October 27, 2021
CNO Financial Group Reports Third Quarter 2021 Results
Solid third quarter performance; sales and collected premiums exceed pre-pandemic levels; completed $115 million in share repurchases

CARMEL, Ind., Oct. 27, 2021 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE: CNO) today announced that for the quarter ending September 30, 2021, net income was $99.8 million, or $0.77 per diluted share, compared to a net income of $129.2 million, or $0.91 per diluted share, in 3Q20. Net operating income (1) in 3Q21 was $92.8 million, or $0.72 per diluted share, compared to $112.6 million, or $0.79 per diluted share, in 3Q20.

"CNO reported another successful quarter," said Gary C. Bhojwani, chief executive officer. "We continue to benefit from the outstanding work and customer commitment of our associates and agents. Our results reflect the consistent execution of our strategy, particularly within our direct-to-consumer business. Earnings continued to benefit from deferral of care within our health lines and very strong alternative investment performance. We approach the end of the year on solid footing and remain well-positioned to serve our clients and communities, and generate value for our shareholders." 

Third Quarter 2021 Highlights

  • Earnings per diluted share of $0.77 in 3Q21, down $0.14 compared to 3Q20
  • Operating (1) EPS of $0.72 in 3Q21, down $0.07 compared to 3Q20, consistent with the reduced net favorable impacts from COVID-19
  • Favorable COVID-19 impact on insurance product margins of $18.0 million after-tax, or $0.14 per diluted share, in 3Q21, down $15 million, or $0.09 per diluted share, compared to 3Q20
  • Direct-to-consumer life insurance new annualized premiums (NAP) (4) up 13% from 3Q20, up 38% from 3Q19
  • Annuity collected premiums up 17% from 3Q20, up 2% from 3Q19
  • Returned $131.3 million to shareholders in the form of share repurchases ($115.0 million) and dividends ($16.3 million); reduced weighted average share count by 9% since 3Q20
  • Book value per share was $42.11, up 15% from 3Q20; book value per diluted share, excluding accumulated other comprehensive income (2), was $26.03, up 11% from 3Q20
  • Return on equity (ROE) of 8.4%; operating ROE, as adjusted (6), of 11.5%

 

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


September 30,


September 30,


2021



2020


%
change


2021



2020


%
change















Income from insurance products (b)

$

0.64




$

0.81



(21)



$

83.1




$

114.5



(27)


Fee income

0.02








2.6




0.8



225


Investment income not allocated to product lines (c)

0.40




0.31



29



50.9




43.7



16


Expenses not allocated to product lines

(0.13)




(0.10)



(30)



(17.3)




(13.7)



(26)


Operating earnings before taxes

0.93




1.02





119.3




145.3




Income tax expense on operating income

(0.21)




(0.23)



(9)



(26.5)




(32.7)



(19)


Net operating income (1)

0.72




0.79



(9)



92.8




112.6



(18)


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

0.02




0.05





2.2




7.7




Net change in market value of investments recognized
in earnings

(0.04)




0.06





(4.6)




8.5




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

0.09




(0.01)





10.9




(1.6)




Other




0.05





0.2




6.5




Non-operating income before taxes

0.07




0.15





8.7




21.1




Income tax expense on non-operating income

(0.02)




(0.03)





(1.7)




(4.5)




Net non-operating income

0.05




0.12





7.0




16.6




Net income

$

0.77




$

0.91





$

99.8




$

129.2


















Weighted average diluted shares outstanding

129.0




141.7













(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


September 30,


2021


2020





Trailing twelve months return on equity (a)

8.4

%


10.4

%

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

11.5

%


12.9

%

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

11.6

%


11.9

%









Shareholders' equity

$

5,232.9



$

5,083.9


Accumulated other comprehensive income

(1,929.7)



(1,801.6)






Shareholders' equity, excluding accumulated other comprehensive income

3,303.2



3,282.3


Net operating loss carryforwards

(266.9)



(377.2)


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

$

3,036.3



$

2,905.1






Book value per diluted share

$

41.23



$

36.32


Accumulated other comprehensive income

(15.20)



(12.87)






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

$

26.03



$

23.45




(a)

Calculated using average shareholders' equity for the measurement period.

 

INSURANCE OPERATIONS 


Annuity products accounted for 23 percent of the Company's margin for the quarter.


