CNO
$17.98
Cno Financial Group
($.02)
(.11%)
Earnings Details
2nd Quarter June 2022
Monday, August 1, 2022 4:30:00 PM
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Summary

Cno Financial Group Beats

Cno Financial Group (CNO) reported 2nd Quarter June 2022 earnings of $0.85 per share on revenue of $855.0 million. The consensus earnings estimate was $0.47 per share. The Earnings Whisper number was $0.45 per share. Revenue fell 20.3% compared to the same quarter a year ago.

CNO Financial Group Inc is a holding company for a group of insurance companies. The Company through its subsidiaries develops, markets and administers supplemental health insurance, annuity, individual life insurance and other insurance products.

Results
Reported Earnings
$0.85
Earnings Whisper
$0.45
Consensus Estimate
$0.47
Reported Revenue
$855.0 Mil
Revenue Estimate
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

CNO Financial Group Reports Second Quarter 2022 Results

Strong second quarter with earnings per share up 100% and operating earnings per share up 29%

CARMEL, Ind., Aug. 1, 2022 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE: CNO) today announced that for the quarter ended June 30, 2022, net income was $136.1 million, or $1.16 per diluted share, compared to $78.0 million, or $0.58 per diluted share, in 2Q21. Net operating income (1) in 2Q22 was $100.1 million, or $0.85 per diluted share, compared to $89.1 million, or $0.66 per diluted share, in 2Q21.

"CNO posted another quarter of strong earnings," said Gary C. Bhojwani, chief executive officer. "Our annuities, direct-to-consumer and worksite businesses performed well in the quarter. We also saw a sharp increase in new money rates, signaling a positive trend in our earned yields.  CNO's balance sheet is solid, and we remain well-positioned to continue navigating the current economic uncertainty from a position of strength."

Second Quarter 2022 Highlights

  • Earnings per diluted share of $1.16 in 2Q22, up from $0.58 in 2Q21
  • Operating (1) EPS of $0.85 in 2Q22, up 29% from 2Q21; up 3% excluding significant items in 2Q22 and 2Q21
  • Net investment income up 8% from 2Q21
  • Total new annualized premiums (NAP) (4) down 5% from 2Q21
  • Direct-to-consumer life insurance NAP (4) up 9% from 2Q21
  • Worksite Division NAP (4) up 33% from 2Q21
  • Annuity collected premiums up 26% from 2Q21
  • Returned $76.5 million to shareholders in the form of share repurchases ($60.0 million) and dividends ($16.5 million); reduced weighted average share count by 12% since 2Q21
  • Return on equity (ROE) of 10.3%; operating ROE, as adjusted (6), of 11.5%

 

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 net investment gains (losses), changes in fair values of embedded derivatives 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.



Per diluted share









Quarter ended


Quarter ended


June 30,


June 30,


2022



2021


%
change


2022



2021


%
change















Income from insurance products (b)

$         0.47



$           0.63


(25)


$    55.1



$    85.0


(35)

Fee income

0.03



0.05


(40)


3.2



6.6


(52)

Investment income not allocated to product lines (c)

0.58



0.36


61


68.5



47.8


43

Expenses not allocated to product lines (d)

0.02



(0.18)


(111)


2.9



(23.8)


(112)

Operating earnings before taxes

1.10



0.86




129.7



115.6



Income tax expense on operating income

(0.25)



(0.20)


25


(29.6)



(26.5)


12

Net operating income (1)

0.85



0.66


29


100.1



89.1


12

Net realized investment gains (losses) from sales, impairments and change in allowance for credit losses (net of related amortization)

(0.22)



0.18




(26.1)



24.3



Net change in market value of investments recognized in earnings

(0.19)



0.04




(21.7)



5.7



Fair value changes in embedded derivative liabilities (net of related amortization)

0.68



(0.33)




79.7



(44.9)



Other

0.12



0.01




13.8



0.9



Non-operating income (loss) before taxes

0.39



(0.10)




45.7



(14.0)



Income tax benefit (expense) on non-operating income

(0.08)



0.02




(9.7)



2.9



Net non-operating income (loss)

0.31



(0.08)




36.0



(11.1)



Net income

$         1.16



$           0.58




$  136.1



$     78.0

















Weighted average diluted shares outstanding

117.3



133.8












(a)

GAAP is defined as accounting principles generally accepted in the United States of America.

(b)

Income from insurance products is the sum of the insurance margins of the annuity, health and life segments, less allocated insurance administrative expenses.  It excludes the fee income segment, excess investment income, parent company expenses and income taxes.  Insurance margin is management's measure of the profitability of its annuity, health and life segments' performance and consists of premiums plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs.

