CNO Financial Group Reports Second Quarter 2016 Results
OREANDA-NEWS. July 27, 2016.
"We continue to see growth in our business, underscored by increases in collected premiums, policies in-force and annuity account values," said
Ed Bonach, CEO of CNO. "Our earnings, cash flow, capital, liquidity and returns to shareholders remain strong."
Second Quarter 2016 Highlights
- First year collected premiums:
\\$304 million , up 5% from 2Q15 - New annualized premium ("NAP") (2):
\\$101.9 million , down 3% from 2Q15 - Total collected premiums:
\\$863.0 million , up 4% from 2Q15 - Policies in-force of 3.5 million (including third party policies in-force), up 1 percent from 2Q15
- Net income per diluted share:
33 cents in 2Q16 compared to24 cents in 2Q15 - Net operating income (1) per diluted share:
35 cents in 2Q16 compared to31 cents in 2Q15 - Unrestricted cash and investments held by our holding company were
\\$376 million atJune 30, 2016 - Common stock repurchases of
\\$61.0 million and dividends of\\$14.3 million in 2Q16
Six-month 2016 Highlights
- First year collected premiums:
\\$633 million , up 13% from the first six months of 2015 - NAP (2):
\\$209.7 million , down 1% from the first six months of 2015 - Total collected premiums:
\\$1,759.3 million , up 7% from the first six months of 2015 - Net income per diluted share:
58 cents in the first six months of 2016 compared to50 cents in the first six months of 2015 - Net operating income (1) per diluted share:
63 cents in the first six months of 2016 compared to61 cents in the first six months of 2015 - Consolidated risk-based capital ratio was estimated at 448% at
June 30, 2016 , reflecting estimated statutory operating earnings of\\$174 million and insurance company dividends to the holding company of\\$130.6 million during the first six months of 2016
Quarterly Segment Operating Results | |||||||
Three months ended | |||||||
June 30, | |||||||
2016 |
2015 | ||||||
(Dollars in millions, | |||||||
Adjusted EBIT (3): |
|||||||
Bankers Life |
\\$ |
93.3 |
\\$ |
86.4 |
|||
Washington National |
21.5 |
20.1 |
|||||
Colonial Penn: |
|||||||
In-force business (6) |
14.1 |
13.3 |
|||||
New business (6) |
(11.1) |
(9.1) |
|||||
Total Colonial Penn |
3.0 |
4.2 |
|||||
Adjusted EBIT from business segments |
117.8 |
110.7 |
|||||
Corporate Operations, excluding corporate interest expense |
(7.0) |
(5.0) |
|||||
Adjusted EBIT |
110.8 |
105.7 |
|||||
Corporate interest expense |
(11.4) |
(11.9) |
|||||
Operating earnings before taxes |
99.4 |
93.8 |
|||||
Tax expense on operating income |
35.7 |
33.0 |
|||||
Net operating income (1) |
63.7 |
60.8 |
|||||
Net realized investment gains (losses) (net of related amortization) |
12.0 |
(10.4) |
|||||
Fair value changes in embedded derivative liabilities (net of related amortization) |
(16.5) |
25.7 |
|||||
Fair value changes related to agent deferred compensation plan |
(12.3) |
— |
|||||
Loss on extinguishment of debt |
— |
(32.8) |
|||||
Other |
.1 |
(3.6) |
|||||
Non-operating loss before taxes |
(16.7) |
(21.1) |
|||||
Income tax (benefit): |
|||||||
On non-operating loss |
(5.9) |
(7.1) |
|||||
Valuation allowance for deferred tax assets |
(7.0) |
— |
|||||
Net non-operating loss |
(3.8) |
(14.0) |
|||||
Net income |
\\$ |
59.9 |
\\$ |
46.8 |
|||
Per diluted share: |
|||||||
Net operating income |
\\$ |
.35 |
\\$ |
.31 |
|||
Net realized investment gains (losses) (net of related amortization and taxes) |
.04 |
(.03) |
|||||
Fair value changes in embedded derivative liabilities (net of related amortization and taxes) |
(.06) |
.08 |
|||||
Fair value changes related to agent deferred compensation plan (net of taxes) |
(.04) |
— |
|||||
Loss on extinguishment of debt (net of taxes) |
— |
(.11) |
|||||
Valuation allowance for deferred tax assets |
.04 |
