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CNO Financial Group Reports Fourth Quarter and Full Year 2019 Results

Cision

2019 net income of $409 million , including $194 million favorable impact from tax strategy

CARMEL, Ind. , Feb. 11, 2020 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE: CNO) today announced that for the quarter ending December 31, 2019 , net income was $278.0 million , or $1.84 per diluted share, compared to $28.3 million , or $0.17 per diluted share in 4Q18.  CNO also reported that 4Q19 net operating income (1) was $78.6 million , or $0.52 per diluted share, compared to $59.8 million , or $0.36 per diluted share in 4Q18.

Net income for the year ended December 31, 2019 , was $409.4 million , or $2.61 per diluted share, compared to a net loss of $315.0 million , or $1.90 per diluted share in 2018. Net operating income (1) was $290.0 million , or $1.85 per diluted share, compared to $289.0 million , or $1.75 per diluted share in 2018 (as adjusted to remove the earnings from the long-term care business that was ceded in 3Q18).

"CNO reported another solid quarter, capping off a successful 2019," said Gary C. Bhojwani , chief executive officer. "We delivered measured growth, exercising discipline to carefully balance sales and profitability. As a result, operating earnings per share were up 4%, excluding significant items, despite a 7% decline in net investment income due to a challenging low interest rate environment."

"Through proactive management, we maximized an expiring tax asset to generate meaningful incremental value for our shareholders. Rigorous expense control, including benefits from our recently announced corporate transformation and strategic IT partnership, will mitigate the interest rate impact and position us well for the future."

Full Year 2019 Highlights

  • Net income of $409.4 million (including $194 million tax benefit related to a tax planning strategy) compared to a net loss of $315.0 million in 2018 (including the net loss of $661 million related to completion of a long-term care reinsurance transaction)
  • Operating income (1) per share up 6%, as adjusted to remove the earnings from the long-term care business that was ceded in 3Q18
  • Life and health sales were up 5%; annuity collected premiums were up 12% from 2018
  • At December 31, 2019 , book value per common share was $31.58 , up 52% from $20.78 at December 31, 2018
  • At December 31, 2019 , book value per diluted share, excluding accumulated other comprehensive income (2), was $22.09 , up 13% from $19.52 at December 31, 2018
  • Returned $319 million to shareholders in share repurchases ( $252 million ) and dividends ( $67 million )

Fourth Quarter 2019 Highlights

  • Net income of $278.0 million compared to $28.3 million in 4Q18
  • Operating income (1) per share was up 44% from 4Q18
  • Life and health sales were up 9% from 4Q18
  • Annuity collected premiums were down 9% from 4Q18, reflecting pricing discipline and a difficult comparable from prior year
  • Recorded a $194 million tax benefit from a tax strategy that will enable the Company to utilize all of the net operating losses ("NOLs") that would have otherwise expired in 2023, resulting in the elimination of the valuation allowance related to those NOLs
  • Returned $91 million to shareholders in share repurchases ( $75 million ) and dividends ( $16 million )

Quarterly Operating Results



Three months ended


December 31,


2019


2018


(Dollars in millions,
except per share data)

Net operating income (1)

$

78.6



$

59.8


Net realized investment gains (losses) from sales and impairments (net of related
amortization)

7.1



(10.5)


Net change in market value of investments recognized in earnings

(2.6)



(27.5)


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

13.4



(.8)


Fair value changes related to agent deferred compensation plan

2.5



.9


Other

(13.3)



1.8


Non-operating income (loss) before taxes

7.1



(36.1)


Income tax expense (benefit):




On non-operating income (loss)

1.4



(7.6)


Valuation allowance for deferred tax assets and other tax items

(193.7)



3.0


Net non-operating income (loss)

199.4



(31.5)


Net income

$

278.0



$

28.3






Per diluted share:




Net operating income

$

.52



$

.36


Net realized investment gains (losses) from sales and impairments (net of related amortization and taxes)

.04



(.05)


Net change in market value of investments recognized in earnings (net of taxes)

(.01)



(.13)


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

.07




Fair value changes related to agent deferred compensation plan (net of taxes)

.01




Valuation allowance for deferred tax assets and other tax items

1.28



(.02)


Other

(.07)



.01


Net income

$

1.84



$

.17


Please refer to our 4Q2019 Quarterly Financial Supplement for additional information related to the Company's financial and operating results for the quarter ended December 31 , 2019.  Such information is being furnished as an exhibit to the Current Report on Form 8-K dated February 11, 2020 .

