0001224608-13-000071.txt : 20131028 0001224608-13-000071.hdr.sgml : 20131028 20131028162953 ACCESSION NUMBER: 0001224608-13-000071 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20131028 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20131028 DATE AS OF CHANGE: 20131028 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: 131173412 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-k09302013earnings.htm 8-K Form 8-K 09.30.2013 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): October 28, 2013



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))








Item 2.02.
Results of Operations and Financial Condition.

On October 28, 2013, CNO Financial Group, Inc. (the "Company") issued: (i) a press release announcing its financial results for the quarter ended September 30, 2013, 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 September 30, 2013, 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 October 28, 2013 related to financial results for the quarter ended September 30, 2013.
99.2
Quarterly Financial Supplement - 3Q2013.






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: October 28, 2013
 
 
By:
/s/ John R. Kline
 
 
 
John R. Kline
 
 
 
Senior Vice President and
Chief Accounting Officer
 
 
 
 







3
 EX-99.1 2 exhibit991-09302013earnings.htm EXHIBIT 99.1 Exhibit 99.1 - 09.30.2013 earnings


Exhibit 99.1
For Immediate Release

Contact:
(News Media) Barbara Ciesemier +1.312.396.7461
 
(Investors) Erik Helding +1.317.817.4760

CNO Financial Group reports third quarter 2013 results

Growth in sales and solid earnings;
Ongoing strength in capital ratios


Carmel, Ind., October 28, 2013 - CNO Financial Group, Inc. (NYSE: CNO) today announced third quarter of 2013 net income of $283.0 million, or $1.23 per diluted share, and operating earnings (1) of $77.2 million, or 33 cents per diluted share. Third quarter net income was significantly impacted by various favorable tax items.
"Our solid, positive momentum continues at CNO, with our core businesses producing growth in sales, collected premium and operating earnings per share," CEO Ed Bonach said. "Investments in our business model and focusing on execution continue to result in profitable growth, increased efficiencies and capital generation. These strong business fundamentals, substantial cash flow and effective capital deployment continue to deliver shareholder value."


Third Quarter 2013 Highlights
•
Sales, as defined by total new annualized premium ("NAP") (2): $101.8 million, up 8% from 3Q12
•
Collected premium from our core operating segments (Bankers Life, Washington National and Colonial Penn): $809.6 million up 4% from 3Q12
•
Net income (loss) per diluted share: $1.23 compared to $(.02) in 3Q12
•
Net operating income (1) per diluted share: 33 cents compared to 11 cents in 3Q12
•
Net income was impacted by various favorable tax items totaling $206.7 million in 3Q13 and $143.0 million in 3Q12
•
Unrestricted cash and investments held by our holding company were $292 million at September 30, 2013

Nine-month 2013 Highlights
•
Sales, as defined by total NAP (2): $302.2 million, up 5% from the first nine months of 2012
•
Net income per diluted share of $1.59 compared to 45 cents in the first nine months of 2012
•
Net operating income (1) per diluted share: 83 cents compared to 45 cents in the first nine months of 2012
•
The consolidated statutory risk-based capital ratio increased 25 percentage points to 392% during the first nine months of 2013, reflecting statutory operating earnings of $296 million and dividend payments to the holding company of $202.5 million




-more-





CNO Financial (2)
October 28, 2013


Quarterly Segment Operating Results

 
Three months ended
 
September 30,
 
2013
 
2012
 
(Dollars in millions, except per share data)
EBIT (4):
 
 
 
Bankers Life
$
86.3

 
$
80.6

Washington National
28.1

 
33.9

Colonial Penn
(4.2
)
 
(2.6
)
Other CNO Business
6.1

 
(53.6
)
EBIT from business segments
116.3

 
58.3

Corporate Operations, excluding corporate interest expense
9.4

 
(6.7
)
EBIT
125.7

 
51.6

Corporate interest expense
(11.7
)
 
(16.3
)
Operating earnings before tax
114.0

 
35.3

Tax expense on operating income
36.8

 
9.7

Net operating income (1)
77.2

 
25.6

Net realized investment gains (losses) (net of related amortization and taxes)
(.1
)
 
4.8

Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
2.2

 
(2.0
)
Equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests (net of taxes)
(3.0
)
 
—

Loss on extinguishment of debt (net of taxes)
—

 
(176.4
)
Net income (loss) before valuation allowance for deferred tax assets and other tax items
76.3

 
(148.0
)
Valuation allowance for deferred tax assets and other tax items
206.7

 
143.0

Net income (loss)
$
283.0

 
$
(5.0
)
Per diluted share:
 
 
 
Net operating income
$
.33

 
$
.11

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

 
.02

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

 
(.01
)
Equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests (net of taxes)
(.01
)
 
—

Loss on extinguishment of debt (net of taxes)
—

 
(.76
)
Valuation allowance for deferred tax assets and other tax items
.90

 
.62

Net income (loss)
$
1.23

 
$
(.02
)

-more-




CNO Financial (3)
October 28, 2013

The following table summarizes the financial impact of significant items (as further described in the segment results below) on our 3Q13 net operating income (dollars in millions, except per share amounts):        
 
Three months ended
 
September 30, 2013*
 
Actual results
 
Significant items
 
Excluding significant items
Net Operating Income (1):
 
 
 
 
 
Bankers Life
$
86.3

 
$
(5.7
)
 
$
80.6

Washington National
28.1

 
—

 
28.1

Colonial Penn
(4.2
)
 
—

 
(4.2
)
Other CNO Business
6.1

 
—

 
6.1

EBIT from business segments
116.3

 
(5.7
)
 
110.6

Corporate Operations, excluding corporate interest expense
9.4

 
(9.8
)
 
(.4
)
EBIT (4)
125.7

 
(15.5
)
 
110.2

Corporate interest expense
(11.7
)
 
—

 
(11.7
)
Operating earnings before tax
114.0

 
(15.5
)
 
98.5

Tax expense on operating income
36.8

 
(5.6
)
 
31.2

Net operating income
$
77.2

 
$
(9.9
)
 
$
67.3

 
 
 
 
 
 
Net operating income per diluted share
$
.33

 
$
(.04
)
 
$
.29


* See page 10 for the table of Net Operating Income Excluding Significant Items for the three months ended September 30, 2012.

Segment Results
Bankers Life markets and distributes a variety of insurance products to middle-income Americans at or near retirement through a dedicated field force of career agents. NAP in 3Q13 was $62.5 million, up 9 percent from 3Q12 with higher sales of life and supplemental health products being offset by lower sales of long-term care and Medicare supplement products. Sales of Medicare Advantage policies continued to grow, driving fee income of $2.9 million in 3Q13 compared to $1.8 million in 3Q12. Medicare Advantage policies are sold through our agency force for other providers in exchange for marketing fees. Bankers Life has opened 19 new sales offices in the first nine months of 2013, contributing to a 4 percent growth in average agent count.
Pre-tax operating earnings in 3Q13 compared to 3Q12 were up $5.7 million, or 7 percent. Earnings in 3Q13 reflected favorable reserve developments in the Medicare supplement block and increased earnings from our annuity business reflecting higher account values and low surrenders, partially offset by higher benefit ratios in the long-term care block due to higher persistency.
Pre-tax operating earnings in 3Q13 of $86.3 million included $5.7 million of favorable reserve developments in the Medicare supplement block.
Washington National markets and distributes supplemental health and life insurance to middle-income consumers through a wholly-owned subsidiary and independent insurance agencies. NAP in 3Q13 was $23.9 million, up 12 percent from 3Q12 due to increased sales of supplemental health products stemming from agent recruiting and geographic expansion. Collected premiums, excluding premiums from the closed Medicare supplement block, were up 7 percent in 3Q13 compared to 3Q12, driven by strong sales and persistency.
-more-




CNO Financial (4)
October 28, 2013
Pre-tax operating earnings in 3Q13 compared to 3Q12 were down $5.8 million, or 17 percent. Third quarter results primarily reflect higher benefit ratios in the supplemental health insurance block due to decreased conversion and upgrade activity for certain policies approaching their return of premium maturity date. In addition, the 3Q12 benefit ratio reflected favorable claim experience.
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 3Q13 was $15.4 million, up 2 percent from 3Q12. These sales were in line with our expectations given the amount and timing of our advertising spend this quarter. Collected premiums were up 8 percent in 3Q13 compared to 3Q12, driven by growth in the block.
Pre-tax operating earnings in 3Q13 reflected higher marketing expenses as compared to 3Q12. In-force EBIT was $12.9 million, up 11 percent from 3Q12, reflecting the growth in the block.
Recognizing the accounting standard related to deferred acquisition costs, the amount of our investment in new business during a particular period will have a significant impact on this segment's results. We continue to expect this segment to report an EBIT (loss) of between $(5) million and $(10) million in 2013.
Other CNO Business consists of blocks of various insurance products that are no longer being actively marketed.
Results in 3Q13 reflected favorable mortality in this segment's life block and favorable claim experience in this segment's long-term care block.
Results in 3Q12 reflected: (i) a reduction in earnings of approximately $43 million primarily due to the impact of decreased projected future investment yield assumptions related to interest-sensitive insurance products; (ii) a $21 million charge relating to a tentative agreement regarding the material economic terms of a settlement of cases involving changes implemented in late 2011 to some non-guaranteed elements in certain policies sold by Conseco Life Insurance Company prior to its acquisition by our predecessor; and (iii) favorable mortality experience in this segment's life block.
The run-off nature of the business in this segment will often result in earnings that fluctuate between periods. We continue to expect this segment to report EBIT in the range of $5 million to $20 million for 2013.
Corporate Operations includes our investment advisory subsidiary and corporate expenses.
Results in 3Q13 reflect the impact of higher interest rates on the values of liabilities for agent deferred compensation and former executive retirement annuities and favorable investment results.
Net expenses in 3Q13 were decreased by $9.8 million related to the impact of higher interest rates on the values of liabilities for agent deferred compensation and former executive retirement annuities, compared to an increase in expenses of $10 million in 3Q12 related to the impact of lower interest rates on the values of such liabilities.
Non-Operating Items
Net realized investment losses in 3Q13 were $.1 million (net of related amortization and taxes) including total other-than-temporary impairment losses of $2.9 million recorded in earnings. Net realized investment gains in 3Q12 were $4.8 million (net of related amortization and taxes), including total other-than-temporary impairment losses of $23.1 million primarily related to two private company investments obtained through the commutation of an investment made by our predecessor in a guaranteed investment contract.
During 3Q13 and 3Q12, we recognized an increase (decrease) in earnings of $2.2 million and $(2.0) million, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities related to our fixed index annuities, net of related amortization and income taxes. Such amounts reflect the changes in market interest rates used to determine the derivative's estimated fair value.

