PR Newswire
CARMEL, Ind., July 31, 2023
Total new annualized premiums up 11%; strong capital position
CARMEL, Ind., July 31, 2023 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE: CNO) today reported net income of $73.7 million, or $0.64 per diluted share, in 2Q23 compared to $233.3 million, or $1.99 per diluted share, in 2Q22. Net operating income (1) was $62.3 million, or $0.54 per diluted share, in 2Q23 compared to $135.1 million, or $1.15 per diluted share, in 2Q22.
"Production was strong in both our Consumer and Worksite Divisions, with notable sales increases in Life, Medicare Supplement and Supplemental Health, driven by continued growth in producing agent counts," said Gary C. Bhojwani, chief executive officer.
"Variable investment income results improved sequentially, yet reflect a tough comparable in the second quarter of 2022 when results reached a five-year high. Health claims impacted our results in the quarter. We expect this elevated claims experience to moderate in the second half of the year, based on leading indicators. Our long-term view of the Health business remains positive."
"New money rates were once again strong in the quarter at 6.34%, which drove continued improvement in the earned yield on investments allocated to insurance products. Our consolidated risk based capital (RBC) ratio of 386% was comfortably above our target as was our holding company liquidity of $176 million. Free cash flow generation in the quarter was robust."
Second Quarter 2023 Highlights (as compared to the corresponding period in the prior year where applicable)
- Total Health insurance new annualized premiums ("NAP") (4) up 15%; total Life insurance NAP up 8%
- Medicare Supplement NAP up 29%; Consumer Division field agent-sold Life insurance NAP up 20%
- Consumer Division field producing agent count up 8%; Worksite Division producing agent count up 32%
- Returned $47.4 million to shareholders
- Book value per share was $17.56; book value per diluted share, excluding accumulated other comprehensive loss,(2) was $32.34
- Return on equity ("ROE") of 14.8%; operating ROE, as adjusted,(6) of 8.0%
Adoption of New Accounting Standard
As previously disclosed, we adopted ASU 2018-12 related to targeted improvements to the accounting for long-duration insurance contracts effective January 1, 2023. We selected the modified retrospective transition method except for market risk benefits where we were required to use the full retrospective approach. All prior periods presented herein have been recast in accordance with the new standard. As a result of the adoption of the new guidance, shareholders' equity as of December 31, 2022, increased $368.0 million and was comprised of increases to retained earnings and accumulated other comprehensive income (loss) of $232.2 million and $135.8 million, respectively. Net income and operating earnings (1) for the second quarter of 2022 increased $97.2 million and $35.0 million, respectively. Concurrent with the adoption of the new guidance, we also updated the method of determining non-operating earnings for our fixed indexed annuities to better isolate the volatile non-economic accounting impacts of that line of business.
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 net realized investment gains (losses) from sales and change in the allowance for credit losses, changes in fair values of embedded derivatives and market risk benefits 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 | ||||||||||||
June 30, | June 30, | ||||||||||||
2023 | 2022 | % change | 2023 | 2022 | % change | ||||||||
Income from insurance products (b) | $ 0.64 | $ 0.88 | (27) | $ 73.7 | $ 103.5 | (29) | |||||||
Fee income | — | 0.03 | (100) | 0.6 | 3.2 | (81) | |||||||
Investment income not allocated to product lines (c) | 0.24 | 0.55 | (56) | 28.0 | 64.6 | (57) | |||||||
Expenses not allocated to product lines (d) | (0.18) | 0.02 | (1,000) | (21.1) | 2.9 | (828) | |||||||
Operating earnings before taxes | 0.70 | 1.48 | 81.2 | 174.2 | |||||||||
Income tax expense on operating income | (0.16) | (0.33) | (52) | (18.9) | (39.1) | (52) | |||||||
Net operating income (1) | 0.54 | 1.15 | (53) | 62.3 | 135.1 | (54) | |||||||
Net realized investment losses from sales and change in allowance for credit losses | (0.27) | (0.23) | (31.3) | (27.1) | |||||||||
Net change in market value of investments recognized in earnings | (0.04) | (0.19) | (4.0) | (21.7) | |||||||||
Changes in fair value of embedded derivative liabilities and market risk benefits | 0.44 | 1.37 | 50.4 | 160.6 | |||||||||
Other | — | 0.12 | (0.2) | 13.8 | |||||||||
Non-operating income before taxes | 0.13 | 1.07 | 14.9 | 125.6 | |||||||||
Income tax expense on non-operating income | (0.03) | (0.23) | (3.5) | (27.4) | |||||||||
Net non-operating income | 0.10 | 0.84 | 11.4 | 98.2 | |||||||||
Net income | $ 0.64 | $ 1.99 | $ 73.7 | $ 233.3 | |||||||||
Weighted average diluted shares outstanding | 115.6 | 117.3 | |||||||||||
(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, investment income not allocated to product lines, expenses not allocated to product lines and income taxes. Insurance margin is management's measure of the profitability of its annuity, health and life segments' performance and consists of insurance policy income 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 represents 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; (iv) expenses related to the funding agreement-backed notes ("FABN") program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income; plus (vi) the impact of annual option forfeitures related to fixed indexed annuity surrenders. |
