(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Item 2.02. | Results of Operations and Financial Condition. |
Item 9.01(d). | Financial Statements and Exhibits. |
CNO Financial Group, Inc. | |||
Date: August 4, 2020 | |||
By: | /s/ John R. Kline | ||
John R. Kline | |||
Senior Vice President and Chief Accounting Officer | |||
• | Net income of $82.0 million up 118% from 2Q19 |
• | Operating (1) EPS increased 15% from 2Q19 to $0.55 |
• | Insurance product margin up 28% from 2Q19 |
• | Direct-to-consumer sales up 52% from 2Q19, to a record $29.7 million |
• | Continued strong cash flow generation, reflecting 114% net operating income conversion |
• | Returned $47.4 million to shareholders in the form of share repurchases ($30.0 million) and dividends ($17.4 million); reduced weighted average share count by 10% since 2Q19 |
• | Generated return on equity (ROE) of 8.7%; operating ROE, as adjusted (6), of 11.4% |
• | Operating (1) EPS and insurance product margin positively impacted by significant items summarized in note (7) |
Per diluted share | |||||||||||||||||||||||
Quarter ended | Quarter ended | ||||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||||
2020 | 2019 | % change | 2020 | 2019 | % change | ||||||||||||||||||
Income from insurance products (b) | $ | 0.88 | $ | 0.40 | 120 | $ | 127.3 | $ | 63.9 | 99 | |||||||||||||
Fee income | 0.04 | 0.03 | 33 | 5.2 | 4.4 | 18 | |||||||||||||||||
Investment income not allocated to product lines (c) | 0.06 | 0.30 | (80 | ) | 8.2 | 48.3 | (83 | ) | |||||||||||||||
Expenses not allocated to product lines | (0.27 | ) | (0.12 | ) | (125 | ) | (38.5 | ) | (19.9 | ) | (93 | ) | |||||||||||
Operating earnings before taxes | 0.71 | 0.61 | 102.2 | 96.7 | |||||||||||||||||||
Income tax expense on operating income | (0.16 | ) | (0.13 | ) | (23 | ) | (22.8 | ) | (20.3 | ) | (12 | ) | |||||||||||
Net operating income (1) | 0.55 | 0.48 | 15 | 79.4 | 76.4 | 4 | |||||||||||||||||
Net realized investment gains (losses) from sales, impairments and change in allowance for credit losses (net of related amortization) | 0.09 | (0.01 | ) | 12.3 | (1.7 | ) | |||||||||||||||||
Net change in market value of investments recognized in earnings | 0.21 | 0.04 | 31.2 | 6.8 | |||||||||||||||||||
Fair value changes in embedded derivative liabilities (net of related amortization) | (0.19 | ) | (0.22 | ) | (27.1 | ) | (35.9 | ) | |||||||||||||||
Loss on extinguishment of debt | — | (0.04 | ) | — | (7.3 | ) | |||||||||||||||||
Other | (0.09 | ) | (0.07 | ) | (13.2 | ) | (10.9 | ) | |||||||||||||||
Non-operating income (loss) before taxes | 0.02 | (0.30 | ) | 3.2 | (49.0 | ) | |||||||||||||||||
Income tax expense (benefit) on non-operating income (loss) | — | (0.06 | ) | 0.6 | (10.2 | ) | |||||||||||||||||
Net non-operating income (loss) | 0.02 | (0.24 | ) | 2.6 | (38.8 | ) | |||||||||||||||||
Net income | $ | 0.57 | $ | 0.24 | $ | 82.0 | $ | 37.6 | |||||||||||||||
Weighted average diluted shares outstanding | 143.9 | 159.7 |
(a) | GAAP is defined as accounting principles generally accepted in the United States of America. |
(b) | Income from insurance products is the sum of the insurance margins of the annuity, health, life and long-term care segments, less allocated insurance administrative expenses. It excludes the fee income segment, excess investment income, parent company expenses and income taxes. Insurance margin is management’s measure of the profitability of its annuity, health, life and long-term care segments’ performance and consists of premiums plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs. |
(c) | Investment income not allocated to product lines is defined as net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable and investment borrowings; and (iv) certain expenses related to benefit plans that are offset by special-purpose investment income. |
Quarter ended | |||||||
June 30, | |||||||
2020 | 2019 | ||||||
Trailing twelve months return on equity (a) | 8.7 | % | (10.9 | )% | |||
Trailing twelve months operating return, excluding significant items, on equity, excluding accumulated other comprehensive income and net operating loss carryforwards (a non-GAAP financial measure) (6) | 10.5 | % | 10.9 | % | |||
Shareholders’ equity | $ | 4,731.2 | $ | 4,252.2 | |||
Accumulated other comprehensive income | (1,520.2 | ) | (1,098.2 | ) | |||
Shareholders’ equity, excluding accumulated other comprehensive income | 3,211.0 | 3,154.0 | |||||
Net operating loss carryforwards | (426.8 | ) | (451.1 | ) | |||
Shareholders' equity, excluding accumulated other comprehensive income and net operating loss carryforwards | $ | 2,784.2 | $ | 2,702.9 | |||
Book value per diluted share | $ | 33.22 | $ | 26.97 | |||
Accumulated other comprehensive income | (10.67 | ) | (6.97 | ) | |||
Book value per diluted share, excluding accumulated other comprehensive income (a non-GAAP financial measure) (2) | $ | 22.55 | $ | 20.00 |
Quarter ended June 30, | ||||||||||
2020 | 2019 | % change | ||||||||
Annuity collected premiums | $ | 242.7 | $ | 341.2 | (29 | ) |
Quarter ended June 30, | ||||||||||
2020 | 2019 | % change | ||||||||
Annuity riders | $ | 4.5 | $ | 4.2 | 7 | |||||
Health | 360.1 | 358.1 | 1 | |||||||
Life | 194.3 | 189.0 | 3 | |||||||
Long-term care | 66.4 | 67.0 | (1 | ) | ||||||
Total insurance policy income | $ | 625.3 | $ | 618.3 | 1 |
Quarter ended June 30, | ||||||||||
2020 | 2019 | % change | ||||||||
Health | $ | 17.7 | $ | 39.4 | (55 | ) | ||||
Life | 47.4 | 39.4 | 20 | |||||||
Long-term care | 4.3 | 6.4 | (33 | ) | ||||||
Total new annualized premiums (4) | $ | 69.4 | $ | 85.2 | (19 | ) |
Quarter ended | |||||||||||||||
June 30, 2020 | % of insurance policy income | June 30, 2019 | % of insurance policy income | % change | |||||||||||
Margin | |||||||||||||||
Annuity interest margin | $ | 123.8 | $ | 57.2 | 116 | ||||||||||
Life insurance interest margin | 11.7 | 16.6 | (30 | ) | |||||||||||
Total interest-sensitive margin | 135.5 | 73.8 | 84 | ||||||||||||
Insurance margin | |||||||||||||||
Health | 82.3 | 23 | 78.3 | 22 | 5 | ||||||||||
Life (a) | 24.4 | 16 | 35.1 | 23 | (30 | ) | |||||||||
Long-term care | 13.2 | 20 | 11.9 | 18 | 11 | ||||||||||
Total other insurance margin | 119.9 | 21 | 125.3 | 22 | (4 | ) | |||||||||
Total insurance margin | 255.4 | 199.1 | |||||||||||||
Allocated expenses | (128.1 | ) | (135.2 | ) | |||||||||||
Income from insurance products | $ | 127.3 | $ | 63.9 | |||||||||||
Per diluted share | $ | 0.88 | $ | 0.40 | |||||||||||
Weighted average diluted shares | 143.9 | 159.7 |
(a) | Net of $16.2 million and $15.0 million of non-deferred television advertising expense related to our direct distribution channel in the 2020 and 2019 periods, respectively. |
Annuity margin | |||||||
Quarter ended | |||||||
June 30, | |||||||
2020 | 2019 | ||||||
Fixed index annuities | $ | 111.7 | $ | 41.5 | |||
Fixed interest annuities | 0.8 | 12.5 | |||||
Other annuities | 11.3 | 3.2 | |||||
Total | $ | 123.8 | $ | 57.2 |
Annuity collected premiums | |||||||
Quarter ended | |||||||
June 30, | |||||||
2020 | 2019 | ||||||
Annuity collected premiums | $ | 242.7 | $ | 341.2 |
Average net insurance liabilities (5) | |||||||
Quarter ended | |||||||
June 30, | |||||||
2020 | 2019 | ||||||
Fixed index annuities | $ | 7,056.3 | $ | 6,388.9 | |||
Fixed interest annuities | 2,088.2 | 2,337.9 | |||||
Other annuities | 533.5 | 574.4 | |||||
Total | $ | 9,678.0 | $ | 9,301.2 |
Margin/average net insurance liabilities (a) | |||||
Quarter ended | |||||
June 30, | |||||
2020 | 2019 | ||||
Fixed index annuities | 6.33 | % | 2.60 | % | |
Fixed interest annuities | 0.15 | % | 2.14 | % | |
Other annuities | 8.47 | % | 2.23 | % | |
Total | 5.12 | % | 2.46 | % |
(a) | Defined as annualized quarterly annuity margin divided by average net insurance liabilities (5). |
Health margin | ||||||||||||||
Quarter ended | ||||||||||||||
June 30, | ||||||||||||||
2020 | 2019 | |||||||||||||
Amount | % of insurance policy income | Amount | % of insurance policy income | % change | ||||||||||
Supplemental health and other health | $ | 40.4 | 24 | $ | 42.4 | 26 | (5 | ) | ||||||
Medicare supplement | 41.9 | 22 | 35.9 | 19 | 17 | |||||||||
Total | $ | 82.3 | 23 | $ | 78.3 | 22 | 5 |
Health insurance policy income | ||||||||||
Quarter ended | ||||||||||
June 30, | ||||||||||
2020 | 2019 | % change | ||||||||
Supplemental health and other health | $ | 169.8 | $ | 164.4 | 3 | |||||
Medicare supplement | 190.3 | 193.7 | (2 | ) | ||||||
Total | $ | 360.1 | $ | 358.1 | 1 |
Health NAP (4) | ||||||||||
Quarter ended | ||||||||||
June 30, | ||||||||||
2020 | 2019 | % change | ||||||||
Supplemental health and other health | $ | 8.8 | $ | 24.9 | (65 | ) | ||||
Medicare supplement | 8.9 | 14.5 | (39 | ) | ||||||
Total | $ | 17.7 | $ | 39.4 | (55 | ) |
Life margin | ||||||||||||||||
Quarter ended | ||||||||||||||||
June 30, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Amount | % of insurance policy income | Amount | % of insurance policy income | % change | ||||||||||||
Life insurance interest margin | $ | 1.0 | $ | 1.3 | (23 | ) | ||||||||||
Life insurance margin: | ||||||||||||||||
Traditional life | 24.4 | 16 | 35.1 | 23 | (30 | ) | ||||||||||
Interest sensitive life | 10.7 | 28 | 15.3 | 41 | (30 | ) | ||||||||||
Subtotal | 35.1 | 18 | 50.4 | 27 | (30 | ) | ||||||||||
Total margin | $ | 36.1 | $ | 51.7 | (30 | ) |
Life insurance policy income | |||||||||
Quarter ended | |||||||||
June 30, | |||||||||
2020 | 2019 | % change | |||||||
Traditional life | $ | 155.6 | $ | 151.7 | 3 | ||||
Interest sensitive life | 38.7 | 37.3 | 4 | ||||||
Total | $ | 194.3 | $ | 189.0 | 3 |
Life NAP (4) | ||||||||||
Quarter ended | ||||||||||
June 30, | ||||||||||
2020 | 2019 | % change | ||||||||
Traditional life | $ | 41.5 | $ | 29.8 | 39 | |||||
Interest sensitive life | 5.9 | 9.6 | (39 | ) | ||||||
Total | $ | 47.4 | $ | 39.4 | 20 |
Average net insurance liabilities (5) and interest margin | ||||||||||
Quarter ended | ||||||||||
June 30, | ||||||||||
2020 | 2019 | % change | ||||||||
Interest sensitive life products | $ | 913.5 | $ | 860.7 | 6 | |||||
Interest margin/average net insurance liabilities (5) | 0.44 | % | 0.60 | % | (27 | ) |
Long-term care margin | |||||||||||||
Quarter ended | |||||||||||||
June 30, | |||||||||||||
2020 | 2019 | ||||||||||||
Amount | % of insurance policy income | Amount | % of insurance policy income | % change | |||||||||
Long-term care | $ | 13.2 | 20 | $ | 11.9 | 18 | 11 |
Long-term care insurance policy income | ||||||||||
Quarter ended | ||||||||||
June 30, | ||||||||||
2020 | 2019 | % change | ||||||||
Long-term care | $ | 66.4 | $ | 67.0 | (1 | ) |
Long-term care NAP (4) | ||||||||||
Quarter ended | ||||||||||
June 30, | ||||||||||
2020 | 2019 | % change | ||||||||
Long-term care | $ | 4.3 | $ | 6.4 | (33 | ) |
Average Producing Agent Count | ||||||||
Quarter ended | ||||||||
June 30, | % | |||||||
2020 | 2019 | change | ||||||
Consumer | ||||||||
Producing agents | 4,066 | 4,602 | (12 | ) | ||||
Financial representatives | 602 | 595 | 1 | |||||
Worksite | 225 | 417 | (46 | ) |
Quarter ended June 30, | ||||||||||
2020 | 2019 | % change | ||||||||
Net investment income | $ | 318.8 | $ | 334.5 | (5 | ) | ||||
Allocated to product lines: | ||||||||||
Annuity | (116.6 | ) | (114.8 | ) | 2 | |||||
