ‒ WN Independent Partners down 4% 1Q15 $22.6 ‒ Continued g growth in life sales Growth in PMA agent force ‒ Average pr
Slide 8: 2Q15 Sales and Distribution Results Colonial Penn
2Q15 Sales and Colonial Penn Di t ib ti R Distribution lt Results ($ millions) Quarterly NAP 2Q sales up 12%, 12% YTD sales up 19% 1Q15 ‒ Strong growth in Direct Mail and Web $21.1 2Q15 ‒ Continued marketing cost $18.5 effectiveness and improved sales 2Q14 3Q14 $16 5 $16.5 $16 4 $16.4 4Q14 product
Slide 9: 2Q Consolidated Financial Highlights
2Q Consolidated Financial Highlights CNO Earnings Remain Strong ‒ Normalized operating EPS up 6% ‒ Medicare supplement, annuity, life and investment results continue to drive favorable results ‒ Long-term care results in-line with expectations ‒ Elevated El t d supplemental l t lhhealth lth iinter
Slide 10: Segment Earnings
Segment Earnings ($ millions) CNO Segment EBIT Excluding Significant Items* 2Q15 Earnings Drivers $119.7 $118.7 $119.8 $114.7 $106.5 Bankers Life results reflect build in LTC $30.1 $30.2 future loss reserve, largely offset by $32 3 $32.3 $29 1 $29.1 $31.5 continued margin strength on all other blo
Slide 11: Health Margins
Health Margins ($ millions) CNO Bankers Life Medicare Supplement $193 $194 $193 $193 $193 2Q15 Highlights & Outlook 69.5% 66.2% 70.0% 67 4% 67.4% 68 7% 68.7% Medicare supplement benefit ratio of 68 68.7% 7% reflects positive claims experience and favorable persistency 2H15 Outlook: Benefit ratio
Slide 12: Investment Results
Investment Results CNO ($ ( millions)) Average Invested Assets and Cash Realized Gains, Losses and Impairments $24,853 $3,492 $21,687 $21,852 $21,854 $21,956 Gross Realized Gains Gross Realized Losses $347.4 $300.1 $305.4 $300.1 $302.1 Impairments CLIC assets $22.6 $23.3 sold $20.2** $17.3 $7.9 Net
Slide 13: May 2015 Refinancing
May 2015 Refinancing CNO Capitalized on favorable conditions and locked in an investment grade debt structure ‒ Moved to traditional unsecured structure ‒ Extended maturities ‒ Minimal financial covenants ‒ Enhanced financial flexibility by eliminating sweeps and restricted payments baskets ‒ Incr
Slide 14: Capital Targets & Excess Capital Deployment
Capital Targets & Excess Capital Deployment CNO 2015 Y.E. 2014 2Q15 Outlook Key Capital Ratios RBC Ratio 431% 443% ~ 425% v RBC ratio remains strong on stable statutory Liquidity $345mm $385mm > $300mm earnings after $50 million of dividends and distributions to the holding company Leverage* 17.1%
Slide 15: ROE Development
ROE Development CNO Notable Items Normalized Operating ROE* ROE trend reflects stable earnings and 8.8% 8.3% efforts to decrease “beta” and improve ratings Increasing ROE over time remains a priority Pace and trajectory of ROE build dependent on traction with organic growth initiatives and eff
Slide 16: Wrap-up
Wrap-up CNO Investing in growth & productivity Continued strength in cash flow and capital generation Continued ratings momentum; achieving investment g grade remains a p priority y CFO search underway CNO Financial Group | 2Q2015 Earnings | July 30, 2015 16
Slide 17: Questions and Answers
Questions and Answers CNO Financial Group | 2Q2015 Earnings | July 30, 2015 17
Slide 18: Appendix
Appendix CNO Financial Group | 2Q2015 Earnings | July 30, 2015 18
Slide 19: 2015 Sales Outlook
2015 Sales Outlook CNO Consolidated sales g g growth guidance j adjusted to 1% - 3% S l guidance Sales id adjusted dj t d tto fl flatt tto -3% 3% Sales growth guidance adjusted to 3-5% Sales growth guidance increased to 12-15% CNO Financial Group | 2Q2015 Earnings | July 30, 2015 19
Slide 20: Producing Agent Counts
Producing Agent Counts Bankers Life (1) Washington National (2) 1st Yr 2nd Yr 3rd Yr + Total Qtr Avg (3) 1st Yr 2nd Yr 3rd Yr + Total Qtr Avg (3) 6/30/2015 , 2,484 606 1,891 , 4,981 , 4,939 , 423 132 346 901 882 3/31/2015 2,468 657 1,894 5,019 4,850 344 127 340 811 830 12/31/2014 2,258 664 1,868 4,7
Slide 21: 2Q15 Holding Company Liquidity
2Q15 Holding Company Liquidity ($ millions)) CNO 2Q15 Cash and Investments Balance - Beginning $311.0 Sources Net Dividends from Insurance Subsidiaries 37.3 37 3 Dividends from Non-insurance Subsidiaries 5.3 Interest/Earnings on Corporate Investments 4.5 Surplus Debenture Interest 12.1 Service and I
Slide 22: Debt Maturity Profile
Debt Maturity Profile CNO ($ millions) Reflects May 2015 refinancing $500 $325 $100 2015 »» 2019 2020 »» 2025 Senior Unsecured Notes Revolver CNO Financial Group | 2Q2015 Earnings | July 30, 2015 22
Slide 23: Leveraging Considerable Tax Assets
Leveraging Considerable Tax Assets CNO ($ millions) 2Q 2015 Loss Carryforwards 2015 Outlook and Value v $1,001 Expect modest future valuation allowance releases as taxable income stabilizes Life $130 Annual cash flows are expected to be reduced d dbby $50 million illi iin 2016 as lif life NOL’s