— |
|||||
Other |
— |
(.01) |
|||||
Net income |
\\$ |
.33 |
\\$ |
.24 |
The following table summarizes the financial impact of a significant item on our 2Q16 net operating income (dollars in millions, except per share amounts):
Three months ended | |||||||||||
June 30, 2016* | |||||||||||
Actual results |
Significant item |
Excluding | |||||||||
Net Operating Income (1): |
|||||||||||
Bankers Life |
\\$ |
93.3 |
\\$ |
(4.5) |
\\$ |
88.8 |
|||||
Washington National |
21.5 |
— |
21.5 |
||||||||
Colonial Penn |
3.0 |
— |
3.0 |
||||||||
Adjusted EBIT from business segments |
117.8 |
(4.5) |
113.3 |
||||||||
Corporate Operations, excluding corporate interest expense |
(7.0) |
— |
(7.0) |
||||||||
Adjusted EBIT (3) |
110.8 |
(4.5) |
106.3 |
||||||||
Corporate interest expense |
(11.4) |
— |
(11.4) |
||||||||
Operating earnings before taxes |
99.4 |
(4.5) |
94.9 |
||||||||
Tax expense on operating income |
35.7 |
(1.6) |
34.1 |
||||||||
Net operating income |
\\$ |
63.7 |
\\$ |
(2.9) |
\\$ |
60.8 |
|||||
Net operating income per diluted share |
\\$ |
.35 |
\\$ |
(.01) |
\\$ |
.34 |
The significant item in 2Q16 was the release of long-term care reserves (net of the reduction in insurance intangibles) due to the impact of policyholder actions following rate increases.
* See page 9 for the table of Net Operating Income Excluding a Significant Item for the three months ended
Segment Results
Bankers Life markets and distributes a variety of insurance products to middle-income Americans at or near retirement through a dedicated field force of career agents. First year collected premiums in 2Q16 were
Total collected premiums were up 4 percent in 2Q16 compared to 2Q15, primarily reflecting an increase in premiums from annuity products. Annuity account values, on which spread income is earned, increased 2 percent to
Pre-tax operating earnings in 2Q16 compared to 2Q15 were up
The long-term care interest-adjusted benefit ratio was 77.9 percent in 2Q16, lower than the 2Q15 ratio of 84.6 percent. The 2Q16 ratio was favorably impacted by
Pre-tax operating earnings in 2Q16 reflected a
Total collected premiums from the segment's supplemental health block were up 4 percent in 2Q16 compared to 2Q15.
Pre-tax operating earnings in 2Q16 compared to 2Q15 were up
The supplemental health interest-adjusted benefit ratio was 61.6 percent and 65.7 percent in 2Q16 and 2Q15, respectively. After adjusting for the persistency impacts and higher claims summarized in the previous paragraph, this block's interest-adjusted benefit ratio was 58 percent in 2Q16. These impacts primarily relate to current quarter experience and, therefore, are not considered significant items in the table provided above. After adjusting for unfavorable reserve developments related to claims incurred in prior periods, this block's interest-adjusted benefit ratio was 59 percent in 2Q15. We continue to expect the supplemental health interest-adjusted benefit ratio to be in the range of 56 percent to 59 percent during the remainder of 2016.
Colonial Penn markets primarily graded benefit and simplified issue life insurance directly to customers through television advertising, direct mail, the internet and telemarketing. First year collected premiums in 2Q16 were
Total collected premiums were up 7 percent in 2Q16 compared to 2Q15, driven by increased sales and steady persistency.
Pre-tax operating earnings in 2Q16 were
Recognizing the accounting standard related to deferred acquisition costs, the amount of our investment in new business during a particular period will have a significant impact on this segment's results. We continue to expect this segment to report earnings in 2016 in the range of breakeven to
Corporate Operations includes our investment advisory subsidiary and corporate expenses.
