Attached files
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| 8-K - FORM 8-K - CNO Financial Group, Inc. | form8k.htm |
Supplemental Information
March 30, 2011
March 30, 2011
Exhibit 99.1
CNO Financial Group
2
Forward-Looking Statements
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” 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 a reduction in
investment income, the margins of our fixed annuity and life insurance businesses and demand for our products; (ii) general economic, market
and political conditions, including the performance and fluctuations of the financial markets which may affect our ability to raise capital or
refinance existing indebtedness and the cost of doing so; (iii) the ultimate outcome of lawsuits filed against us and other legal and regulatory
proceedings to which we are subject; (iv) our ability to make changes to certain non-guaranteed elements of our life insurance products; (v) our
ability to obtain adequate and timely rate increases on our health products, including our long-term care business; (vi) the receipt of any
required regulatory approvals for dividend and surplus debenture interest payments from our insurance subsidiaries; (vii) 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; (viii) changes in our assumptions related to deferred acquisition costs or the present value of
future profits; (ix) the recoverability of our deferred tax assets and the effect of potential ownership changes and tax rate changes on their
value; (x) our assumption that the positions we take on our tax return filings, including our position that our 7.0% convertible senior debentures
due 2016 will not be treated as stock for purposes of Section 382 of the Internal Revenue Code of 1986, as amended, and will not trigger an
ownership change, will not be successfully challenged by the Internal Revenue Service; (xi) changes in accounting principles and the
interpretation thereof; (xii) our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debt
agreements; (xiii) 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, (xiv) performance and valuation of our investments, including
the impact of realized losses (including other-than-temporary impairment charges); (xv) 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; (xvi) our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs; (xvii) our ability to maintain
effective controls over financial reporting; (xviii) our ability to continue to recruit and retain productive agents and distribution partners and
customer response to new products, distribution channels and marketing initiatives; (xix) our ability to achieve eventual 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; (xx) the risk factors or uncertainties listed from time to time in our filings with the Securities and
Exchange Commission; (xxi) 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 financial services affecting (among other
things) bank sales and underwriting of insurance products, regulation of the sale, underwriting and pricing of products, and health care
regulation affecting health insurance products; and (xxii) changes in the Federal income tax laws and regulations which may affect or eliminate
the relative tax advantages of some of our products. Other factors and assumptions not identified above are also relevant to the forward-
looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected. All forward-looking
statements are expressly qualified in their entirety by the foregoing cautionary statements. Our forward-looking statements speak only as of the
date made. We assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to
reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking
statements.
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” 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 a reduction in
investment income, the margins of our fixed annuity and life insurance businesses and demand for our products; (ii) general economic, market
and political conditions, including the performance and fluctuations of the financial markets which may affect our ability to raise capital or
refinance existing indebtedness and the cost of doing so; (iii) the ultimate outcome of lawsuits filed against us and other legal and regulatory
proceedings to which we are subject; (iv) our ability to make changes to certain non-guaranteed elements of our life insurance products; (v) our
ability to obtain adequate and timely rate increases on our health products, including our long-term care business; (vi) the receipt of any
required regulatory approvals for dividend and surplus debenture interest payments from our insurance subsidiaries; (vii) 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; (viii) changes in our assumptions related to deferred acquisition costs or the present value of
future profits; (ix) the recoverability of our deferred tax assets and the effect of potential ownership changes and tax rate changes on their
value; (x) our assumption that the positions we take on our tax return filings, including our position that our 7.0% convertible senior debentures
due 2016 will not be treated as stock for purposes of Section 382 of the Internal Revenue Code of 1986, as amended, and will not trigger an
ownership change, will not be successfully challenged by the Internal Revenue Service; (xi) changes in accounting principles and the
interpretation thereof; (xii) our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debt
agreements; (xiii) 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, (xiv) performance and valuation of our investments, including
the impact of realized losses (including other-than-temporary impairment charges); (xv) 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; (xvi) our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs; (xvii) our ability to maintain
effective controls over financial reporting; (xviii) our ability to continue to recruit and retain productive agents and distribution partners and
customer response to new products, distribution channels and marketing initiatives; (xix) our ability to achieve eventual 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; (xx) the risk factors or uncertainties listed from time to time in our filings with the Securities and
Exchange Commission; (xxi) 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 financial services affecting (among other
things) bank sales and underwriting of insurance products, regulation of the sale, underwriting and pricing of products, and health care
regulation affecting health insurance products; and (xxii) changes in the Federal income tax laws and regulations which may affect or eliminate
the relative tax advantages of some of our products. Other factors and assumptions not identified above are also relevant to the forward-
looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected. All forward-looking
statements are expressly qualified in their entirety by the foregoing cautionary statements. Our forward-looking statements speak only as of the
date made. We assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to
reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking
statements.
