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  • CNO Financial Group Reports Third Quarter 2024 Results

    November 5, 2024 by CNO Financial Group, Inc.

    CARMEL, Ind.Oct. 31, 2024 /PRNewswire/ — CNO Financial Group, Inc. (NYSE: CNO) today reported net income of $9.3 million, or $0.09 per diluted share, in 3Q24 compared to $167.3 million, or $1.46 per diluted share, in 3Q23. Non-economic accounting impacts due to market volatility affected both periods which reduced net income in 2024 and increased it in 2023. Net operating income,(1) which excludes these non-economic accounting impacts, was $119.2 million, or $1.11 per diluted share, in 3Q24 compared to $101.3 million, or $0.88 per diluted share, in 3Q23.

    Significant items(6) positively impacted both net income and net operating income(1) by $18.8 million, or $0.17 per diluted share, in 3Q24 compared to $16.9 million, or $0.14 per diluted share, in 3Q23.

    “CNO delivered another quarter of excellent net operating income and sales performance, reflecting continued agent force growth, and ongoing strength in our underwriting margins and net investment income,” said Gary C. Bhojwani, chief executive officer. “We posted our ninth consecutive quarter of sales growth, led by record annuity collected premiums and strong Medicare and long-term care sales.

    “Our sustained sales growth is translating into earnings growth, with operating earnings per share up 26%. All Growth Scorecard performance metrics are up once again. As we advance our growth strategy, we continue to optimize the balance between production, profitability and capital management.”

    “CNO has a unique and differentiated position to serve the middle-income market through our products, distribution capabilities and proven track record of execution. We enter the fourth quarter with momentum, supported by favorable demographic trends, a supportive macroeconomic environment and our strong financial position.”

    Third Quarter 2024 Highlights (as compared to the corresponding period in the prior year unless otherwise stated)

    • Annuity collected premiums up 25%; Policyholder and client assets up 12%
    • Medicare Supplement new annualized premiums (“NAP”)(4) up 15%; Medicare Advantage sales up 26%
    • Producing agent counts in the Consumer Division and Worksite Division up 5% and 17%, respectively
    • Raising full-year guidance for earnings and cash flow
    • Returned $106.8 million to shareholders
    • Book value per share was $25.86; Book value per diluted share, excluding accumulated other comprehensive loss,(2) was $35.84
    • Return on equity (“ROE”) of 11.8%; Operating ROE, as adjusted,(5) of 11.7%

    FINANCIAL SUMMARY

    Quarter End

    (Amounts in millions, except per share data)

    (Unaudited)

     

    Net operating income, a non-GAAP(a) financial measure, is used consistently by CNO’s management to evaluate the operating performance of the company and is a measure commonly used in the life insurance industry.  It differs from net income primarily because it excludes certain non-operating items such as net realized investment gains (losses) from sales and change in the allowance for credit losses, changes in fair values of embedded derivatives and market risk benefits and the liability for a deferred compensation plan, and certain significant and unusual items included in net income.  Management believes an analysis of net operating income is important in understanding the profitability and operating trends of the Company’s business.  Net income is the most directly comparable GAAP measure.

     
     

    Per diluted share

                 
     

    Quarter ended

     

    Quarter ended

     

    September 30,

     

    September 30,

     

    2024

       

    2023

     

    % change

     

    2024

       

    2023

     

    % change

                               

    Income from insurance products (b)

    1.21

       

    $            0.76

     

    59

     

    $     129.2

       

    $      86.8

     

    49

    Fee income

    (0.03)

       

    (0.03)

     

     

    (2.7)

       

    (2.9)

     

    (7)

    Investment income not allocated to product lines (c)

    0.42

       

    0.33

     

    27

     

    45.5

       

    38.4

     

    18

    Expenses not allocated to product lines

    (0.17)

       

    0.07

     

    n/m

     

    (18.5)

       

    7.5

     

    n/m

    Operating earnings before taxes

    1.43

       

    1.13

         

    153.5

       

    129.8

       

    Income tax expense on operating income

    (0.32)

       

    (0.25)

     

    28

     

    (34.3)

       

    (28.5)

     

    20

    Net operating income (1)

    1.11

       

    0.88

     

    26

     

    119.2

       

    101.3

     

    18

    Net realized investment losses from sales, impairments

    and change in allowance for credit losses

    (0.10)

       

    (0.17)

         

    (11.1)

       

    (20.1)

       

    Net change in market value of investments recognized in earnings

    0.11

       

    (0.08)

         