(c)

Investment income not allocated to product lines is defined as net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable and investment borrowings; (iv) expenses related to the funding agreement-backed notes ("FABN") program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income.

(d)

Expenses not allocated to product lines in the second quarter of 2022 includes the $22.5 million favorable impact of an experience refund related to a reinsurance agreement.

 

 

FINANCIAL SUMMARY (continued)

Management vs. GAAP Measures

(Dollars in millions, except per share data)

(Unaudited)


Shareholders' equity, excluding accumulated other comprehensive income (loss), and book value per share, excluding accumulated other comprehensive income (loss), are non-GAAP measures that are utilized by management to view the business without the effect of accumulated other comprehensive income (loss) 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.  In addition, shareholders' equity excludes net operating loss carryforwards in our non-GAAP return on equity measures as such assets are not discounted and, accordingly, will not provide a return to shareholders until after it is realized as a reduction to taxes that would otherwise be paid.  Management believes that excluding this value from the equity component of this measure enhances the understanding of the effect these non-discounted assets have on operating returns.




Quarter ended


June 30,


2022


2021





Trailing twelve months return on equity (a)

10.3 %


9.1 %

Trailing twelve months operating return on equity, excluding accumulated other comprehensive income (loss)
and net operating loss carryforwards (a non-GAAP financial measure) (6)

11.5 %


12.3 %

Trailing twelve months operating return, excluding significant items, on equity, excluding accumulated other
comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) (6)

10.3 %


12.4 %









Shareholders' equity

$     2,212.0


$    5,324.0

Accumulated other comprehensive (income) loss

1,165.0


(1,995.5)





Shareholders' equity, excluding accumulated other comprehensive income (loss)

3,377.0


3,328.5

Net operating loss carryforwards

(214.7)


(292.9)

Shareholders' equity, excluding accumulated other comprehensive income (loss) and net operating loss
carryforwards

$     3,162.3


$    3,035.6





Book value per diluted share

$        19.04


$       40.47

Accumulated other comprehensive (income) loss

10.02


(15.17)





Book value per diluted share, excluding accumulated other comprehensive income (loss) (a non-GAAP financial measure) (2)

$        29.06


$       25.30



(a)

  Calculated using average shareholders' equity for the measurement period.

 

INSURANCE OPERATIONS 

Annuity products accounted for 18 percent of the Company's margin for the quarter.

Annuity premiums collected increased 26 percent and annuity account values increased 8 percent in 2Q22 compared to 2Q21.

Health products accounted for 55 percent of the Company's insurance margin for the quarter and 64 percent of insurance policy income.

Life products accounted for 27 percent of the Company's insurance margin for the quarter and 35 percent of insurance policy income.

Sales of health products were down 10 percent and sales of life products were down 2 percent in 2Q22 compared to 2Q21.

ANNUITY COLLECTED PREMIUMS

(Dollars in millions)

(Unaudited)



Quarter ended June 30,




2022


2021


%
change

Annuity collected premiums

$             435.0


$             344.3


26




INSURANCE POLICY INCOME

(Dollars in millions)

(Unaudited)



Quarter ended June 30,




2022


2021


%
change

Annuity

$                 5.8


$                 4.3


35

Health

403.5


415.4


(3)

Life

216.3


210.8


3

Total insurance policy income

$             625.6


$             630.5


(1)




SALES MEASURED AS NEW ANNUALIZED PREMIUMS FOR

LIFE AND HEALTH PRODUCTS

(Dollars in millions)

(Unaudited)



Quarter ended June 30,




2022


2021


%
change

Health

$               37.4


$               41.5


(10)

Life

51.4


52.3


(2)

Total new annualized premiums (4)

$               88.8


$               93.8


(5)

 

 

INSURANCE MARGIN

(Amounts in millions, except per share data)

(Unaudited)


Insurance margin is management's measure of profitability of its annuity, health and life 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 and life segments, less allocated insurance administrative expenses.  It excludes the fee income segment, investment income not allocated to product lines, expenses not allocated to product lines 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.




Quarter ended


June 30,
2022


% of
insurance
policy
income



June 30,
2021


% of
insurance
policy
income


%
change

Margin











Annuity interest margin

$               37.1





$               66.0




(44)

Life insurance interest margin

1.8





1.6




13

Total interest-sensitive margin

38.9





67.6




(42)

Insurance margin











Health

113.4


28



120.9


29


(6)

Life (a)

55.0


25



38.1


18


44

Total other insurance margin

168.4


27



159.0


25


6












Total insurance margin

207.3





226.6
















Allocated expenses

(152.2)





(141.6)





Income from insurance products

$               55.1





$               85.0
















Per diluted share

$               0.47





$               0.63





Weighted average diluted shares

117.3





133.8







(a)

Net of $22.6 million and $25.0 million of non-deferred television advertising expense related to our direct distribution channel in the 2022 and 2021 periods, respectively.