Annuity premiums collected increased 17 percent and annuity account values increased 7 percent in 3Q21 compared to 3Q20.


Health products accounted for 53 percent of the Company's insurance margin for the quarter and 66 percent of insurance policy income.


Life products accounted for 24 percent of the Company's insurance margin for the quarter and 33 percent of insurance policy income.


Sales of health products were down 1 percent and sales of life products were up 2 percent in 3Q21 compared to 3Q20.


ANNUITY COLLECTED PREMIUMS

(Dollars in millions)

(Unaudited)



Quarter ended September 30,




2021


2020


%
change

Annuity collected premiums

$

333.3



$

285.1



17














INSURANCE POLICY INCOME

(Dollars in millions)

(Unaudited)



Quarter ended September 30,




2021


2020


%
change

Annuity

$

5.8



$

4.3



35


Health

414.4



421.4



(2)


Life

210.4



202.6



4


Total insurance policy income

$

630.6



$

628.3





SALES MEASURED AS NEW ANNUALIZED PREMIUMS FOR

LIFE AND HEALTH PRODUCTS

(Dollars in millions)

(Unaudited)



Quarter ended September 30,




2021


2020


%
change

Health

$

39.2



$

39.4



(1)


Life

45.4



44.3



2


Total new annualized premiums (4)

$

84.6



$

83.7



1


 

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


September 30,

2021


% of
insurance
policy
income



September 30,

2020


% of
insurance
policy
income


%
change

Margin











Annuity interest margin

$

52.5






$

45.3





16


Life insurance interest margin

1.7






0.7





143


Total interest-sensitive margin

54.2






46.0





18


Insurance margin











Health

117.9



28




152.2



36



(23)


Life (a)

51.5



24




46.6



23



11


Total other insurance margin

169.4



27




198.8



32



(15)













Total insurance margin

223.6






244.8

















Allocated expenses

(140.5)






(130.3)






Income from insurance products

$

83.1






$

114.5

















Per diluted share

$

0.64






$

0.81






Weighted average diluted shares

129.0






141.7








(a)

Net of $19.7 million and $14.2 million of non-deferred television advertising expense related to our direct distribution channel in the 2021 and 2020 periods, respectively.


Total allocated expenses were $140.5 million, up 8 percent from the year-ago quarter.

 

ANNUITY RESULTS BY PRODUCT TYPE

(Dollars in millions)

(Unaudited)


Annuity margin


Quarter ended


September 30,


2021


2020

Fixed index annuities

$

42.4



$

36.6


Fixed interest annuities

8.6



9.2


Other annuities

1.5



(0.5)


Total

$

52.5



$

45.3



Annuity collected premiums


Quarter ended


September 30,


2021


2020

Annuity collected premiums

$

333.3



$

285.1











Average net insurance liabilities (5)


Quarter ended


September 30,


2021


2020

Fixed index annuities

$

7,881.9



$

7,173.9


Fixed interest annuities

1,856.3



2,041.6


Other annuities

501.6



524.0


Total

$

10,239.8



$

9,739.5





Margin/average net insurance liabilities (a)


Quarter ended


September 30,



2021



2020

Fixed index annuities


2.15

%



2.04

%

Fixed interest annuities


1.85

%



1.80

%

Other annuities


1.20

%



(0.38)

%

Total


2.05

%



1.86

%


(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


September 30,


2021


2020




Amount


% of
insurance
policy
income


Amount



% of
insurance
policy
income


% change

Supplemental health and other health

$

50.9



30



$

51.1




30




Medicare supplement

37.3



21



71.7




39



(48)


Long-term care

29.7



45



29.4




44



1


Total

$

117.9



28



$

152.2




36



(23)














Health insurance policy income


Quarter ended




September 30,




2021


2020


% change

Supplemental health and other health

$

171.2



$

169.2



1


Medicare supplement

177.4



186.1



(5)


Long-term care

65.8



66.1




Total

$

414.4



$

421.4



(2)



Health NAP (4)


Quarter ended




September 30,




2021


2020


% change

Supplemental health and other health

$

22.4



$

21.3



5


Medicare supplement

8.0



11.0



(27)


Long-term care

8.8



7.1



24


Total

$

39.2



$

39.4



(1)


 