(d) | Expenses not allocated to product lines in the second quarter of 2022 includes the $22.5 million favorable impact of an experience refund related to a reinsurance agreement. |
FINANCIAL SUMMARY (continued) |
Management vs. GAAP Measures |
(Dollars in millions, except per share data) |
(Unaudited) |
Shareholders' equity, excluding accumulated other comprehensive income (loss), and book value per share, excluding accumulated other comprehensive income (loss), are non-GAAP measures that are utilized by management to view the business without the effect of accumulated other comprehensive income (loss) 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. In addition, shareholders' equity excludes net operating loss carryforwards in our non-GAAP return on equity measures as such assets are not discounted and, accordingly, will not provide a return to shareholders until after it is realized as a reduction to taxes that would otherwise be paid. Management believes that excluding this value from the equity component of this measure enhances the understanding of the effect these non-discounted assets have on operating returns. |
Quarter ended | |||
June 30, | |||
2023 | 2022 | ||
Trailing twelve months return on equity (a) | 14.8 % | 20.9 % | |
Trailing twelve months operating return on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) (6) | 8.0 % | 13.3 % | |
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) | 8.0 % | 12.7 % | |
Shareholders' equity | $ 1,995.8 | $ 2,127.9 | |
Accumulated other comprehensive loss | 1,733.5 | 1,415.8 | |
Shareholders' equity, excluding accumulated other comprehensive loss | 3,729.3 | 3,543.7 | |
Net operating loss carryforwards | (126.3) | (214.7) | |
Shareholders' equity, excluding accumulated other comprehensive loss and net operating loss carryforwards | $ 3,603.0 | $ 3,329.0 | |
Book value per diluted share | $ 17.31 | $ 18.31 | |
Accumulated other comprehensive loss | 15.03 | 12.19 | |
Book value per diluted share, excluding accumulated other comprehensive loss (a non-GAAP financial measure) (2) | $ 32.34 | $ 30.50 | |
(a) | Calculated using average shareholders' equity for the measurement period. |
INSURANCE OPERATIONS
Annuity products accounted for 26 percent of the Company's margin for the quarter and annuity premiums collected decreased 8 percent in 2Q23 compared to 2Q22.
Health products accounted for 48 percent of the Company's insurance margin for the quarter and 63 percent of insurance policy income.
Life products accounted for 26 percent of the Company's insurance margin for the quarter and 36 percent of insurance policy income.
Sales of health products were up 15 percent and sales of life products were up 8 percent in 2Q23 compared to 2Q22.
ANNUITY COLLECTED PREMIUMS (Dollars in millions) (Unaudited) | |||||
Quarter ended June 30, | |||||
2023 | 2022 | % change | |||
Annuity collected premiums | $ 401.8 | $ 435.0 | (8) | ||
INSURANCE POLICY INCOME (Dollars in millions) (Unaudited) | |||||
Quarter ended June 30, | |||||
2023 | 2022 | % change | |||
Annuity | $ 8.1 | $ 5.8 | 40 | ||
Health | 397.1 | 403.5 | (2) | ||
Life | 223.1 | 216.3 | 3 | ||
Total insurance policy income | $ 628.3 | $ 625.6 | — | ||
SALES MEASURED AS NEW ANNUALIZED PREMIUMS FOR LIFE AND HEALTH PRODUCTS (Dollars in millions) (Unaudited) | |||||
Quarter ended June 30, | |||||
2023 | 2022 | % change | |||
Health | $ 43.1 | $ 37.4 | 15 | ||
Life | 55.6 | 51.4 | 8 | ||
Total new annualized premiums (4) | $ 98.7 | $ 88.8 | 11 | ||
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 insurance policy income 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 | ||||||||||
June 30, | % of insurance policy income | June 30, | % of insurance policy income | % change | ||||||
Margin | ||||||||||
Annuity interest margin | $ 57.1 | $ 60.1 | (5) | |||||||
Life insurance interest margin | 0.7 | 1.3 | (46) | |||||||
Total interest-sensitive margin | 57.8 | 61.4 | (6) | |||||||
Insurance margin | ||||||||||
Health | 108.2 | 27 | 125.4 | 31 | (14) | |||||
Life (a) | 57.2 | 26 | 68.9 | 32 | (17) | |||||
Total other insurance margin | 165.4 | 27 | 194.3 | 31 | (15) | |||||
Total insurance margin | 223.2 | 255.7 | ||||||||
Allocated expenses | (149.5) | (152.2) | ||||||||
Income from insurance products | $ 73.7 | $ 103.5 | ||||||||
Per diluted share | $ 0.64 | $ 0.88 | ||||||||
Weighted average diluted shares | 115.6 | 117.3 | ||||||||
(a) | Net of $25.5 million and $22.6 million of non-deferred television advertising expense related to our direct distribution channel in the 2023 and 2022 periods, respectively. |
Total allocated expenses were $149.5 million, down 2 percent from 2Q22.
ANNUITY RESULTS BY PRODUCT TYPE (Dollars in millions) (Unaudited) | |||
Annuity margin | |||
Quarter ended | |||
June 30, | |||
2023 | 2022 | ||
Fixed indexed annuities | $ 47.6 | $ 48.4 | |
Fixed interest annuities | 8.7 | 7.9 | |
Other annuities | 0.8 | 3.8 | |
Total | $ 57.1 | $ 60.1 | |
Annuity collected premiums | |||
Quarter ended | |||
June 30, | |||
2023 | 2022 | ||
Annuity collected premiums | $ 401.8 | $ 435.0 | |
Average net insurance liabilities (5) | |||
Quarter ended | |||
June 30, | |||
2023 | 2022 | ||
Fixed indexed annuities | $ 9,276.0 | $ 8,711.0 | |
Fixed interest annuities | 1,613.1 | 1,712.5 | |
Other annuities | 462.5 | 484.2 | |
Total | $ 11,351.6 | $ 10,907.7 | |
Margin/average net insurance liabilities (a) | |||
Quarter ended | |||