       

Total allocated expenses were $152.2 million, up 7 percent from the year-ago quarter.

Total insurance margins were favorably impacted by approximately $22 million and $21 million in the quarters ended June 30, 2022 and 2021, respectively, due to the estimated impacts of COVID-19.

 

ANNUITY RESULTS BY PRODUCT TYPE 

(Dollars in millions) 

(Unaudited) 


Annuity margin


Quarter ended


June 30,


2022


2021

Fixed index annuities

$           25.8


$            55.3

Fixed interest annuities

7.4


9.5

Other annuities

3.9


1.2

Total

$           37.1


$            66.0





Annuity collected premiums


Quarter ended


June 30,


2022


2021

Annuity collected premiums

$         435.0


$          344.3





Average net insurance liabilities (5)


Quarter ended


June 30,


2022


2021

Fixed index annuities

$       8,420.5


$       7,643.4

Fixed interest annuities

1,713.6


1,899.5

Other annuities

481.6


506.8

Total

$     10,615.7


$     10,049.7





Margin/average net insurance liabilities (a)


Quarter ended


June 30,


2022


2021

Fixed index annuities

1.23 %


2.89 %

Fixed interest annuities

1.73 %


2.00 %

Other annuities

3.24 %


0.95 %

Total

1.40 %


2.63 %

 



(a)

Defined as annualized quarterly annuity margin divided by average net insurance liabilities (5).

 

Total annuity margins were favorably impacted by approximately $1 million and $2 million in the quarters ended June 30, 2022 and 2021, respectively, due to the estimated impacts of COVID-19.

 

HEALTH INSURANCE RESULTS BY PRODUCT TYPE 

(Dollars in millions) 

(Unaudited) 



Health margin


Quarter ended


June 30,


2022


2021




Amount


% of
insurance
policy
income


Amount


% of
insurance
policy
income


%
change

Supplemental health and other health

$           52.3


30


$           47.5


28


10

Medicare supplement

36.4


22


45.7


25


(20)

Long-term care

24.7


37


27.7


42


(11)

Total

$         113.4


28


$         120.9


29


(6)

 

Health insurance policy income


Quarter ended




June 30,




2022


2021


%
change

Supplemental health and other health

$         172.0


$         170.0


1

Medicare supplement

165.1


179.7


(8)

Long-term care

66.4


65.7


1

Total

$         403.5


$         415.4


(3)



Health NAP (4)


Quarter ended




June 30,




2022


2021


%
change

Supplemental health and other health

$           24.4


$           25.7


(5)

Medicare supplement

6.9


8.8


(22)

Long-term care

6.1


7.0


(13)

Total

$           37.4


$           41.5


(10)

 

Total health margins were favorably impacted by approximately $21 million and $30 million in the quarters ended June 30, 2022 and 2021, respectively, due to the estimated impacts of COVID-19.

 

LIFE INSURANCE RESULTS BY PRODUCT TYPE 

(Dollars in millions) 

(Unaudited) 



Life margin


Quarter ended




June 30,




2022


2021




Amount


% of
insurance
policy
income


Amount


% of
insurance
policy
income


%
change

Life insurance interest margin

$             1.8




$             1.6




13

Life insurance margin:










Traditional life

35.0


20


22.9


14


53

Interest sensitive life

20.0


46


15.2


37


32

Subtotal

55.0


25


38.1


18


44

Total margin

$           56.8




$           39.7




43

 

Life insurance policy income


Quarter ended




June 30,




2022


2021


%
change

Traditional life

$         172.5


$         169.4


2

Interest sensitive life

43.8


41.4


6

Total

$         216.3


$         210.8


3



Life NAP (4)


Quarter ended




June 30,




2022


2021


%
change

Traditional life

$           44.3


$           43.9


1

Interest sensitive life

7.1


8.4


(15)

Total

$           51.4


$           52.3


(2)

 

Average net insurance liabilities (5) and interest margin




Quarter ended




June 30,




2022


2021


%
change

Interest sensitive life products

$   1,020.3


$     970.0


5

Interest margin/average net insurance liabilities (5)

0.71 %


0.66 %


8

 

Total life margins were unfavorably impacted by approximately $11 million in the quarter ended June 30, 2021 due to the estimated impacts of COVID-19.  There was no material impact on the life margins in the quarter ended June 30, 2022 related to COVID-19.

 

QUARTERLY AVERAGE EXCLUSIVE PRODUCING AGENTS



Average Exclusive Producing Agent Count


Quarter ended




June 30,


%


2022


2021


change

Consumer






Field agents (a) (c)

3,968


4,360


(9)

Tele-sales agents

204


247


(17)

Total agents

4,172


4,607


(9)

Registered agents (b) (c)

676


639


6

Worksite (a) (c)

234


258


(9)

____________________

(a)

Producing agents represent the monthly average of exclusive agents that have submitted at least one policy in the month.