LIFE INSURANCE RESULTS BY PRODUCT TYPE

(Dollars in millions)

(Unaudited)


Life margin


Quarter ended




September 30,




2021


2020




Amount


% of
insurance
policy
income


Amount



% of
insurance
policy
income


% change

Life insurance interest margin

$

1.7





$

0.7






143


Life insurance margin:











Traditional life

33.2



20



29.4




18



13


Interest sensitive life

18.3



43



17.2




43



6


Subtotal

51.5



24



46.6




23



11


Total margin

$

53.2





$

47.3






12



Life insurance policy income


Quarter ended




September 30,




2021


2020


% change

Traditional life

$

168.1



$

162.5



3


Interest sensitive life

42.3



40.1



5


Total

$

210.4



$

202.6



4



Life NAP (4)


Quarter ended




September 30,




2021


2020


% change

Traditional life

$

38.2



$

37.7



1


Interest sensitive life

7.2



6.6



9


Total

$

45.4



$

44.3



2





Average net insurance liabilities (5) and interest margin




Quarter ended




September 30,




2021


2020


% change

Interest sensitive life products

$

983.8



$

926.7



6


Interest margin/average net insurance liabilities (5)

0.69

%


0.30

%


130


 

QUARTERLY AVERAGE EXCLUSIVE PRODUCING AGENTS



Average Exclusive Producing Agent Count


Quarter ended




September 30,


%


2021


2020


change

Consumer






Field agents (a) (c)

4,168



4,448



(6)


Tele-sales agents

235



239



(2)


  Total agents

4,403



4,687



(6)


Registered agents (b) (c)

646



618



5


Worksite (a) (c)

229



242



(5)




____________________

(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 September 30,




2021


2020


% change

Net investment income

$

308.2



$

343.5



(10)


Allocated to product lines:






Annuity

(115.5)



(115.6)




Health

(72.2)



(70.9)



2


Life

(36.4)



(35.2)



3


Equity returns credited to policyholder account balances

(7.2)



(46.0)



(84)


Amounts allocated to product lines and credited to policyholder account balances

(231.3)



(267.7)



(14)


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

(7.1)



(9.8)



(28)


Interest expense on corporate debt

(15.6)



(13.6)



15


Interest expense on investment borrowings

(2.3)



(3.4)



(32)


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

(1.0)



(5.3)



(81)


Total adjustments

(26.0)



(32.1)




Investment income not allocated to product lines

$

50.9



$

43.7



16








Per diluted share

$

0.40



$

0.31




 

INVESTMENT PORTFOLIO

(Dollars in millions)


The composition of the investment portfolio at September 30, 2021 is as follows:



$


% of total

Fixed maturities, available for sale, at fair value

$

24,142.0



86


Equity securities at fair value

146.4



1


Mortgage loans

1,211.0



4


Policy loans

119.7




Trading securities

243.6



1


Investments held by variable interest entities

1,221.3



4


Other invested assets

1,172.6



4


Total investment portfolio

$

28,256.6



100


 

Fixed maturities, available for sale, at amortized cost by asset class as of September 30, 2021 are as follows:



Investment
grade


Below
investment
grade


Total

Corporate securities

$

12,231.6



$

777.9



$

13,009.5


United States Treasury securities and obligations of the
United States government and agencies

165.3





165.3


States and political subdivisions

2,527.0



12.5



2,539.5


Foreign governments

83.0





83.0


Asset-backed securities

887.5



101.3



988.8


Agency residential mortgage-backed securities

40.7





40.7


Non-agency residential mortgage-backed securities

940.4



820.6


(a)

1,761.0


Collateralized loan obligations

509.3



13.1



522.4


Commercial mortgage-backed securities

1,951.3



89.5



2,040.8








Total

$

19,336.1



$

1,814.9



$

21,151.0



____________________

(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 $24.1 billion compared with an amortized cost of $21.2 billion.  Net unrealized gains were comprised of gross unrealized gains of $3.0 billion and gross unrealized losses of $32 million.  The allowance for credit losses was $5.4 million at September 30, 2021.


At amortized cost and fair value, 91 percent and 92 percent of fixed maturities, available for sale, were rated "investment grade", respectively.