CNO Overview
CNO Financial Group
4
The Company: CNO Financial Group
§ Focused on serving the protection needs of the fast-growing but
underserved middle income and senior markets
underserved middle income and senior markets
§ Products include supplemental health, Medicare supplement, life,
annuity and long-term care
annuity and long-term care
§ Products sold through efficient, growing distribution channels:
– Bankers Life: strong career agent franchise
– Colonial Penn: direct distribution platform
– Washington National: wholly-owned distributor (PMA) and independent
agents
agents
§ Centralized services operation to add value to all units
§ Over 3.9 million policies in force
CNO Financial Group
5
Broad Distribution Reach
• Focused on middle-income senior
market with Medicare supplement,
life, annuity, LTC, Medicare Part D
and Medicare Advantage products
market with Medicare supplement,
life, annuity, LTC, Medicare Part D
and Medicare Advantage products
• “Kitchen-table” sales model
through over 5,000 career agents
and sales managers; growing
agents at 4.5% annually for past
six years
through over 5,000 career agents
and sales managers; growing
agents at 4.5% annually for past
six years
• 150+ branches nationwide
• Focused on middle-income working
Americans in Worksite and
Individual markets with
supplemental health and life
insurance products
Americans in Worksite and
Individual markets with
supplemental health and life
insurance products
• Serving approximately 1 million
policyholders and over 20,000
groups e.g. small business,
education, government, and
healthcare
policyholders and over 20,000
groups e.g. small business,
education, government, and
healthcare
• Distribution through over 2,000
independent agents in 2 sales
channels; PMA (a wholly-owned
distributor) and WNIC Independent.
independent agents in 2 sales
channels; PMA (a wholly-owned
distributor) and WNIC Independent.
• Focused on lower middle-income
retirees with simple, low-cost life
insurance products
retirees with simple, low-cost life
insurance products
• Direct response model with media
and mail-based lead generation
with robust telemarketing support
and mail-based lead generation
with robust telemarketing support
Career
Direct
PMA/Independent
CNO Financial Group
6
Value Through Growth and Execution
The Opportunity: Rapidly Growing, Underserved Market
§ Our focus is meeting the needs of fast-growing senior market
§ Attractive demographics: Baby Boomers reaching retirement age
– The first of Boomer population become Medicare-eligible this year
– Americans turning 65 will grow by nearly 4% annually over next decade
– In ten years, population 65 years old and older will increase by 50%
– Financial downturn underscored importance of risk management and
guaranteed products
guaranteed products
We know this market better than anyone, pursue it full-time, and represent
a pure play in the attractive senior middle income market
a pure play in the attractive senior middle income market
CNO Financial Group
7
CNO Financial Group
8
Q4 2008
Separation
of Closed
Block LTC
business
of Closed
Block LTC
business
Q4 2006
VNB
introduced
VNB
introduced
2007/2008
CIG sales &
marketing
rightsizing -