    12.3

       

    (9.2)

       

    Changes in fair value of embedded derivative liabilities and market risk benefits

    (1.19)

       

    0.95

         

    (127.1)

       

    109.4

       

    Other

    (0.15)

       

    0.05

         

    (16.6)

       

    5.7

       

    Non-operating income (loss) before taxes

    (1.33)

       

    0.75

         

    (142.5)

       

    85.8

       

    Income tax benefit (expense) on non-operating income

    0.31

       

    (0.17)

         

    32.6

       

    (19.8)

       

    Net non-operating income (loss)

    (1.02)

       

    0.58

         

    (109.9)

       

    66.0

       

    Net income

    $           0.09

       

    $            1.46

         

    $         9.3

       

    $    167.3

       
                               

    Weighted average diluted shares outstanding

    107.1

       

    114.5

                     

    n/m – not meaningful

                     

    (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 and life product lines, less expenses allocated to the insurance product 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.  Insurance margin is management’s measure of the profitability of its annuity, health and life segments’ performance and consists of insurance policy income 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 represents 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, investment borrowings and financing arrangements; (iv) expenses related to the funding agreement-backed notes (“FABN”) program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income; plus (vi) the impact of annual option forfeitures related to fixed indexed annuity surrenders.

    FINANCIAL SUMMARY (continued)

    Management vs. GAAP Measures

    (Dollars in millions, except per share data)

    (Unaudited)

     

    Shareholders’ equity, excluding accumulated other comprehensive income (loss), and book value per share, excluding accumulated other comprehensive income (loss), are non-GAAP measures that are utilized by management to view the business without the effect of accumulated other comprehensive income (loss) which is primarily attributable to fluctuations in interest rates associated with fixed maturities, available for sale.  Management views the business in this manner because the Company has the ability and generally, the intent, to hold investments to maturity and meaningful trends can be more easily identified without the fluctuations.  In addition, shareholders’ equity excludes net operating loss carryforwards in our non-GAAP return on equity measures as such assets are not discounted and, accordingly, will not provide a return to shareholders until after it is realized as a reduction to taxes that would otherwise be paid.  Management believes that excluding this value from the equity component of this measure enhances the understanding of the effect these non-discounted assets have on operating returns.

     
     

    Quarter ended

     

    September 30,

     

    2024

     

    2023

           

    Trailing twelve months return on equity (a)

    11.8 %

     

    14.5 %

    Trailing twelve months operating return on equity as adjusted to exclude accumulated other comprehensive

    income (loss) and net operating loss carryforwards (a non-GAAP financial measure) (5)

    11.7 %

     

    8.5 %

    Trailing twelve months operating return, excluding significant items, on equity as adjusted to exclude

    accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP

    financial measure) (5)

    10.5 %

     

    8.0 %

           
           

    Shareholders’ equity

    $     2,687.8

     

    $    1,890.1

    Accumulated other comprehensive loss

    1,116.0

     

    1,956.7

           

    Shareholders’ equity, excluding accumulated other comprehensive loss

    3,803.8

     

    3,846.8

    Net operating loss carryforwards

    (273.9)

     

    (102.6)

    Shareholders’ equity, excluding accumulated other comprehensive loss and net operating loss carryforwards

    $     3,529.9

     

    $    3,744.2

           

    Book value per diluted share

    $        25.32

     

    $       16.58

    Accumulated other comprehensive loss

    10.52

     

    17.17

           

    Book value per diluted share, excluding accumulated other comprehensive loss (a non-GAAP financial measure) (2)

    $        35.84

     

    $       33.75

                     

    (a)

    Calculated using average shareholders’ equity for the measurement period.

    Non-Operating Items

    Net investment losses in 3Q24 were $11.1 million, including the favorable change in the allowance for credit losses of $11.6 million. Net investment losses in 3Q23 were $20.1 million, including the unfavorable change in the allowance for credit losses of $2.3 million.

    During 3Q24 and 3Q23, we recognized an increase (decrease) in earnings of $12.3 million and $(9.2) million, respectively, due to the net change in market value of investments.

    During 3Q24 and 3Q23, we recognized an increase (decrease) in earnings of $(127.1) million and $109.4 million, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities and market risk benefits related to our fixed indexed annuities.  Such amounts include the impacts of changes in market interest rates and equity impacts used to determine the estimated fair values of the embedded derivatives and market risk benefits. In addition, 3Q24 includes the impacts to the fair value of the embedded derivative and market risk benefits resulting from our comprehensive annual actuarial review.