Acquisitions of fixed maturity investments during the quarter totaled $1.5 billion.  Comparable information for acquisitions of fixed maturity investments is as follows:



Fixed maturity acquisitions


Quarter ended


September 30,


2021


2020

Total fixed maturity acquisitions (dollars in millions)

$

1,512.5



$

1,208.7


Annual effective yield

3.09



3.26


Average rating

BBB+



BBB+


Average life (in years)

8.4



5.8


 

Non-Operating Items

Net realized investment gains in 3Q21 were $2.2 million (net of related amortization) including the unfavorable change in the allowance for credit losses of $1.4 million which was recorded in earnings.  Net realized investment gains in 3Q20 were $7.7 million (net of related amortization) including the favorable change in the allowance for credit losses of $8.1 million which was recorded in earnings.

During 3Q21 and 3Q20, we recognized an increase (decrease) in earnings of ($4.6) million and $8.5 million, respectively, due to the net change in market value of investments recognized in earnings.

During 3Q21 and 3Q20, we recognized an increase (decrease) in earnings of $10.9 million and ($1.6) million, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities related to our fixed index annuities, net of related amortization.  Such amounts include the impacts of changes in market interest rates used to determine the derivative's estimated fair value.

Statutory (based on non-GAAP measures) and GAAP Capital Information

Our consolidated statutory risk-based capital ratio was estimated at 388% at September 30, 2021, reflecting estimated 3Q21 statutory operating income of $86 million (and $201 million in the first nine months of 2021) and the payment of insurance company dividends to the holding company of $148.7 million during 3Q21 (and $328.3 million in the first nine months of 2021).

During the third quarter of 2021, we repurchased $115.0 million of common stock under our securities repurchase program.  We repurchased 4.9 million common shares at an average cost of $23.42 per share.  As of September 30, 2021, we had 124.3 million shares outstanding and had authority to repurchase up to an additional $466.9 million of our common stock.  During 3Q21, dividends paid on common stock totaled $16.3 million.

Unrestricted cash and investments held by our holding company were $366 million at September 30, 2021, compared to $388 million at December 31, 2020.

Book value per common share was $42.11 at September 30, 2021 compared to $40.54 at December 31, 2020.  Book value per diluted share, excluding accumulated other comprehensive income (2), was $26.03 at September 30, 2021, compared to $23.95 at December 31, 2020. 

The debt-to-capital ratio was 17.8 percent and 17.2 percent at September 30, 2021 and December 31, 2020, respectively.  Our debt-to-total capital ratio, excluding accumulated other comprehensive income (3) was 25.6 percent at both September 30, 2021 and December 31, 2020.

Return on equity for the trailing four quarters ended September 30, 2021 and 2020, was 8.4% and 10.4%, respectively.  Operating return, excluding significant items, on equity, excluding accumulated other comprehensive income and net operating loss carryforwards (6) for the trailing four quarters ended September 30, 2021 and 2020, was 11.6% and 11.9%, respectively.

In this news release, CNO includes non-GAAP measures to enhance investors' understanding of management's view of the business.  The non-GAAP measures are not a substitute for GAAP, but rather a supplement to increase transparency by providing broader perspective.  CNO's definitions of non-GAAP measures may differ from other companies' definitions.  More detailed information including various GAAP and non-GAAP measurements are located at CNOinc.com in the Investors section under SEC Filings.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS:

This press release may contain forward-looking statements within the meaning of federal securities laws.  These prospective statements reflect management's current expectations, but are not guarantees of future performance.  Accordingly, please refer to CNO's cautionary statement regarding forward-looking statements, and the business environment in which the Company operates, contained in the Company's Form 10-K for the year ended December 31, 2020 and any subsequent Form 10-Q on file with the Securities and Exchange Commission and on the Company's website at CNOinc.com in the Investors section.  CNO specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise.

EARNINGS RELEASE CONFERENCE CALL WEBCAST:

The Company will host a conference call to discuss results on October 28, 2021 at 11:00 a.m. Eastern Time.  During the call, we will be referring to a presentation that will be available at the Investors section of the company's website.

To participate by dial-in, please register at http://www.directeventreg.com/registration/event/1989231. Upon registering, you will be provided with call details and a registrant ID used to track attendance on the conference call. Reminders will also be sent to registered participants via email.

