Attached files
| file | filename |
|---|---|
| 8-K - 8-K - CNO Financial Group, Inc. | form8-k06302016managementd.htm |
2Q16
Financial and operating results for the period ended June 30, 2016
July 27, 2016
Unless otherwise specified, comparisons in this presentation are between 2Q16 and 2Q15.
Exhibit 99.1
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 2
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 forward-
looking statements are not guarantees of future performance, and actual
results may differ materially. Investors should consider the important
risks and uncertainties that may cause actual results to differ, including
those included in our press release issued on July 26, 2016, our Quarterly
Reports on Form 10-Q, our Annual Report on Form 10-K and other filings
we make with the Securities and Exchange Commission. We assume no
obligation to update this presentation, which speaks as of today’s date.
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 3
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, excluding accumulated other comprehensive
income (loss) per share; operating return measures; earnings before the net loss on the
sale of CLIC and gain (loss) on reinsurance transactions, net realized investment gains
(losses), fair value changes in embedded derivative liabilities, fair value changes related
to the agent deferred compensation plan, loss on extinguishment of debt, other non-
operating items, corporate interest expense and taxes; and debt to capital ratios,
excluding accumulated other comprehensive income (loss). Reconciliations between
those non-GAAP measures and the comparable GAAP measures are included in the
Appendix, or on the page such measure is presented.
While management believes these measures are useful to enhance understanding and
comparability of our financial results, these non-GAAP measures should not be
considered substitutes for the most directly comparable GAAP measures.
Additional information concerning non-GAAP measures 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.
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 4
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 5
CNO
Operating Earnings Per Share
Excluding Significant Items***
Operating Earnings
Excl. Significant Items***
$66.6 $60.8
Weighted Average
Shares Outstanding
198.1 180.3
2Q16 Summary
* New Annualized Premium (“NAP”) includes 6% of annuity, 10% of single premium whole life deposits and 100% of all other new premiums on an annualized basis.
** Bankers Life Securities, Inc. and Bankers Life Advisory Services, Inc. are affiliated companies of the CNO Financial Group. Securities and variable annuities
offered through Bankers Life Securities, Inc. Member FINRA/SIPC. Non affiliated insurance products offered through Bankers Life Securities General Agency, Inc.
Securities and variable annuities offered through Bankers Life Securities, Inc. Member, FINRA/SIPC (dba BL Securities Inc, IA, MI, PA). Investment Advisory
products and services offered by Bankers Life Advisory Services, Inc. SEC Registered Adviser, (dba BL Advisory Services, Inc, AK, IA, PA). Investments are: Not
Guaranteed, Involve Risk, May Lose Value.
*** A non-GAAP measure. Refer to the Appendix for a reconciliation to the corresponding GAAP measure.
(amounts in millions, except per share data)
Notable Items
Continued franchise growth
‒ First year collected premiums up 5%
‒ NAP* down 3%
‒ Total collected premiums up 4%
‒ Policies in-force grew 1%
‒ Annuity account values up 1%
Operating EPS (excluding significant items) flat
Returned an additional $75 million to
shareholders
Launched Bankers Life Securities, Inc. &
Bankers Life Advisory Services, Inc.**
2Q15
$0.34
2Q16
$0.34
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 6
2Q15
$61.3
3Q15
$59.9
4Q15
$69.1
1Q16
$60.3
2Q16
$58.5
$255.5 $282.1 $290.6 $294.5 $270.4
$348.4
$366.6 $363.9 $366.2 $357.8
2Q15
$603.9
3Q15
$648.7
4Q15
$654.5
1Q16
$660.7 2Q16
$628.2
First Year Premium Renewal Premium
2Q16 Sales and Distribution Results Bankers Life
* Third party sales are excluded from NAP in all periods.
** Includes Medicare Advantage, Medicare supplement, PDP, Dental/Vision and ACA products
(prior periods have been restated to include ACA product sales).
