July 26, 2016
CNO Financial Group Reports Second Quarter 2016 Results
Continued Growth in Enterprise and Strength in Key Capital Measures

CARMEL, Ind., July 26, 2016 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE: CNO) today announced net income for the second quarter of 2016 of $59.9 million, or 33 cents per diluted share, compared to $46.8 million, or 24 cents per diluted share, in the second quarter of 2015.  CNO also announced second quarter of 2016 operating earnings (1) of $63.7 million, or 35 cents per diluted share, compared to $60.8 million, or 31 cents per diluted share, in the second quarter of 2015.

"We continue to see growth in our business, underscored by increases in collected premiums, policies in-force and annuity account values," said Ed Bonach, CEO of CNO.  "Our earnings, cash flow, capital, liquidity and returns to shareholders remain strong."

Second Quarter 2016 Highlights

  • First year collected premiums: $304 million, up 5% from 2Q15
  • New annualized premium ("NAP") (2): $101.9 million, down 3% from 2Q15
  • Total collected premiums: $863.0 million, up 4% from 2Q15
  • Policies in-force of 3.5 million (including third party policies in-force), up 1 percent from 2Q15
  • Net income per diluted share: 33 cents in 2Q16 compared to 24 cents in 2Q15
  • Net operating income (1) per diluted share: 35 cents in 2Q16 compared to 31 cents in 2Q15
  • Unrestricted cash and investments held by our holding company were $376 million at June 30, 2016
  • Common stock repurchases of $61.0 million and dividends of $14.3 million in 2Q16

Six-month 2016 Highlights

  • First year collected premiums: $633 million, up 13% from the first six months of 2015
  • NAP (2): $209.7 million, down 1% from the first six months of 2015
  • Total collected premiums: $1,759.3 million, up 7% from the first six months of 2015
  • Net income per diluted share: 58 cents in the first six months of 2016 compared to 50 cents in the first six months of 2015
  • Net operating income (1) per diluted share: 63 cents in the first six months of 2016 compared to 61 cents in the first six months of 2015
  • Consolidated risk-based capital ratio was estimated at 448% at June 30, 2016, reflecting estimated statutory operating earnings of $174 million and insurance company dividends to the holding company of $130.6 million during the first six months of 2016

 

Quarterly Segment Operating Results



Three months ended


June 30,


2016


2015


(Dollars in millions,
except per share data)

Adjusted EBIT (3):




Bankers Life

$

93.3



$

86.4


Washington National

21.5



20.1


Colonial Penn:




  In-force business (6)

14.1



13.3


  New business (6)

(11.1)



(9.1)


 Total Colonial Penn

3.0



4.2


 Adjusted EBIT from business segments

117.8



110.7


Corporate Operations, excluding corporate interest expense

(7.0)



(5.0)


 Adjusted EBIT

110.8



105.7


Corporate interest expense

(11.4)



(11.9)


 Operating earnings before taxes

99.4



93.8


Tax expense on operating income

35.7



33.0


 Net operating income (1)

63.7



60.8


Net realized investment gains (losses) (net of related amortization)

12.0



(10.4)


Fair value changes in embedded derivative liabilities (net of related amortization)

(16.5)



25.7


Fair value changes related to agent deferred compensation plan

(12.3)




Loss on extinguishment of debt



(32.8)


Other

.1



(3.6)


Non-operating loss before taxes

(16.7)



(21.1)


Income tax (benefit):




On non-operating loss

(5.9)



(7.1)


Valuation allowance for deferred tax assets

(7.0)




Net non-operating loss

(3.8)



(14.0)


Net income

$

59.9



$

46.8






Per diluted share:




Net operating income

$

.35



$

.31


Net realized investment gains (losses) (net of related amortization and taxes)

.04



(.03)


Fair value changes in embedded derivative liabilities (net of related amortization and taxes)

(.06)



.08


Fair value changes related to agent deferred compensation plan (net of taxes)

(.04)




Loss on extinguishment of debt (net of taxes)



(.11)


Valuation allowance for deferred tax assets

.04




Other



(.01)


