CNO FINANCIAL GROUP, INC. CARMEL, Ind., Feb. 7, 2017 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE: CNO) today announced net income for the fourth quarter of 2016 of $234.2 million, or $1.34 per diluted share, compared to $137.3 million, or 73 cents per diluted share, in the fourth quarter of 2015. For the full year 2016, CNO reported net income of $358.2 million, or $2.01 per diluted share, compared to $270.7 million, or $1.39 per diluted share in 2015.
CNO also announced fourth quarter of 2016 operating income (1) of $84.9 million, or 49 cents per diluted share, compared to $97.0 million, or 52 cents per diluted share, in the fourth quarter of 2015. For the full year 2016, CNO reported operating income (1) of $262.5 million, or $1.47 per diluted share, compared to $274.7 million, or $1.41 per diluted share in 2015.
"Our results again demonstrated the strength of our company, including solid earnings, growth in book value, capital and liquidity," said Ed Bonach, CEO of CNO Financial. "We effectively executed on a number of key initiatives and grew the enterprise with meaningful increases in first year and total collected premiums while expanding our customer reach."
Fourth Quarter 2016 Highlights
-- First year collected premiums: $374.6 million, up 16% from 4Q15
-- Total collected premiums: $951.3 million, up 8% from 4Q15
-- New annualized premium ("NAP") (2): $106.7 million, down 4% from 4Q15
-- Policies in-force of 3.5 million (including third party policies
in-force), up 1% from 4Q15
-- Net income per diluted share: $1.34 in 4Q16 compared to 73 cents in
4Q15
-- Net operating income (1) per diluted share: 49 cents in 4Q16 compared
to 52 cents in 4Q15
-- Book value per common share increased to $25.82 from $22.49 at 4Q15
-- Book value per diluted share, excluding accumulated other comprehensive
income (loss) (3), increased to $22.02 from $20.05 at 4Q15
-- Unrestricted cash and investments held by our holding company were $264
million at December 31, 2016, compared to $189 million at September 30,
2016
Full Year 2016 Highlights
-- First year collected premiums: $1,344.8 million, up 12% from 2015
-- Total collected premiums: $3,610.6 million, up 6% from 2015
-- NAP (2): $416.6 million, down 2% from 2015
-- Net income per diluted share: $2.01 in 2016 compared to $1.39 in 2015
-- Net operating income (1) per diluted share: $1.47 in 2016 compared to
$1.41 in 2015
-- Common stock repurchases of $203 million and dividends of $55 million in
2016
-- Consolidated risk-based capital ratio was estimated at 459% at December
31, 2016, reflecting estimated statutory operating earnings of $286
million (including approximately $110 million loss on the recapture of
long-term care business), compared to 449% at December 31, 2015
Quarterly Segment Operating Results
Three months ended
December 31,
2016 2015
---- ----
(Dollars in millions,
except per share data)
Adjusted EBIT (4):
Bankers Life $138.9 $121.2
Washington National 29.9 32.3
Colonial Penn:
In-force business (5) 13.4 14.8
New business (5) (8.8) (8.1)
---- ----
Total Colonial Penn 4.6 6.7
--- ---
Long-term care in run-off (3.9) -
---- ---
Adjusted EBIT from business segments 169.5 160.2
Corporate Operations, excluding corporate interest expense (23.0) (.7)
----- ---
Adjusted EBIT 146.5 159.5
Corporate interest expense (11.5) (11.3)
----- -----
Operating earnings before taxes 135.0 148.2
Tax expense on operating income 50.1 51.2
---- ----
Net operating income (1) 84.9 97.0
---- ----
Net realized investment gains (losses) (net of related amortization) (14.8) (15.8)
Fair value changes in embedded derivative liabilities (net of related amortization) 46.2 14.6
Fair value changes related to agent deferred compensation plan 15.1 15.1
Other (.8) (1.8)
--- ----
Non-operating income before taxes 45.7 12.1
Income tax expense (benefit):
On non-operating income 16.0 4.3
Valuation allowance for deferred tax assets and other tax items (119.6) (32.5)
------ -----
Net non-operating income 149.3 40.3
----- ----
Net income $234.2 $137.3
====== ======
Per diluted share:
Net operating income $.49 $.52
Net realized investment gains (losses) (net of related amortization and taxes) (.06) (.05)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes) .17 .05
Fair value changes related to agent deferred compensation plan (net of taxes) .06 .05
Valuation allowance for deferred tax assets and other tax items .68 .17
Other - (.01)
--- ----
Net income $1.34 $.73
===== ====
The following table summarizes the financial impact of significant items on our 4Q16 net operating income (dollars in millions, except per share amounts):
Three months ended
December 31, 2016*
Actual Significant Excluding
results items significant
items
-----
Net Operating Income (1):
Bankers Life $138.9 $(48.2) $90.7
Washington National 29.9 - 29.9
Colonial Penn 4.6 2.5 7.1
Long-term care in run-off (3.9) 2.6 (1.3)
---- --- ----
Adjusted EBIT from business segments 169.5 (43.1) 126.4
Corporate Operations, excluding corporate interest expense (23.0) 5.5 (17.5)
----- --- -----
Adjusted EBIT (4) 146.5 (37.6) 108.9
Corporate interest expense (11.5) - (11.5)
----- --- -----
Operating earnings before taxes 135.0 (37.6) 97.4
Tax expense on operating income 50.1 (13.5) 36.6
----
Net operating income $84.9 $(24.1) $60.8
===== ====== =====
Net operating income per diluted share $.49 $(.14) $.35
==== ===== ====
The significant items in 4Q16 included: (i) adjustments arising from our comprehensive annual actuarial review of assumptions including $45.8 million of favorable impacts in the Bankers Life segment, $2.5 million of unfavorable impacts in the Colonial Penn segment and $2.6 million of unfavorable impacts in the Long-term care in run-off segment; (ii) a $5.5 million increase to legal reserves in Corporate Operations related to legacy business of our predecessor; and (iii) the $2.4 million release of long-term care reserves (net of the reduction in insurance intangibles) due to the impact of policyholder actions following rate increases in the Bankers Life segment.