For those investors who prefer to listen to the call online, we will be broadcasting the call live via webcast.  The event can be accessed through the Investors section of the company's website: ir.CNOinc.com.  Participants should go to the website at least 15 minutes before the event to register and download any necessary audio software.

ABOUT CNO FINANCIAL GROUP

CNO Financial Group, Inc. (NYSE: CNO) secures the future of middle-income America.  CNO provides life and health insurance, annuities, financial services, and workforce benefits solutions through our family of brands, including Bankers Life, Colonial Penn and Washington National.  Our customers work hard to save for the future, and we help protect their health, income and retirement needs with 3.2 million policies and $35 billion in total assets. Our 3,400 associates, 4,600 exclusive agents and 4,000 independent partner agents guide individuals, families and businesses through a lifetime of financial decisions. For more information, visit CNOinc.com.

 

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars in millions)

(unaudited)



September 30,

2021


December 31,

2020

ASSETS




Investments:




Fixed maturities, available for sale, at fair value (net of allowance for credit losses: September 30, 2021 - $5.4 and December 31, 2020 - $2.2; amortized cost: September 30, 2021 - $21,151.0 and December 31, 2020 - $19,921.1)

$

24,142.0



$

23,383.6


Equity securities at fair value

146.4



151.2


Mortgage loans (net of allowance for credit losses: September 30, 2021 - $7.3 and December 31, 2020 - $11.8)

1,211.0



1,358.7


Policy loans

119.7



123.0


Trading securities

243.6



232.0


Investments held by variable interest entities (net of allowance for credit losses: September 30, 2021 - $2.5 and December 31, 2020 - $15.1; amortized cost: September 30, 2021 - $1,225.3 and December 31, 2020 - $1,211.3)

1,221.3



1,189.4


Other invested assets

1,172.6



1,146.4


  Total investments

28,256.6



27,584.3


Cash and cash equivalents - unrestricted

742.1



937.8


Cash and cash equivalents held by variable interest entities

70.5



54.1


Accrued investment income

218.1



205.8


Present value of future profits

229.0



249.4


Deferred acquisition costs

1,082.7



1,027.8


Reinsurance receivables (net of allowance for credit losses: September 30, 2021 - $4.0 and December 31, 2020 - $4.0)

4,409.7



4,584.3


Income tax assets, net

145.7



199.4


Assets held in separate accounts

4.5



4.2


Other assets

554.8



492.8


Total assets

$

35,713.7



$

35,339.9


LIABILITIES AND SHAREHOLDERS' EQUITY




Liabilities:




Liabilities for insurance products:




  Policyholder account liabilities

$

12,992.0



$

12,540.6


  Future policy benefits

11,699.7



11,744.2


  Liability for policy and contract claims

512.3



561.8


  Unearned and advanced premiums

247.5



252.6


  Liabilities related to separate accounts

4.5



4.2


Other liabilities

995.3



821.8


Investment borrowings

1,741.1



1,642.5


Borrowings related to variable interest entities

1,151.4



1,151.8


Notes payable – direct corporate obligations

1,137.0



1,136.2


  Total liabilities

30,480.8



29,855.7


Commitments and Contingencies




Shareholders' equity:




Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: September 30, 2021 – 124,269,869; December 31, 2020 – 135,279,119)

1.2



1.3


Additional paid-in capital

2,274.6



2,544.5


Accumulated other comprehensive income

1,929.7



2,186.1


Retained earnings

1,027.4



752.3


  Total shareholders' equity

5,232.9



5,484.2


  Total liabilities and shareholders' equity

$

35,713.7



$

35,339.9


 

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(Dollars in millions, except per share data)

(unaudited)



Three months ended


Nine months ended


September 30,


September 30,


2021


2020


2021


2020

Revenues:








Insurance policy income

$

630.6



$

628.3



$

1,893.5



$

1,882.3


Net investment income:








  General account assets

289.5



276.9



854.3



788.9


  Policyholder and other special-purpose portfolios

18.7



66.6



171.3



43.0


Realized investment gains (losses):








  Net realized investment gains (losses)

(.9)



8.2



12.3



(24.0)


  Change in allowance for credit losses and other-than-temporary
  impairment losses

(1.4)



8.1



13.9



(31.4)


Total realized gains (losses)

(2.3)



16.3



26.2



(55.4)