-more-




CNO Financial (5)
October 28, 2013

The results for 3Q12 include a $176.4 million loss on extinguishment of debt, net of income taxes, related to the completion of our recapitalization transactions.
Tax Items
Net income reflected various favorable tax items totaling $206.7 million in 3Q13 and $143.0 million in 3Q12.
Favorable tax items in both periods included a reduction to the deferred tax valuation allowance resulting from the impact of our higher levels of income on projected future taxable income used to determine recoverable net operating loss and capital loss carryforwards. Such reduction was $127.8 million in 3Q13 and $143.0 million in 3Q12.
In addition, favorable tax items in 3Q13 reflected a $71.8 million reduction in the deferred tax valuation allowance resulting from the previously announced settlement agreement with the IRS related to the classification of a portion of the cancellation of indebtedness income we recognized as a result of the bankruptcy of our predecessor; a $14.3 million tax benefit resulting from a change in the deductibility of a portion of the repurchase premium related to the repurchase of our 7.0% convertible debentures; partially offset by $7.2 million of unfavorable impacts from anticipated IRS audit adjustments related to their examination of our 2004 and 2008 through 2010 tax returns.
Statutory (based on non-GAAP measures) and GAAP Capital Information
Our consolidated statutory risk-based capital ratio was 392% at September 30, 2013, reflecting 3Q13 consolidated statutory operating earnings of $81 million and the payment of dividends to the holding company of $64 million during the quarter and $202.5 million year-to-date. In addition, the risk-based capital ratio also benefited from a decline in required capital supporting the commercial mortgage loan portfolio.
During the third quarter of 2013, we repurchased $37.3 million of securities under our repurchase program. We repurchased 2.6 million common shares at an average cost of $14.43 per share. Total securities repurchased under the program year-to-date total $221.6 million. CNO anticipates repurchasing securities in the range of $250 million to $300 million during 2013.  As of September 30, 2013, we had 222.0 million shares outstanding and had authority to repurchase up to an additional $128.4 million of our common stock.
During 3Q2013, we also paid common stock dividends of $6.7 million.
Book value per diluted share, excluding accumulated other comprehensive income (loss) (5), increased to $18.24 from $16.21 at December 31, 2012.
Our debt-to-total capital ratio, excluding accumulated other comprehensive income (3) at September 30, 2013, was 17.3 percent, a decrease of 340 basis points from December 31, 2012. Unrestricted cash and investments held by our holding company were $292 million at September 30, 2013, compared to $294 million at December 31, 2012.
Conference Call
The Company will host a conference call to discuss results on October 29, 2013 at 11:00 a.m. Eastern 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 Financial Group
CNO Financial Group, Inc. (NYSE: CNO) is a holding company.  Our insurance subsidiaries - principally Bankers Life and Casualty Company, Colonial Penn Life Insurance Company and Washington National Insurance Company - primarily serve middle-income pre-retiree and retired Americans 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)
October 28, 2013
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(unaudited)
 
September 30, 2013
 
December 31, 2012
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturities, available for sale, at fair value (amortized cost:  September 30, 2013 - $22,097.2; December 31, 2012 - $21,626.8)
$
23,497.7

 
$
24,614.1

Equity securities at fair value (cost: September 30, 2013 - $252.7; December 31, 2012 - $167.1)
262.0

 
171.4

Mortgage loans
1,635.1

 
1,573.2

Policy loans
267.5

 
272.0

Trading securities
246.6

 
266.2

Investments held by variable interest entities
1,080.7

 
814.3

Other invested assets
330.6

 
248.1

Total investments
27,320.2

 
27,959.3

Cash and cash equivalents - unrestricted
376.7

 
582.5

Cash and cash equivalents held by variable interest entities
85.1

 
54.2

Accrued investment income
306.2

 
286.2

Present value of future profits
578.9

 
626.0

Deferred acquisition costs
846.0

 
629.7

Reinsurance receivables
2,822.4

 
2,927.7

Income tax assets, net
1,135.7

 
716.9

Assets held in separate accounts
13.3

 
14.9

Other assets
432.6

 
334.0

Total assets
$
33,917.1

 
$
34,131.4

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities:
 

 
 

Liabilities for insurance products:
 

 
 

Interest-sensitive products
$
12,781.1

 
$
12,893.2

Traditional products
10,873.7

 
11,196.3

Claims payable and other policyholder funds
995.8

 
985.1

Liabilities related to separate accounts
13.3

 
14.9

Other liabilities
712.7

 
570.6

Investment borrowings
1,850.2

 
1,650.8

Borrowings related to variable interest entities
1,035.1

 
767.0

Notes payable – direct corporate obligations
868.6

 
1,004.2

Total liabilities
29,130.5

 
29,082.1

Commitments and Contingencies
 
 
 
Shareholders' equity:
 

 
 

Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: September 30, 2013 - 222,007,214; December 31, 2012 – 221,502,371)
2.2

 
2.2

Additional paid-in capital
4,121.3

 
4,174.7

Accumulated other comprehensive income
634.0

 
1,197.4

Retained earnings (accumulated deficit)
29.1

 
(325.0
)
Total shareholders' equity
4,786.6

 
5,049.3

Total liabilities and shareholders' equity
$
33,917.1

 
$
34,131.4

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CNO Financial (7)
October 28, 2013

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Insurance policy income
$
686.1

 
$
690.2

 
$
2,068.6

 
$
2,071.3

Net investment income:
 
 
 
 
 
 
 
General account assets
350.7

 
349.4

 
1,051.4

 
1,045.7

Policyholder and reinsurer accounts and other special-purpose portfolios
49.0

 
39.1

 
158.5

 
87.4

Realized investment gains (losses):
 
 
 
 
 
 
 
Net realized investment gains, excluding impairment losses
2.8

 
32.2

 
21.9

 
98.4

Other-than-temporary impairment losses:
 
 
 
 
 
 
 
Total other-than-temporary impairment losses
(2.9
)
 
(23.1
)
 
(3.5
)
 
(34.5
)
Portion of other-than-temporary impairment losses recognized in accumulated other comprehensive income
—

 
—

 
—

 
—

Net impairment losses recognized
(2.9
)
 
(23.1
)
 
(3.5
)
 
(34.5
)
Total realized gains (losses)
(.1
)
 
9.1

 
18.4

 
63.9

Fee revenue and other income
8.1

 
5.2

 
21.0

 
13.6

Total revenues
1,093.8

 
1,093.0

 
3,317.9

 
3,281.9

Benefits and expenses:
 
 
 
 
 
 
 
Insurance policy benefits
702.2

 
745.7

 
2,129.5

 
2,124.4

Interest expense
25.8

 
29.2

 
80.0

 
86.7

Amortization
61.4

 
60.9

 
219.9

 
215.8

Loss on extinguishment of debt
—

 
198.5

 
65.4

 
199.2

Other operating costs and expenses
190.0

 
217.5

 
559.4

 
617.8

Total benefits and expenses
979.4

 
1,251.8

 
3,054.2

 
3,243.9

Income (loss) before income taxes
114.4

 
(158.8
)
 
263.7

 
38.0

Income tax expense (benefit):
 
 
 
 
 
 
 
Tax expense (benefit) on period income
38.1

 
(10.8
)
 
113.9

 
61.2

Valuation allowance for deferred tax assets and other tax items
(206.7
)
 
(143.0
)
 
(222.2
)
 
(143.0
)
Net income (loss)
$
283.0

 
$
(5.0
)
 
$
372.0

 
$
119.8

Earnings per common share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Weighted average shares outstanding
222,876,000

 
231,481,000

 
221,819,000

 
236,555,000

Net income (loss)
$
1.27

 
$
(.02
)
 
$
1.68

 
$
.51

Diluted:
 
 
 
 
 
 
 
Weighted average shares outstanding
229,347,000

 
231,481,000

 
234,569,000

 
292,983,000

Net income (loss)
$
1.23

 
$
(.02
)
 
$
1.59

 
$
.45


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CNO Financial (8)
October 28, 2013

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

 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
EBIT (4) from In-force and New Business
 
 
 
 
 
 
 
Bankers Life segment:
 
 
 
 
 
 
 
In-Force Business
$
118.9

 
$
110.1

 
$
324.6

 
$
309.8

New Business
(32.6
)
 
(29.5
)
 
(97.1
)
 
(82.6
)
Total
$
86.3

 
$
80.6

 
$
227.5

 
$
227.2

 
 
 
 
 
 
 
 
Washington National segment:
 
 
 
 
 
 
 
In-Force Business
$
27.2

 
$
36.3

 
$
87.9

 
$
97.9

New Business
.9

 
(2.4
)
 
1.4

 
(5.4
)
Total
$
28.1

 
$
33.9

 
$
89.3

 
$
92.5

 
 
 
 
 
 
 
 
Colonial Penn segment:
 
 
 
 
 
 
 
In-Force Business
$
12.9

 
$
11.6

 
$
34.1

 
$
29.5

New Business
(17.1
)
 
(14.2
)
 
(42.5
)
 
(41.3
)
Total
$
(4.2
)
 
$
(2.6
)
 
$
(8.4
)
 
$
(11.8
)
 
 
 
 
 
 
 
 
Other CNO Business segment:
 
 
 
 
 
 
 
In-Force Business
$
6.1

 
$
(53.6
)
 
$
12.3

 
$
(54.0
)
New Business
—

 
—

 
—

 
—

Total
$
6.1

 
$
(53.6
)
 
$
12.3

 
$
(54.0
)
 
 
 
 
 
 
 
 
Total Business segments:
 
 
 
 
 
 
 
In-Force Business
$
165.1

 
$
104.4

 
$
458.9

 
$
383.2

New Business
(48.8
)
 
(46.1
)
 
(138.2
)
 
(129.3
)
Total EBIT from business segments
$
116.3

 
$
58.3

 
$
320.7

 
$
253.9










-more-




CNO Financial (9)
October 28, 2013

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

 
Nine months ended
 
September 30,
 
2013
 
2012
EBIT (4):
 
 
 
Bankers Life
$
227.5

 
$
227.2

Washington National
89.3

 
92.5

Colonial Penn
(8.4
)
 
(11.8
)
Other CNO Business
12.3

 
(54.0
)
EBIT from business segments
320.7

 
253.9

Corporate Operations, excluding corporate interest expense
14.8

 
(17.6
)
EBIT
335.5

 
236.3

Corporate interest expense
(39.9
)
 
(50.4
)
Operating earnings before tax
295.6

 
185.9

Tax expense on operating income
101.0

 
65.5

Net operating income (1)
194.6

 
120.4

Net realized investment gains (net of related amortization and taxes)
11.1

 
37.6

Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
15.6

 
(4.4
)
Equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests (net of taxes)
(7.5
)
 
—

Loss on extinguishment of debt (net of taxes)
(64.0
)
 
(176.8
)
Net income (loss) before valuation allowance for deferred tax assets and other tax items
149.8

 
(23.2
)
Valuation allowance for deferred tax assets and other tax items
222.2

 
143.0

Net income
$
372.0

 
$
119.8

Per diluted share:
 
 
 
Net operating income
$
.83

 
$
.45

Net realized investment gains (net of related amortization and taxes)
.05

 
.13

Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
.06

 
(.02
)
Equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests (net of taxes)
(.03
)
 
—

Loss on extinguishment of debt (net of taxes)
(.27
)
 
(.60
)
Valuation allowance for deferred tax assets and other tax items
.95

 
.49

Net income
$
1.59

 
$
.45

-more-





CNO Financial (10)
October 28, 2013

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NET OPERATING INCOME EXCLUDING SIGNIFICANT ITEMS*
(Dollars in millions, except per share data)
 
Three months ended
 
 
September 30, 2012*
 
 
Actual results
 
Significant items
 
Excluding significant items
 
Net Operating Income (1):
 
 
 
 
 
 
Bankers Life
$
80.6

 
$
—

 
$
80.6

 
Washington National
33.9

 
—

 
33.9

 
Colonial Penn
(2.6
)
 
—

 
(2.6
)
 
Other CNO Business
(53.6
)
 
64.0

 
10.4

 
EBIT from business segments
58.3

 
64.0

 
122.3

 
Corporate Operations, excluding corporate interest expense
(6.7
)
 
10.0

 
3.3

 
EBIT (4)
51.6

 
74.0

 
125.6

 
Corporate interest expense
(16.3
)
 
—

 
(16.3
)
 
Operating earnings before tax
35.3

 
74.0

 
109.3

 
Tax expense on operating income
9.7

 
29.7

 
39.4

 
Net operating income
$
25.6

 
$
44.3

 
$
69.9

 
 
 
 
 
 
 
 
Net operating income per diluted share
$
.11

 
$
.15

 
$
.26

**


* This table summarizes the financial impact of significant items (as described in the segment results section of this press release) on our 3Q12 net operating income.