(b)

Registered agents are dually licensed as insurance agents and financial representatives who can buy and sell


securities for clients, and/or investment advisors who can provide ongoing investment advice for clients.

(c)

Agent counts represent the average of the last 3 months.

 

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.



Quarter ended June 30,




2022


2021


%
change

Net investment income

$            223.9


$            379.2


(41)

Allocated to product lines:






Annuity

(114.8)


(114.9)


Health

(71.6)


(71.6)


Life

(36.2)


(36.1)


Equity returns credited to policyholder account balances

92.4


(76.1)


(221)

Amounts allocated to product lines and credited to policyholder account balances

(130.2)


(298.7)


(56)

Amount related to variable interest entities and other non-operating items

(9.1)


(8.0)


14

Interest expense on corporate debt

(15.6)


(15.6)


Interest expense on investment borrowings from the Federal Home Loan Bank program

(4.7)


(2.5)


88

Expenses related to FABN program

(7.6)



n/m

Less amounts credited to deferred compensation plans (offsetting investment income)

11.8


(6.6)


(279)

Total adjustments

(25.2)


(32.7)



Investment income not allocated to product lines

$              68.5


$              47.8


43







Per diluted share

$              0.58


$              0.36



 

INVESTMENT PORTFOLIO

(Dollars in millions)


The composition of the investment portfolio at June 30, 2022 is as follows:



$


% of total

Fixed maturities, available for sale, at fair value

$     21,362.7


85

Equity securities at fair value

136.9


1

Mortgage loans

1,215.3


5

Policy loans

119.5


Trading securities

198.9


1

Investments held by variable interest entities

1,107.7


4

Other invested assets

1,086.6


4

Total investment portfolio

$     25,227.6


100

 

Fixed maturities, available for sale, at amortized cost by asset class as of June 30, 2022 are as follows:



Investment
grade


Below
investment
grade


Total

Corporate securities

$     13,126.5


$          794.6


$     13,921.1

United States Treasury securities and obligations of the United States government and agencies

168.8



168.8

States and political subdivisions

2,687.4


11.6


2,699.0

Foreign governments

74.6



74.6

Asset-backed securities

1,124.6


134.5


1,259.1

Agency residential mortgage-backed securities

32.0



32.0

Non-agency residential mortgage-backed securities

1,188.9


620.3

(a)

1,809.2

Collateralized loan obligations

720.4


7.5


727.9

Commercial mortgage-backed securities

2,325.2


83.9


2,409.1







Total

$     21,448.4


$       1,652.4


$     23,100.8

____________________

(a)

Certain structured securities rated below investment grade by Nationally Recognized Statistical Rating Organizations may be assigned a NAIC 1 or NAIC 2 designation based on the cost basis of the security relative to estimated recoverable amounts as determined by the National Association of Insurance Commissioners (NAIC).

The fair value of CNO's available for sale fixed maturity portfolio was $21.4 billion compared with an amortized cost of $23.1 billion.  Net unrealized losses were comprised of gross unrealized gains of $295.2 million and gross unrealized losses of $1,979.1 million.  The allowance for credit losses was $54.2 million at June 30, 2022.

At both amortized cost and fair value, 93 percent of fixed maturities, available for sale, were rated "investment grade".

Non-Operating Items
Net investment losses in 2Q22 were $26.1 million (net of related amortization) including the unfavorable change in the allowance for credit losses of $23.7 million which was recorded in earnings.  Net investment gains in 2Q21 were $24.3 million (net of related amortization) including the favorable change in the allowance for credit losses of $5.7 million which was recorded in earnings.

During 2Q22 and 2Q21, we recognized an increase (decrease) in earnings of $(21.7) million and $5.7 million, respectively, due to the net change in market value of investments recognized in earnings.

During 2Q22 and 2Q21, we recognized an increase (decrease)  in earnings of $79.7 million and $(44.9) 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 2Q22, other non-operating items included an increase in earnings of $14.0 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 360% at June 30, 2022, reflecting estimated 2Q22 statutory operating income of $93 million (and $124 million in the first six months of 2022) and the payment of insurance company dividends to the holding company of $29.0 million during 2Q22 (and $98.6 million in the first six months of 2022).

During the second quarter of 2022, we repurchased $60.0 million of common stock under our securities repurchase program.  We repurchased 2.5 million common shares at an average cost of $23.52 per share.  As of June 30, 2022, we had 114.8 million shares outstanding and had authority to repurchase up to an additional $206.9 million of our common stock.  During 2Q22, dividends paid on common stock totaled $16.5 million.

