CNO Financial Group Inc. (CNO) reported third-quarter 2013 operating earnings of 33 cents per share, surpassing the Zacks Consensus Estimate of 27 cents. The result also surpassed 11 cents earned in the year-ago quarter. Net operating income in the quarter was $77.2 million, up 201.6% from $25.6 million in the third quarter of 2012.
The improvement came on the back of growth in sales across its core businesses.
CNO Financial reported net income of $283 million or $1.23 per share. The result includes net realized investment losses of $0.1 million, changes in fair value of embedded derivative liabilities of $2.2 million, equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests of ($3 million), and valuation allowance for deferred tax assets of $206.7 million in the reported quarter. The reported net income rebounded from a year-ago net loss of $5 million or 2 cents per share.
CNO Financial’s third quarter revenues stood at $1.09 billion, almost in line with the year-ago revenues. However, total revenue surpassed the Zacks Consensus Estimate of $1.07 billion. Total new annualized premium increased 8.2% year over year to $101.8 million. Total benefits and expenses decreased 21.8% year over year to $979.4 million.
Pre-tax operating earnings in the Bankers Life segment increased 7% year over year to $86.3 million in the reported quarter due to favorable reserve developments in the Medicare supplement block and higher earnings in the annuity business that resulted from higher account values and low surrenders. However, this was partially offset by higher benefit ratios in the long-term care block reflecting higher persistency.
Washington National’s pre-tax operating earnings were $28.1 million in the quarter, declining 17% from the year-ago quarter. The decline came from higher benefit ratios in the supplemental health insurance block reflecting lower conversion and upgrade activity for some policies that are nearing their return of premium maturity date.
Pre-tax operating loss of Colonial Penn was $4.2 million, wider than the year ago loss of $2.6 million due to an increase in marketing expenses.
Other CNO Business reported pre-tax operating income of $6.1 million in the quarter, rebounding from an operating loss of $53.6 million in the year-ago quarter. Favorable mortality in the life block and favorable claim experience in the long-term care block of this segment mainly aided the improvement. The guidance for this segment’s 2013 pre-tax income stands at $5–$20 million.
Corporate Operations, which includes investment advisory subsidiary and corporate expenses, bounced back to a pre-tax income of $9.4 million from pre-tax loss of $6.7 million in the year-ago quarter, based on the impact of higher interest rates on the values of liabilities or agent deferred compensation and former executive retirement annuities and favorable investment results.
As of Sep 30. 2013 the consolidated statutory risk-based capital ratio of CNO Financial’s insurance subsidiaries was 392%, up 2500 basis points year over year, reflecting statutory earnings of $296 million and dividend of $202.5 million paid to the holding company during the first nine months of 2013.
In addition, unrestricted cash and investments held by CNO Financial’s holding company decreased to $292 million as of Sep 30, 2013 from $294 million as of Dec 31, 2012.
As of Sep 30, 2013, CNO Financial’s debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), declined 340 basis points over 2012-end to 17.3%. Book value per common share, excluding accumulated other comprehensive income (loss), increased to $18.24 as of Sep 30, 2013 from $16.21 as of Dec 31, 2012.
As of Sep 30, 2013, CNO Financial had total assets worth $33.9 billion and shareholder equity stood at $4.8 billion.
Securities Repurchase Update
CNO Financial spent $37.3 million to repurchase 2.6 million shares in the reported quarter. This amount to a total repurchase of shares worth $221.6 million in the first nine months of 2013. CNO Financial expects to spend $250–$300 million on the repurchase of securities in 2013. CNO Financial is left with 222 million shares under its current authorization and has the authority to repurchase shares up to an additional amount of $128.4 million.
CNO Financial spent $6.7 million on dividend payment in the reported quarter.
CNO Financial surpassed the Zacks Consensus Estimate as well as year ago numbers banking on growth in its core segment sales. Higher revenues along with a decline in expenses spurred margins during the quarter.
Further, strong capital generation positions the company to undertake strategic investments and focus on profit generation. Moreover, strong cash flow and effective capital management helps to retain investor confidence on the stock.
Assurant Inc.’s (AIZ) third quarter earnings came in at $1.71 per share, significantly ahead of the Zacks Consensus Estimate of $1.45 per share.
Horace Mann Educators Corp. (HMN) reported its third-quarter 2013 operating net income of 59 cents per share, surpassing the Zacks Consensus Estimate of 58 cents by 1.7%.
Old Republic International Corporation (ORI) reported its third-quarter 2013 earnings of 35 cents per share, surpassing the Zacks Consensus Estimate of 11 cents.
CNO Financial carries a Zacks Rank #4 (Sell).