CNO Profit Falls
Carmel-based CNO Financial Group Inc. (NYSE: CNO) is reporting full-year net income of $51.4 million, compared to $478 million in 2013. The company also announced a technology partnership with New Jersey-based Cognizant Technology Solutions Corp. (Nasdaq: CTSH), which will affect hundreds of CNO IT positions throughout the world. February 10, 2015
CARMEL, Ind. - CNO Financial Group, Inc. (NYSE: CNO) today announced fourth quarter of 2014 operating earnings (1) of $59.3 million, or 29 cents per diluted share, compared to $66.2 million, or 29 cents per diluted share, in the fourth quarter of 2013. For the full year 2014, CNO reported operating earnings (1) of $259.5 million, or $1.19 per diluted share, compared to $248.4 million, or $1.07 per diluted share in 2013. Net income and operating earnings in the fourth quarter of 2014 reflect an unfavorable $9.8 million (5 cents per diluted share) after-tax mark-to-market change in the agent deferred compensation plan liability which was impacted by the use of a new mortality table and the low interest rate environment. We have elected to recognize the mark-to-market change in the estimated value of this liability through earnings as assumptions change.
"We continued to profitably grow the enterprise in the fourth quarter, along with advancing Bankers Life agent recruiting," said Ed Bonach, CEO of CNO. "For the year, we made important progress on several fronts, in particular further reducing risk with the sale of CLIC, returning capital to shareholders, investing in our franchise, and growing our core businesses with increases in sales, collected premiums, annuity account values and operating earnings."
Strategic Technology Partnership
CNO has entered into a comprehensive agreement with Cognizant forming a strategic partnership for technology delivery that is expected to accelerate our core IT process improvements and enable more rapid innovation. Under the agreement, Cognizant will, after the transition period, assume CNO's application development, maintenance, and testing functions as well as select IT infrastructure operations. Cognizant will also take over all CNO operations located in Hyderabad, India. The partnership will result in the movement of approximately 640 IT positions from CNO to Cognizant, roughly 240 of which are U.S.-based. The agreement is expected to deliver run-rate expense savings of approximately $10 million annually and to result in a modest charge to earnings of approximately $6 million over the first two quarters of 2015 related to certain one-time transition costs.
Commenting on the strategic partnership, CEO Ed Bonach said, "We are pleased to launch an agreement with Cognizant, a leading provider of information technology and related services to the insurance industry. This partnership is critical to advancing our technology platforms, enhancing our agent and customer experience, and positioning us through innovation and efficiency to better compete in the underserved middle-market."
Fourth Quarter 2014 Highlights
Sales, as defined by total new annualized premium ("NAP") (2): $114.8 million, up 1% from 4Q13
Collected premium from our continuing operating segments (3): $884.4 million up 3% from 4Q13
Net income per diluted share: 41 cents in 4Q14 compared to 47 cents in 4Q13
Net operating income (1) per diluted share: 29 cents in both 4Q14 and 4Q13 (including (5) cents in 4Q14 for the mark-to-market change in the agent deferred compensation plan liability)
Completed comprehensive annual review of actuarial assumptions, resulting in a net $4 million unfavorable pre-tax impact
Unrestricted cash and investments held by our holding company were $345 million at December 31, 2014
Common stock repurchases, dividends and debt payments were $111.5 million in 4Q14
Full Year 2014 Highlights
Sales, as defined by total NAP (2): $425.4 million, up 2% from 2013
Collected premium from our continuing operating segments (3): $3,358.9 million up 2% from 2013
Net income per diluted share: 24 cents in 2014 (including $(1.24) from the net loss on the sale of Conseco Life Insurance Company ("CLIC") and gain on reinsurance transactions) compared to $2.06 in 2013 (including $1.29 from the release of the valuation allowance for deferred taxes and other tax items)
Net operating income (1) per diluted share: $1.19 in 2014 compared to $1.07 in 2013
Consolidated risk-based capital ratio was approximately 434% at December 31, 2014 compared to 410% at December 31, 2013
Statutory operating earnings in 2014 were $393 million and net insurance company dividends to the holding company were $174 million
Capital returned to shareholders in 2014 totaled $427 million, including securities repurchases of $376 million and common stock dividends of $51 million
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 4Q14 was $73.6 million, flat with 4Q13. NAP for the year ended December 31, 2014, was $261.6 million, up 1 percent from 2013. Collected premiums were up 3 percent in 4Q14 compared to 4Q13, driven by sales over the last 12 months and favorable persistency. Annuity account values, on which spread income is earned, increased 2 percent to $7.4 billion in 4Q14 compared to 4Q13. Sales results for the quarter and year were impacted by a 3 percent decrease in average producing agent count in 2014. However, the average producing agent count increased in 4Q14 compared to 3Q14, reflecting improved recruiting in 4Q14. We anticipate this segment's sales will grow 3 to 5 percent in 2015.
Pre-tax operating earnings in 4Q14 compared to 4Q13 were up $20.5 million, or 25 percent. Earnings in 4Q14 reflect the significant items described below and favorable margins from our annuity block reflecting growth from sales, higher account values and lower surrenders.
Pre-tax operating earnings in 4Q14 of $103.5 million included significant items of $9 million, comprised of: (i) $6 million of positive impacts from our comprehensive annual actuarial review including impacts from model enhancements, net of changes in assumptions related to mortality and long-term interest rates; and (ii) the receipt of a $3 million settlement related to the early termination in 2013 of a PDP quota-share agreement.
Pre-tax operating earnings in 4Q13 of $83.0 million 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 4Q14 included approximately $2.5 million of additional income from the recapture (completed in 3Q14) of a block of life insurance business previously ceded to Wilton Reassurance Company ("Wilton Re"). This increase to pre-tax operating earnings was partially offset by approximately $2 million of overhead expenses that were previously allocated to the Other CNO Business segment in quarters prior to 2014 and have continued after the completion of the sale of CLIC.
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 4Q14 was $26.3 million, flat with 4Q13. NAP for the year ended December 31, 2014, was $99.2 million, up 6 percent from 2013. Collected premiums from the segment's supplemental health block were up 5 percent in 4Q14 compared to 4Q13, driven by strong sales and persistency. We anticipate this segment's sales will grow 5 to 7 percent in 2015.
Pre-tax operating earnings in 4Q14 compared to 4Q13 were down $17.6 million, primarily resulting from adjustments from our comprehensive annual actuarial