Pre-tax losses in 2Q16 were
Non-Operating Items
Net realized investment gains in 2Q16 were
During 2Q16 and 2Q15, we recognized increases (decreases) in earnings of
During 2Q16, we recognized a decrease in earnings of
The valuation allowance for deferred tax assets was reduced by
The results for 2Q15 include a
Statutory (based on non-GAAP measures) and GAAP Capital Information
Our consolidated statutory risk-based capital ratio was estimated at 448% at
During the second quarter of 2016, we repurchased
Book value per common share was
The debt-to-capital ratio was 17.0 percent and 18.0 percent at
Conference Call
The Company will host a conference call to discuss results on
About
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars in millions) (unaudited) | |||||||
June 30, |
December 31, 2015 | ||||||
ASSETS |
|||||||
Investments: |
|||||||
Fixed maturities, available for sale, at fair value (amortized cost: June 30, 2016 - \\$19,002.2; December 31, 2015 - \\$18,947.0) |
\\$ |
20,989.8 |
\\$ |
19,882.9 |
|||
Equity securities at fair value (cost: June 30, 2016 - \\$510.1; December 31, 2015 - \\$447.4) |
541.2 |
463.0 |
|||||
Mortgage loans |
1,732.9 |
1,721.0 |
|||||
Policy loans |
110.3 |
109.4 |
|||||
Trading securities |
289.3 |
262.1 |
|||||
Investments held by variable interest entities |
1,807.8 |
1,633.6 |
|||||
Other invested assets |
525.7 |
415.1 |
|||||
Total investments |
25,997.0 |
24,487.1 |
|||||
Cash and cash equivalents - unrestricted |
437.2 |
432.3 |
|||||
Cash and cash equivalents held by variable interest entities |
160.0 |
364.4 |
|||||
Accrued investment income |
228.7 |
237.0 |
|||||
Present value of future profits |
417.5 |
449.0 |
|||||
Deferred acquisition costs |
911.3 |
1,083.3 |
|||||
Reinsurance receivables |
2,820.4 |
2,859.3 |
|||||
Income tax assets, net |
677.7 |
898.8 |
|||||
Assets held in separate accounts |
4.6 |
4.7 |
|||||
Other assets |
368.1 |
309.2 |
|||||
Total assets |
\\$ |
32,022.5 |
\\$ |
31,125.1 |
|||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
Liabilities: |
|||||||
Liabilities for insurance products: |
|||||||
Policyholder account balances |
\\$ |
10,754.8 |
\\$ |
10,762.3 |
|||
Future policy benefits |
11,127.0 |
10,602.1 |
|||||
Liability for policy and contract claims |
489.2 |
487.8 |
|||||
Unearned and advanced premiums |
284.1 |
286.3 |
|||||
Liabilities related to separate accounts |
4.6 |
4.7 |
|||||
Other liabilities |
731.0 |
707.8 |
|||||
Investment borrowings |
1,547.8 |
1,548.1 |
|||||
Borrowings related to variable interest entities |
1,715.8 |
1,676.4 |
|||||
Notes payable – direct corporate obligations |
912.0 |
911.1 |
|||||
Total liabilities |
27,566.3 |
26,986.6 |
|||||
Commitments and Contingencies |
|||||||
Shareholders' equity: |
|||||||
Common stock (\\$0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: June 30, 2016 – 176,240,559; December 31, 2015 – 184,028,511) |
1.7 |
1.8 |
|||||
Additional paid-in capital |
3,251.1 |
3,386.8 |
|||||
Accumulated other comprehensive income |
777.8 |
402.8 |
|||||
Retained earnings |
425.6 |
347.1 |
|||||
Total shareholders' equity |
4,456.2 |
4,138.5 |
|||||
Total liabilities and shareholders' equity |
\\$ |
32,022.5 |
\\$ |
31,125.1 |
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in millions, except per share data) (unaudited) | |||||||||||||||||
Three months ended |
Six months ended | ||||||||||||||||
June 30, |
June 30, | ||||||||||||||||
2016 |
2015 |
2016 |
2015 | ||||||||||||||
Revenues: |
|||||||||||||||||
Insurance policy income |
\\$ |
653.6 |
\\$ |
640.1 |
\\$ |
1,298.0 |
\\$ |
1,276.6 |
|||||||||
Net investment income: |
|||||||||||||||||
General account assets |
295.8 |
302.1 |
586.8 |
602.2 |
|||||||||||||
Policyholder and other special-purpose portfolios |
27.9 |
11.8 |
39.6 |
28.4 |
|||||||||||||
Realized investment gains (losses): |
|||||||||||||||||
Net realized investment gains (losses), |
33.5 |
(2.2) |
42.6 |
(3.3) |
|||||||||||||
Impairment losses recognized (a) |
(13.6) |
(7.9) |
(23.6) |
(9.2) |
|||||||||||||
Gain (loss) on dissolution of variable interest entities |
(7.3) |
— |
