0001224608-12-000059.txt : 20120725 0001224608-12-000059.hdr.sgml : 20120725 20120725165031 ACCESSION NUMBER: 0001224608-12-000059 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20120725 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20120725 DATE AS OF CHANGE: 20120725 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNO Financial Group, Inc. CENTRAL INDEX KEY: 0001224608 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 753108137 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31792 FILM NUMBER: 12979312 BUSINESS ADDRESS: STREET 1: 11825 N PENNSYLVANIA ST CITY: CARMEL STATE: IN ZIP: 46032 BUSINESS PHONE: 3178176100 MAIL ADDRESS: STREET 1: 11825 NORTH PENNSYLVANIA STREET CITY: CARMEL STATE: IN ZIP: 46032 FORMER COMPANY: FORMER CONFORMED NAME: CONSECO INC DATE OF NAME CHANGE: 20030326 8-K 1 form8-k06302012earnings.htm FORM 8-K Form 8-K 06.30.2012 earnings




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 25, 2012



CNO Financial Group, Inc.
(Exact Name of Registrant as Specified in Charter)
 
Delaware
001-31792
75-3108137
(State or Other
Jurisdiction of Incorporation)
(Commission File Number)
(I.R.S. Employer
Identification No.)
11825 North Pennsylvania Street
Carmel, Indiana  46032
(Address of Principal Executive Offices) (Zip Code)

(317) 817-6100
(Registrant's telephone number, including area code)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:


o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



1





Item 2.02.
Results of Operations and Financial Condition.

On July 25, 2012, CNO Financial Group, Inc. (the “Company”) issued: (i) a press release announcing its financial results for the quarter ended June 30, 2012, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference; and (ii) additional financial information related to the Company's financial and operating results for the quarter ended June 30, 2012, a copy of which is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

The information contained under Item 2.02 in this Current Report on Form 8-K (including Exhibits 99.1 and 99.2) is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information contained in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.

Item 9.01(d).
Financial Statements and Exhibits.

The following materials are furnished as exhibits to this Current Report on Form 8-K:

99.1
Press release dated July 25, 2012 related to financial results for the quarter ended June 30, 2012.
99.2
Quarterly Financial Supplement - 2Q2012.






2




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
CNO Financial Group, Inc.
 
 
Date: July 25, 2012
 
 
By:
/s/ John R. Kline
 
 
 
John R. Kline
 
 
 
Senior Vice President and
Chief Accounting Officer
 
 
 
 







3
 EX-99.1 2 exhibit991-06302012earnings.htm EXHIBIT 99.1 Exhibit 99.1 - 06.30.2012 earnings


Exhibit 99.1
For Immediate Release

Contact:
(News Media) Tony Zehnder +1.312.396.7086
 
(Investors) Scott Galovic +1.317.817.3228

CNO reports second quarter 2012 results

Net income of $65.7 million, up 42%, or 24 cents per share
Sales up 6%
Strong core capital measures continue to build

Carmel, Ind. July 25, 2012 - CNO Financial Group, Inc. (NYSE: CNO) today announced second quarter of 2012 net income of $65.7 million, or 24 cents per diluted share, and operating earnings (1) of $54.2 million, or 20 cents per diluted share. 
"Our market focus, coupled with the strength of our distinct distribution and products, continues to yield business growth and persistency that contributed to our second quarter earnings increase,” CEO Ed Bonach said.  “Our continued strong generation of earnings, cash flow and excess capital also has allowed us to increase our expectation of annual dividend payments from our insurance subsidiaries.  We currently expect total dividends to the holding company in the range of $200 million to $275 million during 2012.”

Second Quarter 2012 Highlights
•
Sales, as defined by total new annualized premium (“NAP”) (2): $97.4 million, up 6% from 2Q11
•
Net income per diluted share of 24 cents, compared to 16 cents in 2Q11
•
Net operating income (1) per diluted share: 20 cents compared to 15 cents in 2Q11
•
Share repurchases and dividend payments of $44 million and debt repayments of $22 million
•
Unrestricted cash and investments held by our non-insurance subsidiaries were $197.7 million at June 30, 2012
•
Debt-to-total capital ratio, excluding accumulated other comprehensive income (3), decreased 170 basis points from December 31, 2011 to 16.6 percent

Six-month 2012 Highlights
•
Sales, as defined by total NAP (2): $193.6 million, up 9% from the first six months of 2011
•
Net income per diluted share of 45 cents, compared to 32 cents in the first six months of 2011
•
Net operating income (1) per diluted share: 35 cents compared to 31 cents in the first six months of 2011
•
The consolidated statutory risk-based capital ratio increased 11 percentage points to 369% during the first six months of 2012, reflecting statutory earnings of $183 million and dividend payments to the holding company of $103 million


-more-






CNO Financial (2)
July 25, 2012

Adoption of New Accounting Standard
Effective January 1, 2012, we adopted ASU 2010-26 which modified the definition of the types of acquisition costs that can be deferred by insurance companies. We elected to adopt the new guidance on a retrospective basis. Accordingly, all prior periods presented have been retrospectively adjusted. As a result of the adoption of the new guidance, shareholders' equity, excluding accumulated other comprehensive income, at December 31, 2011, decreased $575 million; and net income decreased by $12.1 million and $13.1 million in the second quarters of 2012 and 2011, respectively, and by $22.5 million and $21.6 million in the first six months of 2012 and 2011, respectively. The new guidance impacts the timing of the recognition of profits on our business, but has no impact on cash flows, statutory financial results or the ultimate profitability of the business.

Quarterly Segment Operating Results
 
Three months ended
 
June 30,
 
2012
 
2011
 
(Dollars in millions, except per-share data)
EBIT (4):
 
 
 
Bankers Life
$
76.1

 
$
72.1

Washington National
33.9

 
21.8

Colonial Penn
.6

 
.5

Other CNO Business
1.9

 
5.1

EBIT from business segments
112.5

 
99.5

Corporate Operations, excluding corporate interest expense
(9.1
)
 
(11.3
)
EBIT
103.4

 
88.2

Corporate interest expense
(16.6
)
 
(19.3
)
Operating earnings before tax
86.8

 
68.9

Tax expense on operating income
32.6

 
24.4

Net operating income (1)
54.2

 
44.5

Net realized investment gains (net of related amortization and taxes)
18.7

 
2.3

Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
(6.9
)
 
—

Loss on extinguishment of debt, net of income taxes
(.3
)
 
(.4
)
Net income
$
65.7

 
$
46.4

Per diluted share:
 
 
 
Net operating income
$
.20

 
$
.15

Net realized investment gains (net of related amortization and taxes)
.06

 
.01

Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
(.02
)
 
—

Net income
$
.24

 
$
.16


-more-




CNO Financial (3)
July 25, 2012

The following table summarizes the financial impact of a significant item (as described in the segment results below) on our 2Q12 net operating income (dollars in millions, except per share amounts):        
 
Three months ended
 
June 30, 2012*
 
Actual results
 
Significant item
 
Excluding significant item
Net Operating Income (1):
 
 
 
 
 
Bankers Life
$
76.1

 
$
(3.6
)
 
$
72.5

Washington National
33.9

 
—

 
33.9

Colonial Penn
.6

 
—

 
.6

Other CNO Business
1.9

 
—

 
1.9

EBIT from business segments
112.5

 
(3.6
)
 
108.9

Corporate Operations, excluding corporate interest expense
(9.1
)
 
—

 
(9.1
)
EBIT (4)
103.4

 
(3.6
)
 
99.8

Corporate interest expense
(16.6
)
 
—

 
(16.6
)
Operating earnings before tax
86.8

 
(3.6
)
 
83.2

Tax expense on operating income
32.6

 
(1.3
)
 
31.3

Net operating income
$
54.2

 
$
(2.3
)
 
$
51.9

 
 
 
 
 
 
Net operating income per diluted share
$
.20

 
$
(.01
)
 
$
.19


* See page 10 for the table of Net Operating Income Excluding a Significant Item for the three months ended June 30, 2011.

Segment Results
Bankers Life markets and distributes a variety of insurance products to the middle-income senior market through a dedicated field force of career agents. NAP in 2Q12 was $59.5 million, down 1% from 2Q11 with higher sales of life and Medicare supplement products being offset by lower annuity sales as a result of the low interest rate environment and product adjustments. Excluding annuities, NAP in 2Q12 was up 11%, driven by an increase in agent force due to gains in retention and productivity.
Pre-tax operating earnings in 2Q12 and 2Q11 were impacted by premium adjustments on assumed reinsurance agreements with Coventry of $3.6 million and $3.7 million, respectively.
Pre-tax operating earnings in 2Q12 compared to 2Q11 were up $4.0 million, or 6 percent. Such increase reflects increased earnings from the annuity and life insurance blocks reflecting favorable investment spreads and higher account values, partially offset by higher benefit ratios in the Medicare supplement and long-term care blocks in 2Q12.

-more-




CNO Financial (4)
July 25, 2012

Washington National markets and distributes supplemental health and life insurance to middle-income consumers through a wholly owned subsidiary and independent marketing organizations and insurance agencies. NAP in 2Q12 was $22.3 million, up 15% from 2Q11 due to increased sales of core supplemental health and life insurance products. Sales in the quarter benefited from distribution expansion and an increase in voluntary worksite sales, which were up 23%.
Pre-tax operating earnings in 2Q12 compared to 2Q11 were up $12.1 million, or 56 percent. Such increase primarily reflects favorable benefit ratios in the supplemental health block in 2Q12.
Colonial Penn markets primarily graded benefit and simplified issue life insurance directly to customers through television advertising, direct mail, the internet and telemarketing. NAP in 2Q12 was $15.6 million, up 22% from 2Q11. Sales in the quarter benefited from an increase in lead levels and higher buy rates, which demonstrate the benefits of our increased investment in marketing and advertising.
Pre-tax operating earnings in 2Q12 were comparable to 2Q11.
This segment's results are significantly impacted by the adoption of the new accounting standard related to deferred acquisition costs. We are no longer able to defer most of Colonial Penn's direct response advertising costs although such costs generate predictable sales and future inforce profits. The amount of our investment in new business during a particular period will have a significant impact on this segment's results. Based on our current advertising plan, we expect to report approximately break-even results in this segment for the remainder of 2012.
Other CNO Business consists of blocks of various insurance products that are no longer being actively marketed. Its earnings will often fluctuate between periods.
Pre-tax operating income in 2Q12 compared to 2Q11 was down approximately $3 million primarily due to unfavorable mortality in the life block.
Corporate Operations includes our investment advisory subsidiary and corporate expenses.
Results in 2Q12 compared to 2Q11 were favorable by $2 million primarily reflecting net favorable investment returns.
Non-Operating Items
Net realized investment gains in 2Q12 were $18.7 million (net of related amortization and taxes), including total other-than-temporary impairment losses of $3.5 million recorded in earnings. Net realized investment gains in 2Q11 were $2.3 million (net of related amortization and taxes), including total other-than-temporary impairment losses of $10.1 million recorded in earnings.
Book value per common share, excluding other comprehensive income (loss) (5), increased to $16.67 from $15.88 at December 31, 2011.
Statutory (based on non-GAAP measures) and GAAP Capital Information
Our consolidated statutory risk-based capital ratio increased 9 percentage points to 369% during 2Q12 and consolidated statutory operating earnings for the quarter totaled $97 million. Based on our continued expectation to generate strong statutory earnings and excess capital, we anticipate total year dividend payments to the holding company in the range of $200 to $275 million during 2012 ($103 million of which have been paid through June 30, 2012).
We purchased 8.1 million shares of our common stock during the six months ended June 30, 2012 under our share repurchase program. Such shares were purchased at an aggregate cost of $58.2 million, or $7.19 per share. As of June 30, 2012, we had approximately 234 million shares outstanding and had authority to repurchase up to an additional $172.1 million of our common stock. We currently anticipate repurchasing a total of approximately $150 million to $170 million of common stock during 2012. The amount and timing of the share repurchases (if any) will be based on business and market conditions and other factors.
-more-