Health | (36.1 | ) | (35.8 | ) | 1 | |||||
Life | (34.7 | ) | (34.8 | ) | — | |||||
Long-term care | (34.0 | ) | (34.0 | ) | — | |||||
Equity returns credited to policyholder account balances | (50.7 | ) | (23.1 | ) | 119 | |||||
Amounts allocated to product lines and credited to policyholder account balances | (272.1 | ) | (242.5 | ) | 12 | |||||
Amount related to variable interest entities and other non-operating items | (9.6 | ) | (16.0 | ) | (40 | ) | ||||
Interest expense on corporate debt | (13.6 | ) | (12.6 | ) | 8 | |||||
Interest expense on investment borrowings | (5.8 | ) | (12.3 | ) | (53 | ) | ||||
Less amounts credited to deferred compensation plans (offsetting investment income) | (9.5 | ) | (2.8 | ) | 239 | |||||
Total adjustments | (38.5 | ) | $ | (43.7 | ) | |||||
Investment income not allocated to product lines | $ | 8.2 | $ | 48.3 | (83 | ) | ||||
Per share diluted share | $ | 0.06 | $ | 0.30 |
$ | % of total | ||||
Fixed maturities, available for sale, at fair value | $ | 22,167.9 | 85 | ||
Equity securities at fair value | 60.5 | — | |||
Mortgage loans | 1,459.9 | 6 | |||
Policy loans | 124.3 | — | |||
Trading securities | 240.6 | 1 | |||
Investments held by variable interest entities | 1,137.4 | 4 | |||
Other invested assets | 993.8 | 4 | |||
Total investment portfolio | $ | 26,184.4 | 100 |
Investment grade | Below investment grade | Total | |||||||||
Corporate securities | $ | 10,908.4 | $ | 742.8 | $ | 11,651.2 | |||||
United States Treasury securities and obligations of the United States government and agencies | 151.3 | — | 151.3 | ||||||||
States and political subdivisions | 2,161.5 | 12.9 | 2,174.4 | ||||||||
Debt securities issued by foreign governments | 85.6 | — | 85.6 | ||||||||
Asset-backed securities | 1,084.6 | 87.8 | 1,172.4 | ||||||||
Agency residential mortgage-backed securities | 67.8 | — | 67.8 | ||||||||
Non-agency residential mortgage-backed securities | 907.9 | 1,092.4 | (a) | 2,000.3 | |||||||
Collateralized loan obligations | 457.6 | — | 457.6 | ||||||||
Commercial mortgage-backed securities | 1,810.8 | 70.2 | 1,881.0 | ||||||||
Total | $ | 17,635.5 | $ | 2,006.1 | $ | 19,641.6 |
(a) | Certain structured securities rated below investment grade by Nationally Recognized Statistical Rating Organizations may be assigned a NAIC 1 or NAIC 2 designation based on the cost basis of the security relative to estimated recoverable amounts as determined by the National Association of Insurance Commissioners (NAIC). |
Fixed maturity acquisitions | |||||||
Quarter ended | |||||||
June 30, | |||||||
2020 | 2019 | ||||||
Total fixed maturity acquisitions | $ | 2,178.3 | $ | 1,644.6 | |||
Annual effective yield | 3.74 | 4.19 | |||||
Average rating | BBB+ | A- | |||||
Average life (in years) | 4.6 | 7.0 |
June 30, 2020 | December 31, 2019 | ||||||
ASSETS | |||||||
Investments: | |||||||
Fixed maturities, available for sale, at fair value (net of allowance for credit losses of $10.8 at June 30, 2020; amortized cost: June 30, 2020 - $19,641.6; December 31, 2019 - $19,179.5) | $ | 22,167.9 | $ | 21,295.2 | |||
Equity securities at fair value (cost: June 30, 2020 - $68.5; December 31, 2019 - $44.2) | 60.5 | 44.1 | |||||
Mortgage loans (net of allowance for credit losses of $11.6 at June 30, 2020) | 1,459.9 | 1,566.1 | |||||
Policy loans | 124.3 | 124.5 | |||||
Trading securities | 240.6 | 243.9 | |||||
Investments held by variable interest entities (net of allowance for credit losses of $27.7 at June 30, 2020; amortized cost: June 30, 2020 - $1,223.7; December 31, 2019 - $1,206.3) | 1,137.4 | 1,188.6 | |||||
Other invested assets | 993.8 | 1,118.5 | |||||
Total investments | 26,184.4 | 25,580.9 | |||||
Cash and cash equivalents - unrestricted | 521.1 | 580.0 | |||||
Cash and cash equivalents held by variable interest entities | 36.8 | 74.7 | |||||
Accrued investment income | 205.3 | 205.9 | |||||
Present value of future profits | 263.4 | 275.4 | |||||
Deferred acquisition costs | 1,120.9 | 1,215.5 | |||||
Reinsurance receivables (net of allowance for credit losses of $4.0 at June 30, 2020) | 4,712.6 | 4,785.7 | |||||
Income tax assets, net | 428.8 | 432.6 | |||||
Assets held in separate accounts | 3.7 | 4.2 | |||||
Other assets | 502.5 | 476.0 | |||||
Total assets | $ | 33,979.5 | $ | 33,630.9 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Liabilities: | |||||||
Liabilities for insurance products: | |||||||
Policyholder account liabilities | $ | 12,171.3 | $ | 12,132.3 | |||
Future policy benefits | 11,767.5 | 11,498.5 | |||||
Liability for policy and contract claims | 488.6 | 522.3 | |||||
Unearned and advanced premiums | 243.6 | 260.5 | |||||
Liabilities related to separate accounts | 3.7 | 4.2 | |||||
Other liabilities | 788.3 | 750.2 | |||||
Investment borrowings | 1,643.4 | 1,644.3 | |||||
Borrowings related to variable interest entities | 1,152.2 | 1,152.5 | |||||
Notes payable – direct corporate obligations | 989.7 | 989.1 | |||||
Total liabilities | 29,248.3 | 28,953.9 | |||||
Commitments and Contingencies | |||||||
Shareholders' equity: | |||||||
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: June 30, 2020 – 141,718,570; December 31, 2019 – 148,084,178) | 1.4 | 1.5 | |||||
Additional paid-in capital | 2,664.3 | 2,767.3 | |||||
Accumulated other comprehensive income | 1,520.2 | 1,372.5 | |||||
Retained earnings | 545.3 | 535.7 | |||||
Total shareholders' equity | 4,731.2 | 4,677.0 | |||||
Total liabilities and shareholders' equity | $ | 33,979.5 | $ | 33,630.9 |
Three months ended | Six months ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Revenues: | |||||||||||||||
Insurance policy income | $ | 625.3 | $ | 618.3 | $ | 1,254.0 | $ | 1,237.6 | |||||||
Net investment income: | |||||||||||||||
General account assets | 231.7 | 284.9 | 512.0 | 553.7 | |||||||||||
Policyholder and other special-purpose portfolios | 87.1 | 49.6 | (23.6 | ) | 136.6 | ||||||||||
Realized investment gains (losses): | |||||||||||||||
Net realized investment gains (losses) | 27.9 | 5.3 | (32.2 | ) | 23.6 | ||||||||||
Change in allowance for credit losses and other-than-temporary impairment losses (a) | 15.9 | — | (39.5 | ) | (2.2 | ) | |||||||||
Total realized gains (losses) | 43.8 | 5.3 | (71.7 | ) | 21.4 | ||||||||||
Fee revenue and other income | 26.3 | 21.7 | 60.7 | 53.5 | |||||||||||
Total revenues | 1,014.2 | 979.8 | 1,731.4 | 2,002.8 | |||||||||||
Benefits and expenses: | |||||||||||||||
Insurance policy benefits | 540.3 | 610.4 | 1,031.1 | 1,233.9 | |||||||||||
Interest expense | 28.4 | 38.6 | 61.8 | 79.6 | |||||||||||
Amortization | 88.5 | 46.2 | 138.7 | 104.4 | |||||||||||
Loss on extinguishment of debt | — | 7.3 | — | 7.3 | |||||||||||
Other operating costs and expenses | 251.6 | 229.6 | 465.4 | 464.3 | |||||||||||
Total benefits and expenses | 908.8 | 932.1 | 1,697.0 | 1,889.5 | |||||||||||
Income before income taxes | 105.4 | 47.7 | 34.4 | 113.3 | |||||||||||
Income tax expense (benefit): | |||||||||||||||
Tax expense on period income | 23.4 | 10.1 | 7.6 | 23.9 | |||||||||||
Valuation allowance for deferred tax assets and other tax items | — | — | (34.0 | ) | — | ||||||||||
Net income | $ | 82.0 | $ | 37.6 | $ | 60.8 | $ | 89.4 | |||||||
Earnings per common share: | |||||||||||||||
Basic: | |||||||||||||||
Weighted average shares outstanding | 143,421,000 | 158,816,000 | 144,625,000 | 159,882,000 | |||||||||||
Net income | $ | .57 | $ | .24 | $ | .42 | $ | .56 | |||||||
Diluted: | |||||||||||||||
Weighted average shares outstanding | 143,941,000 | 159,735,000 | 145,269,000 | 160,962,000 | |||||||||||
Net income | $ | .57 | $ | .24 | $ | .42 | $ | .56 |
(a) | No portion of the other-than-temporary impairments recognized in the 2019 periods was included in accumulated other comprehensive income. |
(1) | Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses from sales, impairments and the change in allowance for credit losses, net of related amortization and taxes; (ii) net change in market value of investments recognized in earnings, net of taxes; (iii) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and taxes; (iv) fair value changes related to the agent deferred compensation plan, net of taxes; (v) loss on extinguishment of debt, net of taxes; (vi) changes in the valuation allowance for deferred tax assets and other tax items; and (viii) other non-operating items consisting primarily of earnings attributable to variable interest entities, net of taxes ("Net operating income," a non-GAAP financial measure) is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry. Management uses this measure to evaluate performance because the items excluded from net operating income can be affected by events that are unrelated to the company's underlying fundamentals. A reconciliation of Net operating income to Net income applicable to common stock is provided in the table on page 2. 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, CNOinc.com. |
(2) | Book value per diluted share reflects the potential dilution that could occur if outstanding stock options were exercised, restricted stock and performance units were vested and convertible securities were converted. The dilution from options, restricted shares and performance units is calculated using the treasury stock method. Under this method, we assume the proceeds from the exercise of the options (or the unrecognized compensation expense with respect to restricted stock and performance units) will be used to purchase shares of our common stock at the closing market price on the last day of the period. The dilution from convertible securities is calculated assuming the securities were converted on the last day of the period. In addition, the calculation of this non-GAAP measure differs from the corresponding GAAP measure because accumulated other comprehensive income (loss) has been excluded from the value of capital used to determine this measure. Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in the unrealized appreciation (depreciation) of our investments. |
(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. |
(4) | Measured by new annualized premium for life and health products, which includes 10% of single premium whole life deposits and 100% of all other premiums (excluding annuities). Medicare Advantage sales are not comparable to other sales and are therefore excluded in all periods. |
(5) | Net insurance liabilities are equal to total insurance liabilities less: (i) amounts related to reinsured business; (ii) deferred acquisition costs; (iii) present value of future profits; and (iv) the value of unexpired options credited to insurance liabilities. |
(6) | The following summarizes the calculations of: (i) operating return on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) operating return, excluding significant items, on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); and (iii) return on equity are as follows (dollars in millions): |
Trailing twelve months ended | |||||||||
2Q20 | 2Q19 | ||||||||
Net operating income | $ | 311.5 | $ | 289.5 | |||||
Net operating income, excluding significant items | $ | 285.9 | $ | 304.6 | |||||
Net income (loss) | $ | 380.8 | $ | (412.1 | ) | ||||
Average common equity, excluding accumulated other | |||||||||
comprehensive income (loss) and net operating loss | |||||||||