** Net operating income per diluted share excluding significant items is calculated based on the weighted average diluted shares outstanding, including the dilutive effect of all common stock equivalents. Such common stock equivalents are dilutive in this calculation.




















-more-





CNO Financial (11)
October 28, 2013

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
 
Three months ended
 
September 30,
 
2013
 
2012
Bankers Life segment:
 
 
 
Medicare supplement
$
182.0

 
$
177.7

Long-term care
131.1

 
136.1

PDP and other health
—

 
12.9

Supplemental health
2.8

 
.6

Life
94.2

 
81.3

Annuity
190.2

 
171.7

Total
600.3

 
580.3

Washington National segment:
 
 
 
Supplemental health
122.7

 
114.5

Medicare supplement and other health
24.7

 
29.1

Life
3.3

 
3.0

Total
150.7

 
146.6

Colonial Penn segment:
 
 
 
Life
57.6

 
53.0

Supplemental health
1.0

 
1.2

Total
58.6

 
54.2

Other CNO Business segment:
 
 
 
Life
37.9

 
40.3

Annuity
1.4

 
.9

Other health
5.8

 
6.1

Total
45.1

 
47.3

Total collected premiums
$
854.7

 
$
828.4


NEW ANNUALIZED PREMIUMS (2)
(Dollars in millions)
 
Three months ended
 
September 30,
 
2013
 
2012
Bankers Life segment:
 
 
 
Medicare supplement
$
18.7

 
$
19.3

Long-term care
6.2

 
7.2

Supplemental health
2.6

 
1.8

Life
23.5

 
18.9

Annuity
11.5

 
10.4

Total
62.5

 
57.6

Washington National segment:
 
 
 
Supplemental health
22.5

 
19.7

Medicare supplement
—

 
.2

Life
1.3

 
1.5

Annuity
.1

 
—

Total
23.9

 
21.4

Colonial Penn segment:
 
 
 
Life
15.4

 
15.1

Total
15.4

 
15.1

Total new annualized premiums
$
101.8

 
$
94.1

-more-




CNO Financial (12)
October 28, 2013

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
BENEFIT RATIOS ON MAJOR HEALTH LINES OF BUSINESS
 
Three months ended
 
September 30,
 
2013
 
2012
Bankers Life segment:
 
 
 
Medicare Supplement:
 
 
 
Earned premium
$191 million

 
$185 million

Benefit ratio (7)
67.0
%
 
67.8
%
PDP:
 
 
 
Earned premium
N/A

 
$11 million

Benefit ratio (7)
N/A

 
74.8
%
Long-Term Care:
 
 
 
Earned premium
$133 million

 
$139 million

Benefit ratio (7)
128.4
%
 
121.4
%
Interest-adjusted benefit ratio (a non-GAAP measure) (8)
79.4
%
 
74.7
%
Washington National segment:
 
 
 
Medicare Supplement:
 
 
 
Earned premium
$25 million

 
$29 million

Benefit ratio (7)
64.3
%
 
63.8
%
Supplemental health:
 
 
 
Earned premium
$121 million

 
$114 million

Benefit ratio (7)
80.8
%
 
74.2
%
Interest-adjusted benefit ratio (a non-GAAP measure) (8)
54.3
%
 
47.5
%














-more-





CNO Financial (13)
October 28, 2013
NOTES
(1)
Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses, net of related amortization and taxes; (ii) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and taxes; (iii) equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests, net of taxes; (iv) loss on extinguishment of debt, net of taxes; and (v) changes in the valuation allowance for deferred tax assets ("Net operating income," a non-GAAP financial measure) is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry. Management uses this measure to evaluate performance because the items excluded from net operating income can be affected by events that are unrelated to the company's underlying fundamentals. Net realized investment gains or losses include: (i) gains or losses on the sales of investments; (ii) other-than-temporary impairments recognized through net income; and (iii) changes in fair value of certain fixed maturity investments with embedded derivatives. A reconciliation of Net operating income to Net income applicable to common stock is provided in the tables on pages 2 and 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 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 15.4% and 16.6% at September 30, 2013 and December 31, 2012, 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, equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests, 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)
Book value per diluted share reflects the potential dilution that could occur if outstanding stock options and warrants were exercised, restricted stock and performance units were vested and convertible securities were converted. The dilution from options, warrants, restricted shares and performance units is calculated using the treasury stock method. Under this method, we assume the proceeds from the exercise of the options and warrants (or the unrecognized compensation expense with respect to restricted stock and performance units) will be used to purchase shares of our common stock at the closing market price on the last day of the period. The dilution from convertible securities is calculated assuming the securities were converted on the last day of the period. In addition, the calculation of this non-GAAP measure differs from the corresponding GAAP measure because accumulated other comprehensive income (loss) has been excluded from the value of capital used to determine this measure. Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in the unrealized appreciation (depreciation) of our investments. The corresponding GAAP measures for book value per common share were $21.56 and $22.80 at September 30, 2013 and December 31, 2012, 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 imputed interest income on the accumulated assets backing the insurance liabilities by insurance policy income. Interest income is an important factor in measuring the performance of longer duration health products. The net cash flows generally cause an accumulation of amounts in the early years of a policy (accounted for as reserve

-more-




CNO Financial (14)
October 28, 2013

increases), which will be paid out as benefits in later policy years (accounted for as reserve decreases). Accordingly, as the policies age, the benefit ratio will typically increase, but the increase in the change in reserve will be partially offset
by the imputed interest income earned on the accumulated assets. The interest-adjusted benefit ratio reflects the effects of such interest income offset. Since interest income is an important factor in measuring the performance of these products, management believes a benefit ratio, which includes the effect of interest income, is useful in analyzing product performance. Additional information concerning this non-GAAP measure is included in our periodic filings with the Securities and Exchange Commission that are available in the "Investors - SEC Filings" section of CNO Financial's website, www.CNOinc.com.


Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in this press release relative to markets for 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 additional 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 exhibit992-09302013investo.htm EXHIBIT 99.2 Exhibit 99.2 - 09.30.2013 investor supplement


Exhibit 99.2






 
 
 
 
 
 
 
 
 
 
 
 
Quarterly Financial Supplement -
 
 
 
 
 
3Q2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
October 28, 2013
 
 
 
 
 
 
 
 
 
 
 




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-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
  Fixed maturities, available for sale, at fair value
 
 
$
23,777.7

$
24,276.6

$
24,742.3

$
24,614.1

$
24,894.5

$
23,623.0

$
23,497.7

  Equity securities at fair value
 
 
176.5

187.3

180.0

171.4

216.9

241.3

262.0

  Mortgage loans
 
 
1,546.7

1,550.9

1,597.2

1,573.2

1,639.8

1,692.2

1,635.1

  Policy loans
 
 
277.8

274.7

274.1

272.0

271.5

269.1

267.5

  Trading securities
 
 
122.3

114.8

199.4

266.2

229.8

241.0

246.6

  Investments held by variable interest entities
 
 
564.7

789.3

829.4

814.3

1,009.9

1,087.9

1,080.7

  Other invested assets
 
 
270.9

257.1

265.0

248.1

309.7

312.6

330.6

  Total investments
 
 
26,736.6

27,450.7

28,087.4

27,959.3

28,572.1

27,467.1

27,320.2

Cash and cash equivalents - unrestricted
 
 
173.5

190.2

415.3

582.5

251.6

280.0

376.7

Cash and cash equivalents held by variable interest entities
 
 
65.8

88.6

48.2

54.2

462.2

210.7

85.1

Accrued investment income
 
 
313.6

296.4

317.8

286.2

315.8

294.8

306.2

Present value of future profits
 
 
675.4

658.1

642.4

626.0

606.6

591.6

578.9

Deferred acquisition costs
 
 
790.4

653.5

623.4

629.7

654.4

762.1

846.0

Reinsurance receivables
 
 
3,052.7

3,013.8

2,967.7

2,927.7

2,879.5

2,838.0

2,822.4

Income tax assets, net
 
 
819.9

679.7

699.5

716.9

708.5

931.2

1,135.7

Assets held in separate accounts
 
 
16.0

15.6

15.7

14.9

15.5

15.0

13.3

Other assets
 
 
402.3

395.8

338.6

334.0

433.0

385.1

432.6

Total assets
 
 
$
33,046.2

$
33,442.4

$
34,156.0

$
34,131.4

$
34,899.2

$
33,775.6

$
33,917.1

Liabilities
 
 
 
 
 
 
 
 
 
Liabilities for insurance products:
 
 
 
 
 
 
 
 
 
  Interest-sensitive products
 
 
$
13,103.4

$
12,956.3

$
12,930.3

$
12,893.2

$
12,867.1

$
12,784.2

$
12,781.1

  Traditional products
 
 
10,517.9

10,666.7

11,004.3

11,196.3

11,130.9

10,834.4

10,873.7

  Claims payable and other policyholder funds
 
 
1,000.8

991.9

977.6

985.1

996.3

1,006.4

995.8

  Liabilities related to separate accounts
 
 
16.0

15.6

15.7

14.9

15.5

15.0

13.3

Other liabilities
 
 
721.0

686.0

709.0

570.6

903.0

626.8

712.7

Investment borrowings
 
 
1,684.9

1,687.9

1,650.9

1,650.8

1,880.2

1,878.0

1,850.2

Borrowings related to variable interest entities
 
 
519.9

766.7

766.9

767.0

1,143.4

1,143.7

1,035.1

Notes payable - direct corporate obligations
 
 
799.3

778.2

1,035.1

1,004.2

934.2

905.7

868.6

Total liabilities
 
 
28,363.2

28,549.3

29,089.8

29,082.1

29,870.6

29,194.2

29,130.5

Shareholders' equity
 
 
 
 
 
 
 
 
 
Common stock
 
 
2.4

2.3

2.3

2.2

2.2

2.2

2.2

Additional paid-in capital
 
 
4,345.6

4,312.0

4,251.2

4,174.7

4,173.2

4,128.2

4,121.3

Retained earnings (accumulated deficit)
 
 
(473.0
)
(412.0
)
(421.7
)
(325.0
)
(317.5
)
(247.1
)
29.1

Total shareholders' equity before accumulated other comprehensive income
 
 
3,875.0

3,902.3

3,831.8

3,851.9

3,857.9

3,883.3

4,152.6

Accumulated other comprehensive income
 
 
808.0

990.8

1,234.4

1,197.4

1,170.7

698.1

634.0

Total shareholders' equity
 
 
4,683.0

4,893.1

5,066.2

5,049.3

5,028.6

4,581.4

4,786.6

Total liabilities and shareholders' equity
 
 
$
33,046.2

$
33,442.4

$
34,156.0

$
34,131.4

$
34,899.2

$
33,775.6

$
33,917.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
 
Book value per share at period-end (1) (2)
 
 
$
16.20

$
16.67

$
16.70

$
17.39

$
17.26

$
17.70

$
18.70

 
 
 
 
 
 
 
 
 
 
Book value per diluted share (1) (3)
 
 
$
14.05

$
14.41

$
15.63

$
16.21

$
16.57

$
17.01

$
18.24

 
 
 
 
 
 
 
 
 
 

Page 3


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Consolidated statement of operations (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
686.3

$
694.8

$
690.2

$
684.1

$
2,755.4

$
691.2

$
691.3

$
686.1

Net investment income (loss):
 
 
 
 
 
 
 
 
   General account assets
345.2

351.1

349.4

352.8

1,398.5

351.9

348.8

350.7

Policyholder and reinsurer accounts and other special-purpose portfolios
65.6

(17.3
)
39.1

0.5

87.9

77.7

31.8

49.0

Realized investment gains (losses):
 