($ millions)
Collected Premiums
Third party policies sold** 4,273 2,980 20,711 3,703 3,148
Trailing 4-quarters third party
fee income, net
$16.4 $16.6 $17.6 $17.9 $18.2
First year collected premiums up 6%
NAP down 5%
Total collected premiums up 4%
‒ Life up 3%
‒ Annuities up 10%
‒ Medicare supplement up 2%
‒ LTC down 1%
Agent metrics
‒ New agent recruiting up 8%
‒ Average producing agents down 7%
‒ Agent productivity up 2%
Third party fee income up 11%
New Annualized Premium *
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 7
$20.8 $20.2 $20.0 $20.1 $19.8
$141.1 $145.3 $143.6 $145.4 $145.4
2Q15
$161.9
3Q15
$165.5
4Q15
$163.6
1Q16
$165.5
2Q16
$165.2
First Year Premium Renewal Premium
2Q15
$25.7
3Q15
$25.8
4Q15
$26.3
1Q16
$23.4
2Q16
$24.2
Washington National 2Q16 Sales and
Distribution Results
($ millions)
First year collected premiums down 5%
NAP down 6%
‒ Worksite sales up 8%
‒ Individual sales down 12%
Total collected premiums up 2%
‒ Supplemental health total collected
premiums up 4%
Growth in PMA agent force
‒ Average producing agents up 5%
Total supplemental health collected premiums $136.1 $138.6 $137.4 $141.1 $141.8
Collected Premiums
New Annualized Premium
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 8
$12.8 $13.2 $12.9 $14.0 $13.8
$52.3 $53.5 $53.1
$56.1 $55.8
2Q15
$65.1
3Q15
$66.7
4Q15
$66.0
1Q16
$70.1
2Q16
$69.6
First Year Premium Renewal Premium
2Q16 Sales and
Distribution Results
Colonial Penn
($ millions) Collected Premiums
Inforce Adjusted EBIT $13.3 $14.9 $14.8 $12.7 $14.1
First year collected premiums up 8%
NAP up 4%
Total collected premiums up 7%
Inforce Adjusted EBIT of $14.1 million,
up 6%
‒ Full year 2016 total Adjusted EBIT
guidance of $0-6 million
2Q15
$18.5
3Q15
$18.9
4Q15
$15.6
1Q16
$24.1 2Q16
$19.2
New Annualized Premium
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 9
2Q Consolidated Financial Highlights CNO
* A non-GAAP measure. See the Appendix for a reconciliation to the corresponding GAAP
measure.
Earnings Remain Strong
‒ Operating earnings per diluted share* of $0.35; $0.34 excluding significant items
‒ Bankers Life, Colonial Penn and Corporate segment results in-line with expectations;
Washington National results impacted by persistency and higher claims
‒ Operating ROE* of 9.0%
Continued Strength in Cash Flows and Key Capital Measures
‒ Estimated consolidated risk-based capital of 448%, reflecting $42 million of dividends paid to
the holding company
‒ Leverage* of 19.9%
‒ Holding company cash and investments of $376 million
‒ Repurchased $61 million of common stock at an average cost of $18.70 per share;
repurchased $151 million YTD at an average cost of $17.57
‒ Maintaining 2016 share repurchase guidance range of $275-$375 million, absent
compelling alternatives
‒ Utilized substantially all of our life NOLs in 2Q16 and will become a taxpayer in 3Q16
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 10
$(5.0) $(4.4) $(4.9)
$(5.1)
$(7.0)
$4.2
$0.6 $6.7
$(6.8)
$3.0
$86.4
$79.8
$89.1
$69.9
$88.8
$29.1
$30.6
$31.3
$26.3
$21.5
2Q15 3Q15 4Q15 1Q16 2Q16
Corporate CP BLC WN
($ millions)
* A non-GAAP measure. See the Appendix for a reconciliation to the corresponding
GAAP measure.
Segment Earnings
2Q16 Earnings
Segment Adjusted EBIT Excluding
Significant Items*
CNO
$114.7
$106.6
$122.2
$84.3
$106.3 Bankers Life reflects favorable long-
term care results partially offset by
lower Medicare supplement margins
Washington National results impacted
by persistency and elevated interest-
adjusted benefit ratio
Colonial Penn results in-line with
seasonal expectations
Corporate results reflect higher
expenses
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 11
$134 $137 $138 $139
$141
65.7%
57.4% 57.5% 57.7%
61.6%
2Q15 3Q15 4Q15 1Q16 2Q16
Earned Premium Reported Benefit Ratio Adjusted Benefit Ratio**
($ millions)
* Interest-adjusted benefit ratio (IABR); a non-GAAP measure. Refer to the Appendix for the corresponding
GAAP measure.
** Adjusted benefit ratio; long-term care IABR* excluding impact of policyholder actions following rate increases
Health Margins
2Q16 Highlights & Outlook
CNO
Washington National Supplemental Health IABR*
Bankers Life Long-term Care IABR*
Bankers Life Medicare Supplement
$193 $193 $192 $193 $194
68.7%
71.5% 70.8% 71.1%
73.0%
2Q15 3Q15 4Q15 1Q16 2Q16
$121 $119 $119 $118 $118
84.6%
83.8%
79.6%
75.3%
77.9%
85.5%
82.4% 82.1%
2Q15 3Q15 4Q15 1Q16 2Q16
Medicare supplement benefit ratio of 73.0% is higher
relative to prior year, but in-line with expectations
2H16 Outlook: Benefit ratio of 70-73%
Adjusted IABR* of 82.1%, excluding shock lapse
impacts, in-line with expectations
2H16 Outlook: IABR* of 81-86%, excluding rate
increase impacts
Supplemental health IABR* of 61.6% was elevated
due to persistency and higher claims
2H16 Outlook: IABR* of 56-59%
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 12
$15.4
$30.3
$48.5
$93.1
$8.7
$7.9
$12.4
$18.3
$10.0
$13.6
Investment Results CNO
($ millions)
Earned Yield*: 5.78% 5.68% 5.72% 5.47% 5.52%
New Money Rate: 5.06% 5.21% 5.17% 4.90% 5.50%
Average Invested Assets and Cash Realized Gains, Losses and Impairments
* Earned Yield excludes FHLB.