carryforwards (a non-GAAP financial measure) | $ | 2,722.9 | $ | 2,782.7 | |||||
Average common shareholders' equity | $ | 4,372.0 | $ | 3,795.5 | |||||
Operating return on equity, excluding accumulated other | |||||||||
comprehensive income (loss) and net operating loss | |||||||||
carryforwards (a non-GAAP financial measure) | 11.4 | % | 10.4 | % | |||||
Operating return, excluding significant items, on equity, excluding | |||||||||
accumulated other comprehensive income (loss) and net | |||||||||
operating loss carryforwards (a non-GAAP financial measure) | 10.5 | % | 10.9 | % | |||||
Return on equity | 8.7 | % | (10.9 | )% |
Net operating | ||||||||||||||||||||||||
Net operating | income, | |||||||||||||||||||||||
income, | excluding | Net | ||||||||||||||||||||||
excluding | significant | income (loss) - | ||||||||||||||||||||||
Net operating | Significant | significant | items - trailing | Net | trailing | |||||||||||||||||||
income | items | items | four quarters | income (loss) | four quarters | |||||||||||||||||||
3Q18 | $ | 87.5 | $ | — | $ | 87.5 | $ | 321.8 | $ | (529.8 | ) | $ | (414.2 | ) | ||||||||||
4Q18 | 59.8 | 15.1 | (a) | 74.9 | 317.3 | 28.3 | (315.0 | ) | ||||||||||||||||
1Q19 | 65.8 | — | 65.8 | 310.1 | 51.8 | (347.5 | ) | |||||||||||||||||
2Q19 | 76.4 | — | 76.4 | 304.6 | 37.6 | (412.1 | ) | |||||||||||||||||
3Q19 | 69.2 | — | 69.2 | 286.3 | 42.0 | 159.7 | ||||||||||||||||||
4Q19 | 78.6 | (7.9 | ) | (b) | 70.7 | 282.1 | 278.0 | 409.4 | ||||||||||||||||
1Q20 | 84.3 | — | 84.3 | 300.6 | (21.2 | ) | 336.4 | |||||||||||||||||
2Q20 | 79.4 | (17.7 | ) | (c) | 61.7 | 285.9 | 82.0 | 380.8 | ||||||||||||||||
(a) Comprised of: (i) $.9 million of unfavorable adjustments arising from our comprehensive annual actuarial review of assumptions; (ii) $14.4 million unfavorable impact of current market conditions on the value of investments backing our Company-owned life insurance ("COLI") used as a vehicle to fund an agent deferred compensation plan; and (iii) a decrease in tax expense of $.2 million (changes in the value of COLI investments are not subject to income taxes). | ||||||||||||||||||||||||
(b) Comprised of: (i) $10.0 million of unfavorable adjustments arising from our comprehensive annual actuarial review of assumptions; (ii) $20.0 million of the net favorable impact from legal and regulatory matters; and (iii) an increase in tax expense of $2.1 million. | ||||||||||||||||||||||||
(c) Comprised of: (i) $45.9 million of net favorable adjustments arising from our review of actuarial assumptions; (ii) $23.5 million unfavorable impact related to regulatory matters; and (iii) an increase in tax expense of $4.7 million. | ||||||||||||||||||||||||
Twelve months ended | |||||||||
2Q20 | 2Q19 | ||||||||
Pretax operating earnings (a non-GAAP financial measure) | $ | 395.9 | $ | 362.3 | |||||
Income tax expense | (84.4 | ) | (72.8 | ) | |||||
Net operating income | 311.5 | 289.5 | |||||||
Non-operating items: | |||||||||
Net realized investment gains (losses) from sales and impairments, net of related amortization | (46.9 | ) | 24.1 | ||||||
Net change in market value of investments recognized in earnings | (15.1 | ) | (9.4 | ) | |||||
Fair value changes in embedded derivative liabilities, net of related amortization | (109.7 | ) | (43.4 | ) | |||||
Fair value changes related to the agent deferred compensation plan | (16.7 | ) | (16.0 | ) | |||||
Loss on reinsurance transaction | — | (704.2 | ) | ||||||
Loss on extinguishment of debt | — | (7.3 | ) | ||||||
Other | (12.2 | ) | 4.5 | ||||||
Non-operating loss before taxes | (200.6 | ) | (751.7 | ) | |||||
Income tax expense (benefit): | |||||||||
On non-operating loss | (42.2 | ) | (157.9 | ) | |||||
Valuation allowance for deferred tax assets and other tax items | (227.7 | ) | 107.8 | ||||||
Net non-operating income (loss) | 69.3 | (701.6 | ) | ||||||
Net income (loss) | $ | 380.8 | $ | (412.1 | ) | ||||
1Q18 | 2Q18 | 3Q18 | 4Q18 | ||||||||||||||
Consolidated capital, excluding accumulated other comprehensive | |||||||||||||||||
income (loss) and net operating loss carryforwards | |||||||||||||||||
(a non-GAAP financial measure) | $ | 3,318.7 | $ | 3,366.0 | $ | 2,705.8 | $ | 2,687.3 | |||||||||
Net operating loss carryforwards | 404.2 | 388.7 | 510.6 | 505.9 | |||||||||||||
Accumulated other comprehensive income | 894.3 | 700.2 | 403.5 | 177.7 | |||||||||||||
Common shareholders' equity | $ | 4,617.2 | $ | 4,454.9 | $ | 3,619.9 | $ | 3,370.9 | |||||||||
1Q19 | 2Q19 | 3Q19 | 4Q19 | ||||||||||||||
Consolidated capital, excluding accumulated other comprehensive | |||||||||||||||||
income (loss) and net operating loss carryforwards | |||||||||||||||||
(a non-GAAP financial measure) | $ | 2,703.4 | $ | 2,702.9 | $ | 2,685.0 | $ | 2,761.9 | |||||||||
Net operating loss carryforwards | 479.6 | 451.1 | 425.4 | 542.6 | |||||||||||||
Accumulated other comprehensive income | 654.9 | 1,098.2 | 1,442.9 | 1,372.5 | |||||||||||||
Common shareholders' equity | $ | 3,837.9 | $ | 4,252.2 | $ | 4,553.3 | $ | 4,677.0 | |||||||||
1Q20 | 2Q20 | ||||||||||||||||
Consolidated capital, excluding accumulated other comprehensive | |||||||||||||||||
income (loss) and net operating loss carryforwards | |||||||||||||||||
(a non-GAAP financial measure) | $ | 2,701.2 | $ | 2,784.2 | |||||||||||||
Net operating loss carryforwards | 469.4 | 426.8 | |||||||||||||||
Accumulated other comprehensive income | 595.2 | 1,520.2 | |||||||||||||||
Common shareholders' equity | $ | 3,765.8 | $ | 4,731.2 | |||||||||||||
Trailing four quarter average | |||||||||
2Q20 | 2Q19 | ||||||||
Consolidated capital, excluding accumulated other comprehensive | |||||||||
income (loss) and net operating loss carryforwards | |||||||||
(a non-GAAP financial measure) | $ | 2,722.9 | $ | 2,782.7 | |||||
Net operating loss carryforwards | 469.1 | 479.0 | |||||||
Accumulated other comprehensive income | 1,180.0 | 533.8 | |||||||
Common shareholders' equity | $ | 4,372.0 | $ | 3,795.5 |
(7) | The table below summarizes the financial impact of significant items on our 2Q20 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results. |
Three months ended | ||||||||||||
June 30, 2020 | ||||||||||||
Actual results | Significant items | Excluding significant items | ||||||||||
Insurance product margin | ||||||||||||
Annuity margin | $ | 123.8 | $ | 40.0 | (a) | $ | 72.3 | |||||
(91.5 | ) | (a) | ||||||||||
Health margin | 82.3 | — | 82.3 | |||||||||
Life margin | 36.1 | 5.6 | (a) | 41.7 | ||||||||
Long-term care margin | 13.2 | — | 13.2 | |||||||||
Total insurance product margin | 255.4 | (45.9 | ) | 209.5 | ||||||||
Allocated expenses | (128.1 | ) | — | (128.1 | ) | |||||||
Income from insurance products | 127.3 | (45.9 | ) | 81.4 | ||||||||
Fee income | 5.2 | — | 5.2 | |||||||||
Investment income not allocated to product lines | 8.2 | — | 8.2 | |||||||||
Expenses not allocated to product lines | (38.5 | ) | 23.5 | (b) | (15.0 | ) | ||||||
Operating earnings before taxes | 102.2 | (22.4 | ) | 79.8 | ||||||||
Income tax (expense) benefit on operating income | (22.8 | ) | 4.7 | (18.1 | ) | |||||||
Net operating income | $ | 79.4 | $ | (17.7 | ) | $ | 61.7 | |||||
Net operating income per diluted share | $ | 0.55 | $ | (0.12 | ) | $ | 0.43 |
(a) | Given our expectation that interest rates will remain low for the long-term, we performed an actuarial unlocking exercise in the second quarter of 2020 to reflect our assumption that average new money rates will remain flat at 4 percent forever. This change and the related impacts to persistency assumptions had a $45.6 million unfavorable impact on pre-tax earnings. As part of the actuarial unlocking exercise, we also changed our assumptions related to the future option costs we incur in providing benefits on fixed index annuities which had a favorable impact on pre-tax earnings of $91.5 million. The impact of these changes in assumptions is summarized below (dollars in millions): |
Line of business | |||||||||||||||
Fixed index annuities | Fixed interest annuities | Interest- sensitive life | Total | ||||||||||||
Favorable (unfavorable) | |||||||||||||||
Impacts of an average new money rate assumption of 4 percent | |||||||||||||||
Insurance policy benefits | $ | (5.0 | ) | $ | — | $ | (7.4 | ) | $ | (12.4 | ) | ||||
Amortization | (25.6 | ) | (9.4 | ) | 1.8 | (33.2 | ) | ||||||||
Subtotal | (30.6 | ) | (9.4 | ) | (5.6 | ) | (45.6 | ) | |||||||
Impacts of changes in future option costs | |||||||||||||||
Insurance policy benefits | 104.8 | — | — | 104.8 | |||||||||||
Amortization | (13.3 | ) | — | — | (13.3 | ) | |||||||||
Subtotal | 91.5 | — | — | 91.5 | |||||||||||
Impact on pre-tax income | $ | 60.9 | $ | (9.4 | ) | $ | (5.6 | ) | $ | 45.9 |
(b) | We increased our liability for claims and interest pursuant to the previously disclosed Global Resolution Agreement entered into in November 2018. Pursuant to this agreement, a third-party auditor is acting on behalf of 41 states and the District of Columbia for the purpose of identifying deceased insureds and contract holders where benefits are payable pursuant to unclaimed property laws. The third-party auditor has provided information that we have processed and verified allowing us to more accurately estimate the ultimate liability pursuant to this agreement. |
Quarterly Financial Supplement - 2Q2020 | |||||
August 4, 2020 | |||||
Table of Contents | Page | |||
Consolidated balance sheet | 3 | |||
Consolidated statement of operations | 4 | |||
Financial summary | 5 | |||
Insurance operations | 6 | |||
Margin from insurance products | 7-10 | |||
Collected premiums from annuity and interest sensitive life products and insurance policy income | 11 | |||
Health and life new annualized premiums | 12 | |||
Computation of weighted average shares outstanding | 13 | |||
Annuities - account value rollforwards | 14 | |||
Statutory information | 15 | |||
Investment income not allocated to product lines and investment income allocated to product lines | 16-19 | |||
Other investment data | 19 | |||
Significant items | 20-21 | |||
Notes | 22 |
Mar-19 | Jun-19 | Sep-19 | Dec-19 | Mar-20 | Jun-20 | ||||||||||||||||||
Assets | |||||||||||||||||||||||
Investments: | |||||||||||||||||||||||
Fixed maturities, available for sale, at fair value | $ | 19,468.4 | $ | 20,437.2 | $ | 21,089.2 | $ | 21,295.2 | $ | 20,379.1 | $ | 22,167.9 | |||||||||||
Equity securities at fair value | 40.8 | 38.8 | 39.3 | 44.1 | 50.1 | 60.5 | |||||||||||||||||
Mortgage loans | 1,626.1 | 1,596.5 | 1,561.7 | 1,566.1 | 1,484.1 | 1,459.9 | |||||||||||||||||
Policy loans | 121.3 | 121.6 | 122.8 | 124.5 | 124.7 | 124.3 | |||||||||||||||||
Trading securities | 237.9 | 248.3 | 247.3 | 243.9 | 227.8 | 240.6 | |||||||||||||||||
Investments held by variable interest entities | 1,241.4 | 1,215.2 | 1,204.2 | 1,188.6 | 1,038.1 | 1,137.4 | |||||||||||||||||
Other invested assets | 943.3 | 1,018.8 | 1,070.9 | 1,118.5 | 953.3 | 993.8 | |||||||||||||||||
Total investments | 23,679.2 | 24,676.4 | 25,335.4 | 25,580.9 | 24,257.2 | 26,184.4 | |||||||||||||||||
Cash and cash equivalents - unrestricted | 621.6 | 557.4 | 760.3 | 580.0 | 482.0 | 521.1 | |||||||||||||||||
Cash and cash equivalents held by variable interest entities | 69.7 | 50.5 | 61.7 | 74.7 | 68.5 | 36.8 | |||||||||||||||||
