CNO Yearly Profit DoublesPosted: Updated:
Carmel-based CNO Financial Group Inc. (NYSE: CNO) is reporting full-year net income of $478 million, compared to $221 million in 2012. Fourth quarter profits also increased to $106 million from $101.2 million during the same quarter the previous year. Chief Executive Officer Ed Bonach says the results were boosted by sales growth and distribution expansion. February 11, 2014
CARMEL, Ind. - CNO Financial Group, Inc. (NYSE: CNO) today announced fourth quarter of 2013 net income of $106.0 million, or 47 cents per diluted share, and operating earnings (1) of $75.4 million, or 33 cents per diluted share. For the full year, CNO reported net income of $478.0 million, or $2.06 per diluted share, and operating earnings (1) of $270.0 million, or $1.17 per share.
CNO also announced that two of its insurance subsidiaries have entered into 100 percent coinsurance agreements ceding $550 million of closed block long-term care statutory reserves in the Other CNO Business segment to Beechwood Re Ltd ("BRe").
"We again delivered positive results for the quarter and full year, with sales and premium growth, distribution expansion and continued strength in key financial measures," CEO Ed Bonach said. "Our reinsurance transaction represents a meaningful step forward in addressing our run-off business, reducing our exposure to long-term care while being accretive to go-forward earnings."
Fourth Quarter 2013 Highlights
Sales, as defined by total new annualized premium ("NAP") (2): $114.1 million, up 8% from 4Q12
Collected premium from our core operating segments (3): $855.1 million up 5% from 4Q12
Net income per diluted share: 47 cents compared to 41 cents in 4Q12
Net operating income (1) per diluted share: 33 cents compared to 25 cents in 4Q12
Net income was impacted by various favorable tax items totaling $79.3 million in 4Q13 and $28.5 million in 4Q12
100% coinsurance agreements ceding $550 million of long-term care statutory reserves, reducing 4Q13 net income by $65.3 million
Twelve-month 2013 Highlights
Sales, as defined by total NAP (2): $416.3 million, up 6% from 2012
Net income per diluted share of $2.06 compared to 83 cents in 2012
Net operating income (1) per diluted share: $1.17 compared to 69 cents in 2012
The consolidated statutory risk-based capital ratio increased 43 percentage points to 410% during 2013
Statutory operating earnings of $367.5 million were impacted by a $31.6 million net loss related to the long-term care reinsurance transaction
Unrestricted cash and investments held by our holding company were $309 million at December 31, 2013
Significant items in the quarter included: (i) $5.8 million of favorable reserve developments in the Medicare supplement block, net of $2.6 million of net unfavorable adjustments primarily related to reserves established for remediation efforts in the Bankers Life segment; and (ii) a $5.0 million favorable impact from the settlement of a reinsurance matter in the Other CNO Business segment.
Bankers Life markets and distributes a variety of insurance products to middle-income Americans at or near retirement through a dedicated field force of career agents. NAP in 4Q13 was $73.9 million, up 7 percent from 4Q12 reflecting higher sales of Medicare supplement, annuity and life products. Sales of Medicare Advantage policies, which are not included in NAP, were up 53 percent and drove significant fee income in the quarter. Collected premiums were up 6% in 4Q13 compared to 4Q12, driven by strong sales and persistency. Bankers Life opened 25 net new sales offices in 2013 (bringing the total number of offices to 301), contributing to a 3 percent growth in average agent count.
Pre-tax operating earnings in 4Q13 compared to 4Q12 were up $9.3 million, or 13 percent. Earnings in 4Q13 continued to reflect favorable reserve developments in the Medicare supplement block and increased earnings from our annuity block reflecting higher account values and lower surrenders, partially offset by higher benefit ratios in the long-term care block due to higher persistency.
Pre-tax operating earnings in 4Q13 included significant items of $3.2 million, including $5.8 million of favorable reserve developments in the Medicare supplement block, net of $2.6 million of net unfavorable adjustments primarily related to reserves established for remediation efforts.
Pre-tax operating earnings in 4Q12 included $8 million of increased litigation expense offset by the release of long-term care reserves of approximately $4 million due to the impact of policyholder actions following recent rate increases.
We expect this segment to experience normal seasonal variances in quarterly earnings during 2014, with the first quarter of the year typically having lower earnings than the other three quarters (substantially similar to the seasonal trends experienced over the last two years).
Washington National markets and distributes supplemental health and life insurance to middle-income consumers through a wholly-owned subsidiary and independent insurance agencies. NAP in 4Q13 was $26.2 million, up 15 percent from 4Q12 primarily due to increased sales of voluntary worksite supplemental health products stemming from the acquisition of new groups and an increase in enrollments. Collected premiums, excluding premiums from the closed Medicare supplement block, were up 8 percent in 4Q13 compared to 4Q12, driven by strong sales and persistency.
Pre-tax operating earnings in 4Q13 compared to 4Q12 were down $3.1 million, or 9 percent. The 4Q12 benefit ratio for supplemental health insurance reflected favorable claims experience.
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 4Q13 was $14.0 million, up 3 percent from 4Q12. Collected premiums were up 6 percent in 4Q13 compared to 4Q12, driven by growth in the block.
Pre-tax operating earnings in 4Q13 reflected higher marketing expenses as compared to 4Q12. In-force EBIT was $12.1 million, up 9 percent from 4Q12, reflecting the growth in the block.
Recognizing the accounting standard related to deferred acquisition costs, the amount of our investment in new business during a particular period will have a significant impact on this segment's results. We expect this segment to report a pre-tax loss of approximately $5 million in 2014, but because of the seasonality of advertising spend, we expect a loss in the $9 million range in 1Q14.
Other CNO Business consists of blocks of various insurance products that are no longer being actively marketed.
Results in 4Q13 included a $5 million favorable impact from the settlement of a reinsurance matter.
The results in 4Q12 reflected: (i) a $6 million out-of-period adjustment which reduced earnings; (ii) a $5 million charge for litigation expense in the Company's subsidiary, Conseco Life Insurance Company; partially offset by (iii) favorable mortality of approximately $7 million in the universal life and traditional life blocks of business.
The run-off nature of the business in this segment will often result in earnings that fluctuate between periods.
Corporate Operations includes our investment advisory subsidiary and corporate expenses.
Pre-tax earnings (loss) in 4Q13 compared to 4Q12 reflect favorable investment results, driven by positive investment markets.
Long-Term Care Reinsurance Transaction
Two of our insurance subsidiaries with long-term care business in the Other CNO Business segment have entered into 100% coinsurance agreements ceding $550 million of closed block long-term care reserves to BRe where the insurance subsidiaries will transfer statutory capital to BRe of $43 million, in addition to the related reserves and supporting assets. The insur