    Other non-operating items in 3Q24 included a charge of $8.3 million primarily related to a 5% workforce reduction and transition costs for outsourcing certain operations activities. In addition, other non-operating items included an increase (decrease) in earnings of $(3.5) million and $6.8 million in 3Q24 and 3Q23, respectively, for the mark-to-market change in the agent deferred compensation plan liability which was impacted by changes in the underlying actuarial assumptions used to value the liability. We recognize the mark-to-market change in the estimated value of this liability through earnings as assumptions change.

    INVESTMENT PORTFOLIO

    (Dollars in millions)

     

    Fixed maturities, available for sale, at amortized cost by asset class as of September 30, 2024 are as follows:

     
     

    Investment

    grade

     

    Below

    investment

    grade

     

    Total

    Corporate securities

    $     13,083.3

     

    $          641.9

     

    $     13,725.2

    Certificates of deposit

    470.0

     

     

    470.0

    United States Treasury securities and obligations of the United States government and agencies

    210.8

     

     

    210.8

    States and political subdivisions

    3,213.6

     

    9.6

     

    3,223.2

    Foreign governments

    103.2

     

     

    103.2

    Asset-backed securities

    1,479.4

     

    99.1

     

    1,578.5

    Agency residential mortgage-backed securities

    812.5

     

     

    812.5

    Non-agency residential mortgage-backed securities

    1,252.0

     

    418.0

    (a)

    1,670.0

    Collateralized loan obligations

    1,083.2

     

     

    1,083.2

    Commercial mortgage-backed securities

    2,285.8

     

    84.0

     

    2,369.8

               

    Total

    $     23,993.8

     

    $       1,252.6

     

    $     25,246.4

                     

    (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).

    The fair value of CNO’s available for sale fixed maturity portfolio was $23.7 billion compared with an amortized cost of $25.2 billion.  Net unrealized losses were comprised of gross unrealized gains of $300.3 million and gross unrealized losses of $1,796.1 million.  The allowance for credit losses was $25.9 million at September 30, 2024.

    Statutory (based on non-GAAP measures) and GAAP Capital Information

    The consolidated statutory risk-based capital ratio of our U.S. based insurance subsidiaries was estimated at 388% at September 30, 2024, reflecting estimated 3Q24 statutory operating earnings of $8.4 million (and $32.5 million in the first nine months of 2024) and the payment of insurance company dividends (net of capital contributions) to the holding company of $38.9 million during 3Q24 (and $111.9 million (net of capital contributions) in the first nine months of 2024).

    During 3Q24, we repurchased $90.0 million of common stock under our securities repurchase program (including $1.4 million of repurchases settled in 4Q24).  We repurchased 2.8 million common shares at an average cost of $32.03 per share.  As of September 30, 2024, we had 103.9 million shares outstanding and had authority to repurchase up to an additional $331.8 million of our common stock.  During 3Q24, dividends paid on common stock totaled $16.9 million.

    Unrestricted cash and investments held by our holding company were $453 million at September 30, 2024 compared to $256.0 million at December 31, 2023.  In addition, the holding company has invested $500 million of the proceeds from the previously announced May 2024 issuance of $700.0 million of 6.450% senior notes due 2034 (the “2034 Notes”) primarily into certificates of deposit which are expected to be used for the repayment of $500.0 million of 5.250% senior notes due May 2025 (the “2025 Notes”).

    Book value per common share was $25.86 at September 30, 2024 compared to $20.26 at December 31, 2023.  Book value per diluted share, excluding accumulated other comprehensive income (loss) (2), was $35.84 at September 30, 2024 compared to $33.94 at December 31, 2023. 

    The debt-to-capital ratio was 40.5% and 34.0% at September 30, 2024 and December 31, 2023, respectively.  Our debt-to-total capital ratio, excluding accumulated other comprehensive income (loss)(3), was 32.5% and 23.1% at September 30, 2024 and December 31, 2023, respectively. Such ratios reflect the issuance of the 2034 Notes in May 2024.  At September 30, 2024, adjusting for the expected repayment of the 2025 Notes, the debt-to-total capital ratio would have been 33.2% and the debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), would have been 26.0%.

    Return on equity for the trailing four quarters ended September 30, 2024 and 2023 was 11.8% and 14.5%, respectively.  Operating return, excluding significant items, on equity as adjusted to exclude accumulated other comprehensive income (loss) and net operating loss carryforwards(5), for the trailing four quarters ended September 30, 2024 and 2023 was 10.5% and 8.0%, respectively.

