CNO Financial Group Reports First Quarter 2017 Results
"Our diversified business model continues to perform, expanding CNO's reach to serve the middle-income market in the
First Quarter 2017 Highlights
- First-year collected premiums:
$345.3 million , up 5% from 1Q16 - Total collected premiums:
$940.0 million , up 5% from 1Q16 - New annualized premium ("NAP") (2) for life and health products:
$91.3 million , down 3% from 1Q16 - Annuity collected premiums:
$257.7 million , up 10% from 1Q16 - Annuity account values:
$8.3 billion , up 3% from 1Q16 - Policies inforce of 3.5 million (including third party policies inforce), up .3% from 1Q16
- Net income per diluted share:
36 cents in 1Q17 compared to25 cents in 1Q16 - Net operating income (1) per diluted share:
34 cents in 1Q17 compared to27 cents in 1Q16 - Book value per common share increased to
$26.77 from$25.82 atDecember 31, 2016 - Book value per diluted share, excluding accumulated other comprehensive income (loss) (3), increased to
$22.31 from$22.02 atDecember 31, 2016 - Unrestricted cash and investments held by our holding company were
$314 million atMarch 31, 2017 compared to$264 million atDecember 31, 2016 - Common stock repurchases of
$43.0 million and dividends of$14.0 million in 1Q17 - Consolidated risk-based capital ratio was estimated at 446% at
March 31, 2017 , reflecting estimated statutory operating earnings of$70 million and insurance company dividends to the holding company of$128.4 million during the first three months of 2017
Quarterly Segment Operating Results
Three months ended |
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|
|||||||
2017 |
2016 |
||||||
(Dollars in millions, |
|||||||
Adjusted EBIT (4): |
|||||||
Bankers Life |
$ |
89.7 |
$ |
77.6 |
|||
Washington National |
23.5 |
26.3 |
|||||
Colonial Penn: |
|||||||
Inforce business (5) |
14.1 |
12.7 |
|||||
New business (5) |
(14.4) |
(19.5) |
|||||
Total Colonial Penn |
(.3) |
(6.8) |
|||||
Long-term care in run-off |
.4 |
— |
|||||
Adjusted EBIT from business segments |
113.3 |
97.1 |
|||||
Corporate Operations, excluding corporate interest expense |
(8.9) |
(8.1) |
|||||
Adjusted EBIT |
104.4 |
89.0 |
|||||
Corporate interest expense |
(11.5) |
(11.4) |
|||||
Operating earnings before taxes |
92.9 |
77.6 |
|||||
Tax expense on operating income |
33.1 |
28.0 |
|||||
Net operating income (1) |
59.8 |
49.6 |
|||||
Net realized investment gains (losses) (net of related amortization) |
7.9 |
(1.0) |
|||||
Fair value changes in embedded derivative liabilities (net of related amortization) |
(4.4) |
(29.5) |
|||||
Fair value changes related to agent deferred compensation plan |
— |
(6.0) |
|||||
Other |
.3 |
(.6) |
|||||
Non-operating income (loss) before taxes |
3.8 |
(37.1) |
|||||
Income tax expense (benefit): |
|||||||
On non-operating income (loss) |
1.3 |
(13.0) |
|||||
Valuation allowance for deferred tax assets |
— |
(20.0) |
|||||
Net non-operating income (loss) |
2.5 |
(4.1) |
|||||
Net income |
$ |
62.3 |
$ |
45.5 |
|||
Per diluted share: |
|||||||
Net operating income |
$ |
.34 |
$ |
.27 |
|||
Net realized investment gains (losses) (net of related amortization and taxes) |
.03 |
— |
|||||
Fair value changes in embedded derivative liabilities (net of related amortization and taxes) |
(.01) |
(.11) |
|||||
Fair value changes related to agent deferred compensation plan (net of taxes) |
— |
(.02) |
|||||
Valuation allowance for deferred tax assets |
— |
.11 |
|||||
Other |
— |
— |
|||||
Net income |
$ |
.36 |
$ |
.25 |