Accrued investment income | 214.8 | 211.2 | 212.7 | 205.9 | 213.0 | 205.3 | |||||||||||||||||
Present value of future profits | 333.6 | 299.3 | 284.0 | 275.4 | 282.2 | 263.4 | |||||||||||||||||
Deferred acquisition costs | 1,289.1 | 1,253.2 | 1,138.8 | 1,215.5 | 1,398.6 | 1,120.9 | |||||||||||||||||
Reinsurance receivables | 4,879.7 | 4,829.4 | 4,802.4 | 4,785.7 | 4,727.5 | 4,712.6 | |||||||||||||||||
Income tax assets, net | 479.9 | 348.3 | 241.5 | 432.6 | 703.2 | 428.8 | |||||||||||||||||
Assets held in separate accounts | 4.9 | 4.9 | 4.2 | 4.2 | 3.2 | 3.7 | |||||||||||||||||
Other assets | 741.9 | 485.4 | 438.8 | 476.0 | 599.6 | 502.5 | |||||||||||||||||
Total assets | $ | 32,314.4 | $ | 32,716.0 | $ | 33,279.8 | $ | 33,630.9 | $ | 32,735.0 | $ | 33,979.5 | |||||||||||
Liabilities | |||||||||||||||||||||||
Liabilities for insurance products: | |||||||||||||||||||||||
Policyholder account liabilities | $ | 11,676.9 | $ | 11,851.4 | $ | 11,998.9 | $ | 12,132.3 | $ | 12,138.1 | $ | 12,171.3 | |||||||||||
Future policy benefits | 11,234.2 | 11,314.3 | 11,423.2 | 11,498.5 | 11,429.9 | 11,767.5 | |||||||||||||||||
Liability for policy and contract claims | 521.0 | 517.8 | 508.9 | 522.3 | 510.7 | 488.6 | |||||||||||||||||
Unearned and advanced premiums | 255.9 | 248.1 | 242.8 | 260.5 | 251.0 | 243.6 | |||||||||||||||||
Liabilities related to separate accounts | 4.9 | 4.9 | 4.2 | 4.2 | 3.2 | 3.7 | |||||||||||||||||
Other liabilities | 804.0 | 740.2 | 762.0 | 750.2 | 850.7 | 788.3 | |||||||||||||||||
Investment borrowings | 1,645.5 | 1,645.2 | 1,644.8 | 1,644.3 | 1,643.9 | 1,643.4 | |||||||||||||||||
Borrowings related to variable interest entities | 1,416.8 | 1,153.6 | 1,153.0 | 1,152.5 | 1,152.3 | 1,152.2 | |||||||||||||||||
Notes payable - direct corporate obligations | 917.3 | 988.3 | 988.7 | 989.1 | 989.4 | 989.7 | |||||||||||||||||
Total liabilities | 28,476.5 | 28,463.8 | 28,726.5 | 28,953.9 | 28,969.2 | 29,248.3 | |||||||||||||||||
Shareholders' equity | |||||||||||||||||||||||
Common stock | 1.6 | 1.6 | 1.5 | 1.5 | 1.4 | 1.4 | |||||||||||||||||
Additional paid-in capital | 2,952.2 | 2,903.2 | 2,834.6 | 2,767.3 | 2,688.5 | 2,664.3 | |||||||||||||||||
Retained earnings | 229.2 | 249.2 | 274.3 | 535.7 | 480.7 | 545.3 | |||||||||||||||||
Total shareholders' equity before accumulated other comprehensive income | 3,183.0 | 3,154.0 | 3,110.4 | 3,304.5 | 3,170.6 | 3,211.0 | |||||||||||||||||
Accumulated other comprehensive income | 654.9 | 1,098.2 | 1,442.9 | 1,372.5 | 595.2 | 1,520.2 | |||||||||||||||||
Total shareholders' equity | 3,837.9 | 4,252.2 | 4,553.3 | 4,677.0 | 3,765.8 | 4,731.2 | |||||||||||||||||
Total liabilities and shareholders' equity | $ | 32,314.4 | $ | 32,716.0 | $ | 33,279.8 | $ | 33,630.9 | $ | 32,735.0 | $ | 33,979.5 | |||||||||||
Mar-19 | Jun-19 | Sep-19 | Dec-19 | Mar-20 | Jun-20 | ||||||||||||||||||
Book value per common share | $ | 23.99 | $ | 27.12 | $ | 29.92 | $ | 31.58 | $ | 26.22 | $ | 33.38 | |||||||||||
Book value per common share, excluding accumulated other comprehensive income (1) (2) | $ | 19.90 | $ | 20.12 | $ | 20.44 | $ | 22.32 | $ | 22.08 | $ | 22.66 | |||||||||||
Book value per diluted share (1) (3) | $ | 19.76 | $ | 20.00 | $ | 20.30 | $ | 22.09 | $ | 22.03 | $ | 22.55 | |||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | |||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||
Insurance policy income | $ | 619.3 | $ | 618.3 | $ | 620.0 | $ | 623.2 | $ | 2,480.8 | $ | 628.7 | $ | 625.3 | |||||||||||||
Net investment income: | |||||||||||||||||||||||||||
General account assets | 268.8 | 284.9 | 274.1 | 270.2 | 1,098.0 | 280.3 | 231.7 | ||||||||||||||||||||
Policyholder and other special-purpose portfolios | 87.0 | 49.6 | 25.4 | 102.9 | 264.9 | (110.7 | ) | 87.1 | |||||||||||||||||||
Realized investment gains (losses): | |||||||||||||||||||||||||||
Net realized investment gains (losses) | 18.3 | 5.3 | 5.7 | 11.3 | 40.6 | (60.1 | ) | 27.9 | |||||||||||||||||||
Change in allowance for credit losses and other-than-temporary impairment losses (a) | (2.2 | ) | — | (3.4 | ) | (6.8 | ) | (12.4 | ) | (55.4 | ) | 15.9 | |||||||||||||||
Total realized gains (losses) | 16.1 | 5.3 | 2.3 | 4.5 | 28.2 | (115.5 | ) | 43.8 | |||||||||||||||||||
Fee revenue and other income | 31.8 | 21.7 | 22.2 | 68.2 | 143.9 | 34.4 | 26.3 | ||||||||||||||||||||
Total revenues | 1,023.0 | 979.8 | 944.0 | 1,069.0 | 4,015.8 | 717.2 | 1,014.2 | ||||||||||||||||||||
Benefits and expenses | |||||||||||||||||||||||||||
Insurance policy benefits | 623.5 | 610.4 | 582.8 | 600.3 | 2,417.0 | 490.8 | 540.3 | ||||||||||||||||||||
Interest expense | 41.0 | 38.6 | 37.5 | 35.2 | 152.3 | 33.4 | 28.4 | ||||||||||||||||||||
Amortization | 58.2 | 46.2 | 51.6 | 76.1 | 232.1 | 50.2 | 88.5 | ||||||||||||||||||||
Loss on extinguishment of debt | — | 7.3 | — | — | 7.3 | — | — | ||||||||||||||||||||
Other operating costs and expenses | 234.7 | 229.6 | 218.6 | 250.0 | 932.9 | 213.8 | 251.6 | ||||||||||||||||||||
Total benefits and expenses | 957.4 | 932.1 | 890.5 | 961.6 | 3,741.6 | 788.2 | 908.8 | ||||||||||||||||||||
Income (loss) before income taxes | 65.6 | 47.7 | 53.5 | 107.4 | 274.2 | (71.0 | ) | 105.4 | |||||||||||||||||||
Income tax expense (benefit) on period income | 13.8 | 10.1 | 11.5 | 23.1 | 58.5 | (15.8 | ) | 23.4 | |||||||||||||||||||
Valuation allowance for deferred tax assets and other tax items | — | — | — | (193.7 | ) | (193.7 | ) | (34.0 | ) | — | |||||||||||||||||
Net income (loss) | $ | 51.8 | $ | 37.6 | $ | 42.0 | $ | 278.0 | $ | 409.4 | $ | (21.2 | ) | $ | 82.0 | ||||||||||||
(a) | No portion of the other-than-temporary impairments recognized in the 2019 periods was included in accumulated other comprehensive income. |
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | |||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||||||||
Insurance product margin (4) | |||||||||||||||||||||||||||
Annuity margin | $ | 56.2 | $ | 57.2 | $ | 56.2 | $ | 60.5 | $ | 230.1 | $ | 59.5 | $ | 123.8 | |||||||||||||
Health margin | 78.9 | 78.3 | 77.0 | 79.0 | 313.2 | 73.6 | 82.3 | ||||||||||||||||||||
Life margin | 43.1 | 51.7 | 54.6 | 46.7 | 196.1 | 44.3 | 36.1 | ||||||||||||||||||||
Long-term care margin | 11.5 | 11.9 | 12.3 | 14.0 | 49.7 | 13.3 | 13.2 | ||||||||||||||||||||
Total insurance product margin | 189.7 | 199.1 | 200.1 | 200.2 | 789.1 | 190.7 | 255.4 | ||||||||||||||||||||
Allocated expenses | (135.9 | ) | (135.2 | ) | (131.3 | ) | (140.6 | ) | (543.0 | ) | (136.6 | ) | (128.1 | ) | |||||||||||||
Income from insurance products (5) | 53.8 | 63.9 | 68.8 | 59.6 | 246.1 | 54.1 | 127.3 | ||||||||||||||||||||
Fee income | 4.4 | 4.4 | 3.0 | 11.7 | 23.5 | 7.8 | 5.2 | ||||||||||||||||||||
Investment income not allocated to product lines (9) | 43.3 | 48.3 | 34.3 | 26.2 | 152.1 | 57.4 | 8.2 | ||||||||||||||||||||
Expenses not allocated to product lines | (18.1 | ) | (19.9 | ) | (18.2 | ) | 2.8 | (53.4 | ) | (13.8 | ) | (38.5 | ) | ||||||||||||||
Operating earnings before taxes | 83.4 | 96.7 | 87.9 | 100.3 | 368.3 | 105.5 | 102.2 | ||||||||||||||||||||
Income tax expense on operating income | (17.6 | ) | (20.3 | ) | (18.7 | ) | (21.7 | ) | (78.3 | ) | (21.2 | ) | (22.8 | ) | |||||||||||||
Net operating income (10) | 65.8 | 76.4 | 69.2 | 78.6 | 290.0 | 84.3 | 79.4 | ||||||||||||||||||||
Net realized investment gains (losses) from sales, impairments and change in allowance for credit losses (net of related amortization) | (0.7 | ) | (1.7 | ) | (2.6 | ) | 7.1 | 2.1 | (63.7 | ) | 12.3 | ||||||||||||||||
Net change in market value of investments recognized in earnings | 16.6 | 6.8 | 4.7 | (2.6 | ) | 25.5 | (48.4 | ) | 31.2 | ||||||||||||||||||
Fair value changes related to agent deferred compensation plan | (5.3 | ) | (11.6 | ) | (6.0 | ) | 2.5 | (20.4 | ) | — | (13.2 | ) | |||||||||||||||
Fair value changes in embedded derivative liabilities (net of related amortization) | (29.6 | ) | (35.9 | ) | (29.3 | ) | 13.4 | (81.4 | ) | (66.7 | ) | (27.1 | ) | ||||||||||||||
Loss on extinguishment of debt | — | (7.3 | ) | — | — | (7.3 | ) | — | — | ||||||||||||||||||
Other | 1.2 | 0.7 | (1.2 | ) | (13.3 | ) | (12.6 | ) | 2.3 | — | |||||||||||||||||
Net non-operating income (loss) before taxes | (17.8 | ) | (49.0 | ) | (34.4 | ) | 7.1 | (94.1 | ) | (176.5 | ) | 3.2 | |||||||||||||||
Income tax expense (benefit) on non-operating income (loss) | (3.8 | ) | (10.2 | ) | (7.2 | ) | 1.4 | (19.8 | ) | (37.0 | ) | 0.6 | |||||||||||||||
Valuation allowance for deferred tax assets and other tax items | — | — | — | (193.7 | ) | (193.7 | ) | (34.0 | ) | — | |||||||||||||||||
Net non-operating income (loss) | (14.0 | ) | (38.8 | ) | (27.2 | ) | 199.4 | 119.4 | (105.5 | ) | 2.6 | ||||||||||||||||
Net income (loss) | $ | 51.8 | $ | 37.6 | $ | 42.0 | $ | 278.0 | $ | 409.4 | $ | (21.2 | ) | $ | 82.0 | ||||||||||||
Per diluted share | |||||||||||||||||||||||||||
Net operating income | $ | 0.41 | $ | 0.48 | $ | 0.45 | $ | 0.52 | $ | 1.85 | $ | 0.58 | $ | 0.55 | |||||||||||||
Net non-operating income (loss) | (0.09 | ) | (0.24 | ) | (0.18 | ) | 1.32 | 0.76 | (0.73 | ) | 0.02 | ||||||||||||||||
Net income (loss) | $ | 0.32 | $ | 0.24 | $ | 0.27 | $ | 1.84 | $ | 2.61 | $ | (0.15 | ) | $ | 0.57 | ||||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | |||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||||||||
Insurance product margin (4) | |||||||||||||||||||||||||||
Annuity: | |||||||||||||||||||||||||||
Insurance policy income | $ | 6.6 | $ | 4.2 | $ | 5.1 | $ | 5.2 | $ | 21.1 | $ | 5.6 | $ | 4.5 | |||||||||||||
Net investment income (5) (6) | 115.8 | 114.8 | 116.5 | 117.3 | 464.4 | 117.4 | 116.6 | ||||||||||||||||||||
Insurance policy benefits | (7.9 | ) | (5.1 | ) | (7.3 | ) | 7.5 | (12.8 | ) | (5.5 | ) | 107.7 | |||||||||||||||
Interest credited (6) | (43.2 | ) | (41.6 | ) | (42.0 | ) | (40.1 | ) | (166.9 | ) | (42.0 | ) | (43.6 | ) | |||||||||||||
Amortization and non-deferred commissions | (15.1 | ) | (15.1 | ) | (16.1 | ) | (29.4 | ) | (75.7 | ) | (16.0 | ) | (61.4 | ) | |||||||||||||
Annuity margin | 56.2 | 57.2 | 56.2 | 60.5 | 230.1 | 59.5 | 123.8 | ||||||||||||||||||||
Health: | |||||||||||||||||||||||||||
Insurance policy income | 358.2 | 358.1 | 358.1 | 359.0 | 1,433.4 | 362.1 | 360.1 | ||||||||||||||||||||
Net investment income (5) | 36.2 | 35.8 | 35.4 | 35.7 | 143.1 | 36.1 | 36.1 | ||||||||||||||||||||
Insurance policy benefits | (264.9 | ) | (272.7 | ) | (274.2 | ) | (271.3 | ) | (1,083.1 | ) | (269.6 | ) | (274.7 | ) | |||||||||||||
Amortization and non-deferred commissions | (50.6 | ) | (42.9 | ) | (42.3 | ) | (44.4 | ) | (180.2 | ) | (55.0 | ) | (39.2 | ) | |||||||||||||
Health margin | 78.9 | 78.3 | 77.0 | 79.0 | 313.2 | 73.6 | 82.3 | ||||||||||||||||||||
Life: | |||||||||||||||||||||||||||
Insurance policy income | 187.2 | 189.0 | 189.6 | 192.3 | 758.1 | 194.1 | 194.3 | ||||||||||||||||||||
Net investment income (5) (7) | 34.5 | 34.8 | 34.6 | 34.4 | 138.3 | 34.3 | 34.7 | ||||||||||||||||||||
Insurance policy benefits | (130.8 | ) | (126.2 | ) | (121.4 | ) | (135.2 | ) | (513.6 | ) | (131.9 | ) | (147.8 | ) | |||||||||||||
Interest credited (7) | (10.2 | ) | (10.6 | ) | (10.7 | ) | (10.4 | ) | (41.9 | ) | (10.3 | ) | (10.9 | ) | |||||||||||||
Amortization and non-deferred commissions | (20.9 | ) | (20.3 | ) | (21.4 | ) | (19.9 | ) | (82.5 | ) | (21.9 | ) | (18.0 | ) | |||||||||||||