    In this news release, CNO includes non-GAAP measures to enhance investors’ understanding of management’s view of the business.  The non-GAAP measures are not a substitute for GAAP, but rather a supplement to increase transparency by providing a broader perspective.  CNO’s definitions of non-GAAP measures may differ from other companies’ definitions.  More detailed information including various GAAP and non-GAAP measurements are located at CNOinc.com in the Investors section under SEC Filings.

    CAUTION REGARDING FORWARD-LOOKING STATEMENTS:

    This press release may contain forward-looking statements within the meaning of federal securities laws.  These prospective statements reflect management’s current expectations, but are not guarantees of future performance.  Accordingly, please refer to CNO’s cautionary statement regarding forward-looking statements, and the business environment in which the Company operates, contained in the Company’s Form 10-K for the year ended December 31, 2023 and any subsequent Form 10-Q or Form 10-K on file with the Securities and Exchange Commission and on the Company’s website at CNOinc.com in the Investors section.  CNO specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise.

    EARNINGS RELEASE CONFERENCE CALL WEBCAST:

    The Company will host a conference call to discuss results on November 1, 2024 at 11:00 a.m. Eastern Time.  During the call, we will be referring to a presentation that will be available at the Investors section of the company’s website.

    To participate by dial-in, please register at https://www.netroadshow.com/events/login?show=7b707407&confId=72581. Upon registering, you will be provided with call details and a registrant ID used to track attendance on the conference call. Reminders will also be sent to registered participants via email.

    For those investors who prefer to listen to the call online, we will be broadcasting the call live via webcast.  The event can be accessed through the Investors section of the company’s website: ir.CNOinc.com.  Participants should go to the website at least 15 minutes before the event to register and download any necessary audio software.

    ABOUT CNO FINANCIAL GROUP

    CNO Financial Group, Inc. (NYSE: CNO) secures the future of middle-income America.  CNO provides life and health insurance, annuities, financial services, and workforce benefits solutions through our family of brands, including Bankers Life, Colonial Penn, Optavise and Washington National.  Our customers work hard to save for the future, and we help protect their health, income, and retirement needs with 3.2 million policies and $38 billion in total assets. Our 3,500 associates, 4,800 exclusive agents and more than 5,000 independent partner agents guide individuals, families, and businesses through a lifetime of financial decisions. For more information, visit CNOinc.com.

    CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

    CONSOLIDATED BALANCE SHEET

    (Dollars in millions)

    (unaudited)

     
     

    September 30,

    2024

     

    December 31,

    2023

    ASSETS

         

    Investments:

         

    Fixed maturities, available for sale, at fair value (net of allowance for credit losses:

    September 30, 2024 – $25.9 and December 31, 2023 – $42.9; amortized cost: September 30,

    2024 – $25,246.4 and December 31, 2023 – $23,699.2)

    $           23,724.7

     

    $           21,506.2

    Equity securities at fair value

    120.5

     

    96.9

    Mortgage loans (net of allowance for credit losses: September 30, 2024 – $16.5 and

    December 31, 2023 – $15.4)

    2,372.7

     

    2,064.1

       Policy loans

    133.3

     

    128.5

       Trading securities

    217.4

     

    222.7

    Investments held by variable interest entities (net of allowance for credit losses: September 30,

    2024 – $1.8 and December 31, 2023 – $3.1; amortized cost: September 30, 2024 – $258.8 and

    December 31, 2023 – $787.6)

    250.1

     

    768.6

    Other invested assets

    1,595.5

     

    1,353.4

       Total investments

    28,414.2

     

    26,140.4

    Cash and cash equivalents – unrestricted

    1,164.7

     

    774.5

    Cash and cash equivalents held by variable interest entities

    80.6

     

    114.5

    Accrued investment income

    276.2

     

    251.5

    Present value of future profits

    165.7

     

    180.7

    Deferred acquisition costs

    2,100.9

     

    1,944.4

    Reinsurance receivables (net of allowance for credit losses: September 30, 2024 – $3.0 and

    December 31, 2023 – $3.0)

    3,906.7

     

    4,040.7

    Market risk benefit asset

    96.4

     

    75.4

    Income tax assets, net

    788.7

     

    936.2

    Assets held in separate accounts

    3.3

     

    3.1

    Other assets

    648.0

     

    641.1

    Total assets

    $           37,645.4

     

    $           35,102.5

    LIABILITIES AND SHAREHOLDERS’ EQUITY

         