The following table summarizes the financial impact of significant items on our 1Q17 net operating income (dollars in millions, except per share amounts):
Three months ended |
|||||||||||
|
|||||||||||
Actual results |
Significant items |
Excluding |
|||||||||
Net Operating Income (1): |
|||||||||||
Bankers Life |
$ |
89.7 |
$ |
1.7 |
$ |
91.4 |
|||||
Washington National |
23.5 |
1.3 |
24.8 |
||||||||
Colonial Penn |
(.3) |
— |
(.3) |
||||||||
Long-term care in run-off |
.4 |
— |
.4 |
||||||||
Adjusted EBIT from business segments |
113.3 |
3.0 |
116.3 |
||||||||
Corporate Operations, excluding corporate interest expense |
(8.9) |
— |
(8.9) |
||||||||
Adjusted EBIT (4) |
104.4 |
3.0 |
107.4 |
||||||||
Corporate interest expense |
(11.5) |
— |
(11.5) |
||||||||
Operating earnings before taxes |
92.9 |
3.0 |
95.9 |
||||||||
Tax expense on operating income |
33.1 |
1.1 |
34.2 |
||||||||
Net operating income |
$ |
59.8 |
$ |
1.9 |
$ |
61.7 |
|||||
Net operating income per diluted share |
$ |
.34 |
$ |
.01 |
$ |
.35 |
The significant items in 1Q17 included: (i) a
* See page 8 for the table of Net Operating Income Excluding Significant Items for the three months ended
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 1Q17 were
Total collected premiums in 1Q17 were
Pre-tax operating earnings in 1Q17 compared to 1Q16 were up
The long-term care interest-adjusted benefit ratio was 72.5 percent in 1Q17, lower than the 1Q16 ratio of 75.3 percent. The 1Q17 and 1Q16 ratios were favorably impacted by
Pre-tax operating earnings in 1Q17 reflected a
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 1Q17 were
Total collected premiums from the segment's supplemental health block were up 6 percent in 1Q17 compared to 1Q16.
Pre-tax operating earnings in 1Q17 compared to 1Q16 were down
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 1Q17 were
Total collected premiums were up 6 percent in 1Q17 compared to 1Q16, reflecting both recent sales activity and steady persistency.
The pre-tax operating loss in 1Q17 was
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 2017 in the range of
Long-term care in run-off only includes the long-term care business that was recaptured in
Corporate Operations includes our investment advisory subsidiary and corporate expenses.
Pre-tax losses in 1Q17 were
Non-Operating Items
Net realized investment gains in 1Q17 were
During 1Q17 and 1Q16, we recognized decreases in earnings of
During 1Q16, we recognized a decrease in earnings of
In 1Q16, we reduced the valuation allowance for deferred tax assets by
Statutory (based on non-GAAP measures) and GAAP Capital Information
Our consolidated statutory risk-based capital ratio was estimated at 446% at
During the first quarter of 2017, we repurchased
Unrestricted cash and investments held by our holding company were
Book value per common share was
The debt-to-capital ratio was 16.5 percent and 16.9 percent at
Conference Call
The Company will host a conference call to discuss results on
About
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CONSOLIDATED BALANCE SHEET |
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(Dollars in millions) |
|||||||
(unaudited) |
|||||||
|
|
||||||
ASSETS |
|||||||
Investments: |
|||||||
Fixed maturities, available for sale, at fair value (amortized cost: |
$ |
21,378.4 |
$ |
21,096.2 |
|||
Equity securities at fair value (cost: |
587.8 |
584.2 |
|||||
Mortgage loans |
1,788.5 |
1,768.0 |
|||||
Policy loans |
112.4 |
112.0 |
|||||
Trading securities |
341.1 |
363.4 |
|||||