Fee revenue and other income

31.8



25.4



102.1



86.1


Total revenues

968.3



1,013.5



3,047.4



2,744.9


Benefits and expenses:








Insurance policy benefits

524.8



560.7



1,641.3



1,591.8


Interest expense

23.7



23.7



71.8



85.5


Amortization

57.9



53.5



200.2



192.2


Other operating costs and expenses

233.9



209.2



714.5



674.6


Total benefits and expenses

840.3



847.1



2,627.8



2,544.1


Income before income taxes

128.0



166.4



419.6



200.8


Income tax expense (benefit):








Tax expense on period income

28.2



37.2



94.4



44.8


Valuation allowance for deferred tax assets and other tax items







(34.0)


Net income

$

99.8



$

129.2



$

325.2



$

190.0


Earnings per common share:








Basic:








Weighted average shares outstanding

126,429,000



140,900,000



130,528,000



143,384,000


Net income

$

.79



$

.92



$

2.49



$

1.33


Diluted:








Weighted average shares outstanding

129,018,000



141,730,000



133,162,000



144,090,000


Net income

$

.77



$

.91



$

2.44



$

1.32


 

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.  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 premiums 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):

 




Trailing twelve months ended




3Q21


3Q20

Net operating income

$

343.1



$

354.9








Net operating income, excluding significant items

$

348.6



$

329.3








Net income

$

437.0



$

468.0








Average common equity, excluding accumulated other





comprehensive income (loss) and net operating loss





carryforwards (a non-GAAP financial measure)

$

2,995.5



$

2,760.6








Average common shareholders' equity

$

5,206.8



$

4,498.2








Operating return on equity, excluding accumulated other





comprehensive income (loss) and net operating loss





carryforwards (a non-GAAP financial measure)

11.5

%


12.9

%







Operating return, excluding significant items, on equity, excluding





accumulated other comprehensive income (loss) and net





operating loss carryforwards (a non-GAAP financial measure)

11.6

%


11.9

%







Return on equity

8.4

%


10.4

%

 

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

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


2Q21


89.1



3.5


(f)

92.6



366.1



78.0



466.4


3Q21


92.8



2.3


(g)

95.1



348.6



99.8



437.0















(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.














(f)  Comprised of: (i) $4.5 million from legal and regulatory matters; and (ii) a decrease in tax expense of $1.0 million.














(g)  Comprised of: (i) $3.0 million from legal and regulatory matters; and (ii) a decrease in tax expense of $.7 million.

 

A reconciliation of pre-tax operating earnings (a non-GAAP financial measure) to net income (loss) is as follows (dollars in millions):





Twelve months ended




3Q21


3Q20

Pre-tax operating earnings (a non-GAAP financial measure)

$

442.6



$

453.3


Income tax expense

(99.5)



(98.4)


Net operating income

343.1



354.9


Non-operating items:




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

42.7



(36.6)


Net change in market value of investments recognized in earnings

.7



(11.3)


Fair value changes in embedded derivative liabilities, net of related amortization

64.4



(82.0)


Fair value changes related to the agent deferred compensation plan

10.1



(10.7)


Other

2.6



(4.5)


Non-operating income (loss) before taxes

120.5



(145.1)


Income tax (expense) benefit:




    On non-operating income (loss)

(26.6)



30.5


    Valuation allowance for deferred tax assets and other tax items



227.7


Net non-operating income

93.9



113.1


Net income

$

437.0



$

468.0








 

A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders' equity, is as follows (dollars in millions):





1Q19


2Q19


3Q19


4Q19

Consolidated capital, excluding accumulated other comprehensive









income (loss) and net operating loss carryforwards









(a non-GAAP financial measure)

$

2,703.4



$

2,702.9



$

2,685.0



$

2,761.9


Net operating loss carryforwards

479.6



451.1



425.4



542.6


Accumulated other comprehensive income

654.9



1,098.2



1,442.9



1,372.5


Common shareholders' equity

$

3,837.9



$

4,252.2



$

4,553.3



$

4,677.0















1Q20


2Q20


3Q20


4Q20

Consolidated capital, excluding accumulated other comprehensive









income (loss) and net operating loss carryforwards









(a non-GAAP financial measure)