$6 million
annual
expense
reduction
marketing
rightsizing -
$6 million
annual
expense
reduction
2008
Excess Chicago
space vacated -
$5 million
annual expense
save
space vacated -
$5 million
annual expense
save
Q4 2007
Recapture of
Colonial Penn
Life Block
Colonial Penn
Life Block
Q3 2007
Sale of $3
billion
annuity block
billion
annuity block
Q3 2007
Completed
consolidation
of shared
services in
Carmel, Sale of
excess space in
Carmel
consolidation
of shared
services in
Carmel, Sale of
excess space in
Carmel
Q1 2009
Renegotiated
credit facility
to loosen
covenants
credit facility
to loosen
covenants
Q1 2007
Expanded
Annual
Incentive Plan
participation;
increased
weight on
shareholder
value
Annual
Incentive Plan
participation;
increased
weight on
shareholder
value
Q3 2009
Reinsurance
of CIG Life
policies to
Wilton Re
of CIG Life
policies to
Wilton Re
Q4 2010
Refinanced
$650 million
of debt
$650 million
of debt
Q4 2009
Reinsurance of
Bankers Life
policies to
Wilton Re
Bankers Life
policies to
Wilton Re
Q4 2009
Refinanced
convertible
debentures
putable in Sept
2010; issued
new equity;
paid down Sr.
Credit Facility
convertible
debentures
putable in Sept
2010; issued
new equity;
paid down Sr.
Credit Facility
Q4 2009
Renegotiated
Senior Credit
Facility to
loosen
covenants
Senior Credit
Facility to
loosen
covenants
Q4 2009
Achieved
RBC in
excess of
300%
RBC in
excess of
300%
Q1 2011
Pre-paid
$50
million on
Senior
Credit
Facility
$50
million on
Senior
Credit
Facility
CNO - Timeline of Management Actions
CNO Financial Group
9
We are projecting to build on our excess capital position in the near-term while
maintaining significant cushion relative to debt covenants
maintaining significant cushion relative to debt covenants
(a) Capital in excess of that needed to maintain 300% RBC level and $100 million liquidity at the holding company
Current Capitalization
CNO Financial Group
10
Excess Capital Utilization Opportunities
§ Debt Repayment
§ Share Buybacks
§ Common Stock Dividends
§ Accelerate Distribution Growth
§ Selective Acquisitions
§ Build Holding Company Investment Portfolio
CNO Financial Group
11
Summary
§ Strategic focus on burgeoning senior middle-market—unique “pure
play”
play”
§ Attractive growth and profit potential driven by demographics and
execution
execution
§ Considerable progress financially and operationally
§ Well capitalized and well managed
§ Value of tax paying status not yet fully realized in stock price
§ Strong performance momentum—8 consecutive quarters of
profitable results
profitable results
Washington National Business Review
CNO Financial Group
13
Independent agent distribution
Two sales channels: PMA (wholly-owned) and WNIC Independent
Supplemental Health and Life products
Washington National is a leading provider of supplemental health and life
insurance for middle-income Americans in the Worksite and Individual
markets, serving approximately 1 million policyholders and over 20,000
groups through more than 2,000 independent agents.
insurance for middle-income Americans in the Worksite and Individual
markets, serving approximately 1 million policyholders and over 20,000
groups through more than 2,000 independent agents.