(7.3) |
11.3 |
|||||||||||||
Total realized gains (losses) |
12.6 |
(10.1) |
11.7 |
(1.2) |
|||||||||||||
Fee revenue and other income |
14.0 |
15.6 |
28.2 |
31.8 |
|||||||||||||
Total revenues |
1,003.9 |
959.5 |
1,964.3 |
1,937.8 |
|||||||||||||
Benefits and expenses: |
|||||||||||||||||
Insurance policy benefits |
632.4 |
568.3 |
1,251.4 |
1,174.3 |
|||||||||||||
Transition expenses |
— |
4.5 |
— |
9.0 |
|||||||||||||
Interest expense |
28.9 |
25.3 |
56.6 |
46.8 |
|||||||||||||
Amortization |
54.8 |
73.7 |
116.9 |
139.8 |
|||||||||||||
Loss on extinguishment of debt |
— |
32.8 |
— |
32.8 |
|||||||||||||
Other operating costs and expenses |
205.1 |
182.2 |
416.2 |
380.1 |
|||||||||||||
Total benefits and expenses |
921.2 |
886.8 |
1,841.1 |
1,782.8 |
|||||||||||||
Income before income taxes |
82.7 |
72.7 |
123.2 |
155.0 |
|||||||||||||
Income tax expense: |
|||||||||||||||||
Tax expense on period income |
29.8 |
25.9 |
44.8 |
55.4 |
|||||||||||||
Valuation allowance for deferred tax assets |
(7.0) |
— |
(27.0) |
— |
|||||||||||||
Net income |
\\$ |
59.9 |
\\$ |
46.8 |
\\$ |
105.4 |
\\$ |
99.6 |
|||||||||
Earnings per common share: |
|||||||||||||||||
Basic: |
|||||||||||||||||
Weighted average shares outstanding |
178,323,000 |
195,857,000 |
179,337,000 |
198,174,000 |
|||||||||||||
Net income |
\\$ |
.34 |
\\$ |
.24 |
\\$ |
.59 |
\\$ |
.50 |
|||||||||
Diluted: |
|||||||||||||||||
Weighted average shares outstanding |
180,267,000 |
198,073,000 |
181,198,000 |
200,174,000 |
|||||||||||||
Net income |
\\$ |
.33 |
\\$ |
.24 |
\\$ |
.58 |
\\$ |
.50 |
|||||||||
(a) No portion of the other-than-temporary impairments recognized in the periods was included in accumulated other comprehensive income. |
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES SEGMENT OPERATING RESULTS (Dollars in millions, except per share data) | |||||||
Six months ended | |||||||
June 30, | |||||||
2016 |
2015 | ||||||
Adjusted EBIT (3): |
|||||||
Bankers Life |
\\$ |
170.9 |
\\$ |
168.6 |
|||
Washington National |
47.8 |
48.6 |
|||||
Colonial Penn: |
|||||||
In-force business (6) |
26.8 |
23.9 |
|||||
New business (6) |
(30.6) |
(25.6) |
|||||
Total Colonial Penn |
(3.8) |
(1.7) |
|||||
Adjusted EBIT from business segments |
214.9 |
215.5 |
|||||
Corporate Operations, excluding corporate interest expense |
(15.1) |
(6.3) |
|||||
Adjusted EBIT |
199.8 |
209.2 |
|||||
Corporate interest expense |
(22.8) |
(22.4) |
|||||
Operating earnings before taxes |
177.0 |
186.8 |
|||||
Tax expense on operating income |
63.7 |
65.9 |
|||||
Net operating income (1) |
113.3 |
120.9 |
|||||
Net realized investment gains (losses) (net of related amortization) |
11.0 |
(1.3) |
|||||
Fair value changes in embedded derivative liabilities (net of related amortization) |
(46.0) |
13.0 |
|||||
Fair value changes related to agent deferred compensation plan |
(18.3) |
— |
|||||
Loss on extinguishment of debt |
— |
(32.8) |
|||||
Other |
(.5) |
(10.7) |
|||||
Non-operating loss before taxes |
(53.8) |
(31.8) |
|||||
Income tax benefit: |
|||||||
On non-operating loss |
(18.9) |
(10.5) |
|||||
Valuation allowance for deferred tax assets |
(27.0) |
— |
|||||
Net non-operating loss |
(7.9) |
(21.3) |
|||||
Net income |
\\$ |
105.4 |
\\$ |
99.6 |
|||
Per diluted share: |
|||||||
Net operating income |
\\$ |
.63 |
\\$ |
.61 |
|||
Net realized investment gains (losses) (net of related amortization and taxes) |
.04 |
— |
|||||
Fair value changes in embedded derivative liabilities (net of related amortization and taxes) |
(.17) |
.04 |
|||||
Fair value changes related to agent deferred compensation plan (net of taxes) |
(.07) |
— |
|||||
Loss on extinguishment of debt (net of taxes) |
— |
(.11) |
|||||
Valuation allowance for deferred tax assets |
.15 |
— |
|||||
Other |
— |
(.04) |
|||||
Net income |
\\$ |
.58 |
\\$ |
.50 |
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES NET OPERATING INCOME EXCLUDING A SIGNIFICANT ITEM* (Dollars in millions, except per share data) | |||||||||||
Three months ended | |||||||||||
June 30, 2015* | |||||||||||
Actual |
Significant |
Excluding | |||||||||