Significant Items Impacting Net Operating Income



Three months ended


December 31,


2019


2018


Dollars in


Per diluted


Dollars in


Per diluted


millions


share


millions


share

Net operating income (1)

$

78.6



$

.52



$

59.8



$

.36


Significant items

(7.9)



(.05)



15.1



.09


Net operating earnings, excluding significant items

$

70.7



$

.47



$

74.9



$

.45


The significant items in 4Q19 included: (i) adjustments arising from our comprehensive annual actuarial review of assumptions including $10.8 million of unfavorable impacts in the Bankers Life segment and $.8 million of favorable impacts in the Washington National segment; (ii) $20.0 million of the net favorable impact from legal and regulatory matters in the Corporate segment; and (iii) an increase in income tax expense of $2.1 million .

The significant items in 4Q18 included: (i) adjustments arising from our comprehensive annual actuarial review of assumptions including $3.1 million of unfavorable impacts in the Bankers Life segment and $2.2 million of favorable impacts in the Washington National segment; (ii) the $14.4 million reduction in the value of investments backing our COLI used as a vehicle to fund Bankers Life's agent deferred compensation plan; and (iii) an increase in tax expense of $.2 million .  It should be noted that changes in the value of COLI investments are not subject to income taxes.

Non-Operating Items
Net realized investment gains in 4Q19 were $7.1 million (net of related amortization) including other-than-temporary impairment losses of $6.8 million which were recorded in earnings.  Net realized investment losses in 4Q18 were $10.5 million (net of related amortization) including other-than-temporary impairment losses of $.5 million which were recorded in earnings.

During 4Q19 and 4Q18, we recognized a decrease in earnings of $2.6 million and $27.5 million , respectively, due to the net change in market value of investments recognized in earnings.

During 4Q19 and 4Q18, we recognized an increase (decrease) in earnings of $13.4 million and $(.8) 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 4Q19 and 4Q18, we recognized an increase in earnings of $2.5 million and $.9 million , respectively, 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.

The other non-operating items in 4Q19 include the previously announced pre-tax charge of approximately $14 million related to our new operating model to create a leaner, more integrated customer-centric organization.

During 4Q19, we implemented a tax planning strategy that is expected to utilize net operating loss carryforwards that otherwise would have expired in 2023.  Accordingly, we eliminated the valuation allowance for deferred tax assets of $193.7 million in 4Q19.

Statutory (based on non-GAAP measures) and GAAP Capital Information
Our consolidated statutory risk-based capital ratio was estimated at 408% at December 31, 2019, reflecting estimated 4Q19 statutory operating income of $56 million (and $262 million in 2019) and the payment of insurance company dividends to the holding company of $16.0 million during 4Q19 (and $186.3 million during 2019).  Both statutory operating income and dividends paid to the holding company exclude $46.0 million of intercompany tax sharing payments to be received by the insurance companies that will be returned to the holding company in the form of a dividend.

During the fourth quarter of 2019, we repurchased $75.0 million of common stock under our securities repurchase program (including $1.8 million of repurchases settled in 1Q2020).  We repurchased 4.4 million common shares at an average cost of $17.14 per share.  As of December 31, 2019 , we had 148.1 million shares outstanding and had authority to repurchase up to an additional $532.3 million of our common stock.  During 4Q19, dividends paid on common stock totaled $16.4 million .

Unrestricted cash and investments held by our holding company were $187 million at December 31, 2019, compared to $220 million at December 31, 2018 .

Book value per common share was $31.58 at December 31, 2019, compared to $20 .78 at December 31 , 2018.  Book value per diluted share, excluding accumulated other comprehensive income (loss) (2), was $22.09 at December 31, 2019, compared to $19.52 at December 31, 2018 .

The debt-to-capital ratio was 17.5 percent and 21.4 percent at December 31, 2019 and 2018, respectively.  Our debt-to-total capital ratio, excluding accumulated other comprehensive income (3) was 23.0 percent at December 31, 2019 compared to 22.3 percent at December 31, 2018 .

