CNO Financial Group Inc. (CNO) reported second-quarter 2014 operating earnings of 29 cents per share that missed the Zacks Consensus Estimate by 6.5%. However, the figure improved from the year-ago quarter earnings by a penny.
The year-over-year rise was attributable to investments in agent productivity, geographic expansion, upgrade in existing products, the introduction of new products, efficient customer service and other operational efficiencies.
Including earnings of Conseco Life Insurance Company (CLIC) being sold, gains from reinsurance transaction, net realized investment gains and valuation allowance for deferred tax assets and other tax items, CNO Financial reported net income of 35 cents per share in the second quarter of 2014, compared with 34 cents in the year-ago quarter.
CNO Financial’s second-quarter revenues were $1.09 billion, up from $1.08 billion in the year-earlier quarter. Revenues also surpassed the Zacks Consensus Estimate of $998 million. Total new annualized premium increased 3% year over year to $104.9 million.
Total benefits and expenses rose 1.2% year over year to $978.6 million.
Segment Update
Post the divestiture of CLIC, CNO Financial operates through four segments, namely, Bankers Life, Washington National, Colonial Penn and Corporate Operations, effective first-quarter 2014.
Pre-tax operating earnings at the Bankers Life segment surged 10% year over year to $87.4 million in the reported quarter on annuity and long-term care margin improvement.
Washington National’s pre-tax operating earnings declined 10% year over year to $32.3 million in the quarter. High loss ratios in the supplemental health block and increased allocation of overhead expenses mainly led to the deterioration. However, this was partially offset by improvement in annuity margins.
Pre-tax operating earnings at Colonial Penn increased 133% year over year to $3.8 million. The improvement resulted from growth in the in-force block, encouraging policy benefits and higher deferral of acquisition costs.
Corporate Operations, which includes investment advisory subsidiary and corporate expenses, reported a pre-tax loss of $15.5 million, comparing unfavorably with the year-ago quarter’s earnings of $2.4 million. The decline was a result of increased expenses associated with the change in interest rates on the liabilities for agent deferred compensation and executive retirement annuities.
Financial Update
As of Jun 30 2014, the consolidated statutory risk-based capital ratio of CNO Financial stood at 437%. This reflects statutory operating earnings of $133 million and dividend of $75 million paid to the holding company in the second quarter of 2014.
In addition, unrestricted cash and investments held by CNO Financial’s holding company decreased to $277 million as of Jun 30, 2014 from $309 million as of Dec 31, 2013.
As of Jun 30, 2014, CNO Financial’s debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), deteriorated 50 basis points over 2013-end to 17.4%. This deterioration was caused by a decline in capital from the loss related to the sale of Conseco Life Insurance Company (CLIC) and debt repayments in the quarter. Book value per common share, excluding accumulated other comprehensive income (loss), decreased to $17.85 as of Jun 30, 2014 from $18.62 as of Dec 31, 2013, mainly due to the loss incurred from the CLIC sale.
As of Jun 30, 2014, CNO Financial had total assets worth $34.9 billion, up from $34.8 billion as of Dec 31, 2013 and shareholder equity was $4.84 billion, reflecting a fall from $4.96 billion as of Dec 31, 2013.
Securities Repurchase Update
CNO Financial spent $95.6 million to repurchase 5.6 million shares in the reported quarter. This includes share repurchases worth $3 million settled in the third quarter of 2014. The company expects to spend $350–$400 million toward share repurchases in 2014, higher than the previously guided range of $250–$300 million. CNO Financial is left with 213.8 million shares under its current authorization and has the authority to repurchase shares up to an additional amount of $260.8 million worth of shares.
Dividend Update
CNO Financial spent $12.9 million on dividend payment in the reported quarter.
Performance of Other Insurers
RLI Corporation (RLI) posted operating earnings of 66 cents per share in the second quarter of 2014, in line with the Zacks Consensus Estimate.
Everest Re Group Ltd.’s (RE) second-quarter 2014 operating earnings of $5.41 per share missed the Zacks Consensus Estimate of $5.75.
Symetra Financial Corporation (SYA) reported second-quarter 2014 adjusted operating income of 48 cents per share, which outperformed Zacks Consensus Estimate by 11.6%
Zacks Rank
CNO Financial currently carries a Zacks Rank #2 (Buy).
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