* See page 10 for the table of Net Operating Income Excluding Significant Items for the three months ended December 31, 2015.
Segment Results
Bankers Life markets and distributes a variety of insurance products to middle-income Americans at or near retirement through a dedicated field force of career agents. First year collected premiums in 4Q16 were $342.1 million, up 18 percent from 4Q15. First year collected premiums in 2016 were $1,211.8 million, up 14 percent from 2015. Such increases primarily reflect an increase in premiums from annuity products. NAP in 4Q16 was $65.0 million, down 6 percent from 4Q15. NAP results for the quarter primarily reflect lower sales of Medicare supplement and life products, partially offset by higher sales of annuity products. NAP for the year ended December 31, 2016, was $241.0 million, down 4 percent from 2015. New agent recruitment was down 12 percent in 4Q16, but up 3 percent for the year. However, average producing agents were down 5 percent from 4Q15, primarily due to lower first year agent retention during the second half of 2016.
Total collected premiums were up 9 percent in 4Q16 compared to 4Q15. Total collected premiums in 2016 were $2,666.4 million, up 7 percent from 2015. Annuity account values, on which spread income is earned, increased 3 percent to $7.8 billion in 4Q16 compared to 4Q15, driven by strong sales and persistency. Total policies in-force increased slightly in 2016; third party policies in-force increased 6 percent.
Pre-tax operating earnings in 4Q16 compared to 4Q15 were up $17.7 million, or 15 percent. Pre-tax operating earnings in 4Q16 of $138.9 million included $45.8 million of positive impacts from our comprehensive annual actuarial review including the net impact of changes to spread and persistency assumptions related to fixed index annuities. Pre-tax operating earnings in 4Q15 of $121.2 million included $25.8 million of positive impacts from our comprehensive annual actuarial review including the net impact from changes in assumptions related to mortality and the spread earned on fixed index annuities.
The long-term care interest-adjusted benefit ratio was 76.0 percent in 4Q16, compared to 79.6 percent in 4Q15. The 4Q16 and 4Q15 ratios were favorably impacted by $2.7 million and $7 million, respectively, of one-time reserve releases related to policyholder decisions to surrender or reduce coverage following rate increases. The 4Q16 long-term care interest-adjusted benefit ratio excluding the favorable reserve releases related to rate increases was 78.4 percent compared to 85.5 percent in 4Q15. The 4Q16 interest-adjusted benefit ratio reflects the favorable development of prior period claim liabilities and favorable incurred claims in the quarter. We currently expect the long-term care interest-adjusted benefit ratio to be in the range of 77 percent to 82 percent during 2017, excluding the reserve-related impacts of rate increase actions. The lower interest-adjusted benefit ratio guidance in 2017 reflects favorable margins and the outcome of our year-end actuarial review. We expect rate increases will have less of an impact on the interest-adjusted benefit ratio in 2017 than in 2016.
Pre-tax operating earnings in 4Q16 reflected a Medicare supplement benefit ratio of 71.2 percent, slightly higher than the 4Q15 ratio of 70.8 percent. We currently expect the Medicare supplement benefit ratio to be in the range of 71 percent to 74 percent during 2017.
Washington National markets and distributes supplemental health and life insurance to middle-income consumers through a wholly-owned subsidiary and independent insurance agencies. First year collected premiums in 4Q16 were $19.3 million, down 4 percent from 4Q15. First year collected premiums in 2016 were $78.2 million, down 2 percent from 2015. NAP in 4Q16 was $27.0 million, up 3 percent from 4Q15, reflecting higher sales of supplemental health products. NAP for the year ended December 31, 2016 was $99.2 million, down 1 percent from 2015. NAP from sales of products in the worksite market in 4Q16 was $11.0 million, up 5 percent from 4Q15. The average number of producing agents was up 8 percent compared to 4Q15, reflecting strong recruiting and retention.