CNO Financial (5)
July 25, 2012

During the six months ended June 30, 2012, we made principal payments of $31.4 million on our Senior Secured Credit Agreement (an amount equal to 50 percent of the year-to-date 2012 share repurchases and the $0.02 per share dividend payment made in June 2012, as required under the terms of the agreement). In addition to these payments, we also prepaid the remaining $50 million principal balance on a senior note in the first quarter of 2012.
Our debt-to-total capital ratio, excluding accumulated other comprehensive income (3) at June 30, 2012 was 16.6 percent, a decrease of 170 basis points from December 31, 2011.
Conference Call
The Company will host a conference call to discuss results on July 26, 2012 at 12:00 p.m. Eastern Daylight Time. The webcast can be accessed through the Investors section of the company's website: http://ir.CNOinc.com. Participants should go to the website at least 15 minutes before the event to register and download any necessary audio software. During the call, we will be referring to a presentation that will be available the morning of the call at the Investors section of the company's website.
About CNO
CNO is a holding company. Our insurance subsidiaries - principally Bankers Life and Casualty Company, Washington National Insurance Company and Colonial Penn Life Insurance Company - serve working American families and seniors by helping them protect against financial adversity and provide for a more secure retirement. For more information, visit CNO online at www.CNOinc.com.

- Tables Follow -





CNO Financial (6)
July 25, 2012

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(unaudited)
 
June 30, 2012
 
December 31, 2011
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturities, available for sale, at fair value (amortized cost:  June 30, 2012 - $22,033.0; December 31, 2011 - $21,779.1)
$
24,276.6

 
$
23,516.0

Equity securities at fair value (cost: June 30, 2012 - $188.0; December 31, 2011 - $177.0)
187.3

 
175.1

Mortgage loans
1,550.9

 
1,602.8

Policy loans
274.7

 
279.7

Trading securities
114.8

 
91.6

Investments held by securitization entities
789.3

 
496.3

Other invested assets
257.1

 
202.8

Total investments
27,450.7

 
26,364.3

Cash and cash equivalents - unrestricted
190.2

 
436.0

Cash and cash equivalents held by securitization entities
88.6

 
74.4

Accrued investment income
296.4

 
288.7

Present value of future profits
658.1

 
697.7

Deferred acquisition costs
591.4

 
797.1

Reinsurance receivables
3,013.8

 
3,091.1

Income tax assets, net
679.7

 
865.4

Assets held in separate accounts
15.6

 
15.0

Other assets
395.8

 
292.2

Total assets
$
33,380.3

 
$
32,921.9

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities:
 

 
 

Liabilities for insurance products:
 

 
 

Interest-sensitive products
$
12,956.3

 
$
13,165.5

Traditional products
10,604.6

 
10,482.7

Claims payable and other policyholder funds
991.9

 
1,034.3

Liabilities related to separate accounts
15.6

 
15.0

Other liabilities
686.0

 
556.3

Investment borrowings
1,687.9

 
1,676.5

Borrowings related to variable interest entities
766.7

 
519.9

Notes payable – direct corporate obligations
778.2

 
857.9

Total liabilities
28,487.2

 
28,308.1

Commitments and Contingencies
 
 
 
Shareholders' equity:
 

 
 

Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: June 30, 2012 - 234,026,409; December 31, 2011 – 241,304,503)
2.3

 
2.4

Additional paid-in capital
4,312.0

 
4,361.9

Accumulated other comprehensive income
990.8

 
781.6

Accumulated deficit
(412.0
)
 
(532.1
)
Total shareholders' equity
4,893.1

 
4,613.8

Total liabilities and shareholders' equity
$
33,380.3

 
$
32,921.9

-more-




CNO Financial (7)
July 25, 2012

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,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Insurance policy income
$
694.8

 
$
679.6

 
$
1,381.1

 
$
1,346.8

Net investment income:
 
 
 
 
 
 
 
General account assets
351.1

 
342.2

 
696.3

 
678.3

Policyholder and reinsurer accounts and other special-purpose portfolios
(17.3
)
 
3.1

 
48.3

 
40.5

Realized investment gains:
 
 
 
 
 
 
 
Net realized investment gains, excluding impairment losses
35.4

 
13.0

 
66.2

 
31.4

Other-than-temporary impairment losses:
 
 
 
 
 
 
 
Total other-than-temporary impairment losses
(3.5
)
 
(10.1
)
 
(11.4
)
 
(23.4
)
Portion of other-than-temporary impairment losses recognized in accumulated other comprehensive income
—

 
—

 
—

 
—

Net impairment losses recognized
(3.5
)
 
(10.1
)
 
(11.4
)
 
(23.4
)
Total realized gains
31.9

 
2.9

 
54.8

 
8.0

Fee revenue and other income
4.5

 
4.2

 
8.4

 
7.6

Total revenues
1,065.0

 
1,032.0

 
2,188.9

 
2,081.2

Benefits and expenses:
 
 
 
 
 
 
 
Insurance policy benefits
689.7

 
684.4

 
1,378.7

 
1,367.6

Interest expense
28.7

 
28.9

 
57.5

 
58.1

Amortization
68.3

 
70.6

 
154.9

 
165.5

Loss on extinguishment of debt
.5

 
.6

 
.7

 
2.0

Other operating costs and expenses
173.3

 
175.7

 
400.3

 
345.8

Total benefits and expenses
960.5

 
960.2

 
1,992.1

 
1,939.0

Income before income taxes
104.5

 
71.8

 
196.8

 
142.2

Tax expense on period income
38.8

 
25.4

 
72.0

 
50.4

Net income
$
65.7

 
$
46.4

 
$
124.8

 
$
91.8

Earnings per common share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Weighted average shares outstanding
237,289,000

 
250,933,000

 
239,092,000

 
251,027,000

Net income
$
.28

 
$
.18

 
$
.52

 
$
.37

Diluted:
 
 
 
 
 
 
 
Weighted average shares outstanding
293,475,000

 
308,048,000

 
295,409,000

 
307,773,000

Net income
$
.24

 
$
.16

 
$
.45

 
$
.32


-more-





CNO Financial (8)
July 25, 2012

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
EBIT FROM BUSINESS SEGMENTS
SUMMARIZED BY IN-FORCE AND NEW BUSINESS (6)
(Dollars in millions)

 
Three months ended
 
Six months ended
EBIT (4) from In-force and New Business
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Bankers Life segment:
 
 
 
 
 
 
 
In-Force Business
$
102.6

 
$
98.6

 
$
199.7

 
$
185.3

New Business
(26.5
)
 
(26.5
)
 
(53.1
)
 
(51.0
)
Total
$
76.1

 
$
72.1

 
$
146.6

 
$
134.3

 
 
 
 
 
 
 
 
Washington National segment:
 
 
 
 
 
 
 
In-Force Business
$
34.2

 
$
24.8

 
$
61.6

 
$
52.1

New Business
(.3
)
 
(3.0
)
 
(3.0
)
 
(6.0
)
Total
$
33.9

 
$
21.8

 
$
58.6

 
$
46.1

 
 
 
 
 
 
 
 
Colonial Penn segment:
 
 
 
 
 
 
 
In-Force Business
$
11.2

 
$
10.1

 
$
17.9

 
$
18.1

New Business
(10.6
)
 
(9.6
)
 
(27.1
)
 
(23.3
)
Total
$
.6

 
$
.5

 
$
(9.2
)
 
$
(5.2
)
 
 
 
 
 
 
 
 
Other CNO Business segment:
 
 
 
 
 
 
 
In-Force Business
$
1.9

 
$
5.1

 
$
(.4
)
 
$
12.5

New Business
—

 
—

 
—

 
—

Total
$
1.9

 
$
5.1

 
$
(.4
)
 
$
12.5

 
 
 
 
 
 
 
 
Total Business segments:
 
 
 
 
 
 
 
In-Force Business
$
149.9

 
$
138.6

 
$
278.8

 
$
268.0

New Business
(37.4
)
 
(39.1
)
 
(83.2
)
 
(80.3
)
Total EBIT from business segments
$
112.5

 
$
99.5

 
$
195.6

 
$
187.7










-more-




CNO Financial (9)
July 25, 2012

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
SEGMENT OPERATING RESULTS
(Dollars in millions, except per-share data)

 
Six months ended
 
June 30,
 
2012
 
2011
EBIT (4):
 
 
 
Bankers Life
$
146.6

 
$
134.3

Washington National
58.6

 
46.1

Colonial Penn
(9.2
)
 
(5.2
)
Other CNO Business
(.4
)
 
12.5

EBIT from business segments
195.6

 
187.7

Corporate Operations, excluding corporate interest expense
(10.9
)
 
(11.8
)
EBIT
184.7

 
175.9

Corporate interest expense
(34.1
)
 
(39.9
)
Operating earnings before tax
150.6

 
136.0

Tax expense on operating income
55.8

 
48.3

Net operating income (1)
94.8

 
87.7

Net realized investment gains (net of related amortization and taxes)
32.8

 
5.4

Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
(2.4
)
 
—

Loss on extinguishment of debt, net of income taxes
(.4
)
 
(1.3
)
Net income
$
124.8

 
$
91.8

Per diluted share:
 
 
 
Net operating income
$
.35

 
$
.31

Net realized investment gains (net of related amortization and taxes)
.11

 
.02

Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
(.01
)
 
—

Loss on extinguishment of debt, net of income taxes
—

 
(.01
)
Net income
$
.45

 
$
.32

-more-





CNO Financial (10)
July 25, 2012

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NET OPERATING INCOME EXCLUDING A SIGNIFICANT ITEM*
(Dollars in millions)
 
Three months ended
 
June 30, 2011
 
Actual results
 
Significant item
 
Excluding significant item
Net Operating Income (1):
 
 
 
 
 
Bankers Life
$
72.1

 
$
(3.7
)
 
$
68.4

Washington National
21.8

 
—

 
21.8

Colonial Penn
.5

 
—

 
.5

Other CNO Business
5.1

 
—

 
5.1

EBIT from business segments
99.5

 
(3.7
)
 
95.8

Corporate Operations, excluding corporate interest expense
(11.3
)
 
—

 
(11.3
)
EBIT (4)
88.2

 
(3.7
)
 
84.5

Corporate interest expense
(19.3
)
 
—

 
(19.3
)
Operating earnings before tax
68.9

 
(3.7
)
 
65.2

Tax expense on operating income
24.4

 
(1.3
)
 
23.1

Net operating income
$
44.5

 
$
(2.4
)
 
$
42.1

 
 
 
 
 
 
Net operating income per diluted share
$
.15

 
$
—

 
$
.15



*
This table summarizes the financial impact of a significant item (as described in the segment results section of this press release) on our 2Q11 net operating income.





















