CNO Financial Group Inc. (CNO) reported fourth-quarter 2014 net operating earnings of 34 cents per share in line with the Zacks Consensus Estimate. The results, however, improved 21.4% year over year.
The improvement was attributable to higher sales, increased premiums and annuity account values.
However, share price of CNO Financial did not respond favorably to the earnings improvement as it declined 1.30% and closed at $16.67 per share in the last trading session.
CNO Financial reported net income of $83.9 million or 41 cents per share comparing unfavorably with $106 million or 47 cents in the year-ago quarter.
CNO Financial’s fourth-quarter revenues were at $1.0 billion, down from $1.2 billion in the prior-year quarter. However, revenues surpassed the Zacks Consensus Estimate of $973 million. Total new annualized premiums increased 1% year over year to $114.8 million.
Total benefits and expenses decreased 17.3% year over year to $924.1 million.
Segment Update
Post the divestiture of CLIC, CNO Financial now operates through four segments, namely, Bankers Life, Washington National, Colonial Penn and Corporate Operations, effective since the first-quarter 2014.
Pretax operating earnings at the Bankers Life segment surged 25% year over year to $103.5 million in the reported quarter on higher growth from sales and account values along with lower surrenders.
Washington National’s pretax operating earnings declined 46.6% year over year to $20.2 million in the quarter due to unfavorable adjustments from the comprehensive annual actuarial review. In addition favorable interest-adjusted benefit ratio on the supplemental health insurance block in the fourth quarter 2013 weighed on the earnings.
Pretax operating earnings at Colonial Penn was $2.8 million, rebounding from a year-ago loss of $4.1 million. The improvement resulted from growth in the in-force block, marketing cost effectiveness and a modest increase in deferral of acquisition costs.
Corporate Operations, which includes investment advisory subsidiary and corporate expenses. Pre-tax operating earnings included of $15 million for the mark-to-market change in the agent deferred compensation plan liability
Full-Year 2014 Update
CNO Financial reported 2014 net operating earnings of $1.19 per share improving from $1.07 a year ago.
Total revenues came in at $4.1 billion declining 7.4% year over year. However, results were ahead of the Zacks Consensus Estimate by 5.1%.
Financial Update
As of Dec 31 2014, the consolidated statutory risk-based capital ratio of CNO Financial stood at 434%. This reflects statutory operating earnings of $393 million and dividend of $174 million paid to the holding company during 2014.
Additionally, unrestricted cash and investments held by CNO Financial’s holding company increased to $345 million as of Dec 31, 2014 from $309 million as of Dec 31, 2013.
As of Dec 31, 2014, CNO Financial’s debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), deteriorated 20 basis points over 2013-end to 17.1%. A decline in capital from the loss incurred due to the sale of Conseco Life Insurance Company (CLIC) and debt repayments in the quarter led to the deterioration. Book value per common share, excluding accumulated other comprehensive income (loss), increased to $18.75 as of Dec 31, 2014 from $18.62 as of Dec 31, 2013.
As of Dec 31, 2014, CNO Financial had total assets worth $31.2 billion, down from $34.8 billion as of Dec 31, 2013. Shareholder equity was at $4.7 billion, reflecting a fall from $4.96 billion as of Dec 31, 2013.
Business Update
CNO Financial has entered into a strategic technology partnership with Cognizant. The agreement aims to accelerate the IT process improvements and rapid innovations. Per the agreement, Cognizant will assume CNO Financial's application development, maintenance, and testing functions as well as select IT infrastructure operations.
The agreement is also expected to deliver run-rate expense savings of $10 million annually. Moreover, the deal is likely to result in a modest charge to earnings of $6 million over the first two quarters of 2015, related to certain one-time transition costs.
Securities Repurchase Update
CNO Financial spent $75.0 million toward the repurchase of shares and equivalents under its securities repurchase program in the reported quarter. This includes buybacks of 4.4 million shares in the fourth quarter of 2014. In 2014, the company deployed a total amount of $376.5 million toward repurchase of securities under the current program. It expects to spend $250–$325 million toward share repurchases in 2015. CNO Financial is left with 203.3 million shares under its current authorization and has the authority to repurchase shares up to an additional amount of $420.9 million.
Dividend Update
CNO Financial spent $12.2 million on dividend payment in the reported quarter.
Zacks Rank
CNO Financial currently carries a Zacks Rank #3 (Hold).
Performance of Other Multiline Insurers
Cigna Corp. (CI) reported fourth-quarter 2014 operating net earnings of $1.69 per share, comfortably beating the Zacks Consensus Estimate of $1.65. Earnings were also up 22% year over year. The improvement came on the back of higher revenues.
Kemper Corp. (KMPR) reported fourth-quarter 2014 net operating earnings per share of $1.02, which outpaced the Zacks Consensus Estimate of 74 cents by 37.8% and also improved year over year by 23%.
The Hartford Financial Services Group Inc. (HIG) reported fourth-quarter 2014 operating earnings per share of 96 cents which surpassed the Zacks Consensus Estimate by 3.2%. Earnings also improved 22% from the year-ago quarter.
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