Washington National
Distribution:
Product Focus:
Market Focus and Distribution Approach
CNO Financial Group
14
§ Washington National sales of core products have increased 37.9% since 2008
Washington National
CNO Financial Group
15
Washington National
WNIC Independent: Historical Results -
Supplemental Health & Life
Supplemental Health & Life
CNO Financial Group
16
§ PMA sales of core products have increased 43.9% since 2008
Washington National
PMA: Historical Results - Supplemental Health & Life
CNO Financial Group
17
Washington National
Distribution Growth Priorities
§ Continue generating double-digit growth in supplemental health and
voluntary worksite sales
voluntary worksite sales
§ Grow WNIC Independent - independent distribution
§ Grow PMA - wholly-owned distributor
– Recruiting
– Expanding geographic coverage
– Adding district and regional leaders, and improving talent through training
and monitoring
and monitoring
§ Pursue “Other Distribution” opportunities
Investments
CNO Financial Group
19
Investments
§ Our long-term corporate goal is stable and predictable investment performance meeting
corporate return objectives for our new and in-force products
corporate return objectives for our new and in-force products
§ Our current tactical priority: generating satisfactory investment income within acceptable
risk parameters
risk parameters
§ We invest predominantly in liquid fixed income securities
§ Our portfolio is actively managed
§ Our portfolio has performed to our expectations, reflecting yield, credit loss dilution and
migration trends consistent with the credit cycle
migration trends consistent with the credit cycle
§ We have well-developed risk controls including intensive fundamental research,
conservative asset allocation and credit policies, enterprise-level asset liability
management, disciplined hedging, and closely-monitored compliance
conservative asset allocation and credit policies, enterprise-level asset liability
management, disciplined hedging, and closely-monitored compliance
§ Our hedging activities supporting our indexed products have produced favorable results
(predominately static hedging)
(predominately static hedging)
§ Total return strategy to invest holding company excess capital
CNO Financial Group
20
CNO Financial Group
21
Investment Quality*
§ 91% investment grade
Fixed Maturities, available for sale, by Rating
at 12/31/10 (Market Value)
at 12/31/10 (Market Value)
|
% of Bonds which are Investment Grade:
|
12/31/09
93%
|
3/31/10
93%
|
6/30/10
92%
|
9/30/10
92%
|
12/31/10
91%
|
*Excludes investments from variable interest entities which we consolidate under GAAP (the related liabilities are non-recourse to CNO).
AAA
14%
AA
10%
A
23%
BBB
44%
<BBB
9%
CNO Financial Group
22
Earned Yield/Net Investment Income
§ Full year 2010 portfolio yield increase due
primarily to new money investments at yields
consistently exceeding portfolio rate
primarily to new money investments at yields
consistently exceeding portfolio rate
§ Increase in investment income also benefited
from growth in average assets
from growth in average assets
§ 4Q10 decline in earned yield due primarily to
expansion of FHLB loans
expansion of FHLB loans
Ø Floating rate
Ø Matched
|
New Money Rate:
|
5.15%
|
6.21%
|
6.26%
|
6.00%
|
5.96%
|
($ millions)
|
Earned Yield:
|
5.63%
|
5.76%
|
5.83%
|
5.86%
|
5.77%
|
|
|
4Q09
|
1Q10
|
2Q10
|
3Q10
|
4Q10
|
CNO Financial Group
23
Unrealized Gain/Loss*
*Includes debt and equity securities classified as available for sale. Excludes investments from variable interest
entities which we consolidate under GAAP.
entities which we consolidate under GAAP.