Advertising expense | (16.7 | ) | (15.0 | ) | (16.1 | ) | (14.5 | ) | (62.3 | ) | (20.0 | ) | (16.2 | ) | |||||||||||||
Life margin | 43.1 | 51.7 | 54.6 | 46.7 | 196.1 | 44.3 | 36.1 | ||||||||||||||||||||
Long-term care: | |||||||||||||||||||||||||||
Insurance policy income | 67.3 | 67.0 | 67.2 | 66.7 | 268.2 | 66.9 | 66.4 | ||||||||||||||||||||
Net investment income (5) | 33.3 | 34.0 | 34.7 | 34.8 | 136.8 | 34.3 | 34.0 | ||||||||||||||||||||
Insurance policy benefits | (85.5 | ) | (85.7 | ) | (86.2 | ) | (84.4 | ) | (341.8 | ) | (84.2 | ) | (84.3 | ) | |||||||||||||
Amortization and non-deferred commissions | (3.6 | ) | (3.4 | ) | (3.4 | ) | (3.1 | ) | (13.5 | ) | (3.7 | ) | (2.9 | ) | |||||||||||||
Long-term care margin | 11.5 | 11.9 | 12.3 | 14.0 | 49.7 | 13.3 | 13.2 | ||||||||||||||||||||
Total insurance product margin | 189.7 | 199.1 | 200.1 | 200.2 | 789.1 | 190.7 | 255.4 | ||||||||||||||||||||
Allocated expenses: | |||||||||||||||||||||||||||
Branch office expenses | (22.3 | ) | (16.3 | ) | (18.3 | ) | (18.9 | ) | (75.8 | ) | (18.9 | ) | (15.1 | ) | |||||||||||||
Other allocated expenses | (113.6 | ) | (118.9 | ) | (113.0 | ) | (121.7 | ) | (467.2 | ) | (117.7 | ) | (113.0 | ) | |||||||||||||
Income from insurance products (8) | 53.8 | 63.9 | 68.8 | 59.6 | 246.1 | 54.1 | 127.3 | ||||||||||||||||||||
Fee income | 4.4 | 4.4 | 3.0 | 11.7 | 23.5 | 7.8 | 5.2 | ||||||||||||||||||||
Investment income not allocated to product lines (9) | 43.3 | 48.3 | 34.3 | 26.2 | 152.1 | 57.4 | 8.2 | ||||||||||||||||||||
Expenses not allocated to product lines | (18.1 | ) | (19.9 | ) | (18.2 | ) | 2.8 | (53.4 | ) | (13.8 | ) | (38.5 | ) | ||||||||||||||
Operating earnings before taxes | 83.4 | 96.7 | 87.9 | 100.3 | 368.3 | 105.5 | 102.2 | ||||||||||||||||||||
Income tax expense on operating income | (17.6 | ) | (20.3 | ) | (18.7 | ) | (21.7 | ) | (78.3 | ) | (21.2 | ) | (22.8 | ) | |||||||||||||
Net operating income (10) | $ | 65.8 | $ | 76.4 | $ | 69.2 | $ | 78.6 | $ | 290.0 | $ | 84.3 | $ | 79.4 | |||||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | |||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||||||||
Annuity margin (4): | |||||||||||||||||||||||||||
Fixed index annuities | |||||||||||||||||||||||||||
Insurance policy income | $ | 3.1 | $ | 2.8 | $ | 2.9 | $ | 2.8 | $ | 11.6 | $ | 3.3 | $ | 2.6 | |||||||||||||
Net investment income (5) (6) | 75.3 | 76.0 | 78.7 | 80.6 | 310.6 | 82.1 | 82.9 | ||||||||||||||||||||
Insurance policy benefits | 0.5 | (0.5 | ) | (1.1 | ) | 15.3 | 14.2 | (1.0 | ) | 104.1 | |||||||||||||||||
Interest credited (6) | (25.7 | ) | (24.7 | ) | (25.4 | ) | (24.0 | ) | (99.8 | ) | (26.2 | ) | (28.3 | ) | |||||||||||||
Amortization and non-deferred commissions | (12.1 | ) | (12.1 | ) | (12.9 | ) | (20.1 | ) | (57.2 | ) | (13.8 | ) | (49.6 | ) | |||||||||||||
Margin from fixed index annuities | $ | 41.1 | $ | 41.5 | $ | 42.2 | $ | 54.6 | $ | 179.4 | $ | 44.4 | $ | 111.7 | |||||||||||||
Average net insurance liabilities (11) | $ | 6,193.8 | $ | 6,388.9 | $ | 6,587.5 | $ | 6,751.0 | $ | 6,480.3 | $ | 6,921.4 | $ | 7,056.3 | |||||||||||||
Margin/average net insurance liabilities (12) | 2.65 | % | 2.60 | % | 2.56 | % | 3.24 | % | 2.77 | % | 2.57 | % | 6.33 | % | |||||||||||||
Fixed interest annuities | |||||||||||||||||||||||||||
Insurance policy income | $ | 0.5 | $ | 0.4 | $ | 0.4 | $ | 0.2 | $ | 1.5 | $ | 0.3 | $ | 0.1 | |||||||||||||
Net investment income (5) | 32.8 | 31.2 | 30.2 | 29.0 | 123.2 | 28.1 | 26.8 | ||||||||||||||||||||
Insurance policy benefits | (0.1 | ) | (0.1 | ) | — | (0.2 | ) | (0.4 | ) | (0.1 | ) | — | |||||||||||||||
Interest credited | (16.4 | ) | (16.0 | ) | (15.7 | ) | (15.2 | ) | (63.3 | ) | (14.9 | ) | (14.4 | ) | |||||||||||||
Amortization and non-deferred commissions | (3.0 | ) | (3.0 | ) | (3.2 | ) | (9.2 | ) | (18.4 | ) | (2.1 | ) | (11.7 | ) | |||||||||||||
Margin from fixed interest annuities | $ | 13.8 | $ | 12.5 | $ | 11.7 | $ | 4.6 | $ | 42.6 | $ | 11.3 | $ | 0.8 | |||||||||||||
Average net insurance liabilities (11) | $ | 2,417.3 | $ | 2,337.9 | $ | 2,263.4 | $ | 2,204.3 | $ | 2,305.7 | $ | 2,146.2 | $ | 2,088.2 | |||||||||||||
Margin/average net insurance liabilities (12) | 2.28 | % | 2.14 | % | 2.07 | % | 0.83 | % | 1.85 | % | 2.11 | % | 0.15 | % | |||||||||||||
Other annuities | |||||||||||||||||||||||||||
Insurance policy income | $ | 3.0 | $ | 1.0 | $ | 1.8 | $ | 2.2 | $ | 8.0 | $ | 2.0 | $ | 1.8 | |||||||||||||
Net investment income (5) | 7.7 | 7.6 | 7.6 | 7.7 | 30.6 | 7.2 | 6.9 | ||||||||||||||||||||
Insurance policy benefits | (8.3 | ) | (4.5 | ) | (6.2 | ) | (7.6 | ) | (26.6 | ) | (4.4 | ) | 3.6 | ||||||||||||||
Interest credited | (1.1 | ) | (0.9 | ) | (0.9 | ) | (0.9 | ) | (3.8 | ) | (0.9 | ) | (0.9 | ) | |||||||||||||
Amortization and non-deferred commissions | — | — | — | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||||||||||||
Margin from other annuities | $ | 1.3 | $ | 3.2 | $ | 2.3 | $ | 1.3 | $ | 8.1 | $ | 3.8 | $ | 11.3 | |||||||||||||
Average net insurance liabilities (11) | $ | 575.7 | $ | 574.4 | $ | 569.8 | $ | 565.0 | $ | 571.2 | $ | 551.5 | $ | 533.5 | |||||||||||||
Margin/average net insurance liabilities (12) | 0.90 | % | 2.23 | % | 1.61 | % | 0.92 | % | 1.42 | % | 2.76 | % | 8.47 | % | |||||||||||||
Total annuity margin | $ | 56.2 | $ | 57.2 | $ | 56.2 | $ | 60.5 | $ | 230.1 | $ | 59.5 | $ | 123.8 | |||||||||||||
Average net insurance liabilities (11) | $ | 9,186.8 | $ | 9,301.2 | $ | 9,420.7 | $ | 9,520.3 | $ | 9,357.2 | $ | 9,619.1 | $ | 9,678.0 | |||||||||||||
Margin/average net insurance liabilities (12) | 2.45 | % | 2.46 | % | 2.39 | % | 2.54 | % | 2.46 | % | 2.47 | % | 5.12 | % | |||||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | |||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||||||||
Health margin (4): | |||||||||||||||||||||||||||
Supplemental health | |||||||||||||||||||||||||||
Insurance policy income | $ | 163.2 | $ | 164.4 | $ | 165.3 | $ | 167.5 | $ | 660.4 | $ | 169.8 | $ | 169.8 | |||||||||||||
Net investment income (5) | 35.0 | 34.7 | 34.4 | 34.6 | 138.7 | 34.9 | 34.9 | ||||||||||||||||||||
Insurance policy benefits | (123.1 | ) | (128.9 | ) | (128.2 | ) | (126.9 | ) | (507.1 | ) | (132.9 | ) | (138.1 | ) | |||||||||||||
Amortization and non-deferred commissions | (27.6 | ) | (27.8 | ) | (27.6 | ) | (28.3 | ) | (111.3 | ) | (29.6 | ) | (26.2 | ) | |||||||||||||
Margin from supplemental health | $ | 47.5 | $ | 42.4 | $ | 43.9 | $ | 46.9 | $ | 180.7 | $ | 42.2 | $ | 40.4 | |||||||||||||
Margin/insurance policy income | 29 | % | 26 | % | 27 | % | 28 | % | 27 | % | 25 | % | 24 | % | |||||||||||||
Medicare supplement | |||||||||||||||||||||||||||
Insurance policy income | $ | 195.0 | $ | 193.7 | $ | 192.8 | $ | 191.5 | $ | 773.0 | $ | 192.3 | $ | 190.3 | |||||||||||||
Net investment income (5) | 1.2 | 1.1 | 1.0 | 1.1 | 4.4 | 1.2 | 1.2 | ||||||||||||||||||||
Insurance policy benefits | (141.8 | ) | (143.8 | ) | (146.0 | ) | (144.4 | ) | (576.0 | ) | (136.7 | ) | (136.6 | ) | |||||||||||||
Amortization and non-deferred commissions | (23.0 | ) | (15.1 | ) | (14.7 | ) | (16.1 | ) | (68.9 | ) | (25.4 | ) | (13.0 | ) | |||||||||||||
Margin from Medicare supplement | $ | 31.4 | $ | 35.9 | $ | 33.1 | $ | 32.1 | $ | 132.5 | $ | 31.4 | $ | 41.9 | |||||||||||||
Margin/insurance policy income | 16 | % | 19 | % | 17 | % | 17 | % | 17 | % | 16 | % | 22 | % | |||||||||||||
Total health margin | $ | 78.9 | $ | 78.3 | $ | 77.0 | $ | 79.0 | $ | 313.2 | $ | 73.6 | $ | 82.3 | |||||||||||||
Margin/insurance policy income | 22 | % | 22 | % | 22 | % | 22 | % | 22 | % | 20 | % | 23 | % | |||||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | |||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||||||||
Life margin (4): | |||||||||||||||||||||||||||
Interest sensitive life | |||||||||||||||||||||||||||
Insurance policy income | $ | 36.2 | $ | 37.3 | $ | 37.1 | $ | 38.0 | $ | 148.6 | $ | 39.6 | $ | 38.7 | |||||||||||||
Net investment income (5) (7) | 11.6 | 11.7 | 11.7 | 11.7 | 46.7 | 11.7 | 11.7 | ||||||||||||||||||||
Insurance policy benefits | (15.9 | ) | (14.9 | ) | (13.6 | ) | (23.2 | ) | (67.6 | ) | (15.7 | ) | (23.2 | ) | |||||||||||||
Interest credited (7) | (10.0 | ) | (10.4 | ) | (10.5 | ) | (10.2 | ) | (41.1 | ) | (10.2 | ) | (10.7 | ) | |||||||||||||
Amortization and non-deferred commissions | (7.0 | ) | (7.1 | ) | (6.7 | ) | (5.0 | ) | (25.8 | ) | (7.4 | ) | (4.8 | ) | |||||||||||||
Margin from interest sensitive life | $ | 14.9 | $ | 16.6 | $ | 18.0 | $ | 11.3 | $ | 60.8 | $ | 18.0 | $ | 11.7 | |||||||||||||
Average net insurance liabilities (11) | $ | 852.0 | $ | 860.7 | $ | 869.2 | $ | 883.4 | $ | 866.3 | $ | 900.1 | $ | 913.5 | |||||||||||||
Interest margin | $ | 1.6 | $ | 1.3 | $ | 1.2 | $ | 1.5 | $ | 5.6 | $ | 1.5 | $ | 1.0 | |||||||||||||
Interest margin/average net insurance liabilities (12) | 0.75 | % | 0.60 | % | 0.55 | % | 0.68 | % | 0.65 | % | 0.67 | % | 0.44 | % | |||||||||||||
Underwriting margin | $ | 13.3 | $ | 15.3 | $ | 16.8 | $ | 9.8 | $ | 55.2 | $ | 16.5 | $ | 10.7 | |||||||||||||
Underwriting margin/insurance policy income | 37 | % | 41 | % | 45 | % | 26 | % | 37 | % | 42 | % | 28 | % | |||||||||||||
Traditional life | |||||||||||||||||||||||||||
Insurance policy income | $ | 151.0 | $ | 151.7 | $ | 152.5 | $ | 154.3 | $ | 609.5 | $ | 154.5 | $ | 155.6 | |||||||||||||
Net investment income (5) | 22.9 | 23.1 | 22.9 | 22.7 | 91.6 | 22.6 | 23.0 | ||||||||||||||||||||
Insurance policy benefits | (114.9 | ) | (111.3 | ) | (107.8 | ) | (112.0 | ) | (446.0 | ) | (116.2 | ) | (124.6 | ) | |||||||||||||
Interest credited | (0.2 | ) | (0.2 | ) | (0.2 | ) | (0.2 | ) | (0.8 | ) | (0.1 | ) | (0.2 | ) | |||||||||||||
Amortization and non-deferred commissions | (13.9 | ) | (13.2 | ) | (14.7 | ) | (14.9 | ) | (56.7 | ) | (14.5 | ) | (13.2 | ) | |||||||||||||
Advertising expense | (16.7 | ) | (15.0 | ) | (16.1 | ) | (14.5 | ) | (62.3 | ) | (20.0 | ) | (16.2 | ) | |||||||||||||
Margin from traditional life | $ | 28.2 | $ | 35.1 | $ | 36.6 | $ | 35.4 | $ | 135.3 | $ | 26.3 | $ | 24.4 | |||||||||||||
Margin/insurance policy income | 19 | % | 23 | % | 24 | % | 23 | % | 22 | % | 17 | % | 16 | % | |||||||||||||
Margin excluding advertising expense/insurance policy income | 30 | % | 33 | % | 35 | % | 32 | % | 32 | % | 30 | % | 26 | % | |||||||||||||
Total life margin | $ | 43.1 | $ | 51.7 | $ | 54.6 | $ | 46.7 | $ | 196.1 | $ | 44.3 | $ | 36.1 | |||||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | |||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||||||||
Long-term care margin (4): | |||||||||||||||||||||||||||
Insurance policy income | $ | 67.3 | $ | 67.0 | $ | 67.2 | $ | 66.7 | $ | 268.2 | $ | 66.9 | $ | 66.4 | |||||||||||||
Net investment income (5) | 33.3 | 34.0 | 34.7 | 34.8 | 136.8 | 34.3 | 34.0 | ||||||||||||||||||||
Insurance policy benefits | (85.5 | ) | (85.7 | ) | (86.2 | ) | (84.4 | ) | (341.8 | ) | (84.2 | ) | (84.3 | ) | |||||||||||||
Amortization and non-deferred commissions | (3.6 | ) | (3.4 | ) | (3.4 | ) | (3.1 | ) | (13.5 | ) | (3.7 | ) | (2.9 | ) | |||||||||||||
Margin from long-term care | $ | 11.5 | $ | 11.9 | $ | 12.3 | $ | 14.0 | $ | 49.7 | $ | 13.3 | $ | 13.2 | |||||||||||||
