Press Releases

FINANCIAL SUMMARY

Quarter End

(Amounts in millions, except per share data)

(Unaudited)

Net operating income, a non-GAAP^(a) financial measure, is used consistently by CNO's management to evaluate the operating performance of the Company and is a measure commonly used in the life insurance industry.  It differs from net income primarily because it excludes certain non-operating items such as realized investment gains (losses), changes in fair values of embedded derivatives, equity securities and the liability for a deferred compensation plan, and certain significant and unusual items included in net income.  Management believes an analysis of net operating income is important in understanding the profitability and operating trends of the Company's business.  Net income is the most directly comparable GAAP measure.

Per diluted share

Quarter ended

Quarter ended

March 31,

March 31,

2021

2020

% change

2021

2020

% change

Income from insurance products ^(b)

$

0.50

$

0.37

35

$

68.6

$

54.1

27

Fee income

0.05

0.05

—

7.3

7.8

(6)

Investment income not allocated to product lines ^(c)

0.32

0.40

(20)

43.0

57.4

(25)

Expenses not allocated to product lines

(0.16)

(0.09)

(78)

(22.0)

(13.8)

(59)

Operating earnings before taxes

0.71

0.73

96.9

105.5

Income tax expense on operating income

(0.16)

(0.15)

(7)

(21.7)

(21.2)

(2)

Net operating income (1)

0.55

0.58

(5)

75.2

84.3

(11)

Net realized investment gains (losses) from sales,
impairments and change in allowance for credit losses
(net of related amortization)

0.03

(0.44)

3.6

(63.7)

Net change in market value of investments recognized
in earnings

(0.05)

(0.33)

(6.4)

(48.4)

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

0.60

(0.46)

82.1

(66.7)

Other

0.10

0.02

13.8

2.3

Non-operating income (loss) before taxes

0.68

(1.21)

93.1

(176.5)

Income tax (expense) benefit on non-operating
income (loss)

(0.15)

0.25

(20.9)

37.0

Valuation allowance for deferred tax assets and other
tax items

—

0.23

—

34.0

Net non-operating income (loss)

0.53

(0.73)

72.2

(105.5)

Net income (loss)

$

1.08

$

(0.15)

$

147.4

$

(21.2)

Weighted average diluted shares outstanding

136.7

145.8

(a)

GAAP is defined as accounting principles generally accepted in the United States of America.

(b)

Income from insurance products is the sum of the insurance margins of the annuity, health and life segments, less allocated insurance administrative expenses.  It excludes the fee income segment, excess investment income, parent company expenses and income taxes.  Insurance margin is management's measure of the profitability of its annuity, health and life segments' performance and consists of premiums plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs.

(c)

Investment income not allocated to product lines is defined as net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable and investment borrowings; and (iv) certain expenses related to benefit plans that are offset by special-purpose investment income.

FINANCIAL SUMMARY (continued)

Management vs. GAAP Measures

(Dollars in millions, except per share data)

(Unaudited)

Shareholders' equity, excluding accumulated other comprehensive income, and book value per share, excluding accumulated other comprehensive income, are non-GAAP measures that are utilized by management to view the business without the effect of accumulated other comprehensive income which is primarily attributable to fluctuations in interest rates associated with fixed maturities, available for sale.  Management views the business in this manner because the Company has the ability and generally, the intent, to hold investments to maturity and meaningful trends can be more easily identified without the fluctuations.

Quarter ended

March 31,

2021

2020

Trailing twelve months return on equity ^(a)

9.6

%

7.8

%

Trailing twelve months operating return on equity, excluding accumulated other comprehensive income and net
operating loss carryforwards (a non-GAAP financial measure) (6)

12.3

%

11.4

%

Trailing twelve months operating return, excluding significant items, on equity, excluding accumulated other
comprehensive income and net operating loss carryforwards (a non-GAAP financial measure) (6)

11.7

%

11.1

%

Shareholders' equity

$

4,860.7

$

3,765.8

Accumulated other comprehensive income

(1,518.1)

(595.2)

Shareholders' equity, excluding accumulated other comprehensive income

3,342.6

3,170.6

Net operating loss carryforwards

(323.1)

(469.4)

Shareholders' equity, excluding accumulated other comprehensive income and net operating loss carryforwards

$

3,019.5

$

2,701.2

Book value per diluted share

$

36.11

$

26.16

Accumulated other comprehensive income

(11.28)

(4.13)

Book value per diluted share, excluding accumulated other comprehensive income (a non-GAAP financial
measure) (2)

$

24.83

$

22.03

Calculated using average shareholders' equity for the measurement period.

INSURANCE MARGIN

(Amounts in millions, except per share data)

(Unaudited)

Insurance margin is management's measure of profitability of its annuity, health and life segments' performance and consists of premiums plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs. Income from insurance products is the sum of the insurance margins of the annuity, health and life segments, less allocated insurance administrative expenses.  It excludes the fee income segment, investment income not allocated to product lines, expenses not allocated to product lines and income taxes. Management believes this information helps provide a better understanding of the business and a more meaningful analysis of our operations. Insurance income, a non-GAAP measure, is a component of net operating income, which is reconciled to net income in the Financial Summary section above.

