CNO Reports Slight Rise in Profit

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Carmel-based CNO Financial Group Inc. (NYSE: CNO) is reporting second quarter net income of $78.1 million, compared to $77.1 million during the same quarter the previous year. Chief Executive Officer Ed Bonach says closing the sale of Conseco Life Insurance Co. will help the company "lower volatility" in the future. Jul 29, 2014

News Release

CARMEL, Ind. - CNO Financial Group, Inc. (NYSE: CNO) today announced second quarter of 2014 operating earnings (1) of $63.7 million, or 29 cents per diluted share compared to $63.9 million, or 28 cents per diluted share, in the second quarter of 2013.

"CNO's middle-income market focus and ability to serve our customers continue to drive solid growth in revenues and profitability," said Ed Bonach, CEO of CNO. "Our investments in agent productivity, branch and geographic expansion, new product development, operating efficiencies and the customer experience are delivering results and driving growth above industry norms. Closing the sale of CLIC provides us with even sharper focus and lower volatility going forward."

Second Quarter 2014 Highlights

Sales, as defined by total new annualized premium ("NAP") (2): $104.9 million, up 3% from 2Q13

Collected premium from our continuing operating segments (3): $831.7 million up 2% from 2Q13

Net income per diluted share: 35 cents in 2Q14 compared to 34 cents in 2Q13

Net operating income (1) per diluted share: 29 cents in 2Q14 compared to 28 cents in 2Q13

Unrestricted cash and investments held by our holding company were $277 million at June 30, 2014, after $130.8 million of common stock repurchases, dividends and debt payments in 2Q14

Six-month 2014 Highlights

Sales, as defined by total NAP (2): $206.8 million, up 3% from the first six months of 2013

Collected premium from our continuing operating segments (3): $1,647.4 million up 2% from the first six months of 2013

Net income (loss) per diluted share: (69) cents in the first six months of 2014 (including $1.36 from the loss on the sale of Conseco Life Insurance Company ("CLIC")) compared to 38 cents in the first six months of 2013

Net operating income (1) per diluted share: 56 cents in the first six months of 2014 compared to 47 cents in the first six months of 2013

Consolidated risk-based capital ratio was 437% at June 30, 2014, reflecting statutory operating earnings of $225 million and net dividends to the holding company of $115.0 million during the first six months of 2014

Segment Results

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 2Q14 was $63.1 million, down $.1 million from 2Q13. Higher sales of life and annuity products were offset by lower sales of long-term care and Medicare supplement products. Collected premiums were up 2% in 2Q14 compared to 2Q13, driven by increased sales over the last 12 months and favorable persistency. Annuity account values, on which spread income is earned, increased 2% to $7.5 billion in 2Q14 compared to 2Q13. 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 2Q14 compared to 2Q13 were up $8.3 million, or 10 percent. Earnings in 2Q14 reflect favorable annuity and long-term care margins.

Pre-tax operating earnings in 2Q14 included approximately $2 million of overhead expenses that were allocated to the Other CNO Business segment in quarters prior to 2014 and are expected to continue after the completion of the sale of CLIC.

Pre-tax operating earnings in 2Q13 of $79.1 million included: (i) approximately $6.5 million of favorable reserve developments in the Medicare supplement block; partially offset by (ii) refinements to the methodologies used to calculate health product reserves (primarily long-term care) of approximately $4.0 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 2Q14 was $25.3 million, up 9 percent from 2Q13 primarily driven by strong supplemental health sales in the individual market through Performance Matters Associates, our wholly-owned marketing organization. Collected premiums from the segment's supplemental health block were up 6 percent in 2Q14 compared to 2Q13, driven by strong sales and persistency.

Pre-tax operating earnings in 2Q14 compared to 2Q13 were down $3.5 million, or 10 percent, primarily resulting from elevated loss ratios in the supplemental health block and an increased allocation of overhead expenses; partially offset by favorable annuity margins. Given the elevated loss ratios we are experiencing in our supplemental health block, we currently expect that this blocks' interest-adjusted benefit ratio will be in the 54 percent range during 2014.

Pre-tax operating earnings in 2Q14 included approximately $2 million of overhead expenses that were allocated to the Other CNO Business segment in quarters prior to 2014 and are expected to continue after the completion of the sale of CLIC.

Pre-tax operating earnings in 2Q13 of $35.8 million included approximately $1.5 million of favorable reserve developments in the Medicare supplement block. The Medicare supplement block in this segment is in run-off, yet continues to outperform our expectations with favorable claims experience and persistency continuing in 2Q14.

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 2Q14 was $16.5 million, up 4 percent from 2Q13, reflecting increased sales of simplified issue life insurance policies, including an increase in sales through the internet. Collected premiums were up 6 percent in 2Q14 compared to 2Q13, driven by increased sales and steady persistency.

Pre-tax operating earnings in 2Q14 compared to 2Q13 reflect continued growth in the in-force block, favorable policy benefits and a modest increase in the deferral of acquisition costs due to a slight shift to deferrable direct mail marketing activities. In-force EBIT was $13.1 million, up 6 percent from 2Q13, 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 approximately break-even results in 2014.

Corporate Operations includes our investment advisory subsidiary and corporate expenses.

This segment's earnings included favorable investment returns in both 2Q14 and 2Q13, reflecting market conditions. Pre-tax operating earnings in 2Q14 and 2Q13 also reflected an increase (decrease) in expenses of $11.8 million and $(6) million, respectively, related to the impact of changes in interest rates on the values of liabilities for agent deferred compensation and former executive retirement annuities. We have elected to recognize the change in the value of these liabilities through earnings as interest rates change.

Non-Operating Items Related to Operations of CLIC Being Sold

On July 1, 2014, we completed the previously announced sale of CLIC to Wilton Reassurance Company ("Wilton Re"). The transaction resulted in net proceeds of approximately $220 million based upon an estimated balance sheet of CLIC as of June 30, 2014 and after anticipated transaction costs and intercompany transactions completed in connection with the closing. In addition, Bankers Life paid $28 million to recapture a block of traditional life insurance that was previously reinsured to Wilton Re. In 1Q14, we recognized an estimated loss on the CLIC transaction of $298.0 mill