updated: 4/30/2012 4:12:16 PM
Carmel-based CNO Financial Group Inc. (NYSE: CNO) is reporting first quarter net income of $59.1 million, compared to $45.4 million during the same period last year. Chief Executive Officer Ed Bonach says the company's financial position is stronger after reducing debt and continuing a stock repurchase program.
April 30, 2012
Carmel, Ind. -- CNO Financial Group, Inc. (NYSE: CNO) today announced first quarter of 2012 net income of $59.1 million, or 21 cents per diluted share, and operating earnings (1) of $40.6 million, or 15 cents per diluted share. All prior periods presented have been retrospectively adjusted to reflect the adoption of ASU 2010-26 related to the accounting for deferred acquisition costs as further discussed below.
"CNO's core businesses continued to perform well during the first quarter, while our investments in distribution and growth in our business are yielding solid sales and earnings results," CEO Ed Bonach said. "Our financial position also continued to strengthen as we further reduced debt, paid in full the remaining balance of the Senior Health Note and continued our stock repurchase program."
First Quarter 2012 Highlights
•Sales, as defined by total new annualized premium ("NAP") (2): $96.2 million, up 12% from 1Q11
•Net income per diluted share of 21 cents, compared to 16 cents in 1Q11
Net operating income (1) per diluted share: 15 cents in both 1Q12 and 1Q11
•The consolidated statutory risk-based capital ratio increased 2 percentage points to 360% in 1Q12 and statutory operating earnings totaled $87 million
•Unrestricted cash and investments held by our non-insurance subsidiaries was $171.9 million at March 31, 2012, after $18.9 million of share repurchases and $59.4 million of debt payments
•Senior Health Note paid in full, removing restriction on paying a common stock dividend
•Debt-to-total capital ratio, excluding accumulated other comprehensive income (loss) (3), decreased 120 basis points from December 31, 2011 to 17.1 percent
Adoption of New Accounting Standard
Effective January 1, 2012, we adopted ASU 2010-26 which modified the definition of the types of acquisition costs that can be deferred by insurance companies. We elected to adopt the new guidance on a retrospective basis. Accordingly, all prior periods presented have been retrospectively adjusted. As a result of the adoption of the new guidance, shareholders' equity, excluding accumulated other comprehensive income, at December 31, 2011, decreased $575 million; and net income for the first three months of 2012 and 2011, decreased by $10.4 million and $8.5 million, respectively. The new guidance impacts the timing of the recognition of profits on our business, but has no impact on cash flows, statutory financial results or the ultimate profitability of the business.
Bankers Life markets and distributes a variety of insurance products to the middle-income senior market through a dedicated field force of career agents. NAP in 1Q12 was $58.8 million, up 6% from 1Q11 with higher sales of life and Medicare supplement products being partially offset by lower annuity sales as a result of the low interest rate environment. Overall sales growth was driven by an increase in agent force due to gains in recruiting and retention.
Pre-tax operating earnings in 1Q12 of $70.5 million included: (i) approximately $21 million of favorable reserve developments in the Medicare supplement and long-term care blocks; partially offset by (ii) a $10 million settlement with state securities regulators.
Pre-tax operating earnings in 1Q11 of $62.2 million included: (i) approximately $18 million of favorable reserve developments in the Medicare supplement and long-term care blocks; partially offset by (ii) approximately $6 million additional amortization of insurance intangibles primarily resulting from higher 1Q11 policy lapses of Medicare supplement policies.
Pre-tax operating earnings in 1Q12 compared to 1Q11 were up $8 million, or 13 percent. Such increase reflects: (i) $10 million increased earnings on the annuity block reflecting favorable investment spreads and higher total account values; (ii) $3 million net favorable developments in the Medicare supplement and long-term care blocks; (iii) $6 million lower amortization of insurance intangibles due to improved persistency of Medicare supplement policies in 1Q12; partially offset by (iv) a $10 million settlement with state securities regulators.
Washington National markets and distributes supplemental health and life insurance to middle-income consumers through a wholly owned subsidiary and independent marketing organizations and insurance agencies. NAP in 1Q12 was $19.9 million, up 16% from 1Q11 due to increased sales of core supplemental health and life insurance products. Sales in the quarter benefited from distribution expansion and an increase in worksite sales, which were up 24%.
Pre-tax operating earnings in 1Q12 did not fluctuate significantly from 1Q11.
Colonial Penn markets primarily graded benefit and simplified issue life insurance directly to customers through television advertising, direct mail, the internet and telemarketing. NAP in 1Q12 was $17.5 million, up 28% from 1Q11. Sales in the quarter benefited from an increase in lead levels and higher buy rates, which demonstrate the benefits of our increased investment in marketing and advertising.
This segment's results are significantly impacted by the adoption of the new accounting standard related to deferred acquisition costs. We are no longer able to defer most of Colonial Penn's direct response advertising costs although such costs generate predictable sales and future profits. The amount of our investment in new business during a particular period will have a significant impact on this segment's results.
Pre-tax operating earnings in 1Q12 were down $4 million compared to 1Q11, primarily reflecting an increase in direct response advertising expense.
Other CNO Business consists of blocks of various insurance products that are no longer being actively marketed. Its earnings will often fluctuate between periods.
Pre-tax operating loss in 1Q12 of $2.3 million included: (i) a $20 million charge related to the tentative settlement by the Company's subsidiary, Conseco Life Insurance Company, in the Nicholas putative class action; offset by (ii) $5 million of favorable margins in life and annuity blocks.
Pre-tax operating loss in 1Q12 compared to 1Q11 was down approximately $10 million primarily due to the: (i) $20 million charge related to the tentative settlement; partially offset by (ii) the $5 million favorable margins (both as described above).
Corporate Operations includes our investment advisory subsidiary and corporate expenses.
Net expenses in 1Q12 of $1.8 million included: (i) a $6 million increase in the value of Company-owned life insurance utilized as an investment vehicle to fund an agent deferred compensation plan; (ii) $6 million of income from investment trading account activities; partially offset by (iii) $7 million of expense related to the relocation of Bankers Life's primary office.
Net expenses in 1Q11 included: (i) a $2 million increase in the value of Company-owned life insurance; and (ii) $4 million of income from investment trading account activities.
Net expenses in 1Q12 compared to 1Q11 were up $1 million reflecting: (i) $7 million of expenses related to the relocation of Bankers Life's primary office; partially offset by (ii) a $4 million increase in the value of Company-owned life insurance; and (iii) a $2 million increase in income from investment trading account activities.
Net realized investment gains in 1Q12 were $14.1 million (net of related amortization and taxes), including total other-than-temporary impairment losses of $7.9 million recorded in earnings. Net realized investment gains in 1Q11 were $3.1 million (net of related amortization and taxes), including total other-than-temporary impairment losses of $13.3 million recorded in earnings.
Book value per common share, excluding other comprehensive income (loss) (5), increased to $16.20 from $15.88 at December 31, 2011.
The Company will host a conference call to discuss results on May 1, 2012 at 10:00 a.m. Eastern Daylight Time. The webcast can be accessed through the Investors section of the company's website: http://investor.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.
CNO is a holding company. Our insurance subsidiaries - principally Bankers Life and Casualty Company, Washington National Insurance Company and Colonial Penn Life Insurance Company - serve working American families and seniors by helping them protect against financial adversity and provide for a more secure retirement. For more information, visit CNO online at www.CNOinc.com.
Source: CNO Financial Group Inc.