Pre-Pay / Call / Make-
whole Income: $9.9 $5.6 $10.3 $6.3 $1.8
Gross Realized Gains
Gross Realized Losses
Impairments
2Q15 3Q15 4Q15
$66.8
1Q16
$13.2
$23.3 $23.1
$42.7
$51.0
$21,956 $22,042 $22,219 $22,323 $22,640
$302.1 $298.2 $303.2 $291.0 $295.8
2Q15 3Q15 4Q15 1Q16 2Q16
Net
Investment
Income
2Q16
$102.2 $103.1
Alternative Investment
Income: $0.7 ($0.3) ($0.5) ($3.7) $4.6
$22.3
$34.9
Low market yields throughout 2Q, offset by tactical
allocation to high yield and alternatives
Lower level of prepayment and make-whole income
Alternative investment results improved
Significantly reduced level of portfolio turnover in light of low
market reinvestment yields
Continued favorable impairment results
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 13
CNO Wrap-up
Continued investments in growth & efficiency
‒ New products to better serve the customer
‒ Agent recruiting process changes
‒ Distribution technology
‒ Customer experience enhancements
Diversification of business model enables CNO to adapt
to changing environments
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 14
Questions and Answers
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 15
Appendix
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 16
Energy Sector Overview
June 30, 2016
Current exposure $1.4 billion compared to $1.6
billion at 12/31/15
Reasonably calibrated to enterprise capital, is
highly diversified, and has improved risk
characteristics
Portfolio underwritten to withstand a prolonged
period of $30 oil
Net unrealized gain of $82 million at 6/30/16
Exposure remains substantially IG (84%)
HY (16%) weighted towards higher rated BB
category and less volatile sectors (e.g., midstream)
Continue to expect most significant portfolio impact
of low oil prices to be downgrades (RBC): YTD
impact of 4 RBC points
50.1%
28.5%
6.5%
10.7%
4.3%
Midstream
Independent E&P
Oilfield Services
Integrated
Other
12.8%
71.1%
15.6%
0.5%
A or Better
BBB
BB
>BB
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 17
Producing Agent Counts
1st Yr 2nd Yr 3rd Yr + Total Qtr Avg (3) 1st Yr 2nd Yr 3rd Yr + Total Qtr Avg (3)
6/30/2016 2,196 588 1,854 4,638 4,608 425 130 377 932 928
3/31/2016 2,182 626 1,895 4,703 4,548 418 117 372 907 904
12/31/2015 2,051 584 1,927 4,562 4,565 410 127 367 904 899
9/30/2015 2,077 601 1,871 4,549 4,693 411 115 365 891 892
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 4,790 4,842 365 128 337 830 831
12/31/2013 2,557 693 1,718 4,968 5,046 335 112 296 743 756
12/31/2012 2,429 662 1,600 4,691 4,850 298 108 269 675 687
12/31/2011 2,461 600 1,587 4,648 4,702
12/31/2010 2,199 668 1,486 4,353 4,391
12/31/2009 2,564 662 1,513 4,739 4,742
12/31/2008 2,489 651 1,324 4,464 4,417
12/31/2007 2,198 554 1,231 3,983 4,034
(1) Defined as the number of agents that have sold at least one policy in the period
(2) Defined as active PMA appointed agents with $1,000 or more of New Annualized Premium in the prior 12 months
(3) Agent counts at the end of each month used to calculate the average for the quarter
Bankers Life (1) Washington National (2)
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 18
2Q16 Holding Company Liquidity CNO
($ millions)
2Q16 YTD
Cash and Investments Balance - Beginning $374.7 $382.2
Sources
Net Dividends from Insurance Subsidiaries 41.9 130.6
Dividends from Non-insurance Subsidiaries 1.1 9.0
Interest/Earnings on Corporate Investments 5.4 10.0
Surplus Debenture Interest 12.1 24.2
Service and Investment Fees, Net 26.7 28.5
Other 3.3 3.3
Total Sources 90.5 205.6
Uses
Interest 21.1 21.8
Share Repurchases 52.0 145.7 *
Common Stock Dividend 14.3 27.0
Holding Company Expenses and Other 6.0 25.7
Total Uses 93.4 220.2
Non-cash changes in investment balances 3.9 8.1
Unrestricted Cash and Investments Balance - 6/30/2016 $375.7 $375.7
* Includes $3.7 million of purchases from 4Q 2015 that settled in 1Q 2016.
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 19
Non-Life
$838
Life
$4
Loss Carryforwards Valuation Allowance
Leveraging Considerable Tax Assets CNO
($ millions)
2Q 2016 Loss Carryforwards
$177**
Outlook and Value
v Expect modest future valuation allowance
releases
Life NOLs were substantially utilized in 2Q
2016
Will become a taxpayer in 3Q 2016
Cash flows will be reduced by an
estimated $17 million per quarter
Majority of non-life NOL’s expire in 2023
Estimated economic value of $450 million
@ 10% discount rate
Non-Life
* Excludes $13 million related to state operating loss carryforwards and $2 million related to capital loss carryforwards.
