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CNO Financial Group, Inc.$22.32($.16)(.71%)

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 CNO Financial Group Reports First Quarter 2020 Results
   Tuesday, May 05, 2020 5:07:00 PM ET

CARMEL, Ind., May 5, 2020 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE: CNO) today announced first quarter 2020 results.

Financial market volatility in March 2020 resulted in a net loss of $21.2 million, or $.15 per diluted share in 1Q20, compared to net income of $51.8 million, or $0.32 per diluted share in 1Q19.  Our 1Q20 net operating income (1) was $84.3 million, or $.58 per diluted share, compared to $65.8 million, or $0.41 per diluted share in 1Q19.

"As the global COVID-19 crisis unfolds, never before have we been so forcefully reminded of the critical role that CNO plays in safeguarding the hopes, dreams and financial security of middle-income Americans," said Gary C. Bhojwani, chief executive officer. "In this tragedy, we recognize and embrace our obligation to help those who count on us. The health, safety and financial security of our associates, agents, consumers and community continues to be our priority."



"From the onset of the pandemic, CNO implemented our business continuity plan that transitioned nearly the entire company to remote working arrangements. I wish to thank the more than 3,000 associates and 5,000 exclusive agents for their incredible dedication and hard work that has enabled the company to support our clients during these difficult times."

"Our solid first quarter operating results built on our 2019 performance," continued Bhojwani. "We posted our highest ever operating EPS. Our performance reflected significant growth in health and life production coupled with stable margins and rigorous expense control. Our GAAP net income was impacted by a variety of non-operating and accounting factors."

"Sales were disrupted only late in the quarter as consumers and employers paused purchase activity when the  pandemic response deepened. While it is too early to predict the full impact of the COVID-19 crisis on CNO and the country, our financial position remains strong and our business model is resilient. We expect to effectively manage the near-term disruption and to emerge from the crisis even stronger."

Highlights

  • Net loss of $21.2 million compared to net income of $51.8 million in 1Q19, reflecting non-operating items, including the impact of the new credit loss standard
  • Operating (1) EPS increased 41% from 1Q19 to a record $0.58
  • Life and health sales up 7% from 1Q19; insurance product margin up 1%
  • Continued strong cash flow generation, reflecting 98% net operating income conversion
  • Returned $99.2 million to shareholders in the form of share repurchases ($83.0 million) and dividends ($16.2 million); reduced weighted average share count by 10% since 1Q19
  • Generated return on equity (ROE) of 7.8%; operating ROE, as adjusted (6), of 11.1%

FINANCIAL SUMMARY
Quarter End
(Amounts in millions, except per share data)
(Unaudited)

Net operating income, a non-GAAP(a) financial measure, is used consistently by CNO's management to evaluate the operating performance of the Company and is a measure commonly used in the life insurance industry.  It differs from net income primarily because it excludes certain non-operating items such as realized investment gains (losses), changes in fair values of embedded derivatives, equity securities and the liability for a deferred compensation plan, and certain significant and unusual items included in net income.  Management believes an analysis of net operating income is important in understanding the profitability and operating trends of the Company's business.  Net income is the most directly comparable GAAP measure.


































































































































































































 

FINANCIAL SUMMARY (continued)
Management vs. GAAP Measures
(Dollars in millions, except per share data)
(Unaudited)

Shareholders' equity, excluding accumulated other comprehensive income, and book value per share, excluding accumulated other comprehensive income, are non-GAAP measures that are utilized by management to view the business without the effect of accumulated other comprehensive income which is primarily attributable to fluctuations in interest rates associated with fixed maturities, available for sale.  Management views the business in this manner because the Company has the ability and generally, the intent, to hold investments to maturity and meaningful trends can be more easily identified without the fluctuations.




























































 

CONTINUING INSURANCE OPERATIONS
Comparing 1Q2020 with 1Q2019

The annuity segment accounted for 31 percent of the Company's margin for the quarter.

Annuity premiums collected decreased 7 percent, reflecting pricing discipline, while annuity account values increased 8 percent.

Health products accounted for 39 percent of CNO's insurance margin for the quarter and 57 percent of insurance policy income.

Life products accounted for 23 percent of the Company's insurance margin for the quarter and 31 percent of insurance policy income.

Long-term care products accounted for 7 percent of CNO's insurance margin for the quarter and 11 percent of insurance policy income.

Sales of health products increased by 11 percent, sales of life products were up 4 percent and sales of long-term care products were up 2 percent.


















 

 


















 

 
















 

INSURANCE MARGIN

(Amounts in millions, except per share data)
(Unaudited)

Insurance margin is management's measure of profitability of its annuity, health, life and long-term care segments' performance and consists of premiums plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs. Income from insurance products is the sum of the insurance margins of the annuity, health, life and long-term care segments, less allocated insurance administrative expenses.  It excludes the fee income segment, excess investment income, parent company expenses and income taxes.  Management believes this information helps provide a better understanding of the business and a more meaningful analysis of our operations. Insurance income, a non-GAAP measure, is a component of net operating income, which is reconciled to net income in the Financial Summary section above.

















































































































































 

 









































































 

 

























 
















 
















 

 


















































 
















 
















 


















 

 

































 




















 




















 

 






















 

INVESTMENTS
INVESTMENT INCOME NOT ALLOCATED TO PRODUCT LINES
(Dollars in millions, except per share data)

Management uses investment income not allocated to product lines as the measure to evaluate the performance of the investment segment.  It is defined as net investment income less the investment income allocated to our product segments and interest expense on debt.  We also view investment income not allocated to product lines per diluted share as an important and useful measure to evaluate performance of the investment segment as it takes into consideration our share repurchase program.
















































 

INVESTMENT PORTFOLIO
(Dollars in millions)

The composition of the investment portfolio at March 31, 2020 is as follows:











Fixed maturities, available for sale, at amortized cost by asset class as of March 31, 2020 are as follows:
































The fair value of CNO's available for sale fixed maturity portfolio was $20.4 billion compared with an amortized cost of $19.4 billion. Net unrealized gains were comprised of gross unrealized gains of $1.6 billion and gross unrealized losses of $657 million.  The allowance for credit losses was $20 million at March 31, 2020.