Unrestricted cash and investments held by our holding company were $141 million at June 30, 2022, compared to $249 million at December 31, 2021.

Book value per common share was $19.27 at June 30, 2022 compared to $43.69 at December 31, 2021.  Book value per diluted share, excluding accumulated other comprehensive income (loss) (2), was $29.06 at June 30, 2022, compared to $26.86 at December 31, 2021

The debt-to-capital ratio was 34.0 percent and 17.8 percent at June 30, 2022 and December 31, 2021, respectively.  Our debt-to-total capital ratio, excluding accumulated other comprehensive income (loss) (3) was 25.2 percent at June 30, 2022, compared to 25.6 percent at December 31, 2021.

Return on equity for the trailing four quarters ended June 30, 2022 and 2021, was 10.3% and 9.1%, respectively.  Operating return, excluding significant items, on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (6) for the trailing four quarters ended June 30, 2022 and 2021, was 10.3% and 12.4%, 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, 2021 and any subsequent Form 10-Q or Form 10-K on file with the Securities and Exchange Commission and on the Company's website at CNOinc.com in the Investors section.  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 August 2, 2022 at 11:00 a.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 register at https://ige.netroadshow.com/registration/q4inc/11345/cno-financial-group-second-quarter-2022-earnings-results/.  Upon registering, you will be provided with call details and a registrant ID used to track attendance on the conference call. Reminders will also be sent to registered participants via email.

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.

ABOUT CNO FINANCIAL GROUP

CNO Financial Group, Inc. (NYSE: CNO) secures the future of middle-income America.  CNO provides life and health insurance, annuities, financial services, and workforce benefits solutions through our family of brands, including Bankers Life, Colonial Penn and Washington National.  Our customers work hard to save for the future, and we help protect their health, income and retirement needs with 3.2 million policies and $34 billion in total assets. Our 3,400 associates, 4,400 exclusive agents and 4,700 independent partner agents guide individuals, families and businesses through a lifetime of financial decisions. For more information, visit CNOinc.com.

 

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars in millions)

(unaudited)



June 30,
2022


December 31,
2021

ASSETS




Investments:




Fixed maturities, available for sale, at fair value (net of allowance for credit losses: June 30,
2022 - $54.2 and December 31, 2021 - $7.6; amortized cost: June 30, 2022 - $23,100.8 and
December 31, 2021 - $21,867.6)

$           21,362.7


$           24,805.4

Equity securities at fair value

136.9


131.1

Mortgage loans (net of allowance for credit losses: June 30, 2022 - $4.9 and December 31, 2021 - $5.6)

1,215.3


1,218.6

Policy loans

119.5


120.2

Trading securities

198.9


227.2

Investments held by variable interest entities (net of allowance for credit losses: June 30, 2022 -
$12.2 and December 31, 2021 - $3.7; amortized cost: June 30, 2022 - $1,180.2 and
December 31, 2021 - $1,206.8)

1,107.7


1,199.6

Other invested assets

1,086.6


1,224.0

Total investments

25,227.6


28,926.1

Cash and cash equivalents - unrestricted

567.2


632.1

Cash and cash equivalents held by variable interest entities

52.2


99.6

Accrued investment income

224.1


216.4

Present value of future profits

219.8


222.6

Deferred acquisition costs

1,767.0


1,112.0

Reinsurance receivables (net of allowance for credit losses: June 30, 2022 - $3.0 and
December 31, 2021 - $3.0)

4,277.9


4,354.3

Income tax assets, net

929.8


118.3

Assets held in separate accounts

3.0


3.9

Other assets

566.9


519.1

Total assets

$           33,835.5


$           36,204.4

LIABILITIES AND SHAREHOLDERS' EQUITY




Liabilities:




Liabilities for insurance products:




Policyholder account liabilities

$           14,608.8


$           13,689.7

Future policy benefits

11,684.6


11,670.7

Liability for policy and contract claims

466.4


501.8

Unearned and advanced premiums

243.4


246.7

Liabilities related to separate accounts

3.0


3.9

Other liabilities

713.2


830.9

Investment borrowings

1,640.2


1,715.8

Borrowings related to variable interest entities

1,125.9


1,147.9

Notes payable – direct corporate obligations

1,138.0


1,137.3

Total liabilities

31,623.5


30,944.7

Commitments and Contingencies




Shareholders' equity:




Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: June 30, 2022 – 114,795,328; December 31, 2021 – 120,377,152)

1.1


1.2

Additional paid-in capital

2,032.7


2,184.2

Accumulated other comprehensive income (loss)

(1,165.0)