  Net income

$

.33



$

.24


 

The following table summarizes the financial impact of a significant item on our 2Q16 net operating income (dollars in millions, except per share amounts):

 


Three months ended


June 30, 2016*


Actual results


Significant item


Excluding
significant
item

Net Operating Income (1):






Bankers Life

$

93.3



$

(4.5)



$

88.8


Washington National

21.5





21.5


Colonial Penn

3.0





3.0


 Adjusted EBIT from business segments

117.8



(4.5)



113.3


Corporate Operations, excluding corporate interest expense

(7.0)





(7.0)


 Adjusted EBIT (3)

110.8



(4.5)



106.3


Corporate interest expense

(11.4)





(11.4)


Operating earnings before taxes

99.4



(4.5)



94.9


Tax expense on operating income

35.7



(1.6)



34.1


Net operating income

$

63.7



$

(2.9)



$

60.8








Net operating income per diluted share

$

.35



$

(.01)



$

.34


 

The significant item in 2Q16 was the release of long-term care reserves (net of the reduction in insurance intangibles) due to the impact of policyholder actions following rate increases.

*  See page 9 for the table of Net Operating Income Excluding a Significant Item for the three months ended June 30, 2015.

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. First year collected premiums in 2Q16 were $270.4 million, up 6% from 2Q15.  NAP in 2Q16 was $58.5 million, down 5 percent from 2Q15.  Sales results for the quarter primarily reflect lower life sales; partially offset by higher sales of annuity, long-term care and Medicare supplement products.  It should be noted that 76 percent of the long-term care NAP in 2Q16 related to policies with maximum benefit periods of one year.  Average producing agents were down 7 percent from 2Q15 reflecting lower recruiting in recent quarters.  New agent recruitment was up 8 percent in 2Q16 compared to 2Q15 and agent productivity (defined as NAP divided by the average producing agents) was up 2 percent.

Total collected premiums were up 4 percent in 2Q16 compared to 2Q15, primarily reflecting an increase in premiums from annuity products.  Annuity account values, on which spread income is earned, increased 2 percent to $7.6 billion in 2Q16 compared to 2Q15, driven by sales and strong persistency.  Total policies in-force increased 1 percent in 2Q16, including a 9 percent increase in third party policies in-force.

Pre-tax operating earnings in 2Q16 compared to 2Q15 were up $6.9 million, or 8 percent.  Pre-tax operating earnings in 2Q16 reflected a $4.5 million release of long-term care reserves (net of the reduction in insurance intangibles of $.5 million) due to the impact of policyholder actions following rate increases (as further described below).

The long-term care interest-adjusted benefit ratio was 77.9 percent in 2Q16, lower than the 2Q15 ratio of 84.6 percent.  The 2Q16 ratio was favorably impacted by $5 million of one-time reserve releases related to policyholder decisions to surrender or reduce coverage following rate increases.  The 2Q16 long-term care interest-adjusted benefit ratio excluding the favorable reserve releases related to rate increases was 82.1 percent.  We continue to expect the long-term care interest-adjusted benefit ratio to be in the range of 81 percent to 86 percent during the remainder of 2016, excluding the reserve-related impacts of rate increase actions.  We also expect that the impacts of rate increases will continue to favorably impact the interest-adjusted benefit ratio in 2016.

Pre-tax operating earnings in 2Q16 reflected a Medicare supplement benefit ratio of 73.0 percent, higher than the 2Q15 ratio of 68.7 percent.  We continue to expect the Medicare supplement benefit ratio to be in the range of 70 percent to 73 percent during the remainder of 2016.

Washington National markets and distributes supplemental health and life insurance to middle-income consumers through a wholly-owned subsidiary and independent insurance agencies.  First year collected premiums in 2Q16 were $19.8 million, down 5% from 2Q15.  NAP in 2Q16 was $24.2 million, down 6 percent from 2Q15, reflecting lower sales of supplemental health products in the individual market.  NAP from sales of products in the worksite market in 2Q16 was $8.6 million, up 8 percent from 2Q15.  The average number of producing agents was up 5 percent compared to 2Q15.

