CNO Financial Group Inc. (CNO) reported fourth-quarter 2013 operating earnings of 33 cents per share, surpassing the Zacks Consensus Estimate of 30 cents. This represents the third consecutive quarter of earnings beat. The reported figure also outpaced 25 cents earned in the year-ago quarter.
The improvement came on the back of strong capital position and improvement in core business and earnings.
Including net realized investment gains, fair value changes in embedded derivative liabilities and valuation allowance for deferred tax assets and other tax items, CNO Financial reported net income of 47 cents per share. The reported net income compared favorably with the year-ago net income of 41 cents per share.
CNO Financial’s fourth-quarter revenues stood at $1.16 billion, up from $1.06 billion in the fourth-quarter of 2012. Total revenue also surpassed the Zacks Consensus Estimate of $1.07 billion. Total new annualized premium increased 8% year over year to $114.1 million. Total benefits and expenses decreased 18.4% year over year to $1.1 billion.
Segment Update
Pre-tax operating earnings in the Bankers Life segment increased 13% year over year to $83 million in the reported quarter due to favorable reserve developments in the Medicare supplement block and higher earnings in the annuity business that resulted from higher account values and low surrenders. However, this was partially offset by higher benefit ratios in the long-term care block, reflecting higher persistency.
Going forward in 2014, this segment is expected to witness seasonal variances in quarterly earnings. The first quarter of 2014 is projected to witness the lowest earnings in the year.
Washington National’s pre-tax operating earnings stood at $31.5 million in the quarter, down 9% from the year-ago quarter.
Pre-tax operating loss of Colonial Penn was $4.1 million, comparing unfavorably with the year-ago earnings of $3.2 million, due to increased marketing expenses.
Other CNO Business reported pre-tax operating income of $13.2 million in the quarter, up from $5.2 million in the year-ago quarter.
Corporate Operations, which includes investment advisory subsidiary and corporate expenses, rebounded to a pre-tax income of $3.8 million from pre-tax loss of $2.7 million in the year-ago quarter. The improvement was based on favorable investment results that were driven by positive investment markets.
Full Year Highlights
CNO Financial reported full-year 2013 operating earnings of $1.17 per share, surpassing the Zacks Consensus Estimate of $1.13. The result also surpassed 69 cents earned in the 2012.
CNO Financial reported net income of $2.06 per share in 2013. The reported net income compared favorably with the year-ago 83 cents.
CNO Financial’s full-year 2013 revenues stood at $4.5 billion, up from $4.3 billion in full-year 2012.
Financial Update
As of Dec 31, 2013, the consolidated statutory risk-based capital ratio of CNO Financial’s insurance subsidiaries stood at 410%, up 4300 basis points year over year. This reflects statutory earnings of $71.5 million in the fourth quarter of 2013 and dividend of $236.8 million paid to the holding company in 2013.
In addition, unrestricted cash and investments held by CNO Financial’s holding company increased to $309 million as of Dec 31, 2013 from $294 million as of Dec 31, 2012.
As of Dec 31, 2013, CNO Financial’s debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), declined 380 basis points over 2012-end to 16.9%. Book value per common share, excluding accumulated other comprehensive income (loss), increased to $18.62 as of Dec 31, 2013 from $16.21 as of Dec 31, 2012.
As of Dec 31, 2013, CNO Financial had total assets worth $34.8 billion, up from $34.1 billion as of Dec 31, 2012 and shareholder equity stood at $4.96 billion, down from $5.05 billion as on Dec 31, 2012.
Securities Repurchase Update
CNO Financial spent $31.1 million to repurchase 1.9 million shares in the reported quarter. This translates into a total repurchase amount of $252.6 million in 2013. The company expects to spend $225–$300 million on the repurchase of securities in 2014. CNO Financial is left with 220.3 million shares under its current authorization and has the authority to repurchase shares up to an additional amount of $397.4 million worth of shares.
Dividend Update
CNO Financial spent $6.6 million on dividend payment in the reported quarter.
Our Take
CNO Financial surpassed the Zacks Consensus Estimate as well as year-ago numbers, both on a quarterly and full-year basis, banking on higher sales and premium, distribution expansion and financial strength. Higher revenues along with a decline in expenses boosted margins during the quarter.
Two insurance subsidiaries of the company entered into 100% coinsurance agreements that should help CNO Financial address its run-off business and bolster earnings in the future. Moreover, strong cash flow and effective capital management helps to retain investor confidence on the stock.
Zacks Rank
CNO Financial carries a Zacks Rank #1 (Strong Buy).
Results of Other Multi–Line insurers
Old Republic International Corporation (ORI) reported fourth-quarter 2013 operating net income of 33 cents per share, which outpaced the Zacks Consensus Estimate of 18 cents by 83.3%. The stock carries a Zacks Rank #1.
The Travelers Companies Inc. (TRV) reported operating net earnings of $2.68 per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate by 23.5%. The stock carries a Zacks Rank #2 (Buy).
ACE Limited (ACE) reported operating net earnings of $2.39 per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate by 19.5%. The stock carries a Zacks Rank #2.
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