** Excludes $10 million related to state operating loss carryforwards.
$842*
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 20
The table below summarizes the financial impact of significant items on our 2Q2015 net operating income. Management believes that
identifying the impact of these items enhances the understanding of our operating results (dollars in millions).
2Q15 Significant Items CNO
Net Operating Income:
Bankers Life $ 86.4 $ - $ 86.4
Washington National (1)
Colonial Penn
Adjusted EBIT from business segments
Corporate Operations, excluding corporate interest expense
Adjusted EBIT
Corporate interest expense
Operating earnings before tax
Tax expense on operating income
Net operating income * $ 60.8 $ 5.8 $ 66.6
Net operating income per diluted share* $ 0.31 $ 0.03 $ 0.34
Three months ended
June 30, 2015
Actual results Significant items
Excluding
significant
items
119.7
20.1 9.0 29.1
9.0 114.7
(11.9) - (11.9)
4.2 - 4.2
110.7 9.0
93.8 9.0 102.8
33.0 3.2
(5.0) - (5.0)
36.2
105.7
(1) Pre-tax earnings in the Washington National segment included $9 million of unfavorable reserve developments in the supplemental health block related to claims
incurred in prior periods.
* A non-GAAP measure. See pages 25 and 27 for a reconciliation to the corresponding GAAP measure.
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 21
The table below summarizes the financial impact of significant items on our 3Q2015 net operating income. Management believes that
identifying the impact of these items enhances the understanding of our operating results (dollars in millions).
3Q15 Significant Items CNO
* A non-GAAP measure. See pages 25 and 27 for a reconciliation to the corresponding GAAP measure.
Net Operating Income:
Bankers Life $ 79.8 $ - $ 79.8
Washington National
Colonial Penn
Adjusted EBIT from business segments
Corporate Operations, excluding corporate interest expense (1)
Adjusted EBIT
Corporate interest expense
Operating earnings before tax
Tax expense on operating income
Net operating income * $ 56.8 $ 7.5 $ 64.3
Net operating income per diluted share* $ 0.30 $ 0.03 $ 0.33
Three months ended
September 30, 2015
Actual results Significant items
Excluding
significant
items
111.0
30.6 - 30.6
7.5 106.6
(11.3) - (11.3)
0.6 - 0.6
111.0 -
87.8 7.5 95.3
31.0 -
(11.9) 7.5 (4.4)
31.0
99.1
(1) Pre-tax earnings in the Corporate segment included the impact of current market conditions on the value of investments backing our Company-owned life insurance
("COLI") tilized as a vehicle to fund Bankers Life's agent deferred compensation plan. It should be noted that changes in the value of COLI investments are not subject
to income tax.
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 22
The table below summarizes the financial impact of significant items on our 4Q2015 net operating income. Management believes that
identifying the impact of these items enhances the understanding of our operating results (dollars in millions).
4Q15 Significant Items CNO
* A non-GAAP measure. See pages 25 and 27 for a reconciliation to the corresponding GAAP measure.
Net Operating Income:
Bankers Life $ 121.2 $ (32.1) (1) $ 89.1
Washington National (2)
Colonial Penn
Adjusted EBIT from business segments
Corporate Operations, excluding corporate interest expense (3)
Adjusted EBIT
Corporate interest expense
Operating earnings before tax
Tax expense on operating income
Net operating income * $ 97.0 $ (25.7) $ 71.3
Net operating income per diluted share* $ 0.52 $ (0.14) $ 0.38
(2) Pre-tax earnings in the Washington National segment included $1.0 million of favorable impacts from our comprehensive annual actuarial review.
(3) Pre-tax earnings in the Corporate segment included a $4.2 million positive impact of current market conditions on the value of investments backing our Company-
owned life insurance ("COLI") used as a vehicle to fund Bankers Life's agent deferred compensation plan.
(1) Pre-tax earnings in the Bankers segment included: (i) $25.8 million of favorable impacts from our comprehensive annual actuarial review including the net impact
from model enhancements and changes in assumptions related to mortality, long-term interest rates and the spread earned on fixed index annuities; and (ii) the $6.3
million release of long-term care reserves (net of the reduction in insurance intangibles) due to the impact of policyholder actions following rate increases.
148.2 (37.3) 110.9
51.2 (11.6)
(0.7) (4.2) (4.9)
39.6
159.5 (37.3) 122.2
(11.3) - (11.3)
6.7 - 6.7
160.2 (33.1) 127.1
32.3 (1.0) 31.3
Three months ended
December 31, 2015
Actual results Significant items
Excluding
significant
items
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 23
The table below summarizes the financial impact of significant items on our 1Q2016 net operating income. Management believes that
identifying the impact of these items enhances the understanding of our operating results (dollars in millions).
1Q16 Significant Items CNO
* A non-GAAP measure. See pages 25 and 27 for a reconciliation to the corresponding GAAP measure.