 
 
 
 
 
 
 
Net realized investment gains, excluding impairment losses
30.8

35.4

32.2

20.5

118.9

15.3

3.8

2.8

   Other-than-temporary impairment losses:
 
 
 
 
 
 
 
 
      Total other-than-temporary impairment losses
(7.9
)
(3.5
)
(23.1
)
(3.3
)
(37.8
)
—

(0.6
)
(2.9
)
Portion of other-than-temporary impairment losses recognized in accumulated other comprehensive income
—

—

—

—

—

—

—

—

   Net impairment losses recognized
(7.9
)
(3.5
)
(23.1
)
(3.3
)
(37.8
)
—

(0.6
)
(2.9
)
Total realized gains (losses)
22.9

31.9

9.1

17.2

81.1

15.3

3.2

(0.1
)
Fee revenue and other income
3.9

4.5

5.2

6.2

19.8

6.5

6.4

8.1

Total revenues
1,123.9

1,065.0

1,093.0

1,060.8

4,342.7

1,142.6

1,081.5

1,093.8

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
689.0

689.7

745.7

639.5

2,763.9

754.1

673.2

702.2

Interest expense
28.8

28.7

29.2

27.9

114.6

27.3

26.9

25.8

Amortization
86.6

68.3

60.9

73.2

289.0

79.3

79.2

61.4

Loss on extinguishment of debt
0.2

0.5

198.5

1.0

200.2

57.7

7.7

—

Other operating costs and expenses
227.0

173.3

217.5

201.5

819.3

189.6

179.8

190.0

Total benefits and expenses
1,031.6

960.5

1,251.8

943.1

4,187.0

1,108.0

966.8

979.4

 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
92.3

104.5

(158.8
)
117.7

155.7

34.6

114.7

114.4

Income tax expense (benefit) on period income
33.2

38.8

(10.8
)
45.0

106.2

33.2

42.6

38.1

Valuation allowance for deferred tax assets and other tax items
—

—

(143.0
)
(28.5
)
(171.5
)
(10.5
)
(5.0
)
(206.7
)
Net income (loss)
$
59.1

$
65.7

$
(5.0
)
$
101.2

$
221.0

$
11.9

$
77.1

$
283.0

 
 
 
 
 
 
 
 
 

Page 4





CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Operating results ($ in millions, except per share amounts)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
EBIT (4):
 
 
 
 
 
 
 
 
   Bankers Life
$
70.5

$
76.1

$
80.6

$
73.7

$
300.9

$
62.1

$
79.1

$
86.3

   Washington National
24.7

33.9

33.9

34.6

127.1

29.4

31.8

28.1

   Colonial Penn
(9.8
)
0.6

(2.6
)
3.2

(8.6
)
(5.4
)
1.2

(4.2
)
   Other CNO Business
(2.3
)
1.9

(53.6
)
5.2

(48.8
)
3.6

2.6

6.1

EBIT from business segments
83.1

112.5

58.3

116.7

370.6

89.7

114.7

116.3

Corporate operations, excluding corporate interest expense
(1.8
)
(9.1
)
(6.7
)
(2.7
)
(20.3
)
3.0

2.4

9.4

EBIT
81.3

103.4

51.6

114.0

350.3

92.7

117.1

125.7

Corporate interest expense
(17.5
)
(16.6
)
(16.3
)
(15.8
)
(66.2
)
(15.1
)
(13.1
)
(11.7
)
Income before net realized investment gains, fair value changes in embedded derivative liabilities, equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests, loss on extinguishment of debt and taxes
63.8

86.8

35.3

98.2

284.1

77.6

104.0

114.0

Tax expense on operating income
23.2

32.6

9.7

38.2

103.7

27.9

36.3

36.8

Net operating income (5)
40.6

54.2

25.6

60.0

180.4

49.7

67.7

77.2

Net realized investment gains (net of related amortization and taxes)
14.1

18.7

4.8

10.8

48.4

9.4

1.8

(0.1
)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
4.5

(6.9
)
(2.0
)
2.6

(1.8
)
1.3

12.1

2.2

Equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests (net of taxes)
—

—

—

—

—

(1.8
)
(2.7
)
(3.0
)
Loss on extinguishment of debt (net of taxes)
(0.1
)
(0.3
)
(176.4
)
(0.7
)
(177.5
)
(57.2
)
(6.8
)
—

Net income (loss) before valuation allowance for deferred tax assets and other tax items
59.1

65.7

(148.0
)
72.7

49.5

1.4

72.1

76.3

Valuation allowance for deferred tax assets and other tax items
—

—

143.0

28.5

171.5

10.5

5.0

206.7

Net income (loss)
$
59.1

$
65.7

$
(5.0
)
$
101.2

$
221.0

$
11.9

$
77.1

$
283.0

 
 
 
 
 
 
 
 
 
Per diluted share:
 
 
 
 
 
 
 
 
Net operating income
$
.15

$
.20

$
.11

$
.25

$
.69

$
.21

$
.30

$
.33

Net realized investment gains (net of related amortization and taxes)
.05

.06

.02

.04

.17

.04

.01

—

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

(.02
)
(.01
)
.01

(.01
)
.01

.05

.01

Equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests (net of taxes)
—

—

—

—

—

(.01
)
(.01
)
(.01
)
Loss on extinguishment of debt (net of taxes)
—

—

(.76
)
—

(.63
)
(.24
)
(.03
)
—

Valuation allowance for deferred tax assets and other tax items
—

—

.62

.11

.61

.04

.02

.90

Net income (loss)
$
.21

$
.24

$
(.02
)
$
.41

$
.83

$
.05

$
.34

$
1.23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 5



CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Computation of weighted average shares outstanding
1Q12
2Q12
3Q12 (a)
4Q12
2012
1Q13
2Q13
3Q13
(000s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
Shares outstanding, beginning of period
241,304.5

239,219.4

234,026.4

229,506.7

241,304.5

221,502.4

223,502.1

219,378.7

Weighted average shares issued during the period:
 
 
 
 
 
 
 
 
Shares repurchased
(470.7
)
(2,078.2
)
(2,689.9
)
(4,571.9
)
(8,307.8
)
—

(3,161.2
)
(809.7
)
Conversion of 7.0% convertible debentures
—

—

—

—

—

—

—

4,103.3

Stock options exercised and vested restricted and performance stock
83.5

148.2

144.0

154.2

804.2

678.8

157.6

204.9

Shares withheld for the payment of taxes on the vesting of restricted stock
(22.2
)
(0.5
)
—

(14.8
)
(116.2
)
(100.0
)
(0.1
)
(1.2
)
Weighted average basic shares outstanding during the period
240,895.1

237,288.9

231,480.5

225,074.2

233,684.7

222,081.2

220,498.4

222,876.0

Basic shares outstanding, end of period
239,219.4

234,026.4

229,506.7

221,502.4

221,502.4

223,502.1

219,378.7

222,007.2

Diluted
 
 
 
 
 
 
 
 
Weighted average basic shares outstanding
240,895.1

237,288.9

231,480.5

225,074.2

233,684.7

222,081.2

220,498.4

222,876.0

Common stock equivalent shares related to:
 
 
 
 
 
 
 
 
7.0% convertible debentures
53,366.9

53,377.5

—

17,038.9

44,037.4

16,590.4

5,692.2

838.7

Stock options, restricted stock and performance units
2,582.2

2,366.7

—

3,132.5

2,762.4

2,828.3

2,410.8

2,858.6

Warrants
498.6

441.5

—

1,515.1

942.9

1,967.2

2,291.4

2,773.8

Weighted average diluted shares outstanding during the period
297,342.8

293,474.6

231,480.5

246,760.7

281,427.4

243,467.1

230,892.8

229,347.1

Diluted shares outstanding, end of period
295,667.1

290,212.1

250,819.6

243,188.8

243,188.8

234,865.1

229,928.4

227,693.4

 
 
 
 
 
 
 
 
 


(a) Equivalent common shares of 56,651.1 were not included in the diluted weighted average shares outstanding, due to the net loss recognized in 3Q12.

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
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
597.0

$
601.7

$
594.4

$
584.0

$
2,377.1

$
592.2

$
594.6

$
593.4

Net investment income (loss)
375.9

322.3

357.4

335.7

1,391.3

403.6

362.7

370.2

Fee revenue and other income
1.9

2.4

3.3

3.4

11.0

2.6

2.9

4.0

Total revenues
974.8

926.4

955.1

923.1

3,779.4

998.4

960.2

967.6

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
635.3

611.7

671.3

580.5

2,498.8

686.3

638.3

642.8

Interest expense
7.2

7.2

7.0

6.6

28.0

6.7

7.0

7.1

Amortization
73.1

64.6

54.1

62.7

254.5

70.8

60.3

52.3

Other operating costs and expenses
130.3

93.0

118.3

112.9

454.5

96.4

99.0

100.3

Total benefits and expenses
845.9

776.5

850.7

762.7

3,235.8

860.2

804.6

802.5

EBIT from In-Force Business
$
128.9

$
149.9

$
104.4

$
160.4

$
543.6

$
138.2

$
155.6

$
165.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
89.3

$
93.1

$
95.8

$
100.1

$
378.3

$
99.0

$
96.7

$
92.7

Net investment income (loss)
11.7

4.3

11.7

5.0

32.7

9.7

5.7

9.6

Fee revenue and other income
1.4

1.4

1.2

2.0

6.0

1.5

1.5

2.3

Total revenues
102.4

98.8

108.7

107.1

417.0

110.2

103.9

104.6

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
65.3

60.3

69.8

65.3

260.7

70.9

63.9

64.3

Interest expense
—

—

—

—

—

—

—

—

Amortization
7.7

7.7

6.7

7.5

29.6

6.7

8.0

7.5

Other operating costs and expenses
75.2

68.2

78.3

78.0

299.7

81.1

72.9

81.6

Total benefits and expenses
148.2

136.2

154.8

150.8

590.0

158.7

144.8

153.4

EBIT from New Business
$
(45.8
)
$
(37.4
)
$
(46.1
)
$
(43.7
)
$
(173.0
)
$
(48.5
)
$
(40.9
)
$
(48.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
686.3

$
694.8

$
690.2

$
684.1

$
2,755.4

$
691.2

$
691.3

$
686.1

Net investment income (loss)
387.6

326.6

369.1

340.7

1,424.0

413.3

368.4

379.8

Fee revenue and other income
3.3

3.8

4.5

5.4

17.0

4.1

4.4

6.3

Total revenues
1,077.2

1,025.2

1,063.8

1,030.2

4,196.4

1,108.6

1,064.1

1,072.2

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
700.6

672.0

741.1

645.8

2,759.5

757.2

702.2

707.1

Interest expense
7.2

7.2

7.0

6.6

28.0

6.7

7.0

7.1

Amortization
80.8

72.3

60.8

70.2

284.1

77.5

68.3

59.8

Other operating costs and expenses
205.5

161.2

196.6

190.9

754.2

177.5

171.9

181.9

Total benefits and expenses
994.1

912.7

1,005.5

913.5

3,825.8

1,018.9

949.4

955.9

EBIT from In-Force and New Business
$
83.1

$
112.5

$
58.3

$
116.7

$
370.6

$
89.7

$
114.7

$
116.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 7




CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Bankers Life
 
 
 
 
 
 
 
 
Analysis of income before taxes (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Insurance policy income
$
406.5

$
419.0

$
416.1

$
415.8

$
1,657.4

$
418.0

$
419.1

$
407.4

Net investment income (loss):
 
 
 
 
 
 
 