12/31/2009
3/31/2010
6/30/2010
9/30/2010
12/31/2010
CNO Financial Group
24
What we’re buying now…
§ Prime Jumbo RMBS
§ Selected Commercial Mortgage Loans
§ (Original rating) AAA/AA CMBS
§ First and Second Pay CLO’s
§ Taxable Municipal Bonds
CNO Financial Group
25
Asset Liability Management
§ Duration
– Interest rate risk is low
– Duration gap limits continually monitored/managed at statutory entity and line of business
levels
levels
– Significant product mix/distribution mitigating factors
• Diversification benefits from product portfolio
• Annuity products represent ~ 40% of liabilities (~ 90% have surrender penalty)
• Non-interest sensitive products represent ~ 60% liabilities
• Stable liability profile (smaller policies, owned distribution system)
§ Convexity - monitor as secondary indicator of interest rate risk
§ Volatility
– FAS 133 requires the separate valuation of the equity and interest rate components of our
Fixed Index Annuity products
Fixed Index Annuity products
– Our hedging activities related to both these components have been effective
– Hedge variance objectives and performance continually monitored and actively managed
(predominately static hedges)
(predominately static hedges)
We measure and manage our asset /liability exposure using 3 key variables
CNO Financial Group
26
Investments
§ CMBS, CRE loan, non-agency RMBS portfolios have been actively
managed “up in quality”
managed “up in quality”
§ We are generating sufficient yield to meet product spread
requirements
requirements
§ Asset/Liability match is tight and closely monitored
§ Investment risk carefully calibrated to capacity of overall enterprise
for capital volatility
for capital volatility
Bankers Life Business Review
CNO Financial Group
28
Strong, established company
§ Established in 1879, with over 125 years of experience
§ $12 billion in assets under management
§ 1.3 million policyholders
Focused on the Boomer and retiree middle market
§ Most insurance companies work in multiple markets, favor pre-retirement
market and tend to move up market as quickly as circumstances allow
market and tend to move up market as quickly as circumstances allow
§ While the fastest growing, least competitive, and most accessible and needs
aware, this market remains one of the most underserved in the U.S.
aware, this market remains one of the most underserved in the U.S.
Focused on career, exclusive distribution force
§ More than 5,000 producers in over 200 branch and satellite offices servicing
49 states
49 states
§ Most insurance companies work through multiple distribution channels
§ Many are moving away from dependence on career distribution due to both
cost and capability challenges
cost and capability challenges
Bankers Overview
Bankers Life
CNO Financial Group
29
Everyday Americans
Share of Bankers Life and Casualty’s Customers
Bankers current customers reflect a large age and income demographic, unique
from the up-market focus of most life and annuity insurers
from the up-market focus of most life and annuity insurers
Bankers Life
CNO Financial Group
30
Center For a Secure Retirement
Launched in 2011:
n To educate consumers on
achieving financial security
during retirement
achieving financial security
during retirement
n Sponsor research studies to
aid consumers
aid consumers
n Generate online content that
(over time) will become highly-
ranked
(over time) will become highly-
ranked
Bankers Life
CNO Financial Group
31
§ Surveyed Americans age 55 to 75 in our target market (incomes between
$25,000 to $75,000), exploring confidence towards financial security
$25,000 to $75,000), exploring confidence towards financial security
§ 54% do not receive professional retirement guidance of any kind
§ 51% had not been contacted by any kind of retirement professional in the
past 12 months
past 12 months
§ Middle-income retirees have three misconceptions about professional
retirement advice:
retirement advice:
─ I can do it all on my own
─ I’m not wealthy enough
─ Professional advice is too expensive
§ 30% spend no time at all researching or investigating retirement planning
opportunities; two out of three (61%) spend less than one hour per month
opportunities; two out of three (61%) spend less than one hour per month
Inaugural Study:
Middle-Income Retirement Preparedness
Middle-Income Retirement Preparedness
Focus on simple product designs and basic needs
Bankers Life
CNO Financial Group
32
Bankers Product Suite
Legacy
Savings
Medicare
Long Term
Care
Care
Life
Insurance
Annuities
Investments
• Short-Term Care
• Home Care
• Comprehensive Care
• Whole Life
• Term Life
• Universal Life
• Fixed Annuities
• Indexed Annuities
• Immediate Annuities
• Mutual Funds*
• Variable
Annuities*
Annuities*
• Medicare Supplement
• Medicare Advantage*
• Medicare Part D*
*In-Sourced Products
Bankers has a broad products suite, tailored to its target market, leveraging third
parties to fill specialized capabilities