Net Operating Income:
Bankers Life $ 77.6 $ (7.7) (1) $ 69.9
Washington National
Colonial Penn
Adjusted EBIT from business segments
Corporate Operations, excluding corporate interest expense (2)
Adjusted EBIT
Corporate interest expense
Operating earnings before tax
Tax expense on operating income
Net operating income * $ 49.6 $ (3.0) $ 46.6
Net operating income per diluted share* $ 0.27 $ (0.01) $ 0.26
(2) Pre-tax earnings in the Corporate segment included $3.0 million of accelerated stock compensation expense releated to retirement eligible employees.
(1) Pre-tax earnings in the Bankers segment included the $7.7 million release of long-term care reserves (net of the reduction in insurance intangibles) due to the
impact of policyholder actions following rate increases.
77.6 (4.7) 72.9
28.0 (1.7)
(8.1) 3.0 (5.1)
26.3
89.0 (4.7) 84.3
(11.4) - (11.4)
(6.8) - (6.8)
97.1 (7.7) 89.4
26.3 - 26.3
Three months ended
March 31, 2016
Actual results Significant items
Excluding
significant
items
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 24
The table below summarizes the financial impact of significant items on our 2Q2016 net operating income. Management believes that
identifying the impact of these items enhances the understanding of our operating results (dollars in millions).
2Q16 Significant Items CNO
* A non-GAAP measure. See pages 25 and 27 for a reconciliation to the corresponding GAAP measure.
Net Operating Income:
Bankers Life $ 93.3 $ (4.5) (1) $ 88.8
Washington National
Colonial Penn
Adjusted EBIT from business segments
Corporate Operations, excluding corporate interest expense
Adjusted EBIT
Corporate interest expense
Operating earnings before tax
Tax expense on operating income
Net operating income * $ 63.7 $ (2.9) $ 60.8
Net operating income per diluted share* $ 0.35 $ (0.01) $ 0.34
Three months ended
June 30, 2016
Actual results Significant items
Excluding
significant
items
113.3
21.5 - 21.5
(4.5) 106.3
(11.4) - (11.4)
3.0 - 3.0
117.8 (4.5)
99.4 (4.5) 94.9
35.7 (1.6)
(7.0) - (7.0)
34.1
110.8
(1) Pre-tax earnings in the Bankers segment included the $4.5 million release of long-term care reserves (net of the reduction in insurance intangibles) due to the
impact of policyholder actions following rate increases.
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 25
Quarterly Earnings CNO
*Management believes that an analysis of earnings before net realized investment gains (losses), fair value changes in embedded derivative liabilities, fair value changes related to the
agent deferred compensation plan, loss on extinguishment of debt, other non-operating items, corporate interest expense and taxes (“Adjusted EBIT,” a non-GAAP financial measure)
provides a clearer comparison of the operating results of the company quarter-over-quarter because it excludes: (1) net realized investment gains (losses); (2) fair value changes due to
fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities that are unrelated to the company’s underlying fundamentals; (3) fair
value changes related to the agent deferred compensation plan; (4) loss on extinguishment of debt; (5) charges in the valuation allowance for deferred tax assets; and (6) other non-
operating items consisting primarily of equity in earnings of certain non-strategic investments and earnings attributable to variable interest entities. The table above provides a
reconciliation of Adjusted EBIT to net income.
2Q15 3Q15 4Q15 1Q16 2Q16
Bankers Life 86.4$ 79.8$ 121.2$ 77.6$ 93.3$
Washington National 20.1 30.6 32.3 26.3 21.5
Colonial Penn 4.2 0.6 6.7 (6.8) 3.0
Adjusted EBIT from business segments 110.7 111.0 160.2 97.1 117.8
Corporate operations, excluding interest expense (5.0) (11.9) (0.7) (8.1) (7.0)
Adjusted EBIT* 105.7 99.1 159.5 89.0 110.8
Corporate interest expense (11.9) (11.3) (11.3) (11.4) (11.4)
Operating earnings before taxes 93.8 87.8 148.2 77.6 99.4
Tax expense on period income 33.0 31.0 51.2 28.0 35.7
Net operating income 60.8 56.8 97.0 49.6 63.7
Net realized investment gains (losses), net of related amortization (10.4) (19.0) (15.8) (1.0) 12.0
Fair value changes in embedded derivative liabilities, net of related amortization 25.7 (15.7) 14.6 (29.5) (16.5)
Fair value changes related to the agent deferred compensation plan - - 15.1 (6.0) (12.3)
Loss on extinguishment of debt (32.8) - - - -
Other (3.6) (0.7) (1.8) (0.6) 0.1
Non-operating income (loss) before taxes (21.1) (35.4) 12.1 (37.1) (16.7)
Income tax expense (benefit):
On non-operating income (loss) (7.1) (12.4) 4.3 (13.0) (5.9)
Valuation allowance for deferred tax assets - - (32.5) (20.0) (7.0)
Net non-operating income (loss) (14.0) (23.0) 40.3 (4.1) (3.8)
Net income 46.8$ 33.8$ 137.3$ 45.5$ 59.9$
($ millions)
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 26
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 amounts that are normally excluded or included in the most directly comparable
measure calculated and presented in accordance with GAAP. While management believes these measures
are useful to enhance understanding and comparability of our financial results, these non-GAAP measures
should not be considered as substitutes for the most directly comparable GAAP measures. Additional
information concerning non-GAAP measures 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.
