CNO Reports Quarterly LossPosted: Updated:
Carmel-based CNO Financial Group Inc. (NYSE: CNO) is reporting a first quarter loss of $228 million, compared to a profit of $11.9 million during the same quarter the previous year. Chief Executive Officer Ed Bonach says the previously-announced sale of Conseco Life Insurance Co. will enable the company to "shed the legacy of the past" and focus on the middle-income market. April 28, 2014
CARMEL, Ind. - CNO Financial Group, Inc. (NYSE: CNO) today announced first quarter of 2014 operating earnings (1) of $59.9 million, or 27 cents per diluted share compared to $45.6 million, or 19 cents per diluted share, in the first quarter of 2013. CNO reported a net loss for the first quarter of 2014 of $228.0 million, or $1.03 per diluted share, driven by the loss of $298.0 million, or $1.35 per diluted share, from the previously announced transaction to sell 100% of the common stock of Conseco Life Insurance Company ("CLIC").
"We are pleased to report that CNO continues to deliver strong performance with growth in operating earnings per share, sales and collected premiums," CEO Ed Bonach said. "In addition, the pending sale of CLIC and the recently completed long-term care reinsurance transaction enable us to shed the legacy of the past and devote our attention to our core business segments and meeting the needs of the large, growing, underserved middle-income market."
First Quarter 2014 Highlights
Sales, as defined by total new annualized premium ("NAP") (2): $101.9 million, up 4% from 1Q13
Collected premium from our continuing operating segments (3): $815.7 million up 2% from 1Q13
Net income (loss) per diluted share: $(1.03) in 1Q14 (including $(1.35) from the loss on the pending sale of CLIC) compared to 5 cents in 1Q13 (including (24) cents from the loss on extinguishment of debt)
Net operating income (1) per diluted share: 27 cents compared to 19 cents in 1Q13
Consolidated risk-based capital ratio was 427%, reflecting statutory operating earnings of $92.2 million and net dividends to the holding company of $40 million
Unrestricted cash and investments held by our holding company were $306 million at March 31, 2014, after $58.8 million of common stock repurchases, dividends and debt payments
These results reflect changes we made to our segment reporting due to the CLIC operations being sold, as further described in our Form 8-K dated April 22, 2014.
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 1Q14 was $63.1 million, up 4 percent from 1Q13 reflecting higher sales of life and annuity products. Increased sales of Medicare Advantage policies, which are not included in NAP, contributed to higher fee income in the quarter. Collected premiums were up 2% in 1Q14 compared to 1Q13, driven by strong sales. Increased agent productivity offset a 3% decrease in average agent count, reflecting our emphasis on increasing sales generated per agent.
Pre-tax operating earnings in 1Q14 compared to 1Q13 were up $22.1 million, or 36 percent. Earnings in 1Q14 continued to reflect favorable reserve developments in the Medicare supplement block, favorable mortality and increased earnings from favorable annuity margins.
Pre-tax operating earnings in 1Q14 included approximately $2 million of overhead expenses that were allocated to the Other CNO Business segment in previous quarters and are expected to continue after the completion of the sale of CLIC.
Pre-tax operating earnings in 1Q13 reflect an out-of-period adjustment related to the long-term care block which reduced earnings by $9.2 million.
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 1Q14 was $22.0 million, up 7 percent from 1Q13 primarily driven by strong supplemental health sales in both the worksite and individual markets. Collected premiums from the segment's supplemental health block were up 5 percent in 1Q14 compared to 1Q13, driven by strong sales and persistency.
Pre-tax operating earnings in 1Q14 compared to 1Q13 were down $2.9 million, or 9 percent primarily resulting from unfavorable annuity margins and approximately $2 million of overhead expenses that were allocated to the Other CNO Business segment in previous quarters and are expected to continue after the completion of the sale of CLIC.
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 1Q14 was $16.8 million, down 1 percent from 1Q13, reflecting timing differences in lead generation efforts. Collected premiums were up 7 percent in 1Q14 compared to 1Q13, driven by growth in the block.
Pre-tax operating earnings (loss) in 1Q14 reflected higher marketing expenses as a result of higher television advertising costs as compared to 1Q13, partially offset by favorable mortality. In-force EBIT was $10.3 million, up 17 percent from 1Q13, 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.
Corporate Operations includes our investment advisory subsidiary and corporate expenses.
Pre-tax earnings (loss) in 1Q14 compared to 1Q13 reflect higher expenses in 1Q14 and higher investment results in 1Q13, primarily related to the investments underlying our Company-owned life insurance (which supports a deferred compensation program for certain agents).
Pre-tax earnings (loss) in 1Q14 reflected higher expenses of $3 million primarily related to accrual adjustments for incentive compensation.
Pre-tax earnings in 1Q13, included earnings on the investments underlying our Company-owned life insurance of $4.6 million (compared to $1.0 million in 1Q14), reflecting the favorable market conditions in 1Q13.
Non-Operating Items Related to Operations of CLIC Being Sold
We entered into a definitive agreement to sell 100% of the common stock of CLIC to Wilton Reassurance Company ("Wilton Re") in 1Q14. The sale of CLIC is subject to customary closing conditions and certain regulatory approvals, and is expected to close mid-year 2014. The estimated loss on the disposition of $298.0 million was recognized in 1Q14. The estimated loss will be further adjusted through the date of closing to reflect changes in CLIC's statutory capital and surplus.
The transaction meets the criteria for held for sale accounting. As a result, the assets and liabilities of CLIC being sold are included as single line items in the asset and liability sections of our consolidated balance sheet as of March 31, 2014.
The earnings related to the CLIC business being sold to Wilton Re are also reflected as non-operating items. Such earnings, net of taxes, were $6.7 million in 1Q14 and $5.5 million in 1Q13.
Other Non-Operating Items
Net realized investment gains in 1Q14 were $13.6 million (net of related amortization and taxes) including total other-than-temporary impairment losses of $11.9 million recorded in earnings. Impairment losses in 1Q14 reflect the writedown of a commercial mortgage loan and certain legacy investments in private companies. Net realized investment gains in 1Q13 were $8.0 million (net of related amortization and taxes), with no other-than-temporary impairment losses.
During 1Q14 and 1Q13, we recognized an increase (decrease) in earnings of $(7.2) million and $1.3 million, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities re