CNO Financial Group Reports Second Quarter 2018 Results

CARMEL, Ind., Aug. 1, 2018 /PRNewswire/ — CNO Financial Group, Inc. (NYSE: CNO) today announced that net income for the second quarter 2018 increased to $102.2 million, or 61 cents per diluted share, compared to $83.4 million, or 48 cents per diluted share, in the second quarter of 2017.  CNO also announced that second quarter 2018 net operating income (1) increased to $81.9 million, or 49 cents per diluted share, compared to $78.6 million, or 45 cents per diluted share, in the second quarter of 2017.  Net income and net operating earnings in the second quarter of 2018 reflect the positive impact of the lower Federal income tax rate related to the Tax Cuts and Jobs Act of $18.2 million (11 cents per share) and $14.6 million (9 cents per share), respectively.

“CNO reported another quarter of strong earnings and capital results, while continuing to generate considerable free cash flow,” said Gary Bhojwani, chief executive officer.  “Our expanded agent retention pilots at Bankers Life are performing well and sales of asset accumulation products, primarily annuities and our portfolio of wealth accumulation solutions, were up significantly.  CNO also demonstrated its steady commitment to effectively deploy capital in order to generate shareholder return through common stock dividends, share repurchases and funding a transaction to materially reduce our long-term care exposure.”

Second Quarter 2018 Highlights

• First-year collected premiums:  $369.0 million, up 5% from 2Q17
• Total collected premiums: $947.6 million, up 2% from 2Q17
• New annualized premium (“NAP”) (2) for life and health products: $81.8 million, down slightly from 2Q17
• Annuity collected premiums:  $287.4 million, up 9% from 2Q17
• Annuity account values: $8.7 billion, up 4% from 2Q17
• Policies inforce of 3.5 million (including third party policies inforce), down 1% from 2Q17
• Net income per diluted share:  61 cents in 2Q18 compared to 48 cents in 2Q17
• Net operating income (1) per diluted share:  49 cents in 2Q18 compared to 45 cents in 2Q17
• Book value per common share was $27.09 at June 30, 2018 compared to $29.05 at December 31, 2017
• Book value per diluted share, excluding accumulated other comprehensive income (loss) (3), increased to $22.62 at June 30, 2018 from $21.43 at December 31, 2017
• Unrestricted cash and investments held by our holding company were $376 million at June 30, 2018 compared to $397 million at December 31, 2017
• Common stock repurchases of $60.5 million; paid common stock dividends of $16.5 million in 2Q18

Six-month 2018 Highlights

• First-year collected premiums:  $700.1 million, up slightly from the first six months of 2017
• Total collected premiums: $1,875.7 million, up 1% from the first six months of 2017
• NAP (2) for life and health products: $159.9 million, down 6% from the first six months of 2017
• Annuity collected premiums:  $539.2 million, up 3% from the first six months of 2017
• Net income per diluted share:  $1.10 in the first six months of 2018 compared to 84 cents in the first six months of 2017
• Net operating income (1) per diluted share:  92 cents in the first six months of 2018 compared to 80 cents in the first six months of 2017
• Paid common stock dividends of $31.9 million and common stock repurchases of $60.5 million in the first six months of 2018
• Consolidated risk-based capital ratio was estimated at 444% at June 30, 2018, reflecting estimated statutory operating earnings of $122 million and insurance company dividends to the holding company of $71.5 million during the first six months of 2018

 

 

There were no significant items included in our 2Q18 net operating income.  See page 9 for the table of Net Operating Income Excluding Significant Items for the three months ended June 30, 2017.

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 2Q18 were $338.3 million, up 6 percent from 2Q17.  NAP for life and health products in 2Q18 was $38.9 million, down 3 percent compared to 2Q17.  Average producing agents (over the last twelve months) were down 6 percent from 2Q17.  Average producing agents in their third year of service or later (over the last twelve months) in 2Q18 were down 2 percent compared to 2Q17.

Total collected premiums in 2Q18 were $697.0 million, up 2 percent from 2Q17.  Annuity collected premiums in 2Q18 were $287.0 million, up 9 percent from 2Q17.  Annuity account values, on which spread income is earned, increased 5 percent to $8.3 billion in 2Q18 compared to 2Q17, driven by strong sales and persistency.  Total policies inforce (including third party policies inforce) decreased 2 percent and third party policies inforce increased 4 percent from 2Q17.

Pre-tax operating earnings in 2Q18 compared to 2Q17 were down $16.5 million, or 15 percent.  Pre-tax operating earnings in 2Q18 reflected lower margins on the long-term care and Medicare supplement blocks of business.  In addition, 2Q17 earnings reflected a significant item favorably impacting earnings from the long-term care block as described in the following paragraph.

The long-term care interest-adjusted benefit ratio was 76.5 percent in 2Q18, higher than the 2Q17 ratio of 66.2 percent.  The 2Q17 ratio was favorably impacted by $9.4 million of one-time reserve releases primarily related to lower persistency (including the results of procedures performed to identify policies that had terminated prior to June 30, 2017 due to death) and the impact of policyholder decisions to surrender or reduce coverage following rate increases.  Such reserve releases in 2Q18 were not significant.  The long-term care interest-adjusted benefit ratio excluding these favorable reserve releases was 74.4 percent in 2Q17.    The interest-adjusted benefit ratio in 2Q18 also reflected unfavorable claim experience.  Given the long-term care coinsurance agreement announced in today’s separate news release and briefly described below under the caption “Other Announcements”, we are not currently providing guidance on the interest-adjusted benefit ratio for this segment’s long-term care block.