Total collected premiums from the segment's supplemental health block were up 4 percent in 2Q16 compared to 2Q15.

Pre-tax operating earnings in 2Q16 compared to 2Q15 were up $1.4 million, or 7 percent.  Pre-tax operating earnings in 2Q16 reflected $5 million of persistency impacts and higher claims including:  (i) $2 million for reserve increases resulting from higher persistency on certain older business in the block; (ii) $1 million for increased amortization resulting from lower persistency on certain newer business in the block; and (iii) $2 million for elevated claims on certain products providing lump sum benefits upon the occurrence of a covered illness.  Pre-tax operating earnings in 2Q15 reflected $9 million of unfavorable reserve developments in the supplemental health block related to claims incurred in prior periods based on the completion of an in-depth review of recent claim trends in the block, including the impact of newer cancer treatments on claims.

The supplemental health interest-adjusted benefit ratio was 61.6 percent and 65.7 percent in 2Q16 and 2Q15, respectively.  After adjusting for the persistency impacts and higher claims summarized in the previous paragraph, this block's interest-adjusted benefit ratio was 58 percent in 2Q16.  These impacts primarily relate to current quarter experience and, therefore, are not considered significant items in the table provided above.  After adjusting for unfavorable reserve developments related to claims incurred in prior periods, this block's interest-adjusted benefit ratio was 59 percent in 2Q15.  We continue to expect the supplemental health interest-adjusted benefit ratio to be in the range of 56 percent to 59 percent during the remainder of 2016.

Colonial Penn markets primarily graded benefit and simplified issue life insurance directly to customers through television advertising, direct mail, the internet and telemarketing.  First year collected premiums in 2Q16 were $13.8 million, up 8 percent from 2Q15.  NAP in 2Q16 was $19.2 million, up 4 percent from 2Q15, benefiting from strong lead volume and sales productivity initiatives.

Total collected premiums were up 7 percent in 2Q16 compared to 2Q15, driven by increased sales and steady persistency.

Pre-tax operating earnings in 2Q16 were $3.0 million compared to $4.2 million in 2Q15, primarily reflecting investments in new business and higher marketing costs (including the impacts of the presidential campaign on television advertising costs).  In-force Adjusted EBIT was $14.1 million, up 6 percent from 2Q15, primarily reflecting 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 continue to expect this segment to report earnings in 2016 in the range of breakeven to $6 million.  The range of earnings we expect to report in 2016 reflects uncertainty related to how the U.S. presidential election will impact the cost of television advertising.

Corporate Operations includes our investment advisory subsidiary and corporate expenses.

Pre-tax losses in 2Q16 were $7.0 million compared to $5.0 million of losses in 2Q15 primarily reflecting higher expenses; partially offset by favorable investment returns.

Non-Operating Items
Net realized investment gains in 2Q16 were $12.0 million (net of related amortization) including total other-than-temporary impairment losses of $13.6 million recorded in earnings and a $7.3 million loss on the dissolution of a variable interest entity.  Net realized investment losses in 2Q15 were $10.4 million (net of related amortization) including total other-than-temporary impairment losses of $7.9 million recorded in earnings.

During 2Q16 and 2Q15, we recognized increases (decreases) in earnings of $(16.5) million and $25.7 million, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities related to our fixed index annuities, net of related amortization and income taxes.  Such amount includes the impacts of changes in market interest rates used to determine the derivative's estimated fair value.

During 2Q16, we recognized a decrease in earnings of $12.3 million for the mark-to-market change in the agent deferred compensation plan liability which was impacted by changes in interest rates used to value the liability.  We recognize the mark-to-market change in the estimated value of this liability through earnings as assumptions change.

The valuation allowance for deferred tax assets was reduced by $7.0 million in 2Q16 due to the utilization of capital loss carryforwards.

The results for 2Q15 include a $32.8 million loss on the extinguishment of debt related to the completion of our debt refinancing transactions.