Margin/insurance policy income | 17 | % | 18 | % | 18 | % | 21 | % | 19 | % | 20 | % | 20 | % | |||||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | |||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||||||||
Collected premiums from annuity and interest-sensitive life products: | |||||||||||||||||||||||||||
Annuities | $ | 315.7 | $ | 341.2 | $ | 325.2 | $ | 324.3 | $ | 1,306.4 | $ | 292.2 | $ | 242.7 | |||||||||||||
Interest-sensitive life | 47.5 | 51.9 | 51.1 | 50.8 | 201.3 | 53.1 | 51.3 | ||||||||||||||||||||
Total collected premiums from annuity and interest-sensitive life products | $ | 363.2 | $ | 393.1 | $ | 376.3 | $ | 375.1 | $ | 1,507.7 | $ | 345.3 | $ | 294.0 | |||||||||||||
Insurance policy income: | |||||||||||||||||||||||||||
Annuity products | |||||||||||||||||||||||||||
Fixed index annuities | $ | 3.1 | $ | 2.8 | $ | 2.9 | $ | 2.8 | $ | 11.6 | $ | 3.3 | $ | 2.6 | |||||||||||||
Fixed interest annuities | 0.5 | 0.4 | 0.4 | 0.2 | 1.5 | 0.3 | 0.1 | ||||||||||||||||||||
Other annuities | 3.0 | 1.0 | 1.8 | 2.2 | 8.0 | 2.0 | 1.8 | ||||||||||||||||||||
Total annuity insurance policy income | 6.6 | 4.2 | 5.1 | 5.2 | 21.1 | 5.6 | 4.5 | ||||||||||||||||||||
Health products | |||||||||||||||||||||||||||
Supplemental health | 163.2 | 164.4 | 165.3 | 167.5 | 660.4 | 169.8 | 169.8 | ||||||||||||||||||||
Medicare supplement | 195.0 | 193.7 | 192.8 | 191.5 | 773.0 | 192.3 | 190.3 | ||||||||||||||||||||
Total health insurance policy income | 358.2 | 358.1 | 358.1 | 359.0 | 1,433.4 | 362.1 | 360.1 | ||||||||||||||||||||
Life products | |||||||||||||||||||||||||||
Interest-sensitive life | 36.2 | 37.3 | 37.1 | 38.0 | 148.6 | 39.6 | 38.7 | ||||||||||||||||||||
Traditional life | 151.0 | 151.7 | 152.5 | 154.3 | 609.5 | 154.5 | 155.6 | ||||||||||||||||||||
Total life insurance policy income | 187.2 | 189.0 | 189.6 | 192.3 | 758.1 | 194.1 | 194.3 | ||||||||||||||||||||
Long-term care | 67.3 | 67.0 | 67.2 | 66.7 | 268.2 | 66.9 | 66.4 | ||||||||||||||||||||
Total insurance policy income | $ | 619.3 | $ | 618.3 | $ | 620.0 | $ | 623.2 | $ | 2,480.8 | $ | 628.7 | $ | 625.3 | |||||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | |||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||||||||
Consumer Division | |||||||||||||||||||||||||||
Health products: | |||||||||||||||||||||||||||
Supplemental health | $ | 13.6 | $ | 14.8 | $ | 15.4 | $ | 25.7 | $ | 69.5 | $ | 19.6 | $ | 5.6 | |||||||||||||
Medicare supplement | 12.4 | 14.5 | 14.2 | 17.2 | 58.3 | 9.7 | 8.9 | ||||||||||||||||||||
Total Consumer Division health NAP | 26.0 | 29.3 | 29.6 | 42.9 | 127.8 | 29.3 | 14.5 | ||||||||||||||||||||
Life products: | |||||||||||||||||||||||||||
Interest sensitive life | 4.9 | 7.0 | 5.7 | 5.5 | 23.1 | 5.6 | 5.1 | ||||||||||||||||||||
Traditional life | 31.7 | 29.8 | 29.0 | 25.1 | 115.6 | 33.0 | 41.5 | ||||||||||||||||||||
Total Consumer Division life NAP | 36.6 | 36.8 | 34.7 | 30.6 | 138.7 | 38.6 | 46.6 | ||||||||||||||||||||
Long-term care | 5.8 | 6.4 | 6.4 | 8.0 | 26.6 | 5.9 | 4.3 | ||||||||||||||||||||
Total Consumer Division health and life NAP | $ | 68.4 | $ | 72.5 | $ | 70.7 | $ | 81.5 | $ | 293.1 | $ | 73.8 | $ | 65.4 | |||||||||||||
Worksite Division | |||||||||||||||||||||||||||
Health products: | |||||||||||||||||||||||||||
Supplemental health | $ | 8.3 | $ | 10.1 | $ | 10.7 | $ | 11.8 | $ | 40.9 | $ | 8.8 | $ | 3.2 | |||||||||||||
Life products: | |||||||||||||||||||||||||||
Interest sensitive life | 3.1 | 2.6 | 2.6 | 4.3 | 12.6 | 2.5 | 0.8 | ||||||||||||||||||||
Total Worksite Division health and life NAP | $ | 11.4 | $ | 12.7 | $ | 13.3 | $ | 16.1 | $ | 53.5 | $ | 11.3 | $ | 4.0 | |||||||||||||
Total NAP (both divisions) | |||||||||||||||||||||||||||
Health products: | |||||||||||||||||||||||||||
Supplemental health | $ | 21.9 | $ | 24.9 | $ | 26.1 | $ | 37.5 | $ | 110.4 | $ | 28.4 | $ | 8.8 | |||||||||||||
Medicare supplement | 12.4 | 14.5 | 14.2 | 17.2 | 58.3 | 9.7 | 8.9 | ||||||||||||||||||||
Total health NAP | 34.3 | 39.4 | 40.3 | 54.7 | 168.7 | 38.1 | 17.7 | ||||||||||||||||||||
Life products: | |||||||||||||||||||||||||||
Interest sensitive life | 8.0 | 9.6 | 8.3 | 9.8 | 35.7 | 8.1 | 5.9 | ||||||||||||||||||||
Traditional life | 31.7 | 29.8 | 29.0 | 25.1 | 115.6 | 33.0 | 41.5 | ||||||||||||||||||||
Total life NAP | 39.7 | 39.4 | 37.3 | 34.9 | 151.3 | 41.1 | 47.4 | ||||||||||||||||||||
Long-term care | 5.8 | 6.4 | 6.4 | 8.0 | 26.6 | 5.9 | 4.3 | ||||||||||||||||||||
Total NAP | $ | 79.8 | $ | 85.2 | $ | 84.0 | $ | 97.6 | $ | 346.6 | $ | 85.1 | $ | 69.4 | |||||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | ||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 (a) | 2020 | ||||||||||||||
Basic | ||||||||||||||||||||
Shares outstanding, beginning of period | 162,201.7 | 159,955.2 | 156,768.0 | 152,183.5 | 162,201.7 | 148,084.2 | 143,610.0 | |||||||||||||
Weighted average shares issued during the period: | ||||||||||||||||||||
Shares repurchased | (1,485.6 | ) | (1,238.1 | ) | (2,585.5 | ) | (2,157.3 | ) | (6,906.9 | ) | (2,444.0 | ) | (227.2 | ) | ||||||
Amounts related to employee benefit plans | 320.9 | 127.3 | 76.6 | 114.9 | 974.0 | 287.5 | 42.7 | |||||||||||||
Shares withheld for the payment of the exercise price and taxes related to employee benefit plans | (88.7 | ) | (28.3 | ) | (2.1 | ) | (2.8 | ) | (228.9 | ) | (98.3 | ) | (4.0 | ) | ||||||
Weighted average basic shares outstanding during the period | 160,948.3 | 158,816.1 | 154,257.0 | 150,138.3 | 156,039.9 | 145,829.4 | 143,421.5 | |||||||||||||
Basic shares outstanding, end of period | 159,955.2 | 156,768.0 | 152,183.5 | 148,084.2 | 148,084.2 | 143,610.0 | 141,718.6 | |||||||||||||
Diluted | ||||||||||||||||||||
Weighted average basic shares outstanding | 160,948.3 | 158,816.1 | 154,257.0 | 150,138.3 | 156,039.9 | 145,829.4 | 143,421.5 | |||||||||||||
Common stock equivalent shares related to: | ||||||||||||||||||||
Employee benefit plans | 1,240.7 | 918.7 | 1,002.7 | 1,268.8 | 1,107.7 | — | 519.1 | |||||||||||||
Weighted average diluted shares outstanding during the period | 162,189.0 | 159,734.8 | 155,259.7 | 151,407.1 | 157,147.6 | 145,829.4 | 143,940.6 | |||||||||||||
Diluted shares outstanding, end of period | 161,123.2 | 157,662.5 | 153,242.8 | 149,580.7 | 149,580.7 | 143,936.2 | 142,410.1 | |||||||||||||
(a) | Equivalent common shares of 768.4 were not included in the diluted weighted average shares outstanding due to the net loss recognized in 1Q20. |
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | ||||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | ||||||||||||||||||||||
Fixed index annuities | ||||||||||||||||||||||||||||
Balance as of the beginning of the period | $ | 6,433.9 | $ | 6,594.7 | $ | 6,787.5 | $ | 6,956.9 | $ | 6,433.9 | $ | 7,133.1 | $ | 7,280.3 | ||||||||||||||
Gross deposits | 300.1 | 325.4 | 311.1 | 305.2 | 1,241.8 | 281.7 | 231.5 | |||||||||||||||||||||
Withdrawals | (156.9 | ) | (156.5 | ) | (154.1 | ) | (179.8 | ) | (647.3 | ) | (185.8 | ) | (148.0 | ) | ||||||||||||||
Returns reinvested | 17.6 | 23.9 | 12.4 | 50.8 | 104.7 | 51.3 | 30.3 | |||||||||||||||||||||
Balance as of the end of the period | $ | 6,594.7 | $ | 6,787.5 | $ | 6,956.9 | $ | 7,133.1 | $ | 7,133.1 | $ | 7,280.3 | $ | 7,394.1 | ||||||||||||||
Fixed interest annuities | ||||||||||||||||||||||||||||
Balance as of the beginning of the period | $ | 2,509.3 | $ | 2,425.8 | $ | 2,345.2 | $ | 2,273.0 | $ | 2,509.3 | $ | 2,217.5 | $ | 2,147.4 | ||||||||||||||
Gross deposits | 13.6 | 14.3 | 11.8 | 17.1 | 56.8 | 9.3 | 9.0 | |||||||||||||||||||||
Withdrawals | (113.4 | ) | (110.9 | ) | (99.8 | ) | (88.0 | ) | (412.1 | ) | (94.3 | ) | (81.1 | ) | ||||||||||||||
Returns reinvested | 16.3 | 16.0 | 15.8 | 15.4 | 63.5 | 14.9 | 14.1 | |||||||||||||||||||||
Balance as of the end of the period | $ | 2,425.8 | $ | 2,345.2 | $ | 2,273.0 | $ | 2,217.5 | $ | 2,217.5 | $ | 2,147.4 | $ | 2,089.4 | ||||||||||||||
Total annuities | ||||||||||||||||||||||||||||
Balance as of the beginning of the period | $ | 8,943.2 | $ | 9,020.5 | $ | 9,132.7 | $ | 9,229.9 | $ | 8,943.2 | $ | 9,350.6 | $ | 9,427.7 | ||||||||||||||
Gross deposits | 313.7 | 339.7 | 322.9 | 322.3 | 1,298.6 | 291.0 | 240.5 | |||||||||||||||||||||
Withdrawals | (270.3 | ) | (267.4 | ) | (253.9 | ) | (267.8 | ) | (1,059.4 | ) | (280.1 | ) | (229.1 | ) | ||||||||||||||
Returns reinvested | 33.9 | 39.9 | 28.2 | 66.2 | 168.2 | 66.2 | 44.4 | |||||||||||||||||||||
Balance as of the end of the period | $ | 9,020.5 | $ | 9,132.7 | $ | 9,229.9 | $ | 9,350.6 | $ | 9,350.6 | $ | 9,427.7 | $ | 9,483.5 | ||||||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | |||||||||||||||||||||
2019 | 2019 | 2019 | 2019 (a) | 2019 (a) | 2020 (b) | 2020 (c) | |||||||||||||||||||||
Net gain from operations before interest expense and federal income taxes | $ | 97.8 | $ | 86.0 | $ | 62.1 | $ | 66.2 | $ | 312.1 | $ | 33.3 | $ | 99.5 | |||||||||||||
Interest expense on surplus debentures held by parent company | 12.6 | 12.3 | 22.7 | 12.3 | 59.9 | 12.1 | 12.1 | ||||||||||||||||||||
Net gain from operations before federal income taxes | 85.2 | 73.7 | 39.4 | 53.9 | 252.2 | 21.2 | 87.4 | ||||||||||||||||||||
Federal income tax expense (benefit) | 1.9 | (5.4 | ) | (4.5 | ) | (47.8 | ) | (55.8 | ) | (113.0 | ) | (6.8 | ) | ||||||||||||||
Net gain from operations before net realized capital gains (losses) | 83.3 | 79.1 | 43.9 | 101.7 | 308.0 | 134.2 | 94.2 | ||||||||||||||||||||
Net realized capital losses | (9.9 | ) | (3.6 | ) | (0.1 | ) | (3.0 | ) | (16.6 | ) | (3.3 | ) | (7.8 | ) | |||||||||||||
Net income | $ | 73.4 | $ | 75.5 | $ | 43.8 | $ | 98.7 | $ | 291.4 | $ | 130.9 | $ | 86.4 | |||||||||||||
Capital and surplus | $ | 1,717.4 | $ | 1,698.5 | $ | 1,695.3 | $ | 1,696.6 | $ | 1,696.6 | $ | 1,750.3 | $ | 1,771.1 | |||||||||||||
Asset valuation reserve (AVR) | 248.0 | 254.5 | 261.0 | 295.9 | 295.9 | 236.4 | 226.7 | ||||||||||||||||||||
Capital, surplus and AVR | 1,965.4 | 1,953.0 | 1,956.3 | 1,992.5 | 1,992.5 | 1,986.7 | 1,997.8 | ||||||||||||||||||||
Interest maintenance reserve (IMR) | 418.3 | 415.4 | 415.1 | 420.1 | 420.1 | 408.2 | 410.6 | ||||||||||||||||||||
Total statutory capital, surplus, AVR & IMR | $ | 2,383.7 | $ | 2,368.4 | $ | 2,371.4 | $ | 2,412.6 | $ | 2,412.6 | $ | 2,394.9 | $ | 2,408.4 | |||||||||||||
Risk-based capital ratio | 416 | % | 409 | % | 405 | % | 408 | % | 408 | % | 406 | % | 405 | % | |||||||||||||
(a) | The federal income tax benefit recognized in such periods reflects a $46.0 million tax sharing payment due from the holding |
(b) | The federal income tax benefit and capital and surplus were favorably impacted by $99 million and $53 million, respectively, related to certain provisions included in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. |
(c) | Such amounts are preliminary as the statutory basis financial statements of our insurance subsidiaries for 2Q20 will be filed with the respective insurance regulators on or about August 17, 2020. |
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | ||||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | ||||||||||||||||||||||
Net investment income | $ | 355.8 | $ | 334.5 | $ | 299.5 | $ | 373.1 | $ | 1,362.9 | $ | 169.6 | $ | 318.8 | ||||||||||||||
Allocated to product lines: | ||||||||||||||||||||||||||||
Annuity | (115.8 | ) | (114.8 | ) | (116.5 | ) | (117.3 | ) | (464.4 | ) | (117.4 | ) | (116.6 | ) | ||||||||||||||