-more-





CNO Financial (11)
July 25, 2012


CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
 
Three months ended
 
June 30,
 
2012
 
2011
Bankers Life segment:
 
 
 
Medicare supplement and other supplemental health
$
192.5

 
$
186.2

Life
75.4

 
62.0

Long-term care
138.8

 
142.9

Annuity
169.5

 
259.1

Total
576.2

 
650.2

Washington National segment:
 
 
 
Supplemental health
115.4

 
108.9

Medicare supplement and other supplemental health
29.7

 
33.9

Life
3.8

 
3.9

Total
148.9

 
146.7

Colonial Penn segment:
 
 
 
Life
52.5

 
48.5

Supplemental health
1.2

 
1.5

Total
53.7

 
50.0

Other CNO Business segment:
 
 
 
Life
40.9

 
48.9

Annuity
1.2

 
5.9

Other health
6.5

 
7.2

Total
48.6

 
62.0

Total collected premiums
$
827.4

 
$
908.9


NEW ANNUALIZED PREMIUMS (2)
(Dollars in millions)
 
Three months ended
 
June 30,
 
2012
 
2011
Bankers Life segment:
 
 
 
Medicare supplement and other supplemental health
$
20.7

 
$
18.6

Life
20.9

 
18.6

Long-term care
7.8

 
7.3

Annuity
10.1

 
15.6

Total
59.5

 
60.1

Washington National segment:
 
 
 
Supplemental health
20.3

 
17.9

Medicare supplement and other supplemental health
.2

 
.4

Life
1.7

 
.8

Annuity
.1

 
.3

Total
22.3

 
19.4

Colonial Penn segment:
 
 
 
Life
15.6

 
12.8

Total
15.6

 
12.8

Total new annualized premiums
$
97.4

 
$
92.3

-more-




CNO Financial (12)
July 25, 2012

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
BENEFIT RATIOS ON MAJOR HEALTH LINES OF BUSINESS
 
Three months ended
 
June 30,
 
2012
 
2011
Bankers Life segment:
 
 
 
Medicare Supplement:
 
 
 
Earned premium
$184 million

 
$179 million

Benefit ratio (7)
72.2
%
 
69.8
%
PDP and PFFS:
 
 
 
Earned premium
$18 million

 
$20 million

Benefit ratio (7)
63.8
%
 
72.4
%
Long-Term Care:
 
 
 
Earned premium
$140 million

 
$143 million

Benefit ratio (7)
121.4
%
 
115.0
%
Interest-adjusted benefit ratio (a non-GAAP measure) (8)
75.4
%
 
71.6
%
Washington National segment:
 
 
 
Medicare Supplement:
 
 
 
Earned premium
$30 million

 
$35 million

Benefit ratio (7)
67.7
%
 
71.1
%
Supplemental health:
 
 
 
Earned premium
$113 million

 
$107 million

Benefit ratio (7)
77.0
%
 
82.7
%
Interest-adjusted benefit ratio (a non-GAAP measure) (8)
50.1
%
 
54.1
%









-more-





CNO Financial (13)
July 25, 2012
NOTES
(1)
Management believes that an analysis of Net income applicable to common stock before: (i) loss on extinguishment of debt, net of income taxes; (ii) net realized investment gains or losses, net of related amortization and income taxes; and (iii) 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 income 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. Prior to June 30, 2011, certain of our trading securities were held to offset the income statement volatility caused by the effect of interest rate fluctuations on the value of embedded derivatives related to our fixed index annuity products. During 2Q2011, these securities were sold. A reconciliation of Net operating income to Net income applicable to common stock is provided in the tables on pages 2 and 9. 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 and Private-Fee-For-Service sales are not comparable to other sales and are therefore excluded in all periods.
(3)
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. The corresponding GAAP measures for debt-to-total capital were 13.7% and 15.7% at June 30, 2012 and December 31, 2011, respectively.
(4)
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, corporate interest expense, loss on extinguishment of debt and taxes (“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 EBIT to Net Income applicable to common stock is provided in the tables on pages 2 and 9.
(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. The corresponding GAAP measures for book value per common share were $20.91 and $19.12 at June 30, 2012 and December 31, 2011, respectively.
(6)
Management believes that an analysis of EBIT, separated between in-force and new business provides increased clarity around the value drivers of our business, particularly since the new business results are significantly impacted by the rate of sales, mix of business and the distribution channel through which new sales are made. 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. 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 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 interest income earned on the accumulated assets. The interest-adjusted benefit ratio reflects the interest income offset. 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.

-more-




CNO Financial (14)
July 25, 2012

Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in this press release relative to markets for CNO Financial's products and trends in CNO Financial's operations or financial results, as well as other statements, contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically are identified by the use of terms such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “project,” “intend,” “may,” “will,” “would,” “contemplate,” “possible,” “attempt,” “seek,” “should,” “could,” “goal,” “target,” “on track,” “comfortable with,” “optimistic” and similar words, although some forward-looking statements are expressed differently. You should consider statements that contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business conditions, our results of operations, financial position, and our business outlook or they state other ''forward-looking'' information based on currently available information. Assumptions and other important factors that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, among other things: (i) changes in or sustained low interest rates causing reductions in investment income, the margins of our fixed annuity and life insurance businesses, and sales of, and demand for, our products; (ii) expectations of lower future investment earnings may cause us to accelerate amortization, write down the balance of insurance acquisition costs or establish additional liabilities for insurance products; (iii) general economic, market and political conditions, including the performance and fluctuations of the financial markets which may affect the value of our investments as well as our ability to raise capital or refinance existing indebtedness and the cost of doing so; (iv) the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are subject; (v) our ability to make anticipated changes to certain non-guaranteed elements of our life insurance products; (vi) our ability to obtain adequate and timely rate increases on our health products, including our long-term care business; (vii) the receipt of any required regulatory approvals for dividend and surplus debenture interest payments from our insurance subsidiaries; (viii) mortality, morbidity, the increased cost and usage of health care services, persistency, the adequacy of our previous reserve estimates and other factors which may affect the profitability of our insurance products; (ix) changes in our assumptions related to deferred acquisition costs or the present value of future profits; (x) the recoverability of our deferred tax assets and the effect of potential ownership changes and tax rate changes on their value; (xi) our assumption that the positions we take on our tax return filings, including our position that our 7.0% convertible senior debentures due 2016 will not be treated as stock for purposes of Section 382 of the Internal Revenue Code of 1986, as amended, and will not trigger an ownership change, will not be successfully challenged by the Internal Revenue Service; (xii) changes in accounting principles and the interpretation thereof (including changes in principles related to accounting for deferred acquisition costs); (xiii) our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debt agreements; (xiv) our ability to achieve anticipated expense reductions and levels of operational efficiencies including improvements in claims adjudication and continued automation and rationalization of operating systems, (xv) performance and valuation of our investments, including the impact of realized losses (including other-than-temporary impairment charges); (xvi) our ability to identify products and markets in which we can compete effectively against competitors with greater market share, higher ratings, greater financial resources and stronger brand recognition; (xvii) our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs; (xviii) our ability to maintain effective controls over financial reporting; (xix) our ability to continue to recruit and retain productive agents and distribution partners and customer response to new products, distribution channels and marketing initiatives; (xx) our ability to achieve eventual upgrades of the financial strength ratings of CNO Financial and our insurance company subsidiaries as well as the impact of our ratings on our business, our ability to access capital and the cost of capital; (xxi) the risk factors or uncertainties listed from time to time in our filings with the Securities and Exchange Commission; (xxii) regulatory changes or actions, including those relating to regulation of the financial affairs of our insurance companies, such as the payment of dividends and surplus debenture interest to us, regulation of the sale, underwriting and pricing of products, and health care regulation affecting health insurance products; and (xxiii) changes in the Federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products or affect the value of our deferred tax assets. Other factors and assumptions not identified above are also relevant to the forward-looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements. Our forward-looking statements speak only as of the date made. We assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking statements.

- # # # # -




 EX-99.2 3 exhibit992-06302012investo.htm EXHIBIT 99.2 Exhibit 99.2 - 06.30.2012 investor supplement


Exhibit 99.2





 
 
 
 
 
 
 
 
 
 
 
 
Quarterly Financial Supplement -
 
 
 
 
 
2Q2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
July 25, 2012
 
 
 
 
 
 
 
 
 
 
 

Page 1


Table of Contents
 
 
 
Page
 
 
 
 
 
Consolidated balance sheet
 
 
 
3
Consolidated statement of operations
 
 
 
4
Operating results
 
 
 
5
Computation of weighted average shares outstanding
 
 
 
6
EBIT from Business Segments Summarized by In-Force and New Business
 
 
 
7
Analyses of income before taxes and selected data:
 
 
 
 
     Bankers Life
 
 
 
8-10
     Washington National
 
 
 
11-13
     Colonial Penn
 
 
 
14-15
     Other CNO Business
 
 
 
16-18
     Corporate Operations
 
 
 
19
Premiums collected on insurance products:
 
 
 
 
     Bankers Life
 
 
 
20
     Washington National
 
 
 
21
     Colonial Penn
 
 
 
22
     Other CNO Business
 
 
 
23
New annualized premiums
 
 
 
24
Statutory information
 
 
 
25
Notes
 
 
 
26





Page 2


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Consolidated balance sheet (in millions)
 
 
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
  Fixed maturities, available for sale, at fair value
 
 
$
20,852.2

$
21,622.9

$
23,016.7

$
23,516.0

$
23,777.7

$
24,276.6

  Equity securities at fair value
 
 
105.4

129.6

164.3

175.1

176.5

187.3

  Mortgage loans
 
 
1,751.3

1,752.8

1,648.2

1,602.8

1,546.7

1,550.9

  Policy loans
 
 
281.6

279.5

279.6

279.7

277.8

274.7

  Trading securities
 
 
403.1

83.5

81.8

91.6

122.3

114.8

  Investments held by variable interest entities
 
 
401.6

414.0

453.5

496.3

564.7

789.3

  Other invested assets
 
 
272.1

252.2

190.9

202.8

270.9

257.1

  Total investments
 
 
24,067.3

24,534.5

25,835.0

26,364.3

26,736.6

27,450.7

Cash and cash equivalents - unrestricted
 
 
424.6

580.2

461.9

436.0

173.5

190.2

Cash and cash equivalents held by variable interest entities
 
 
27.1

25.3

19.7

74.4

65.8

88.6

Accrued investment income
 
 
336.7

314.3

301.2

288.7

313.6

296.4

Present value of future profits
 
 
970.1

936.5

714.2

697.7

675.4

658.1

Deferred acquisition costs
 
 
989.3

975.5

834.5

797.1

790.4

591.4

Reinsurance receivables
 
 
3,219.0

3,172.5

3,131.3

3,091.1

3,052.7

3,013.8

Income tax assets, net
 
 
1,090.4

998.4

918.4

865.4

819.9

679.7

Assets held in separate accounts
 
 
18.1

17.4

15.4

15.0

16.0

15.6

Other assets
 
 
413.0

323.6

289.6

292.2

402.3

395.8

Total assets
 
 
$
31,555.6

$
31,878.2

$
32,521.2

$
32,921.9

$
33,046.2

$
33,380.3

Liabilities
 
 
 
 
 
 
 
 
Liabilities for insurance products:
 
 
 
 
 
 
 