Statutory (based on non-GAAP measures) and GAAP Capital Information
Our consolidated statutory risk-based capital ratio was estimated at 448% at June 30, 2016, reflecting estimated 2Q16 consolidated statutory operating earnings of $94 million and the payment of insurance company dividends to the holding company of $41.9 million during 2Q16 and $130.6 million during the first six months of 2016.

During the second quarter of 2016, we repurchased $61.0 million of common stock under our securities repurchase program (including $9.0 million of repurchases settled in 3Q16).  We repurchased 3.3 million common shares at an average cost of $18.70 per share.  During the first six months of 2016, we repurchased 8.6 million common shares at a total cost of $151.0 million.  CNO anticipates repurchasing common stock in the range of $275 million to $375 million in 2016, absent compelling alternatives.  As of June 30, 2016, we had 176.2 million shares outstanding and had authority to repurchase up to an additional $304.7 million of our common stock.  During 2Q16, dividends paid on common stock totaled $14.3 million.

Book value per common share was $25.28 and $22.49 at June 30, 2016 and December 31, 2015, respectively. Book value per diluted share, excluding accumulated other comprehensive income (loss) (4), increased to $20.67 at June 30, 2016, compared to $20.05 at December 31, 2015.

The debt-to-capital ratio was 17.0 percent and 18.0 percent at June 30, 2016 and December 31, 2015, respectively.  Our debt-to-total capital ratio, excluding accumulated other comprehensive income (5) at June 30, 2016, was 19.9 percent compared to 19.6 percent at December 31, 2015.  Unrestricted cash and investments held by our holding company were $376 million at June 30, 2016, compared to $382 million at December 31, 2015, reflecting dividends from subsidiaries, common stock repurchases and dividend payments.

Conference Call
The Company will host a conference call to discuss results on July 27, 2016 at 11:00 a.m. Eastern Time.  The webcast can be accessed through the Investors section of the company's website: http://ir.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.

About CNO Financial Group
CNO Financial Group, Inc. (NYSE: CNO) is a holding company.  Our insurance subsidiaries - principally Bankers Life and Casualty Company, Colonial Penn Life Insurance Company and Washington National Insurance Company - primarily serve middle-income pre-retiree and retired Americans by helping them protect against financial adversity and provide for a more secure retirement.  For more information, visit CNO online at www.CNOinc.com.

 

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars in millions)

(unaudited)



June 30,
 2016


December 31, 2015

ASSETS




Investments:




Fixed maturities, available for sale, at fair value (amortized cost:  June 30, 2016 - $19,002.2; December 31, 2015 - $18,947.0)

$

20,989.8



$

19,882.9


Equity securities at fair value (cost: June 30, 2016 - $510.1; December 31, 2015 - $447.4)

541.2



463.0


Mortgage loans

1,732.9



1,721.0


Policy loans

110.3



109.4


Trading securities

289.3



262.1


Investments held by variable interest entities

1,807.8



1,633.6


Other invested assets

525.7



415.1


  Total investments

25,997.0



24,487.1


Cash and cash equivalents - unrestricted

437.2



432.3


Cash and cash equivalents held by variable interest entities

160.0



364.4


Accrued investment income

228.7



237.0


Present value of future profits

417.5



449.0


Deferred acquisition costs

911.3



1,083.3


Reinsurance receivables

2,820.4



2,859.3


Income tax assets, net

677.7



898.8


Assets held in separate accounts

4.6



4.7


Other assets

368.1



309.2


Total assets

$

32,022.5



$

31,125.1


LIABILITIES AND SHAREHOLDERS' EQUITY




Liabilities:




Liabilities for insurance products:




  Policyholder account balances

$

10,754.8



$

10,762.3


  Future policy benefits

11,127.0



10,602.1


  Liability for policy and contract claims

489.2



487.8


  Unearned and advanced premiums

284.1



286.3


  Liabilities related to separate accounts

4.6



4.7


Other liabilities

731.0



707.8


Investment borrowings

1,547.8



1,548.1


Borrowings related to variable interest entities

1,715.8



1,676.4


Notes payable – direct corporate obligations

912.0



911.1


  Total liabilities

27,566.3



26,986.6


Commitments and Contingencies




Shareholders' equity:




Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding:  June 30, 2016 – 176,240,559; December 31, 2015 – 184,028,511)

1.7



1.8


Additional paid-in capital

3,251.1



3,386.8


Accumulated other comprehensive income

777.8



402.8


Retained earnings

425.6



347.1


  Total shareholders' equity

4,456.2



4,138.5


  Total liabilities and shareholders' equity

$

32,022.5



$

31,125.1


 

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(Dollars in millions, except per share data)

(unaudited)



Three months ended


Six months ended


June 30,


June 30,


2016


2015


2016


2015

Revenues:








Insurance policy income

$

653.6



$

640.1



$

1,298.0



$

1,276.6


Net investment income:








  General account assets

295.8



302.1



586.8



602.2


  Policyholder and other special-purpose portfolios

27.9



11.8



39.6



28.4


Realized investment gains (losses):








  Net realized investment gains (losses),
  excluding impairment losses

33.5



(2.2)



42.6



(3.3)


  Impairment losses recognized (a)

(13.6)



(7.9)



(23.6)



(9.2)


  Gain (loss) on dissolution of variable interest entities

(7.3)





(7.3)



11.3


Total realized gains (losses)

12.6



(10.1)



11.7



(1.2)


Fee revenue and other income

14.0



15.6



28.2



31.8


Total revenues

1,003.9



959.5



1,964.3



1,937.8


Benefits and expenses:








Insurance policy benefits

632.4



568.3



1,251.4



1,174.3


Transition expenses



4.5





9.0


Interest expense

28.9



25.3



56.6



46.8


Amortization

54.8



73.7



116.9



139.8


Loss on extinguishment of debt



32.8





32.8


Other operating costs and expenses

205.1



182.2



416.2



380.1


Total benefits and expenses

921.2



886.8



1,841.1



1,782.8


Income before income taxes

82.7



72.7



123.2



155.0


Income tax expense:








Tax expense on period income

29.8



25.9



44.8



55.4


Valuation allowance for deferred tax assets

(7.0)





(27.0)




Net income

$

59.9



$

46.8



$

105.4



$

99.6


Earnings per common share:








Basic:








Weighted average shares outstanding

178,323,000



195,857,000



179,337,000



198,174,000


Net income

$

.34



$

.24



$

.59



$

.50


Diluted:








Weighted average shares outstanding

180,267,000



198,073,000



181,198,000



200,174,000


Net income

$

.33



$

.24



$

.58



$

.50





















(a)   No portion of the other-than-temporary impairments recognized in the periods was included in accumulated other comprehensive income.

 

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

SEGMENT OPERATING RESULTS

(Dollars in millions, except per share data)



Six months ended


June 30,


2016


2015



Adjusted EBIT (3):




Bankers Life

$

170.9



$

168.6


Washington National

47.8



48.6


Colonial Penn:




  In-force business (6)

26.8



23.9


  New business (6)

(30.6)



(25.6)


 Total Colonial Penn

(3.8)



(1.7)


  Adjusted EBIT from business segments

214.9



215.5


Corporate Operations, excluding corporate interest expense

(15.1)



(6.3)


  Adjusted EBIT

199.8



209.2


Corporate interest expense

(22.8)



(22.4)


Operating earnings before taxes

177.0



186.8


Tax expense on operating income

63.7



65.9


Net operating income (1)

113.3



120.9


Net realized investment gains (losses) (net of related amortization)

11.0



(1.3)


Fair value changes in embedded derivative liabilities (net of related amortization)

(46.0)



13.0


Fair value changes related to agent deferred compensation plan

(18.3)




Loss on extinguishment of debt



(32.8)


Other

(.5)



(10.7)


Non-operating loss before taxes

(53.8)



(31.8)


Income tax benefit:




On non-operating loss

(18.9)



(10.5)


Valuation allowance for deferred tax assets

(27.0)




Net non-operating loss

(7.9)



(21.3)


Net income

$

105.4



$

99.6






Per diluted share:




Net operating income

$

.63



$

.61


Net realized investment gains (losses) (net of related amortization and taxes)