 
   General account invested assets
200.3

204.9

205.4

207.0

817.6

212.8

211.0

212.4

   Fixed index products
34.6

(19.3
)
16.2

(10.2
)
21.3

48.9

15.6

23.0

Net realized investment gains (losses)
10.6

17.9

14.1

10.4

53.0

8.6

3.3

(1.6
)
Fee revenue and other income
2.9

3.3

4.0

5.0

15.2

3.7

4.0

5.8

   Total revenues
654.9

625.8

655.8

628.0

2,564.5

692.0

653.0

647.0

 
 
 
 
 
 
 
 
 
Insurance policy benefits
335.2

366.3

362.4

354.0

1,417.9

375.2

368.0

353.3

Insurance policy benefits - fair value changes in embedded derivative liabilities
(11.0
)
16.7

4.6

(5.8
)
4.5

(3.2
)
(27.3
)
(5.0
)
Amounts added to policyholder account balances:
 
 
 
 
 
 
 
 
Annuity products and interest-sensitive life products other than fixed index products
38.5

36.6

36.9

35.9

147.9

34.1

35.2

34.0

Fixed index products
47.2

(6.2
)
35.3

0.8

77.1

61.2

30.9

40.0

Amortization related to operations
56.9

50.5

35.6

44.6

187.6

54.5

45.7

39.7

Amortization related to net realized investment gains
0.9

1.7

1.4

0.3

4.3

0.7

0.4

—

Amortization related to fair value changes in embedded derivative liabilities
4.2

(6.3
)
(1.6
)
2.0

(1.7
)
1.1

9.1

1.6

Interest expense on investment borrowings
1.4

1.4

1.3

1.2

5.3

1.4

1.7

1.8

Other operating costs and expenses
94.6

83.2

89.6

107.4

374.8

94.9

89.1

93.5

   Total benefits and expenses
567.9

543.9

565.5

540.4

2,217.7

619.9

552.8

558.9

   Income before income taxes
$
87.0

$
81.9

$
90.3

$
87.6

$
346.8

$
72.1

$
100.2

$
88.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health underwriting margins (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Medicare supplement:
 
 
 
 
 
 
 
 
   Earned premium
$
182.7

$
184.1

$
185.1

$
185.5

$
737.4

$
188.4

$
189.2

$
190.7

   Benefit ratio
64.5
%
72.2
%
67.8
%
71.4
%
69.0
%
68.5
%
67.2
%
67.0
%
Underwriting margin (earned premium less policy benefits)
$
64.9

$
51.2

$
59.6

$
53.2

$
228.9

$
59.4

$
62.0

$
62.9

 
 
 
 
 
 
 
 
 
PDP:
 
 
 
 
 
 
 
 
   Earned premium
$
10.8

$
17.7

$
11.4

$
10.0

$
49.9

$
8.9

$
10.8

$
—

   Benefit ratio
85.9
%
64.2
%
74.8
%
64.8
%
71.4
%
74.9
%
85.2
%
N/A

Underwriting margin (earned premium less policy benefits)
$
1.6

$
6.3

$
2.9

$
3.5

$
14.3

$
2.2

$
1.6

$
—

 
 
 
 
 
 
 
 
 
Long-term care:
 
 
 
 
 
 
 
 
   Earned premium
$
140.6

$
139.7

$
138.5

$
136.7

$
555.5

$
135.3

$
134.1

$
132.6

   Benefit ratio before interest income on reserves
110.9
%
121.4
%
121.4
%
116.7
%
117.6
%
129.4
%
129.5
%
128.4
%
   Interest-adjusted benefit ratio
65.5
%
75.4
%
74.7
%
69.0
%
71.2
%
81.7
%
81.4
%
79.4
%
Underwriting margin (earned premium plus interest income on reserves less policy benefits)
$
48.5

$
34.4

$
35.0

$
42.3

$
160.2

$
24.8

$
25.0

$
27.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Page 8



CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Bankers Life
 
 
 
 
 
 
 
 
Average liabilities for insurance products (in millions) (continued)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Annuities:
 
 
 
 
 
 
 
 
   Mortality based
$
233.8

$
231.7

$
229.4

$
231.8

$
231.7

$
229.2

$
227.2

$
223.3

   Fixed index
2,707.4

2,798.2

2,872.1

2,948.3

2,831.5

3,038.8

3,132.2

3,224.6

   Deposit based
4,644.9

4,577.8

4,515.4

4,454.3

4,548.1

4,385.3

4,301.3

4,230.2

Medicare supplement and other supplemental health
4,634.5

4,653.2

4,710.0

4,994.9

4,748.1

5,220.2

5,030.3

4,879.2

Life:
 
 
 
 
 
 
 
 
   Interest sensitive
441.4

444.7

450.8

458.7

448.9

467.6

480.3

497.4

   Non-interest sensitive
483.0

506.2

532.9

561.3

520.9

589.5

616.8

642.2

Total average liabilities for insurance products, net of reinsurance ceded
$
13,145.0

$
13,211.8

$
13,310.6

$
13,649.3

$
13,329.2

$
13,930.6

$
13,788.1

$
13,696.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Present value of future profits (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
201.8

$
189.8

$
181.8

$
175.1

$
201.8

$
168.8

$
159.9

$
155.6

Amortization related to operations
(18.7
)
(13.6
)
(7.0
)
(11.3
)
(50.6
)
(16.6
)
(11.5
)
(10.6
)
Amortization related to net realized investment (gains) losses
(0.1
)
—

(0.1
)
—

(0.2
)
(0.1
)
—

—

Adjustment related to unrealized (gain) or loss on fixed maturities, available for sale
6.8

5.6

0.4

5.0

17.8

7.8

7.2

7.5

Balance, end of period
$
189.8

$
181.8

$
175.1

$
168.8

$
168.8

$
159.9

$
155.6

$
152.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
491.0

$
486.5

$
352.2

$
330.1

$
491.0

$
332.8

$
350.8

$
439.5

Deferred acquisition expenses
34.3

34.4

35.2

35.1

139.0

37.7

37.1

38.4

Amortization related to operations
(38.2
)
(36.9
)
(28.6
)
(33.3
)
(137.0
)
(37.9
)
(34.2
)
(29.1
)
Amortization related to net realized investment (gains) losses
(0.8
)
(1.7
)
(1.3
)
(0.3
)
(4.1
)
(0.6
)
(0.4
)
—

Amortization related to fair value changes in embedded derivative liabilities
(4.2
)
6.3

1.6

(2.0
)
1.7

(1.1
)
(9.1
)
(1.6
)
Adjustment related to unrealized (gain) or loss on fixed maturities, available for sale
4.4

(136.4
)
(29.0
)
3.2

(157.8
)
19.9

95.3

67.3

Balance, end of period
$
486.5

$
352.2

$
330.1

$
332.8

$
332.8

$
350.8

$
439.5

$
514.5

 
 
 
 
 
 
 
 
 

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
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
341.8

$
351.6

$
345.7

$
342.2

$
1,381.3

$
345.8

$
349.4

$
341.8

Net investment income (loss)
223.2

181.3

209.9

191.8

806.2

252.0

220.9

225.8

Fee revenue and other income
1.5

1.9

2.8

3.0

9.2

2.2

2.5

3.5

Total revenues
566.5

534.8

558.4

537.0

2,196.7

600.0

572.8

571.1

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
367.4

348.7

377.0

338.1

1,431.2

412.8

383.4

376.3

Interest expense
1.4

1.4

1.3

1.2

5.3

1.4

1.7

1.8

Amortization
50.0

43.7

29.9

38.2

161.8

48.7

38.7

33.2

Other operating costs and expenses
50.6

38.4

40.1

52.0

181.1

41.0

39.4

40.9

Total benefits and expenses
469.4

432.2

448.3

429.5

1,779.4

503.9

463.2

452.2

EBIT from In-Force Business
$
97.1

$
102.6

$
110.1

$
107.5

$
417.3

$
96.1

$
109.6

$
118.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
64.7

$
67.4

$
70.4

$
73.6

$
276.1

$
72.2

$
69.7

$
65.6

Net investment income (loss)
11.7

4.3

11.7

5.0

32.7

9.7

5.7

9.6

Fee revenue and other income
1.4

1.4

1.2

2.0

6.0

1.5

1.5

2.3

Total revenues
77.8

73.1

83.3

80.6

314.8

83.4

76.9

77.5

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
53.5

48.0

57.6

52.6

211.7

57.7

50.7

51.0

Interest expense
—

—

—

—

—

—

—

—

Amortization
6.9

6.8

5.7

6.4

25.8

5.8

7.0

6.5

Other operating costs and expenses
44.0

44.8

49.5

55.4

193.7

53.9

49.7

52.6

Total benefits and expenses
104.4

99.6

112.8

114.4

431.2

117.4

107.4

110.1

EBIT from New Business
$
(26.6
)
$
(26.5
)
$
(29.5
)
$
(33.8
)
$
(116.4
)
$
(34.0
)
$
(30.5
)
$
(32.6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
406.5

$
419.0

$
416.1

$
415.8

$
1,657.4

$
418.0

$
419.1

$
407.4

Net investment income (loss)
234.9

185.6

221.6

196.8

838.9

261.7

226.6

235.4

Fee revenue and other income
2.9

3.3

4.0

5.0

15.2

3.7

4.0

5.8

Total revenues
644.3

607.9

641.7

617.6

2,511.5

683.4

649.7

648.6

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
420.9

396.7

434.6

390.7

1,642.9

470.5

434.1

427.3

Interest expense
1.4

1.4

1.3

1.2

5.3

1.4

1.7

1.8

Amortization
56.9

50.5

35.6

44.6

187.6

54.5

45.7

39.7

Other operating costs and expenses
94.6

83.2

89.6

107.4

374.8

94.9

89.1

93.5

Total benefits and expenses
573.8

531.8

561.1

543.9

2,210.6

621.3

570.6

562.3

EBIT from In-Force and New Business
$
70.5

$
76.1

$
80.6

$
73.7

$
300.9

$
62.1

$
79.1

$
86.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 10



CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
 
 
Analysis of income before taxes (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Insurance policy income
$
147.4

$
147.6

$
147.8

$
147.6

$
590.4

$
149.1

$
149.2

$
150.3

Net investment income (loss):
 
 
 
 
 
 
 
 
   General account invested assets
50.0

51.0

50.8

52.2

204.0

52.0

51.3

51.8

Trading account income related to reinsurer accounts
0.1

1.4

(0.9
)
—

0.6

—

(0.6
)
(0.1
)
Change in value of embedded derivatives related to modified coinsurance agreements
(0.1
)
(1.4
)
1.0

—

(0.5
)
—

0.6

0.1

Net realized investment gains (losses)
3.1

3.5

(3.0
)
3.1

6.7

1.6

(1.0
)
0.7

Fee revenue and other income
0.2

0.3

0.3

0.3

1.1

0.2

0.2

0.3

   Total revenues
200.7

202.4

196.0

203.2

802.3

202.9

199.7

203.1

 
 
 
 
 
 
 
 
 
Insurance policy benefits
115.7

113.7

111.1

106.6

447.1

118.3

117.3

120.2

Amortization related to operations
12.7

10.8

11.2

13.0

47.7

13.7

13.0

13.2

Interest expense on investment borrowings
0.7

0.8

0.7

0.6

2.8

0.5

0.5

0.5

Other operating costs and expenses
43.8

39.7

42.1

45.3

170.9

39.4

38.1

40.4

   Total benefits and expenses
172.9

165.0

165.1

165.5

668.5

171.9

168.9

174.3

   Income before income taxes
$
27.8

$
37.4

$
30.9

$
37.7

$
133.8

$
31.0

$
30.8

$
28.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health underwriting margins (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Medicare supplement:
 
 
 
 
 
 
 