Health | (36.2 | ) | (35.8 | ) | (35.4 | ) | (35.7 | ) | (143.1 | ) | (36.1 | ) | (36.1 | ) | ||||||||||||||
Life | (34.5 | ) | (34.8 | ) | (34.6 | ) | (34.4 | ) | (138.3 | ) | (34.3 | ) | (34.7 | ) | ||||||||||||||
Long-term care | (33.3 | ) | (34.0 | ) | (34.7 | ) | (34.8 | ) | (136.8 | ) | (34.3 | ) | (34.0 | ) | ||||||||||||||
Equity returns credited to policyholder account balances | (43.6 | ) | (23.1 | ) | (3.6 | ) | (83.4 | ) | (153.7 | ) | 136.5 | (50.7 | ) | |||||||||||||||
Amounts allocated to product lines and credited to policyholder account balances | (263.4 | ) | (242.5 | ) | (224.8 | ) | (305.6 | ) | (1,036.3 | ) | (85.6 | ) | (272.1 | ) | ||||||||||||||
Amount related to variable interest entities and other non-operating items | (19.2 | ) | (16.0 | ) | (13.7 | ) | (12.7 | ) | (61.6 | ) | (11.6 | ) | (9.6 | ) | ||||||||||||||
Interest expense on debt | (12.1 | ) | (12.6 | ) | (13.9 | ) | (13.8 | ) | (52.4 | ) | (13.6 | ) | (13.6 | ) | ||||||||||||||
Interest expense on investment borrowings | (12.4 | ) | (12.3 | ) | (11.4 | ) | (10.1 | ) | (46.2 | ) | (9.1 | ) | (5.8 | ) | ||||||||||||||
Less amounts credited to deferred compensation plans (offsetting investment income) | (5.4 | ) | (2.8 | ) | (1.4 | ) | (4.7 | ) | (14.3 | ) | 7.7 | (9.5 | ) | |||||||||||||||
Total adjustments | (49.1 | ) | (43.7 | ) | (40.4 | ) | (41.3 | ) | (174.5 | ) | (26.6 | ) | (38.5 | ) | ||||||||||||||
Investment income not allocated to product lines | $ | 43.3 | $ | 48.3 | $ | 34.3 | $ | 26.2 | $ | 152.1 | $ | 57.4 | $ | 8.2 | ||||||||||||||
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | ||||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | ||||||||||||||||||||||
Investment income not allocated: | ||||||||||||||||||||||||||||
Excluding variable components: | ||||||||||||||||||||||||||||
From general account assets | $ | 28.7 | $ | 30.2 | $ | 26.2 | $ | 20.8 | $ | 105.9 | $ | 23.3 | $ | 26.5 | ||||||||||||||
Other investment income | 1.4 | 0.8 | 1.5 | 1.0 | 4.7 | 0.5 | 0.1 | |||||||||||||||||||||
Spread income from Federal Home Loan Bank investment program: | ||||||||||||||||||||||||||||
Investment income on matched assets | 19.0 | 18.5 | 16.0 | 16.6 | 70.1 | 13.5 | 10.9 | |||||||||||||||||||||
Investment borrowing expenses | (12.4 | ) | (12.3 | ) | (11.4 | ) | (10.1 | ) | (46.2 | ) | (9.1 | ) | (5.8 | ) | ||||||||||||||
Net spread income | 6.6 | 6.2 | 4.6 | 6.5 | 23.9 | 4.4 | 5.1 | |||||||||||||||||||||
Interest expense on corporate debt | (12.1 | ) | (12.6 | ) | (13.9 | ) | (13.8 | ) | (52.4 | ) | (13.6 | ) | (13.6 | ) | ||||||||||||||
Total excluding variable components | 24.6 | 24.6 | 18.4 | 14.5 | 82.1 | 14.6 | 18.1 | |||||||||||||||||||||
Variable components: | ||||||||||||||||||||||||||||
Net income from Corporate Owned Life Insurance ("COLI") supporting agent deferred compensation plan | ||||||||||||||||||||||||||||
Change in value of COLI investments | 14.4 | 5.0 | 3.1 | (0.2 | ) | 22.3 | 3.2 | 6.4 | ||||||||||||||||||||
Increase in liability for agent deferred compensation plan | (1.5 | ) | (1.5 | ) | (1.5 | ) | (1.8 | ) | (6.3 | ) | (1.6 | ) | (1.6 | ) | ||||||||||||||
Net COLI income (loss) | 12.9 | 3.5 | 1.6 | (2.0 | ) | 16.0 | 1.6 | 4.8 | ||||||||||||||||||||
Other variable components: | ||||||||||||||||||||||||||||
Hedge variance related to fixed index products | (0.8 | ) | (0.6 | ) | (0.1 | ) | (0.2 | ) | (1.7 | ) | (0.1 | ) | 3.2 | |||||||||||||||
Trading account | 4.0 | 2.3 | 1.5 | 1.1 | 8.9 | 17.3 | 6.0 | |||||||||||||||||||||
Other (a) | 2.6 | 18.5 | 12.9 | 12.8 | 46.8 | 24.0 | (23.9 | ) | ||||||||||||||||||||
Total variable components | 18.7 | 23.7 | 15.9 | 11.7 | 70.0 | 42.8 | (9.9 | ) | ||||||||||||||||||||
Total investment income not allocated to product lines | $ | 43.3 | $ | 48.3 | $ | 34.3 | $ | 26.2 | $ | 152.1 | $ | 57.4 | $ | 8.2 | ||||||||||||||
(a) | Includes income (loss) on alternative investments, prepayment and call income, impacts of changes in projected cash flows and other investment income. |
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | ||||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | ||||||||||||||||||||||
Average net insurance liabilities (11) | ||||||||||||||||||||||||||||
Annuity: | ||||||||||||||||||||||||||||
Fixed index annuities | $ | 6,193.8 | $ | 6,388.9 | $ | 6,587.5 | $ | 6,751.0 | $ | 6,480.3 | $ | 6,921.4 | $ | 7,056.3 | ||||||||||||||
Fixed interest annuities | 2,417.3 | 2,337.9 | 2,263.4 | 2,204.3 | 2,305.7 | 2,146.2 | 2,088.2 | |||||||||||||||||||||
Other annuities | 575.7 | 574.4 | 569.8 | 565.0 | 571.2 | 551.5 | 533.5 | |||||||||||||||||||||
Total annuity average net insurance liabilities (11) | 9,186.8 | 9,301.2 | 9,420.7 | 9,520.3 | 9,357.2 | 9,619.1 | 9,678.0 | |||||||||||||||||||||
Health: | ||||||||||||||||||||||||||||
Supplemental health | 2,743.3 | 2,779.9 | 2,815.0 | 2,849.8 | 2,797.0 | 2,887.1 | 2,935.7 | |||||||||||||||||||||
Medicare supplement | 99.0 | 94.7 | 89.9 | 97.5 | 95.3 | 102.5 | 111.6 | |||||||||||||||||||||
Total health average net insurance liabilities (11) | 2,842.3 | 2,874.6 | 2,904.9 | 2,947.3 | 2,892.3 | 2,989.6 | 3,047.3 | |||||||||||||||||||||
Life: | ||||||||||||||||||||||||||||
Interest sensitive | 852.0 | 860.7 | 869.2 | 883.4 | 866.3 | 900.1 | 913.5 | |||||||||||||||||||||
Traditional | 1,793.0 | 1,813.3 | 1,834.9 | 1,859.0 | 1,825.1 | 1,872.5 | 1,883.5 | |||||||||||||||||||||
Total life average net insurance liabilities (11) | 2,645.0 | 2,674.0 | 2,704.1 | 2,742.4 | 2,691.4 | 2,772.6 | 2,797.0 | |||||||||||||||||||||
Long-term care average net insurance liabilities (11) | 2,372.2 | 2,421.8 | 2,471.0 | 2,502.0 | 2,441.7 | 2,482.8 | 2,464.2 | |||||||||||||||||||||
Total average net insurance liabilities (11) | $ | 17,046.3 | $ | 17,271.6 | $ | 17,500.7 | $ | 17,712.0 | $ | 17,382.6 | $ | 17,864.1 | $ | 17,986.5 | ||||||||||||||
Average yield on allocated investments | ||||||||||||||||||||||||||||
Annuity: | ||||||||||||||||||||||||||||
Fixed index annuities | 4.86 | % | 4.76 | % | 4.78 | % | 4.78 | % | 4.79 | % | 4.74 | % | 4.70 | % | ||||||||||||||
Fixed interest annuities | 5.43 | % | 5.34 | % | 5.34 | % | 5.26 | % | 5.34 | % | 5.24 | % | 5.13 | % | ||||||||||||||
Other annuities | 5.35 | % | 5.29 | % | 5.34 | % | 5.45 | % | 5.36 | % | 5.22 | % | 5.17 | % | ||||||||||||||
Average yield on investments allocated to annuities | 5.04 | % | 4.94 | % | 4.95 | % | 4.93 | % | 4.96 | % | 4.88 | % | 4.82 | % | ||||||||||||||
Health: | ||||||||||||||||||||||||||||
Supplemental health | 5.10 | % | 4.99 | % | 4.89 | % | 4.86 | % | 4.96 | % | 4.84 | % | 4.76 | % | ||||||||||||||
Medicare supplement | 4.53 | % | 4.56 | % | 4.48 | % | 4.39 | % | 4.49 | % | 4.41 | % | 4.34 | % | ||||||||||||||
Average yield on investments allocated to health products | 5.09 | % | 4.98 | % | 4.87 | % | 4.85 | % | 4.95 | % | 4.83 | % | 4.74 | % | ||||||||||||||
Life: | ||||||||||||||||||||||||||||
Interest sensitive | 5.45 | % | 5.44 | % | 5.38 | % | 5.30 | % | 5.39 | % | 5.20 | % | 5.12 | % | ||||||||||||||
Traditional | 5.11 | % | 5.10 | % | 4.99 | % | 4.88 | % | 5.02 | % | 4.83 | % | 4.88 | % | ||||||||||||||
Average yield on investments allocated to life products | 5.22 | % | 5.21 | % | 5.12 | % | 5.02 | % | 5.14 | % | 4.95 | % | 4.96 | % | ||||||||||||||
Average yield on investments allocated to long-term care products | 5.62 | % | 5.62 | % | 5.62 | % | 5.56 | % | 5.60 | % | 5.53 | % | 5.52 | % | ||||||||||||||
Total average yield | 5.16 | % | 5.08 | % | 5.06 | % | 5.02 | % | 5.08 | % | 4.97 | % | 4.92 | % | ||||||||||||||
Allocated investment income | ||||||||||||||||||||||||||||
Annuity: | ||||||||||||||||||||||||||||
Fixed index annuities | $ | 75.3 | $ | 76.0 | $ | 78.7 | $ | 80.6 | $ | 310.6 | $ | 82.1 | $ | 82.9 | ||||||||||||||
Fixed interest annuities | 32.8 | 31.2 | 30.2 | 29.0 | 123.2 | 28.1 | 26.8 | |||||||||||||||||||||
Other annuities | 7.7 | 7.6 | 7.6 | 7.7 | 30.6 | 7.2 | 6.9 | |||||||||||||||||||||
Total investment income allocated to annuities | 115.8 | 114.8 | 116.5 | 117.3 | 464.4 | 117.4 | 116.6 | |||||||||||||||||||||
Health: | ||||||||||||||||||||||||||||
Supplemental health | 35.0 | 34.7 | 34.4 | 34.6 | 138.7 | 34.9 | 34.9 | |||||||||||||||||||||
Medicare supplement | 1.2 | 1.1 | 1.0 | 1.1 | 4.4 | 1.2 | 1.2 | |||||||||||||||||||||
Total investment income allocated to health products | 36.2 | 35.8 | 35.4 | 35.7 | 143.1 | 36.1 | 36.1 | |||||||||||||||||||||
Life: | ||||||||||||||||||||||||||||
Interest sensitive | 11.6 | 11.7 | 11.7 | 11.7 | 46.7 | 11.7 | 11.7 | |||||||||||||||||||||
Traditional | 22.9 | 23.1 | 22.9 | 22.7 | 91.6 | 22.6 | 23.0 | |||||||||||||||||||||
Total investment income allocated to life products | 34.5 | 34.8 | 34.6 | 34.4 | 138.3 | 34.3 | 34.7 | |||||||||||||||||||||
Total investment income allocated to long-term care products | 33.3 | 34.0 | 34.7 | 34.8 | 136.8 | 34.3 | 34.0 | |||||||||||||||||||||
Total allocated investment income | $ | 219.8 | $ | 219.4 | $ | 221.2 | $ | 222.2 | $ | 882.6 | $ | 222.1 | $ | 221.4 |
1Q | 2Q | 3Q | 4Q | YTD | 1Q | 2Q | ||||||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | ||||||||||||||||||||||
General account assets investment income | $ | 268.8 | $ | 284.9 | $ | 274.1 | $ | 270.2 | $ | 1,098.0 | $ | 280.3 | $ | 231.7 | ||||||||||||||
Policyholder and other special purpose portfolio investment income | 87.0 | 49.6 | 25.4 | 102.9 | 264.9 | (110.7 | ) | 87.1 | ||||||||||||||||||||
Less equity returns credited to policyholders: | ||||||||||||||||||||||||||||
Annuity | (37.9 | ) | (20.2 | ) | (3.0 | ) | (74.0 | ) | (135.1 | ) | 119.9 | (44.9 | ) | |||||||||||||||
Life | (5.7 | ) | (2.9 | ) | (0.6 | ) | (9.4 | ) | (18.6 | ) | 16.6 | (5.8 | ) | |||||||||||||||
Less amount related to variable interest entities | (19.2 | ) | (16.0 | ) | (13.7 | ) | (12.7 | ) | (61.6 | ) | (11.6 | ) | (9.6 | ) | ||||||||||||||
Less amounts credited to deferred compensation plans | (5.4 | ) | (2.9 | ) | (1.4 | ) | (4.8 | ) | (14.5 | ) | 7.7 | (9.5 | ) | |||||||||||||||
Other special purpose portfolio investment income | 18.8 | 7.6 | 6.7 | 2.0 | 35.1 | 21.9 | 17.3 | |||||||||||||||||||||
Adjusted net investment income | 287.6 | 292.5 | 280.8 | 272.2 | 1,133.1 | 302.2 | 249.0 | |||||||||||||||||||||
Less amounts allocated to product lines | ||||||||||||||||||||||||||||
Annuity | (115.8 | ) | (114.8 | ) | (116.5 | ) | (117.3 | ) | (464.4 | ) | (117.4 | ) | (116.6 | ) | ||||||||||||||
Health | (36.2 | ) | (35.8 | ) | (35.4 | ) | (35.7 | ) | (143.1 | ) | (36.1 | ) | (36.1 | ) | ||||||||||||||
Life | (34.5 | ) | (34.8 | ) | (34.6 | ) | (34.4 | ) | (138.3 | ) | (34.3 | ) | (34.7 | ) | ||||||||||||||
Long-term care | (33.3 | ) | (34.0 | ) | (34.7 | ) | (34.8 | ) | (136.8 | ) | (34.3 | ) | (34.0 | ) | ||||||||||||||
Total investment income allocated to product lines | (219.8 | ) | (219.4 | ) | (221.2 | ) | (222.2 | ) | (882.6 | ) | (222.1 | ) | (221.4 | ) | ||||||||||||||
Less interest expense on investment borrowings | (12.4 | ) | (12.3 | ) | (11.4 | ) | (10.0 | ) | (46.1 | ) | (9.1 | ) | (5.8 | ) | ||||||||||||||
Less interest expense on debt | (12.1 | ) | (12.5 | ) | (13.9 | ) | (13.8 | ) | (52.3 | ) | (13.6 | ) | (13.6 | ) | ||||||||||||||
Investment income not allocated to product lines | 43.3 | $ | 48.3 | 34.3 | 26.2 | 152.1 | 57.4 | $ | 8.2 | |||||||||||||||||||