.04




Fair value changes in embedded derivative liabilities (net of related amortization and taxes)

(.17)



.04


Fair value changes related to agent deferred compensation plan (net of taxes)

(.07)




Loss on extinguishment of debt (net of taxes)



(.11)


Valuation allowance for deferred tax assets

.15




Other



(.04)


  Net income

$

.58



$

.50


 

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NET OPERATING INCOME EXCLUDING A SIGNIFICANT ITEM*

(Dollars in millions, except per share data)



Three months ended


June 30, 2015*


Actual
results


Significant
item


Excluding
significant
item

Net Operating Income (1):






Bankers Life

$

86.4



$



$

86.4


Washington National

20.1



9.0



29.1


Colonial Penn

4.2





4.2


Adjusted EBIT from business segments

110.7



9.0



119.7


Corporate Operations, excluding corporate interest expense

(5.0)





(5.0)


Adjusted EBIT (3)

105.7



9.0



114.7


Corporate interest expense

(11.9)





(11.9)


Operating earnings before taxes

93.8



9.0



102.8


Tax expense on operating income

33.0



3.2



36.2


  Net operating income

$

60.8



$

5.8



$

66.6








Net operating income per diluted share

$

.31



$

.03



$

.34



* This table summarizes the financial impact of a significant item (as described in the segment results section of this press release) on our 2Q15 net operating income.

 

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

TOTAL COLLECTED PREMIUMS

(Dollars in millions)



Three months ended


June 30,


2016


2015

Bankers Life:




Medicare supplement

$

179.0



$

176.3


Long-term care

118.0



119.6


Other health

1.6



1.8


Supplemental health

5.3



4.8


Life

117.9



114.3


Annuity

206.4



187.1


  Total

628.2



603.9


Washington National:




Supplemental health and other health

142.2



136.7


Medicare supplement

15.1



17.1


Life

7.4



7.0


Annuity

.5



1.1


  Total

165.2



161.9


Colonial Penn:




Life

69.0



64.3


Medicare supplement and other health

.6



.8


  Total

69.6



65.1


 Total collected premiums from segments

$

863.0



$

830.9


 

NEW ANNUALIZED PREMIUMS (2)

(Dollars in millions)



Three months ended


June 30,


2016


2015

Bankers Life:




Medicare supplement

$

16.7



$

16.3


Long-term care

6.0



5.6


Supplemental health

1.7



1.9


Life

21.8



26.4


Annuity

12.3



11.1


  Total

58.5



61.3


Washington National:




Supplemental health

22.4



23.9


Life

1.8



1.8


  Total

24.2



25.7


Colonial Penn:




Life

19.2



18.5


  Total

19.2



18.5


 Total new annualized premiums

$

101.9



$

105.5


 

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

BENEFIT RATIOS ON MAJOR HEALTH LINES OF BUSINESS



Three months ended


June 30,


2016


2015

Bankers Life:




Medicare Supplement:




Earned premium

$194 million


$193 million

Benefit ratio (7)

73.0

%


68.7

%

Long-Term Care:




Earned premium

$118 million


$121 million

Benefit ratio (7)

134.7

%


140.7

%

Interest-adjusted benefit ratio (a non-GAAP measure) (8)

77.9

%


84.6

%

Washington National:




Medicare Supplement:




Earned premium

$16 million


$18 million

Benefit ratio (7)

74.0

%


64.6

%

Supplemental health:




Earned premium

$141 million


$134 million

Benefit ratio (7)

85.7

%


90.3

%

Interest-adjusted benefit ratio (a non-GAAP measure) (8)

61.6

%


65.7

%

 

NOTES  


(1)

Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses, net of related amortization and taxes; (ii) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and taxes; (iii) fair value changes related to the agent deferred compensation plan, net of taxes, (iv) loss on extinguishment of debt, net of taxes; (v) changes in the valuation allowance for deferred tax assets; and (vi) other non-operating items consisting primarily of equity in earnings of certain non-strategic investments and earnings attributable to variable interest entities, net of taxes ("Net operating income," a non-GAAP financial measure) is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry.  Management uses this measure to evaluate performance because the items excluded from net operating income can be affected by events that are unrelated to the company's underlying fundamentals.  Net realized investment gains or losses include: (i) gains or losses on the sales of investments; (ii) other-than-temporary impairments recognized through net income; and (iii) changes in fair value of certain fixed maturity investments with embedded derivatives.  A reconciliation of Net operating income to Net income applicable to common stock is provided in the tables on pages 2 and 8.  Additional information concerning this non-GAAP measure is included in our periodic filings with the Securities and Exchange Commission that are available in the "Investors - SEC Filings" section of CNO's website, www.CNOinc.com.