Operating earnings measures
Management believes that an analysis of net income applicable to common stock before net realized
investment gains or losses, fair value changes due to fluctuations in the interest rates used to discount
embedded derivative liabilities related to our fixed index annuities, fair value changes related to the agent
deferred compensation plan, loss on extinguishment of debt, changes in the valuation allowance for deferred
tax assets and other non-operating items consisting primarily of equity in earnings of certain non-strategic
investments and earnings attributable to variable interest entities (“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.
Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 27
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):
2Q15 3Q15 4Q15 1Q16 2Q16
Net income applicable to common stock 46.8$ 33.8$ 137.3$ 45.5$ 59.9$
Non-operating items:
Net realized investment (gains) losses, net of related amortization 10.4 19.0 15.8 1.0 (12.0)
Fair value changes in embedded derivative liabilities, net of related amortization (25.7) 15.7 (14.6) 29.5 16.5
Fair value changes related to the agent deferred compensation plan - - (15.1) 6.0 12.3
Loss on extinguishment of debt 32.8 - - - -
Other 3.6 0.7 1.8 0.6 (0.1)
Non-operating income (loss) before taxes 21.1 35.4 (12.1) 37.1 16.7
Income tax (expense) benefit:
On non-operating (income) loss 7.1 12.4 (4.3) 13.0 5.9
Valuation allowance for deferred tax assets - - 32.5 20.0 7.0
Net non-operating (income) loss 14.0 23.0 (40.3) 4.1 3.8
Net operating income (a non-GAAP financial measure) 60.8$ 56.8$ 97.0$ 49.6$ 63.7$
Per diluted share:
Net income 0.24$ 0.18$ 0.73$ 0.25$ 0.33$
Net re lized investment (gains) losses (net of related amortization and taxes) 0.03 0.07 0.05 - (0.04)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes) (0.08) 0.05 (0.05) 0.11 0.06
Fair value changes related to the agent deferred compensation plan (net of taxes) - - (0.05) 0.02 0.04
Valuation allowance for deferred tax assets and other tax items - - (0.17) (0.11) (0.04)
Loss on extinguishment of debt (net of taxes) 0.11 - - - -
Other 0.01 - 0.01 - -
Net operating income (a non-GAAP financial measure) 0.31$ 0.30$ 0.52$ 0.27$ 0.35$
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 28
2Q15 3Q15 4Q15 1Q16 2Q16
Operating income 60.8$ 56.8$ 97.0$ 49.6$ 63.7$
Weighted average shares outstanding for basic earnings per share 195,857 190,259 185,608 180,350 178,323
Effect of dilutive securities on weighted average shares:
Stock options, restricted stock and performance units 2,216 2,106 2,342 1,778 1,944
Weighted average shares outstanding for diluted earnings per share 198,073 192,365 187,951 182,128 180,267
Operating earnings per diluted share 0.31$ 0.30$ 0.52$ 0.27$ 0.35$
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):
Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 29
Book value per diluted share
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 and warrants (or the unrecognized compensation expense with respect
to restricted stock and performance units) will be used to purchase shares of our common stock at the closing market price on the last day of the period. 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.
2Q15 3Q15 4Q15 1Q16 2Q16
Total shareholders' equity 4,364.2$ 4,171.0$ 4,138.5$ 4,226.6$ 4,456.2$
Shares outstanding for the period 193,467,712 186,741,760 184,028,511 179,098,447 176,240,559
Book value per share 22.56$ 22.34$ 22.49$ 23.60$ 25.28$
Total shareholders' equity 4,364.2$ 4,171.0$ 4,138.5$ 4,226.6$ 4,456.2$
Less accumulated other comprehensive income (605.0) (510.4) (402.8) (540.5) (777.8)
A justed shareholders' equity excluding AOCI 3,759.2$ 3,660.6$ 3,735.7$ 3,686.1$ 3,678.4$
Sh r s ut a ing for the period 193,467,712 186,741,760 184,028,511 179,098,447 176,240,559
Dilutive common stock equivalents related to:
Stock options, restricted stock and performance units 2,243,615 2,176,988 2,311,877 1,803,822 1,744,508
Diluted shares outstanding 195,711,327 188,918,748 186,340,388 180,902,269 177,985,067
Book value per diluted share (a non-GAAP financial measure) 19.21$ 19.38$ 20.05$ 20.38$ 20.67$
A reconciliation from book value per share to book value per diluted share, excluding accumulated other comprehensive income (loss) is as follows (dollars in
millions, except per share amounts):
Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 30
Information Related to Certain Non-GAAP Financial Measures
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. 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. The interest-adjusted benefit ratio excluding the impact of rate increases eliminates the
release of reserves due to the impact of policyholder actions following rate increases.
