CNO Financial's unexciting earnings

The insurer's results were mostly in line with expectations with few surprises.

By Apr 26, 2013 8:30AM

Insurance © NULL CorbisBy Zacks Equity Research

CNO Financial Group (CNO) reported first-quarter 2013 adjusted operating earnings of 21 cents per share, in line with the Zacks Consensus Estimate. Results surpassed 15 cents earned in the year-ago quarter. Adjusted operating income in the quarter was $49.7 million, up 22% from $40.6 million in the first quarter of 2012.

Including net realized investment gains of $9.4 million, changes in fair value of embedded derivative liabilities of $1.3 million, loss on extinguishment of debt of $57.2 million, equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests of ($1.8 million) and decrease in valuation allowance for deferred tax assets of $10.5 million, CNO Financial reported net income of $11.9 million or 5 cents per share, comparing unfavorably with net income of $59.1 million or 21 cents per share.

CNO Financial's revenue inched up 1.7% to $1.14 billion from $1.12 billion in the prior-year quarter. Total revenue also surpassed the Zacks Consensus Estimate of $1.04 billion. Total new annualized premium increased 2% year over year to $98.1 million. Total benefits and expenses increased 7.4% year over year to $1.11 billion.

Segment update

Pre-tax operating earnings in the Bankers Life segment declined 12% year over year to $62.1 million in the reported quarter.

Washington National's pre-tax operating earnings were $29.4 million in the quarter, surging 19% from the year-ago quarter due to increase in collected premiums and decline in the benefit ratio for the supplemental health products.

Pre-tax operating loss of Colonial Penn narrowed to $5.4 million from $9.8 million in the comparable quarter last year due to improved productivity and higher collected premiums.

Other CNO Business reported pre-tax operating income of $3.6 million in the quarter, against a pre-tax loss of $2.3 million in the year-ago quarter.

Corporate Operations, which includes investment advisory subsidiary and corporate expenses, bounced back to a pre-tax income of $3.0 million from pre-tax loss of $1.8 million in the year-ago quarter, based on improved investment income and reduced expenses.

Financial update

During the first quarter of 2013, the consolidated statutory risk-based capital ratio of CNO Financial's insurance subsidiaries declined 1 percentage point to 366%, driven by statutory earnings of $112.5 million and dividend of $81 million paid to the holding company. Total dividend to holding company in 2013 is expected around $250 million–$300 million.

In addition, unrestricted cash and investments held by CNO Financial's non-insurance subsidiaries decreased to $244.1 million as of Mar 31, 2013 from $294 million as of Dec 31, 2012 due to tender offers and debt repayment.

As of Mar 31, 2013, CNO Financial's debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), declined 120 basis points over 2012-end to 19.5% due to the company's recapitalization plan. Book value per common share, excluding accumulated other comprehensive income (loss), increased to $16.57 as of Mar 31, 2013 from $16.21 as of Dec 31, 2012.

As of Mar 31, 2013, CNO Financial had total assets worth $34.9 billion and shareholder equity stood at $5.0 billion.

CNO Financial did not undertake any share buyback activity in the reported quarter. However, the company spent $125 million to repurchase convertible debentures during the quarter. The company expects to spend another $125 million–$175 million on the repurchase of securities in 2013, taking the total amount to $250 million–$300 million.

CNO Financial spent $4.4 million on dividend payment in the reported quarter.

Zacks rank

CNO Financial carries a Zacks Rank #3 (Hold). Other multi-line insurers worth considering are Eastern Insurance Holdings (EIHI) – Zacks Rank #1 (Strong Buy), FBL Financial Group (FFG) – Zacks Rank #1 (Strong Buy) and American International Group (AIG) – Zacks Rank #2 (Buy).

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