Investments held by variable interest entities |
1,514.5 |
1,724.3 |
|||||
Other invested assets |
665.2 |
589.5 |
|||||
Total investments |
26,387.9 |
26,237.6 |
|||||
Cash and cash equivalents - unrestricted |
530.2 |
478.9 |
|||||
Cash and cash equivalents held by variable interest entities |
354.5 |
189.3 |
|||||
Accrued investment income |
258.2 |
239.6 |
|||||
Present value of future profits |
388.8 |
401.8 |
|||||
Deferred acquisition costs |
1,028.5 |
1,044.7 |
|||||
Reinsurance receivables |
2,241.1 |
2,260.4 |
|||||
Income tax assets, net |
697.8 |
789.7 |
|||||
Assets held in separate accounts |
4.6 |
4.7 |
|||||
Other assets |
535.8 |
328.5 |
|||||
Total assets |
$ |
32,427.4 |
$ |
31,975.2 |
|||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
Liabilities: |
|||||||
Liabilities for insurance products: |
|||||||
Policyholder account balances |
$ |
10,975.1 |
$ |
10,912.7 |
|||
Future policy benefits |
11,057.2 |
10,953.3 |
|||||
Liability for policy and contract claims |
498.1 |
500.6 |
|||||
Unearned and advanced premiums |
292.8 |
282.5 |
|||||
Liabilities related to separate accounts |
4.6 |
4.7 |
|||||
Other liabilities |
798.0 |
611.4 |
|||||
Investment borrowings |
1,647.2 |
1,647.4 |
|||||
Borrowings related to variable interest entities |
1,634.2 |
1,662.8 |
|||||
Notes payable – direct corporate obligations |
913.4 |
912.9 |
|||||
Total liabilities |
27,820.6 |
27,488.3 |
|||||
Commitments and Contingencies |
|||||||
Shareholders' equity: |
|||||||
Common stock ( |
1.7 |
1.7 |
|||||
Additional paid-in capital |
3,177.1 |
3,212.1 |
|||||
Accumulated other comprehensive income |
729.6 |
622.4 |
|||||
Retained earnings |
698.4 |
650.7 |
|||||
Total shareholders' equity |
4,606.8 |
4,486.9 |
|||||
Total liabilities and shareholders' equity |
$ |
32,427.4 |
$ |
31,975.2 |
|
|||||||
CONSOLIDATED STATEMENT OF OPERATIONS |
|||||||
(Dollars in millions, except per share data) |
|||||||
(unaudited) |
|||||||
Three months ended |
|||||||
|
|||||||
2017 |
2016 |
||||||
Revenues: |
|||||||
Insurance policy income |
$ |
663.8 |
$ |
644.4 |
|||
Net investment income: |
|||||||
General account assets |
312.0 |
291.0 |
|||||
Policyholder and other special-purpose portfolios |
75.2 |
11.7 |
|||||
Realized investment gains (losses): |
|||||||
Net realized investment gains (losses), excluding impairment losses |
16.3 |
9.1 |
|||||
Impairment losses recognized (a) |
(8.4) |
(10.0) |
|||||
Total realized gains (losses) |
7.9 |
(.9) |
|||||
Fee revenue and other income |
11.8 |
14.2 |
|||||
Total revenues |
1,070.7 |
960.4 |
|||||
Benefits and expenses: |
|||||||
Insurance policy benefits |
669.3 |
619.0 |
|||||
Interest expense |
30.8 |
27.7 |
|||||
Amortization |
63.5 |
62.1 |
|||||
Other operating costs and expenses |
210.4 |
211.1 |
|||||
Total benefits and expenses |
974.0 |
919.9 |
|||||
Income before income taxes |
96.7 |
40.5 |
|||||
Income tax expense (benefit): |
|||||||
Tax expense on period income |
34.4 |
15.0 |
|||||
Valuation allowance for deferred tax assets |
— |
(20.0) |
|||||
Net income |
$ |
62.3 |
$ |
45.5 |
|||
Earnings per common share: |
|||||||
Basic: |
|||||||
Weighted average shares outstanding |
173,431,000 |
180,350,000 |
|||||
Net income |
$ |
.36 |
$ |
.25 |
|||
Diluted: |
|||||||
Weighted average shares outstanding |
175,065,000 |
182,128,000 |
|||||
Net income |
$ |
.36 |
$ |
.25 |
______________
(a) No portion of the other-than-temporary impairments recognized in the periods was included in accumulated other comprehensive income.