 
  Interest-sensitive products
 
 
$
13,161.3

$
13,152.8

$
13,168.2

$
13,165.5

$
13,103.4

$
12,956.3

  Traditional products
 
 
10,357.9

10,424.4

10,444.8

10,482.7

10,517.9

10,604.6

  Claims payable and other policyholder funds
 
 
979.0

978.0

985.5

1,034.3

1,000.8

991.9

  Liabilities related to separate accounts
 
 
18.1

17.4

15.4

15.0

16.0

15.6

Other liabilities
 
 
651.8

712.2

585.2

556.3

721.0

686.0

Investment borrowings
 
 
1,203.8

1,305.3

1,509.1

1,676.5

1,684.9

1,687.9

Borrowings related to variable interest entities
 
 
354.4

317.3

405.6

519.9

519.9

766.7

Notes payable - direct corporate obligations
 
 
949.8

934.5

871.2

857.9

799.3

778.2

Total liabilities
 
 
27,676.1

27,841.9

27,985.0

28,308.1

28,363.2

28,487.2

Shareholders' equity
 
 
 
 
 
 
 
 
Common stock
 
 
2.5

2.5

2.4

2.4

2.4

2.3

Additional paid-in capital
 
 
4,426.1

4,414.3

4,379.4

4,361.9

4,345.6

4,312.0

Accumulated deficit
 
 
(822.4
)
(776.0
)
(596.5
)
(532.1
)
(473.0
)
(412.0
)
Total shareholders' equity before accumulated other comprehensive income
 
 
3,606.2

3,640.8

3,785.3

3,832.2

3,875.0

3,902.3

Accumulated other comprehensive income
 
 
273.3

395.5

750.9

781.6

808.0

990.8

Total shareholders' equity
 
 
3,879.5

4,036.3

4,536.2

4,613.8

4,683.0

4,893.1

Total liabilities and shareholders' equity
 
 
$
31,555.6

$
31,878.2

$
32,521.2

$
32,921.9

$
33,046.2

$
33,380.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
 
 
 
 
 
 
 
 
 
Book value per share at period-end (1) (2)
 
 
$
14.34

$
14.60

$
15.56

$
15.88

$
16.20

$
16.67

 
 
 
 
 
 
 
 
 
Book value per share assuming conversion of convertible securities (1) (3)
 
 
$
12.62

$
12.79

$
13.60

$
13.87

$
14.05

$
14.41

 
 
 
 
 
 
 
 
 

Page 3


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Consolidated statement of operations (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
667.2

$
679.6

$
673.5

$
670.2

$
2,690.5

$
686.3

$
694.8

Net investment income (loss):
 
 
 
 
 
 
 
   General account assets
336.1

342.2

338.2

344.2

1,360.7

345.2

351.1

Policyholder and reinsurer accounts and other special-purpose portfolios
37.4

3.1

(54.9
)
7.8

(6.6
)
65.6

(17.3
)
Realized investment gains (losses):
 
 
 
 
 
 
 
Net realized investment gains, excluding impairment losses
18.4

13.0

33.5

31.5

96.4

30.8

35.4

   Other-than-temporary impairment losses:
 
 
 
 
 
 
 
      Total other-than-temporary impairment losses
(13.3
)
(10.1
)
(2.9
)
(13.6
)
(39.9
)
(7.9
)
(3.5
)
Portion of other-than-temporary impairment losses recognized in accumulated other comprehensive income
—

—

—

5.3

5.3

—

—

   Net impairment losses recognized
(13.3
)
(10.1
)
(2.9
)
(8.3
)
(34.6
)
(7.9
)
(3.5
)
Total realized gains
5.1

2.9

30.6

23.2

61.8

22.9

31.9

Fee revenue and other income
3.4

4.2

4.9

5.7

18.2

3.9

4.5

Total revenues
1,049.2

1,032.0

992.3

1,051.1

4,124.6

1,123.9

1,065.0

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
683.2

684.4

661.0

670.4

2,699.0

689.0

689.7

Interest expense
29.2

28.9

27.9

28.1

114.1

28.8

28.7

Amortization
94.9

70.6

58.6

73.3

297.4

86.6

68.3

Loss on extinguishment of debt
1.4

0.6

1.1

0.3

3.4

0.2

0.5

Other operating costs and expenses
170.1

175.7

182.0

176.7

704.5

227.0

173.3

Total benefits and expenses
978.8

960.2

930.6

948.8

3,818.4

1,031.6

960.5

 
 
 
 
 
 
 
 
Income before income taxes
70.4

71.8

61.7

102.3

306.2

92.3

104.5

Income tax expense on period income
25.0

25.4

25.2

37.9

113.5

33.2

38.8

Valuation allowance for deferred tax assets
—

—

(143.0
)
—

(143.0
)
—

—

Net income
$
45.4

$
46.4

$
179.5

$
64.4

$
335.7

$
59.1

$
65.7

 
 
 
 
 
 
 
 

Page 4





CNO Financial Group, Inc.
 
 
 
 
 
 
 
Operating results ($ in millions, except per share amounts)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
EBIT (4):
 
 
 
 
 
 
 
   Bankers Life
$
62.2

$
72.1

$
79.4

$
77.2

$
290.9

$
70.5

$
76.1

   Washington National
24.3

21.8

21.2

28.8

96.1

24.7

33.9

   Colonial Penn
(5.7
)
0.5

(1.3
)
1.8

(4.7
)
(9.8
)
0.6

   Other CNO Business
7.4

5.1

2.8

—

15.3

(2.3
)
1.9

EBIT from business segments
88.2

99.5

102.1

107.8

397.6

83.1

112.5

Corporate operations, excluding corporate interest expense
(0.5
)
(11.3
)
(27.5
)
(8.4
)
(47.7
)
(1.8
)
(9.1
)
EBIT
87.7

88.2

74.6

99.4

349.9

81.3

103.4

Corporate interest expense
(20.6
)
(19.3
)
(18.7
)
(17.7
)
(76.3
)
(17.5
)
(16.6
)
Income before net realized investment gains, fair value changes in embedded derivative liabilities and taxes
67.1

68.9

55.9

81.7

273.6

63.8

86.8

Tax expense on operating income
23.9

24.4

23.1

30.7

102.1

23.2

32.6

Net operating income (5)
43.2

44.5

32.8

51.0

171.5

40.6

54.2

Net realized investment gains (net of related amortization and taxes)
3.1

2.3

17.3

14.0

36.7

14.1

18.7

Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
—

—

(12.9
)
(0.4
)
(13.3
)
4.5

(6.9
)
Loss on extinguishment of debt, net of income taxes
(0.9
)
(0.4
)
(0.7
)
(0.2
)
(2.2
)
(0.1
)
(0.3
)
Net income before valuation allowance for deferred tax assets
45.4

46.4

36.5

64.4

192.7

59.1

65.7

Valuation allowance for deferred tax assets
—

—

143.0

—

143.0

—

—

Net income
$
45.4

$
46.4

$
179.5

$
64.4

$
335.7

$
59.1

$
65.7

 
 
 
 
 
 
 
 
Per diluted share:
 
 
 
 
 
 
 
Net operating income
$
.15

$
.15

$
.12

$
.18

$
.61

$
.15

$
.20

Net realized investment gains, net of related amortization and taxes
.01

.01

.06

.05

.12

.05

.06

Fair value changes in embedded derivative liabilities, net of related amortization and taxes
—

—

(.04
)
—

(.04
)
.01

(.02
)
Loss on extinguishment of debt
—

—

—

—

(.01
)
—

—

Valuation allowance for deferred tax assets
—

—

.47

—

.47

—

—

Diluted earnings per share
$
.16

$
.16

$
.61

$
.23

$
1.15

$
.21

$
.24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 5



CNO Financial Group, Inc.
 
 
 
 
 
 
 
Computation of weighted average shares outstanding
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
(000s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Shares outstanding, beginning of period
251,084.2

251,404.9

249,415.2

243,247.3

251,084.2

241,304.5

239,219.4

Weighted average shares issued during the period:
 
 
 
 
 
 
 
Shares repurchased
—

(590.3
)
(2,511.6
)
(720.5
)
(3,700.7
)
(470.7
)
(2,078.2
)
Shares issued under stock option and restricted stock plans
52.6

118.5

61.8

268.6

694.4

83.5

148.2

Shares withheld for the payment of taxes on the vesting of restricted stock
(16.3
)
—

(0.3
)
(6.2
)
(125.9
)
(22.2
)
(0.5
)
Weighted average basic shares outstanding during the period
251,120.5

250,933.1

246,965.1

242,789.2

247,952.0

240,895.1

237,288.9

Basic shares outstanding, end of period
251,404.9

249,415.2

243,247.3

241,304.5

241,304.5

239,219.4

234,026.4

Diluted
 
 
 
 
 
 
 
Weighted average basic shares outstanding
251,120.5

250,933.1

246,965.1

242,789.2

247,952.0

240,895.1

237,288.9

Common stock equivalent shares related to:
 
 
 
 
 
 
 
  Convertible debentures
53,366.9

53,366.9

53,366.9

53,366.9

53,366.9

53,366.9

53,377.5

  Stock option and restricted stock plans
2,748.3

3,035.8

2,352.9

1,914.6

2,512.9

2,582.2

2,366.7

  Warrants
262.4

712.4

22.9

—

249.4

498.6

441.5

Weighted average diluted shares outstanding during the period
307,498.1

308,048.2

302,707.8

298,070.7

304,081.2

297,342.8

293,474.6

Diluted shares outstanding, end of period
307,782.4

306,530.3

298,990.0

296,586.0

296,586.0

295,667.1

290,212.1

 
 
 
 
 
 
 
 


Page 6


EBIT from Business Segments Summarized by In-Force and New Business (6)
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-force Business
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
584.0

$
594.3

$
585.3

$
583.6

$
2,347.2

$
597.0

$
601.7

Net investment income (loss)
349.8

331.7

283.8

338.7

1,304.0

375.9

322.3

Fee revenue and other income
1.9

2.4

2.7

3.1

10.1

1.9

2.4

Total revenues
935.7

928.4

871.8

925.4

3,661.3

974.8

926.4

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
624.8

626.3

569.4

609.1

2,429.6

635.3

611.7

Interest expense
6.1

6.1

6.7

6.9

25.8

7.2

7.2

Amortization
85.3

61.9

55.5

63.4

266.1

73.1

64.6

Other operating costs and expenses
90.1

95.5

91.8

101.4

378.8

130.3

93.0

Total benefits and expenses
806.3

789.8

723.4

780.8

3,100.3

845.9

776.5

EBIT from In-Force Business
$
129.4

$
138.6

$
148.4

$
144.6

$
561.0

$
128.9

$
149.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
83.2

$
85.3

$
88.2

$
86.6

$
343.3

$
89.3

$
93.1

Net investment income (loss)
11.1

9.1

6.2

10.6

37.0

11.7

4.3

Fee revenue and other income
.9

1.3

1.5

1.9

5.6

1.4

1.4

Total revenues
95.2

95.7

95.9

99.1

385.9

102.4

98.8

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
58.4

58.1

57.7

60.8

235.0

65.3

60.3

Interest expense
—

—

—

—

—

—

—

Amortization
9.2

9.3

13.3

8.1

39.9

7.7

7.7

Other operating costs and expenses
68.8

67.4

71.2

67.0

274.4

75.2

68.2

Total benefits and expenses
136.4

134.8

142.2

135.9

549.3

148.2

136.2

EBIT from New Business
$
(41.2
)
$
(39.1
)
$
(46.3
)
$
(36.8
)
$
(163.4
)
$
(45.8
)
$
(37.4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
667.2

$
679.6

$
673.5

$
670.2

$
2,690.5

$
686.3

$
694.8

Net investment income (loss)
360.9

340.8

290.0

349.3

1,341.0

387.6

326.6

Fee revenue and other income
2.8

3.7

4.2

5.0

15.7

3.3

3.8

Total revenues
1,030.9

1,024.1

967.7

1,024.5

4,047.2

1,077.2

1,025.2

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
683.2

684.4

627.1

669.9

2,664.6

700.6

672.0

Interest expense
6.1

6.1

6.7

6.9

25.8

7.2

7.2

Amortization
94.5

71.2

68.8

71.5

306.0

80.8

72.3

Other operating costs and expenses
158.9

162.9

163.0

168.4

653.2

205.5

161.2

Total benefits and expenses
942.7

924.6

865.6

916.7

3,649.6

994.1

912.7

EBIT from In-Force and New Business
$
88.2

$
99.5

$
102.1

$
107.8

$
397.6

$
83.1

$
112.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 7




CNO Financial Group, Inc.
 