(2)

Measured by new annualized premium, which includes 6% of annuity and 10% of single premium whole life deposits and 100% of all other premiums.  Medicare Advantage sales are not comparable to other sales and are therefore excluded in all periods.

(3)

Management believes that an analysis of earnings before net realized investment gains (losses), fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, fair value changes related to the agent deferred compensation plan, loss on extinguishment of debt, other non-operating items, corporate interest expense and taxes ("Adjusted EBIT," a non-GAAP financial measure) provides a clearer comparison of the operating results of the company quarter-over-quarter because these items are unrelated to the company's underlying fundamentals.  A reconciliation of Adjusted EBIT to Net Income applicable to common stock is provided in the tables on pages 2 and 8.

(4)

Book value per diluted share reflects the potential dilution that could occur if outstanding stock options were exercised, restricted stock and performance units were vested and convertible securities were converted.  The dilution from options, restricted shares and performance units is calculated using the treasury stock method.  Under this method, we assume the proceeds from the exercise of the options (or the unrecognized compensation expense with respect to restricted stock and performance units) will be used to purchase shares of our common stock at the closing market price on the last day of the period.  The dilution from convertible securities is calculated assuming the securities were converted on the last day of the period.  In addition, the calculation of this non-GAAP measure differs from the corresponding GAAP measure because accumulated other comprehensive income (loss) has been excluded from the value of capital used to determine this measure.  Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in the unrealized appreciation (depreciation) of our investments.

(5)

The calculation of this non-GAAP measure differs from the corresponding GAAP measure because accumulated other comprehensive income (loss) has been excluded from the value of capital used to determine this measure.  Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in the unrealized appreciation (depreciation) of our investments.

(6)

Management believes that an analysis of Adjusted EBIT for Colonial Penn, separated between in-force and new business, provides increased clarity for this segment as the vast majority of the costs to generate new business in this segment are not deferrable and Adjusted EBIT will fluctuate based on management's decisions on how much marketing costs to incur in each period.  Adjusted EBIT from new business includes pre-tax revenues and expenses associated with new sales of our insurance products during the first year after the sale is completed.  Adjusted EBIT from in-force business includes all pre-tax revenues and expenses associated with sales of insurance products that were completed more than one year before the end of the reporting period.  The allocation of certain revenues and expenses between new and in-force business is based on estimates, which we believe are reasonable.

(7)

The benefit ratio is calculated by dividing the related product's insurance policy benefits by insurance policy income.

(8)

The interest-adjusted benefit ratio (a non-GAAP measure) is calculated by dividing the product's insurance policy benefits less imputed interest income on the accumulated assets backing the insurance liabilities by insurance policy income.  Interest income is an important factor in measuring the performance of longer duration health products.  The net cash flows generally cause an accumulation of amounts in the early years of a policy (accounted for as reserve increases), which will be paid out as benefits in later policy years (accounted for as reserve decreases).  Accordingly, as the policies age, the benefit ratio will typically increase, but the increase in the change in reserve will be partially offset by the imputed interest income earned on the accumulated assets.  The interest-adjusted benefit ratio reflects the effects of such interest income offset (which is equal to the tabular interest on the related insurance liabilities).  Since interest income is an important factor in measuring the performance of these products, management believes a benefit ratio, which includes the effect of interest income, is useful in analyzing product performance.  Additional information concerning this non-GAAP measure is included in our periodic filings with the Securities and Exchange Commission that are available in the "Investors - SEC Filings" section of CNO Financial's website, www.CNOinc.com.