Slide 24: 2Q14 Significant Items
2Q14 Significant Items CNO The table below summarizes the financial f impact off the significant f items on our 2Q2014 2Q201 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months en
Slide 25: 3Q14 Significant Items
3Q14 Significant Items CNO The table Th t bl b below l summarizes i th the fi financial i l iimpactt off significant i ifi t it items on our 3Q2014 nett operating ti income. i Management M t believes b li th thatt identifying the impact of these items enhances the understanding of our operating resu
Slide 26: 4Q14 Significant Items
4Q14 Significant Items CNO The table below summarizes the financial f impact off the significant f items on our 4Q2014 Q201 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months end
Slide 27: 1Q15 Significant Items
1Q15 Significant Items CNO The table below summarizes the financial f impact off the significant f item on our 1Q2015 1Q201 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months end
Slide 28: 2Q15 Significant Items
2Q15 Significant Items CNO The table below summarizes the financial f impact off the significant f item on our 2Q2015 2Q201 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions). Three months end
Slide 29: Quarterly Earnings
Quarterlyy Earnings g CNO ($ millions) 2Q14 3Q14 4Q14 1Q15 2Q15 Bankers Life $ 87.4 $ 111.8 $ 103.5 $ 82.2 $ 86.4 Washington National 32.3 27.6 20.2 28.5 20.1 Colonial Penn 3.8 0.4 2.8 (5.9) 4.2 EBIT from business segments continuing after the CLIC sale 123.5 139.8 126.5 104.8 110.7 Corporate operat
Slide 30: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures The following provides additional information regarding certain non-GAAP measures used in this presentation. A non-GAAP measure is a numerical measure of a company’s performance, financial position, or cash flows that excludes or includes am
Slide 31: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of net income applicable to common stock to net operating income (and related per-share amounts) is as follows (dollars in millions, except per-share amounts): 2Q14 3Q14 4Q14 1Q15 2Q15 Net income applicable to common stock $
Slide 32: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of operating income and shares used to calculate basic and diluted operating earnings per share is as follows (dollars in millions, except per-share amounts, and shares in thousands): 2Q14 3Q14 4Q14 1Q15 2Q15 Operating incom
Slide 33: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Book B k value l per dil diluted t d share h 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 conve
Slide 34: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Interest-adjusted benefit ratios 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 liabilit
Slide 35: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Operating return measures Management believes that an analysis of net income applicable to common stock before the net loss on sale of CLIC and gain (loss) on reinsurance transactions, the earnings of CLIC prior to being sold, net realized g
Slide 36: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Th calculations The l l ti of: f (i) operating ti return t on equity, it excluding l di accumulated l t d other th comprehensive h i iincome (l(loss)) and d nett operating loss carryforwards (a non-GAAP financial measure); (ii) operating ret
Slide 37: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures The following summarizes: (i) operating earnings; (ii) significant items; (iii) operating earnings, excluding significant items; and (iv) net income (dollars in millions): Operating Operating earnings, earnings earnings, excluding Net exclud
Slide 38: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of pretax operating earnings (a non-GAAP financial measure) to net income is as follows (dollars in millions): Twelve months ended 2Q14 3Q14 4Q14 1Q15 2Q15 Pretax operating earnings (a non-GAAP financial measure) $ 399.7 $ 4
Slide 39: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders’ equity, is as follows (dollars in millions): 1Q13 2
Slide 40: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders’ equity, is as follows (dollars in millions): Traili
Slide 41: Information Related to Certain Non-GAAP Financial Measures
Information Related to Certain Non-GAAP Financial Measures Debt to capital ratio, excluding accumulated other comprehensive income (loss) The debt to capital ratio, excluding accumulated other comprehensive income (loss), differs from the debt to capital ratio because accumulated other comprehensive