parties to fill specialized capabilities
Bankers Life
CNO Financial Group
33
Diversified, Evolving Products
Bankers diversified product suite has adapted to changing consumer needs and
business climates
business climates
Total Medicare Sales (Millions)
$63.6
$102.2
Bankers Life
CNO Financial Group
34
Medicare Supplement Market
§ Several leading carriers using
Modernized Medigap plans to
grow share with aggressive pricing
Modernized Medigap plans to
grow share with aggressive pricing
§ Some carriers offering “no
questions asked” guaranteed
issue plans up to age 71
questions asked” guaranteed
issue plans up to age 71
§ New entrants attacking market
including major healthcare carriers
including major healthcare carriers
§ Expect greater competition as
regional carriers exit Medicare
Advantage market and distributors
move away from individual major
medical due to compressed
margins
regional carriers exit Medicare
Advantage market and distributors
move away from individual major
medical due to compressed
margins
Highlights
§ New application submissions of
Modernized plans flat to prior year, but
mix is shifting to lower premium cost-
sharing plans that are more competitive
in market
Modernized plans flat to prior year, but
mix is shifting to lower premium cost-
sharing plans that are more competitive
in market
§ Evaluating introducing more granular
rate structure (male/female,
preferred/tobacco) and tighter
underwriting to provide greater capacity
for further rate reductions if needed
rate structure (male/female,
preferred/tobacco) and tighter
underwriting to provide greater capacity
for further rate reductions if needed
Bankers Initiatives
Bankers Life
CNO Financial Group
35
Life Insurance Market
Highlights
Bankers Initiatives
§ Strong life insurance growth has been fueled
by a simple product design and streamlined
underwriting priced at a market premium given
distribution and underwriting model
by a simple product design and streamlined
underwriting priced at a market premium given
distribution and underwriting model
§ Focus on Boomer and retiree middle-income
needs for lower face amounts and fewer riders
which help meet consumer and agent needs
for higher take rates, simpler applications and
shorter cycle times
needs for lower face amounts and fewer riders
which help meet consumer and agent needs
for higher take rates, simpler applications and
shorter cycle times
§ Branch leadership involvement in new product
selection and design
selection and design
§ Products managed to value of new business
threshold - present value of future statutory
cash flows, net of cost of capital
threshold - present value of future statutory
cash flows, net of cost of capital
§ Limited use of reinsurance due to lower face
amounts and less capital intensive product
mix
amounts and less capital intensive product
mix
Bankers Life
§ Life insurance market rebounding from
2009 sales decline, with 3% growth in
recurring premium in 2010 (LIMRA)
2009 sales decline, with 3% growth in
recurring premium in 2010 (LIMRA)
§ Market and geopolitical uncertainty
driving strong growth in guaranteed
whole and universal life products,
particularly among Boomers and
retirees
driving strong growth in guaranteed
whole and universal life products,
particularly among Boomers and
retirees
§ Product development focused on
increasingly complex products to meet
affluent customers’ needs
increasingly complex products to meet
affluent customers’ needs
CNO Financial Group
36
Annuity Market
§ Low Treasury rates and tight
spreads on corporate securities
have depressed new money rates
on annuities, but remain attractive
against comparable investments
such as bank CDs
spreads on corporate securities
have depressed new money rates
on annuities, but remain attractive
against comparable investments
such as bank CDs
§ Carriers have generally pulled
back on their guarantees, rates,
bonuses, and compensation -
some have even stopped selling
certain products
back on their guarantees, rates,
bonuses, and compensation -
some have even stopped selling
certain products
Highlights
§ Re-filed fixed interest annuities to reduce
guaranteed rates
guaranteed rates
§ Reduced bonus rate on most popular
product
product
§ Reduced commissions/override to
improve rates/margins
improve rates/margins
Bankers Initiatives
Bankers Life
CNO Financial Group
37
§ LTC is an important product that enables
Bankers Life to meet the needs of its customers
Bankers Life to meet the needs of its customers
§ Improved financial results over the past 2.5
years have been a result of rigorous claims
management and decisive inforce rate
management
years have been a result of rigorous claims
management and decisive inforce rate
management
§ Stringent underwriting and low exposure to high
risk product designs (e.g., “0” day elimination
period, “lifetime” benefits, high compound
inflation, etc)
risk product designs (e.g., “0” day elimination