2Q15 3Q15 4Q15 1Q16 2Q16
Bankers Life
Long-term care benefit ratios
Earned premium 120.5$ 119.0$ 118.6$ 118.5$ 118.3$
Benefit ratio before imputed interest income on reserves 140.7% 141.1% 137.1% 132.9% 134.7%
Interest-adjusted benefit ratio 84.6% 83.8% 79.6% 75.3% 77.9%
Interest-adjusted benefit ratio, exluding the impact of reserve releases due to rate increases 84.6% 83.8% 85.5% 82.4% 82.1%
Underwriting margin (earned premium plus imputed interest income on reserves less policy benefits) 18.6$ 19.3$ 24.2$ 29.3$ 26.2$
A just d und rwriting margin (excluding the impact of reserve releases due to rate increases) 18.6 19.3 17.2 20.9 21.1
Was ington National
Supplemental health benefit ratios
Earned premium 134.4$ 136.6$ 138.0$ 139.2$ 140.9$
Benefit ratio before imputed interest income on reserves 90.3% 81.7% 81.8% 81.2% 85.7%
Interest-adjusted benefit ratio 65.7% 57.4% 57.5% 57.7% 61.6%
Underwriting margin (earned premium plus imputed interest income on reserves less policy benefits) 46.1$ 58.2$ 58.6$ 58.9$ 54.0$
Interest-adjusted benefit ratios
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 31
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, net realized investment gains or losses, fair value changes due to
fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, fair
value changes related to the agent deferred compensation plan, loss on extinguishment of debt, changes in the
valuation allowance for deferred tax assets and other non-operating items consisting primarily of equity in earnings of
certain non-strategic investments and earnings attributable to variable interest entities (“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.
Management also believes that an operating return, excluding significant items, is important as the impact of these
items enhances the understanding of our operating results.
This non-GAAP financial measure also differs from return on equity because accumulated other comprehensive income
(loss) has been excluded from the value of equity used to determine this ratio. Management believes this non-GAAP
financial measure is useful because it removes the volatility that arises from changes in accumulated other
comprehensive income (loss). Such volatility is often caused by changes in the estimated fair value of our investment
portfolio resulting from changes in general market interest rates rather than the business decisions made by
management.
In addition, our equity includes the value of significant net operating loss carryforwards (included in income tax assets).
In accordance with GAAP, these assets are not discounted, and accordingly will not provide a return to shareholders
(until after it is realized as a reduction to taxes that would otherwise be paid). Management believes that excluding this
value from the equity component of this measure enhances the understanding of the effect these non-discounted
assets have on operating returns and the comparability of these measures from period-to-period. Operating return
measures are used in measuring the performance of our business units and are used as a basis for incentive
compensation.
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 32
Information Related to Certain Non-GAAP Financial Measures
The calculations of: (i) operating return on equity, excluding accumulated other comprehensive income (loss) and net
operating loss carryforwards (a non-GAAP financial measure); (ii) operating return, excluding significant items, on
equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-
GAAP financial measure); and (iii) return on equity are as follows (dollars in millions):
2Q15 3Q15 4Q15 1Q16 2Q16
Operating income 266.6$ 246.8$ 274.7$ 264.2$ 267.1$
Operating income, excluding significant items 265.9$ 260.7$ 262.3$ 248.8$ 243.0$
Net Income 300.9$ 217.3$ 270.7$ 263.4$ 276.5$
Average common equity, excluding accumulated other
comprehensive income (loss) and net operating loss
carryforwards (a non-GAAP financial measure) 3,027.6$ 3,009.4$ 2,992.3$ 2,981.7$ 2,977.9$
Average common shareholders' equity 4,692.0$ 4,563.1$ 4,425.5$ 4,290.9$ 4,236.6$
Operating return on equity, excluding accumulated other
comprehensive income (loss) and net operating loss
carryfo wards (a non-GAAP financial measure) 8.8% 8.2% 9.2% 8.9% 9.0%
Operating return, excluding significant items, on equity, excluding
accumulated other comprehensive income (loss) and net
operating loss carryforwards (a non-GAAP financial measure) 8.8% 8.7% 8.8% 8.3% 8.2%
Return on equity 6.4% 4.8% 6.1% 6.1% 6.5%
Trailing twelve months ended
(Continued on next page)
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 33
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, excluding Net
excluding significant income -
Operating Significant significant items - trailing Net trailing
earnings items (a) items four quarters income four quarters
3Q14 76.6$ (7.1)$ 69.5$ 266.8$ 117.4$ 73.5$
4Q14 69.1 0.6 69.7 272.3 83.9 51.4
1Q15 60.1 - 60.1 270.6 52.8 332.2
2Q15 60.8 5.8 66.6 265.9 46.8 300.9
3Q15 56.8 7.5 64.3 260.7 33.8 217.3
4Q15 97.0 (25.7) 71.3 262.3 137.3 270.7
1Q16 49.6 (3.0) 46.6 248.8 45.5 263.4
2Q16 63.7 (2.9) 60.8 243.0 59.9 276.5
(a) - The significant items have been discussed in prior press releases.