 
Earned premium
$
30.8

$
30.2

$
29.3

$
28.3

$
118.6

$
26.8

$
25.9

$
25.2

Benefit ratio
65.4
%
67.7
%
63.8
%
64.7
%
65.4
%
65.0
%
65.5
%
64.3
%
Underwriting margin (earned premium less policy benefits)
$
10.7

$
9.7

$
10.7

$
9.9

$
41.0

$
9.4

$
8.9

$
9.0

 
 
 
 
 
 
 
 
 
Supplemental health:
 
 
 
 
 
 
 
 
Earned premium
$
111.6

$
113.1

$
114.0

$
115.1

$
453.8

$
117.8

$
119.0

$
121.1

Benefit ratio before interest income on reserves
82.4
%
77.0
%
74.2
%
72.9
%
76.6
%
79.3
%
78.6
%
80.8
%
Interest-adjusted benefit ratio
55.1
%
50.1
%
47.5
%
46.6
%
49.8
%
53.1
%
52.6
%
54.3
%
Underwriting margin (earned premium plus interest income on reserves less policy benefits)
$
50.1

$
56.5

$
59.8

$
61.4

$
227.8

$
55.3

$
56.4

$
55.4

 
 
 
 
 
 
 
 
 





Page 11


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
 
 
Average liabilities for insurance products (in millions) (continued)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Medicare supplement and other supplemental health
$
2,429.6

$
2,418.9

$
2,414.5

$
2,414.5

$
2,419.4

$
2,421.4

$
2,427.0

$
2,434.0

Non-interest sensitive life
200.4

199.1

200.3

197.8

199.4

197.2

202.6

198.9

Total average liabilities for insurance products, net of reinsurance ceded
$
2,630.0

$
2,618.0

$
2,614.8

$
2,612.3

$
2,618.8

$
2,618.6

$
2,629.6

$
2,632.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Present value of future profits (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
402.0

$
394.8

$
389.0

$
383.2

$
402.0

$
375.8

$
367.5

$
358.9

  Amortization related to operations
(7.2
)
(5.8
)
(5.8
)
(7.4
)
(26.2
)
(8.3
)
(8.6
)
(7.9
)
Balance, end of period
$
394.8

$
389.0

$
383.2

$
375.8

$
375.8

$
367.5

$
358.9

$
351.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
142.3

$
145.9

$
151.0

$
153.9

$
142.3

$
157.3

$
163.1

$
170.4

  Deferred acquisition expenses
9.1

10.1

8.3

9.0

36.5

11.2

11.7

11.7

  Amortization related to operations
(5.5
)
(5.0
)
(5.4
)
(5.6
)
(21.5
)
(5.4
)
(4.4
)
(5.3
)
Balance, end of period
$
145.9

$
151.0

$
153.9

$
157.3

$
157.3

$
163.1

$
170.4

$
176.8

 
 
 
 
 
 
 
 
 


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
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
133.0

$
132.8

$
133.4

$
132.3

$
531.5

$
133.6

$
133.7

$
134.4

Net investment income (loss)
50.0

51.0

50.9

52.2

204.1

52.0

51.3

51.8

Fee revenue and other income
0.2

0.3

0.3

0.3

1.1

0.2

0.2

0.3

Total revenues
183.2

184.1

184.6

184.8

736.7

185.8

185.2

186.5

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
109.8

107.6

105.2

100.3

422.9

111.6

110.7

113.4

Interest expense
0.7

0.8

0.7

0.6

2.8

0.5

0.5

0.5

Amortization
12.0

10.0

10.5

12.3

44.8

12.9

12.1

12.3

Other operating costs and expenses
33.3

31.5

31.9

35.0

131.7

31.1

30.9

33.1

Total benefits and expenses
155.8

149.9

148.3

148.2

602.2

156.1

154.2

159.3

EBIT from In-Force Business
$
27.4

$
34.2

$
36.3

$
36.6

$
134.5

$
29.7

$
31.0

$
27.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
14.4

$
14.8

$
14.4

$
15.3

$
58.9

$
15.5

$
15.5

$
15.9

Net investment income (loss)
—

—

—

—

—

—

—

—

Fee revenue and other income
—

—

—

—

—

—

—

—

Total revenues
14.4

14.8

14.4

15.3

58.9

15.5

15.5

15.9

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
5.9

6.1

5.9

6.3

24.2

6.7

6.6

6.8

Interest expense
—

—

—

—

—

—

—

—

Amortization
0.7

0.8

0.7

0.7

2.9

0.8

0.9

0.9

Other operating costs and expenses
10.5

8.2

10.2

10.3

39.2

8.3

7.2

7.3

Total benefits and expenses
17.1

15.1

16.8

17.3

66.3

15.8

14.7

15.0

EBIT from New Business
$
(2.7
)
$
(0.3
)
$
(2.4
)
$
(2.0
)
$
(7.4
)
$
(0.3
)
$
0.8

$
0.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
147.4

$
147.6

$
147.8

$
147.6

$
590.4

$
149.1

$
149.2

$
150.3

Net investment income (loss)
50.0

51.0

50.9

52.2

204.1

52.0

51.3

51.8

Fee revenue and other income
0.2

0.3

0.3

0.3

1.1

0.2

0.2

0.3

Total revenues
197.6

198.9

199.0

200.1

795.6

201.3

200.7

202.4

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
115.7

113.7

111.1

106.6

447.1

118.3

117.3

120.2

Interest expense
0.7

0.8

0.7

0.6

2.8

0.5

0.5

0.5

Amortization
12.7

10.8

11.2

13.0

47.7

13.7

13.0

13.2

Other operating costs and expenses
43.8

39.7

42.1

45.3

170.9

39.4

38.1

40.4

Total benefits and expenses
172.9

165.0

165.1

165.5

668.5

171.9

168.9

174.3

EBIT from In-Force and New Business
$
24.7

$
33.9

$
33.9

$
34.6

$
127.1

$
29.4

$
31.8

$
28.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 13


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Colonial Penn
 
 
 
 
 
 
 
 
Analysis of income (loss) before taxes (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Insurance policy income
$
53.4

$
54.6

$
54.5

$
55.3

$
217.8

$
56.9

$
58.0

$
58.1

Net investment income on general account invested assets
10.0

10.2

9.9

10.3

40.4

9.9

9.9

10.2

Net realized investment gains (losses)
2.6

1.9

2.6

0.1

7.2

(0.3
)
0.4

(0.1
)
Fee revenue and other income
0.2

0.2

0.2

0.1

0.7

0.2

0.2

0.2

   Total revenues
66.2

66.9

67.2

65.8

266.1

66.7

68.5

68.4

 
 
 
 
 
 
 
 
 
Insurance policy benefits
41.9

39.3

38.2

40.9

160.3

42.8

41.1

39.6

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

0.3

0.1

0.2

0.8

0.2

0.1

0.2

Amortization related to operations
3.7

3.9

3.5

3.9

15.0

3.7

3.7

3.7

Other operating costs and expenses
27.6

20.9

25.4

17.5

91.4

25.7

22.0

29.2

   Total benefits and expenses
73.4

64.4

67.2

62.5

267.5

72.4

66.9

72.7

   Income (loss) before income taxes
$
(7.2
)
$
2.5

$
—

$
3.3

$
(1.4
)
$
(5.7
)
$
1.6

$
(4.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average liabilities for insurance products (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Annuities - mortality based
$
77.0

$
76.8

$
76.4

$
75.9

$
76.5

$
74.8

$
74.4

$
73.5

Supplemental health
15.4

15.1

15.0

14.7

15.1

14.4

14.1

13.8

Life:
 
 
 
 
 
 
 
 
   Interest sensitive
19.9

18.9

18.1

17.9

18.7

17.7

17.7

17.4

   Non-interest sensitive
598.4

601.8

605.8

612.2

604.5

618.1

629.9

631.7

Total average liabilities for insurance products, net of reinsurance ceded
$
710.7

$
712.6

$
715.3

$
720.7

$
714.8

$
725.0

$
736.1

$
736.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Present value of future profits (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
72.6

$
70.2

$
67.8

$
65.7

$
72.6

$
63.6

$
61.6

$
59.6

  Amortization related to operations
(2.4
)
(2.4
)
(2.1
)
(2.1
)
(9.0
)
(2.0
)
(2.0
)
(1.9
)
Balance, end of period
$
70.2

$
67.8

$
65.7

$
63.6

$
63.6

$
61.6

$
59.6

$
57.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
51.5

$
52.6

$
53.8

$
54.6

$
51.5

$
57.5

$
59.1

$
60.7

  Deferred acquisition expenses
2.4

2.7

2.2

4.7

12.0

3.3

3.3

2.8

  Amortization related to operations
(1.3
)
(1.5
)
(1.4
)
(1.8
)
(6.0
)
(1.7
)
(1.7
)
(1.8
)
Balance, end of period
$
52.6

$
53.8

$
54.6

$
57.5

$
57.5

$
59.1

$
60.7

$
61.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
43.2

$
43.7

$
43.5

$
44.1

$
174.5

$
45.6

$
46.5

$
46.9

Net investment income (loss)
10.0

10.2

9.9

10.3

40.4

9.9

9.9

10.2

Fee revenue and other income
0.2

0.2

0.2

0.1

0.7

0.2

0.2

0.2

Total revenues
53.4

54.1

53.6

54.5

215.6

55.7

56.6

57.3

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
36.2

33.4

32.0

34.7

136.3

36.5

34.6

33.3

Amortization
3.6

3.8

3.2

3.5

14.1

3.6

3.6

3.6

Other operating costs and expenses
6.9

5.7

6.8

5.2

24.6

6.8

6.0

7.5

Total benefits and expenses
46.7

42.9

42.0

43.4

175.0

46.9

44.2

44.4

EBIT from In-Force Business
$
6.7

$
11.2

$
11.6

$
11.1

$
40.6

$
8.8

$
12.4

$
12.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
10.2

$
10.9

$
11.0

$
11.2

$
43.3

$
11.3

$
11.5

$
11.2

Net investment income (loss)
—

—

—

—

—

—

—

—

Fee revenue and other income
—

—

—

—

—

—

—

—

Total revenues
10.2

10.9

11.0

11.2

43.3

11.3

11.5

11.2

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
5.9

6.2

6.3

6.4

24.8

6.5

6.6

6.5

Amortization
0.1

0.1

0.3

0.4

0.9

0.1

0.1

0.1

Other operating costs and expenses
20.7

15.2

18.6

12.3

66.8

18.9

16.0

21.7

Total benefits and expenses
26.7

21.5

25.2

19.1

92.5

25.5

22.7

28.3

EBIT from New Business
$
(16.5
)
$
(10.6
)
$
(14.2
)
$
(7.9
)
$
(49.2
)
$
(14.2
)
$
(11.2
)
$
(17.1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
53.4

$
54.6

$
54.5

$
55.3

$
217.8

$
56.9

$
58.0

$
58.1

Net investment income (loss)
10.0

10.2

9.9

10.3

40.4

9.9

9.9

10.2

Fee revenue and other income
0.2

0.2

0.2

0.1

0.7

0.2

0.2

0.2

Total revenues
63.6

65.0

64.6

65.7

258.9

67.0

68.1

68.5

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
42.1

39.6

38.3

41.1

161.1

43.0

41.2

39.8

Amortization
3.7

3.9

3.5

3.9

15.0

3.7

3.7

3.7

Other operating costs and expenses
27.6

20.9

25.4

17.5

91.4

25.7

22.0

29.2

Total benefits and expenses
73.4

64.4

67.2

62.5

267.5

72.4

66.9

72.7

EBIT from In-Force and New Business
$
(9.8
)
$
0.6

$
(2.6
)
$
3.2

$
(8.6
)
$
(5.4
)
$
1.2

$
(4.2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 15


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Other CNO Business
 
 
 