Net Operating Income (1): |
|||||||||||
Bankers Life |
\\$ |
86.4 |
\\$ |
— |
\\$ |
86.4 |
|||||
Washington National |
20.1 |
9.0 |
29.1 |
||||||||
Colonial Penn |
4.2 |
— |
4.2 |
||||||||
Adjusted EBIT from business segments |
110.7 |
9.0 |
119.7 |
||||||||
Corporate Operations, excluding corporate interest expense |
(5.0) |
— |
(5.0) |
||||||||
Adjusted EBIT (3) |
105.7 |
9.0 |
114.7 |
||||||||
Corporate interest expense |
(11.9) |
— |
(11.9) |
||||||||
Operating earnings before taxes |
93.8 |
9.0 |
102.8 |
||||||||
Tax expense on operating income |
33.0 |
3.2 |
36.2 |
||||||||
Net operating income |
\\$ |
60.8 |
\\$ |
5.8 |
\\$ |
66.6 |
|||||
Net operating income per diluted share |
\\$ |
.31 |
\\$ |
.03 |
\\$ |
.34 |
* This table summarizes the financial impact of a significant item (as described in the segment results section of this press release) on our 2Q15 net operating income. |
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES TOTAL COLLECTED PREMIUMS (Dollars in millions) | |||||||
Three months ended | |||||||
June 30, | |||||||
2016 |
2015 | ||||||
Bankers Life: |
|||||||
Medicare supplement |
\\$ |
179.0 |
\\$ |
176.3 |
|||
Long-term care |
118.0 |
119.6 |
|||||
Other health |
1.6 |
1.8 |
|||||
Supplemental health |
5.3 |
4.8 |
|||||
Life |
117.9 |
114.3 |
|||||
Annuity |
206.4 |
187.1 |
|||||
Total |
628.2 |
603.9 |
|||||
Washington National: |
|||||||
Supplemental health and other health |
142.2 |
136.7 |
|||||
Medicare supplement |
15.1 |
17.1 |
|||||
Life |
7.4 |
7.0 |
|||||
Annuity |
.5 |
1.1 |
|||||
Total |
165.2 |
161.9 |
|||||
Colonial Penn: |
|||||||
Life |
69.0 |
64.3 |
|||||
Medicare supplement and other health |
.6 |
.8 |
|||||
Total |
69.6 |
65.1 |
|||||
Total collected premiums from segments |
\\$ |
863.0 |
\\$ |
830.9 |
NEW ANNUALIZED PREMIUMS (2) (Dollars in millions) | |||||||
Three months ended | |||||||
June 30, | |||||||
2016 |
2015 | ||||||
Bankers Life: |
|||||||
Medicare supplement |
\\$ |
16.7 |
\\$ |
16.3 |
|||
Long-term care |
6.0 |
5.6 |
|||||
Supplemental health |
1.7 |
1.9 |
|||||
Life |
21.8 |
26.4 |
|||||
Annuity |
12.3 |
11.1 |
|||||
Total |
58.5 |
61.3 |
|||||
Washington National: |
|||||||
Supplemental health |
22.4 |
23.9 |
|||||
Life |
1.8 |
1.8 |
|||||
Total |
24.2 |
25.7 |
|||||
Colonial Penn: |
|||||||
Life |
19.2 |
18.5 |
|||||
Total |
19.2 |
18.5 |
|||||
Total new annualized premiums |
\\$ |
101.9 |
\\$ |
105.5 |
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES BENEFIT RATIOS ON MAJOR HEALTH LINES OF BUSINESS | |||||
Three months ended | |||||
June 30, | |||||
2016 |
2015 | ||||
Bankers Life: |
|||||
Medicare Supplement: |
|||||
Earned premium |
\\$194 million |
\\$193 million | |||
Benefit ratio (7) |
73.0 |
% |
68.7 |
% | |
Long-Term Care: |
|||||
Earned premium |
\\$118 million |
\\$121 million | |||
Benefit ratio (7) |
134.7 |
% |
140.7 |
% | |
Interest-adjusted benefit ratio (a non-GAAP measure) (8) |
77.9 |
% |
84.6 |
% | |
Washington National: |
|||||
Medicare Supplement: |
|||||
Earned premium |
\\$16 million |
\\$18 million | |||
Benefit ratio (7) |
74.0 |
% |
64.6 |
% | |
Supplemental health: |
|||||
Earned premium |
\\$141 million |
\\$134 million | |||
Benefit ratio (7) |
85.7 |
% |
90.3 |
% | |
Interest-adjusted benefit ratio (a non-GAAP measure) (8) |
61.6 |
% |
65.7 |
% |
NOTES |
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(1) |
Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses, net of related amortization and taxes; (ii) 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; (iii) fair value changes related to the agent deferred compensation plan, net of taxes, (iv) loss on extinguishment of debt, net of taxes; (v) changes in the valuation allowance for deferred tax assets; and (vi) other non-operating items consisting primarily of equity in earnings of certain non-strategic investments and 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. Net realized investment gains or losses include: (i) gains or losses on the sales of investments; (ii) other-than-temporary impairments recognized through net income; and (iii) changes in fair value of certain fixed maturity investments with embedded derivatives. A reconciliation of Net operating income to Net income applicable to common stock is provided in the tables on pages 2 and 8. 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, www.CNOinc.com. |