    Liabilities:

         

    Liabilities for insurance products:

         

       Policyholder account balances

    $           17,240.5

     

    $           15,667.8

       Future policy benefits

    12,179.6

     

    11,928.2

       Market risk benefit liability

    1.0

     

    7.4

       Liability for life insurance policy claims

    59.9

     

    62.1

       Unearned and advanced premiums

    217.4

     

    218.9

       Liabilities related to separate accounts

    3.3

     

    3.1

    Other liabilities

    951.0

     

    848.8

    Investment borrowings

    2,188.9

     

    2,189.3

    Borrowings related to variable interest entities

    283.1

     

    820.8

    Notes payable – direct corporate obligations

    1,832.9

     

    1,140.5

       Total liabilities

    34,957.6

     

    32,886.9

    Commitments and Contingencies

         

    Shareholders’ equity:

         

    Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and

    outstanding: September 30, 2024 – 103,922,954; December 31, 2023 – 109,357,540)

    1.0

     

    1.1

    Additional paid-in capital

    1,715.9

     

    1,891.5

    Accumulated other comprehensive loss

    (1,116.0)

     

    (1,576.8)

    Retained earnings

    2,086.9

     

    1,899.8

       Total shareholders’ equity

    2,687.8

     

    2,215.6

       Total liabilities and shareholders’ equity

    $           37,645.4

     

    $           35,102.5

    CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

    CONSOLIDATED STATEMENT OF OPERATIONS

    (Dollars in millions, except per share data)

    (unaudited)

     
     

    Three months ended

     

    Nine months ended

     

    September 30,

     

    September 30,

     

    2024

     

    2023

     

    2024

     

    2023

    Revenues:

                 

    Insurance policy income

    $              645.0

     

    $             626.0

     

    $          1,914.9

     

    $           1,879.8

    Net investment income:

                 

       General account assets

    366.3

     

    324.8

     

    1,019.9

     

    925.1

       Policyholder and other special-purpose portfolios

    87.6

     

    (33.0)

     

    312.3

     

    109.4

    Investment gains (losses):

                 

       Realized investment losses

    (13.1)

     

    (21.6)

     

    (49.4)

     

    (58.0)

       Other investment gains (losses)

    14.3

     

    (7.7)

     

    41.2

     

    (21.2)

    Total investment gains (losses)

    1.2

     

    (29.3)

     

    (8.2)

     

    (79.2)

    Fee revenue and other income

    29.5

     

    59.0

     

    113.4

     

    141.2

    Total revenues

    1,129.6

     

    947.5

     

    3,352.3

     

    2,976.3

    Benefits and expenses:

                 

    Insurance policy benefits

    726.2

     

    399.1

     

    1,926.4

     

    1,574.7

    Liability for future policy benefits remeasurement (gain) loss

    7.3

     

    (0.1)

     

    (29.1)

     

    8.8

    Change in fair value of market risk benefits

    (16.1)

     

    (33.8)

     

    (30.0)

     

    (36.6)

    Interest expense

    68.0

     

    62.6

     

    192.4

     

    174.9

    Amortization of deferred acquisition costs and present value of future profits 

    64.0

     

    57.0

     

    185.9

     

    168.5

    Other operating costs and expenses

    269.2

     

    247.1

     

    798.9

     

    775.3

    Total benefits and expenses

    1,118.6

     

    731.9

     

    3,044.5

     

    2,665.6

    Income before income taxes

    11.0

     

    215.6

     

    307.8

     

    310.7

    Income tax expense

    1.7

     

    48.3

     

    69.9

     

    70.5

    Net income

    $                  9.3

     

    $             167.3

     

    $             237.9

     

    $             240.2

    Earnings per common share:

                 

    Basic:

                 

    Weighted average shares outstanding

    105,101,000

     

    112,689,000

     

    107,265,000

     

    113,836,000

    Net income

    $                  .09

     

    $               1.48

     

    $               2.22

     

    $               2.11

    Diluted:

                 

    Weighted average shares outstanding

    107,131,000

     

    114,462,000

     

    109,078,000

     

    115,613,000

    Net income

    $                  .09

     

    $               1.46

     

    $               2.18

     

    $               2.08

    NOTES

    (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 taxes; (ii) net change in market value of investments recognized in earnings, net of taxes; (iii) changes in fair value of embedded derivative liabilities and market risk benefits related to our fixed indexed annuities, net of taxes; (iv) fair value changes related to the agent deferred compensation plan, net of taxes; (v) gains or losses related to material reinsurance transactions, 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.  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 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.  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 premiums for life and health products, which includes 10% of single premium whole life deposits and 100% of all other premiums (excluding annuities).  Sales of third-party products are excluded.