 
 
 
 
 
Analysis of income (loss) before taxes (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Insurance policy income
$
79.0

$
73.6

$
71.8

$
65.4

$
289.8

$
67.2

$
65.0

$
70.3

Net investment income (loss):
 
 
 
 
 
 
 
 
   General account invested assets
84.0

84.0

82.3

82.6

332.9

79.4

78.3

77.3

   Fixed index products
6.8

(4.1
)
3.3

(1.8
)
4.2

9.0

2.4

3.9

Trading account income related to policyholder accounts
1.9

(0.1
)
1.1

0.6

3.5

1.3

(0.1
)
1.2

Net realized investment gains (losses)
6.7

7.5

(5.4
)
3.6

12.4

4.9

0.8

2.1

   Total revenues
178.4

160.9

153.1

150.4

642.8

161.8

146.4

154.8

 
 
 
 
 
 
 
 
 
Insurance policy benefits
83.0

93.8

122.7

81.3

380.8

88.1

77.4

86.9

Insurance policy benefits - fair value changes in embedded derivative liabilities
(0.6
)
1.0

—

(0.5
)
(0.1
)
0.1

(1.7
)
0.1

Amounts added to policyholder account balances:
 
 
 
 
 
 
 
 
Annuity products and interest-sensitive life products other than fixed index products
29.7

27.5

29.4

25.2

111.8

28.8

27.0

26.7

   Fixed index products
9.2

0.7

5.0

0.9

15.8

8.5

5.2

6.2

Amortization related to operations
7.5

7.1

10.5

8.7

33.8

5.6

5.9

3.2

Amortization related to net realized investment gains (losses)
0.2

1.4

0.3

0.3

2.2

0.1

—

0.1

Amortization related to fair value changes in embedded derivative liabilities
0.5

(0.8
)
—

0.4

0.1

(0.1
)
1.4

(0.1
)
Interest expense on investment borrowings
5.1

5.0

5.0

4.8

19.9

4.8

4.8

4.8

Other operating costs and expenses
39.5

17.4

39.5

20.7

117.1

17.5

22.7

18.8

   Total benefits and expenses
174.1

153.1

212.4

141.8

681.4

153.4

142.7

146.7

   Income (loss) before income taxes
$
4.3

$
7.8

$
(59.3
)
$
8.6

$
(38.6
)
$
8.4

$
3.7

$
8.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health underwriting margins (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Long-term care:
 
 
 
 
 
 
 
 
   Earned premium
$
6.6

$
6.5

$
6.2

$
6.3

$
25.6

$
6.2

$
6.1

$
6.0

   Benefit ratio before interest income on reserves
227.4
%
230.2
%
282.4
%
249.8
%
247.0
%
252.2
%
251.0
%
227.5
%
   Interest-adjusted benefit ratio
122.0
%
121.3
%
169.9
%
138.8
%
137.6
%
140.7
%
137.6
%
111.6
%
Underwriting margin (earned premium plus interest income on reserves less policy benefits)
$
(1.5
)
$
(1.4
)
$
(4.3
)
$
(2.5
)
$
(9.7
)
$
(2.5
)
$
(2.3
)
$
(0.7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 16


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Other CNO Business
 
 
 
 
 
 
 
 
Average liabilities for insurance products (in millions) (continued)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Annuities:
 
 
 
 
 
 
 
 
   Mortality based
$
229.1

$
225.5

$
221.5

$
218.8

$
223.7

$
214.8

$
212.9

$
215.5

   Fixed index
553.8

532.5

510.5

489.9

521.7

474.2

462.9

451.9

   Deposit based
638.4

633.1

635.6

633.1

635.1

631.5

621.2

610.9

   Separate accounts
15.5

15.8

15.6

15.3

15.6

15.2

15.3

14.2

Other health
481.0

479.8

479.6

477.5

479.5

474.8

474.7

474.0

Life:
 
 
 
 
 
 
 
 
   Interest sensitive
2,416.9

2,365.9

2,329.1

2,285.5

2,349.3

2,258.9

2,232.6

2,198.5

   Non-interest sensitive
766.5

763.3

782.1

809.0

780.2

809.2

810.1

805.8

Total average liabilities for insurance products, net of reinsurance ceded
$
5,101.2

$
5,015.9

$
4,974.0

$
4,929.1

$
5,005.1

$
4,878.6

$
4,829.7

$
4,770.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Present value of future profits (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
21.3

$
20.6

$
19.5

$
18.4

$
21.3

$
17.8

$
17.6

$
17.5

Amortization related to operations
(1.4
)
(1.4
)
(1.4
)
(3.2
)
(7.4
)
(0.8
)
(1.0
)
—

 Amortization related to net realized investment (gains) losses
—

—

—

(0.1
)
(0.1
)
—

—

—

Adjustment related to unrealized (gain) or loss on fixed maturities, available for sale
0.7

0.3

0.3

2.7

4.0

0.6

0.9

0.2

Balance, end of period
$
20.6

$
19.5

$
18.4

$
17.8

$
17.8

$
17.6

$
17.5

$
17.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
112.3

$
105.4

$
96.5

$
84.8

$
112.3

$
82.1

$
81.4

$
91.5

Deferred acquisition expenses
0.4

1.3

1.0

1.5

4.2

1.3

1.6

1.7

Amortization related to operations
(6.1
)
(5.7
)
(9.1
)
(5.5
)
(26.4
)
(4.8
)
(4.9
)
(3.2
)
Amortization related to net realized investment (gains) losses
(0.2
)
(1.4
)
(0.3
)
(0.2
)
(2.1
)
(0.1
)
—

(0.1
)
Amortization related to fair value changes in embedded derivative liabilities
(0.5
)
0.8

—

(0.4
)
(0.1
)
0.1

(1.4
)
0.1

Adjustment related to unrealized (gain) or loss on fixed maturities, available for sale
(0.5
)
(3.9
)
(3.3
)
1.9

(5.8
)
2.8

14.8

3.0

Balance, end of period
$
105.4

$
96.5

$
84.8

$
82.1

$
82.1

$
81.4

$
91.5

$
93.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 17


Other CNO Business Segment EBIT Summarized by In-Force and New Business (8)
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
EBIT from In-Force Business
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Insurance policy income
$
79.0

$
73.6

$
71.8

$
65.4

$
289.8

$
67.2

$
65.0

$
70.3

Net investment income (loss)
92.7

79.8

86.7

81.4

340.6

89.7

80.6

82.4

Fee revenue and other income
—

—

—

—

—

—

—

—

Total revenues
171.7

153.4

158.5

146.8

630.4

156.9

145.6

152.7

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
121.9

122.0

157.1

107.4

508.4

125.4

109.6

119.8

Interest expense
5.1

5.0

5.0

4.8

19.9

4.8

4.8

4.8

Amortization
7.5

7.1

10.5

8.7

33.8

5.6

5.9

3.2

Other operating costs and expenses
39.5

17.4

39.5

20.7

117.1

17.5

22.7

18.8

Total benefits and expenses
174.0

151.5

212.1

141.6

679.2

153.3

143.0

146.6

EBIT from In-Force Business
$
(2.3
)
$
1.9

$
(53.6
)
$
5.2

$
(48.8
)
$
3.6

$
2.6

$
6.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
79.0

$
73.6

$
71.8

$
65.4

$
289.8

$
67.2

$
65.0

$
70.3

Net investment income (loss)
92.7

79.8

86.7

81.4

340.6

89.7

80.6

82.4

Fee revenue and other income
—

—

—

—

—

—

—

—

Total revenues
171.7

153.4

158.5

146.8

630.4

156.9

145.6

152.7

 
 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
 
Insurance policy benefits
121.9

122.0

157.1

107.4

508.4

125.4

109.6

119.8

Interest expense
5.1

5.0

5.0

4.8

19.9

4.8

4.8

4.8

Amortization
7.5

7.1

10.5

8.7

33.8

5.6

5.9

3.2

Other operating costs and expenses
39.5

17.4

39.5

20.7

117.1

17.5

22.7

18.8

Total benefits and expenses
174.0

151.5

212.1

141.6

679.2

153.3

143.0

146.6

EBIT from In-Force and New Business
$
(2.3
)
$
1.9

$
(53.6
)
$
5.2

$
(48.8
)
$
3.6

$
2.6

$
6.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 18


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Corporate Operations
 
 
 
 
 
 
 
 
Analysis of loss before taxes (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Net investment income (loss):
 
 
 
 
 
 
 
 
   General investment portfolio
$
0.9

$
1.0

$
1.0

$
0.7

$
3.6

$
1.1

$
1.5

$
1.2

   Other special-purpose portfolios
16.2

(1.1
)
8.2

4.2

27.5

9.0

3.0

9.8

Fee revenue and other income
0.4

0.2

0.3

0.3

1.2

1.7

1.5

1.7

Net operating results of variable interest entities
2.2

2.9

4.7

2.5

12.3

—

—

—

Interest expense on investment borrowings
(0.1
)
(0.2
)
(0.1
)
—

(0.4
)
(0.1
)
—

—

Other operating costs and expenses
(21.4
)
(11.9
)
(20.8
)
(10.4
)
(64.5
)
(8.7
)
(3.6
)
(3.3
)
Corporate operations, excluding corporate interest expense
(1.8
)
(9.1
)
(6.7
)
(2.7
)
(20.3
)
3.0

2.4

9.4

Interest expense on corporate debt
(17.5
)
(16.6
)
(16.3
)
(15.8
)
(66.2
)
(15.1
)
(13.1
)
(11.7
)
Loss before net realized investment gains (losses), equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests, loss on extinguishment of debt and income taxes
(19.3
)
(25.7
)
(23.0
)
(18.5
)
(86.5
)
(12.1
)
(10.7
)
(2.3
)
Net realized investment gains (losses)
(0.1
)
1.1

0.8

—

1.8

0.5

(0.3
)
(1.2
)
Equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests
—

—

—

—

—

(1.9
)
(2.9
)
(2.8
)
Loss on extinguishment of debt
(0.2
)
(0.5
)
(198.5
)
(1.0
)
(200.2
)
(57.7
)
(7.7
)
—

Loss before income taxes
$
(19.6
)
$
(25.1
)
$
(220.7
)
$
(19.5
)
$
(284.9
)
$
(71.2
)
$
(21.6
)
$
(6.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 19


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Bankers Life
 
 
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Annuities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed index (first-year)
$
134.9

$
120.2

$
114.5

$
135.4

$
505.0

$
126.6

$
143.4

$
143.3

 
 
 
 
 
 
 
 
 
Other fixed rate (first-year)
47.8

47.9

56.0

46.3

198.0

37.2

38.5

45.3

Other fixed rate (renewal)
2.0

1.4

1.2

1.4

6.0

1.8

1.8

1.6

  Subtotal - other fixed rate annuities
49.8

49.3

57.2

47.7

204.0

39.0

40.3

46.9

 
 
 
 
 
 
 
 
 
      Total annuities
184.7

169.5

171.7

183.1

709.0

165.6

183.7

190.2

 
 
 
 
 
 
 
 
 
Health
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare supplement (first-year)
23.8

25.1

24.7

25.8

99.4

22.7

22.7

22.3

Medicare supplement (renewal)
151.1

149.8

153.0

163.9

617.8

162.5

153.4

159.7

  Subtotal - Medicare supplement
174.9

174.9

177.7

189.7

717.2

185.2

176.1

182.0

 
 
 
 
 
 
 
 