1,947.1

Retained earnings

1,343.2


1,127.2

Total shareholders' equity

2,212.0


5,259.7

Total liabilities and shareholders' equity

$           33,835.5


$           36,204.4

 

 

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(Dollars in millions, except per share data)

(unaudited)



Three months ended


Six months ended


June 30,


June 30,


2022


2021


2022


2021

Revenues:








Insurance policy income

$              625.6


$             630.5


$          1,250.6


$                 1,262.9

Net investment income:








General account assets

317.7


282.1


595.2


564.8

Policyholder and other special-purpose portfolios

(93.8)


97.1


(163.1)


152.6

Investment gains (losses):








Realized investment gains (losses)

(7.0)


17.1


11.8


11.1

Other investment gains (losses)

(41.8)


14.2


(93.3)


17.4

Total investment gains (losses)

(48.8)


31.3


(81.5)


28.5

Fee revenue and other income

54.3


32.1


96.7


70.3

Total revenues

855.0


1,073.1


1,697.9


2,079.1

Benefits and expenses:








Insurance policy benefits

340.2


657.4


686.9


1,116.5

Interest expense

27.8


24.0


51.6


48.1

Amortization

88.1


42.6


192.0


142.3

Other operating costs and expenses

223.5


247.5


442.7


480.6

Total benefits and expenses

679.6


971.5


1,373.2


1,787.5

Income before income taxes

175.4


101.6


324.7


291.6

Income tax expense on period income

39.3


23.6


76.3


66.2

Net income

$              136.1


$               78.0


$             248.4


$                    225.4

Earnings per common share:








Basic:








Weighted average shares outstanding

115,533,000


131,016,000


117,078,000


132,578,000

Net income

$                1.18


$                 .59


$               2.12


$                      1.70

Diluted:








Weighted average shares outstanding

117,286,000


133,814,000


119,144,000


135,233,000

Net income

$                1.16


$                 .58


$               2.08


$                      1.67

 

NOTES


(1)

Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses from sales, impairments and the change in allowance for credit losses, net of related amortization and taxes; (ii) net change in market value of investments recognized in earnings, net of taxes; (iii) 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; (iv) fair value changes related to the agent deferred compensation plan, 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 (viii) 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.  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 Securities and Exchange Commission that are available in the "Investors - SEC Filings" section of CNO's website, CNOinc.com.

(2)

Book value per diluted share reflects the potential dilution that could occur if outstanding stock options were exercised and restricted stock and performance units were vested.  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.  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.

(3)

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)

Measured by new annualized premiums for life and health products, which includes 10% of single premium whole life deposits and 100% of all other premiums (excluding annuities).  Sales of third-party products are excluded.

(5)

Net insurance liabilities are equal to total insurance liabilities less: (i) amounts related to reinsured business; (ii) deferred acquisition costs; (iii) present value of future profits; and (iv) the value of unexpired options credited to insurance liabilities.

(6)

The following summarizes the calculations of: (i) operating return on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) operating return, excluding significant items, on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); and (iii) return on equity are as follows (dollars in millions):

 




Trailing twelve months ended




2Q22


2Q21

Net operating income

$        352.5


$     362.9







Net operating income, excluding significant items

$        317.2


$     366.1







Net income

$        464.0


$     466.4







Average common equity, excluding accumulated other





comprehensive income (loss) and net operating loss





carryforwards (a non-GAAP financial measure)

$     3,069.1


$  2,947.7







Average common shareholders' equity

$     4,487.9


$  5,114.1







Operating return on equity, excluding accumulated other





comprehensive income (loss) and net operating loss





carryforwards (a non-GAAP financial measure)

11.5 %


12.3 %







Operating return, excluding significant items, on equity, excluding





accumulated other comprehensive income (loss) and net





operating loss carryforwards (a non-GAAP financial measure)

10.3 %


12.4 %







Return on equity

10.3 %


9.1 %

 

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










Net operating











Net operating


income,











income,


excluding




Net







excluding


significant




income -



Net operating


Significant


significant


items - trailing


Net


trailing



income


items


items (a)


four quarters


income


four quarters

3Q20


$                112.6


$                     —


$                112.6


$                329.3


$                129.2


$                468.0

4Q20


86.0


(6.4)

(b)

79.6


338.2


111.8


301.8

1Q21


75.2


6.1

(c)

81.3


335.2


147.4


470.4

2Q21


89.1


3.5

(d)

92.6


366.1


78.0


466.4

3Q21


92.8


2.3

(e)

95.1


348.6


99.8


437.0

4Q21


108.5


(20.2)

(f)

88.3


357.3


115.8


441.0

1Q22


51.1



51.1


327.1


112.3


405.9

2Q22


100.1


(17.4)

(g)

82.7


317.2


136.1


464.0














(a)  See note (7) for additional information.