 
 
 
 
 
 
Bankers Life
 
 
 
 
 
 
 
Analysis of income before taxes (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Insurance policy income
$
400.0

$
409.6

$
404.6

$
398.2

$
1,612.4

$
406.5

$
419.0

Net investment income (loss):
 
 
 
 
 
 
 
   General account invested assets
191.3

196.5

194.3

198.2

780.3

200.3

204.9

   Fixed index products
18.3

0.4

(36.3
)
3.6

(14.0
)
34.6

(19.3
)
Net realized investment gains (losses)
6.6

(1.8
)
26.5

16.6

47.9

10.6

17.9

Fee revenue and other income
2.3

3.3

3.6

4.6

13.8

2.9

3.3

   Total revenues
618.5

608.0

592.7

621.2

2,440.4

654.9

625.8

 
 
 
 
 
 
 
 
Insurance policy benefits
337.6

351.3

333.6

339.2

1,361.7

335.2

366.3

Insurance policy benefits - fair value changes in embedded derivative liabilities
—

—

30.7

0.5

31.2

(11.0
)
16.7

Amounts added to policyholder account balances:
 
 
 
 
 
 
 
Annuity products and interest-sensitive life products other than fixed index products
40.8

40.5

40.0

39.9

161.2

38.5

36.6

Fixed index products
26.4

17.1

(13.0
)
16.7

47.2

47.2

(6.2
)
Amortization related to operations
68.5

46.9

44.1

46.8

206.3

56.9

50.5

Amortization related to net realized investment gains (losses)
0.8

(0.3
)
3.0

1.7

5.2

0.9

1.7

Amortization related to fair value changes in embedded derivative liabilities
—

—

(11.5
)
0.1

(11.4
)
4.2

(6.3
)
Interest expense on investment borrowings
1.2

1.1

1.2

1.3

4.8

1.4

1.4

Other operating costs and expenses
75.2

80.8

80.9

83.5

320.4

94.6

83.2

   Total benefits and expenses
550.5

537.4

509.0

529.7

2,126.6

567.9

543.9

   Income before income taxes
$
68.0

$
70.6

$
83.7

$
91.5

$
313.8

$
87.0

$
81.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health underwriting margins (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Medicare supplement:
 
 
 
 
 
 
 
   Earned premium
$
181.0

$
179.5

$
179.2

$
178.6

$
718.3

$
182.7

$
184.1

   Benefit ratio
67.2
%
69.8
%
68.4
%
70.5
%
69.0
%
64.5
%
72.2
%
Underwriting margin (earned premium less policy benefits)
$
59.3

$
54.2

$
56.7

$
52.7

$
222.9

$
64.9

$
51.2

 
 
 
 
 
 
 
 
PDP:
 
 
 
 
 
 
 
   Earned premium
$
14.4

$
16.7

$
12.9

$
10.5

$
54.5

$
10.8

$
17.7

   Benefit ratio
89.5
%
88.6
%
76.1
%
72.6
%
82.8
%
85.9
%
64.2
%
Underwriting margin (earned premium less policy benefits)
$
1.5

$
1.9

$
3.1

$
2.9

$
9.4

$
1.6

$
6.3

 
 
 
 
 
 
 
 
PFFS:
 
 
 
 
 
 
 
   Earned premium
$
—

$
3.6

$
—

$
—

$
3.6

$
—

$
—

   Benefit ratio
N/A

N/A

N/A

N/A

N/A

N/A

N/A

Underwriting margin (earned premium less policy benefits)
$
0.7

$
3.7

$
0.5

$
0.3

$
5.2

$
0.1

$
0.1

 
 
 
 
 
 
 
 
Long-term care:
 
 
 
 
 
 
 
   Earned premium
$
144.4

$
143.4

$
142.0

$
141.1

$
570.9

$
140.6

$
139.7

   Benefit ratio before interest income on reserves
113.4
%
115.0
%
109.7
%
112.1
%
112.6
%
110.9
%
121.4
%
   Interest-adjusted benefit ratio
70.8
%
71.6
%
65.5
%
67.3
%
68.8
%
65.5
%
75.4
%
Underwriting margin (earned premium plus interest income on reserves less policy benefits)
$
42.2

$
40.7

$
49.1

$
46.1

$
178.1

$
48.5

$
34.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Page 8



CNO Financial Group, Inc.
 
 
 
 
 
 
 
Bankers Life
 
 
 
 
 
 
 
Average liabilities for insurance products (in millions) (continued)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Annuities:
 
 
 
 
 
 
 
   Mortality based
$
245.9

$
243.1

$
240.0

$
236.7

$
241.4

$
233.8

$
231.7

   Fixed index
2,147.7

2,268.3

2,412.9

2,573.0

2,350.5

2,707.4

2,798.2

   Deposit based
4,832.4

4,793.2

4,750.5

4,699.6

4,768.9

4,644.9

4,577.8

Medicare supplement and other supplemental health
4,489.6

4,529.9

4,564.0

4,606.8

4,547.6

4,634.5

4,653.2

Life:
 
 
 
 
 
 
 
   Interest sensitive
420.5

425.2

431.8

437.1

428.6

441.4

444.7

   Non-interest sensitive
397.8

416.8

437.7

460.5

428.2

483.0

506.2

Total average liabilities for insurance products, net of reinsurance ceded
$
12,533.9

$
12,676.5

$
12,836.9

$
13,013.7

$
12,765.2

$
13,145.0

$
13,211.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Present value of future profits (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Balance, beginning of period
$
467.2

$
442.7

$
422.0

$
208.9

$
467.2

$
201.8

$
189.8

Amortization related to operations
(24.6
)
(16.9
)
(14.3
)
(14.2
)
(70.0
)
(18.7
)
(13.6
)
Amortization related to net realized investment (gains) losses
(0.1
)
0.1

(0.2
)
(0.2
)
(0.4
)
(0.1
)
—

Adjustment related to unrealized (gain) or loss on fixed maturities, available for sale
0.2

(3.9
)
(198.6
)
7.3

(195.0
)
6.8

5.6

Balance, end of period
$
442.7

$
422.0

$
208.9

$
201.8

$
201.8

$
189.8

$
181.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Balance, beginning of period
$
662.3

$
657.7

$
648.2

$
527.1

$
662.3

$
491.0

$
486.5

Deferred acquisition expenses
40.4

40.2

45.8

39.9

166.3

34.3

34.4

Amortization related to operations
(43.9
)
(30.0
)
(29.8
)
(32.6
)
(136.3
)
(38.2
)
(36.9
)
Amortization related to net realized investment (gains) losses
(0.7
)
0.2

(2.8
)
(1.5
)
(4.8
)
(0.8
)
(1.7
)
Amortization related to fair value changes in embedded derivative liabilities
—

—

11.5

(0.1
)
11.4

(4.2
)
6.3

Adjustment related to unrealized (gain) or loss on fixed maturities, available for sale
(0.4
)
(19.9
)
(145.8
)
(41.8
)
(207.9
)
4.4

(198.5
)
Balance, end of period
$
657.7

$
648.2

$
527.1

$
491.0

$
491.0

$
486.5

$
290.1

 
 
 
 
 
 
 
 

Page 9


Bankers Life Segment EBIT Summarized by In-Force and New Business (6)
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CNO Financial Group, Inc.
 
 
 
 
 
 
 
EBIT from In-force Business
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
338.8

$
346.3

$
339.0

$
334.8

$
1,358.9

$
341.8

$
351.6

Net investment income (loss)
198.5

187.8

151.8

191.2

729.3

223.2

181.3

Fee revenue and other income
1.4

2.0

2.1

2.7

8.2

1.5

1.9

Total revenues
538.7

536.1

492.9

528.7

2,096.4

566.5

534.8

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
356.9

361.3

313.7

346.1

1,378.0

367.4

348.7

Interest expense
1.2

1.1

1.2

1.3

4.8

1.4

1.4

Amortization
60.1

38.5

31.6

39.7

169.9

50.0

43.7

Other operating costs and expenses
33.8

36.6

34.8

38.9

144.1

50.6

38.4

Total benefits and expenses
452.0

437.5

381.3

426.0

1,696.8

469.4

432.2

EBIT from In-Force Business
$
86.7

$
98.6

$
111.6

$
102.7

$
399.6

$
97.1

$
102.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
61.2

$
63.3

$
65.6

$
63.4

$
253.5

$
64.7

$
67.4

Net investment income (loss)
11.1

9.1

6.2

10.6

37.0

11.7

4.3

Fee revenue and other income
0.9

1.3

1.5

1.9

5.6

1.4

1.4

Total revenues
73.2

73.7

73.3

75.9

296.1

77.8

73.1

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
47.9

47.6

46.9

49.7

192.1

53.5

48.0

Interest expense
—

—

—

—

—

—

—

Amortization
8.4

8.4

12.5

7.1

36.4

6.9

6.8

Other operating costs and expenses
41.4

44.2

46.1

44.6

176.3

44.0

44.8

Total benefits and expenses
97.7

100.2

105.5

101.4

404.8

104.4

99.6

EBIT from New Business
$
(24.5
)
$
(26.5
)
$
(32.2
)
$
(25.5
)
$
(108.7
)
$
(26.6
)
$
(26.5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
400.0

$
409.6

$
404.6

$
398.2

$
1,612.4

$
406.5

$
419.0

Net investment income (loss)
209.6

196.9

158.0

201.8

766.3

234.9

185.6

Fee revenue and other income
2.3

3.3

3.6

4.6

13.8

2.9

3.3

Total revenues
611.9

609.8

566.2

604.6

2,392.5

644.3

607.9

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
404.8

408.9

360.6

395.8

1,570.1

420.9

396.7

Interest expense
1.2

1.1

1.2

1.3

4.8

1.4

1.4

Amortization
68.5

46.9

44.1

46.8

206.3

56.9

50.5

Other operating costs and expenses
75.2

80.8

80.9

83.5

320.4

94.6

83.2

Total benefits and expenses
549.7

537.7

486.8

527.4

2,101.6

573.8

531.8

EBIT from In-Force and New Business
$
62.2

$
72.1

$
79.4

$
77.2

$
290.9

$
70.5

$
76.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 10



CNO Financial Group, Inc.
 