$

2,701.2



$

2,784.2



$

2,905.1



$

2,956.2


Net operating loss carryforwards

469.4



426.8



377.2



341.9


Accumulated other comprehensive income

595.2



1,520.2



1,801.6



2,186.1


Common shareholders' equity

$

3,765.8



$

4,731.2



$

5,083.9



$

5,484.2















1Q21


2Q21


3Q21



Consolidated capital, excluding accumulated other comprehensive









income (loss) and net operating loss carryforwards









(a non-GAAP financial measure)

$

3,019.5



$

3,035.6



$

3,036.3




Net operating loss carryforwards

323.1



292.9



266.9




Accumulated other comprehensive income

1,518.1



1,995.5



1,929.7




Common shareholders' equity

$

4,860.7



$

5,324.0



$

5,232.9














 

A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders' equity, is as follows (dollars in millions):





Trailing four quarter average




3Q21


3Q20

Consolidated capital, excluding accumulated other comprehensive





income (loss) and net operating loss carryforwards





(a non-GAAP financial measure)

$

2,995.5



$

2,760.6


Net operating loss carryforwards

320.0



460.0


Accumulated other comprehensive income

1,891.3



1,277.6


Common shareholders' equity

$

5,206.8



$

4,498.2




(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 (dollars in millions, except per share data).

 



Three months ended



September 30, 2021



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$

52.5



$



$

52.5


Health margin


117.9





117.9


Life margin


53.2





53.2


Total insurance product margin


223.6





223.6


Allocated expenses


(140.5)





(140.5)


Income from insurance products


83.1





83.1


Fee income


2.6





2.6


Investment income not allocated to product lines


50.9





50.9


Expenses not allocated to product lines


(17.3)



3.0


(a)

(14.3)


Operating earnings before taxes


119.3



3.0



122.3


Income tax (expense) benefit on operating income


(26.5)



(0.7)



(27.2)


Net operating income


$

92.8



$

2.3



$

95.1









Net operating income per diluted share


$

0.72



$

0.02



$

0.74



___________

(a)

Comprised of $3.0 million from legal and regulatory matters. 

 



Three months ended



June 30, 2021



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$

66.0



$



$

66.0


Health margin


120.9





120.9


Life margin


39.7





39.7


Total insurance product margin


226.6





226.6


Allocated expenses


(141.6)





(141.6)


Income from insurance products


85.0





85.0


Fee income


6.6





6.6


Investment income not allocated to product lines


47.8





47.8


Expenses not allocated to product lines


(23.8)



4.5


(a)

(19.3)


Operating earnings before taxes


115.6



4.5



120.1


Income tax (expense) benefit on operating income


(26.5)



(1.0)



(27.5)


Net operating income


$

89.1



$

3.5



$

92.6









Net operating income per diluted share


$

0.66



$

0.03



$

0.69



___________

(a)

Comprised of $4.5 million from legal and regulatory matters. 

 



Three months ended



March 31, 2021



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$

57.9



$



$

57.9


Health margin


124.7





124.7


Life margin


27.1





27.1


Total insurance product margin


209.7





209.7


Allocated expenses


(141.1)





(141.1)


Income from insurance products


68.6





68.6


Fee income


7.3





7.3


Investment income not allocated to product lines


43.0





43.0


Expenses not allocated to product lines


(22.0)



7.8


(a)

(14.2)


Operating earnings before taxes


96.9



7.8



104.7


Income tax (expense) benefit on operating income


(21.7)



(1.7)



(23.4)


Net operating income


$

75.2



$

6.1



$

81.3









Net operating income per diluted share


$

0.55



$

0.04



$

0.59



___________

(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.

 



Three months ended



December 31, 2020



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$

68.1



$

(16.1)


(a)

$

52.0


Health margin


125.2





125.2


Life margin


37.3



4.3


(a)

41.6


Total insurance product margin


230.6



(11.8)



218.8


Allocated expenses


(162.7)





(162.7)


Income from insurance products


67.9



(11.8)



56.1


Fee income


2.9





2.9


Investment income not allocated to product lines


57.8





57.8


Expenses not allocated to product lines


(17.8)



3.7


(b)

(14.1)


Operating earnings before taxes


110.8



(8.1)



102.7


Income tax (expense) benefit on operating income


(24.8)



1.7



(23.1)


Net operating income


$

86.0



$

(6.4)



$

79.6









Net operating income per diluted share


$

0.61



$

(0.04)



$

0.57



___________

(a)

Adjustments arising from our comprehensive annual actuarial review of assumptions.