1Q | 2Q | 3Q | 4Q | 1Q | 2Q | |||||||||||||||||||
2019 | 2019 | 2019 | 2019 | 2020 | 2020 | |||||||||||||||||||
Average invested assets and cash | $ | 21,848.9 | $ | 21,990.3 | $ | 22,188.4 | $ | 22,394.2 | $ | 22,597.5 | $ | 22,731.9 | ||||||||||||
Net investment income from general account investments | 268.8 | 284.9 | 274.1 | 270.2 | 280.3 | 231.7 | ||||||||||||||||||
New money rate (14) | 4.38 | % | 4.58 | % | 4.66 | % | 4.08 | % | 4.46 | % | 4.49 | % | ||||||||||||
Book yield | 5.15 | % | 5.08 | % | 5.03 | % | 4.97 | % | 4.90 | % | 4.88 | % | ||||||||||||
Earned yield | 5.07 | % | 5.35 | % | 5.16 | % | 5.02 | % | 5.19 | % | 4.27 | % | ||||||||||||
Pre-pay/call/make-whole income | $ | 2.5 | $ | 6.6 | $ | 3.0 | $ | 4.6 | $ | 8.9 | $ | 0.1 | ||||||||||||
Alternative investment income | 5.5 | 17.1 | 17.7 | 12.9 | 17.2 | (12.5 | ) | |||||||||||||||||
Impairments | 2.2 | — | 3.4 | 6.8 | 8.1 | — | ||||||||||||||||||
Three months ended | ||||||||||||
June 30, 2020 | ||||||||||||
Actual results | Significant items | Excluding significant items | ||||||||||
Insurance product margin (4) | ||||||||||||
Annuity margin | $ | 123.8 | $ | 40.0 | (a) | $ | 72.3 | |||||
(91.5 | ) | (a) | ||||||||||
Health margin | 82.3 | — | 82.3 | |||||||||
Life margin | 36.1 | 5.6 | (a) | 41.7 | ||||||||
Long-term care margin | 13.2 | — | 13.2 | |||||||||
Total insurance product margin | 255.4 | (45.9 | ) | 209.5 | ||||||||
Allocated expenses | (128.1 | ) | — | (128.1 | ) | |||||||
Income from insurance products (5) | 127.3 | (45.9 | ) | 81.4 | ||||||||
Fee income | 5.2 | — | 5.2 | |||||||||
Investment income not allocated to product lines (9) | 8.2 | — | 8.2 | |||||||||
Expenses not allocated to product lines | (38.5 | ) | 23.5 | (b) | (15.0 | ) | ||||||
Operating earnings before taxes | 102.2 | (22.4 | ) | 79.8 | ||||||||
Income tax (expense) benefit on operating income | (22.8 | ) | 4.7 | (18.1 | ) | |||||||
Net operating income (10) | $ | 79.4 | $ | (17.7 | ) | $ | 61.7 | |||||
Net operating income per diluted share | $ | 0.55 | $ | (0.12 | ) | $ | 0.43 |
(a) | Given our expectation that interest rates will remain low for the long-term, we performed an actuarial unlocking exercise in the second quarter of 2020 to reflect our assumption that average new money rates will remain flat at 4 percent forever. This change and the related impacts to persistency assumptions had a $45.6 million unfavorable impact on pre-tax earnings. As part of the actuarial unlocking exercise, we also changed our assumptions related to the future option costs we incur in providing benefits on fixed index annuities which had a favorable impact on pre-tax earnings of $91.5 million. The impact of these changes in assumptions is summarized below (dollars in millions): |
Line of business | |||||||||||||||
Fixed index annuities | Fixed interest annuities | Interest- sensitive life | Total | ||||||||||||
Favorable (unfavorable) | |||||||||||||||
Impacts of an average new money rate assumption of 4 percent | |||||||||||||||
Insurance policy benefits | $ | (5.0 | ) | $ | — | $ | (7.4 | ) | $ | (12.4 | ) | ||||
Amortization | (25.6 | ) | (9.4 | ) | 1.8 | (33.2 | ) | ||||||||
Subtotal | (30.6 | ) | (9.4 | ) | (5.6 | ) | (45.6 | ) | |||||||
Impacts of changes in future option costs | |||||||||||||||
Insurance policy benefits | 104.8 | — | — | 104.8 | |||||||||||
Amortization | (13.3 | ) | — | — | (13.3 | ) | |||||||||
Subtotal | 91.5 | — | — | 91.5 | |||||||||||
Impact on pre-tax income | $ | 60.9 | $ | (9.4 | ) | $ | (5.6 | ) | $ | 45.9 |
(b) | We increased our liability for claims and interest pursuant to the previously disclosed Global Resolution Agreement entered into in November 2018. Pursuant to this agreement, a third-party auditor is acting on behalf of 41 states and the District of Columbia for the purpose of identifying deceased insureds and contract holders where benefits are payable pursuant to unclaimed property laws. The third-party auditor has provided information that we have processed and verified allowing us to more accurately estimate the ultimate liability pursuant to this agreement. |
Three months ended | ||||||||||||
December 31, 2019 | ||||||||||||
Actual results | Significant items | Excluding significant items | ||||||||||
Insurance product margin (4) | ||||||||||||
Annuity margin | $ | 60.5 | $ | 0.3 | (a) | $ | 60.8 | |||||
Health margin | 79.0 | — | 79.0 | |||||||||
Life margin | 46.7 | 9.7 | (a) | 56.4 | ||||||||
Long-term care margin | 14.0 | — | 14.0 | |||||||||
Total insurance product margin | 200.2 | 10.0 | 210.2 | |||||||||
Allocated expenses | (140.6 | ) | — | (140.6 | ) | |||||||
Income from insurance products (5) | 59.6 | 10.0 | 69.6 | |||||||||
Fee income | 11.7 | — | 11.7 | |||||||||
Investment income not allocated to product lines (9) | 26.2 | — | 26.2 | |||||||||
Expenses not allocated to product lines | 2.8 | (20.0 | ) | (b) | (17.2 | ) | ||||||
Operating earnings before taxes | 100.3 | (10.0 | ) | 90.3 | ||||||||
Income tax (expense) benefit on operating income | (21.7 | ) | 2.1 | (19.6 | ) | |||||||
Net operating income (10) | $ | 78.6 | $ | (7.9 | ) | $ | 70.7 | |||||
Net operating income per diluted share | $ | 0.52 | $ | (0.05 | ) | $ | 0.47 |
(a) | Adjustments arising from our comprehensive annual actuarial review of assumptions. |
(b) | $20.0 million of the net favorable impact from legal and regulatory matters. |
(1) | Excludes accumulated other comprehensive income. 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. |
(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 were exercised and restricted stock and performance units were vested. The dilution from options, restricted shares and performance units is calculated using the treasury stock method. Under this method, we assume the proceeds from the exercise of the options (or the unrecognized compensation expense with respect to restricted stock and performance units) will be used to purchase shares of our common stock at the closing market price on the last day of the period. |
(4) | Insurance margin is management’s measure of profitability of its annuity, health, life and long-term care product lines’ performance and consists of premiums plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs. Income from insurance products is the sum of the insurance margins of the annuity, health, life and long-term care product lines, less expenses allocated to the insurance lines. It excludes the income from our fee income business, net expenses not allocated to product lines (primarily holding company expenses) and income taxes. Management believes this information helps provide a better understanding of the business and a more meaningful analysis of results of our insurance product lines. Income from insurance products, a non-GAAP measure, is a component of net operating income, which is reconciled to net income on page 5 of this Quarterly Financial Supplement. |
(5) | Investment income is allocated to the product lines using the book yield of investments backing the block of business, which is applied to the average net insurance liabilities for the block in each period. See note (11) for definition of net insurance liabilities. |
(6) | Excludes the change in market values of the underlying options supporting the fixed index annuity products and corresponding amount credited to policyholder account liabilities. Such amounts were $37.9 million, $20.2 million, $3.0 million, $74.0 million, $(119.9) million and $44.9 million in 1Q19, 2Q19, 3Q19, 4Q19, 1Q20 and 2Q20, respectively. |
(7) | Excludes the change in market values of the underlying options supporting the fixed index life products and corresponding amount credited to policyholder account liabilities. Such amounts were $5.7 million, $2.9 million, $.6 million, $9.4 million, $(16.6) million and $5.8 million in 1Q19, 2Q19, 3Q19, 4Q19, 1Q20 and 2Q20, respectively. |
(8) | Income from insurance products is the sum of the insurance margins of the annuity, health, life and long-term care product lines, less expenses allocated to the insurance lines. It excludes the income from our fee income business, investment income not allocated to product lines, net expenses not allocated to product lines (primarily holding company expenses) and income taxes. Management believes this information helps provide a better understanding of the business and a more meaningful analysis of results of our insurance product lines. Income from insurance products, a non-GAAP measure, is a component of net operating income, which is reconciled to net income on page 5 of this Quarterly Financial Supplement. |
(9) | Investment income not allocated to product lines is defined as net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable and investment borrowings; and (iv) certain expenses related to benefit plans that are offset by special-purpose investment income. Investment income not allocated to product lines includes investment income on investments in excess of average net insurance liabilities, investments held by our holding companies, the spread we earn from the Federal Home Loan Bank investment borrowing program and variable components of investment income (including call and prepayment income, adjustments to returns on structured securities due to cash flow changes, income from company-owned life insurance ("COLI") and variations in income from alternative investments), net of interest expense. |
(10) | Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses from sales, impairments and change in allowance for credit losses, net of related amortization and taxes; (ii) net change in market value of investments recognized in earnings, net of taxes; (iii) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and taxes; (iv) fair value changes related to the agent deferred compensation plan, net of taxes; (v) loss related to reinsurance transaction, net of taxes; (vi) loss on extinguishment of debt, net of taxes; (vii) changes in the valuation allowance for deferred tax assets and other tax items; and (viii) other non-operating items consisting primarily of earnings attributable to variable interest entities, net of taxes (“Net operating income,” a non-GAAP financial measure) is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry. Management uses this measure to evaluate performance because the items excluded from net operating income can be affected by events that are unrelated to the company's underlying fundamentals. |
(11) | Net insurance liabilities are equal to total insurance liabilities less: (i) amounts related to reinsured business; (ii) deferred acquisition costs; (iii) present value of future profits; and (iv) the value of unexpired options credited to insurance liabilities. |
(12) | Margin/average net insurance liabilities for quarterly periods is calculated by annualizing the quarters' margin divided by the average net insurance liabilities. |
(13) | 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. |
(14) | The new money rate is for the investments purchased during the period to support our insurance products and capital. It excludes the new money rate on investments purchased with investment borrowings under our Federal Home Loan Bank program and investments purchased by the variable interest entities. |
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