|
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NET OPERATING INCOME EXCLUDING SIGNIFICANT ITEMS* |
|||||||||||
(Dollars in millions, except per share data) |
|||||||||||
Three months ended |
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|
|||||||||||
Actual results |
Significant items |
Excluding |
|||||||||
Net Operating Income (1): |
|||||||||||
Bankers Life |
$ |
77.6 |
$ |
(7.7) |
$ |
69.9 |
|||||
Washington National |
26.3 |
— |
26.3 |
||||||||
Colonial Penn |
(6.8) |
— |
(6.8) |
||||||||
Adjusted EBIT from business segments |
97.1 |
(7.7) |
89.4 |
||||||||
Corporate Operations, excluding corporate interest expense |
(8.1) |
3.0 |
(5.1) |
||||||||
Adjusted EBIT (4) |
89.0 |
(4.7) |
84.3 |
||||||||
Corporate interest expense |
(11.4) |
— |
(11.4) |
||||||||
Operating earnings before taxes |
77.6 |
(4.7) |
72.9 |
||||||||
Tax expense on operating income |
28.0 |
(1.7) |
26.3 |
||||||||
Net operating income |
$ |
49.6 |
$ |
(3.0) |
$ |
46.6 |
|||||
Net operating income per diluted share |
$ |
.27 |
$ |
(.01) |
$ |
.26 |
* This table summarizes the financial impact of significant items on our 1Q16 net operating income. The significant items in 1Q16 included: (i) the
|
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FIRST-YEAR COLLECTED PREMIUMS |
|||||||
(Dollars in millions) |
|||||||
Three months ended |
|||||||
|
|||||||
2017 |
2016 |
||||||
Bankers Life: |
|||||||
|
$ |
17.5 |
$ |
18.4 |
|||
Long-term care |
4.2 |
4.4 |
|||||
Supplemental health |
1.4 |
1.3 |
|||||
Other health |
.2 |
— |
|||||
Life |
31.9 |
38.6 |
|||||
Annuity |
255.9 |
231.8 |
|||||
Total |
311.1 |
294.5 |
|||||
Washington National: |
|||||||
Supplemental health and other health |
19.1 |
18.5 |
|||||
Life |
1.4 |
1.6 |
|||||
Annuity |
— |
— |
|||||
Total |
20.5 |
20.1 |
|||||
Colonial Penn: |
|||||||
Life |
13.7 |
14.0 |
|||||
Total |
13.7 |
14.0 |
|||||
Total first-year collected premiums from segments |
$ |
345.3 |
$ |
328.6 |
TOTAL COLLECTED PREMIUMS |
|||||||
(Dollars in millions) |
|||||||
Three months ended |
|||||||
|
|||||||
2017 |
2016 |
||||||
Bankers Life: |
|||||||
|
$ |
191.7 |
$ |
186.9 |
|||
Long-term care |
117.0 |
119.6 |
|||||
Supplemental health |
5.7 |
5.0 |
|||||
Other health |
1.6 |
1.6 |
|||||
Life |
114.3 |
114.0 |
|||||
Annuity |
257.5 |
233.6 |
|||||
Total |
687.8 |
660.7 |
|||||
Washington National: |
|||||||
Supplemental health and other health |
150.6 |
141.6 |
|||||
|
14.4 |
16.4 |
|||||
Life |
7.9 |
7.2 |
|||||
Annuity |
.2 |
.3 |
|||||
Total |
173.1 |
165.5 |
|||||
Colonial Penn: |
|||||||
Life |
74.0 |
69.5 |
|||||
|
.5 |
.6 |
|||||
Total |
74.5 |
70.1 |
|||||
Long-term care in run-off: |
|||||||
Long-term care |
4.6 |
N/A |
|||||
Total |
4.6 |
N/A |
|||||
Total collected premiums from segments |
$ |
940.0 |
$ |
896.3 |
|
|||||||
NEW ANNUALIZED PREMIUMS FOR LIFE AND HEALTH PRODUCTS (2) |
|||||||
(Dollars in millions) |
|||||||
Three months ended |