Total collected premiums from the segment's supplemental health block were up 3 percent in 4Q16 compared to 4Q15. Total collected premiums from this block in 2016 were $565.5 million, up 4 percent from 2015.
Pre-tax operating earnings in 4Q16 compared to 4Q15 were down $2.4 million. Pre-tax operating earnings in 4Q15 included $1 million of positive impacts from our comprehensive annual actuarial review of assumptions, primarily related to fixed index annuities. The supplemental health interest-adjusted benefit ratio was 57.0 percent and 57.5 percent in 4Q16 and 4Q15, respectively. We currently expect the supplemental health interest-adjusted benefit ratio to be in the range of 58 percent to 61 percent during 2017.
Colonial Penn markets primarily graded benefit and simplified issue life insurance directly to customers through television advertising, direct mail, the internet and telemarketing. First year collected premiums in 4Q16 were $13.2 million, up 2 percent from 4Q15. First year collected premiums in 2016 were $54.8 million, up 6 percent from 2015. Such increases reflect strong sales in recent periods. NAP in 4Q16 was $14.7 million, down 6 percent from 4Q15, reflecting lower lead volume primarily due to reduced television advertising as a result of the elections. NAP for the year ended December 31, 2016, was $76.4 million, up 3 percent from 2015.
Total collected premiums were up 6 percent in 4Q16 compared to 4Q15. Total collected premiums in 2016 were $280.2 million, up 7 percent from 2015, and reflected both recent sales activity and steady persistency.
Pre-tax operating earnings in 4Q16 of $4.6 million were down $2.1 million compared to 4Q15. Pre-tax operating earnings in 2016 were $1.7 million. In-force adjusted EBIT in 4Q16 was $13.4 million, down 9 percent from 4Q15. Pre-tax operating earnings and in-force adjusted EBIT in 4Q16 were reduced by $2.5 million related to the impact of loss recognition on a closed block of payout annuities resulting from changes in long-term interest rates and mortality assumptions. Full year 2016 in-force adjusted EBIT was $54.4 million, up 1 percent from 2015.
Recognizing the accounting standard related to deferred acquisition costs, the amount of our investment in new business during a particular period will have a significant impact on this segment's results. We expect this segment to report earnings in 2017 in the range of $5 million to $15 million, but because of the seasonality of advertising spend, we expect a loss in the $1 million to $3 million range in 1Q17.
Long-term care in run-off is a new segment for the long-term care block that was recaptured in conjunction with the termination of the reinsurance agreements with Beechwood Re Ltd. in September 2016. This segment recognized pre-tax losses of $3.9 million in 4Q16. Such losses include the unfavorable impact of $2.6 million related to the impact of loss recognition on this closed block of long-term care business. We expect this segment to report normalized earnings before net realized investment gains (losses) of approximately breakeven over the long-term, recognizing this segment's results can be volatile given its loss recognition status.
Corporate Operations includes our investment advisory subsidiary and corporate expenses.
Pre-tax losses in 4Q16 were $23.0 million compared to $.7 million of losses in 4Q15 primarily reflecting less favorable investment returns and higher expenses. Investment returns were $8 million lower in 4Q16 as compared to 4Q15 (including $4.7 million related to the change in value of investments backing our Company-owned life insurance ("COLI") used as a vehicle to fund Bankers Life's agent deferred compensation plan and the impact of lower investment balances given the $200 million capital contribution in 3Q16 to our insurance subsidiaries). Expenses were $14 million higher in 4Q16, reflecting $7 million of higher legal costs (including a $5.5 million increase to legal reserves related to legacy business of our predecessor), $2 million of adjustments to employee benefit accruals and $4 million for various initiatives (including costs incurred to comply with new Department of Labor requirements).
Non-Operating Items
Net realized investment losses in 4Q16 were $14.8 million (net of related amortization) including total other-than-temporary impairment losses of $7.5 million recorded in earnings ($11.1 million, prior to the $3.6 million of impairment losses recognized in accumulated other comprehensive income). Net realized investment losses in 4Q15 were $15.8 million (net of related amortization) including total other-than-temporary impairment losses of $18.3 million recorded in earnings.
During 4Q16 and 4Q15, we recognized an increase in earnings of $46.2 million and $14.6 million, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities related to our fixed index annuities, net of related amortization. Such amount includes the impacts of changes in market interest rates used to determine the derivative's estimated fair value.
During both 4Q16 and 4Q15, we recognized an increase in earnings of $15.1 million for the mark-to-market change in the agent deferred compensation plan liability which was impacted by changes in the underlying actuarial assumptions used to value the liability. We recognize the mark-to-market change in the estimated value of this liability through earnings as assumptions change.