(b)  Comprised of: (i) $11.8 million of net favorable adjustments arising from our review of actuarial assumptions; (ii) $3.7 million unfavorable impact related to asset impairments; and (iii) an increase in tax expense of $1.7 million.














(c)  Comprised of: (i) $5.3 million from legal and regulatory matters; (ii) $2.5 million of transaction expenses related to the previously announced acquisition of Optavise, LLC ("Optavise", formerly known as DirectPath, LLC prior to its name change in April 2022); and (iii) a decrease in tax expense of $1.7 million.














(d)  Comprised of: (i) $4.5 million from legal and regulatory matters; and (ii) a decrease in tax expense of $1.0 million.














(e)  Comprised of: (i) $3.0 million from legal and regulatory matters; and (ii) a decrease in tax expense of $.7 million.














(f)  Comprised of: (i) $25.9 million of net favorable adjustments arising from our review of actuarial assumptions; and (ii) an increase in tax expense of $5.7 million.














(g)  Comprised of: (i) an experience refund of $22.5 million related to a reinsurance agreement; and (ii) an increase in tax expense of $5.1 million.

 

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





Twelve months ended




2Q22


2Q21

Pre-tax operating earnings (a non-GAAP financial measure)

$       455.8


$        468.6

Income tax expense

(103.3)


(105.7)

Net operating income

352.5


362.9

Non-operating items:




Net realized investment gains (losses) from sales, impairments and change in allowance for credit losses, net of related amortization

(26.3)


48.2

Net change in market value of investments recognized in earnings

(63.9)


13.8

Fair value changes in embedded derivative liabilities, net of related amortization

200.5


51.9

Fair value changes related to the agent deferred compensation plan

32.4


10.1

Other

2.3


8.9

Non-operating income before taxes

145.0


132.9

    Income tax expense on non-operating income

(33.5)


(29.4)

Net non-operating income

111.5


103.5

Net income

$       464.0


$        466.4







 

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):





1Q20


2Q20


3Q20


4Q20

Consolidated capital, excluding accumulated other comprehensive









income (loss) and net operating loss carryforwards









(a non-GAAP financial measure)

$    2,701.2


$    2,784.2


$    2,905.1


$    2,956.2

Net operating loss carryforwards

469.4


426.8


377.2


341.9

Accumulated other comprehensive income

595.2


1,520.2


1,801.6


2,186.1

Common shareholders' equity

$    3,765.8


$    4,731.2


$    5,083.9


$    5,484.2














1Q21


2Q21


3Q21


4Q21

Consolidated capital, excluding accumulated other comprehensive









income (loss) and net operating loss carryforwards









(a non-GAAP financial measure)

$    3,019.5


$    3,035.6


$    3,036.3


$    3,068.9

Net operating loss carryforwards

323.1


292.9


266.9


243.7

Accumulated other comprehensive income

1,518.1


1,995.5


1,929.7


1,947.1

Common shareholders' equity

$    4,860.7


$    5,324.0


$    5,232.9


$    5,259.7














1Q22


2Q22





Consolidated capital, excluding accumulated other comprehensive









income (loss) and net operating loss carryforwards









(a non-GAAP financial measure)

$    3,072.2


$    3,162.3





Net operating loss carryforwards

238.2


214.7





Accumulated other comprehensive income (loss)

380.5


(1,165.0)





Common shareholders' equity

$    3,690.9


$    2,212.0















 

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):





Trailing four quarter average




2Q22


2Q21

Consolidated capital, excluding accumulated other comprehensive





income (loss) and net operating loss carryforwards





(a non-GAAP financial measure)

$        3,069.1


$        2,947.7

Net operating loss carryforwards

250.7


350.5

Accumulated other comprehensive income

1,168.1


1,815.9

Common shareholders' equity

$        4,487.9


$        5,114.1

 

(7)

The tables below summarize the financial impact of significant items on our net operating income.  Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions, except per share data).

 



Three months ended



June 30, 2022



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$         37.1


$             —


$          37.1

Health margin


113.4



113.4

Life margin


56.8



56.8

Total insurance product margin


207.3



207.3

Allocated expenses


(152.2)



(152.2)

Income from insurance products


55.1



55.1

Fee income


3.2



3.2

Investment income not allocated to product lines


68.5



68.5

Expenses not allocated to product lines


2.9


(22.5)

(a)

(19.6)

Operating earnings before taxes


129.7


(22.5)


107.2

Income tax (expense) benefit on operating income


(29.6)


5.1


(24.5)

Net operating income


$        100.1


$         (17.4)


$          82.7








Net operating income per diluted share


$         0.85


$         (0.14)


$          0.71

___________

(a)

Comprised of an experience refund of $22.5 million related to a reinsurance agreement.