    (5)

    The following summarizes the calculations of: (i) operating return on equity as adjusted to exclude accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) operating return, excluding significant items, as adjusted to exclude 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

         

    3Q24

     

    3Q23

    Net operating income

    $        425.2

     

    $     305.1

               

    Net operating income, excluding significant items

    $        380.0

     

    $     287.7

               

    Net income

    $        274.2

     

    $     278.2

               

    Average common equity, excluding accumulated other

         
     

    comprehensive income (loss) and net operating loss

         
     

    carryforwards (a non-GAAP financial measure)

    $     3,620.8

     

    $  3,582.8

               

    Average common shareholders’ equity

    $     2,325.3

     

    $  1,918.3

               

    Operating return on equity as adjusted to exclude accumulated

         
     

    other comprehensive income (loss) and net operating loss

         
     

    carryforwards (a non-GAAP financial measure)

    11.7 %

     

    8.5 %

               

    Operating return, excluding significant items, on equity as adjusted

         
     

    to exclude accumulated other comprehensive income (loss) and

         
     

    net operating loss carryforwards (a non-GAAP financial measure)

    10.5 %

     

    8.0 %

               

    Return on equity

    11.8 %

     

    14.5 %

    The following summarizes: (i) net operating income; (ii) significant items; (iii) net operating income, excluding significant items; and (iv) net income (loss) (dollars in millions):

     
                   

    Net operating

           
               

    Net operating

     

    income,

           
               

    income,

     

    excluding

         

    Net

               

    excluding

     

    significant

         

    income –

       

    Net operating

     

    Significant

     

    significant

     

    items – trailing

     

    Net

     

    trailing

       

    income

     

    items

     

    items (a)

     

    four quarters

     

    income (loss)

     

    four quarters

    4Q22

     

    $                  82.9

     

    $                  (0.5)

    (b)

    $                  82.4

     

    $                342.5

     

    $                  38.0

     

    $                630.6

    1Q23

     

    58.6

     

     

    58.6

     

    336.6

     

    (0.8)

     

    446.4

    2Q23

     

    62.3

     

     

    62.3

     

    281.2

     

    73.7

     

    286.8

    3Q23

     

    101.3

     

    (16.9)

    (c)

    84.4

     

    287.7

     

    167.3

     

    278.2

    4Q23

     

    133.9

     

    (26.4)

    (d)

    107.5

     

    312.8

     

    36.3

     

    276.5

    1Q24

     

    57.5

     

     

    57.5

     

    311.7

     

    112.3

     

    389.6

    2Q24

     

    114.6

     

     

    114.6

     

    364.0

     

    116.3

     

    432.2

    3Q24

     

    119.2

     

    (18.8)

    (e)

    100.4

     

    380.0

     

    9.3

     

    274.2

                             

    (a)  See note (6) for additional information.

                             

    (b)  Comprised of $.7 million of the net favorable impact arising from our comprehensive annual actuarial review, net of tax expense of $.2 million.

                             

    (c)  Comprised of $21.7 million of legal recoveries, net of expenses and increased legal accruals, net of tax expense of $4.8 million.

                             

    (d)  Comprised of $33.9 million of the net favorable impact arising from our comprehensive annual actuarial review, net of tax expense of $7.5 million.

                             

    (e)  Comprised of $27.3 million of the net favorable impact arising from our comprehensive annual actuarial review and $2.9 million of the unfavorable impact related to a fixed asset impairment, net of tax expense of $5.6 million.

    A reconciliation of pre-tax operating earnings (a non-GAAP financial measure) to net income is as follows (dollars in millions):

     
         

    Twelve months ended

         

    3Q24

     

    3Q23

    Pre-tax operating earnings (a non-GAAP financial measure)

    $           549.0

     

    $            394.4

    Income tax expense

    (123.8)

     

    (89.3)

    Net operating income

    425.2

     

    305.1

    Non-operating items:

         

    Net realized investment losses from sales, impairments and change in allowance for credit losses

    (36.2)

     

    (91.3)

    Net change in market value of investments recognized in earnings

    38.2

     

    (24.1)

    Changes in fair value of embedded derivative liabilities and market risk benefits

    (170.9)

     

    78.3

    Fair value changes related to the agent deferred compensation plan

    (10.3)

     

    7.0

    Other

    (15.9)