As previously disclosed, we have reached a settlement with the IRS related to the appropriate classification of the loss recognized on our investment in Conseco Senior Health Insurance Company when it was transferred to an independent trust in 2008. In addition, we have reached a settlement related to a bad debt deduction with respect to a stock purchase loan made by our Predecessor to a member of the Predecessor's board of directors. The settlement resulted in the recognition of additional life net operating loss carryforwards which offset taxable income earned by our life insurance subsidiaries in the third and fourth quarters of 2016 and the tax gain recognized on the recapture of our long-term care reinsurance agreements. The settlement resulted in a gain of $118.7 million in 4Q16.
In 4Q15, we reduced the valuation allowance for deferred tax assets by $32.5 million primarily related to higher actual and projected non-life income.
Statutory (based on non-GAAP measures) and GAAP Capital Information
Our consolidated statutory risk-based capital ratio was approximately 459% at December 31, 2016, reflecting 4Q16 and full year 2016 consolidated statutory operating earnings of $124 million and $286 million, respectively; capital contributions of $200.0 million made in 3Q16; and the payment of insurance company dividends to the holding company of $274.3 million during 2016 (of which $98.5 million were paid in 4Q16). Such risk-based capital ratio was 449% at December 31, 2015.
Unrestricted cash and investments held by our holding company were $264 million at December 31, 2016, compared to $189 million at September 30, 2016, reflecting dividends from subsidiaries; partially offset by common stock dividend payments.
As previously disclosed, in order to increase our excess capital, we suspended our share repurchase program in 3Q16. Accordingly, no shares were repurchased in 4Q16. During 2016, we repurchased 11.7 million common shares at a total cost of $203.0 million. CNO anticipates repurchasing common stock in the range of $200 million to $275 million in 2017, absent compelling alternatives. As of December 31, 2016, we had 173.8 million shares outstanding and had authority to repurchase up to an additional $252.7 million of our common stock. During 4Q16, dividends paid on common stock totaled $13.9 million.
Book value per common share was $25.82 and $22.49 at December 31, 2016 and 2015, respectively. Book value per diluted share, excluding accumulated other comprehensive income (loss) (3), increased to $22.02 at December 31, 2016, compared to $20.05 at December 31, 2015.
The debt-to-total-capital ratio was 16.9 percent and 18.0 percent at December 31, 2016 and 2015, respectively. Our debt-to-total capital ratio, excluding accumulated other comprehensive income (6) at December 31, 2016, was 19.1 percent compared to 19.6 percent at December 31, 2015.
Earnings and Outlook Conference Call
The Company will host a conference call to discuss results on Wednesday, February 8, 2017 at 11:00 a.m. Eastern Time. The webcast can be accessed through the Investors section of the company's website: http://ir.CNOinc.com. Participants should go to the website at least 15 minutes before the event to register and download any necessary audio software. During the call, we will be referring to a presentation that will be available the morning of the call at the Investors section of the company's website.
About CNO Financial Group
CNO Financial Group, Inc. (NYSE: CNO) is a holding company. Our insurance subsidiaries - principally Bankers Life and Casualty Company, Colonial Penn Life Insurance Company and Washington National Insurance Company - primarily serve middle-income pre-retiree and retired Americans by helping them protect against financial adversity and provide for a more secure retirement. For more information, visit CNO online at www.CNOinc.com.