Quarter ended

March 31,
2021

% of
insurance
policy
income

March 31,
2020

% of
insurance
policy
income

%
change

Margin

Annuity interest margin

$

57.9

$

59.5

(3)

Life insurance interest margin

14.2

18.0

(21)

  Total interest-sensitive margin

72.1

77.5

(7)

Insurance margin

Health

124.7

30

86.9

20

43

Life (a)

12.9

8

26.3

17

(51)

Total other insurance margin

137.6

23

113.2

19

22

Total insurance margin

209.7

190.7

Allocated expenses

(141.1)

(136.6)

Income from insurance products

$

68.6

$

54.1

Per diluted share

$

0.50

$

0.37

Weighted average diluted shares

136.7

145.8

(a)

Net of $23.3 million and $20.0 million of non-deferred television advertising expense related to our direct distribution channel in the 2021 and 2020 periods, respectively.

Total allocated expenses were $141.1 million, up 3 percent from the year-ago quarter.

ANNUITY RESULTS BY PRODUCT TYPE

(Dollars in millions)

(Unaudited)

Annuity margin

Quarter ended

March 31,

2021

2020

Fixed index annuities

$

48.3

$

44.4

Fixed interest annuities

8.8

11.3

Other annuities

0.8

3.8

Total

$

57.9

$

59.5

Annuity collected premiums

Quarter ended

March 31,

2021

2020

Annuity collected premiums

$

325.4

$

292.2

Average net insurance liabilities (5)

Quarter ended

March 31,

2021

2020

Fixed index annuities

$

7,464.8

$

6,921.4

Fixed interest annuities

1,951.6

2,146.2

Other annuities

512.2

551.5

Total

$

9,928.6

$

9,619.1

Margin/average net insurance liabilities ^(a)

Quarter ended

March 31,

2021

2020

Fixed index annuities

2.59

%

2.57

%

Fixed interest annuities

1.80

%

2.11

%

Other annuities

0.62

%

2.76

%

Total

2.33

%

2.47

%

(a)

Defined as annualized quarterly annuity margin divided by average net insurance liabilities (5).

HEALTH INSURANCE RESULTS BY PRODUCT TYPE

(Dollars in millions)

(Unaudited)

Health margin

Quarter ended

March 31,

2021

2020

Amount

% of
insurance
policy
income

Amount

% of
insurance
policy
income

% change

Supplemental health and other health

$

50.4

30

$

42.2

25

19

Medicare supplement

38.2

21

31.4

16

22

Long-term care

36.1

55

13.3

20

171

Total

$

124.7

30

$

86.9

20

43

LIFE INSURANCE RESULTS BY PRODUCT TYPE

(Dollars in millions)

(Unaudited)

Life margin

Quarter ended

March 31,

2021

2020

Amount

% of
insurance
policy
income

Amount

% of
insurance
policy
income

% change

Life insurance interest margin

$

1.9

$

1.5

27

Life insurance margin:

Traditional life

12.9

8

26.3

17

(51)

Interest sensitive life

12.3

30

16.5

42

(25)

  Subtotal

25.2

12

42.8

22

(41)

  Total margin

$

27.1

$

44.3

(39)

(a)

Producing agents are exclusive agents that have submitted at least one policy in the month.

(b)

Registered agents are dually licensed as insurance agents and financial representatives who can buy and sell securities for clients, and/or investment advisors who can provide ongoing investment advice for clients.

(c)

Agent counts represent the average of the last 3 months.

INVESTMENTS

INVESTMENT INCOME NOT ALLOCATED TO PRODUCT LINES

(Dollars in millions, except per share data)

Management uses investment income not allocated to product lines as the measure to evaluate the performance of the investment segment.  It is defined as net investment income less the investment income allocated to our product segments and interest expense on debt.  We also view investment income not allocated to product lines per diluted share as an important and useful measure to evaluate performance of the investment segment as it takes into consideration our share repurchase program.

Quarter ended March 31,

2021

2020

% change

Net investment income

$

338.2

$

169.6

99

Allocated to product lines:

Annuity

(115.7)

(117.4)

(1)

Health

(71.5)

(70.4)

2

Life

(35.8)

(34.3)

4

Equity returns credited to policyholder account balances

(42.5)

136.5

(131)

Amounts allocated to product lines and credited to policyholder account balances

(265.5)

(85.6)

210

Amount related to variable interest entities and other non-operating items

(7.8)

(11.6)

(33)

Interest expense on corporate debt

(15.5)

(13.6)

14

Interest expense on investment borrowings

(2.7)

(9.1)

(70)

Less amounts credited to deferred compensation plans (offsetting investment income)

(3.7)

7.7

(148)

Total adjustments

(29.7)

(26.6)

  Investment income not allocated to product lines

$

43.0

$

57.4

(25)

Per diluted share

$

0.32

$

0.40

(a)   

Certain structured securities rated below investment grade by Nationally Recognized Statistical Rating Organizations may be assigned a NAIC 1 or NAIC 2 designation based on the cost basis of the security relative to estimated recoverable amounts as determined by the National Association of Insurance Commissioners (NAIC).