At amortized cost and fair value, 90 percent and 91 percent of fixed maturities, available for sale, were rated "investment grade", respectively.

Acquisitions of fixed maturity investments during the quarter totaled $2.0 billion.  Comparable information for acquisitions of fixed maturity investments is as follows:










Non-Operating Items
Net realized investment losses in 1Q20 were $63.7 million (net of related amortization) including other-than-temporary impairment losses of $8.1 million and the change in allowance for credit losses of $47.3 million which were recorded in earnings.  Net realized investment losses in 1Q19 were $.7 million (net of related amortization) including other-than-temporary impairment losses of $2.2 million which were recorded in earnings.

During 1Q20 and 1Q19, we recognized an increase (decrease) in earnings of $(48.4) million and $16.6 million, respectively, due to the net change in market value of investments recognized in earnings.

During 1Q20 and 1Q19, we recognized a decrease in earnings of $66.7 million and $29.6 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 amounts include the impacts of changes in market interest rates used to determine the derivative's estimated fair value.

During 1Q20, we recognized a $34.0 million income tax benefit related to certain provisions of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act which permitted the carryback of net operating losses to prior periods.

Statutory (based on non-GAAP measures) and GAAP Capital Information
Our consolidated statutory risk-based capital ratio was estimated at 406% at March 31, 2020, reflecting estimated 1Q20 statutory operating income of $134 million and the payment of insurance company dividends to the holding company of $67.8 million.  Statutory operating income and capital and surplus were favorably impacted by $99 million and $53 million, respectively, related to certain provisions in the CARES Act.

During the first quarter of 2020, we repurchased $83.0 million of common stock under our securities repurchase program.  We repurchased 5.1 million common shares at an average cost of $16.33 per share.  As of March 31, 2020, we had 143.6 million shares outstanding and had authority to repurchase up to an additional $449.3 million of our common stock.  During 1Q20, dividends paid on common stock totaled $16.2 million.

Unrestricted cash and investments held by our holding company were $168 million at March 31, 2020, compared to $187 million at December 31, 2019.

Book value per common share was $26.22 at March 31, 2020 compared to $31.58 at December 31, 2019.  Book value per diluted share, excluding accumulated other comprehensive income (loss) (2), was $22.03 at March 31, 2020, compared to $22.09 at December 31, 2019.

The debt-to-capital ratio was 20.8 percent and 17.5 percent at March 31, 2020 and December 31, 2019, respectively.  Our debt-to-total capital ratio, excluding accumulated other comprehensive income (3) was 23.8 percent at March 31, 2020 compared to 23.0 percent at December 31, 2019.

Return on equity for the trailing four quarters ended March 31, 2020 and 2019, was 7.8% and (8.9)%, respectively.  Operating return, excluding significant items, on equity, excluding accumulated other comprehensive income and net operating loss carryforwards (6) for the trailing four quarters ended March 31, 2020 and 2019, was 11.1% and 10.5%, respectively.

In this news release, CNO includes non-GAAP measures to enhance investors' understanding of management's view of the business.  The non-GAAP measures are not a substitute for GAAP, but rather a supplement to increase transparency by providing broader perspective.  CNO's definitions of non-GAAP measures may differ from other companies' definitions.  More detailed information including various GAAP and non-GAAP measurements are located at CNOinc.com in the Investors section under SEC Filings.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS:

This press release may contain forward-looking statements within the meaning of federal securities laws.  These prospective statements reflect management's current expectations, but are not guarantees of future performance.  Accordingly, please refer to CNO's cautionary statement regarding forward-looking statements, and the business environment in which the Company operates, contained in the Company's Form 10-K for the year ended December 31, 2019 on file with the Securities and Exchange Commission and on the Company's website at CNOinc.com in the Investors section.  In addition to the factors set forth in the Form 10-K cautionary statement regarding forward-looking statements, the impact of the COVID-19 pandemic on our business, financial position, results of operations, liquidity and capital resources, and overall business operations may cause actual results to be materially different than those contemplated by the forward-looking statements. CNO specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise.

EARNINGS RELEASE CONFERENCE CALL WEBCAST:

The Company will host a conference call to discuss results on May 6, 2020 at 1:00 p.m. Eastern Time.  During the call, we will be referring to a presentation that will be available at the Investors section of the company's website.

To participate by dial-in, please dial (833) 513-0548, or (236) 714-2213 for international participants, at least five minutes before the call start time. The operator will ask you to identify yourself and your company, and to provide the conference ID "4496705."

For those investors who prefer to listen to the call online, we will be broadcasting the call live via webcast.  The event can be accessed through the Investors section of the company's website: ir.CNOinc.com .  Participants should go to the website at least 15 minutes before the event to register and download any necessary audio software.



























































 

 



















































 




























































































The following summarizes: (i) operating earnings; (ii) significant items; (iii) operating earnings, excluding significant items; and (iv) net income (loss) (dollars in millions):

























































































































A reconciliation of pretax operating earnings (a non-GAAP financial measure) to net income (loss) is as follows (dollars in millions):



































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):




















































































































































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):




















 

Cision View original content:http://www.prnewswire.com/news-releases/cno-financial-group-reports-first-quarter-2020-results-301053403.html

SOURCE CNO Financial Group, Inc.



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