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
 
Analysis of income before taxes (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Insurance policy income
$
145.4

$
146.6

$
145.9

$
147.2

$
585.1

$
147.4

$
147.6

Net investment income (loss):
 
 
 
 
 
 
 
   General account invested assets
46.3

46.7

47.3

49.1

189.4

50.0

51.0

Trading account income related to reinsurer accounts
0.3

0.7

2.6

0.2

3.8

0.1

1.4

Change in value of embedded derivatives related to modified coinsurance agreements
(0.3
)
(0.7
)
(2.6
)
(0.1
)
(3.7
)
(0.1
)
(1.4
)
Net realized investment gains (losses)
(0.5
)
(0.5
)
1.6

1.4

2.0

3.1

3.5

Fee revenue and other income
0.3

0.2

0.4

0.1

1.0

0.2

0.3

   Total revenues
191.5

193.0

195.2

197.9

777.6

200.7

202.4

 
 
 
 
 
 
 
 
Insurance policy benefits
112.2

118.3

119.0

115.0

464.5

115.7

113.7

Amortization related to operations
13.4

11.4

10.8

9.3

44.9

12.7

10.8

Interest expense on investment borrowings
—

—

0.2

0.5

0.7

0.7

0.8

Other operating costs and expenses
42.1

42.0

42.4

42.9

169.4

43.8

39.7

   Total benefits and expenses
167.7

171.7

172.4

167.7

679.5

172.9

165.0

   Income before income taxes
$
23.8

$
21.3

$
22.8

$
30.2

$
98.1

$
27.8

$
37.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health underwriting margins (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Medicare supplement:
 
 
 
 
 
 
 
Earned premium
$
35.5

$
34.9

$
33.5

$
32.6

$
136.5

$
30.8

$
30.2

Benefit ratio
66.3
%
71.1
%
69.9
%
66.7
%
68.5
%
65.4
%
67.7
%
Underwriting margin (earned premium less policy benefits)
$
12.0

$
10.1

$
10.1

$
10.8

$
43.0

$
10.7

$
9.7

 
 
 
 
 
 
 
 
Supplemental health:
 
 
 
 
 
 
 
Earned premium
$
104.7

$
106.9

$
107.6

$
110.0

$
429.2

$
111.6

$
113.1

Benefit ratio before interest income on reserves
78.7
%
82.7
%
82.4
%
76.3
%
80.0
%
82.4
%
77.0
%
Interest-adjusted benefit ratio
49.1
%
54.1
%
53.9
%
48.3
%
51.3
%
55.1
%
50.1
%
Underwriting margin (earned premium plus interest income on reserves less policy benefits)
$
53.3

$
49.1

$
49.6

$
56.6

$
208.6

$
50.1

$
56.5

 
 
 
 
 
 
 
 





Page 11


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
 
Average liabilities for insurance products (in millions) (continued)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Medicare supplement and other supplemental health
$
2,434.6

$
2,437.1

$
2,436.9

$
2,436.1

$
2,436.2

$
2,429.6

$
2,418.9

Non-interest sensitive life
205.2

202.2

198.7

199.6

201.4

200.4

199.1

Total average liabilities for insurance products, net of reinsurance ceded
$
2,639.8

$
2,639.3

$
2,635.6

$
2,635.7

$
2,637.6

$
2,630.0

$
2,618.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Present value of future profits (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Balance, beginning of period
$
426.9

$
418.5

$
411.5

$
406.0

$
426.9

$
402.0

$
394.8

  Amortization related to operations
(8.4
)
(7.0
)
(5.5
)
(4.0
)
(24.9
)
(7.2
)
(5.8
)
Balance, end of period
$
418.5

$
411.5

$
406.0

$
402.0

$
402.0

$
394.8

$
389.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Balance, beginning of period
$
126.8

$
130.4

$
135.0

$
138.7

$
126.8

$
142.3

$
145.9

  Deferred acquisition expenses
8.6

9.0

9.0

8.9

35.5

9.1

10.1

  Amortization related to operations
(5.0
)
(4.4
)
(5.3
)
(5.3
)
(20.0
)
(5.5
)
(5.0
)
Balance, end of period
$
130.4

$
135.0

$
138.7

$
142.3

$
142.3

$
145.9

$
151.0

 
 
 
 
 
 
 
 


Page 12


Washington National Segment EBIT Summarized by In-Force and New Business (6)
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CNO Financial Group, Inc.
 
 
 
 
 
 
 
EBIT from In-force Business
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
131.9

$
133.5

$
132.1

$
133.2

$
530.7

$
133.0

$
132.8

Net investment income (loss)
46.3

46.7

47.3

49.2

189.5

50.0

51.0

Fee revenue and other income
0.3

0.2

0.4

0.1

1.0

0.2

0.3

Total revenues
178.5

180.4

179.8

182.5

721.2

183.2

184.1

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
106.6

112.9

113.3

109.2

442.0

109.8

107.6

Interest expense
—

—

0.2

0.5

0.7

0.7

0.8

Amortization
12.7

10.6

10.2

8.6

42.1

12.0

10.0

Other operating costs and expenses
31.9

32.1

33.7

32.1

129.8

33.3

31.5

Total benefits and expenses
151.2

155.6

157.4

150.4

614.6

155.8

149.9

EBIT from In-Force Business
$
27.3

$
24.8

$
22.4

$
32.1

$
106.6

$
27.4

$
34.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
13.5

$
13.1

$
13.8

$
14.0

$
54.4

$
14.4

$
14.8

Net investment income (loss)
—

—

—

—

—

—

—

Fee revenue and other income
—

—

—

—

—

—

—

Total revenues
13.5

13.1

13.8

14.0

54.4

14.4

14.8

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
5.6

5.4

5.7

5.8

22.5

5.9

6.1

Interest expense
—

—

—

—

—

—

—

Amortization
0.7

0.8

0.6

0.7

2.8

0.7

0.8

Other operating costs and expenses
10.2

9.9

8.7

10.8

39.6

10.5

8.2

Total benefits and expenses
16.5

16.1

15.0

17.3

64.9

17.1

15.1

EBIT from New Business
$
(3.0
)
$
(3.0
)
$
(1.2
)
$
(3.3
)
$
(10.5
)
$
(2.7
)
$
(0.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
145.4

$
146.6

$
145.9

$
147.2

$
585.1

$
147.4

$
147.6

Net investment income (loss)
46.3

46.7

47.3

49.2

189.5

50.0

51.0

Fee revenue and other income
0.3

0.2

0.4

0.1

1.0

0.2

0.3

Total revenues
192.0

193.5

193.6

196.5

775.6

197.6

198.9

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
112.2

118.3

119.0

115.0

464.5

115.7

113.7

Interest expense
—

—

0.2

0.5

0.7

0.7

0.8

Amortization
13.4

11.4

10.8

9.3

44.9

12.7

10.8

Other operating costs and expenses
42.1

42.0

42.4

42.9

169.4

43.8

39.7

Total benefits and expenses
167.7

171.7

172.4

167.7

679.5

172.9

165.0

EBIT from In-Force and New Business
$
24.3

$
21.8

$
21.2

$
28.8

$
96.1

$
24.7

$
33.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 13


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Colonial Penn
 
 
 
 
 
 
 
Analysis of income (loss) before taxes (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Insurance policy income
$
50.3

$
50.9

$
50.8

$
51.0

$
203.0

$
53.4

$
54.6

Net investment income on general account invested assets
10.3

10.5

10.1

10.2

41.1

10.0

10.2

Net realized investment gains
1.1

0.2

3.5

1.0

5.8

2.6

1.9

Fee revenue and other income
0.2

0.2

0.2

0.3

0.9

0.2

0.2

   Total revenues
61.9

61.8

64.6

62.5

250.8

66.2

66.9

 
 
 
 
 
 
 
 
Insurance policy benefits
38.5

37.8

35.7

37.2

149.2

41.9

39.3

Amounts added to annuity and interest-sensitive life product account balances
0.2

0.2

0.3

0.2

0.9

0.2

0.3

Amortization related to operations
4.0

3.5

3.5

4.0

15.0

3.7

3.9

Other operating costs and expenses
23.8

19.6

22.9

18.3

84.6

27.6

20.9

   Total benefits and expenses
66.5

61.1

62.4

59.7

249.7

73.4

64.4

   Income (loss) before income taxes
$
(4.6
)
$
0.7

$
2.2

$
2.8

$
1.1

$
(7.2
)
$
2.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average liabilities for insurance products (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Annuities - mortality based
$
78.5

$
77.8

$
77.3

$
77.1

$
77.7

$
77.0

$
76.8

Supplemental health
16.6

16.3

16.1

15.8

16.2

15.4

15.1

Life:
 
 
 
 
 
 
 
   Interest sensitive
20.7

20.5

20.2

20.1

20.3

19.9

18.9

   Non-interest sensitive
586.7

588.7

590.2

593.4

589.8

598.4

601.8

Total average liabilities for insurance products, net of reinsurance ceded
$
702.5

$
703.3

$
703.8

$
706.4

$
704.0

$
710.7

$
712.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Present value of future profits (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Balance, beginning of period
$
81.7

$
79.1

$
76.9

$
74.9

$
81.7

$
72.6

$
70.2

  Amortization related to operations
(2.6
)
(2.2
)
(2.0
)
(2.3
)
(9.1
)
(2.4
)
(2.4
)
Balance, end of period
$
79.1

$
76.9

$
74.9

$
72.6

$
72.6

$
70.2

$
67.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Balance, beginning of period
$
48.5

$
49.4

$
50.4

$
51.2

$
48.5

$
51.5

$
52.6

  Deferred acquisition expenses
2.3

2.3

2.3

2.0

8.9

2.4

2.7

  Amortization related to operations
(1.4
)
(1.3
)
(1.5
)
(1.7
)
(5.9
)
(1.3
)
(1.5
)
Balance, end of period
$
49.4

$
50.4

$
51.2

$
51.5

$
51.5

$
52.6

$
53.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 14


Colonial Penn Segment EBIT Summarized by In-Force and New Business (6)
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CNO Financial Group, Inc.
 
 
 
 
 
 
 
EBIT from In-force Business
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
41.8

$
42.0

$
42.0

$
41.8

$
167.6

$
43.2

$
43.7

Net investment income (loss)
10.3

10.5

10.1

10.2

41.1

10.0

10.2

Fee revenue and other income
0.2

0.2

0.2

0.3

0.9

0.2

0.2

Total revenues
52.3

52.7

52.3

52.3

209.6

53.4

54.1

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
33.8

32.9

30.9

32.1

129.7

36.2

33.4

Amortization
3.9

3.4

3.3

3.7

14.3

3.6

3.8

Other operating costs and expenses
6.6

6.3

6.5

6.7

26.1

6.9

5.7

Total benefits and expenses
44.3

42.6

40.7

42.5

170.1

46.7

42.9

EBIT from In-Force Business
$
8.0

$
10.1

$
11.6

$
9.8

$
39.5

$
6.7

$
11.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
8.5

$
8.9

$
8.8

$
9.2

$
35.4

$
10.2

$
10.9

Net investment income (loss)
—

—

—

—

—

—

—

Fee revenue and other income
—

—

—

—

—

—

—

Total revenues
8.5

8.9

8.8

9.2

35.4

10.2

10.9

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
4.9

5.1

5.1

5.3

20.4

5.9

6.2

Amortization
0.1

0.1

0.2

0.3

0.7

0.1

0.1

Other operating costs and expenses
17.2

13.3

16.4

11.6

58.5

20.7

15.2

Total benefits and expenses
22.2

18.5

21.7

17.2

79.6

26.7

21.5

EBIT from New Business
$
(13.7
)
$
(9.6
)
$
(12.9
)
$
(8.0
)
$
(44.2
)
$
(16.5
)
$
(10.6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
50.3