     

    (5.1)

    Non-operating loss before taxes

    (195.1)

     

    (35.2)

        Income tax benefit on non-operating loss

    44.1

     

    8.3

    Net non-operating loss

    (151.0)

     

    (26.9)

    Net income

    $           274.2

     

    $            278.2

               

    A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders’ equity, is as follows (dollars in millions):

     
         

    1Q22

     

    2Q22

     

    3Q22

     

    4Q22

    Consolidated capital, excluding accumulated other comprehensive

                 
     

    income (loss) and net operating loss carryforwards

                 
     

    (a non-GAAP financial measure)

    $    3,141.7

     

    $    3,329.0

     

    $    3,510.3

     

    $    3,557.1

    Net operating loss carryforwards

    238.2

     

    214.7

     

    190.9

     

    169.0

    Accumulated other comprehensive loss

    (561.5)

     

    (1,415.8)

     

    (1,837.8)

     

    (1,957.3)

    Common shareholders’ equity

    $    2,818.4

     

    $    2,127.9

     

    $    1,863.4

     

    $    1,768.8

                       
         

    1Q23

     

    2Q23

     

    3Q23

     

    4Q23

    Consolidated capital, excluding accumulated other comprehensive

                 
     

    income (loss) and net operating loss carryforwards

                 
     

    (a non-GAAP financial measure)

    $    3,543.8

     

    $    3,603.0

     

    $    3,744.2

     

    $    3,712.8

    Net operating loss carryforwards

    152.4

     

    126.3

     

    102.6

     

    79.6

    Accumulated other comprehensive loss

    (1,664.4)

     

    (1,733.5)

     

    (1,956.7)

     

    (1,576.8)

    Common shareholders’ equity

    $    2,031.8

     

    $    1,995.8

     

    $    1,890.1

     

    $    2,215.6

                       
         

    1Q24

     

    2Q24

     

    3Q24

       

    Consolidated capital, excluding accumulated other comprehensive

                 
     

    income (loss) and net operating loss carryforwards

                 
     

    (a non-GAAP financial measure)

    $    3,536.8

     

    $    3,596.7

     

    $    3,529.9

       

    Net operating loss carryforwards

    311.2

     

    296.5

     

    273.9

       

    Accumulated other comprehensive loss

    (1,480.3)

     

    (1,464.3)

     

    (1,116.0)

       

    Common shareholders’ equity

    $    2,367.7

     

    $    2,428.9

     

    $    2,687.8

       
                       

    A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to common shareholders’ equity, is as follows (dollars in millions):

     
         

    Trailing four quarter average

         

    3Q24

     

    3Q23

    Consolidated capital, excluding accumulated other comprehensive

         
     

    income (loss) and net operating loss carryforwards

         
     

    (a non-GAAP financial measure)

    $        3,620.8

     

    $        3,582.8

    Net operating loss carryforwards

    218.9

     

    148.6

    Accumulated other comprehensive loss

    (1,514.4)

     

    (1,813.1)

    Common shareholders’ equity

    $        2,325.3

     

    $        1,918.3

       

    (6)

    The tables below summarize the financial impact of significant items on our net operating income.  Management believes that identifying the impact of these items enhances the understanding of our operating results (dollars in millions, except per share data).

       

    Three months ended

       

    September 30, 2024

       

    Actual

    results

     

    Significant

    items

     

    Excluding

    significant

    items

    Insurance product margin

               

    Annuity margin

     

    $         91.1

     

    $        (36.2)

    (a)

    $          54.9

    Health margin

     

    127.8

     

    8.2

    (a)

    136.0

    Life margin

     

    63.3

     

    0.7

    (a)

    64.0

    Total insurance product margin

     

    282.2

     

    (27.3)

     

    254.9

    Allocated expenses

     

    (153.0)

     

     

    (153.0)

    Income from insurance products

     

    129.2

     

    (27.3)

     

    101.9

    Fee income

     

    (2.7)

     

     

    (2.7)

    Investment income not allocated to product lines

     

    45.5

     

     

    45.5

    Expenses not allocated to product lines

     

    (18.5)

     

    2.9

    (b)

    (15.6)

    Operating earnings before taxes

     

    153.5

     

    (24.4)

     

    129.1

    Income tax (expense) benefit on operating income

     

    (34.3)

     

    5.6

     

    (28.7)

    Net operating income

     

    $        119.2

     

    $        (18.8)

     

    $        100.4

                 

    Net operating income per diluted share

     

    $         1.11

     

    $        (0.17)

     

    $          0.94

                     

    (a)

    Comprised of $27.3 million of the net favorable impact arising from our comprehensive annual actuarial review.