Pre-tax operating earnings in 2Q18 reflected a Medicare supplement benefit ratio of 73.1 percent, higher than the 2Q17 ratio of 70.4 percent.  The benefit ratio in 2Q18 for this block reflected lower margins due to the implementation of the Medicare crossover claims process.  We continue to expect the Medicare supplement benefit ratio to be in the range of 71 percent to 74 percent during the remainder of 2018.

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 2Q18 were $19.4 million, down 2 percent from 2Q17.  NAP from life and health products in 2Q18 was $26.0 million, up 2 percent from 2Q17.  The average number of producing agents (over the last twelve months) in 2Q18 was essentially flat compared to 2Q17.

Total collected premiums from the segment’s supplemental health block were up 3 percent in 2Q18 compared to 2Q17.

Pre-tax operating earnings in 2Q18 compared to 2Q17 were up $1.8 million, or 8 percent.  Pre-tax operating earnings in 2Q18 primarily reflect higher margins on the supplemental health block compared to 2Q17, reflecting higher insurance policy income due to higher sales and favorable claims experience.  The supplemental health interest-adjusted benefit ratio was 56.6 percent and 60.4 percent in 2Q18 and 2Q17, respectively.  Based on continued favorable experience, we are lowering the expected supplemental health interest-adjusted benefit ratio to be in the range of 56 percent to 59 percent (from 58 percent to 61 percent) for the remainder of 2018.

Colonial Penn markets primarily graded benefit and simplified issue life insurance directly to customers through television advertising, direct mail, the internet and telemarketing.  First-year collected premiums were $11.3 million in 2Q18, down 11 percent from 2Q17.  NAP in 2Q18 was $16.9 million, up 5 percent from 2Q17.

Total collected premiums were up 2 percent in 2Q18 compared to 2Q17.

Pre-tax earnings in 2Q18 were $5.4 million compared to $8.0 million in 2Q17 primarily reflecting higher marketing expenses in 2Q18.  Inforce Adjusted EBIT was $18.1 million, up 4 percent from 2Q17, primarily reflecting growth in the block.

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 continue to expect this segment to report earnings in 2018 in the range of $10 million to $20 million.

Long-term care in run-off only includes the long-term care business that was recaptured in September 2016.  This segment recognized pre-tax operating earnings in 2Q18 of $3.1 million, compared to $1.7 million 2Q17.  The interest-adjusted benefit ratio for this long-term care block was 57.3 percent in 2Q18 compared to 104.6 percent in 2Q17.  The interest-adjusted benefit ratio in 2Q18 reflected favorable claim development.  We continue to expect this segment to report normalized earnings before net realized investment gains (losses) of approximately breakeven over the long-term.  However, this segment’s quarterly results can be volatile.

Corporate Operations includes our investment advisory subsidiary and corporate expenses.

Pre-tax losses in 2Q18 were $14.0 million compared to $13.2 million of losses in 2Q17.  Such results in 2Q18, compared to 2Q17, reflected lower investment returns which were partially offset by lower expenses.

Non-Operating Items

Net realized investment gains in 2Q18 were $10.6 million (net of related amortization).  There were no other-than-temporary impairment losses recognized in 2Q18.  Net realized investment gains in 2Q17 were $14.9 million (net of related amortization) including other-than-temporary impairment losses of $5.1 million recorded in earnings.

During 2Q18 and 2Q17, we recognized an increase (decrease) in earnings of $8.3 million and $(5.9) million, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities related to our fixed index annuities, net of related amortization.  Such amounts include the impacts of changes in market interest rates used to determine the derivative’s estimated fair value.

In 2Q18, we recognized an increase in earnings of $11.0 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.

Statutory (based on non-GAAP measures) and GAAP Capital Information

Our consolidated statutory risk-based capital ratio was estimated at 444% at June 30, 2018, reflecting estimated 2Q18 statutory operating earnings of $70 million and the payment of insurance company dividends to the holding company of $51.5 million during 2Q18 and $71.5 million during the first six months of 2018.

During the second quarter of 2018, we repurchased $60.5 million of common stock under our securities repurchase program.  We repurchased 3.0 million common shares at an average cost of $20.18 per share.  As of June 30, 2018, we had 164.4 million shares outstanding and had authority to repurchase up to an additional $325.1 million of our common stock.  During 2Q18, dividends paid on common stock totaled $16.5 million.

Unrestricted cash and investments held by our holding company were $376 million at June 30, 2018, compared to $397 million at December 31, 2017.

Book value per common share was $27.09 and $29.05 at June 30, 2018 and December 31, 2017, respectively.  Book value per diluted share, excluding accumulated other comprehensive income (loss) (3), increased to $22.62 at June 30, 2018, compared to $21.43 at December 31, 2017.

The debt-to-capital ratio was 17.1 percent and 15.9 percent at June 30, 2018 and December 31, 2017, respectively.  Our debt-to-total capital ratio, excluding accumulated other comprehensive income (6) was 19.6 percent at June 30, 2018 compared to 20.1 percent at December 31, 2017.

Other Announcements

CNO also announced today that its wholly-owned subsidiary, Bankers Life and Casualty Company, has entered into an agreement to cede all of its legacy (prior to 2003) comprehensive and nursing home long-term care policies through 100% indemnity coinsurance.  Please refer to today’s separate news release for additional information.

Conference Call

The Company will host a conference call to discuss second quarter results and the long-term care coinsurance agreement on August 2, 2018 at 1:00 p.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 companies – 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.