 
Long-term care (first-year)
5.5

5.9

6.0

6.0

23.4

5.7

5.4

5.1

Long-term care (renewal)
131.2

132.9

130.1

128.9

523.1

129.7

127.8

126.0

  Subtotal - long-term care
136.7

138.8

136.1

134.9

546.5

135.4

133.2

131.1

 
 
 
 
 
 
 
 
 
PDP (first-year)
0.3

0.1

0.1

0.2

0.7

0.1

—

—

PDP (renewal)
15.0

14.6

10.2

7.3

47.1

10.1

10.5

(2.5
)
  Subtotal - PDP
15.3

14.7

10.3

7.5

47.8

10.2

10.5

(2.5
)
 
 
 
 
 
 
 
 
 
Supplemental health (first-year)
—

0.2

0.6

1.1

1.9

1.6

2.0

2.3

Supplemental health (renewal)
—

—

—

—

—

—

0.2

0.5

  Subtotal - supplemental health
—

0.2

0.6

1.1

1.9

1.6

2.2

2.8

 
 
 
 
 
 
 
 
 
Other health (first-year)
0.4

0.4

0.3

0.3

1.4

0.3

0.4

0.3

Other health (renewal)
2.2

2.3

2.3

2.3

9.1

2.4

2.2

2.2

  Subtotal - other health
2.6

2.7

2.6

2.6

10.5

2.7

2.6

2.5

 
 
 
 
 
 
 
 
 
    Total health
329.5

331.3

327.3

335.8

1,323.9

335.1

324.6

315.9

 
 
 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First-year
32.8

35.7

38.9

42.5

149.9

42.4

41.0

41.7

Renewal
37.3

39.7

42.4

45.3

164.7

47.1

50.1

52.5

 
 
 
 
 
 
 
 
 
    Total life insurance
70.1

75.4

81.3

87.8

314.6

89.5

91.1

94.2

 
 
 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
245.5

235.5

241.1

257.6

979.7

236.6

253.4

260.3

Total renewal premium collections on insurance products
338.8

340.7

339.2

349.1

1,367.8

353.6

346.0

340.0

 
 
 
 
 
 
 
 
 
    Total collections on insurance products
$
584.3

$
576.2

$
580.3

$
606.7

$
2,347.5

$
590.2

$
599.4

$
600.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Page 20


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Health
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare supplement (first-year)
$
0.3

$
0.3

$
0.2

$
0.2

$
1.0

$
0.2

$
—

$
—

Medicare supplement (renewal)
27.8

28.8

28.2

28.1

112.9

26.4

25.0

24.2

  Subtotal - Medicare supplement
28.1

29.1

28.4

28.3

113.9

26.6

25.0

24.2

 
 
 
 
 
 
 
 
 
Supplemental health (first-year)
14.1

15.1

14.7

15.3

59.2

15.6

16.3

16.1

Supplemental health (renewal)
98.8

100.3

99.8

101.6

400.5

104.7

105.6

106.6

  Subtotal - supplemental health
112.9

115.4

114.5

116.9

459.7

120.3

121.9

122.7

Other health (first-year)
—

—

—

—

—

—

—

0.1

Other health (renewal)
0.7

0.6

0.7

0.7

2.7

0.6

0.7

0.4

  Subtotal - other health
0.7

0.6

0.7

0.7

2.7

0.6

0.7

0.5

 
 
 
 
 
 
 
 
 
    Total health
141.7

145.1

143.6

145.9

576.3

147.5

147.6

147.4

 
 
 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First-year
0.2

0.3

0.3

0.2

1.0

0.2

0.2

0.2

Renewal
3.8

3.5

2.7

3.2

13.2

3.4

3.2

3.1

 
 
 
 
 
 
 
 
 
    Total life insurance
4.0

3.8

3.0

3.4

14.2

3.6

3.4

3.3

 
 
 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
14.6

15.7

15.2

15.7

61.2

16.0

16.5

16.4

Total renewal premium collections on insurance products
131.1

133.2

131.4

133.6

529.3

135.1

134.5

134.3

 
 
 
 
 
 
 
 
 
    Total collections on insurance products
$
145.7

$
148.9

$
146.6

$
149.3

$
590.5

$
151.1

$
151.0

$
150.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 21


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Colonial Penn
 
 
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First-year
$
10.4

$
10.7

$
10.9

$
11.1

$
43.1

$
11.4

$
11.4

$
11.4

Renewal
42.2

41.8

42.1

42.7

168.8

44.7

45.0

46.2

 
 
 
 
 
 
 
 
 
    Total life insurance
52.6

52.5

53.0

53.8

211.9

56.1

56.4

57.6

 
 
 
 
 
 
 
 
 
Health (all renewal)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare supplement
1.2

1.1

1.1

1.1

4.5

1.0

0.9

0.9

 
 
 
 
 
 
 
 
 
Other health
0.1

0.1

0.1

0.1

0.4

0.1

0.1

0.1

 
 
 
 
 
 
 
 
 
    Total health
1.3

1.2

1.2

1.2

4.9

1.1

1.0

1.0

 
 
 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
10.4

10.7

10.9

11.1

43.1

11.4

11.4

11.4

Total renewal premium collections on insurance products
43.5

43.0

43.3

43.9

173.7

45.8

46.0

47.2

 
 
 
 
 
 
 
 
 
    Total collections on insurance products
$
53.9

$
53.7

$
54.2

$
55.0

$
216.8

$
57.2

$
57.4

$
58.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 22


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Other CNO Business
 
 
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Annuities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed index (first-year)
$
—

$
0.2

$
0.1

$
0.3

$
0.6

$
0.2

$
0.1

$
0.1

Fixed index (renewal)
0.7

0.8

0.4

0.4

2.3

0.6

1.3

1.0

  Subtotal - fixed index annuities
0.7

1.0

0.5

0.7

2.9

0.8

1.4

1.1

 
 
 
 
 
 
 
 
 
Other fixed rate (all renewal)
0.2

0.2

0.4

0.1

0.9

0.2

0.1

0.3

 
 
 
 
 
 
 
 
 
      Total annuities
0.9

1.2

0.9

0.8

3.8

1.0

1.5

1.4

 
 
 
 
 
 
 
 
 
Health
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term care (all renewal)
6.7

6.3

6.0

6.1

25.1

6.3

6.1

5.7

Other health (all renewal)
0.2

0.2

0.1

0.2

0.7

0.2

0.1

0.1

 
 
 
 
 
 
 
 
 
    Total health
6.9

6.5

6.1

6.3

25.8

6.5

6.2

5.8

 
 
 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First-year
0.6

0.8

0.9

1.1

3.4

1.0

1.1

0.9

Renewal
44.7

40.1

39.4

37.4

161.6

40.1

38.4

37.0

 
 
 
 
 
 
 
 
 
    Total life insurance
45.3

40.9

40.3

38.5

165.0

41.1

39.5

37.9

 
 
 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
0.6

1.0

1.0

1.4

4.0

1.2

1.2

1.0

Total renewal premium collections on insurance products
52.5

47.6

46.3

44.2

190.6

47.4

46.0

44.1

 
 
 
 
 
 
 
 
 
    Total collections on insurance products
$
53.1

$
48.6

$
47.3

$
45.6

$
194.6

$
48.6

$
47.2

$
45.1

 
 
 
 
 
 
 
 
 

Page 23





CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
New Annualized Premiums ("NAP") (in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bankers Life
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13
 
 
 
 
 
 
 
 
 
Medicare supplement
$
19.5

$
19.9

$
19.3

$
28.6

$
87.3

$
19.1

$
19.0

$
18.7

Long-term care
7.9

7.8

7.2

6.0

28.9

6.1

6.5

6.2

Supplemental health
—

0.8

1.8

2.4

5.0

2.8

2.7

2.6

Life
20.3

20.9

18.9

21.4

81.5

22.5

24.2

23.5

Annuity
11.1

10.1

10.4

10.9

42.5

10.0

10.8

11.5

   Subtotal Bankers Life
58.8

59.5

57.6

69.3

245.2

60.5

63.2

62.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental health
17.6

20.3

19.7

21.2

78.8

19.2

21.3

22.5

Medicare supplement
0.3

0.2

0.2

0.1

0.8

—

—

—

Life
2.0

1.7

1.5

1.5

6.7

1.4

1.9

1.3

Annuity
—

0.1

—

—

0.1

—

0.1

0.1

   Subtotal Washington National
19.9

22.3

21.4

22.8

86.4

20.6

23.3

23.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Colonial Penn
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Graded Life
17.5

15.6

15.1

13.6

61.8

17.0

15.8

15.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total NAP
$
96.2

$
97.4

$
94.1

$
105.7

$
393.4

$
98.1

$
102.3

$
101.8

 
 
 
 
 
 
 
 
 


Page 24


CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
Statutory information - consolidated basis (7) (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
2Q13
3Q13 (*)
 
 
 
 
 
 
 
 
 
Net gain from operations before interest expense and federal income taxes
$
100.4

$
107.7

$
82.8

$
111.9

$
402.8

$
123.4

$
115.4

$
109.4

Interest expense on surplus debentures held by parent company
12.1

12.1

22.4

12.3

58.9

12.0

12.2

27.2

 
 
 
 
 
 
 
 
 
Net gain from operations before federal income taxes
88.3

95.6

60.4

99.6

343.9

111.4

103.2

82.2

Federal income tax expense (benefit)
1.7

(0.9
)
0.1

5.6

6.5

(1.1
)
1.1

0.8

 
 
 
 
 
 
 
 
 
Net gain from operations before net realized capital gains (losses)
86.6

96.5

60.3

94.0

337.4

112.5

102.1

81.4

Net realized capital gains (losses)
7.8

7.2

(10.6
)
8.6

13.0

9.7

4.1

5.3

 
 
 
 
 
 
 
 
 
Net income
$
94.4

$
103.7

$
49.7

$
102.6

$
350.4

$
122.2

$
106.2

$
86.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital and surplus
$
1,601.9

$
1,626.0

$
1,554.3

$
1,560.4

$
1,560.4

$
1,579.8

$
1,626.8

$
1,660.6

Asset valuation reserve (AVR)
191.3

206.1

212.5

222.2

222.2

234.3

238.1

240.9

 
 
 
 
 
 
 
 
 
  Capital, surplus and AVR
1,793.2

1,832.1

1,766.8

1,782.6

1,782.6

1,814.1

1,864.9

1,901.5

 
 
 
 
 
 
 
 
 
Interest maintenance reserve (IMR)
562.2

581.4

590.1

585.8

585.8

587.2

586.1

579.8

 
 
 
 
 
 
 
 
 
  Total statutory capital, surplus, AVR & IMR
$
2,355.4

$
2,413.5

$
2,356.9

$
2,368.4

$
2,368.4

$
2,401.3

$
2,451.0

$
2,481.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


(*) Such amounts are preliminary as the statutory basis financial statements of our insurance subsidiaries for 3Q2013 will be
filed with the respective insurance regulators on or before November 15, 2013.





Page 25


Notes

(1) Excludes accumulated other comprehensive income.

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

(3) Book value per diluted share reflects the potential dilution that could occur if outstanding stock options and warrants were exercised, restricted stock and performance units were vested and convertible securities were converted. The dilution from options, warrants, restricted shares and performance units is calculated using the treasury stock method. Under this method, we assume the proceeds from the exercise of the options and warrants (or the unrecognized compensation expense with respect to restricted stock and performance units) will be used to purchase shares of our common stock at the closing market price on the last day of the period. The dilution from convertible securities is calculated assuming the securities were converted on the last day of the period.

(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, equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests, 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) net realized investment gains or losses, net of related amortization and taxes; (ii) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and taxes; (iii) equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests, net of taxes; (iv) loss on extinguishment of debt, net of taxes; and (v) changes in our valuation allowance for deferred tax assets (“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.

(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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