$
50.9

$
50.8

$
51.0

$
203.0

$
53.4

$
54.6

Net investment income (loss)
10.3

10.5

10.1

10.2

41.1

10.0

10.2

Fee revenue and other income
0.2

0.2

0.2

0.3

0.9

0.2

0.2

Total revenues
60.8

61.6

61.1

61.5

245.0

63.6

65.0

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
38.7

38.0

36.0

37.4

150.1

42.1

39.6

Amortization
4.0

3.5

3.5

4.0

15.0

3.7

3.9

Other operating costs and expenses
23.8

19.6

22.9

18.3

84.6

27.6

20.9

Total benefits and expenses
66.5

61.1

62.4

59.7

249.7

73.4

64.4

EBIT from In-Force and New Business
$
(5.7
)
$
0.5

$
(1.3
)
$
1.8

$
(4.7
)
$
(9.8
)
$
0.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 15


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Other CNO Business
 
 
 
 
 
 
 
Analysis of income (loss) before taxes (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Insurance policy income
$
71.5

$
72.5

$
72.2

$
73.8

$
290.0

$
79.0

$
73.6

Net investment income (loss):
 
 
 
 
 
 
 
   General account invested assets
88.2

87.6

85.4

85.7

346.9

84.0

84.0

   Fixed index products
5.0

(0.9
)
(8.4
)
0.9

(3.4
)
6.8

(4.1
)
Trading account income related to policyholder accounts
1.5

—

(2.4
)
1.5

0.6

1.9

(0.1
)
Net realized investment gains (losses)
(1.0
)
1.1

3.0

3.0

6.1

6.7

7.5

   Total revenues
165.2

160.3

149.8

164.9

640.2

178.4

160.9

 
 
 
 
 
 
 
 
Insurance policy benefits
88.8

85.9

86.7

88.7

350.1

83.0

93.8

Insurance policy benefits - fair value changes in embedded derivative liabilities
—

—

3.2

—

3.2

(0.6
)
1.0

Amounts added to policyholder account balances:
 
 
 
 
 
 
 
Annuity products and interest-sensitive life products other than fixed index products
31.6

30.3

28.9

29.6

120.4

29.7

27.5

   Fixed index products
7.1

3.0

(4.1
)
3.4

9.4

9.2

0.7

Amortization related to operations
8.6

9.4

10.4

11.4

39.8

7.5

7.1

Amortization related to net realized investment gains (losses)
(0.4
)
(0.3
)
0.9

—

0.2

0.2

1.4

Amortization related to fair value changes in embedded derivative liabilities
—

—

(2.6
)
—

(2.6
)
0.5

(0.8
)
Interest expense on investment borrowings
4.9

5.0

5.3

5.1

20.3

5.1

5.0

Other operating costs and expenses
17.8

20.5

16.8

23.7

78.8

39.5

17.4

   Total benefits and expenses
158.4

153.8

145.5

161.9

619.6

174.1

153.1

   Income before income taxes
$
6.8

$
6.5

$
4.3

$
3.0

$
20.6

$
4.3

$
7.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health underwriting margins (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Long-term care:
 
 
 
 
 
 
 
   Earned premium
$
7.3

$
7.0

$
6.9

$
6.4

$
27.6

$
6.6

$
6.5

   Benefit ratio before interest income on reserves
235.7
%
205.8
%
227.5
%
237.1
%
226.4
%
227.4
%
230.2
%
   Interest-adjusted benefit ratio
148.0
%
106.4
%
126.1
%
127.8
%
127.3
%
122.0
%
121.3
%
Underwriting margin (earned premium plus interest income on reserves less policy benefits)
$
(3.5
)
$
(0.5
)
$
(1.8
)
$
(1.9
)
$
(7.7
)
$
(1.5
)
$
(1.4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 16


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Other CNO Business
 
 
 
 
 
 
 
Average liabilities for insurance products (in millions) (continued)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Annuities:
 
 
 
 
 
 
 
   Mortality based
$
240.2

$
237.2

$
234.3

$
231.9

$
235.9

$
229.1

$
225.5

   Fixed index
652.1

632.1

607.6

577.9

617.4

553.8

532.5

   Deposit based
659.6

656.1

651.1

645.0

652.9

638.4

633.1

   Separate accounts
17.8

17.7

16.4

15.2

16.8

15.5

15.8

Other health
481.8

481.9

481.3

481.4

481.6

481.0

479.8

Life:
 
 
 
 
 
 
 
   Interest sensitive
2,527.4

2,506.1

2,484.6

2,456.6

2,493.7

2,416.9

2,365.9

   Non-interest sensitive
805.6

790.9

780.6

774.0

787.8

766.5

763.3

Total average liabilities for insurance products, net of reinsurance ceded
$
5,384.5

$
5,322.0

$
5,255.9

$
5,182.0

$
5,286.1

$
5,101.2

$
5,015.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Present value of future profits (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Balance, beginning of period
$
32.8

$
29.8

$
26.1

$
24.4

$
32.8

$
21.3

$
20.6

Amortization related to operations
(2.4
)
(2.2
)
(1.1
)
(3.6
)
(9.3
)
(1.4
)
(1.4
)
Adjustment related to unrealized (gain) or loss on fixed maturities, available for sale
(0.6
)
(1.5
)
(0.6
)
0.5

(2.2
)
0.7

0.3

Balance, end of period
$
29.8

$
26.1

$
24.4

$
21.3

$
21.3

$
20.6

$
19.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Balance, beginning of period
$
162.0

$
151.8

$
141.9

$
117.5

$
162.0

$
112.3

$
105.4

Deferred acquisition expenses
1.9

1.9

1.2

1.0

6.0

0.4

1.3

Amortization related to operations
(6.2
)
(7.2
)
(9.3
)
(7.8
)
(30.5
)
(6.1
)
(5.7
)
Amortization related to net realized investment (gains) losses
0.4

0.3

(0.9
)
—

(0.2
)
(0.2
)
(1.4
)
Amortization related to fair value changes in embedded derivative liabilities
—

—

2.6

—

2.6

(0.5
)
0.8

Adjustment related to unrealized (gain) or loss on fixed maturities, available for sale
(6.3
)
(4.9
)
(18.0
)
1.6

(27.6
)
(0.5
)
(3.9
)
Balance, end of period
$
151.8

$
141.9

$
117.5

$
112.3

$
112.3

$
105.4

$
96.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 17


Other CNO Business Segment EBIT Summarized by In-Force and New Business (6)
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CNO Financial Group, Inc.
 
 
 
 
 
 
 
EBIT from In-force Business
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
71.5

$
72.5

$
72.2

$
73.8

$
290.0

$
79.0

$
73.6

Net investment income (loss)
94.7

86.7

74.6

88.1

344.1

92.7

79.8

Fee revenue and other income
—

—

—

—

—

—

—

Total revenues
166.2

159.2

146.8

161.9

634.1

171.7

153.4

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
127.5

119.2

111.5

121.7

479.9

121.9

122.0

Interest expense
4.9

5.0

5.3

5.1

20.3

5.1

5.0

Amortization
8.6

9.4

10.4

11.4

39.8

7.5

7.1

Other operating costs and expenses
17.8

20.5

16.8

23.7

78.8

39.5

17.4

Total benefits and expenses
158.8

154.1

144.0

161.9

618.8

174.0

151.5

EBIT from In-Force Business
$
7.4

$
5.1

$
2.8

$
—

$
15.3

$
(2.3
)
$
1.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
—

$
—

$
—

$
—

$
—

$
—

$
—

Net investment income (loss)
—

—

—

—

—

—

—

Fee revenue and other income
—

—

—

—

—

—

—

Total revenues
—

—

—

—

—

—

—

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
—

—

—

—

—

—

—

Interest expense
—

—

—

—

—

—

—

Amortization
—

—

—

—

—

—

—

Other operating costs and expenses
—

—

—

—

—

—

—

Total benefits and expenses
—

—

—

—

—

—

—

EBIT from New Business
$
—

$
—

$
—

$
—

$
—

$
—

$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Insurance policy income
$
71.5

$
72.5

$
72.2

$
73.8

$
290.0

$
79.0

$
73.6

Net investment income (loss)
94.7

86.7

74.6

88.1

344.1

92.7

79.8

Fee revenue and other income
—

—

—

—

—

—

—

Total revenues
166.2

159.2

146.8

161.9

634.1

171.7

153.4

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Insurance policy benefits
127.5

119.2

111.5

121.7

479.9

121.9

122.0

Interest expense
4.9

5.0

5.3

5.1

20.3

5.1

5.0

Amortization
8.6

9.4

10.4

11.4

39.8

7.5

7.1

Other operating costs and expenses
17.8

20.5

16.8

23.7

78.8

39.5

17.4

Total benefits and expenses
158.8

154.1

144.0

161.9

618.8

174.0

151.5

EBIT from In-Force and New Business
$
7.4

$
5.1

$
2.8

$
—

$
15.3

$
(2.3
)
$
1.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 18


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Corporate Operations
 
 
 
 
 
 
 
Analysis of loss before taxes (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Net investment income (loss):
 
 
 
 
 
 
 
   General account invested assets
$
—

$
0.9

$
1.1

$
1.0

$
3.0

$
0.9

$
1.0

   Other special-purpose portfolios
8.2

(0.1
)
(13.7
)
(3.1
)
(8.7
)
16.2

(1.1
)
Fee revenue and other income
0.4

0.2

0.3

0.4

1.3

0.4

0.2

Net operating results of variable interest entities
2.0

0.2

3.8

1.5

7.5

2.2

2.9

Interest expense on investment borrowings
—

—

(0.1
)
(0.1
)
(0.2
)
(0.1
)
(0.2
)
Other operating costs and expenses
(11.1
)
(12.5
)
(18.9
)
(8.1
)
(50.6
)
(21.4
)
(11.9
)
Corporate operations, excluding corporate interest expense
(0.5
)
(11.3
)
(27.5
)
(8.4
)
(47.7
)
(1.8
)
(9.1
)
Interest expense on corporate debt
(20.6
)
(19.3
)
(18.7
)
(17.7
)
(76.3
)
(17.5
)
(16.6
)
Loss before net realized investment gains (losses), loss on extinguishment of debt and income taxes
(21.1
)
(30.6
)
(46.2
)
(26.1
)
(124.0
)
(19.3
)
(25.7
)
Net realized investment gains (losses)
(1.1
)
3.9

(4.0
)
1.2

—

(0.1
)
1.1

Loss on extinguishment of debt
(1.4
)
(0.6
)
(1.1
)
(0.3
)
(3.4
)
(0.2
)
(0.5
)
Loss before income taxes
$
(23.6
)
$
(27.3
)
$
(51.3
)
$
(25.2
)
$
(127.4
)
$
(19.6
)
$
(25.1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 19


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Bankers Life
 
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Annuities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed index (first-year)
$
148.2

$
163.9

$
208.0

$
188.3

$
708.4

$
134.9

$
120.2

 
 
 
 
 
 
 
 
Other fixed rate (first-year)
73.1

94.1

55.1

50.6

272.9

47.8

47.9

Other fixed rate (renewal)
0.9

1.1

1.0

1.2

4.2

2.0

1.4

  Subtotal - other fixed rate annuities
74.0

95.2

56.1

51.8

277.1

49.8

49.3

 
 
 
 
 
 
 
 
      Total annuities
222.2

259.1

264.1

240.1

985.5

184.7

169.5

 
 