 



Three months ended



December 31, 2021



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$         93.9


$         (26.9)

(a)

$          67.0

Health margin


129.5



129.5

Life margin


30.4


1.0

(a)

31.4

Total insurance product margin


253.8


(25.9)


227.9

Allocated expenses


(143.3)



(143.3)

Income from insurance products


110.5


(25.9)


84.6

Fee income


2.9



2.9

Investment income not allocated to product lines


42.8



42.8

Expenses not allocated to product lines


(17.4)



(17.4)

Operating earnings before taxes


138.8


(25.9)


112.9

Income tax (expense) benefit on operating income


(30.3)


5.7


(24.6)

Net operating income


$        108.5


$         (20.2)


$          88.3








Net operating income per diluted share


$         0.87


$         (0.16)


$          0.71

___________

(a)

Adjustments arising from our comprehensive annual actuarial review of assumptions.

 



Three months ended



September 30, 2021



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$         52.5


$             —


$          52.5

Health margin


117.9



117.9

Life margin


53.2



53.2

Total insurance product margin


223.6



223.6

Allocated expenses


(140.5)



(140.5)

Income from insurance products


83.1



83.1

Fee income


2.6



2.6

Investment income not allocated to product lines


50.9



50.9

Expenses not allocated to product lines


(17.3)


3.0

(a)

(14.3)

Operating earnings before taxes


119.3


3.0


122.3

Income tax (expense) benefit on operating income


(26.5)


(0.7)


(27.2)

Net operating income


$         92.8


$            2.3


$          95.1








Net operating income per diluted share


$         0.72


$          0.02


$          0.74

___________

(a)

Comprised of $3.0 million from legal and regulatory matters. 

 



Three months ended



June 30, 2021



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$         66.0


$             —


$          66.0

Health margin


120.9



120.9

Life margin


39.7



39.7

Total insurance product margin


226.6



226.6

Allocated expenses


(141.6)



(141.6)

Income from insurance products


85.0



85.0

Fee income


6.6



6.6

Investment income not allocated to product lines


47.8



47.8

Expenses not allocated to product lines


(23.8)


4.5

(a)

(19.3)

Operating earnings before taxes


115.6


4.5


120.1

Income tax (expense) benefit on operating income


(26.5)


(1.0)


(27.5)

Net operating income


$         89.1


$            3.5


$          92.6








Net operating income per diluted share


$         0.66


$          0.03


$          0.69

___________

(a)

Comprised of $4.5 million from legal and regulatory matters. 

 



Three months ended



March 31, 2021



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$         57.9


$             —


$          57.9

Health margin


124.7



124.7

Life margin


27.1



27.1

Total insurance product margin


209.7



209.7

Allocated expenses


(141.1)



(141.1)

Income from insurance products


68.6



68.6

Fee income


7.3



7.3

Investment income not allocated to product lines


43.0



43.0

Expenses not allocated to product lines


(22.0)


7.8

(a)

(14.2)

Operating earnings before taxes


96.9


7.8


104.7

Income tax (expense) benefit on operating income


(21.7)


(1.7)


(23.4)

Net operating income


$         75.2


$            6.1


$          81.3








Net operating income per diluted share


$         0.55


$          0.04


$          0.59

___________

(a)

Comprised of: (i) $5.3 million from legal and regulatory matters; and (ii) $2.5 million of transaction expenses related to the previously announced acquisition of Optavise. The legal and regulatory matters primarily consist of an increase to our liability for claims and interest pursuant to the Global Resolution Agreement, as we have now processed and verified most of the claims provided by the third party auditor allowing us to more accurately estimate the ultimate liability.

 



Three months ended



December 31, 2020



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$         68.1


$         (16.1)

(a)

$          52.0

Health margin


125.2



125.2

Life margin


37.3


4.3

(a)

41.6

Total insurance product margin


230.6


(11.8)


218.8

Allocated expenses


(162.7)



(162.7)

Income from insurance products


67.9


(11.8)


56.1

Fee income


2.9



2.9

Investment income not allocated to product lines


57.8



57.8

Expenses not allocated to product lines


(17.8)


3.7

(b)

(14.1)

Operating earnings before taxes


110.8


(8.1)


102.7

Income tax (expense) benefit on operating income


(24.8)


1.7


(23.1)

Net operating income


$         86.0


$          (6.4)


$          79.6








Net operating income per diluted share


$         0.61


$         (0.04)


$          0.57

___________

(a)

Adjustments arising from our comprehensive annual actuarial review of assumptions.

(b)

Unfavorable impact related to asset impairments.

 

Cision View original content:https://www.prnewswire.com/news-releases/cno-financial-group-reports-second-quarter-2022-results-301597285.html

SOURCE CNO Financial Group, Inc.