- Tables Follow -
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(unaudited)
December 31, December 31,
2016
2015
----
ASSETS
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: 2016 - $19,803.1; 2015 - $18,947.0) $21,096.2 $19,882.9
Equity securities at fair value (cost: 2016 - $580.7; 2015 - $447.4) 584.2 463.0
Mortgage loans 1,768.0 1,721.0
Policy loans 112.0 109.4
Trading securities 363.4 262.1
Investments held by variable interest entities 1,724.3 1,633.6
Other invested assets 589.5 415.1
----- -----
Total investments 26,237.6 24,487.1
Cash and cash equivalents - unrestricted 478.9 432.3
Cash and cash equivalents held by variable interest entities 189.3 364.4
Accrued investment income 239.6 237.0
Present value of future profits 401.8 449.0
Deferred acquisition costs 1,044.7 1,083.3
Reinsurance receivables 2,260.4 2,859.3
Income tax assets, net 789.7 898.8
Assets held in separate accounts 4.7 4.7
Other assets 328.5 309.2
----- -----
Total assets $31,975.2 $31,125.1
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products:
Policyholder account balances $10,912.7 $10,762.3
Future policy benefits 10,953.3 10,602.1
Liability for policy and contract claims 500.6 487.8
Unearned and advanced premiums 282.5 286.3
Liabilities related to separate accounts 4.7 4.7
Other liabilities 611.4 707.8
Investment borrowings 1,647.4 1,548.1
Borrowings related to variable interest entities 1,662.8 1,676.4
Notes payable - direct corporate obligations 912.9 911.1
----- -----
Total liabilities 27,488.3 26,986.6
-------- --------
Commitments and Contingencies
Shareholders' equity:
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and 1.7 1.8
outstanding: 2016 - 173,753,614; 2015 - 184,028,511)
Additional paid-in capital 3,212.1 3,386.8
Accumulated other comprehensive income 622.4 402.8
Retained earnings 650.7 347.1
----- -----
Total shareholders' equity 4,486.9 4,138.5
------- -------
Total liabilities and shareholders' equity $31,975.2 $31,125.1
========= =========
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Three months ended Year ended
December 31, December 31,
2016 2015 2016 2015
---- ---- ---- ----
Revenues:
Insurance policy income $654.1 $638.8 $2,601.1 $2,556.0
Net investment income:
General account assets 315.6 303.2 1,204.1 1,203.6
Policyholder and other special-purpose portfolios 38.4 29.2 121.1 30.0
Realized investment gains (losses):
Net realized investment gains (losses), excluding impairment losses (7.5) 2.5 47.9 (8.0)
Other-than-temporary impairments:
Total other-than-temporary impairment losses (11.1) (18.3) (35.9) (42.9)
Portion of other-than-temporary impairment losses recognized in accumulated other comprehensive income 3.6 - 3.6 3.0
--- --- --- ---
Net impairment losses recognized (7.5) (18.3) (32.3) (39.9)
Gain (loss) on dissolution of variable interest entities - - (7.3) 11.3
--- --- ---- ----
Total realized gains (losses) (15.0) (15.8) 8.3 (36.6)
----- ----- --- -----
Fee revenue and other income 11.8 14.2 50.5 58.9
---- ---- ---- ----
Total revenues 1,004.9 969.6 3,985.1 3,811.9
------- ----- ------- -------
Benefits and expenses:
Insurance policy benefits 529.3 551.9 2,390.5 2,308.3
Loss on reinsurance transaction and transition expenses - - 75.4 9.0
Interest expense 30.4 24.2 116.4 94.9
Amortization 71.7 64.4 253.3 260.0
Loss on extinguishment of debt - - - 32.8
Other operating costs and expenses 192.8 168.8 796.3 739.2
----- ----- ----- -----
Total benefits and expenses 824.2 809.3 3,631.9 3,444.2
----- ----- ------- -------
Income before income taxes 180.7 160.3 353.2 367.7
Income tax expense (benefit):
Tax expense on period income 66.1 55.5 127.8 129.5
Valuation allowance for deferred tax assets and other tax items (119.6) (32.5) (132.8) (32.5)
------ ----- ------ -----
Net income $234.2 $137.3 $358.2 $270.7
====== ====== ====== ======
Earnings per common share:
Basic:
Weighted average shares outstanding 173,634,000 185,608,000 176,638,000 193,054,000
=========== =========== =========== ===========
Net income $1.35 $.74 $2.03 $1.40
===== ==== ===== =====
Diluted:
Weighted average shares outstanding 175,173,000 187,951,000 178,323,000 195,166,000
=========== =========== =========== ===========
Net income $1.34 $.73 $2.01 $1.39
===== ==== ===== =====
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
SEGMENT OPERATING RESULTS
(Dollars in millions, except per share data)
Year ended
December 31,
2016 2015
---- ----
Adjusted EBIT (4):
Bankers Life $397.9 $369.6
Washington National 102.9 111.5
Colonial Penn:
In-force business (5) 54.4 53.6
New business (5) (52.7) (48.0)
----- -----
Total Colonial Penn 1.7 5.6
--- ---
Long-term care in run-off (3.9) -
---- ---
Adjusted EBIT from business segments 498.6 486.7
Corporate Operations, excluding corporate interest expense (42.5) (18.9)
----- -----
Adjusted EBIT 456.1 467.8
Corporate interest expense (45.8) (45.0)
----- -----
Operating earnings before taxes 410.3 422.8
Tax expense on operating income 147.8 148.1
----- -----
Net operating income (1) 262.5 274.7
----- -----
Net realized investment gains (losses) (net of related amortization) 7.6 (36.1)