 
 
 
 
 
 
Health
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare supplement (first-year)
25.1

24.7

24.5

27.0

101.3

23.8

25.1

Medicare supplement (renewal)
153.7

144.3

146.8

155.1

599.9

151.1

149.8

  Subtotal - Medicare supplement
178.8

169.0

171.3

182.1

701.2

174.9

174.9

 
 
 
 
 
 
 
 
Long-term care (first-year)
6.1

6.0

5.9

5.5

23.5

5.5

5.9

Long-term care (renewal)
138.8

136.9

131.9

130.8

538.4

131.2

132.9

  Subtotal - long-term care
144.9

142.9

137.8

136.3

561.9

136.7

138.8

 
 
 
 
 
 
 
 
PDP and PFFS (first-year)
0.4

0.2

0.6

0.6

1.8

0.3

0.1

PDP and PFFS (renewal)
10.6

14.4

15.6

14.1

54.7

15.0

14.6

  Subtotal - PDP and PFFS
11.0

14.6

16.2

14.7

56.5

15.3

14.7

 
 
 
 
 
 
 
 
Other health (first-year)
0.4

0.3

0.4

0.5

1.6

0.4

0.6

Other health (renewal)
2.5

2.3

2.3

2.3

9.4

2.2

2.3

  Subtotal - other health
2.9

2.6

2.7

2.8

11.0

2.6

2.9

 
 
 
 
 
 
 
 
    Total health
337.6

329.1

328.0

335.9

1,330.6

329.5

331.3

 
 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First-year
24.7

29.4

30.9

30.8

115.8

32.8

35.7

Renewal
31.7

32.6

34.6

35.3

134.2

37.3

39.7

 
 
 
 
 
 
 
 
    Total life insurance
56.4

62.0

65.5

66.1

250.0

70.1

75.4

 
 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
278.0

318.6

325.4

303.3

1,225.3

245.5

235.5

Total renewal premium collections on insurance products
338.2

331.6

332.2

338.8

1,340.8

338.8

340.7

 
 
 
 
 
 
 
 
    Total collections on insurance products
$
616.2

$
650.2

$
657.6

$
642.1

$
2,566.1

$
584.3

$
576.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Page 20


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Health
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare supplement (first-year)
$
0.6

$
0.5

$
0.4

$
0.4

$
1.9

$
0.3

$
0.3

Medicare supplement (renewal)
34.7

32.6

31.5

31.4

130.2

27.8

28.8

  Subtotal - Medicare supplement
35.3

33.1

31.9

31.8

132.1

28.1

29.1

 
 
 
 
 
 
 
 
Supplemental health (first-year)
13.2

13.7

13.2

14.0

54.1

14.1

15.1

Supplemental health (renewal)
93.7

95.2

95.2

96.0

380.1

98.8

100.3

  Subtotal - supplemental health
106.9

108.9

108.4

110.0

434.2

112.9

115.4

Other health (all renewal)
1.0

0.8

0.9

0.8

3.5

0.7

0.6

 
 
 
 
 
 
 
 
    Total health
143.2

142.8

141.2

142.6

569.8

141.7

145.1

 
 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First-year
0.4

0.3

0.4

0.1

1.2

0.2

0.3

Renewal
3.9

3.6

3.7

3.6

14.8

3.8

3.5

 
 
 
 
 
 
 
 
    Total life insurance
4.3

3.9

4.1

3.7

16.0

4.0

3.8

 
 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
14.2

14.5

14.0

14.5

57.2

14.6

15.7

Total renewal premium collections on insurance products
133.3

132.2

131.3

131.8

528.6

131.1

133.2

 
 
 
 
 
 
 
 
    Total collections on insurance products
$
147.5

$
146.7

$
145.3

$
146.3

$
585.8

$
145.7

$
148.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 21


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Colonial Penn
 
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First-year
$
8.7

$
8.6

$
8.9

$
9.2

$
35.4

$
10.4

$
10.7

Renewal
40.7

39.9

40.3

40.1

161.0

42.2

41.8

 
 
 
 
 
 
 
 
    Total life insurance
49.4

48.5

49.2

49.3

196.4

52.6

52.5

 
 
 
 
 
 
 
 
Health (all renewal)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare supplement
1.3

1.4

1.3

1.2

5.2

1.2

1.1

 
 
 
 
 
 
 
 
Other health
0.2

0.1

0.1

0.1

0.5

0.1

0.1

 
 
 
 
 
 
 
 
    Total health
1.5

1.5

1.4

1.3

5.7

1.3

1.2

 
 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
8.7

8.6

8.9

9.2

35.4

10.4

10.7

Total renewal premium collections on insurance products
42.2

41.4

41.7

41.4

166.7

43.5

43.0

 
 
 
 
 
 
 
 
    Total collections on insurance products
$
50.9

$
50.0

$
50.6

$
50.6

$
202.1

$
53.9

$
53.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 22


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Other CNO Business
 
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Annuities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed index (first-year)
$
2.7

$
2.7

$
2.2

$
1.9

$
9.5

$
—

$
0.2

Fixed index (renewal)
0.9

1.4

0.8

0.8

3.9

0.7

0.8

  Subtotal - fixed index annuities
3.6

4.1

3.0

2.7

13.4

0.7

1.0

 
 
 
 
 
 
 
 
Other fixed rate (first-year)
0.4

1.6

0.1

—

2.1

—

—

Other fixed rate (renewal)
0.2

0.2

0.2

0.3

0.9

0.2

0.2

  Subtotal - other fixed rate annuities
0.6

1.8

0.3

0.3

3.0

0.2

0.2

 
 
 
 
 
 
 
 
      Total annuities
4.2

5.9

3.3

3.0

16.4

0.9

1.2

 
 
 
 
 
 
 
 
Health
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term care (all renewal)
7.4

7.0

6.5

6.1

27.0

6.7

6.3

Other health (all renewal)
0.2

0.2

0.2

0.2

0.8

0.2

0.2

 
 
 
 
 
 
 
 
    Total health
7.6

7.2

6.7

6.3

27.8

6.9

6.5

 
 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First-year
0.4

0.9

0.3

0.5

2.1

0.6

0.8

Renewal
46.0

48.0

43.7

39.6

177.3

44.7

40.1

 
 
 
 
 
 
 
 
    Total life insurance
46.4

48.9

44.0

40.1

179.4

45.3

40.9

 
 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
3.5

5.2

2.6

2.4

13.7

0.6

1.0

Total renewal premium collections on insurance products
54.7

56.8

51.4

47.0

209.9

52.5

47.6

 
 
 
 
 
 
 
 
    Total collections on insurance products
$
58.2

$
62.0

$
54.0

$
49.4

$
223.6

$
53.1

$
48.6

 
 
 
 
 
 
 
 

Page 23





CNO Financial Group, Inc.
 
 
 
 
 
 
 
New Annualized Premiums ("NAP") (in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bankers Life
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12
 
 
 
 
 
 
 
 
Medicare supplement
$
18.3

$
18.6

$
19.4

$
31.5

$
87.8

$
19.5

$
20.7

Life
16.6

18.6

18.2

17.0

70.4

20.3

20.9

Long-term care
6.9

7.3

7.3

7.0

28.5

7.9

7.8

Annuity
13.4

15.6

15.9

14.3

59.2

11.1

10.1

   Subtotal Bankers Life
55.2

60.1

60.8

69.8

245.9

58.8

59.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental health
15.7

17.9

18.6

18.9

71.1

17.6

20.3

Medicare supplement
0.5

0.4

0.3

0.3

1.5

0.3

0.2

Life
0.8

0.8

0.9

1.8

4.3

2.0

1.7

Annuity
0.2

0.3

0.2

0.2

0.9

—

0.1

   Subtotal Washington National
17.2

19.4

20.0

21.2

77.8

19.9

22.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Colonial Penn
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Graded Life
13.6

12.8

12.7

12.3

51.4

17.5

15.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total NAP
$
86.0

$
92.3

$
93.5

$
103.3

$
375.1

$
96.2

$
97.4

 
 
 
 
 
 
 
 


Page 24


CNO Financial Group, Inc.
 
 
 
 
 
 
 
Statutory information - consolidated basis (7) (in millions)
1Q11
2Q11
3Q11
4Q11
2011
1Q12
2Q12(*)
 
 
 
 
 
 
 
 
Net gain from operations before interest expense and federal income taxes
$
114.0

$
92.9

$
91.9

$
132.8

$
431.6

$
100.4

$
107.7

Interest expense on surplus debentures held by parent company
12.0

12.2

22.7

12.3

59.2

12.1

12.1

 
 
 
 
 
 
 
 
Net gain from operations before federal income taxes
102.0

80.7

69.2

120.5

372.4

88.3

95.6

Federal income tax expense (benefit)
0.6

2.0

3.7

3.0

9.3

1.7

(0.9
)
 
 
 
 
 
 
 
 
Net gain from operations before net realized capital gains (losses)
101.4

78.7

65.5

117.5

363.1

86.6

96.5

Net realized capital gains (losses)
(15.0
)
2.4

10.5

5.8

3.7

7.8

7.2

 
 
 
 
 
 
 
 
Net income
$
86.4

$
81.1

$
76.0

$
123.3

$
366.8

$
94.4

$
103.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital and surplus
$
1,567.4

$
1,551.5

$
1,553.1

$
1,578.1

$
1,578.1

$
1,601.9

$
1,626.0

Asset valuation reserve (AVR)
97.7

116.5

143.2

168.4

168.4

191.3

206.1

 
 
 
 
 
 
 
 
  Capital, surplus and AVR
1,665.1

1,668.0

1,696.3

1,746.5

1,746.5

1,793.2

1,832.1

 
 
 
 
 
 
 
 
Interest maintenance reserve (IMR)
448.3

475.8

507.1

552.0

552.0

562.2

581.4

 
 
 
 
 
 
 
 
  Total statutory capital, surplus, AVR & IMR
$
2,113.4

$
2,143.8

$
2,203.4

$
2,298.5

$
2,298.5

$
2,355.4

$
2,413.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


(*) Such amounts are preliminary as the statutory basis financial statements of our insurance subsidiaries for 2Q2012 will be
filed with the respective insurance regulators on or before August 15, 2012.

Page 25


Notes

(1) Excludes accumulated other comprehensive income (loss).

(2) Shareholders' equity divided by common shares outstanding.

(3) Assumes conversion of all convertible securities.

(4) 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, corporate interest expense, loss on extinguishment of debt and taxes (“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.

(5) Management believes that an analysis of Net income applicable to common stock before: (i) loss on extinguishment of debt, net of income taxes; (ii) net realized investment gains or losses, net of related amortization and income taxes; and (iii) 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 income 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. The impact of fair value changes in embedded derivative liabilities caused by interest rate fluctuations was insignificant in prior periods. Prior to June 30, 2011, certain of our trading securities were held to offset the income statement volatility caused by the effect of interest rate fluctuations on the value of embedded derivatives related to our fixed index annuity products. During 2Q2011, these securities were sold.

(6) Management believes that an analysis of EBIT, separated between in-force and new business provides increased clarity around the value drivers of our business, particularly since the new business results are significantly impacted by the rate of sales, mix of business and the distribution channel through which new sales are made. 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. 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) Based on statutory accounting practices prescribed or permitted by regulatory authorities for CNO Financial's insurance subsidiaries after appropriate elimination of intercompany accounts among such subsidiaries. Such accounting practices differ from GAAP.

Page 26
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