|||||||
|
|||||||
2017 |
2016 |
||||||
Bankers Life: |
|||||||
|
$ |
17.7 |
$ |
16.4 |
|||
Long-term care |
6.9 |
6.1 |
|||||
Supplemental health and other health |
1.9 |
1.5 |
|||||
Life |
18.4 |
22.4 |
|||||
Total |
44.9 |
46.4 |
|||||
Washington National: |
|||||||
Supplemental health |
22.9 |
22.0 |
|||||
Life |
1.7 |
1.4 |
|||||
Total |
24.6 |
23.4 |
|||||
Colonial Penn: |
|||||||
Life |
21.8 |
24.1 |
|||||
Total |
21.8 |
24.1 |
|||||
Total new annualized premiums |
$ |
91.3 |
$ |
93.9 |
ANNUITY ACCOUNT VALUES |
|||||||
(Dollars in millions) |
|||||||
|
|||||||
2017 |
2016 |
||||||
Bankers Life |
$ |
7,869.7 |
$ |
7,586.1 |
|||
Washington National |
404.5 |
454.2 |
|||||
Total |
$ |
8,274.2 |
$ |
8,040.3 |
BENEFIT RATIOS ON MAJOR HEALTH LINES OF BUSINESS |
|||||
Three months ended |
|||||
|
|||||
2017 |
2016 |
||||
Bankers Life: |
|||||
|
|||||
Earned premium |
|
|
|||
Benefit ratio (7) |
70.0 |
% |
71.1 |
% |
|
Long-term care: |
|||||
Earned premium |
|
|
|||
Benefit ratio (7) |
132.6 |
% |
132.9 |
% |
|
Interest-adjusted benefit ratio (a non-GAAP measure) (8) |
72.5 |
% |
75.3 |
% |
|
Washington National: |
|||||
|
|||||
Earned premium |
|
|
|||
Benefit ratio (7) |
66.8 |
% |
65.1 |
% |
|
Supplemental health: |
|||||
Earned premium |
|
|
|||
Benefit ratio (7) |
84.6 |
% |
81.2 |
% |
|
Interest-adjusted benefit ratio (a non-GAAP measure) (8) |
60.6 |
% |
57.7 |
% |
|
Long-term care in run-off: |
|||||
Long-term care: |
|||||
Earned premium |
|
N/A |
|||
Benefit ratio (7) |
286.5 |
% |
N/A |
||
Interest-adjusted benefit ratio (a non-GAAP measure) (8) |
128.1 |
% |
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 related to the agent deferred compensation plan, net of taxes, (iv) changes in the valuation allowance for deferred tax assets; and (v) other non-operating items consisting primarily of 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 table on page 2. Additional information concerning this non-GAAP measure is included in our periodic filings with the |
(2) |
Measured by new annualized premium for life and health products, which includes 10% of single premium whole life deposits and 100% of all other premiums (excluding annuities). |
(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 related to the agent deferred compensation plan, 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 table on page 2. |
(5) |
Management believes that an analysis of Adjusted EBIT for Colonial Penn, separated between inforce 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 inforce 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 inforce 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 |
Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in this press release relative to markets for
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SOURCE
Chemed Reports First-Quarter 2017 Results
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