Return on equity for the year ended December 31, 2019 and 2018, was 9.8% and (7.5)%, respectively.  Return on equity for the year ended December 31, 2018 was unfavorably impacted by a loss of $661.1 million recognized in the third quarter of 2018 related to a long-term care reinsurance transaction.  Operating return, excluding significant items, on equity, excluding accumulated other comprehensive income and net operating loss carryforwards (7) for the year ended December 31, 2019 and 2018, was 10.4% and 10.3%, respectively.

Conference Call
The Company will host a conference call to discuss results on February 12, 2020 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 this evening.

To participate by dial-in, please dial (844) 668-8093 or (647) 253-8656 for international participants, at least five minutes before the call start time. The operator will ask you to identify yourself and your company, and will also ask for the conference ID, "9696167."

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 our website at ir.CNOinc.com .  Participants should go to the website at least 15 minutes before the event to register, download and install any necessary software.

If you are unable to join us on the call, you may access a replay of the call through webcast,  available through the Investors section of our website at ir.CNOinc.com .

For more information, visit CNO online at CNOinc.com .

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars in millions)

(unaudited)



December 31,
 2019


December 31,
2018

ASSETS




Investments:




Fixed maturities, available for sale, at fair value (amortized cost: 2019 -
$19,179.5; 2018 - $18,107.8)

$

21,295.2



$

18,447.7


Equity securities at fair value (cost: 2019 - $44.2; 2018 - $319.8)

44.1



291.0


Mortgage loans

1,566.1



1,602.1


Policy loans

124.5



119.7


Trading securities

243.9



233.1


Investments held by variable interest entities

1,188.6



1,468.4


Other invested assets

1,118.5



833.4


Total investments

25,580.9



22,995.4


Cash and cash equivalents - unrestricted

580.0



594.2


Cash and cash equivalents held by variable interest entities

74.7



62.4


Accrued investment income

205.9



205.2


Present value of future profits

275.4



343.6


Deferred acquisition costs

1,215.5



1,322.5


Reinsurance receivables

4,785.7



4,925.4


Income tax assets, net

432.6



630.0


Assets held in separate accounts

4.2



4.4


Other assets

476.0



356.7


Total assets

$

33,630.9



$

31,439.8


LIABILITIES AND SHAREHOLDERS' EQUITY




Liabilities:




Liabilities for insurance products:




Policyholder account liabilities

$

12,132.3



$

11,522.8


Future policy benefits

11,498.5



11,153.7


Liability for policy and contract claims

522.3



521.9


Unearned and advanced premiums

260.5



253.9


Liabilities related to separate accounts

4.2



4.4


Other liabilities

750.2



632.4


Investment borrowings

1,644.3



1,645.8


Borrowings related to variable interest entities

1,152.5



1,417.2


Notes payable direct corporate obligations

989.1



916.8


Total liabilities

28,953.9



28,068.9


Commitments and Contingencies




Shareholders' equity:




Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued
and outstanding: 2019 - 148,084,178; 2018 - 162,201,692)

1.5



1.6


Additional paid-in capital

2,767.3



2,995.0


Accumulated other comprehensive income

1,372.5



177.7


Retained earnings

535.7



196.6


Total shareholders' equity

4,677.0



3,370.9


Total liabilities and shareholders' equity

$

33,630.9



$

31,439.8


 

 

...

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(Dollars in millions, except per share data)

(unaudited)



Three months ended


Year ended


December 31,


December 31,


2019


2018


2019


2018

Revenues:








Insurance policy income

$

623.2



$

616.5



$

2,480.8



$

2,593.1


Net investment income:








General account assets

272.0



290.4



1,105.2



1,279.7


Policyholder and other special-purpose portfolios

101.1



(107.8)



257.7



26.5


Realized investment gains (losses):








Net realized gains on the transfer of assets related to reinsurance transaction







363.4


Other net realized investment gains (losses), excluding impairment losses

11.3



(37.8)



40.6



(8.7)


Impairment losses recognized (a)

(6.8)



(.5)



(12.4)



(2.6)


Total realized gains

4.5



(38.3)



28.2



352.1