Fair value changes in embedded derivative liabilities (net of related amortization) 9.6 11.9
Fair value changes and amendment related to agent deferred compensation plan 3.1 15.1
Loss on reinsurance transaction (75.4) -
Loss on extinguishment of debt - (32.8)
Other (2.0) (13.2)
---- -----
Non-operating income (loss) before taxes (57.1) (55.1)
Income tax expense (benefit):
On non-operating income (loss) (20.0) (18.6)
Valuation allowance for deferred tax assets and other tax items (132.8) (32.5)
------ -----
Net non-operating income (loss) 95.7 (4.0)
---- ----
Net income $358.2 $270.7
====== ======
Per diluted share:
Net operating income $1.47 $1.41
Net realized investment gains (losses) (net of related amortization and taxes) .03 (.12)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes) .04 .04
Fair value changes and amendment related to agent deferred compensation plan (net of taxes) .01 .05
Loss on reinsurance transaction (net of taxes) (.27) -
Loss on extinguishment of debt (net of taxes) - (.11)
Valuation allowance for deferred tax assets and other tax items .74 .17
Other (.01) (.05)
---- ----
Net income $2.01 $1.39
===== =====
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NET OPERATING INCOME EXCLUDING SIGNIFICANT ITEMS*
(Dollars in millions, except per share data)
Three months ended
December 31, 2015*
Actual Significant Excluding
results significant
items
items
---
Net Operating Income (1):
Bankers Life $121.2 $(32.1) $89.1
Washington National 32.3 (1.0) 31.3
Colonial Penn 6.7 - 6.7
Adjusted EBIT from business segments 160.2 (33.1) 127.1
Corporate Operations, excluding corporate interest expense (.7) (4.2) (4.9)
--- ---- ----
Adjusted EBIT (4) 159.5 (37.3) 122.2
Corporate interest expense (11.3) - (11.3)
----- --- -----
Operating earnings before taxes 148.2 (37.3) 110.9
Tax expense on operating income 51.2 (11.6) 39.6
----
Net operating income $97.0 $(25.7) $71.3
===== ====== =====
Net operating income per diluted share $.52 $(.14) $.38
==== ===== ====
* This table summarizes the financial impacts of significant items (as described in the segment results section of this press release) on our 4Q15 net operating income.
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
FIRST-YEAR COLLECTED PREMIUMS
(Dollars in millions)
Three months ended
December 31,
2016 2015
---- ----
Bankers Life:
Medicare supplement $19.3 $20.6
Long-term care 4.2 4.3
Supplemental health 1.4 1.4
Other health .1 -
Life 33.7 38.5
Annuity 283.4 225.8
----- -----
Total 342.1 290.6
----- -----
Washington National:
Supplemental health
and other health 17.7 18.6
Life 1.4 1.4
Annuity .2 -
--- ---
Total 19.3 20.0
---- ----
Colonial Penn:
Life 13.2 12.9
---- ----
Total 13.2 12.9
---- ----
Total first-year
collected premiums
from segments $374.6 $323.5
====== ======
TOTAL COLLECTED PREMIUMS
(Dollars in millions)
Three months ended
December 31,
2016 2015
---- ----
Bankers Life:
Medicare supplement $191.2 $192.6
Long-term care 114.7 116.9
Supplemental health 5.5 4.9
Other health 1.5 1.7
Life 113.8 110.7
Annuity 284.9 227.7
----- -----
Total 711.6 654.5
----- -----
Washington National:
Supplemental health and other
health 142.1 138.1
Medicare supplement 14.9 17.9
Life 7.7 7.1
Annuity .5 .5
--- ---
Total 165.2 163.6
----- -----
Colonial Penn:
Life 69.2 65.2
Medicare supplement and other
health .6 .8
--- ---
Total 69.8 66.0
---- ----
Long-term care in run-off:
Long-term care 4.7 N/A
---
Total 4.7 N/A
Total collected premiums from
segments $951.3 $884.1
====== ======
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NEW ANNUALIZED PREMIUMS (2)
(Dollars in millions)
Three months ended
December 31,
2016 2015
---- ----
Bankers Life:
Medicare supplement $23.9 $27.6
Long-term care 5.5 6.7
Supplemental health 1.6 1.6
Life 17.0 19.6
Annuity 17.0 13.6
---- ----
Total 65.0 69.1
---- ----
Washington National:
Supplemental health 25.2 24.1
Life 1.8 2.2
Total 27.0 26.3
---- ----
Colonial Penn:
Life 14.7 15.6
---- ----
Total 14.7 15.6
---- ----
Total new annualized
premiums $106.7 $111.0
====== ======
BENEFIT RATIOS ON MAJOR HEALTH LINES OF BUSINESS
Three months ended
December 31,
2016 2015
---- ----
Bankers Life:
Medicare Supplement:
Earned premium $193 million $192 million
Benefit ratio (7) 71.2% 70.8%
Long-term care:
Earned premium $118 million $119 million
Benefit ratio (7) 134.7% 137.1%
Interest-adjusted benefit ratio (a non-GAAP measure) (8) 76.0% 79.6%
Washington National:
Medicare Supplement:
Earned premium $15 million $17 million
Benefit ratio (7) 64.8% 63.8%
Supplemental health:
Earned premium $144 million $138 million
Benefit ratio (7) 81.0% 81.8%
Interest-adjusted benefit ratio (a non-GAAP measure) (8) 57.0% 57.5%
Long-term care in run-off:
Long-term care:
Earned premium $5 million N/A
Benefit ratio (7) 365.8% N/A
Interest-adjusted benefit ratio (a non-GAAP measure) (8) 213.5% N/A
NOTES
(1) Management believes that an analysis of Net
income applicable to common stock before:
(i) net realized investment gains or
losses, net of related amortization and
taxes; (ii) fair value changes due to
fluctuations in the interest rates used to
discount embedded derivative liabilities
related to our fixed index annuities, net