(b)

Unfavorable impact related to asset impairments.

 



Three months ended



June 30, 2020



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin







Annuity margin


$

123.8



$

40.0


(a)

$

72.3






(91.5)


(a)


Health margin


95.5





95.5


Life margin


36.1



5.6


(a)

41.7


Total insurance product margin


255.4



(45.9)



209.5


Allocated expenses


(128.1)





(128.1)


Income from insurance products


127.3



(45.9)



81.4


Fee income


5.2





5.2


Investment income not allocated to product lines


8.2





8.2


Expenses not allocated to product lines


(38.5)



23.5


(b)

(15.0)


Operating earnings before taxes


102.2



(22.4)



79.8


Income tax (expense) benefit on operating income


(22.8)



4.7



(18.1)


Net operating income


$

79.4



$

(17.7)



$

61.7









Net operating income per diluted share


$

0.55



$

(0.12)



$

0.43



___________

(a)

Given our expectation that interest rates will remain low for the long-term, we performed an actuarial unlocking exercise in the second quarter of 2020 to reflect our assumption that average new money rates will remain flat at 4 percent forever.  This change and the related impacts to persistency assumptions had a $45.6 million unfavorable impact on pre-tax earnings.  As part of the actuarial unlocking exercise, we also changed our assumptions related to the future option costs we incur in providing benefits on fixed index annuities which had a favorable impact on pre-tax earnings of $91.5 million.  The impact of these changes in assumptions is summarized below (dollars in millions):

 


Line of business




Fixed index
annuities


Fixed interest
annuities


Interest-
sensitive life


Total


Favorable (unfavorable)

Impacts of an average new money rate assumption of 4 percent








Insurance policy benefits

$

(5.0)



$



$

(7.4)



$

(12.4)


Amortization

(25.6)



(9.4)



1.8



(33.2)


Subtotal

(30.6)



(9.4)



(5.6)



(45.6)


Impacts of changes in future option costs








Insurance policy benefits

104.8







104.8


Amortization

(13.3)







(13.3)


Subtotal

91.5







91.5


Impact on pre-tax income

$

60.9



$

(9.4)



$

(5.6)



$

45.9



This actuarial unlocking exercise did not replace our comprehensive annual review of all assumptions for our insurance products, which we completed in the fourth quarter of 2020.


(b)

We increased our liability for claims and interest pursuant to the previously disclosed Global Resolution Agreement entered into in November 2018.  Pursuant to this agreement, a third-party auditor is acting on behalf of 41 states and the District of Columbia for the purpose of identifying deceased insureds and contract holders where benefits are payable pursuant to unclaimed property laws.  The third-party auditor has provided information that we have processed and verified allowing us to more accurately estimate the ultimate liability pursuant to this agreement (dollars in millions, except per share data).

 



Three months ended



December 31, 2019



Actual
results


Significant
items


Excluding
significant

items

Insurance product margin (4)







Annuity margin


$

60.5



$

0.3


(a)

$

60.8


Health margin


93.0





93.0


Life margin


46.7



9.7


(a)

56.4


Total insurance product margin


200.2



10.0



210.2


Allocated expenses


(140.6)





(140.6)


Income from insurance products (5)


59.6



10.0



69.6


Fee income


11.7





11.7


Investment income not allocated to product lines (9)


26.2





26.2


Expenses not allocated to product lines


2.8



(20.0)


(b)

(17.2)


Operating earnings before taxes


100.3



(10.0)



90.3


Income tax (expense) benefit on operating income


(21.7)



2.1



(19.6)


Net operating income (10)


$

78.6



$

(7.9)



$

70.7









Net operating income per diluted share


$

0.52



$

(0.05)



$

0.47



___________

(a)

Adjustments arising from our comprehensive annual actuarial review of assumptions.

(b)

$20.0 million of the net favorable impact from legal and regulatory matters.

 

 

SOURCE CNO Financial Group, Inc.

For further information: For further information: CNO News Media, Valerie Dolenga, (312) 396-7688, Valerie.Dolenga@CNOinc.com; CNO Investor Relations, Jennifer Childe, (312) 396-7755, Jennifer.Childe@CNOinc.com