 

Cautionary Statement Regarding Forward-Looking Statements.  Our statements, trend analyses and other information contained in this press release relative to markets for CNO Financial's products and trends in CNO Financial's operations or financial results, as well as other statements, contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995.  Forward-looking statements typically are identified by the use of terms such as "anticipate," "believe," "plan," "estimate," "expect," "project," "intend," "may," "will," "would," "contemplate," "possible," "attempt," "seek," "should," "could," "goal," "target," "on track," "comfortable with," "optimistic," "guidance," "outlook" and similar words, although some forward-looking statements are expressed differently. You should consider statements that contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business conditions, our results of operations, financial position, and our business outlook or they state other ''forward-looking'' information based on currently available information. Assumptions and other important factors that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, among other things: (i) changes in or sustained low interest rates causing reductions in investment income, the margins of our fixed annuity and life insurance businesses, and sales of, and demand for, our products; (ii) expectations of lower future investment earnings may cause us to accelerate amortization, write down the balance of insurance acquisition costs or establish additional liabilities for insurance products; (iii) general economic, market and political conditions, including the performance and fluctuations of the financial markets which may affect the value of our investments as well as our ability to raise capital or refinance existing indebtedness and the cost of doing so; (iv) the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are subject; (v) our ability to make anticipated changes to certain non-guaranteed elements of our life insurance products; (vi) our ability to obtain adequate and timely rate increases on our health products, including our long-term care business; (vii) the receipt of any required regulatory approvals for dividend and surplus debenture interest payments from our insurance subsidiaries; (viii) mortality, morbidity, the increased cost and usage of health care services, persistency, the adequacy of our previous reserve estimates and other factors which may affect the profitability of our insurance products; (ix) changes in our assumptions related to deferred acquisition costs or the present value of future profits; (x) the recoverability of our deferred tax assets and the effect of potential ownership changes and tax rate changes on their value; (xi) our assumption that the positions we take on our tax return filings will not be successfully challenged by the Internal Revenue Service; (xii) changes in accounting principles and the interpretation thereof; (xiii) our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debt agreements; (xiv) our ability to achieve anticipated expense reductions and levels of operational efficiencies including improvements in claims adjudication and continued automation and rationalization of operating systems, (xv) performance and valuation of our investments, including the impact of realized losses (including other-than-temporary impairment charges); (xvi) our ability to identify products and markets in which we can compete effectively against competitors with greater market share, higher ratings, greater financial resources and stronger brand recognition; (xvii) our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs; (xviii) our ability to maintain effective controls over financial reporting; (xix) our ability to continue to recruit and retain productive agents and distribution partners; (xx) customer response to new products, distribution channels and marketing initiatives; (xxi) our ability to achieve additional upgrades of the financial strength ratings of CNO Financial and our insurance company subsidiaries as well as the impact of our ratings on our business, our ability to access capital and the cost of capital; (xxii) regulatory changes or actions, including those relating to regulation of the financial affairs of our insurance companies, such as the payment of dividends and surplus debenture interest to us, regulation of the sale, underwriting and pricing of products, and health care regulation affecting health insurance products; (xxiii) changes in the Federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products or affect the value of our deferred tax assets; (xxiv) availability and effectiveness of reinsurance arrangements, as well as any defaults or failure of reinsurers to perform; (xxv) the performance of third party service providers and potential difficulties arising from outsourcing arrangements; (xxvi) the growth rate of sales, collected premiums, annuity deposits and assets; (xxvii) interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems; (xxviii) events of terrorism, cyber attacks, natural disasters or other catastrophic events, including losses from a disease pandemic; (xxix) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; and (xxx) the risk factors or uncertainties listed from time to time in our filings with the Securities and Exchange Commission. Other factors and assumptions not identified above are also relevant to the forward-looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement. Our forward-looking statements speak only as of the date made. We assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward looking statements.

SOURCE CNO Financial Group, Inc.

For further information: (News Media) Barbara Ciesemier +1.312.396.7461; (Investors) Adam Auvil +1.317.817.6310

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