    (b)

    Comprised of $2.9 million of the unfavorable impact related to a fixed asset impairment.

       

    Three months ended

       

    December 31, 2023

       

    Actual

    results

     

    Significant

    items

     

    Excluding

    significant

    items

    Insurance product margin

               

    Annuity margin

     

    $         63.6

     

    $        (12.9)

    (a)

    $          50.7

    Health margin

     

    146.4

     

    (22.3)

    (a)

    124.1

    Life margin

     

    64.6

     

    1.3

    (a)

    65.9

    Total insurance product margin

     

    274.6

     

    (33.9)

     

    240.7

    Allocated expenses

     

    (138.8)

     

     

    (138.8)

    Income from insurance products

     

    135.8

     

    (33.9)

     

    101.9

    Fee income

     

    17.8

     

     

    17.8

    Investment income not allocated to product lines

     

    38.3

     

     

    38.3

    Expenses not allocated to product lines

     

    (19.8)

     

     

    (19.8)

    Operating earnings before taxes

     

    172.1

     

    (33.9)

     

    138.2

    Income tax (expense) benefit on operating income

     

    (38.2)

     

    7.5

     

    (30.7)

    Net operating income

     

    $        133.9

     

    $        (26.4)

     

    $        107.5

                 

    Net operating income per diluted share

     

    $         1.18

     

    $        (0.23)

     

    $          0.95

                     

    (a)

    Comprised of $33.9 million of the net favorable impact arising from our comprehensive annual actuarial review.

       

    Three months ended

       

    September 30, 2023

       

    Actual

    results

     

    Significant

    items

     

    Excluding

    significant

    items

    Insurance product margin

               

    Annuity margin

     

    $         57.0

     

    $             —

     

    $          57.0

    Health margin

     

    123.2

     

     

    123.2

    Life margin

     

    59.8

     

     

    59.8

    Total insurance product margin

     

    240.0

     

     

    240.0

    Allocated expenses

     

    (153.2)

     

     

    (153.2)

    Income from insurance products

     

    86.8

     

     

    86.8

    Fee income

     

    (2.9)

     

     

    (2.9)

    Investment income not allocated to product lines

     

    38.4

     

     

    38.4

    Expenses not allocated to product lines

     

    7.5

     

    (21.7)

    (a)

    (14.2)

    Operating earnings before taxes

     

    129.8

     

    (21.7)

     

    108.1

    Income tax (expense) benefit on operating income

     

    (28.5)

     

    4.8

     

    (23.7)

    Net operating income

     

    $        101.3

     

    $        (16.9)

     

    $          84.4

                 

    Net operating income per diluted share

     

    $         0.88

     

    $        (0.14)

     

    $          0.74

                     

    (a)

    Comprised of $21.7 million of legal recoveries, net of expenses and increased legal accruals.

       

    Three months ended

       

    December 31, 2022

       

    Actual

    results

     

    Significant

    items

     

    Excluding

    significant

    items

    Insurance product margin

               

    Annuity margin

     

    $         50.8

     

    $            3.2

    (a)

    $          54.0

    Health margin

     

    140.4

     

    (18.3)

    (a)

    122.1

    Life margin

     

    43.3

     

    14.4

    (a)

    57.7

    Total insurance product margin

     

    234.5

     

    (0.7)

     

    233.8

    Allocated expenses

     

    (149.1)

     

     

    (149.1)

    Income from insurance products

     

    85.4

     

    (0.7)

     

    84.7

    Fee income

     

    9.2

     

     

    9.2

    Investment income not allocated to product lines

     

    25.2

     

     

    25.2

    Expenses not allocated to product lines

     

    (12.8)

     

     

    (12.8)

    Operating earnings before taxes

     

    107.0

     

    (0.7)

     

    106.3

    Income tax (expense) benefit on operating income

     

    (24.1)

     

    0.2

     

    (23.9)

    Net operating income

     

    $         82.9

     

    $          (0.5)

     

    $          82.4

                 

    Net operating income per diluted share

     

    $         0.71

     

    $             —

     

    $          0.71

                     

    (a)

    Comprised of $0.7 million of the net favorable impact arising from our comprehensive annual actuarial review.

    SOURCE CNO Financial Group

    Originally Posted at PR Newswire on October 31, 2024 by CNO Financial Group, Inc..

    Categories: Industry Articles
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