(Continued on next page)
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 34
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):
2Q15 3Q15 4Q15 1Q16 2Q16
Pretax operating earnings (a non-GAAP financial measure) 413.5$ 381.5$ 422.8$ 407.4$ 413.0$
Income tax (expense) benefit (146.9) (134.7) (148.1) (143.2) (145.9)
Operating return 266.6 246.8 274.7 264.2 267.1
Non-operating items:
Net loss on sale of CLIC and gain (loss) on reinsurance transactions 34.9 2.9 - - -
Net realized investment gains (losses), net of related amortization (0.8) (23.8) (36.1) (46.2) (23.8)
Fair value changes in embedded derivative liabilities, net of related amortization (4.6) (20.2) 11.9 (4.9) (47.1)
Fair value changes related to the agent deferred compensation plan (15.0) (15.0) 15.1 9.1 (3.2)
Loss on extinguishment or modification of debt (32.8) (32.8) (32.8) (32.8) -
Other (9.9) (9.3) (13.2) (6.7) (3.0)
Non-operating income (loss) before taxes (28.2) (98.2) (55.1) (81.5) (77.1)
I come t x xpense (benefit):
On non-operating income (loss) (11.6) (34.6) (18.6) (28.2) (27.0)
Valuation allowance for deferred tax assets (50.9) (34.1) (32.5) (52.5) (59.5)
Net non-operating income (loss) 34.3 (29.5) (4.0) (0.8) 9.4
Net income 300.9$ 217.3$ 270.7$ 263.4$ 276.5$
Twelve months ended
(Continued on next page)
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 35
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):
1Q14 2Q14 3Q14 4Q14
Consolidated capital, excluding accumulated other comprehensive
income (loss) and net operating loss carryforwards
(a non-GAAP financial measure) 2,996.0$ 3,032.6$ 3,028.0$ 3,045.3$
Net operating loss carryforwards 948.0 885.6 834.7 817.6
Accumulated other comprehensive income 766.2 926.1 859.3 825.3
Common shareholders' equity 4,710.2$ 4,844.3$ 4,722.0$ 4,688.2$
1Q15 2Q15 3Q15 4Q15
Consolidated capital, excluding accumulated other comprehensive
income (loss) and net operating loss carryforwards
(a non-GAAP financial measure) 3,026.1$ 2,989.7$ 2,924.9$ 3,011.6$
Net operating loss carryforwards 793.3 769.5 735.7 724.1
Accumulated other comprehensive income 934.2 605.0 510.4 402.8
Common shareholders' equity 4,753.6$ 4,364.2$ 4,171.0$ 4,138.5$
1Q16 2Q16
Consolidated capital, excluding accumulated other comprehensive
incom loss) and net operating loss carryforwards
(a non-GAAP financial measure) 2,975.3$ 3,010.1$
Net operating loss carryforwards 710.8 668.3
Accumulated other comprehensive income 540.5 777.8
Common shareholders' equity 4,226.6$ 4,456.2$
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 36
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):
2Q15 3Q15 4Q15 1Q16 2Q16
Consolidated capital, excluding accumulated other comprehensive
income (loss) and net operating loss carryforwards
(a non-GAAP financial measure) 3,027.6$ 3,009.4$ 2,992.3$ 2,981.7$ 2,977.9$
Net operating loss carryforwards 818.3 791.4 767.3 745.3 722.4
Accumulated other comprehensive income 846.1 762.3 665.9 563.9 536.3
Common shareholders' equity 4,692.0$ 4,563.1$ 4,425.5$ 4,290.9$ 4,236.6$
Trailing Four Quarter Average
CNO Financial Group | 2Q2016 Earnings | July 27, 2016 37
Information Related to Certain Non-GAAP Financial Measures
2Q15 3Q15 4Q15 1Q16 2Q16
Corporate notes payable 909.2$ 909.8$ 911.1$ 911.5$ 912.0$
Total shareholders' equity 4,364.2 4,171.0 4,138.5 4,226.6 4,456.2
Total capital 5,273.4$ 5,080.8$ 5,049.6$ 5,138.1$ 5,368.2$
orporat debt to capital 17.2% 17.9% 18.0% 17.7% 17.0%
Corporate notes payable 909.2$ 909.8$ 911.1$ 911.5$ 912.0$
Total shareholders' equity 4,364.2 4,171.0 4,138.5 4,226.6 4,456.2
Less accumulated other comprehensive income (605.0) (510.4) (402.8) (540.5) (777.8)
Total capital 4,668.4$ 4,570.4$ 4,646.8$ 4,597.6$ 4,590.4$
Debt to total capital ratio, excluding AOCI (a
non-GAAP financial measure) 19.5% 19.9% 19.6% 19.8% 19.9%
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 income (loss) has been excluded from the value of capital used to determine this measure. Management believes this non-
GAAP financial measure is useful because it removes the volatility that arises from changes in accumulated other comprehensive income (loss).
Such volatility is often caused by changes in the estimated fair value of our investment portfolio resulting from changes in general market interest
rates rather than the business decisions made by management. A reconciliation of these ratios is as follows ($ in millions):