period, “lifetime” benefits, high compound
inflation, etc)
§ New business priced for higher returns using
conservative lapse and interest rate
assumptions
conservative lapse and interest rate
assumptions
§ A portion of new business reinsured with major
carrier
carrier
§ Additional advanced training for LTC
“specialists”, mentor model and new collateral
and sales support material focused on
improving top line results
“specialists”, mentor model and new collateral
and sales support material focused on
improving top line results
Bankers Life
Highlights
Bankers Initiatives
§ Exit of many competitors, others
following with rate increases
following with rate increases
§ Viability of CLASS Act in question
§ Sluggish individual sales due to
price point, agent/broker
apprehension, and tighter
underwriting
price point, agent/broker
apprehension, and tighter
underwriting
LTC Market
CNO Financial Group
38
Distribution Strategy
§ Bankers “Franchise” model builds best practices across recruiting, lead generation, and
training to drive productivity, consistency and compliance
training to drive productivity, consistency and compliance
Average Producers
Over 5,000 producers meet consumers “at the kitchen table” employing a needs-
based selling approach
based selling approach
Branch and Satellite Offices
Bankers Life
CNO Financial Group
39
Keys to Distribution Success
§ Regional Directors focused on developing talent and relocating top
performers across region
performers across region
– Creates career path for up-and-comers who stay focused on growth
– As managers relocate, best practices and high-performance culture moves
with them
with them
§ Greater utilization of marketing programs
– High investment in lead generation programs
– Maximize centralized recruiting services
– Adapt quickly to new product introductions
Bankers Life
CNO Financial Group
40
The demographics of CNO’s target market are very attractive. As a result of the
baby boom, the number of Americans turning 65 each year will grow by nearly 4%
per year over the next decade.
baby boom, the number of Americans turning 65 each year will grow by nearly 4%
per year over the next decade.
The first of Boomer population become Medicare-eligible this year; In 10 years, the
number of people 65 years old and older will increase by 50%
number of people 65 years old and older will increase by 50%
Bankers Life
Growth Opportunities
§ There is a strong correlation between the number of target households within
20 miles of an office and the number of active agents that the office supports
20 miles of an office and the number of active agents that the office supports
– 80% of agents live within 20 miles of one our branches
– 75% of sales take place within 10 miles from an agent’s home
§ Using mapping software, we have identified additional locations that have
sufficient target households to support an office; these locations could
collectively support an incremental agent count through these office locations
sufficient target households to support an office; these locations could
collectively support an incremental agent count through these office locations
– Currently planning to add 15 new locations in 2011
CNO Financial Group
41
Longer Term - Growth Plan Executive Summary
§ Bankers near term goal is to grow sales 8-10% per year. We plan on achieving this
growth through similar increases in both the size and productivity of our agency
force
growth through similar increases in both the size and productivity of our agency
force
§ This level of growth is expected to be achieved through a combination of improved
productivity within our existing locations (same store sales) and expansion of our
reach through the addition of new locations
productivity within our existing locations (same store sales) and expansion of our
reach through the addition of new locations
§ Productivity can be enhanced by product line expansion including third party
offerings and focused cross sell marketing strategies
offerings and focused cross sell marketing strategies
§ The strong growth of the Northeast territory is instructive to our efforts to improve
existing office performance- their ability to successfully develop and relocate high
performers is now being mimicked across the nation
existing office performance- their ability to successfully develop and relocate high
performers is now being mimicked across the nation
§ Current household demographics suggest that existing offices can support
additional agents - talent development and migration will be key to getting us there
additional agents - talent development and migration will be key to getting us there
§ Additional agent growth can be achieved by opening up additional offices -
particularly satellites, which are inexpensive to open and have a two-year payback
particularly satellites, which are inexpensive to open and have a two-year payback
Bankers Life