of related amortization and taxes; (iii)
fair value changes and amendment related
to the agent deferred compensation plan,
net of taxes, (iv) loss on reinsurance
transaction, net of taxes; (v) loss on
extinguishment of debt, net of taxes; (vi)
changes in the valuation allowance for
deferred tax assets and other tax items;
and (vii) other non-operating items
consisting primarily of equity in earnings
of certain non-strategic investments and
earnings attributable to variable interest
entities, net of taxes ("Net operating
income," a non-GAAP financial measure) is
important to evaluate the financial
performance of the company, and is a key
measure commonly used in the life
insurance industry. Management uses this
measure to evaluate performance because
the items excluded from net operating
income can be affected by events that are
unrelated to the company's underlying
fundamentals. Net realized investment
gains or losses include: (i) gains or
losses on the sales of investments; (ii)
other-than-temporary impairments
recognized through net income; and (iii)
changes in fair value of certain fixed
maturity investments with embedded
derivatives. A reconciliation of Net
operating income to Net income applicable
to common stock is provided in the tables
on pages 2 and 9. Additional information
concerning this non-GAAP measure is
included in our periodic filings with the
Securities and Exchange Commission that
are available in the "Investors - SEC
Filings" section of CNO's website,
www.CNOinc.com.
-------------------------------------------
(2) Measured by new annualized premium, which
includes 6% of annuity and 10% of single
premium whole life deposits and 100% of
all other premiums. Medicare Advantage
sales are not comparable to other sales
and are therefore excluded in all periods.
(3) Book value per diluted share reflects the
potential dilution that could occur if
outstanding stock options were exercised,
restricted stock and performance units
were vested and convertible securities
were converted. The dilution from
options, restricted shares and performance
units is calculated using the treasury
stock method. Under this method, we
assume the proceeds from the exercise of
the options (or the unrecognized
compensation expense with respect to
restricted stock and performance units)
will be used to purchase shares of our
common stock at the closing market price
on the last day of the period. The
dilution from convertible securities is
calculated assuming the securities were
converted on the last day of the period.
In addition, the calculation of this non-
GAAP measure differs from the
corresponding GAAP measure because
accumulated other comprehensive income
(loss) has been excluded from the value of
capital used to determine this measure.
Management believes this non-GAAP measure
is useful because it removes the
volatility that arises from changes in the
unrealized appreciation (depreciation) of
our investments.
(4) Management believes that an analysis of
earnings before net realized investment
gains (losses), fair value changes due to
fluctuations in the interest rates used to
discount embedded derivative liabilities
related to our fixed index annuities, fair
value changes and amendment related to the
agent deferred compensation plan, loss on
reinsurance transaction, loss on
extinguishment of debt, other non-
operating items, corporate interest
expense and taxes ("Adjusted EBIT," a non-
GAAP financial measure) provides a clearer
comparison of the operating results of the
company quarter-over-quarter because
these items are unrelated to the company's
underlying fundamentals. A reconciliation
of Adjusted EBIT to Net Income applicable
to common stock is provided in the tables
on pages 2 and 9.
(5) Management believes that an analysis of
Adjusted EBIT for Colonial Penn, separated
between in-force and new business,
provides increased clarity for this
segment as the vast majority of the costs
to generate new business in this segment
are not deferrable and Adjusted EBIT will
fluctuate based on management's decisions
on how much marketing costs to incur in
each period. Adjusted EBIT from new
business includes pre-tax revenues and
expenses associated with new sales of our
insurance products during the first year
after the sale is completed. Adjusted
EBIT from in-force business includes all
pre-tax revenues and expenses associated
with sales of insurance products that were
completed more than one year before the
end of the reporting period. The
allocation of certain revenues and
expenses between new and in-force
business is based on estimates, which we
believe are reasonable.
(6) The calculation of this non-GAAP measure
differs from the corresponding GAAP
measure because accumulated other
comprehensive income (loss) has been
excluded from the value of capital used to
determine this measure. Management
believes this non-GAAP measure is useful
because it removes the volatility that
arises from changes in the unrealized
appreciation (depreciation) of our
investments.
(7) The benefit ratio is calculated by dividing
the related product's insurance policy
benefits by insurance policy income.