The fair value of CNO's available for sale fixed maturity portfolio was $22.6 billion compared with an amortized cost of $20.4 billion.  Net unrealized gains were comprised of gross unrealized gains of $2.3 billion and gross unrealized losses of $77 million.  The allowance for credit losses was $5.3 million at March 31, 2021.

At both amortized cost and fair value, 91 percent of fixed maturities, available for sale, were rated "investment grade".

Acquisitions of fixed maturity investments during the quarter totaled $1.9 billion.  Comparable information for acquisitions of fixed maturity investments is as follows:

NOTES

(1)

Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses from sales, impairments and the change in allowance for credit losses, net of related amortization and taxes; (ii) net change in market value of investments recognized in earnings, net of taxes; (iii) 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; (iv) fair value changes related to the agent deferred compensation plan, net of taxes; (v) loss on extinguishment of debt, net of taxes; (vi) changes in the valuation allowance for deferred tax assets and other tax items; and (viii) other non-operating items consisting primarily of 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.  A reconciliation of Net operating income to Net income applicable to common stock is provided in the table on page 2.  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, CNOinc.com.

(2)

Book value per diluted share reflects the potential dilution that could occur if outstanding stock options were exercised and restricted stock and performance units were vested.  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.

(3)

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.

(4)

Measured by new annualized premium for life and health products, which includes 10% of single premium whole life deposits and 100% of all other premiums (excluding annuities).  Sales of third-party products are excluded.

(5)

Net insurance liabilities are equal to total insurance liabilities less: (i) amounts related to reinsured business; (ii) deferred acquisition costs; (iii) present value of future profits; and (iv) the value of unexpired options credited to insurance liabilities.

(6)

The following summarizes the calculations of: (i) operating return on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) operating return, excluding significant items, on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); and (iii) return on equity are as follows (dollars in millions):

The following summarizes: (i) operating earnings; (ii) significant items; (iii) operating earnings, excluding significant items; and (iv) net income (loss) (dollars in millions):

Net operating

Net operating

income,

income,

excluding

Net

excluding

significant

income (loss) -

Net operating

Significant

significant

items - trailing

Net

trailing

income

items

items (a)

four quarters

income (loss)

four quarters

2Q19

$

76.4

$

—

$

76.4

$

304.6

$

37.6

$

(412.1)

3Q19

69.2

—

69.2

286.3

42.0

159.7

4Q19

78.6

(7.9)

(b)

70.7

282.1

278.0

409.4

1Q20

84.3

—

84.3

300.6

(21.2)

336.4

2Q20

79.4

(17.7)

(c)

61.7

285.9

82.0

380.8

3Q20

112.6

—

112.6

329.3

129.2

468.0

4Q20

86.0

(6.4)

(d)

79.6

338.2

111.8

301.8

1Q21

75.2

6.1

(e)

81.3

335.2

147.4

470.4

(a)

See note (7) for additional information.

(b)

Comprised of: (i) $10.0 million of unfavorable adjustments arising from our comprehensive annual actuarial review of assumptions; (ii) $20.0 million of the net favorable impact from legal and regulatory matters; and (iii) an increase in tax expense of $2.1 million.

(c)

Comprised of: (i) $45.9 million of net favorable adjustments arising from our review of actuarial assumptions; (ii) $23.5 million unfavorable impact related to regulatory matters; and (iii) an increase in tax expense of $4.7 million.

(d)

Comprised of: (i) $11.8 million of net favorable adjustments arising from our review of actuarial assumptions; (ii) $3.7 million unfavorable impact related to asset impairments; and (iii) an increase in tax expense of $1.7 million.

(e)

Comprised of: (i) $5.3 million from legal and regulatory matters; (ii) $2.5 million of transaction expenses related to the previously announced acquisition of DirectPath, LLC; and (iii) a decrease in tax expense of $1.7 million.

(7)

The tables below summarize the financial impact of significant items on our net operating income.  Management believes that identifying the impact of these items enhances the understanding of our operating results.

(a)

Comprised of: (i) $5.3 million from legal and regulatory matters; and (ii) $2.5 million of transaction expenses related to the previously announced acquisition of DirectPath, LLC. The legal and regulatory matters primarily consist of an increase to our liability for claims and interest pursuant to the Global Resolution Agreement, as we have now processed and verified most of the claims provided by the third party auditor allowing us to more accurately estimate the ultimate liability.

(a)

Adjustments arising from our comprehensive annual actuarial review of assumptions.

(b)

Unfavorable impact related to asset impairments.