CNO Financial Group Reports First Quarter 2019 Results

CARMEL, Ind., April 29, 2019 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE: CNO) today announced that for the quarter ending March 31, 2019, net income was $0.32 per diluted share, compared to $0.50 per diluted share in 1Q18.  CNO also reported that 1Q19 net operating income (1) was $0.41 per diluted share, compared to $0.39 in 1Q18 (as adjusted to remove the earnings from the long-term care business that was ceded in 3Q18).

"For the third consecutive quarter, CNO delivered strong production results in all three of our businesses," said Gary C. Bhojwani, chief executive officer. "The product development, market access and agent force programs that we have steadily implemented over the last four to six quarters continue to drive growth and consumer value."

Highlights

• First-year collected premiums were up 18% from 1Q18
• All health benefit ratios were within - or more favorable - than provided guidance
• Returned $63.4 million to shareholders in the form of share repurchases ($47.0 million) and dividends ($16.4 million)
• Book value per common share was $23.99 at March 31, 2019
• Completed Web Benefits Design acquisition (Read the press release here)

Quarterly Operating Results

	Three months ended
	March 31,
	2019				2018
	(Dollars in millions, except per share data)
Net operating income (1)	$	65.8			$	73.9
Net realized investment gains (losses) from sales and impairments (net of related amortization)	(.7)				.5
Net change in market value of investments recognized in earnings	16.6				(15.7)
Fair value changes in embedded derivative liabilities (net of related amortization)	(29.6)				25.1
Fair value changes related to agent deferred compensation plan	(5.3)				—
Other	1.2				3.3
Non-operating income (loss) before taxes	(17.8)				13.2
Income tax expense (benefit) on non-operating income	(3.8)				2.8
Net non-operating income (loss)	(14.0)				10.4
Net income	$	51.8			$	84.3
Per diluted share:
Net operating income	$	.41			$	.44
Net realized investment gains (losses) from sales and impairments (net of related amortization and taxes)	—				—
Net change in market value of investments recognized in earnings (net of taxes)	.08				(.07)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)	(.15)				.12
Fair value changes related to agent deferred compensation plan (net of taxes)	(.03)				—
Other	.01				.01
Net income	$	.32			$	.50

Please refer to our 1Q2019 Quarterly Financial Supplement for additional information related to the Company's financial and reporting results for the quarter ended March 31, 2019.  Such information was furnished as an exhibit to our Current Report on Form 8-K dated April 29, 2019.

Significant Items Impacting Net Operating Income

In 3Q18, we ceded the Bankers Life legacy long-term care business under a 100% indemnity coinsurance agreement.  In the above table, we have adjusted the operating earnings, excluding significant items, in 1Q18 to remove the earnings of this block.

There were no significant items in 1Q19.  The significant items in 1Q18 included: (i) a $2.3 million release of long-term care reserves (net of the reduction in insurance intangibles) due to the impact of policyholder actions following rate increases; (ii) a $1.1 million out-of-period adjustment which increased reserves on closed block annuities; and (iii) an increase in tax expense of $.3 million.

Non-Operating Items

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.  Net realized investment gains in 1Q18 were $.5 million (net of related amortization).  There were no other-than-temporary impairment losses recognized in 1Q18.

During 1Q19 and 1Q18, we recognized an increase (decrease) in earnings of $16.6 million and $(15.7) million, respectively, due to the net change in market value of investments recognized in earnings.

During 1Q19 and 1Q18, we recognized an increase (decrease) in earnings of $(29.6) million and $25.1 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 1Q19, we recognized a decrease in earnings of $5.3 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 416% at March 31, 2019, reflecting estimated 1Q19 statutory operating income of $83 million and the payment of insurance company dividends to the holding company of $41.0 million during 1Q19.

During the first quarter of 2019, we repurchased $47.0 million of common stock under our securities repurchase program (including $6.0 million of repurchases settled in 2Q19).  We repurchased 2.9 million common shares at an average cost of $16.25 per share.  As of March 31, 2019, we had 160.0 million shares outstanding and had authority to repurchase up to an additional $237.6 million of our common stock.  During 1Q19, dividends paid on common stock totaled $16.4 million.

Unrestricted cash and investments held by our holding company were $230 million at March 31, 2019, compared to $220 million at December 31, 2018.

Book value per common share was $23.99 and $20.78 at March 31, 2019 and December 31, 2018, respectively.  Book value per diluted share, excluding accumulated other comprehensive income (loss) (2), was $19.76 at March 31, 2019, compared to $19.52 at December 31, 2018.

The debt-to-capital ratio was 19.3 percent and 21.4 percent at March 31, 2019 and December 31, 2018, respectively.  Our debt-to-total capital ratio, excluding accumulated other comprehensive income (3) was 22.4 percent at March 31, 2019 compared to 22.3 percent at December 31, 2018.

Other Announcements

CNO also announced today that it has acquired privately-owned Web Benefits Design Corporation, a leading on-line benefits administration firm.  Please refer to today's separate release for additional information.

Conference Call

The Company will host a conference call to discuss results on April 30, 2019 at 10:00 a.m. Eastern Daylight 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.

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 and uncertainties, 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, changes in the health care market 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) changes in capital deployment opportunities; (xix) our ability to maintain effective controls over financial reporting; (xx) our ability to continue to recruit and retain productive agents and distribution partners; (xxi) customer response to new products, distribution channels and marketing initiatives; (xxii) 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; (xxiii) regulatory changes or actions, including: those relating to regulation of the financial affairs of our insurance companies, such as the calculation of risk-based capital and minimum capital requirements, and 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; (xxiv) 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; (xxv) availability and effectiveness of reinsurance arrangements, as well as the impact of any defaults or failure of reinsurers to perform; (xxvi) the performance of third party service providers and potential difficulties arising from outsourcing arrangements; (xxvii) the growth rate of sales, collected premiums, annuity deposits and assets; (xxviii) interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems; (xxix) events of terrorism, cyber attacks, natural disasters or other catastrophic events, including losses from a disease pandemic; (xxx) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; and (xxxi) 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.

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SOURCE CNO Financial Group