(8) The interest-adjusted benefit ratio (a
non-GAAP measure) is calculated by
dividing the product's insurance policy
benefits less imputed interest income on
the accumulated assets backing the
insurance liabilities by insurance policy
income. Interest income is an important
factor in measuring the performance of
longer duration health products. The net
cash flows generally cause an accumulation
of amounts in the early years of a policy
(accounted for as reserve increases),
which will be paid out as benefits in
later policy years (accounted for as
reserve decreases). Accordingly, as the
policies age, the benefit ratio will
typically increase, but the increase in
the change in reserve will be partially
offset by the imputed interest income
earned on the accumulated assets. The
interest-adjusted benefit ratio reflects
the effects of such interest income offset
(which is equal to the tabular interest on
the related insurance liabilities). Since
interest income is an important factor in
measuring the performance of these
products, management believes a benefit
ratio, which includes the effect of
interest income, is useful in analyzing
product performance. Additional
information concerning this non-GAAP
measure is included in our periodic
filings with the Securities and Exchange
Commission that are available in the
"Investors - SEC Filings" section of CNO
Financial's website, www.CNOinc.com.
-------------------------------------------
Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in this press release relative to markets for CNO Financial's products and trends in CNO Financial's operations or financial results, as well as other statements, contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically are identified by the use of terms such as "anticipate," "believe," "plan," "estimate," "expect," "project," "intend," "may," "will," "would," "contemplate," "possible," "attempt," "seek," "should," "could," "goal," "target," "on track," "comfortable with," "optimistic," "guidance," "outlook" and similar words, although some forward-looking statements are expressed differently. You should consider statements that contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business conditions, our results of operations, financial position, and our business outlook or they state other ''forward-looking'' information based on currently available information. Assumptions and other important factors that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, among other things: (i) changes in or sustained low interest rates causing reductions in investment income, the margins of our fixed annuity and life insurance businesses, and sales of, and demand for, our products; (ii) expectations of lower future investment earnings may cause us to accelerate amortization, write down the balance of insurance acquisition costs or establish additional liabilities for insurance products; (iii) general economic, market and political conditions, including the performance and fluctuations of the financial markets which may affect the value of our investments as well as our ability to raise capital or refinance existing indebtedness and the cost of doing so; (iv) the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are subject; (v) our ability to make anticipated changes to certain non-guaranteed elements of our life insurance products; (vi) our ability to obtain adequate and timely rate increases on our health products, including our long-term care business; (vii) the receipt of any required regulatory approvals for dividend and surplus debenture interest payments from our insurance subsidiaries; (viii) mortality, morbidity, the increased cost and usage of health care services, persistency, the adequacy of our previous reserve estimates and other factors which may affect the profitability of our insurance products; (ix) changes in our assumptions related to deferred acquisition costs or the present value of future profits; (x) the recoverability of our deferred tax assets and the effect of potential ownership changes and tax rate changes on their value; (xi) our assumption that the positions we take on our tax return filings will not be successfully challenged by the Internal Revenue Service; (xii) changes in accounting principles and the interpretation thereof; (xiii) our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debt agreements; (xiv) our ability to achieve anticipated expense reductions and levels of operational efficiencies including improvements in claims adjudication and continued automation and rationalization of operating systems, (xv) performance and valuation of our investments, including the impact of realized losses (including other-than-temporary impairment charges); (xvi) our ability to identify products and markets in which we can compete effectively against competitors with greater market share, higher ratings, greater financial resources and stronger brand recognition; (xvii) our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs; (xviii) our ability to maintain effective controls over financial reporting; (xix) our ability to continue to recruit and retain productive agents and distribution partners; (xx) customer response to new products, distribution channels and marketing initiatives; (xxi) our ability to achieve additional upgrades of the financial strength ratings of CNO Financial and our insurance company subsidiaries as well as the impact of our ratings on our business, our ability to access capital and the cost of capital; (xxii) regulatory changes or actions, including those relating to regulation of the financial affairs of our insurance companies, such as the payment of dividends and surplus debenture interest to us, regulation of the sale, underwriting and pricing of products, and health care regulation affecting health insurance products; (xxiii) changes in the Federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products or affect the value of our deferred tax assets; (xxiv) availability and effectiveness of reinsurance arrangements, as well as the impact of any defaults or failure of reinsurers to perform; (xxv) the performance of third party service providers and potential difficulties arising from outsourcing arrangements; (xxvi) the growth rate of sales, collected premiums, annuity deposits and assets; (xxvii) interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems; (xxviii) events of terrorism, cyber attacks, natural disasters or other catastrophic events, including losses from a disease pandemic; (xxix) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; and (xxx) the risk factors or uncertainties listed from time to time in our filings with the Securities and Exchange Commission. Other factors and assumptions not identified above are also relevant to the forward-looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement. Our forward-looking statements speak only as of the date made. We assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward looking statements.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/cno-financial-group-reports-fourth-quarter-and-full-year-2016-results-300403623.html
SOURCE CNO Financial Group, Inc.