(2) |
Measured by new annualized premium, which includes 6% of annuity and 10% of single premium whole life deposits and 100% of all other premiums. Medicare Advantage sales are not comparable to other sales and are therefore excluded in all periods. |
(3) |
Management believes that an analysis of earnings before net realized investment gains (losses), fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, fair value changes related to the agent deferred compensation plan, loss on extinguishment of debt, other non-operating items, corporate interest expense and taxes ("Adjusted EBIT," a non-GAAP financial measure) provides a clearer comparison of the operating results of the company quarter-over-quarter because these items are unrelated to the company's underlying fundamentals. A reconciliation of Adjusted EBIT to Net Income applicable to common stock is provided in the tables on pages 2 and 8. |
(4) |
Book value per diluted share reflects the potential dilution that could occur if outstanding stock options were exercised, restricted stock and performance units were vested and convertible securities were converted. 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. The dilution from convertible securities is calculated assuming the securities were converted 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. |
(5) |
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. |
(6) |
Management believes that an analysis of Adjusted EBIT for Colonial Penn, separated between in-force and new business, provides increased clarity for this segment as the vast majority of the costs to generate new business in this segment are not deferrable and Adjusted EBIT will fluctuate based on management's decisions on how much marketing costs to incur in each period. Adjusted EBIT from new business includes pre-tax revenues and expenses associated with new sales of our insurance products during the first year after the sale is completed. Adjusted EBIT from in-force business includes all pre-tax revenues and expenses associated with sales of insurance products that were completed more than one year before the end of the reporting period. The allocation of certain revenues and expenses between new and in-force business is based on estimates, which we believe are reasonable. |
(7) |
The benefit ratio is calculated by dividing the related product's insurance policy benefits by insurance policy income. |
(8) |
The interest-adjusted benefit ratio (a non-GAAP measure) is calculated by dividing the product's insurance policy benefits less imputed interest income on the accumulated assets backing the insurance liabilities by insurance policy income. Interest income is an important factor in measuring the performance of longer duration health products. The net cash flows generally cause an accumulation of amounts in the early years of a policy (accounted for as reserve increases), which will be paid out as benefits in later policy years (accounted for as reserve decreases). Accordingly, as the policies age, the benefit ratio will typically increase, but the increase in the change in reserve will be partially offset by the imputed interest income earned on the accumulated assets. The interest-adjusted benefit ratio reflects the effects of such interest income offset (which is equal to the tabular interest on the related insurance liabilities). Since interest income is an important factor in measuring the performance of these products, management believes a benefit ratio, which includes the effect of interest income, is useful in analyzing product performance. 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 Financial's website, www.CNOinc.com. |
Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in this press release relative to markets for
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